Monthly Archive for August, 2011

AUGUST 2011 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED BECAUSE IT FAILED TO ALLEGE BAD FAITH CONDUCT AND THERE WAS NOT COVERAGE (WESTERN DISTRICT)

In Pfister v. State Farm Fire & Casualty Company, the court was faced with a bad faith claim by the insured and a motion to dismiss filed by the insurer.  The insured asserted that the carrier 1) failed “to conduct a complete and thorough investigation of the claim”; 2) failed to “objectively and fairly value [the insured’s] claim”; 3) relied upon an estimate compiled by its own consultant while ignoring an estimate provided by the insured; 4) “failed to negotiate the claim in good faith”; 5) failed to “respond to [the insured’s] additional written request to discuss resolution of the claim without litigation”; and 6) “failed to provide a reasonable factual explanation of the basis for [the insurer’s] refusal” to pay the full amount sought by the insured.

The court held that the insured’s first claim, regarding the carrier’s failure to investigate mold damage, was improper because the homeowner’s policy in question did not cover mold damage.  Moreover, the court ruled that the insured failed to adequately allege “who, what, where, when, and how the alleged bad faith conduct occurred.”

The insured also claimed that the carrier acted in bad faith by failing to respond to written correspondence requesting arbitration.  The court dismissed this allegation, ruling that, while the homeowner’s policy did allow a determination of loss by appraisal, this specific situation involved a dispute over the “scope of coverage” not “what constitutes a fair price,” making an appraisal unnecessary. 

Lastly, the court rejected the insured’s contention that the carrier failed to explain why it was denying coverage.  Specifically, the court ruled that the insured did not outline its efforts to seek an explanation from the carrier.

In conclusion, the court granted the insurer’s motion to dismiss and denied the insured relief on the basis of its bad faith allegations.

Date of Decision: August 18, 2011

PFISTER v. STATE FARM FIRE & CASUALTY COMPANY, 11cv0799, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist LEXIS 92556 (W.D. Pa. Aug 18, 2011) (Schwab, J.)

AUGUST 2011 BAD FAITH CASESSTATE LAW BAD FAITH CLAIM PREEMPTED BY FEDERAL LAW UNDER ERISA (Western District)

In Harding v. Provident Life and Accident Insurance Company and Unum Group, the court was faced with the issue of whether a long-term disability plan qualified as an ERISA plan under federal law and therefore preempted the employee’s breach of contract, bad faith and unfair trade practices state law claims.  The insurer filed a motion to dismiss, which the court treated as a motion for summary judgment. 

The employee purchased an individually owned long-term insurance policy from the insurer, under which her employer sent monies to the insurer after deducting them from her paychecks.  Employees were a granted a small discount on the premiums as a result of this payment arrangement.  Although the employer never formally made the policy an ERISA plan, it formally complied with the federal ERISA regulations.  After the employee incurred a disability in 2005, her coverage ran out in 2010.  The employee made a claim for residual benefits under her long-term disability plan, but was denied by the insurer.  The employee never appealed and failed to exhaust her administrative remedies.

The employee argued that, because her employer never intended the plan to qualify as an ERISA plan and the company never filed the proper paperwork, the court should not interpret the plan under ERISA.  However, the court rejected this logic because the plan established a fund for a defined risk group.  Moreover, the employee contributed to the fund, which was maintained by her employer and was originally established for the purpose of providing benefits to its participants.  The court concluded that these elements established the employee’s long-term disability plan as an ERISA plan.

The employee also claimed that, despite the court’s finding, the policy should be exempt from ERISA under the Department of Labor’s “Safe Harbor” provisions.  However, the court concluded that she did not meet the first of four elements required of a policy to fall under the DOL’s “Safe Harbor” provisions and therefore did not qualify for exemption from ERISA.

Having concluded that the carrier’s policy was governed by ERISA, it found that the breach of contract, bad faith, and unfair trade practices claims were preempted by federal law.  The Third Circuit has definitively held that state law bad faith claims will be preempted by ERISA.

