Monthly Archive for November, 2012

NOVEMBER 2012 BAD FAITH CASES: COURT DISMISSES INSURED’S SUIT BECAUSE CARRIER’S CONDUCT DID NOT RISE TO THE LEVEL OF ACTIONABLE BAD FAITH AND THE INSURED’S UNDERLYING CONTRACTUAL ALLEGATIONS FAILED TO ALLEGE COVERAGE (Western District)

In Hamm v. Allstate Prop. & Cas. Ins. Co., the court heard the insureds’ suit for breach of contract and bad faith. Pending was the carrier’s motion to dismiss the insureds’ claims. The dispute arose from the carrier’s denial of coverage for damage to a rear stone veneer outside of the insureds’ home. The carrier claimed that the loss was excluded because the damage was not “sudden and accidental,” but an ongoing problem that resulted in the wall collapsing during a storm in early 2010. The insureds had apparently made a prior claim on the wall in 2008 after they first noticed damage to the wall. The claim was denied at that point, but noted by the carrier’s agent.
The carrier claimed that the insured’s suit should be dismissed for three primary reasons: (1) the insureds failed to prove that the damage was sudden and accidental because they were on notice that the wall was damaged based on their 2008 claim; (2) the damage is excluded under a “wear and tear” exclusionary clause; and (3) the claim is excluded under a policy clause prohibiting coverage for damage caused by any weather condition. The insureds countered that the term “sudden and accidental” is ambiguous. The court reasoned that the insureds failed to rebut the carrier’s assertion that several exclusionary clauses barred coverage in this instance. Despite the parties’ differing contentions as to the “sudden” nature of the damage, the loss nevertheless occurred because of a “weather condition,” which the policy expressly excludes from coverage. According to the court, “wind,” is “plainly a weather condition,” meaning that the insureds’ claim for coverage should be denied.
As to the insureds’ bad faith allegations, the court reasoned that the claim existed separately from the carrier’s denial of coverage and might be able to survive despite the dismissal of the breach of contract count. Turning to the merits of the bad faith claim, the court held that the carrier did not act in bad faith by denying the insured’s claim. The carrier had a reasonable basis to deny coverage under one of the aforementioned policy exclusions.
The court also rejected the insureds’ contention that the carrier acted in bad faith with respect to its investigation of their claim. Specifically, the insureds argued that the carrier denied coverage solely on the basis of the claim made in 2008. However, the record indicated that an agent of the carrier inspected the wall after the 2010 collapse occurred. Even though the carrier did not conduct this visit until after its initial denial of the insureds’ claim, its conduct did not rise to the level of bad faith.
Date of Decision: November 7, 2012
Hamm v. Allstate Prop. & Cas. Ins. Co., No. 2:11-CV-00614, 2012 U.S. Dist. LEXIS 159348, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Nov. 6, 2012) (Hornak, J.)

NOVEMBER 2012 BAD FAITH CASES: COURT AFFIRMS DENIAL OF BAD FAITH CLAIM BECAUSE CARRIER PROPERLY DENIED BENEFITS AFTER INSURED SUBMITTED PROOF OF LOSS AFTER THE TIME PERMITTED BY HIS POLICY (New Jersey Appellate Division)

In Heller v. First UNUM Life Ins. Co., the Appellate Division heard an insured’s appeal from the trial court’s denial of his cross-motion for summary judgment. The motion sought a ruling that the carrier acted in bad faith by denying the insured’s claim for disability benefits.
The injuries that lead to the insured’s claim occurred in early 1993. However, the insured did not file a proof of loss with the carrier until 1996 because he was serving a jail sentence for federal disability fraud. He later withdrew this claim and refiled it in 2000 after experiencing back pain. The carrier denied coverage because (1) it did not find the claim credible; (2) the insured provided false information on his applications for insurance coverage; and (3) the carrier was prejudiced by the lack of supporting evidence related to the insured’s claimed shoulder injury. The trial court agreed and found for the carrier.
The insured appealed this decision to the Appellate Division, arguing that he was entitled to coverage and that the carrier acted in bad faith by denying his insurance claim. The panel disagreed, writing a per curium decision in support of the trial court’s findings. Part of the court’s agreement with the carrier was based on a finding of disputed fact with respect to whether the insured had failed to disclosure certain information, to the carrier’s prejudice, in order to hide his conviction for fraud.
Date of Decision: May 24, 2012
Heller v. First UNUM Life Ins. Co., NO. A-0688-10T3, 2012 N.J. Super. Unpub. LEXIS 1145, New Jersey Superior Court Appellate Division (App.Div. May 24, 2012) (Axelrad, Sapp-Peterson and Ostrer, JJ.)

