Monthly Archive for October, 2013

OCTOBER 2013 BAD FAITH CASES: INSURER’S “PAID WHEN INCURRED” DISBURSEMENT OF FUNDS DID NOT BREACH CONTRACT; NO BAD FAITH (Philadelphia Federal)

In Pellegrino v. State Farm Fire & Cas. Co., plaintiffs brought suit alleging the insurer’s practice of withholding funds for certain repairs as “paid when incurred” (PWI) was a breach of contract and constituted bad faith. Plaintiffs’ roof and siding were damaged in a storm, and plaintiffs submitted a claim for damages to the insurer. Plaintiffs hired an independent adjuster that valued the total cost of repairs at $80,443.13 for total replacement of the home’s roof and siding. The insurer retained its own adjuster, who determined covered damage occurred on small parts of three out of the four sides of the house and approximately thirty square feet of the roof. The estimate totaled $43,711.21 with $17,091.58 to be paid to plaintiffs up front as a net actual cash value payment, and $26,619.63 to be “paid when incurred” by plaintiffs.

The estimate defined the “paid when incurred” items as “items which may not be necessary in the repair of your property damaged by a covered loss.” Through litigation, it was determined these costs were to replace the undamaged parts of the siding and roof and would be provided once plaintiffs provided evidence they had contracted for repair of these portions of the home. Plaintiffs believed they were entitled to the receive the actual cash value of the entire roof and siding because the insurer determined it would be unable to replace the damaged portions with materials that matched the existing undamaged portions of the home.

The court determined that to require the insurer to provide the costs upfront for undamaged property would result in a windfall to the insured. Rather, the insurer’s method of designating funds as PWI and providing the funds if and when plaintiffs chose to repair the entire home was fair, and not a breach of contract because plaintiffs had already been provided with the depreciated value of the damaged property. Therefore, finding no breach of contract, plaintiffs were unable to establish the insurer acted in bad faith by using the PWI method. As such, plaintiff’s complaint was dismissed with prejudice.

Date of Decision: July 29, 2013

Pellegrino v. State Farm Fire & Cas. Co., Civil Action No. 12-2065, 2013 U.S. Dist. LEXIS 105511 (E.D. Pa. July 29, 2013) (Goldberg, J.)

OCTOBER 2013 BAD FAITH CASES: BAD FAITH CLAIMS ALLEGING DELAY IN INVESTIGATION, UNREASONABLE INTERPRETATION OF POLICY, AND LACK OF ALE PAYMENT CAN ADVANCE TO TRIAL, THOUGH SUMMARY JUDGMENT GRANTED ON CLAIM RELATING OT AGGREGATION AND DEPRECIATION ON PERSONAL PROPERTY (Philadelphia Federal)

In Hudgins v. Travelers Home & Marine Ins. Co., plaintiff’s home was destroyed in a fire. An investigation of the cause of the fire took place, and plaintiff’s son was arrested and charged with arson. The insurer continued its investigation, but failed to make a decision as to coverage until nearly 10 months after the fire when the charges against plaintiff’s son were dropped and he submitted to an examination under oath. Following the deposition, the insurer accepted coverage and issued payment, but aggregated the total value of all items included in plaintiff’s personal property claim and depreciated the value. The insurer also ended additional living expense payments under suspicious circumstances. Multiple lawsuits were filed as a result of the claims settlement process, with the instant breach of contract and statutory bad faith action being filed in state court and removed to federal court by the insurer. The insurer then moved for summary judgment on the bad faith claims.

First, the court found that a bad faith claim can be pursued despite the insurer’s acceptance of coverage. A statutory bad faith claim extends to an insurer’s actions such as unfair investigation techniques or delayed payment of claims. Thus, plaintiff’s allegations that the insurer unreasonably delayed its investigation and coverage decision, as well as her challenge of the depreciation reduction on her personal property claim and the insurer’s refusal to reinstate her ALE payments, could all support a bad faith claim.

The court then turned to each allegation of bad faith to consider the insurer’s argument plaintiff lacked evidentiary support for her claims. First, the court considered whether the insurer’s delay in investigation was in bad faith. The only piece of evidence needed to make the coverage determination was plaintiff’s son’s sworn statement, and the insurer failed to take the deposition for nine months. The court found whether this presented an unreasonable delay in investigation was a question of fact for the jury and denied summary judgment.