The court also noted that the employee’s failure to exhaust her administrative remedies allowed the insurer to state a valid affirmative defense.  Under Third Circuit law, an employee’s failure to invoke administrative procedures will prevent relief in federal court for an ERISA claim.  Such a rule, the court noted, is strictly enforced.

Therefore, the court granted summary judgment to the insurer and ruled that the policy fell under ERISA, preempting the employee’s ability to bring a state law claim for bad faith.

Date of Decision: August 19, 2011

Theresa Harding v. Provident Life and Accident Insurance Company and Unum Group, No. 11-481, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 93622, 809 F. Supp. 2d 403 (W.D. Pa. Aug. 19, 2011) (Fischer, J.)

 

AUGUST 2011 BAD FAITH CASES
COURT DISMISSED BAD FAITH CLAIM ON GROUNDS OF LACK OF PERSONAL JURISDICTION (Philadelphia Federal)

In Ryan v. Union Mutual Fire Insurance Company, the court was presented with a breach of contract and bad faith claim stemming from the insurer’s alleged underpayment of the carrier’s underinsured motorist claim.  The insurer, which is located in Vermont and only insures customers in Vermont, sought dismissal on the grounds of improper venue and a lack of personal jurisdiction. 

In 2006, the insured, while living temporarily in Pennsylvania, was a passenger in a car that was struck by a third party, sustaining injuries. The insured pursued claims against the individual who caused the accident and the driver of the car that she was in.  Each of those individuals’ insurers tendered $50,000 and $15,000, respectively.  However, the insured sought in excess of $200,000 in damages and pursued underinsured motorist coverage from her insurer as a result.  The insurer offered $135,000, which was rejected, and subsequently brought this diversity based suit alleging breach of contract and bad faith.  The insurer moved to dismiss on venue and personal jurisdiction grounds.

The court initially rejected any grounds for general jurisdiction over the insurer in Pennsylvania.  It then engaged in an analysis of specific jurisdiction, pursuant to International Shoe Co. v. Washington and its progeny.  First, the court found that the insurer did not purposely avail itself of Pennsylvania law, but was only implicated by the unilateral activity of the insured, who moved to Pennsylvania temporarily.  Second, the court found that the insurer should not have anticipated suit in the forum state.  As the contract was formed in Vermont, the insurer did not know of the insured’s presence in the forum state until after the accident.  The court examined the parties’ forum selection clause, which stipulated that all arbitration would occur in Vermont.  Because the clause did not indicate an intent to litigate in a forum to which the insured unilaterally moved, the court found that its language did not support specific jurisdiction.

Third, pursuant to World-Wide Volkswagon Corp. v. Woodson, the court found that “Pennsylvania courts did not have personal jurisdiction over a non-forum insurance company whose only contact with the forum was the issuance of an insurance policy with nationwide coverage.”  In other words, the court refused to exercise its long-arm jurisdiction over the insurance carrier.  Fourth, the court found that the insured’s communications with the insurer, during her time in Pennsylvania, did not suffice to establish specific jurisdiction over the insurer.

The court then brought its attention to the second-prong of this inquiry; whether or not the insurer directed its business activities at Pennsylvania residents.  Because this litigation did not arise out of the insurer’s communications and dealings with Pennsylvania residents, the court held, the claim did not “arise out of” the insurer’s failure to tender the policy limits to the insured in Pennsylvania.  However, the court did find that, because the parties’ agreement included Pennsylvania in its territory coverage clause,  the litigation was directly related to the insurer’s actions in the forum state.

Regardless, the court concluded that specific jurisdiction over the insurer would violate notions of “fair play and substantial justice” and was therefore unreasonable.  Although Pennsylvania does have an interest in resolving this litigation, it recognized that Vermont’s policy interest is greater – that state must be able to regulate the insurance industry within its boarders.

In conclusion, the court denied personal jurisdiction over the insurer without reaching the issue of venue and did not address the merits of the carrier’s bad faith claim.
Date of Decision: August 19, 2011
Ryan v. Union Mutual Fire Insurance Company, 10-4438, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 93713 (E.D. Pa. Aug. 19, 2011) (Rufe, J.)

