Monthly Archive for February, 2011

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FEBRUARY 2011 BAD FAITH CASES
BAD FAITH ALLEGATION DISMISSED WITH LEAVE TO RE-FILE IN ANOTHER STATE UNDER FORUM NON CONVENIENS DOCTRINE (Philadelphia Commerce Court)

Published on February 4, 2011 in Procedural Issues. Closed

In 821,393 LLC v. Liberty Mutual Insurance Company, the three joint insureds purchased a new aircraft in 2009.  They then contracted with the insurer for an “All-Clear Aircraft Policy,” under which the insurer would cover all three insureds against losses involving the plane.  The policy covered against “risk of physical loss of or accidental damage” to the aircraft while it was in fight and not in flight.

Less than two months after the insureds purchased the aircraft, a winter storm struck the airport where the aircraft was located, and the hangar where the insureds’ plane was stored collapsed.  Their aircraft suffered significant damage as a result of the incident.  The insureds submitted a claim to the insurer for $50 million under the “physical loss” and “accidental damage” provisions of the policy.  They claimed that because local authorities restricted access to the hanger housing the plane, the aircraft was considered “lost” under the policy and they were therefore entitled to the plane’s full cost.

The insurer denied the claim for the full purchase price, claiming that the insureds did not allow it to inspect the aircraft and perform a thorough assessment of damages.  It also justified its denial by asserting that there was no dispute as to the location of the aircraft and the restriction of access to the plane was only temporary.  The insureds responded by filing a Complaint against the insurer for breach of contract and bad faith, alleging that the insurer breached the policy for failing to pay the full amount for the “physical loss” of the aircraft and denying their claims for “accidental damage.”

The insurer moved for dismissal of the action and leave to re-file in Virginia under the forum non conveniens doctrine because the vast majority of the events leading to the suit occurred in Virginia (the airport with the hangar was in Virginia).  The insureds responded by claiming that the insurer did not meet the high burden required to disturb their choice of forum.

The doctrine of forum non conveniens, 42 Pa. Cons. Stat. § 5322(e), states that “when a tribunal finds that in the interest of substantial justice the matter should be heard in another forum, the tribunal may stay or dismiss the matter in whole or in part on any conditions that may be just.”  The court noted that (1) it should not disturb a plaintiff’s choice of forum except for “weighty reasons,” and (2) it cannot dismiss an action under this doctrine unless “an appropriate alternative forum is available.”

According to the court, this case satisfied the standards mentioned above.  It determined that an overwhelming amount of the events occurred in Virginia, and the events that did not occur in Virginia occurred in states other than Pennsylvania.  Also, the choice of law analysis led to a conclusion that Virginia law should apply.  The insureds were Virginia residents who kept a plane in Virginia and suffered damage in Virginia.  The court therefore dismissed the case with leave to re-file in Virginia.

Date of Decision:  January 5, 2011

821,393 LLC v. Liberty Mut. Ins. Co., May Term 2010, No. 3573, Commerce Case Management Program, Common of Pleas Court of Philadelphia County, Pennsylvania, Civil Trial Division, 2011 Phila. Ct. Com. Pl. LEXIS 7 (Jan. 5, 2011) (New, J.)

FEBRUARY 2011 BAD FAITH CASES
SUMMARY JUDGMENT GRANTED TO INSURER ON BREACH OF CONTRACT AND BAD FAITH CLAIMS AFFIRMED WHEN INSURER PROPERLY INTERPRETS A COVERAGE EXCLUSION (Third Circuit)

Published on February 3, 2011 in Claims Handling Procedures. Closed

In Colella v. State Farm Fire & Casualty Company, there was a leak in the insureds’ basement of their home, leading to water damage.  The insurer had an “all risk” homeowner’s insurance policy with the insureds, but it contained an exclusion for damage caused by water below the surface of the ground, regardless of the cause of the subsurface water.

Shortly after the leak caused the damage, the insureds reported the loss to the insurer, which proceeded to investigate the claim.  The undisputed cause of the leak was a “drain line leaking from the horizontal section below the concrete slab.”  The insurer eventually denied the insurance claim, determining that the below-ground exception applied.