Next, the court considered whether the insurer’s interpretation of the policy was unreasonable as to establish bad faith. Plaintiff alleged the insurer acted in bad faith when it asserted an “appraisal defense” in an underlying action. Although the defense was procedurally rendered moot and never reasserted, the court found if reliance on the defense, even temporarily, was a frivolous interpretation of the policy, such an action could constitute bad faith. Therefore, summary judgment was denied on that count.

Conversely, the court found no reasonable jury could find the insurer’s interpretation of the policy allowing it aggregate and depreciate the value of plaintiff’s personal property was unreasonable, and granted summary judgment.

The court found a material question of fact as to whether the insurer’s decision to stop making ALE payments was in bad faith. Plaintiff presented evidence suggesting the insurer stopped paying ALE because plaintiff sought sanctions in response to a motion filed by the insurer in an underlying litigation, as well as evidence its refusal to reinstate the payments broke with its usual practice. Therefore, summary judgment was denied.

Finally, plaintiff’s attempt to include an ‘abuse of process’ claim as a part of her allegations of bad faith failed due to plaintiff’s failure to produce enough evidence to enable a jury to find the insurer did not have a reasonable basis for  its actions in the underlying action.

Date of Decision: July 31, 2013

Hudgins v. Travelers Home & Marine Ins. Co., Civil Action No. 11-882, 2013 U.S. Dist. LEXIS 107775 (E.D. Pa. July 31, 2013) (Yohn, J.)

OCTOBER 2013 BAD FAITH CASES: COVERAGE FOR QUI TAM ACTION DENIED UNDER “PRIOR OR PENDING LITIGATION” EXCLUSION; INSURED NEED NOT BE SERVED WITH COMPLAINT FOR EXCLUSION TO APPLY (Philadelphia Commerce Court)

In AmerisourceBergen Corp. v. ACE Am. Ins. Comp., plaintiff brought suit against the insurer alleging the insurer denied plaintiff’s professional liability claim in bad faith. Plaintiff provides pharmaceutical manufacturers with drug distribution services, clinical education, marketing, and business resources for their clients. On May 1, 2007, the insurer issued plaintiff a claims-made professional liability policy, which was renewed on the same date the following two years, to provide plaintiff with coverage for its business endeavors in the pharmaceutical industry.

In December of 2009, plaintiff was served with a qui tam action alleging it provided kickbacks to doctors for prescribing certain drugs sold by plaintiff at inflated prices, allowing plaintiff to recover illegitimate amounts from Medicare.  The qui tam action was filed and docketed on June 5, 2006. After being provided notice of the claim, the insurer issued a reservation of rights letter. On April 5, 2010, the insurer denied coverage due to lack of timely notification and exclusions for claims arising out of “prior or pending litigation,” “false, deceptive, or unfair business practices,” and an “inaccurate description of the price of goods.” Plaintiff then filed a bad faith suit against the insurer.

After establishing a claim had taken place during the policy period, triggering coverage, the court turned to the allegedly applicable exclusions. First, the court determined litigation only needed to be filed, not served, to be fall within the “prior or pending litigation” exclusion. Therefore, even though plaintiff wasn’t served with the qui tam action until 2009, the action was “pending” under the policy as of the date of filing in 2006. The application of this exclusion was sufficient to deny coverage in and of itself; however, the court went on to find the exclusion for claims arising from or alleging “false, deceptive or unfair business practices or any violation of consumer protection laws” also applied because the action was brought under the False Claims Act, intended to penalize false or deceptive practices leading to Medicare fraud. The “inaccurate description of the price of goods” exclusion, however, did not apply.

Since the insurer properly denied coverage under the policy, plaintiff was unable to demonstrate the insurer did not have a reasonable basis for denying benefits under the insurance policy, the claim failed as a matter of law and the insurer was granted summary judgment.

Date of Decision: July 16, 2013

AmerisourceBergen Corp. v. ACE Am. Ins. Comp., March Term 2011, No. 02679, 2013 Phila. Ct. Com. Pl. LEXIS 249 (C.C.P. Phila.  Jul 16, 2013) (Snite, Jr., J.)

