Monthly Archive for June, 2010

JUNE 2010 BAD FAITH CASES
BAD FAITH CLAIM SURVIVES MOTION TO DISMISS WHEN COMPLAINT SUFFICIENTLY ALLEGES THE EXISTENCE AND BREACH OF AN INSURANCE CONTRACT (Middle District)

In L.R. Costanzo Company, Inc. v. Ohio Casualty Insurance Company, the insured was a construction company that served as the general contractor for a building erected for the Pocono Mountain Regional Police Commission (“PMRPC”).  The building suffered water leakage problems, and the PMRPC filed suit against the insured, alleging claims of negligence, breach of contract, and breach of the duty of good faith on the part of the insured.

The insured claimed that the insurer provided it with a general liability insurance policy, and that when it requested that the insurer retain counsel and appear in court to defend the PMRPC’s lawsuit against it, the insurer refused to do so.  The insured then filed its own suit against the insurer, alleging bad faith and breach of contract in failing to conduct a reasonable investigation of the claims at issue and unreasonably failing to defend the insured in the lawsuit against it.

The insurer had claimed that no insurance contract ever existed between the parties.  However, the court held that the insured had sufficiently alleged that a contract of insurance existed between the parties, as evidence indicated that the insurer was listed as the “serving office” on the insurance policy, and the insurer’s logo headed each page of the policy.  The court therefore denied the insurer’s Motion to Dismiss with respect to both the breach of contract and bad faith claims.

Date of Decision:  June 11, 2010

L.R. Costanzo Co. v. Ohio Cas. Ins. Co., No. 3:10cv774, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 57697 (M.D. Pa. June 11, 2010) (Munley, J.)

JUNE 2010 BAD FAITH CASES
BAD FAITH SUCESSULLY PLED WHEN INSURER WAITS 32 MONTHS TO PAY INSURANCE BENEFITS UNDER A POLICY (Middle District)

In Nazario v. Nationwide Mutual Insurance Company, one insured was killed in an automobile accident in which he was not at fault and the driver at fault was uninsured.  The deceased insured and his wife held a policy of insurance by the insurer that included an uninsured motorist benefit of $25,000 per each person, and $50,000 for each occurrence.  The insurer failed to pay the surviving insured her $25,000 uninsured motorist benefit for 32 months after the accident.  The insured filed a Complaint alleging that the insurer acted in bad faith by delaying the payment for 32 months and breached the contract in the process.  In asserting the bad faith claim, the insurer asserted that the delay in awarding the $25,000 was attributable to mere negligence, and therefore the company did not exhibit bad faith.

While it dismissed the breach of contract claim because the Complaint did not state a specific theory of a breach of contract, the court agreed that the insured had pled a bad faith cause of action, and it denied the insurer’s Motion for Summary Judgment with respect to the bad faith claim.  The court stated that “it would be a reasonable inference for a jury to draw that a 32 month delay in paying the insurance benefit to the plaintiff to which the plaintiff was entitled is an unreasonable delay and is the result of bad faith . . . A 32 month delay by an insurer in paying a benefit under the insurance policy supports a finding made by a fact finder using a clear and convincing filter that the insurer failed to process the claim in good faith.”

Date of Decision:  United States Magistrate Judge Smyser’s May 17, 2010 Report and Recommendation was adopted by the United States District Court on June 7, 2010

Nazario v. Nationwide Mut. Ins. Co., Civil No. 1:09-CV-1187, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 55467 (M.D. Pa. May 17, 2010) (Smyser. U.S.M.J.),

adopted in Nazario v. Nationwide Mut. Ins. Co., Civil Action No. 1:09-CV-01187, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 55469 (M.D. Pa. June 7, 2010) (Conner, J.)

JUNE 2010 BAD FAITH CASES
MAGISTRATE RECOMMENDS SUMMARY JUDGMENT FOR INSURER BASED ON BAD FAITH AND FALSEHOODS OF INSURED IN OBTAINING THE POLICY (Western District)

In Baer v. Union Security Life Insurance Company, the insured applied for credit life insurance in conjunction with a loan.  When applying for insurance, he answered that he had never been medically advised that he had, or had been treated for, heart disease.  The insured passed away approximately two years after applying for the insurance, and the administratrix of his estate made a request for insurance proceeds.  When the insurer obtained medical records, it learned that the insured had been treated for heart disease on several occasions before the insured filled out the insurance application.

The insurer denied the request for insurance proceeds because the insurer incorrectly answered the question on the application, and the administratrix proceeded to file a Complaint that included Counts for breach of contract, negligence, fraud and deceit, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL).

