Yearly Archive for 2014

DECEMBER 2014 BAD FAITH CASES: WHERE INSURER DENIES CLAIM, AND INSURED SETTLES WITH TORTFEASOR, COURT OBSERVES THAT IF INSURER’S DENIAL IS IN BAD FAITH THERE IS AN EQUITABLE WAIVER OF ITS SUBROGATION CLAIM (New Jersey Appellate Division)

In Nucci v. American Insurance Company, New Jersey’s Appellate Division addressed an insurer’s subrogation rights where it had originally denied coverage, was subject to suit for non-payment, and the insured partially settled the matter with another co-defendant whom had caused the damage for which the insured sought coverage.  The insurer argued that the insured’s claims had to be dismissed against it because the insured breached its contract by waiving the insurer’s subrogation rights through the settlement with the third party tortfeasor.  In the context of its opinion, the Appellate Division stated: “Plaintiff’s complaint did not expressly assert that [the insurer] acted in bad faith, in which case equity would preclude subrogation. Moreover, the trial court has not yet decided whether [the insurer] denied the claim ‘erroneously or wrongfully,’ and thus in ‘breach of contract.’ …. [The insurer] denied the claim after two inspections of the insured’s property. The trial court may find that the denial was in ‘good faith.’”

In addressing the merits, the Appellate Division rejected the basic premise that the insured would automatically waive the insurer’s potential subrogation rights simply by settling with the tortfeasor.  Rather, one issue involved whether the settling co-defendant was aware of the insurer’s subrogation rights, along with the novel issue of whether the third party could still be liable under a subrogation theory when it settled before the insurer had actually made any payment to the insured.

The appellate court remanded, stating: “Accordingly, we … remand this matter to the trial court for the limited purpose of affording the settling co-defendants the opportunity to brief whether their potential subrogation liability continues because they settled with notice of [the insurer’s] cross-claim [for subrogation]. We believe it is also appropriate to give the settling co-defendants the opportunity on remand to brief whether [the insurer] waived its potential subrogation rights by denying plaintiff’s claim, or by failing to pay that claim before the settling co-defendants settled with plaintiff.”

Date of Decision:  December 11, 2014

Nucci v. Am. Ins. Co., DOCKET NO. A-0147-13T1 , SUPERIOR COURT OF NEW JERSEY, 2014 N.J. Super. Unpub. LEXIS 2859 (App. Div.  December 11, 2014) (Simonelli, Guadagno, Leone, JJ.)

DECEMBER 2014 BAD FAITH CASES: COURT AFFIRMS TRIAL COURT’S DECISION TO VOID THE POLICY, BUT REMANDS FOR TRIAL ON STATE OF MIND ISSUE FOR INSURER’S CAUSE OF ACTION UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (New Jersey Appellate Division)

In Continental Casualty Co. v.  Hochschild, an insured sought coverage for damage to his boat, and the insurer claimed that no coverage was due because of misrepresentations in the insurance application.  The Appellate Division found that the policy was to be voided on the basis of equitable fraud, and affirmed the trial court’s decision to void the policy solely on that basis.

It vacated the trial court’s finding that the insured violated New Jersey’s Insurance Fraud Prevention Act (IFPA), because a trial was required to address the factual issues concerning that claim.  The appellate court was specifically concerned about the “stringent state-of-mind requirements that an insurer must prove to obtain affirmative relief under the IFPA”, and directed that the trial “shall focus on whether the insured ‘knowingly’ made false or misleading statements to the insurer, as required by” the IFPA.

Date of Decision:  November 20, 2014

Cont’l Cas. Co. v. Hochschild, DOCKET NO. A-2267-13T1, SUPERIOR COURT OF NEW JERSEY, 2014 N.J. Super. Unpub. LEXIS 2753 (App. Div. September 22, 2014) (Sabatino and Guadagno, JJ.)

 

DECEMBER 2014 BAD FAITH CASES: INSURED LIABLE UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (IFPA) (New Jersey Federal)

In Federal Insurance company v. Von Windherburg-Cordeiro, the insurer had denied a disability claim.  The insured pursued the matter in a AAA arbitration, where the insurer counterclaimed for fraud.  The insurer successfully defeated the insured’s affirmative claims, and prevailed on its counterclaim, and was awarded attorney’s fees.  The arbitrator had concluded that the insured’s injuries were largely or entirely feigned.