OCTOBER 2013 BAD FAITH CASES: COURT QUASHED SUBPOENA DIRECTED TO ATTORNEY OF THIRD PARTY AS IT SOUGHT INFORMATION IRRELEVANT TO THE CARRIER’S CLAIMS HANDLING ON AN IRRELEVANT CONTRACT, AND WOULD VIOLATE THE ATTORNEY CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE (New Jersey Federal)

In Kull v. Arrowood Indemnity Company, the court addressed a motion to quash a subpoena issued in connection with an underlying case in federal district court in Ohio.  At the time of the subpoena, the only litigation issue in Ohio was a bad faith insurance claim by an insured corporation against one of its insurers.  That insured originally had disputes with two insurers, with which it signed releases in connection with a settlement.  The subpoena was directed at the attorney for the second insurer, not a party in the Ohio litigation, who was involved with the litigation and the release of his client, which was putatively similar or identical to the release provided to the insurer in the bad faith case.

The court quashed the subpoena.

First, the information requested was not relevant. The non-part insurer’s release did not have any relevance to the way insurer defendant handled the claim.  The other insurer’s release was not even at issue in that case.  Even  if certain provisions of the agreements are “substantively identical”, since they were two separate contracts, any information that the other insurer’s attorney could provide about the party insurer’s release is not likely to lead to relevant evidence in the Ohio matter. Second, the information requested is protected by the attorney-client privilege and the work product doctrine.  The court agreed that the requested deposition would require the attorney to divulge his own mental impressions and opinions regarding the development and/or preparation of his client’s release and thus, violate the work product doctrine.

Date of Decision October 11, 2013

Kull v. Arrowood Indemnity Co., Civil Action No. 13-4343 (FLW), 2013 U.S. Dist. LEXIS 147271 (D.N.J. October 11, 2013) (Bongiovanni, U.S.M.J.)

 

OCTOBER 2013 BAD FAITH CASES: COURT REFUSES TO DISMISS UIM BAD FAITH CLAIM WHERE EVEN FACTS ALLEGED FROM WHICH BAD FAITH IN CLAIMS HANDLING AND DELAY IN SETTLEMENT OR INVESTIGATION MAY BE INFERRED FROM ALLEGATIONS (Middle District)

In Shaffer v. State Farm Mutual Automobile Insurance Company, the UIM insureds was injured, settled with the other driver and made a UIM claim against its carrier.  The insureds alleged they were cooperative, provided all pertinent medical information promptly, and submitted to an examination under oath.  The carrier’s investigation was ongoing and there had been no settlement or denial of the claim at the time of filing, though the parties had negotiated and could not come to an agreement.

The court stated that bad faith could arise from the total denial of a benefit, but could also arise from claims handling, in failing to conduct a reasonable investigation or in undue delays, even where a claim is eventually paid.   The plaintiff’s burden of proof is high, and the insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.  Further, the length of a time by itself cannot establish bad faith; rather, a court should look to the degree to which a defendant insurer knew that it had no reason to deny the claim, and if the delay is attributable to the need to investigate further or even simple negligence, no bad faith has occurred.

Based on the allegations in the complaint taken in the light most favorable to plaintiffs, the court denied the carrier’s motion to dismiss the bad faith case as premature. The plaintiffs asserted enough facts to show a delay and to leave open the possibility that the delay was improper. The court was mindful of the fact that the carrier may be conducting a comprehensive investigation into the claim thereby providing what may be a reasonable basis for any delay during that period; however, for purposes of a motion to dismiss, the alleged facts may also indicate questionable investigation and communication practices, especially considering that the underlying automobile accident involved a clear liability, head-on collision. The court concluded that this case called for discovery regarding the claim handling, and therefore, dismissal was not proper at this stage of the proceedings.

Date of Decision:  October 15, 2013

Shaffer v. State Farm Mut. Auto. Ins. Co., Civil Action No. 1:13-cv-01837, 2013 U.S. Dist. LEXIS 147875 (M.D. Pa. October 15, 2013) (Rambo, J.)

OCTOBER 2013 BAD FAITH CASES: COURT REJECTS CARRIER’S MOTION FOR JUDICIAL NOTICE OF POINTS CONSTITUTING “LEGISLATIVE FACTS” RATHER THAN “ADJUDICATIVE FACTS” AS BASIS TO CREATE PREDICATE FOR DEFENSE JUDGMENT ON BAD FAITH; AMBIGUITY IN LAW REGARDING COVERAGE ISSUE IS NOT A DEFENSE TO BAD FAITH UNLESS INSURER ACTUALLY INCLUDED CONSIDERATION OF THAT AMBIGUITY IN ITS DECISION MAKING (Middle District)

In Bodnar v. Nationwide Mutual Insurance Company, the carrier used a somewhat innovative to establish a predicate for a later finding that it did not act in bad faith.  The carrier brought a motion asking the Court to take judicial notice of three items, under Federal Rule of Evidence 201(a):

 

1. During all relevant times, there has been a split in case law authority as to the definition of “employee” in Pennsylvania;

2. During all relevant times, there has been no “hard and fast” rule under Pennsylvania law for determining whether a particular relationship is that of employer-employee; and

3. During all relevant times, this Court had determined that the definition of “temporary worker” used in the insurance policy at issue is not ambiguous.