AUGUST 2011 BAD FAITH CASES
BAD FAITH CLAIM CAN PROCEED WHERE ISSUE OF INTENTIONAL NATURE OF INSURED’S ACT NOT CONCLUSIVELY ESTABLISHED BY COMPLAINT OR ASSAULT CONVICTION (Philadelphia Federal)

In Liberty Insurance Corp. v. Keck, the court was faced with competing motions stemming from an assault that occurred during a concert at Lincoln Financial Field.  On June 29, 2009, Keck was assaulted by the insured, Hickey, while attending a concert.  She sustained serious injuries.  She initially sued Hickey, the stadium operator, and the stadium’s hired security in the Court of Common Pleas of Philadelphia County, and included a negligence claim in her complaint.  Hickey made a demand on his carrier for a defense and for indemnification, pursuant to a homeowners insurance policy issued by the insurer.

In February 2011, the insurer filed this action for Declaratory Judgment, seeking a declaration that it is not required to indemnify the insured from any judgment, verdict, or award entered against him as a result of the victim’s original lawsuit; or to provide a defense in that suit.  Even though a negligence claim was pleaded, the insurer asserted that the victim’s injuries did not result from an “occurrence” as defined by the carrier’s policy because the injuries were not the result of an accident, but were intended by Hickey in his aggravated assault of Keck.

Hickey counterclaimed that the insurer violated Pennsylvania’s bad faith statute by denying coverage and a defense without any reasonable basis for doing so.  Specifically, the insured alleged that the insurer denied coverage solely on the basis of the victim’s allegations against him, without conducting any investigation of the facts underlying the incident.

The insurer argued that Hickey failed to state a valid claim because it only has an obligation to defend or indemnify if the victim’s injuries were accidental.

Under Pennsylvania law, the duty to defend is determined by comparing the four corners of the complaint with the policy’s term, and a defense must be provided unless it is clear that the allegations made do not potentially fall within the policy’s coverage parameters.  While the court found that the insurer’s policy did exclude from personal liability coverage “bodily injury” that is “expected or intended,” it recognized three factors running contrary to the carrier’s position that intent was conclusively established for purposes of denying a defense and coverage:  (1) Keck’ complaint does not allege that the insured’s actions were intentional; (2)  although Hickey was convicted of aggravated assault, this did not conclusively establish intent; rather, the court recognized that intent is not a required element in an aggravated assault conviction; and (3) the insured was intoxicated at the time of the assault – bearing negatively upon the ability to act intentionally.

Therefore, the court found that the counterclaim alleged a plausible claim that the insurer acted in bad faith by asserting the absence of coverage on the basis of its reading of the allegations in the victim’s complaint alone, without further investigation; and by denying Hickey a defense. 

Date of Decision: August 22, 2011

LIBERTY INSURANCE CORPORATION v. KECK, NO. 11-1242, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 93503 (E.D. Pa. Aug. 22, 2011 (Padova, J.)

AUGUST 2011 BAD FAITH CASES
COURT REFUSED TO DISMISS BAD FAITH CLAIMED BASED UPON UIM COVERAGE IN COMMERCIAL FLEET POLICY; ALSO FINDING NONCOMFORMING WAIVER (Middle District)

In Douglas v. Discover Property & Casualty Insurance, the court was faced with cross summary judgment motions stemming from the injured party’s attempt to obtain underinsured motorist (“UIM”) benefits from the insurer.  The injured party was involved in a 2005 car accident and subsequently settled a claim with the third-party tortfeasor. At the time of the accident, however, the injured party was driving a car provided by Abbott Laboratories, who maintained an automobile insurance policy with Discover Property & Casualty.  The injured party sought a declaratory judgment against the carrier, arguing that the insured’s waiver of UIM protection is void under section 1731 of Pennsylvania’s Motor Vehicle Financial Responsibility Law, seeking damages for bad faith, and requesting the appointment of a special master to adjudicate a potential class action.