NOVEMBER 2012 BAD FAITH CASES:COURT GRANTS SUMMARY JUDGMENT TO CARRIER BECAUSE INSURED WAS ALLEGEDLY INVOLVED IN FRAUDULENT ACTIVITIES AND INSURER COULD PROPERLY INVESTIGATE THAT ALLEGATION (New Jersey Federal)

In Walsh Secs., Inc. v. Cristo Prop. Mgmt., the court heard cross-summary judgment motions in an insurance coverage dispute stemming from a title insurer’s denial of its insured’s claim for benefits. The situation arose from a mortgage fraud scheme that impacted the insured’s mortgage lending business.
The insured was a lender who would package mortgage loans for use as securities in secured transactions, or resell the loans to whole loan purchasers. The insured would purchase mortgage loans by funding them at the time of their closing, a process called table funding. At closing, the insured would “purchase title insurance to protect against losses arising from defects in, or encumbrances on, the title to the real property subject to the mortgage loans that it was table funding.”
However, the insured fell victim to a fraudulent scheme carried out by another individual that would purchase property through a company that he owned and sell it for an inflated value. This individual would locate a straw buyer and arrange for the property to be appraised at an inflated price. The insured issued mortgage loans that were impacted by this fraudulent activity, causing its company to lose money.
After the fraud came to light, the insured put the carrier on notice of coverage claims for one hundred and thirteen mortgage loans it had provided to properties involved in the scheme. The carrier responded that it needed information regarding the insured’s knowledge of, and participation in, the scheme that gave rise to these insurance claims. The insured never provided this information and instead sued the carrier for coverage.
After the carrier refused to cover the losses, the insured filed an amended complaint alleging that the carrier acted in bad faith. The carrier moved to summary judgment and the court granted the motion, reasoning that the carrier “had ample reason to delay processing [the insured’s] coverage claims.” Around the time that the insured made a claim for benefits under its title insurance policies, several newspaper articles came out suggesting that the insured had knowledge of, and participated in, the fraud. A number of parties involved in the fraud also indicated that the insured had knowledge of the scheme. Moreover, the insured sued for coverage as soon as the carrier asked for further information regarding the coverage claim. Therefore, the carrier justified to delay its processing of the insured’s claims.
Date of Decision: April 17, 2012
Walsh Secs., Inc. v. Cristo Prop. Mgmt., Ltd., 858 F. Supp. 2d 402, U.S. District Court for the District of New Jersey (D.N.J. 2012) (Debevoise, J.)

NOVEMBER 2012 BAD FAITH CASES: COURT AFFIRMS TRIAL COURTS RULING THAT PREJUDICE TO CARRIER WARRANTED FORFEITURE OF COVERAGE BY INSURED (New Jersey Appellate Division)

In Demasi v. Lexington Ins. Co., an insured appealed the trial court’s grant of summary judgment to its carrier in a coverage and bad faith suit brought by the insurer. The dispute stemmed from a fire at a property owned by the insured. After discovering the fire, the insured made a claim for benefits under a homeowner’s policy purchased from the carrier. During the litigation, the insured was required to provide a variety of documents to the carrier, but it failed to oblige the request. The carrier had requested specific documents because it suspected that arson had occurred at the insured property.
The insured’s failure to produce the requested documents resulted in a breach of a policy provision requiring him to cooperate with the carrier. As such, the trial court granted the carrier’s summary judgment motion because the insured failed to comply in good faith with the discovery requests. The appellate court affirmed the trial court’s findings, reasoning that the carrier had suffered an “appreciable prejudice,” warranting a forfeiture of coverage by the insured.
Date of Decision: July 23, 2010
Demasi v. Lexington Ins. Co., NO. A-3206-08T3, 2010 N.J. Super. Unpub. LEXIS 1762, New Jersey Superior Court – Appellate Division (App.Div. July 23, 2010) (Axelrad and Espinosa, JJ.)