 

First, the Court found that these were legislative facts and not adjudicative facts; and therefore inappropriate for judicial notice.  Rather, these legal issues should be decided through the normal “adversarial process of litigation.”

Second, the Court found that even if it assumed these “facts” to be true, the bad faith issue would yet remain open.  Assuming that ambiguity in the law would create a reasonable basis for withholding coverage, the carrier would still have to show that this ambiguity actually influenced its decision.  Put another way, if the insurer actually acted unreasonably, it cannot escape bad-faith liability just because an ambiguity exists in a general sense which caused a lack of clarity or predictability in the applicable law. There would have to be a showing that the insurer actually considered the law ambiguous and that such ambiguity motivated or at least substantially influenced its decision regarding whether to afford or deny coverage, and after initially denying coverage, whether to adhere to this decision and to support it through continued declaratory judgment litigation for the period prior to the settlement of the claim.  Such facts remain to be determined, and could not be resolved in whole or in part through a grant of judicial notice. The court stated that this would be true even if the facts the carrier sought to have judicially noticed were actually “adjudicative facts”, which they were not.

Date of Decision: October 15, 2015

Bodnar v. Nationwide Mutual Insurance Company, 3:12-CV-01337, 2013 U.S. Dist. LEXIS 148343 (M.D. Pa. October 15, 2013) (Mariani, J.)

OCTOBER 2013 BAD FAITH CASES: NO BAD FAITH IN REQUESTING MEDICAL RECORDS WHERE CARRIER WAS REASONABLE IN MAKING SURE RECORDS WERE CURRENT AND INSUREDS DELAYED IN RESPONDING TO REQUESTS (Middle District)

In Schlegel v. State Farm Mutual Automobile Insurance Co., the insured made a UIM claim against her carrier, form an accident in which she was seriously injured, and for which she received $100,000 from the tortfeasor.  She was required to provide the carrier with all the details about the injury, treatment, and other information that the insurer may need as soon as reasonably possible after the injured insured is first examined or treated for the injury. She was also required to provide written authorization for the carrier to obtain (a) medical bills, (b) medical records, (c) wage, salary, employment, tax, business, and financial information; and (d) any other information it deemed necessary to substantiate the claim.

The carrier requested documentation from plaintiff’s counsel such as medical records and medical bills to evaluate the claim. When plaintiffs failed to answer, the carrier sent at least nine additional inquiries between, but did not receive a response for approximately 11 months after the first inquiry.  Two weeks after receiving the responses, it conducted its UIM evaluation and, finding that the value of the claim did not exceed $100,000, denied the claim. Plaintiffs provided additional medical documentation on March 2, 2011, but the carrier again determined that the value did not exceed $100,000 and again denied the claim.  The insured brought claims under Pennsylvania’s Bad Faith Statute, Unfair Trade Practices Consumer Protection Law, Motor Vehicle Financial Responsibility Act and Unfair Insurance Practices Act.

The court rejected the bad faith claim, and found that plaintiffs failed to meet their burden of proving that a reasonable juror could find that the carrier lacked a reasonable basis for requesting plaintiff’s medical documentation and that it knew of, or recklessly disregarded, the lack of reasonable basis. The precise legal issue was whether the insurer unreasonable document requests with the intent to improperly delay and ultimately deny the payment of UIM benefits. Plaintiffs took the position that the carrier requested documents it already had, and further argued that it acted in bad faith by requiring documentation to verify the policy coverage when it  allegedly already possessed the documents governing the terms of coverage.
The court initially found that the policy clearly states the carrier may request medical documentation when evaluating a claim for UIM benefits, as set forth above; and that it may require the above-described written authorizations to obtain records.  The carrier did not deny possessing some of the insured’s medical records from a prior litigation; however, it required an updated report of medical expenses because the insured had been undergoing medical treatment on an ongoing basis throughout the course of this litigation as well as since the prior third-party insurance lawsuit. The court found the request to make the records current reasonable where the UIM claim heavily depended on the total medical expenses.  Thus, no bad faith. Assuming arguendo, this request was unreasonable, this amounted to mere negligence, not intentional or reckless conduct.  The insureds never complained to the carrier that it already had the records; nor did its employees know of records in the insurer’s file from another case.