The court initially ruled on the issue of the insured’s UIM coverage under 1731.  First, the court found that, although 1731 is a consumer protection statute, it applies to commercial fleet policies.  Relying on the Third Circuit’s decision in Travelers Indemnity Company of Illinois v. DiBartolo, the court ruled that Pennsylvania law does not mandate commercial stacking of UIM policies, but it does require a driver to receive UIM benefits in the event that a waiver of UIM coverage does not comply with 1731.  Furthermore, the court elaborated that the “[p]urchase of . . . UIM coverage is optional, although to refuse such coverage, an insured must sign rejection forms whose precise language is dictated by statute.”  The court held that, because the carrier’s waiver did not substantially comply with 1731, the waiver was void, requiring the provider to give UIM benefits to the injured complainant.As a corollary, the court also rejected the insurer’s contention that the carrier’s policy was issued for delivery in Illinois, and that state’s law should apply.  The court ruled that the carrier’s policy was issued for delivery in Pennsylvania because the insurer “clearly issued the policy to [the carrier] in order to cover corporate vehicles registered in Pennsylvania.”  Moreover, the court held, the policy itself “is replete with references to Pennsylvania law,” clearly evincing the fact that it was created to insure the carrier’s vehicles operating in Pennsylvania.

Second, the court ruled on the provider’s contention that “only named insureds and relatives can reform an insurance policy.”  The court held that the purpose of the policy was to insure the carrier’s employees while they were driving, proving the injured party’s eligibility to compel UIM benefits.  As such, it would be improper to rule that the injured employee is only eligible for those benefits that the carrier wished to provide him.  The court ruled that, even though the insured may not have wished to provide UIM benefits, it did not properly waive such coverage in conformance with Pennsylvania law.  Consequently, the complainant was eligible for UIM coverage under the carrier’s policy.

Third, the court examined the injured’s bad faith claim.  In its defense, the insurer argued that it relied on relevant Pennsylvania case law in declining to pay UIM benefits.  However, the injured complainant contented that the insurer willfully ignored the conditions of 1731 in bad faith.  The court found that there were lingering disputed issues of material fact and that a jury could potentially rule in favor either party.  Therefore, the court denied the parties’ summary judgment motions on the issue of bad faith.

Lastly, all of the named defendants, other than the insurer, filed for summary judgment on the issues of their 1731 violations and alleged bad faith.  The court denied the parties’ motions and apprised the claimant that its request for a special master to expedite its potential class action claim would be decided during a later case management conference.

Date of Decision: August 12, 2011

DOUGLAS v. DISCOVER PROPERTY & CASUALTY INSURANCE COMPANY, No. 3:08cv1607, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 89951, 810 F.Supp. 2d 724 (M.D. Pa. Aug. 12, 2011) (Munley, J.)

August 2011 BAD FAITH CASES
COURT FOUND THAT ISSUES WERE DISPUTED AND THUS SUBJECT TO DISCOVERY (Western District)

In Liberty Insurance Corporation v. PGT Trucking, Inc., and Sudbury Express, Inc., the court was faced with cross-motions stemming from a dispute over the insurer’s claims handling process and the insured’s self-administration of worker’s compensation claims.  The insurer initially challenged the insured’s practice of forcing its employees to sign conditional employment agreements and sought a declaration of its rights under the parties’ retrospective insurance premium arrangement as to the amount of premiums owed.  The insured brought a counter-claim alleging that the insurer’s inflated retrospective premiums amount to bad faith and breach of its fiduciary duties.  Those claims were dismissed, but a contract claim survived.

The issue before the court was whether the insured would be permitted to take discovery on certain issue that the insurer argued were basically not in controversy.  The discovery related to:  (1) any aspect of Plaintiff’s claims handling that relates to decisions with which Defendants agreed (such as settlements or reserve charges or significant claims handling decisions); (2) issues relating to Defendants’ own improper conduct (such as requiring their truck driving employees to sign, as a condition of employment, an improper employment agreement the intent of which was to require the employees to waive their rights relating to workers’ compensation claims); and (3) Defendants’ self-administration of workers’ compensation claims.”