The insurer then brought a claim in federal court for violation of the IFPA.  The court rendered judgment on the pleadings in the insurer’s favor.

Date of Decision:  November 24, 2014

Fed. Ins. Co. v. Von Windherburg-Cordeiro, Civil Action No. 12-2491 (JAP),  2014 U.S. Dist. LEXIS 163828 (D.N.J.  November 24, 2014) (Pisano, J.)

DECEMBER 2014 BAD FAITH CASES: FEDERAL COURT INTERPRETS STATUTORY REQUIREMENTS OF UNDERINSURED WAIVER REJECTION; INSURED DOES NOT NEED TO DATE FORM FOR IT BE VALID AND INSUREDS’ CLAIMS DISMISSED (Philadelphia Federal)

Husband and wife plaintiffs allege their vehicle was involved in an accident, the damages resulting from the collision exceeded the amount of insurance recovered from the tortfeasor, that they made a claim to their insurer for underinsured motorist coverage, and that the insurer wrongfully and in bad faith denied coverage on the claim.  The insurer argued Plaintiffs waived underinsured motorist coverage in a waiver, while Plaintiffs assert the waiver failed to comply with the applicable statute, making it ineffective.

Under Pennsylvania law, an insured must affirmatively reject underinsured coverage.  To be effective, the signed rejection must contain the statutorily provided language.  Furthermore, the rejection form must be placed on a separate sheet of paper in prominent type, and it must be “signed by the first named insured and dated to be valid.”  If a purported rejection fails to comply with the statutory requirement, the underinsured coverage will be equal to the bodily injury liability limits.

Plaintiffs argued because the first named insured, the husband-plaintiff, did not date the form himself, but instead the date was printed in the header of the form, along with the names of the insureds and the policy number.

The Court rejected this argument, finding the most natural reading of the provision required the form be signed by the insured, but not that the insured also had to date the form.  The Court found that had the legislature intended to require the insured to date the form, it could have phrased the statute in a way that clearly required it.  Furthermore, the statute provides that the insured must be informed he may reject underinsured motorist coverage by signing the following written rejection form, but makes no mention of dating by the insured.  Therefore, because plaintiff signed the form and it was dated the rejection was valid, and the Court dismissed the claims with prejudice.

Date of decision: December 10, 2014

Lieb v. Allstate Prop. & Cas. Ins. Co., Civil Action No. 14-4225, 2014 U.S. Dist. LEXIS 171359 (E.D.Pa. Dec. 10, 2014) (Rufe, J.).

DECEMBER 2014 BAD FAITH CASES: PENNSYLVANIA SUPREME COURT RULES THAT STATUTORY BAD FAITH CLAIMS MAY BE ASSIGNED, FOCUSING ON LEGISLATIVE INTENT AND REMEDIAL NATURE OF STATUTE (Supreme Court of Pennsylvania)

In Allstate Property and Casualty Ins. Co. v. Wolfe, the Third Circuit had certified the issue to the Supreme Court of Pennsylvania as to whether an insured may assign the right to recover damages from his insurance company deriving from the insurer’s bad faith toward the insured, under 42 Pa.C.S. § 8371.  District Courts in the Third Circuit had split on the issue of whether relief under section 8371 represented an unliquidated tort claim which could not be assigned under Pennsylvania; a number finding no assignment possible under this theory.  Other Third Circuit and District Court cases found that section 8371 claims could be assigned, following Superior Court precedent.  The parties asserted various policies reasons for and against assignment.

The Supreme Court found that the “most appropriate way to approach the assignability issue is as a matter of statutory construction,” i.e., determining legislative intent.  The Court found it highly important to consider “the extant common law at the time of a statute’s enactment.”  The Court found that section 8371’s statutory language, “[i]n an action arising under an insurance policy,” was significant in interpreting the statute.  It interpreted that phrase as “interweav[ing] the statutory remedial scheme into the array of contract-based actions which already were assignable under the extant common law as of Section 8371’s enactment.”