Summary judgment was granted on the bad faith claim, and was additionally granted on the Unfair Trade Practices claim, as there was no evidence of misrepresentations, malfeasance or improper conduct.

Date of Decision:  August 8, 2013
Schlegel v. State Farm Mutual Automobile Insurance Co., CIVIL ACTION NO.3:11-CV-2190, , 2013 U.S. Dist. LEXIS 111514 (M.D. Pa.  August 8, 2013) (Mannion, J.)

OCTOBER 2013 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE UNDER ENDORSEMENT FOR WATER DAMAGE (Philadelphia Federal)

In Advertir Inc. v. Peerless Indemnity Insurance Company, plaintiff’s warehouse suffered water damage when water entered the warehouse through its loading dock doors during two heavy storms. The carrier denied coverage under the policy’s exclusion for damage caused by flood and surface water. Plaintiff claimed the denial of coverage was improper, and that the damage was covered by the policy’s endorsement for damage caused by water that “enters into and overflows from within a sump pump, sump pump well or other type of system designed to remove subsurface water which is drained from the foundation area.” It brought claims for breach of contract and bad faith.

The court did not have to reach the details of the bad faith issue, as it found the endorsement did not apply and there was no coverage, as the carrier asserted in denying the claim originally. The court found the endorsement language clear and unambiguous in not providing coverage for the damage at issue. The evidence was unequivocal that the water which entered the warehouse never entered into the sump pump at the bottom of the loading bay, and therefore plainly did not fall within the provision covering damage from water that “enters into and overflows from within a sump pump or sump pump well.” The plaintiff did not argue otherwise, but instead posited that the entire loading bay, including the sloped concrete ramp, is an “other system designed to remove subsurface water which is drained from the foundation area.” After a detailed analysis, which included a picture of the ramp as an exhibit to the Opinion, the court rejected that argument, and granted summary judgment to the carrier.

Date of Decision:  August 29, 2013

Advertir Inc. v. Peerless Indem. Ins. Co., CIVIL ACTION No. 12-1352, 2013 U.S. Dist. LEXIS 123450 (E.D. Pa. August 29, 2013) (Goldberg, J.)

OCTOBER 2013 BAD FAITH CASES: STATUTORY BAD FAITH CLAIM PRE-EMPTED BY ERISA; NO PRIVATE CAUSE OF ACTION UNDER PENNSYLVANIA’S UNFAIR INSURANCE PRACTICES ACT (Philadelphia Federal)

In Minchella v. Sun Life Assurance Company, the decedent was insured under a group life insurance policy as a benefit of his employment.  The court found that statutory bad faith claims were pre-empted by ERISA, as were the claims under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.  The court further found that the plaintiff’s effort to bring a bad faith claim based on violations of Pennsylvania’s Unfair Insurance Practices Act (UIPA) were not permitted, as (1) that statute does not provide a private cause of action and (2) violation of that UIPA is not the basis for a claim of statutory bad faith under 42 Pa.C.S. § 8371.  Moreover, to the extent this was an effort at making such a section 8371 statutory bad faith claim, as stated above  it was pre-empted.

As set forth in other entries in this Blog, there appears to be a difference in the willingness of Pennsylvania’s lower state courts and the federal courts in looking to the UIPA as the basis for a statutory bad faith claim.

Date of Decision:  September 23, 2013

Minchella v. Sun Life Assurance Company, CIVIL ACTION NO. 13-3823, 2013 U.S. Dist. LEXIS 136326 (E.D. Pa. September 23, 2013) (Rufe, J.)

OCTOBER 2013 BAD FAITH CASES: STATE STATUTORY BAD FAITH CLAIM PRE-EMPTED BY ERISA (Philadelphia Federal)

In Gunning v. Prudential Insurance Company, the court rejected plaintiff’s various efforts to plead, either directly or indirectly, a Pennsylvania statutory claim for bad faith because such claims were pre-empted by ERISA.  The insured was a former employee of US Airways, and was insured under a group life insurance policy issued by the carrier.

Dated of Decision: October 7, 2012

Gunning v. Prudential Insurance Company, CIVIL ACTION NO. 13-3965, 2013 U.S. Dist. LEXIS 144514, (E.D. Pa. October 7, 2013) (Schmehl, J.)