Daily Archive for November 1st, 2013

NOVEMBER 2013 BAD FAITH CASES: BAD FAITH CLAIM TIME BARRED BY TWO YEAR STATUTE OF LIMITATIONS DESPITE POLICY STATUTE OF LIMITATIONS OF THREE YEARS; TIME OF DENIAL IS TIME WHEN STATUTE BEGINS (Western District)

In Sigal v. Gen. Am. Life Ins. Co., plaintiff brought suit alleging breach of contract and bad faith for two separate denials in 2005 and 2010 of his disability claims. Plaintiff, a surgical opthamologist, purchased three disability policies with “Own Occupation” riders from the insurer and its subsidiary. Two years after the purchase of the policies, plaintiff discovered he was suffering from a cardiac disease, the progression of which would be exacerbated if he failed to reduce the level of stress in his life. Plaintiff and his cardiologist determined eliminating eye surgery from his practice would reduce his stress levels. After making this determination and discontinuing his surgical practice, plaintiff made a claim in 2004 under each of the disability policies.

In 2005, all three claims were denied, as plaintiff was in excellent health aside from his cardiac condition, which remained asymptomatic, and still capable of performing surgery. After suffering a cardiac incident in 2010, plaintiff elected to “submit additional information” regarding his 2004 claim and sought retroactive disability payments for the time period between the initial claim submission in 2004 and the present date. The insurer refused to open the 2004 claim, and treated the information regarding the 2010 bypass as a new claim. The 2010 claim was also denied, except for the time during which plaintiff was recovering from the bypass, because he ultimately returned to work and continued to perform at the same level he did before the cardiac event. Following the 2010 denial, plaintiff brought suit against the insurer.

The court dismissed plaintiff’s bad faith count based on the insurer’s denial of his 2004 claims as time barred by the two year statute of limitations. In Pennsylvania, a bad faith claim accrues at the time of the initial denial of an insured’s claim. Plaintiff argued the language of the denial letter was ambiguous, and therefore did not trigger the statute, however, the court found this argument without merit because a clear or final denial is not necessary to the trigger the statute. The insurer’s denial of the claim in 2005 was sufficient to trigger the statute, regardless of whether the denial was final, or whether plaintiff understood the status of his claim.

The court also dismissed plaintiff’s bad faith count based on the insurer’s denial of his 2010 claim as barred by the statute of limitations. While plaintiff argued the three year litigation statute of limitations in the policy trumped the two year statute on the bad faith claim, again, the court also found this argument to be meritless. Like the 2004 claim, the limitation began to run at the time of the denial; since the insurer denied the claim on November 18, 2010, and plaintiff did not file suit until January 2, 2013, the claim was barred.

Date of Decision: August 22, 2013

Sigal v. Gen. Am. Life Ins. Co., Civil Action No. 2:13-cv-00169, 2013 U.S. Dist. LEXIS 119652 (W.D. Pa. August 22, 2013) (Eddy, U.S.M.J.)

NOVEMBER 2013 BAD FAITH CASES: COURT HOLDS “EXTREME DELAY” IN PROCESSING OF CLAIM AND TENDER OF PAYMENT CAN CONSTITUTE BAD FAITH UNDER THE STATUTE; ENTERS $2M JUDGMENT AGAINST INSURER, INCLUDING PUNITIVE DAMAGES AND ATTORNEYS’ FEES (Lackawanna County)

In Davis v. Fidelity Nat’l Ins. Co., plaintiffs brought suit against the insurer alleging breach of contract and bad faith for the insurer’s failure to settle its claim under a title insurance policy for five years. Plaintiffs owned a parcel of land on which they intended to build townhomes. When they applied for the appropriate zoning and construction permits, it became obvious that the parcel of land was actually part of a neighboring title due to service defect in an earlier quiet title action. The insurer took two years to investigate the claim and accept coverage, despite the plaintiffs’ consistent inquiries as to the status of their claim. After an additional year, plaintiffs filed suit, but a settlement was not reached for two more years, resulting in a total of five years from the date of filing of the claim and the settlement.

