Monthly Archive for August, 2012

AUGUST 2012 BAD FAITH CASES: COURT REFUSES TO BIFURCATE BREACH OF CONTRACT AND BAD FAITH PROCEEDINGS DUE TO CONSIDERABLE OVERLAP BETWEEN CAUSES OF ACTION (Western District)

In Craker v. State Farm Mut. Auto. Ins. Co., the court heard the carrier’s motion in limine to bifurcate the insured’s breach of contract and bad faith actions. This case stemmed from the carrier’s denial of the insured’s claim for Underinsured Motorist (“UIM”) benefits under its policy. The court had already denied the carrier’s motion to sever the bad faith claim (see this blog) and the carrier’s motion for summary judgment (see this blog).
The carrier argued that bifurcation was proper because the issues related to the UIM claim were separate and distinct from the insured’s bad faith claim. The insured countered that bifurcation would be ineffective because the issues and evidence required to prove its case significantly overlap.
The court ruled for the insured, finding that bifurcation was not proper here. First, the court reasoned that the significant overlap of issues made bifurcation improper. Specifically, the court held that there was no question that the insured’s UIM coverage was triggered and that the carrier refused to meet the insured’s demand under the policy. The only disputed issue with respect to the UIM claim was its valuation – this was the court’s reason for denying summary judgment.
Second, the court held that the evidence and witnesses required to prove both the UIM breach of contract and bad faith claims are substantially similar. While the carrier argued that bifurcation was proper because the testimony of its trial counsel may be required, the court disagreed, finding that to be a mere “risk of litigation.”
Date of Decision: August 3, 2012
Craker v. State Farm Mut. Auto. Ins. Co., No. 11-0225, 2012 U.S. Dist. LEXIS 109357, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Aug. 3, 2012) (Lancaster, J.)

AUGUST 2012 BAD FAITH CASES: COURT REJECTS MOTION FOR RECONSIDERATION (Philadelphia Federal)

In A.P. Pino & Assocs. v. Utica Mut. Ins. Co., the court heard an insured’s motion to reconsider the court’s denial of its declaratory judgment, policy reformation and bad faith claims against its insurance carrier, which denied coverage under the insured’s Errors and Omissions (E&O) policy.
A summary of that case and the relevant facts can be found here.
Following that decision the insured appealed to the Third Circuit, which stayed the proceedings until the disposition of the instant motion for reconsideration. However, the court denied the motion, without readdressing the merits of the insured’s renewed bad faith claim.
Date of Decision: August 9, 2012
A.P. Pino & Assocs. v. Utica Mut. Ins. Co., No. 11-3962, 2012 U.S. Dist. LEXIS 112618, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Aug. 9, 2012) (Schiller, J.)

AUGUST 2012 BAD FAITH CASES: COURT ADOPTS MAGISTRATE R&R, HOLDING THAT LIMITATIONS PERIOD CONTAINED IN POLICY CONTROLS AND THAT SUIT WAS TIME-BARRED, DESPITE PA STATE LAW PROVIDING LONGER TIME PERIOD (Middle District)

In Estate of Gorg v. Great Am. Ins. Co., the parties disputed whether a provision in an insurance policy requiring that a claim under the insured’s policy must be brought within three years is controlling, despite a four-year Pennsylvania statute of limitations for breach of contract suits. This dispute arose as a part of an action for breach of contract and bad faith under a decedent’s life insurance policy.
In the Report and Recommendation (R&R), the Magistrate Judge held that the policy language is controlling and that such a time period is not manifestly unreasonable. He also ruled that the policy language was not in conflict with Pennsylvania law because the state permits parties to contract for a shorter limitations period.
Two months later, the District Judge adopted this ruling. The insured’s estate argued that the Magistrate Judge erred by failing to consider a rider in the policy, which stated that any time limit on the accidental death policy does not apply. Examining this claim, the court disagreed and found that the rider only applied to the distribution of benefits under the policy, not the time period in which a legal action arising from the policy must be commenced.
Date of Decision: May 25, 2012
Estate of Gorg v. Great Am. Ins. Co., No. 4:12-CV-0531, 2012 U.S. Dist. LEXIS 103639, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. May 25, 2012) (Smyser, M.J.)
Date of Decision: July 23, 2012
Estate of Gorg v. Great Am. Ins. Co., No. 4:12-00531, 2012 U.S. Dist. LEXIS 101891, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. July 23, 2012) (Kane, J.)