NOVEMBER 2012 BAD FAITH CASES:COURT AFFIRMS DISMISSAL OF BAD FAITH CLAIM BECAUSE UNDERLYING JUDGMENT WAS NOT EXECUTED AGAINST ASSIGNOR’S ESTATE PRIOR TO DEATH (New Jersey Appellate Division)

In Nieves v. Allstate Ins. Co., the court heard an assignee’s appeal from the dismissal of her bad faith claim against the decedent insured-assignor’s carrier. The dispute arose from a car accident in which an individual driving the assignor’s automobile injured the assignee. After a $185,000 jury verdict in the assignee’s favor, the assignor-insured’s carrier paid the $50,000 limits of his automobile policy. However, the assignor-insured died a week before the jury verdict was affirmed on appeal.
In 2003, the assignee, who had not yet been assigned the assignor-insured’s rights under the automobile policy, brought a direct action against the carrier, alleging bad faith refusal to settle her claim. In 2004, the complaint was dismissed because she needed an assignment of rights in order to bring a direct action against the carrier. In 2007, the assignor-insured’s mother assigned her late son’s bad faith claim against the carrier to the assignee.
However, the trial court dismissed the bad faith claim on summary judgment, reasoning that the assignor-insured did not have a judgment executed against him during his lifetime and the decedent had no assets left in his estate. As such, the court concluded that there is no pecuniary loss that the decedent suffered during his life that could be enforced by way of assignment.
The assignee appealed, arguing that her claim accrued when the underlying jury verdict was affirmed and that any analysis of pecuniary harm to the decedent insured must be made at the time of accrual. The assignee also argued that the court should adopt the “judgment rule,” which holds that a claimant is permitted to recover damages if the insured is solvent at the time of the judgment.
The appellate court rejected both of these arguments. First, the court ruled that no claim accrued at the time of the judgment because the insured had no assets and was not threatened with any claim for the difference between the verdict and his policy limits. Second, the court refused to adopt the judgment rule because such an argument was not raised before the trial court. The court therefore affirmed the grant of summary judgment to the carrier.
Date of Decision: May 3, 2011
Nieves v. Allstate Ins. Co., No. A-6128-09T3, 2011 N.J. Super. Unpub. LEXIS 1096, Superior Court of New Jersey, Appellate Division (App.Div. May 3, 2011) (Fuentes, Ashrafi, Newman, JJ.)

NOVEMBER 2012 BAD FAITH CASES: COURT DISMISSES INSURED’S BAD FAITH CLAIM BECAUSE UNDERLYING ALLEGATION ABOUT CARRIER’S IMPROPER UNILATERAL RECISSION OF POLICY WAS DENIED (New Jersey Federal)

In JPMorgan Chase Bank, N.A. v. Republic Mortg. Ins. Co., the court heard a carrier’s motion to dismiss its insured’s amended complaint and cross-motion for summary judgment. The dispute arose from a mortgage insurance policy that the insured purchased to cover defaults on residential loans issued by the insured. The policy contained a unilateral cancellation provision, which permitted the carrier to rescind coverage at its option if any of the insured’s statements on documents submitted for coverage were materially false or misleading.
First, the court addressed the insured’s declaratory judgment count, which sought a ruling that the carrier may not unilaterally cancel its policy without judicial opinion or an arbitration award. The court disagreed, reasoning that the insured failed to allege that it did not make any material misrepresentations in its applications, which would render the carrier’s rescission fraudulent. Instead, the insured sought an advisory opinion that, if and when the carrier rescinds coverage when an insured hasn’t made a false or misleading statement, the carrier’s unilateral rescission will be unlawful. The court ruled that such an advisory opinion would be constitutionally impermissible and granted the carrier’s motion.
As to the insured’s breach of contract count, the court granted the carrier’s motion. The court reasoned that a carrier may rescind coverage under an insurance policy by virtue of “the terms of the contract, the mutual consent of the parties though an extraneous agreement, or a reserved power in the contract like that of unilateral cancellation.” As such, the carrier would be permitted to rescind coverage without a judicial opinion or arbitral award.
As to the insured’s bad faith claim, the court granted the carrier’s motion. The insured argued that the carrier acted in bad faith by interfering with the insured’s reasonable expectations of coverage. However, the bad faith allegations were predicated on the carrier’s unilateral rescission practice, which the court did not find unlawful. The court then granted the insured leave to amend its complaint, to the extent that its bad faith claim is based upon other grounds.
Date of Decision: May 4, 2011
JPMorgan Chase Bank, N.A. v. Republic Mortg. Ins. Co., No. 10-06141, 2011 U.S. Dist. LEXIS 47918, U.S. District Court for the District of New Jersey (D.N.J. May 4, 2011) (Chesler, J.)

