Daily Archive for November 26th, 2013

NOVEMBER 2013 BAD FAITH CASES: SUPERIOR COURT AFFIRMS BAD FAITH FINDING BASED ON ADJUSTER’S FAILURE TO PERFORM INDEPENDENT EVALUATION ON UIM CLAIM; PERMITS EXPERT TESTIMONY ON CLAIMS HANDLING; UPHOLDS PUNITIVE DAMAGE AWARD; AND DOES NOT PERMIT EXPERT FEES, INVESTIGATIVE FEES, ARBITRATION FEES AND TRIAL PREPARATION EXPENSES WITHIN THE TERM “COURT COSTS” (Pennsylvania Superior Court)

In Grossi v. Travelers Personal Ins. Co., plaintiff brought suit against his insurer for bad faith handling of his UIM claim after he was awarded $4M at arbitration despite the insurer’s refusal to settle for more than its $1,000 reserve.  Plaintiff won at the trial level on his bad faith claim, and the insurer appealed to the Superior Court.  The Superior Court affirmed on most issues, in a divided 2-1 panel decision with a vigorous dissent.

The insurer presented six questions on appeal, including a question as to whether the trial court erred as a matter of law in concluding plaintiff had proven by clear and convincing evidence the insurer acted in bad faith in its handling of the underinsured claim. The insurer argued the trial court should have granted its post-verdict motion for judgment notwithstanding the verdict or a new trial. The Superior Court, however, concluded the trial court did not abuse its discretion in finding the insurer had breached its good faith duty. The trial court based its decision on the adjuster’s affidavit, as well as plaintiff’s expert’s testimony.

Much of the majority’s opinion is focused on setting and never changing a loss reserve, and failures to follow the carrier’s manual in evaluating the loss reserve.  As found in the majority opinion, in her affidavit, the original adjuster admitted she conducted no individual assessment of the future earnings loss before setting a $1,000 reserve on the claim, despite plaintiff submitting evidence that his loss far exceeded the $300,000 policy limit. Plaintiff’s expert testified this was an unreasonable practice, particularly given the $4M arbitration award so far exceeded the policy limits. The insurer argued it is not required to pay out claims without the opportunity to fully investigate the same.  However, the court found that the investigation was unduly delayed and or carried out in connection with defending an arbitration rather than making an evaluation of the claim, and distinguished the case law on which the carrier relied.

As to the evaluation, the majority characterized the carrier’s positionas being that the insured’s expert’s number was speculative, and could be rejected on that basis alone.  The found that such an argument would justify rejection of any UIM claim on the basis of an inherent uncertainty in estimating damages, and would take away any responsibility for a carrier’s doing its own analysis and evaluation.  This could not fulfill an insurer’s duty of good faith and fair dealing.

The insurer also appealed the trial court’s finding that its delay in investigating and processing the claim constituted bad faith, however, the appellate court found the trial court’s determinations to be factual in nature and therefore subject to the trial court’s determination of credibility, and did not disturb the findings.  Of note were the majority’s looking to standards in the Unfair Insurance Practices Act governing the time for investigation and reporting.  The court recognized that length of time alone cannot create a per se bad faith case, but time in the context of other conduct is to be considered.

It is further noteworthy that the trial and appellate court placed great reliance on plaintiff’s expert in reaching the bad faith decision concerning the claims handling process.

Next, the insurer argued the trial court erred in awarding punitive damages in the case because the insurer did not act with malice or dishonest purpose. Pennsylvania law, however, requires no showing beyond establishing bad faith conduct under the statute to permit an award of punitive damages. Therefore, despite the insurer’s secondary argument, that the award was too high, the court found no error in awarding the damages or any constitutional impropriety in the amount of the award.  As the punitive damages award was 5-6 times the compensatory damages award, and over $1.2 Million by itself, the court’s lengthiest analysis is on the punitive damages award; looking at its own prior decision in Hollock, and the U.S. Supreme Court case law focusing around State Farm v. Campbell.

Finally, the insurer argued the trial court improperly included expert witness fees, arbitration fees, investigation fees, and other trial preparation expenses and fees in its award of court costs under the statute. The appellate court found in the insurer’s favor on this issue, as court costs is commonly defined, and supported by Pennsylvania case law, as only including ‘docket costs.’

Date of Decision: November 1, 2013

Grossi v. Travelers Personal Ins. Co., Civil Action Nos. 769 WDA 2012, 828 WDA 2012, 2013 Pa. Super. LEXIS 3144 (Pa. Super. Ct. Nov. 1, 2013) (Mundy, J.).

NOVEMBER 2013 BAD FAITH CASES: EXCESS INSURER CORRECTLY DENIED COVERAGE WHERE UNDERLYING SETTLEMENT HAD NOT YET BEEN PAID (Pennsylvania Superior Court)

In Lexington Ins. Co. v. Charter Oak, the trial court granted defendant, the excess insurer, summary judgment, ruling the carrier’s duty to defend and indemnify were not triggered because the underlying policies were not exhausted at the time the plaintiff tendered the claims, as the underlying settlement had not actually been paid yet.

On appeal, plaintiff-appellant asserted the trial court erred in its strict interpretation of the policy’s exhaustion clause because although the limits had not been exhausted at the time the tender was presented, the terms of the proposed settlement, which would exhaust the limits, were sufficiently agreed upon to trigger defendant’s duty to defend. Plaintiff, citing case law from the Second and Third Circuit Courts of Appeals, argued an insured can recover any losses suffered beyond the primary coverage under an excess policy, and that a settlement with a primary insurer, even if within the policy limits, functionally ‘exhausted’ the policy, triggering the excess coverage. The court determined those cases were unpersuasive, as they considered the duty to indemnify, rather than the duty to defend. Furthermore, the question in Lexington was when the duty to defend arose, rather than whether it was triggered.

Instead, the court relied on different Second Circuit precedent and held an excess insurer has a relevant interest in awaiting actual payment of a settlement by the primary insurer before providing coverage under an excess policy. Because the excess policy explicitly stated the underlying policy would be considered exhausted “by payment” of judgment or settlement, the court held its duty to defend was triggered only by the actual payment of the relevant primary insurance. Therefore, the underlying primary policy, but not the excess professional services liability policy, had to be exhausted by payment before defendant’s excess policy was triggered. As always, that duty would remain in effect until defendant could establish the claims against plaintiff were beyond the scope of coverage provided by the excess policy, or until a settlement was reached under the policy.

Date of Decision: November 6, 2013

Lexington Ins. Co. v. Charter Oak Fire Ins. Co., Civil Action No. 2876 EDA 2012, 2013 Pa. Super. LEXIS 3146 (Pa. Super. Ct. Nov. 6, 2013) (Bender, P.J.).

Prior Blog post on this case.