The court found that the carrier’s legal theory did not preclude the viability of the insured’s legal theory, and so there were legal issues in dispute.  The court stated, among other things, that “retrospective premium arrangements . . . create a unique duty of good faith and reasonableness for the insurer which extends to claims handling.” Thus, the court denied the insurer’s motion seeking to preclude the insureds from challenging any aspect of its claims handling relating to settlements, reserve changes, and/or significant claims handling decisions with which the insureds had agreed; and/or from challenging the insurer’s claims handling with regard to any issue that arose from or relates to the insureds’ self administration of workers’ compensation claims and/or from the improper employment agreements that defendants required their truck driving employees to sign as a condition of employment.

Date of Decision: August 8, 2011

Liberty Insurance Corporation v. PGT Trucking, Inc., and Sudbury Express, No. 2:11-cv-151, U.S. District Court for Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 87419 (W.D. Pa. Aug. 8, 2011) (McVerry, J.)

AUGUST 2011 BAD FAITH CASES
COURT FINDS ABSENCE OF BAD FAITH WHERE REASONABLE INVESTIGATION, EVEN AFTER FINDING INSURER'S COVERAGE POSITION WAS CORRECT TO BEGIN WITH (Philadelphia Federal)

In Enwereji v. State Farm Fire and Casualty Company, the insured brought a claim alleging that the insurer acted in bad faith by breaching its duty to pay benefits for a loss covered under the insured’s policy.  The policy covered “damaged [parts]” of the insured’s property with “materials commonly used by the building trades in standard new construction.”  After a storm, the insured’s roof sustained damage.  Following a series of revisions to the estimate, the insurer sent a check to the insured for $4,548.67.  The insured filed a complaint seeking compensatory damages, alleging the entire roof required repair.
The court ruled that the insured’s breach of contract claim was unsupported because the insurer complied with the policy.  As the policy explicitly provided coverage for only the “damaged part” of the roof, or the broken shingles, the court held that the insured was not entitled to coverage for its entire roof.  The court relied upon Greene v. United Services Automobile Association, holding that such a policy only requires the insurer to pay the replacement cost of “the part of the building damaged.”
The court also rejected the insured’s claim that the insurer was mandated to pay for materials “sufficiently similar to the materials on the [insured’s] home.”  Distinguishing this case from Collins v. Allstate Insurance Co., where a policy called for using replacement materials of “like kind and quality,” the court held that the insured’s policy merely required the use of materials found in the “common construction” of standard new homes.  Consequently, the court ruled that the insured was not required to replace the roof using material akin to that used when the home was built in 1920.
Thus, the insurer was not in breach of contract because it properly acted within the scope of the policy that the insured had purchased.
Therefore, the court also rejected the insured’s bad faith claim.  Applying the Pennsylvania bad faith statute, the court found that the insurer did not engage in a frivolous or unfounded refusal to pay the proceeds of the insured’s policy.  Specifically, the court ruled that “[c]onducting a thorough investigation of a claim demonstrates the insurer’s reasonable behavior.”  The court concluded that boilerplate and conclusory allegations of bad faith would not suffice to establish that an insurer acted with reckless indifference toward the insured.
Date of Decision: July 28, 2011
Enwereji v. State Farm Fire and Casualty Co., Civ. Action No. 10-cv-4967, 2011 U.S. Dist. LEXIS 83417, U.S. District Court for the Eastern District of Pennsylvania (E.D.Pa. July 28, 2011) (Baylson, J.)