The court found that the insurer had consistently delayed the claims review and adjustment process, and found no reasonable basis for resolution of the claim to require five years. First, the insurer took 20 months to complete its investigation and notify plaintiffs the claim was covered. Then, it took another three years for the insurer to tender what the court viewed as an inadequate offer, and such a tender was only made after suit was filed. Furthermore, the insurer was unresponsive to plaintiffs’ consistent inquiries regarding the status of their claim.

The court found the insurer knew of and was recklessly indifferent to its lack of a reasonable basis for failing to resolve plaintiffs’ claim. Although the insurer argued a lack of ill will as required by the bad faith statute, the court found the insurer’s inquiry into the true landowner’s finances and ability to defend against a meritless quiet title action, rather than settling the claim with plaintiffs, sufficient to establish ill will, improper motive, dishonesty, and self-interest. Therefore, the court held “such an extreme delay” constituted bad faith under the statute because the insurer’s actions were outrageous and recklessly indifferent to the rights of its insured. The court also found evidence of bad faith through the insurer’s failure to: make a timely offer of settlement, manage and supervise the handling of plaintiffs’ claim, elevating its own interest above that of its insured and its failure to follow its own internal claims handling guidelines, and through violations of the UIPA.

Plaintiffs were awarded $393,227.21 in compensatory damages for their breach of contract claim, as well as $1,572,909.24 in punitive damages under the bad faith statute. Plaintiff was also awarded $168,467.00 in legal fees and $96,610.04 in interest, both of which are permitted by the bad faith statute. This resulted in a total judgment of $2,062,746.59.

Date of Decision: August 15, 2013

Davis v. Fidelity Nat’l Ins. Co., Civil Action No. 2009-CV-6154 (C.C.P. Lackawanna August 15, 2013) (Minora, J.).

NOVEMBER 2013 BAD FAITH CASES: COURT FINDS NO BAD FAITH WHERE INSURER DELAYED SETTLEMENT PENDING EXPERT REPORT ON CAUSATION (Blair County)

In Rhodes v. USAA Cas. Ins. Co., plaintiffs brought suit alleging the insurer had acted in bad faith by refusing to meet their settlement demand of $175,000 on their underinsured claim sooner than it did. To prove such a claim, the first prong of the bad faith statute (the insurer lacked a reasonable basis for denying benefits) was analyzed as to whether the insurer lacked a reasonable basis for not paying plaintiffs’ settlement demand sooner.

The court examined the timeline of events to determine whether or not the insurer acted reasonably. The first statement of demand was made on May 10, 2002, for $175,000. Over the next year and a half, the insurer made several settlement offers ranging from $5,000 up to $100,000, all of which plaintiffs rejected. On December 4, 2003, plaintiffs again demanded $175,000, and on December 22, 2003, the insurer agreed to settle for the same. Approximately three weeks later, the parties signed the release agreement and the insurer tendered the settlement proceeds.

The court held plaintiffs failed to meet their burden to show clear and convincing evidence, noting case law provides that even where liability is clear, where the value of the claim is not  clear the insurer acts reasonably in investigating the claim. The court relied in part on evidence provided by the defendant as to the amounts generated by its claim evaluation software, Colossus, in making its ruling. The software indicated the claim was worth only marginally more than the $65,000 plaintiffs had already received from other insurance companies on the claim, which the court found made the insurer’s initial offer of $5,000 reasonable. Furthermore, the insurer received multiple expert reports indicating some of plaintiff’s injuries were not caused by the accident which gave rise to the claim; once the insurer received a report confirming a causal relationship between plaintiff’s injury and the accident, a settlement was reached in less than six months.  As such, the court found the passage of time under the circumstances of the case reasonable, and that plaintiffs failed to prove the actions of the insurer’s personnel and its attorney were unreasonable.

Date of Decision: July 18, 2013

Rhodes v. USAA Cas. Ins. Co., Case No. 2004 GN 2279 (C.C.P. Blair July 18, 2013) (Brown, Jr., J.).