NOVEMBER 2012 BAD FAITH CASES: COURT DENIES BAD FAITH CLAIM BECAUSE UNDERLYING COVERAGE ACTION FAILED (District of New Jersey)

In Wojciechowski v. State Farm Fire & Cas. Co., the court heard a carrier’s summary judgment motion stemming from a coverage dispute and bad faith claim alleged by its insureds. The dispute arose from a broken pipe in the insureds’ home. To discover the broken pipe, a plumber had to rip up carpet and flooring in the insured’s home. When the insureds sought coverage for the damage and broken pipe, the carrier refused, citing applicable policy exclusions. Specifically, the carrier’s expert found that the pipe had burst because of wear and tear, a category of damages excluded from the insureds’ homeowner’s policy.
The insureds filed suit, seeking to determine coverage under the policy and alleging bad faith. The carrier responded by filing for summary judgment. First, the insured argued that, despite the wear and tear exclusion, the “Resulting Loss Exception” in the policy nevertheless provided coverage for damage caused by water leaking from the broken pipe. The court disagreed, refusing to read the exception so broadly as to allow it to swallow the exclusion. Second, the court reasoned that the leak exclusion in the policy also applied, barring coverage for water damaged caused by leakage from the broken pipe. Third, the court addressed the insured’s claim that a sub-surface water exclusion in the policy should apply. The insured argued that, although the pipe was below a concrete slab in the floor, it was nevertheless placed above ground. The court rejected this claim for lack of competent evidence.
The court therefore granted the carrier’s motion for summary judgment. Because the insureds’ underlying coverage action failed, its bad faith claim was also denied.
Date of Decision: May 8, 2012
Wojciechowski v. State Farm Fire & Cas. Co., No. 11-566,2012 U.S. Dist. LEXIS 65093, U.S. District Court for the District of New Jersey (D.N.J. May 8, 2012) (Bumb, J.)

NOVEMBER 2012 BAD FAITH CASES: COURT GRANTS INSURED’S MOTION TO AMEND IN ORDER TO INCLUDE CAUSE OF ACTION FOR BAD FAITH AGAINST CARRIER ON ALLEGED OMISSIONS OF COVERED DAMAGE FACTORS IN REPORT (New Jersey Federal)

In Dawn Rest., Inc. v. Penn Millers Ins. Co., the court heard an insured’s motion to amend its complaint for breach of contract to include bad faith allegations. The insured was a restaurant that discovered damage to its roof and initiated repairs. After alerting its carrier of the loss, coverage was denied. The carrier’s adjuster initially cited the roof’s long-term load, humidity in the attic, snowfall, and rain as the causes of the damage.
However, in its report, the carrier omitted snowfall and rain as factors contributing to the damage. The insured claims that the inclusion of these factors would have triggered automatic policy coverage and alleges that the omission was done in bad faith. The carrier defends that its failure to include snowfall and rain in the report was, at worst, was negligent on their behalf.
Examining the standard for granting a motion to amend, the court reasoned that the insured should be permitted leave to include bad faith allegations in its complaint. First, the court rejected the carrier’s theory that leave to amend would cause undue delay because the need for additional depositions is not a substantial burden. Second, the court held that the insured’s proposed amended complaint sufficiently pled a bad faith cause of action because it permitted an inference that the carrier engaged in the alleged misconduct.
Date of Decision: August 16, 2011
Dawn Rest., Inc. v. Penn Millers Ins. Co., No. 10-2273, 2011 U.S. Dist. LEXIS 91284, U.S. District Court for the District of New Jersey (D.N.J. Aug. 16, 2011) (Bongiovanni, J.)