The Magistrate Judge recommended that the insurer’s Motion for Summary Judgment be granted with respect to all counts, ruling that the insured acted in bad faith and deceived the insurer when he wrote that he had not been treated for heart disease on his insurance application.  The Magistrate stated that all evidence demonstrated that the insured had heart disease and was being treated for it, and that his condition did not deteriorate during the relevant time period did not change these facts.  Therefore, because the insurer demonstrated that the insured knowingly made a false statement that was material to the policy on the application, the policy was void, and the insurer had no responsibility to pay the estate of the insured under the policy.

Date of Decision:  September 16, 2008

Baer v. Union Sec. Life Ins. Co., Civil Action No. 07-473, United States District Court for the Western District of Pennsylvania, 2008 U.S. Dist. LEXIS 115420 (Sept.16, 2008) (Mitchell, U.S.M.J.).

JUNE 2010 BAD FAITH CASES
REINSURER’S BAD FAITH CLAIM REQUIRES DIRECT EVIDENCE THAT INSURER MOTIVATED PRIMARILY BY REINSURANCE CONSIDERATIONS (Third Circuit)

In Travers Casualty and Surety Company v. Insurance Company of North America, Travelers Casualty and Surety Co. (“Travelers”) had settled a coverage dispute with Acme Corporation for $137 million, and it allocated that money among three tiers of insurance coverage.  The highest tier, entitled “excess policies”, included products and non-products claims that were in excess of Acme’s insurance coverage.  This tier of insurance was the one reinsured by Insurance Company of North America (“INA”).  INA, as a reinsurer, insured the risk of Travelers, the original insurer, by assuming a portion of Travelers’ potential financial exposure in exchange for premiums.

Under the “follow-the-fortunes doctrine,” the reinsurer has almost no ability to challenge the coverage decisions that lead to its liability to the insurer.  It insulates a reinsured’s liability determination from challenge by a reinsurer unless they are in bad faith or the payments are clearly beyond the scope of the original policy.

When Travelers settled its coverage dispute with Acme, it insisted that a term be written into the contract stating that it could allocate any or all of the settlement amount to any policy.  It decided to allocate $15 million to the “excess policies” tier.  Travelers billed INA over $13.7 million based on its allocation, and INA refused to pay.  Travelers agreed that five decisions it made during the settlement negotiations likely increased the amount of its coverage it was able to allocate to INA, but INA claimed that Travelers acted in bad faith making these decisions and made them for the express purpose of increasing its reinsurance recovery.

The District Court found that Travelers did not act in bad faith when allocating money.  The Third Circuit affirmed this ruling, holding that “the insurer’s negative duty not to make allocation decisions primarily in order to increase reinsurance recovery does not translate into a positive duty on the part of the insurer to minimize its reinsurance recovery.”  For bad faith, the reinsurer must “provide direct evidence that the insurer was motivated primarily by reinsurance considerations, or show that the after-the-fact rationales offered by the insurer are not credible,” and INA did neither in this case.  It asserted that a memo from a vice-president of Travelers that outlined the insurance implications of different coverage scenarios exhibited bad faith, but the courts disagreed, holding that the memo’s purpose was to “provide . . . a general estimate of Travelers’ potential net exposure on the breast implant claims.”

Date of Decision:  June 9, 2010

Travelers Cas. & Sur. Co. v. Ins. Co. of N. Am., Nos. 06-4100, 06-4101, 07-4690 and 08-1032, United States Court of Appeals for the Third Circuit, 2010 U.S. App. LEXIS 11689, 609 F.3d 143 (3d Cir. June 9, 2010) (Ambro, J.)

JUNE 2010 BAD FAITH CASES
INSUREDS REQUIRED TO AMEND COMPLAINT WHEN INITIAL COMPLAINT DOES NOT SUFFICIENTLY PLEAD BAD FAITH (Philadelphia Federal)

In DeLalla v. Hanover Insurance, the insureds were allegedly Defendants in another litigation which was settled.  They filed a complaint that the insurer and the law firm representing the insurer, who agreed to settle the prior case, breached their obligations to the insureds by entering into the settlement agreement on their behalf.  They alleged bad faith and breach of contract against the insurer.

The insurer filed a Motion to Dismiss, correctly alleging that the insureds described no motive and did not explain any plausible reason why the insurer and the law firm representing the insurer would want to conspire together to harm the insureds.  However, the Court denied the Motion to Dismiss, allowing the insureds to amend their complaint to sufficiently plead facts that would result in bad faith and breach of contract causes of action if true.