AUGUST 2012 BAD FAITH CASES: CARRIER’S MOTION TO DISMISS DENIED BECAUSE SUIT ULTIMATELY WENT BEYOND SOLELY AN APPRAISAL (Philadelphia Federal)

In Bernstein v. Nationwide Mut. Fire Ins. Co., the court heard a carrier’s motion to dismiss filed in response to an insured’s initial action for appraisal. The suit stemmed from a windstorm that severely damaged the insured’s property. A public adjuster valued the damage at $199,279.94, but the carrier sent the insured a check for $29,099.42, offering no explanation for the basis of its valuation.
The insured filed suit in state court in early 2012 and the carrier responded by sending a “partial denial” letter, explaining that the disparity in estimates was because it felt the damage was due to wear and tear. The carrier later removed the suit to federal court and filed the instant motion to dismiss.
The basis of the carrier’s motion was that, while the insured party sought an appraisal, its suit was really based on a misunderstanding of the policy. The court disagreed, citing the insured’s amended complaint that alleged breach of contract and bad faith claims. As such, the carrier’s motion was denied.
Date of Decision: July 24, 2012
Bernstein v. Nationwide Mut. Fire Ins. Co., No. 12-1490, 2012 U.S. Dist. LEXIS 102670, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. July 24, 2012) (Kelly, J.)

AUGUST 2012 BAD FAITH CASES: COURT VIEWS BAD FAITH CLAIM AS SEPARATE FROM BREACH OF CONTRACT CLAIM ON BASIS OF DUTY TO INVESTIGATE EVEN IF NO COVERAGE DUE UNDER CONTRACT (Philadelphia Federal)

In Gold v. State Farm Fire & Cas. Co., the court heard a carrier’s motion to dismiss its insureds’ complaint for breach of contract and bad faith. The case arose out of two claims for benefits that the insureds’ filed after their home suffered water damage in 2009 and 2010. After the 2009 occurrence, the insureds’ spoke to the carrier’s agent, who allegedly misrepresented the nature of the damage by inaccurately reporting in her claims notes that the water was coming through the basement walls. The insureds’ claimed that they told the carrier’s agent that water was seeping through the floor.
Based on the subsurface water exclusion in the insureds’ policy, the carrier denied coverage. The court noted that discovery revealed the carrier made this decision in “twelve minutes.” In 2010, the insureds filed another claim for benefits when a second floor occurred. After a series of tests and inspections to the insureds’ home that revealed slightly differing causes of water infiltration, the insureds filed suit against the carrier for breach of contract and bad faith.
First, the court rejected the insureds’ breach of contract claim, granting summary judgment to the carrier. It reasoned that the insureds failed to show a dispute of fact with respect to the cause of the water damage. Rather, the carrier presented sufficient evidence that the cause of the damage was due to subsurface water infiltration, an occurrence that fits the policy’s exclusionary language.
Second, the court examined the insureds’ bad faith claim. The carrier argued that, since the court granted its motion on the insureds’ breach of contract count, it should also grant the motion on the bad faith claims. The court disagreed, ruling that the bad faith claims are severable in this instance because the allegations arise from the carrier’s failure to conduct a proper investigation.
The court only permitted the insureds’ bad faith claim to proceed to trial with respect to the 2009 investigation, however, because there was no evidence that the carrier acted in bad faith in denying the 2010 water damage claim.
Date of Decision: July 23, 2012
Gold v. State Farm Fire & Cas. Co., No. 11-1187, 2012 U.S. Dist. LEXIS 102470, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. July 23, 2012) (McLaughlin, J.)

AUGUST 2012 BAD FAITH CASES: THIRD CIRCUIT AFFIRMS DENIAL OF BAD FAITH DAMAGES, DESPITE UPHOLDING BREACH OF CONTRACT AWARD, BECAUSE THE CARRIER’S INVESTIGATION AND SUBSEQUENT DENIAL OF COVERAGE WERE REASONABLE (Third Circuit)