The insureds responded to the denial of their claim by filing suit, including claims for breach of contract and bad faith.  Initially, an estimate of the cost of repairs was slightly over $25,000, but the insureds in their Complaint requested damages in excess of $50,000, plus punitive damages and costs.  The insurer moved for summary judgment, and the district court granted its motion on both the breach of contract and bad faith claims.  The insureds then appealed to the Third Circuit.

The court first affirmed the district court’s breach of contract ruling, noting that the words “regardless of the cause” in the below-ground exception were unambiguous, and it therefore was required to give effect to that language.  Concerning the bad faith claim, the insureds only offered a statement made by one of the insurer’s managers, who stated in a deposition that he did not seek a legal opinion before denying coverage.  The court quickly affirmed the district court’s ruling that the insureds had not actually identified any evidence which could show bad faith on the part of the insurer if proven to be true.  It also ruled that the insurer had a reasonable basis for denying the insureds’ claim due to the explicit language of the below-ground exception, so it also affirmed the district court’s order with respect to the bad faith claim.

Date of Decision:  January 14, 2011

Colella v. State Farm Fire & Cas. Co., No. 10-1976, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 1306, (Jan. 14, 2011) (Submitted Under Third Circuit LAR 34.1(a)) (Barry, J.)

FEBRUARY 2011 BAD FAITH CASES
BAD FAITH CLAIM SEVERED AND DISCOVERY STAYED UNTIL UIM CLAIM ARISING OUT OF THE SAME SUIT HAS BEEN DECIDED BY A JURY (Lebanon County Common Pleas)

Published on February 2, 2011 in Procedural Issues. Closed

In Dunkelberger v. Erie Insurance Company, the insureds were involved in a motor vehicle accident with another car, the driver of which was an underinsured motorist (“UIM”).  The insurer covered the insureds in a policy that allegedly provided UIM benefits of $300,000.  Both insureds claimed that they suffered serious and permanent neck, back, and leg injuries as a result of the accident, which they alleged was caused by the other driver’s negligence.  The insurer failed to pay the $300,000 under the policy, and the insureds filed suit.

In its answer to the insureds’ Complaint, the insurer admitted that it had a policy including $300,000 in UIM coverage, but it claimed that it did not have the information necessary to evaluate the extent of the insureds’ injuries or the other driver’s negligence.  In addition to a breach of contract claim concerning the UIM coverage, the Complaint contained a bad faith claim, and the insureds requested “all records, documents, writings, or other materials…used in the preparation and drafting of the [insureds’] policy…” as part of their bad faith discovery.  The insurer promptly filed a Motion for Emergency Protective Order and Stay, seeking protection against the bad faith discovery until the resolution of the underlying UIM claim.

The main issue in this opinion was whether and for how long bad faith discovery should be delayed while the underlying underinsurance benefits contract claim was litigated.  The court first recognized that while an inquiry in a UIM claim focuses on issues external to the insurer, a bad faith claim focuses on internal company issues.  Bad faith insurance litigation often involves a thorough and costly analysis of the insurer’s practices, and it exposes many procedures to the public that the insurer may wish to keep confidential.

Because of the implications of discovering insurers’ internal policies, the court felt that the “door to bad faith discovery should not be immediately opened to every Plaintiff who pays the $100 filing fee and includes a bad faith count in his/her Complaint.”  It required some threshold that an insured must overcome to open the door to bad faith discovery, and the insured in this case had not opened that door at this stage of the trial.  It decided that the best option here would be to sever the bad faith claim from the underlying UIM cause of action, allowing the parties to first fully litigate the UIM claim before handling the bad faith claim. The court therefore determined that the insureds must wait until the uninsured motorist claim has been fully litigated to a verdict before a jury to begin discovery for their bad faith claim.

Date of Decision:  January 24, 2011

Dunkelberger v. Erie Ins. Co., 21 Pa. D. & C.5th 52, No. 2010-01956, Court of Common Pleas of Lebanon County, (Jan. 24, 2011) (Charles, J.)