Date of Decision:  May 26, 2010

Delalla v. Hanover Ins., Civil Action No. 10-858, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 52653 (May 26, 2010) (Baylson, J.).

JUNE 2010 BAD FAITH CASES
NO BAD FAITH WHEN INSURER FOLLOWS A VALID INSURANCE DEPARTMENT REGULATION WHEN MAKING ITS DECSIONS (Pennsylvania Superior Court)

In Jones v. Nationwide Property and Casualty Insurance Company, the insured was involved in an automobile accident.  She held collision insurance with the insurer with a $500.00 deductible.  The insurer paid the insured the amount of her loss minus the $500.00 deductible.  The insurer then pursued a subrogation action against the other driver, and it received an amount greater than $500.00 but less than the amount it had already paid to the insured.

Pursuant to an Insurance Department regulation, 31 Pa. Code § 146.8(c), the insurer did not reimburse the insured for the full amount of her deductible, but rather a pro rata share.  The insured filed a class action complaint, alleging that the insurer’s policy of reimbursing only a pro rata share of the deductible constituted a breach of contract, bad faith, conversion, and unjust enrichment.

The court used a case from the Eastern District of Pennsylvania to determine that Insurance Department Regulation 31 Pa. Code § 146.8(c), which allows the insurer to pay a pro rata share, was indeed legal.  Harnick v. State Farm Mut. Ins. Co., (E.D. Pa. Mar. 6, 2009).  In that case, which also was tried under Pennsylvania substantive law, the court ruled that 31 Pa. Code § 146.8(c) fit directly within the scope of authority delegated to the department by the General Assembly.  Because the court in this case adopted reasoning in Harnick, there was no possible bad faith because the insureds had failed to allege that the insurer committed any impermissible behavior under Pennsylvania law.

Date of Decision:  May 24, 2010

Jones v. Nationwide Prop. & Cas. Ins. Co., No. 3051 EDA 2008, Superior Court of Pennsylvania, 2010 PA Super 90, 995 A.2d 1233 (Pa. Super. May 21, 2010) (Olson, J.).

 

JUNE 2010 BAD FAITH CASES
NO INDEPENDENT CAUSE OF ACTION FOR BAD FAITH UNDER PENNSYLVANIA’S UNFAIR INSURANCE PRACTICES ACT OR AT COMMON LAW (Philadelphia Federal)

In James F. Campenella Construction Company, Inc. v. Great American Insurance Company of New York, the insureds consisted of a corporation that contracted with a limited partnership to renovate, repair, and restore the partnership’s property.  Together, the insureds entered into an insurance policy with the insurer for $42 million, covering loss or damage from all risks of direct physical loss to the property during the renovation period.

The property suffered water damage and other damage due to water loss, and the parties disagreed as to the amount of loss the insureds suffered.  There was an appraisal clause in the policy that called for each party to select an impartial appraiser, and the insurer allegedly never selected its appraiser.  The insureds filed a complaint that alleged contract breach and bad faith counts.  The bad faith allegations were included in a single count under Pennsylvania’s Bad Faith statute, and a claim under the Unfair Insurance Practice Act (“UIPA”), but the insured plaintiffs appear to have conflated or interchanged the statutory bad faith claim, 42 Pa.C.S. § 8371, with a statutory claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 Pa.C.S. § 201-1, et seq. for bad faith.  It is not uncommon for consumer insureds to bring UTPCPL claims along with 8371 bad faith claims as separate causes of action, but this cannot be done by a commercial insured, as set forth immediately below, and apparently the UTPCPL claim herein was brought as some type of bad faith claim.

With respect to the UTPCPL claim, both the insureds and the insurer eventually agreed that “insurance purchased for business purposes does not give rise to a cause of action” under the statute which is directed to purchases of goods and services for personal, household or family use, and they therefore agreed that the plaintiffs failed to state a cause of action under the UTPCPL.  Concerning the UIPA claim, it has long been held that there is no private right of action under this statute.  Great W. Life Assurance Co. v. Levithan, 834 F. Supp. 858, 863 (E.D. Pa. 1993).  The court also observed that there is no common law tort claim for insurance bad faith.  The court did not have to address the issue of to what extent UIPA violations could be considered as relevant to establishing a viable UTPCPL claim.

Date of Decision:  May 21, 2010

James F. Campenella Constr. Co., Inc. v. Great Am. Ins. Co., Civil Action No. 10-0681, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 51042 (E.D. Pa. May 21, 2010) (Baylson, J.)