AUGUST 2011 BAD FAITH CASES
THERE CAN BE NO BAD FAITH WHERE NO BENEFITS WERE DUE TO PLAINTIFF UNDER THE POLICY (Philadelphia Federal)

In Avicolli v. Government Employees Insurance Company, the court had determined that the insurance carrier had no duty to pay the plaintiff first party benefits under the insurance policy or Pennsylvania’s Motor Vehicle Financial Responsibility Law.  The plaintiff was a pedestrian and the defendants driver/owner had a New Jersey insurance policy.  That “lack of duty, in itself, constitutes a reasonable basis for denying benefits under the policy.”  Thus, there were no actionable bad faith claims, as “a suit alleging bad faith in the handling of an insurance claim is not actionable where an insured’s claim for coverage fails on its merits.”
Date of Decision: October 27, 2010

Avicolli v. Gov’t Emples. Ins. Co.,  No. 10-CV-2858, 2010 U.S. Dist. LEXIS 143526, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Oct. 27, 2010) (Davis, J.)

AUGUST 2011 BAD FAITH CASES
BRINGING DECLARATORY JUDGMENT ACTION NOT STATUTORY OR COMMON LAW CONTRACTUAL BAD FAITH (Philadelphia Federal)

In Principal Life Insurance Company v. Weiss, the insurer brought a declaratory judgment action seeking a ruling that life insurance policies were void or voidable.  The insured filed counterclaims, including a section 8371 bad faith claim and a contract based breach of the duty of good faith and fair dealing.
While the court recognized that under some circumstances courts have held that bringing a declaratory judgment action could be statutory bad faith, it found that the counterclaim failed to meet the first prong of a statutory bad faith cause of action because the insurer had not unreasonably denied a claim.  In that case there was no denial of benefits, and there could have been none since a life insurance policy was at issue and the insured was still alive.  In filing the declaratory judgment, the insurer was not unreasonably denying a claim, but was asking the court to pronounce the parties’ legal rights under the policy.
The court recognized that there have been times where Pennsylvania’s state and federal courts have allowed bad faith claims to proceed where there was literally no denial of a benefit; however, the court observed that under Pennsylvania law “while the alleged bad faith need not be the ‘literal act of denying an insured’s claim, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.”’” As the court stated:  “In other words, while the statute is not limited to the actual denial itself, the facts surrounding the behavior should demonstrate an unreasonable or reckless avoidance or denial of benefits. For example, courts have found that ‘it is not bad faith to conduct a thorough investigation into a questionable claim.’”
The bad faith count was dismissed where there was “no claim under the Policies prior to [the insurer’s] filing of its lawsuit, nor did any actions occur which would prompt [the insurer’s] obligations under the Policies to be triggered.”
The court also rejected a contract based count of the breach of the duty of good faith and fair dealing.  The fact of bringing the declaratory judgment action and thus “forcing” the insured to defend is not enough to find such a breach.  Nor did the putative falsity of the allegations in the complaint or callousness in bringing the claim state a claim for such a breach.
Date of Decision:  July 30, 2009
Principal Life Ins. Co. v. Weiss, Civ. Action No. 09-cv-840, 2009 U.S. Dist. LEXIS 131300, U.S. District Court for the Eastern District of Pennsylvania (E.D.Pa. July 30, 2009) (Davis, J.)

AUGUST 2011 BAD FAITH CASES
THIRD CIRCUIT SAYS NO BAD FAITH POSSIBLE WHERE SOLE BASIS FOR CLAIM IS DENIAL OF COVERAGE AND CARRIER WAS CORRECT IN DENYING COVERAGE (THIRD CIRCUIT)

In Cozza v. State Farm Fire & Casualty Company, the carrier denied a claim under a homeowner’s policy based upon a subsurface water exclusion.  The insured alleged breach of contract and bad faith, asserting that a leak from the home’s plumbing system was not subject to the subsurface water exclusion.  The court found that a pipe designed to keep rainwater away from a house was not part of the home’s plumbing system, and therefore the carrier correctly applied the exclusion.   The Court observed, citing its prior precedent: “Where the sole basis for a bad-faith claim is the denial of coverage, there can be no bad-faith claim if the insurer was correct as a matter of law in denying coverage.”

Date of Decision:  July 28, 2011

Cozza v. State Farm Fire & Cas. Co., No. 10-2811, 2011 U.S. App. LEXIS 15771, U.S. Court of Appeals for the Third Circuit (3d Cir. July 28, 2011) (Fisher, J)