The Court stated: “As such, to the degree that Section 8371 is regarded as ‘merely provid[ing] an additional remedy and authoriz[ing] the award of additional damages,’ Birth Center, 567 Pa. at 402, 787 A.2d at 386, this would seem to be a simple case. Per this line of reasoning, the Legislature’s mere supplementation of remedies should not be deemed to evince an unstated desire to disrupt the pre-existing degree of latitude in the assignment of underlying actions or to require the splitting of causes of action ….”

The Court then observed that the issue, however, was not so simple because of the intermingling of contract and tort concepts.  The Legislature had left in place the pre-statute Supreme Court case law which had placed a contract overlay on insurance bad faith claims, “but it chose to interpose additional conventions typically associated with tort law….”  The insurer opposing assignment was seen as reasonably relying on that phenomenon in making its argument.  However, it did not carry the day.

The Court ruled that: “On balance … we find that consideration of the occasion and necessity for Section 8371, the object to be attained, the previous legal landscape, as well as the consequences of our interpretation, favor” permitting assignment. The Court did not believe that the Legislature “contemplated that the supplementation of the redress available for bad faith on the part of insurance carriers in relation to their insureds would result either in a curtailment of assignments of pre-existing causes of action in connection with settlements or the splitting of actions.”  The Court observed that if the Legislature found the Court’s interpretation incorrect, it “may seek to implement curative measures pertaining to future cases, subject to constitutional limitations.”

In addition to the holding, it is significant to observe that the Court focused on section 8371 as a remedial law, serving “to supplement the remedies previously available to insureds in certain scenarios involving bad-faith conduct by their insurers, inter alia, by authorizing punitive-damages awards.”

Finally, there is much to be said for what can be achieved through the certification process, where the Third Circuit and Supreme Court work together to clarify issues in the law that otherwise could linger for years.  This is true in any context, but there are other issues in Pennsylvania’s statutory bad faith law, e.g., the split in the various courts over the extent to which the Unfair Insurance Practices Act may be considered in the statutory bad faith cases, in which such a process would be helpful to litigants and lower courts required to follow Pennsylvania.

Date of Decision:  December 15, 2014

Allstate Property and Casualty Insurance Company v. Wolfe, No. 39 MAP 2014 (Pa. Dec. 15, 2014)

DECEMBER 2014 BAD FAITH CASES: COURT WOULD NOT ABSTAIN FROM HEARING BAD FAITH CASE FOR DAMAGES MIXED WITH DECLARATORY JUDGMENT ACTION WHERE NO PARALLEL STATE COURT CASE PENDING (Western District)

In Tube City IMS Corp. v. Allianz Global Risks US Insurance Company, the insurer removed a case based on breach of contract and bad faith, or in the alternative, a claim that the insurer had to provide coverage based upon its misrepresentations about the scope of coverage.  The insured sought remand on the basis of abstention.  Looking at the law governing abstention in the case of declaratory judgment actions, where there are also money damages claims, the court found no basis for abstention in such cases possible where there was no second parallel state court proceeding pending.  The same logic prevented the application of Colorado River absention.

Dated of Decision:  November 3, 2014, adopted, November 25, 2014

Tube City IMS Corp. v. Allianz Global Risks US Ins. Co., Civil Action No. 14-1245, 2014 U.S. Dist. LEXIS 165654 (W.D. Pa. November 3, 2014) (Mitchell, M.J.), adopted in, Tube City IMS Corp. v. Allianz Global Risks Us Ins. Co., Civil Action No. 14-1245, 2014 U.S. Dist. LEXIS 164495 (W.D. Pa. Nov. 25, 2014) (Cercone, J.)

DECEMBER 2014 BAD FAITH CASES: NO ASSIGNMENT CLAUSE DOES NOT BAR COVERAGE WHERE INSURED UNDERGOES A STATUTORY MERGER; INSURER REQUIRED TO PAY COUNSEL FEES, EVEN IN ABSENCE OF BAD FAITH (New Jersey Federal)

In Lime Tree Assocs., LLC v. Burlington Ins. Co., the court considered whether an insurer had properly denied coverage under a ‘no assignment’ clause in the policy, where the underlying insured-company underwent a statutory merger, resulting in a surviving LLC.  Under New Jersey law, such a merger entitles the surviving entity to “all of the rights, privileges and powers of each of the partnerships and other business entities that have merged or consolidated, and all property, real, person and mixed, and all debts due to any of those partnerships and other business entities, as well as all other things and causes of action belonging to each of those partnerships and other business entities.”  The insurer denied coverage for a personal injury suit under the ‘no assignment’ clause, as well as under the definition of “insured,” which had been modified by a ‘new entities’ exclusion.