NOVEMBER 2012 BAD FAITH CASES: COURT DENIES BAD FAITH CLAIM BECAUSE CARRIER’S DELAY WAS VALID IN LIGHT OF THE INSURED’S ALLEGED MISREPRESENTATIONS OF FACT (District of New Jersey)

In Certain Underwriters at Lloyd’s of London v. Alesi, the court heard an insurer’s declaratory judgment action seeking a determination of its liability for damages alleged by its insured under a homeowner’s policy. The insured counterclaimed for breach of contract and bad faith damages, to which the carrier responded by filing a motion for summary judgment. The dispute originally arose from an insurance claim made by the insured party for personal property loss and lost rent under a homeowner’s policy purchased from the carrier. The personal property loss claim concerned items that were allegedly stolen from the home by the insured’s estranged ex-wife. The insured’s claim for benefits also sought coverage for property damages that his home sustained when it was allegedly vandalized and flooded.
The carrier’s motion argued that, because of the insured’s willful misrepresentations of fact concerning his losses, the insured’s policy should be voided and summary judgment should be granted in the carrier’s favor. Having rejected the insured’s claims for personal property loss and lost rents, the court rejected the bad faith count as related to those two claims. With respect to the insured’s property damage claim, stemming from the alleged vandalism to his home, the insured argued that irreconcilable estimates of damages justified its delay. Moreover, the insured was under investigation for insurance fraud in connection to the vandalism of his property. The carrier also claimed that the insured had sought coverage for items that he wanted to purchase, not merely required repairs.
Given these factual circumstances, the court reasoned, the insured was not entitled to damages for bad faith. The court therefore ruled in favor of the carrier under the “reasonably debatable” bad faith standard, concluding that the insured’s continued misrepresentations during the adjustment period were made to the carrier’s detriment.
Date of Decision: December 30, 2011
Certain Underwriters at Lloyd’s of London v. Alesi, 843 F. Supp. 2d 517, U.S. District Court for the District of New Jersey (D.N.J. 2011) (Hillman, J.)

NOVEMBER 2012 BAD FAITH CASES: APPELLATE COURT AFFIRMS DENIAL OF INSURED’S BAD FAITH CLAIM, DESPITE FACT THAT TRIAL COURT SHOULD HAVE PERMITTED INSURED’S EXPERT TO TESTIFY REGARDING CARRIER’S ITPA VIOLATIONS WHICH ARE RELEVANT EVIDENCE TO BAD FAITH CASES (New Jersey Appellate Division)

In Lydon v. Chubb Group of Ins. Cos., the appellate court heard an appeal from the dismissal of an insured’s claim for bad faith damages in relation to its carrier’s denial of benefits under a homeowner’s policy.
Specifically, the insured argued that the trial court erred in dismissing its claim for bad faith because it prohibited the insured’s expert from testifying about the carrier’s representative, whose conduct allegedly violated the Insurance Trade Practices Act (“ITPA”). According to the insured, violations of the ITPA may provide evidence of bad faith. However, the trial court precluded such a discussion because the expert did not mention “the concept of bad faith.” Rather, the judge reasoned that the expert’s report “contained net opinions” that “downgrade[d] the . . . proof required” to sustain a claim for bad faith.
The appellate court disagreed with this reasoning, finding that “the judge conflated two separate issues – whether violations of the ITPA are relevant evidence of bad faith and whether such evidence necessarily proves bad faith.” However, ITPA violations are indeed relevant to a finding of bad faith on behalf of an insurance carrier.
Regardless, the appellate court held that the insured’s evidence was insufficient to yield a finding of bad faith. Assuming that the court did permit the insured’s expert to testify, the insured would have failed to prove that the carrier’s conduct caused them to sustain damages as a result of its alleged bad faith.
Date of Decision: August 30, 2012
Lydon v. Chubb Group of Ins. Cos., No. A-4344-09T1, 2012 N.J. Super. Unpub. LEXIS 2068, Superior Court of New Jersey – Appellate Division (App.Div. Aug. 30, 2012) (Messano, Kennedy and Guadagno, JJ)