JUNE 2010 BAD FAITH CASES
BAD FAITH ALLEGATION SURVIVES MOTION TO DISMISS WHEN INSUREDS ALLEGE DAMAGES FROM INSURER’S FAILURE TO PERFORM ITS DUTY UNDER A POLICY (Western District)

In Fitzpatrick v. State Farm Insurance Companies, one of the insureds was in two automobile accidents in which he was seriously injured.  The insureds maintained a motor vehicle insurance policy that provided for medical benefits as well as underinsured motorist benefits of $1 million per person, stacked, covering two vehicles.
After making a demand of $1.75 million, the insureds settled their claims for $915,000, but they alleged that the insurer failed to fairly settle the claims.  They clamed that the insurer failed to act in good faith by prolonging the process and making offers substantially less than the full value of their claims.
The insurer’s Motion to Dismiss did not specifically call for dismissing the bad faith claim, but it did include the breach of contract claim, which if dismissed would also eliminate the bad faith claim because there is no independent action for bad faith with insurance contracts.  The court determined that the insureds’ bad faith claim was based on the insurer’s contractual duty to act in good faith when handling their claim.  The complaint alleged that the insurer did not follow duty, and it also alleged damages resulting from this breach of duty.  This was a sufficient pleading of a breach of contract.
The court also cited another case in which the court determined that “there is no reason to limit damages to the amount of the verdict where the insured can show that the insurer’s bad faith conduct caused it additional damages.”  Birth Center v. St. Paul Companies Inc., 567 Pa. 386, 400 (2001).  Because it is possible for a court to award damages in excess of the settlement amount and the insureds sufficiently pled a breach of duty to act in good faith, the breach of contract count (and the accompanying bad faith count) survived the Motion to Dismiss.
Date of Decision:  May 24, 2010
 

Fitzpatrick v. State Farm Ins. Cos., Civil Action No. 09-1498, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 51348, (W.D. Pa. May 24, 2010) (Hay, U.S.M.J.)

JUNE 2010 BAD FAITH CASES
BAD FAITH IS IMPOSSIBLE WHEN A PARTY HAS NO CONTRACTUAL RELATIONSHIP WITH THE INSURED OR IS NOT AN INSURER IN THE FIRST PLACE (Western District)

In Allegrino v. Conway E & S, Inc., the Western District ruled on motions from a case previously discussed on the blog.  This ruling concerned Motions to Dismiss filed by three defendants:  the City of Duquesne, Twin Rivers Council of Governments, and W & J Contractors, Inc.

Concerning these three defendants, the court granted their Motions to Dismiss the insured’s bad faith and breach of contract claims against them.  First, the City of Duquesne and the Twin Rivers Council of Governments are governmental bodies and not insurers.  A claim for bad faith under 42 Pa. C.S.A. §8371 can only be brought against an insurer.

Also, all three defendants never had a contractual relationship with the insured.  The insured never contended in the original or amended complaint that any of these three defendants were insurers on the policies or entered into contracts with him.  Therefore, the claims for breach of contract and bad faith against the three defendants were dismissed, with prejudice.

Date of Decision:  May 18, 2010

Allegrino v. Conway E & S, Inc., Civil Action No. 09-1507, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 48781, (W.D. Pa. May 18, 2010) (Fischer, J.).

JUNE 2010 BAD FAITH CASES
BAD FAITH IS A NECESSARY CONDITION FOR FRAUD ON THE PART OF THE INSURED IN PENNSYLVANIA (Western District)

In Clark v. Allstate Insurance Company, the plaintiff was the holder of a homeowner’s insurance policy on a home in Beaver County, Pennsylvania.  Plaintiff’s grandfather had purchased the home and purchased the insurance for his grandson.  The policy was renewed every year through October of 2009, and in February of 2009 the house sustained water damage when the pipes froze.

The plaintiff brought suit against the insurer, alleging breach of contract and bad faith when the insurer failed to provide insurance for the water damage.  Defendant alleged fraud in its answer and a counterclaim, alleging that the plaintiff’s grandfather misrepresented himself when purchasing the insurance.  The May 7 opinion addressed only the defendant’s counterclaim.

The defendant’s counterclaim requested rescission and restitution, and the court noted in its opinion that both allegations are actually remedies as opposed to causes of action.  The court dismissed the counterclaims, but it also allowed the defendant to amend its complaint to simply assert a claim for fraud.  The court said that an insureD could be liable for fraud if (1) the representation was false, (2) the insured knew it to be false or acted in bad faith, and (3) the representation was material to the risk being insured.

Date of Decision: May 7, 2010

Clark v. Allstate Ins. Co, Civil Action No. 10-294, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 45933, (W.D. Pa. May 7, 2010) (Lancaster, J.).