In Post v. St. Paul Travelers Ins. Co., the court heard cross-appeals stemming from the District Court’s partial grant of summary judgment in which it denied the insured’s bad faith claim, but simultaneously awarded the insured damages for breach of contract. The facts of this case are complex and discussed comprehensively in the Third Circuit’s sixty-eight-page opinion. The details have been condensed for the purposes of this blog.
The appeal arises from a medical malpractice action against a client of the insured attorney. During that litigation, the insured allegedly mishandled certain discovery. As a result, the client threatened a legal malpractice action against an attorney, who was insured under his firm’s malpractice policy. The insured therefore alerted its carrier of the potential malpractice action and sought indemnification and defense under its policy.
During this time in late 2005, the plaintiff in the underlying medical malpractice action filed a sanctions petition against the insured attorney. The insured also advised its carrier of the petition and requested payment for defense costs and indemnity. The carrier retained outside counsel to the review the matter and later denied coverage. In February of 2006, the insured’s client, now plaintiff in the legal malpractice action, sought to join the sanctions proceedings in order to “participate in the search, review and production of documents,” that relate to its own malpractice suit. The insured again sought indemnification and defense.
The carrier responded by agreeing to reimburse the insured for some portion of his defense costs related to the sanctions proceedings because of an overlap between the sanctions proceedings and the threatened malpractice suit. However, the carrier offered to the insured only $35,000 out of a total of $400,000. Eventually the sanctions petition was withdrawn.
In October 2006, the insured filed a suit for bad faith and breach of contract against its carrier and the parties filed cross-motions for summary judgment. The District Court granted the carrier’s motion with respect to the bad faith claim, but granted the insured’s motion on the breach of contract count, finding that he was covered under the policy and awarding reimbursement in the amount of $921,862.38. The parties filed cross-appeals.
On appeal, the insured argued that the carrier owed a duty to defend under the policy and the carrier argued that its policy expressly excludes coverage for sanctions. The insured also claimed that the carrier acted in bad faith by failing to investigate, providing defense to his firm but not him individually, and ignoring the insured’s notifications about the potential legal malpractice suit.
The Third Circuit first addressed the contractual damages award. It reasoned that the District Court failed to properly distinguish between “claim” and “suit” under the policy. Specifically, the word “claim” meant that the carrier’s duty to defend could be triggered by something less than the filing of a complaint, such as the former client’s threat of malpractice suit.
The court held that “it would be fantasy to believe . . . that [the former client] would not be seeking damages” for legal malpractice. Moreover, the sanctions petition was covered because it sought attorney’s fees from the insured, triggering the policy. The only action that was not covered was the insured’s suit against its former client. Had the insured initiated this action as a counterclaim, it might be covered as “intertwined” with the covered action. The Third Circuit revised only this aspect of the District Court’s opinion.
With respect to insured’s appeal of the District Court’s grant of summary judgment to the carrier on the bad faith count, the Third Circuit affirmed. Despite the insured’s claims, the court reasoned that the carrier’s handling of the investigation and its coverage decisions were “largely benign,” albeit “not ideal.” There was simply no evidence that the carrier acted with ill will or dishonest purpose.
Therefore, the court affirmed the District Court’s ruling, except that the insured’s claim against its former client was not covered under the policy
Date of Decision: July 31, 2012
Post v. St. Paul Travelers Ins. Co., Nos. 10-3088 & 10-3300, 691 F.3d 500, U.S. Court of Appeals for the Third Circuit (3d Cir. Pa. July 31, 2012) (Ambro J.)

AUGUST 2012 BAD FAITH CASES: COURT PERMITS BAD FAITH CLAIM TO PROCEED SOLELY AS TO THEORY THAT CARRIER MADE UNNECESSARY DOCUMENT REQUESTS TO DELAY THE PAYMENT OF INSURED’S UIM BENEFITS (Middle District)

In Schlegel v. State Farm Mut. Auto. Ins. Co., the court heard a carrier’s motion to dismiss an amended complaint by which an insured couple sought to compel the payment of Underinsured Motorist (“UIM”) benefits under its policy. The insureds in this case sustained injuries after an uninsured motorist crossed in front of them without the right of way.
The insureds filed a claim for UIM benefits with their carrier, but were denied. After filing a complaint, the court dismissed the insureds’ initial allegations, but permitted them to amend and re-file. After re-filing their complaint, the carrier again moved to dismiss.
Examining the insureds’ amended complaint for bad faith, the court recognized that the allegations were substantially the same. However, the insureds did add another allegation that the carrier made unnecessary document requests in an effort to delay and ultimately deny the payment of the insureds’ UIM benefits. The court accepted this allegation as true for purposes of the motion to dismiss, allowing the claim to proceed solely on the basis of this theory. However, the court dismissed the bad faith claim in all other regards.
Date of Decision: July 23, 2012
Schlegel v. State Farm Mut. Auto. Ins. Co., No. 3:11-CV-2190, 2012 U.S. Dist. LEXIS 97529, U.S. District Court for the Eastern District of Pennsylvania (M.D. Pa. July 13, 2012) (Caputo, J.)

AUGUST 2012 BAD FAITH CASES: MIDDLE DISTRICT REJECTS RECENT EASTERN DISTRICT HOLDING THAT BAD FAITH CLAIMS ARE NOT ASSIGNABLE AND PERMITS ASSIGNMENT OF BAD FAITH CLAIMS TO RECOVER PUNITIVE DAMAGES, COUNSEL FEES AND INTEREST UNDER §8371 (Middle District)

In Wolfe v. Allstate Prop. & Cas. Ins. Co., the court heard a carrier’s motion to dismiss filed in opposition to an assignee’s bad faith and Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) suit.
The case arose from a car accident caused by the carrier’s insured, who was under the influence at the time his car struck the assignee. The insured’s policy excludes coverage for gross negligence or reckless conduct. As a result, the carrier rejected the injured-assignee’s settlement offers, countering with a rigid offer of $1,200. The case therefore proceeded to trial in 2009. The carrier agreed to indemnify the insured from the victim-assignee’s compensatory damages, but, citing policy exclusions, refused to cover the insured’s punitive damages.
As such, the insured incurred a personal obligation to pay the punitive damages and assigned the victim-assignee all rights, claims and causes of action arising from the carrier’s refusal to defend, protect and indemnify him in the underlying case. The assignee filed bad faith and UTPCPL claims against the carrier in early 2010 and the carrier removed the case to federal court. After the carrier won on a motion to dismiss, the court permitted the assignee to amend its complaint. The carrier thereafter filed the instant motion to dismiss the assignee’s amended complaint.
The carrier’s main defense was based upon two recent cases out of the Eastern District of Pennsylvania (“EDPA”), which held that bad faith claims brought under Pennsylvania law are not assignable due to their nature as unliquidated tort claims. (Case one case can be found here, and case 2 here on this Blog). However, this court held that the EDPA decisions were inconsistent with both Pennsylvania and Third Circuit precedent, and found the assigned claims for punitive damages, counsel fees and interest are permissible.
Date of Decision: July 12, 2012
Wolfe v. Allstate Prop. & Cas. Ins. Co., No. 4:10-CV-800, 877 F. Supp. 2d 228, 2012 U.S. Dist. LEXIS 99280, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. July 12, 2012) (Jones, J.)

AUGUST 2012 BAD FAITH CASES: COURT REJECTS BAD FAITH CLAIM BECAUSE UNIT OWNER WAS NOT AN INSURED UNDER DEVELOPMENT’S INSURANCE POLICY (Philadelphia County Common Pleas Court)

In Ruger v. Metro. Prop. & Cas. Ins. Co., a condominium unit owner sued its own insurance carrier (who was later dismissed) and the development’s carrier for breach of contract and bad faith. The case stemmed from smoke damage that the owner’s property incurred due to a fire in the basement of the adjoining unit. After filing insurance claims with both carriers, the owner was compensated for the cost of cleaning his apartment. However, the check that he received was $64.00 lower than the cost of restoration.
As a result, the owner filed the instant suit, which the development’s carrier responded to by filing a motion for summary judgment. The Court of Common Pleas granted the carrier’s motion and the unit owner appealed, prompting the issuance of the instant opinion.
The key issue facing the court was whether the unit owner was an insured or intended third-party beneficiary under the policy issued by the condominium’s insurance carrier. Examining the language of the policy itself, the court found that the unit owner was not insured. It reasoned that the condominium purchased the policy to satisfy its obligations under the condominium Declaration, not to benefit third-party unit owners.
As such, the unit owner’s bad faith claim was moot, as he was not a named insured under the policy issued to the condominium.
Date of Decision: July 2, 2012
Ruger v. Metro. Prop. & Cas. Ins. Co., No. 3906, 2012 Phila. Ct. Com. Pl. LEXIS 191, Philadelphia Court of Common Pleas (Pa. C.P. July 2, 2012) (Tereshko, J.)

AUGUST 2012 BAD FAITH CASES: COURT GRANTS CARRIER’S MOTION TO PRECLUDE EVIDENCE OF POLICY’S UIM LIMITS AND CLAIMS HANDLING BECAUSE INSURED’S UIM SUIT DID NOT INCLUDE BAD FAITH COUNT (Western District)

In Schwendinger-Roy v. State Farm Mut. Auto. Ins. Co., the court heard a carrier’s motion in limine in connection with an underinsured motorist (“UIM”) benefits claim. The underlying case resulted from a car accident in which the insureds’ daughter was injured. After recovering the limits of the negligent driver’s policy, the insureds sought additional recovery through the UIM provisions of its policy with the carrier.
Prior to trial, the carrier argued that it should not be identified as an insurer pursuant to Federal Rule of Evidence 411, which prevents the introduction of evidence relating to liability insurance. However, the court disagreed, holding that Rule 411 is not a mechanism for shielding the identity of a party to a UIM suit.
The carrier also argued that the court should preclude evidence relating to the insureds’ UIM policy limits and the negligent driver’s settlement amount. The court agreed with both of these assertions, holding that the probative value of these monetary figures was outweighed by the potential misleading nature of the evidence.
Lastly, the carrier sought to preclude evidence of testimony relating to its breach of the insureds’ policy. The court agreed, finding that because the insured had not asserted a claim for bad faith, such evidence would be prejudicial in a trial for UIM benefits.
Date of Decision: July 10, 2012
Schwendinger-Roy v. State Farm Mut. Auto. Ins. Co., No. 11-445, 2012 U.S. Dist. LEXIS 95005, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. July 10, 2012) (Bissoon, J.)