Whether the policy language prevented a transfer of contractual rights following and through a merger is an issue that has not yet been considered by the New Jersey Supreme Court, but has been previously addressed by the Appellate Division of New Jersey and district courts of the Third Circuit.  Those jurisdictions have all held that in order to prevent a transfer of rights through merger or by operation of law, the contract’s language must be explicit – the exclusionary language must have anticipated such a transfer and purposefully prevented it.

Therefore, a generic clause barring assignment would be insufficient to bar coverage; rather, to be given effect, the exclusionary clause must contain language that specifically addresses the circumstances and issues at hand.  The court determined the no assignment clause in the policy was neither specific nor explicit with regard to transfer by merger or operation of law, and was therefore insufficient to bar coverage.

Furthermore, the reasoning behind the no assignment clause did not support a denial of coverage; no assignment clauses are intended to protect the insurer from unknowingly insuring against unforeseen risks when the coverage is transferred to a different insured, but where the loss has occurred prior to the transfer of coverage, that risk is abated entirely.  For that reason, courts have refused to apply no assignment clauses to transfers occurring by operation of law because such transfers do not entail any increase in the risk or hazard assumed by the insurer.  This comports with New Jersey’s practice of strictly construing clauses that are designed to limit coverage.

Coverage was also not excluded by the new entities exclusion because the surviving entity was not a new entity; it succeeded to all of the original insured’s rights automatically and as a matter of law under the state statute.  Therefore, the surviving entity was not a newly acquired entity; it was merely a continuation of the original entity.

The court awarded the LLC counsel fees under R. 4:42-9(a)(6), citing authority that the insured was entitled to such fees as the successful claimant. The insurer had declined a defense “even though it knew about their valid statutory merger.” Moreover, although the insurer’s “refusal may not have been in bad faith,” denying the insured counsel fees would have deprived it of the full benefit of its insurance contract.  New Jersey Court Rule 4:42-9(a)(6) permits, at the discretion of the trial court, an award of counsel fees in “an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.”

Date of Decision: November 25, 2014

Lime Tree Assocs., LLC v. Burlington Ins. Co., Civil No.: 13-6017, 2014 U.S. Dist. LEXIS 165794 (D.N.J. Nov. 25, 2014) (Hayden, J.)

Happy Thanksgiving to All

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Picture by M. M. Ginsberg

NOVEMBER 2014 BAD FAITH CASES: INSURER EXPOSED TO BAD FAITH CLAIM BY USING INSURED IN CLAIMS HANDLING PROCESS INSTEAD OF PAYING FOR THIRD PARTY TO DO THE WORK (WHERE INSURED FELL THROUGH A ROOF) (Western District)

In Selmek v. State Farm Fire & Cas. Co. the insurance adjuster had asked for some assistance from the insured in inspecting a damaged roof and securing it from further damage, as a result of which the insured fell through the roof.  The insured brought claims for negligence and bad faith.  The Court found that the insurer had a contractual duty of good faith to inform the insured that under the policy the insurer had to pay for a third party contractor to take on these sorts of risks in securing the property.  The insured alleged that the insurer had the insured take on these tasks to improperly save money by not hiring a contractor, as required under the policy.  This sufficiently stated a statutory bad faith claim.

Date of Decision:  September 20, 2014

Selmek v. State Farm Fire & Cas. Co., No. 14-388, 2014 U.S. Dist. LEXIS 162294 (W.D. Pa. Sept. 20, 2014) (Fischer, J.)

NOVEMBER 2014 BAD FAITH CASES: NAMING WRONG INSURER WITHIN INSURANCE GROUP AS DEFENDANT REQUIRES DISMISSAL OF CLAIMS (New Jersey Federal)

In Klein v. Hanover Insurance Company, the court addressed the not infrequent situation where an insurance company is part of a family or group of insurers, and either the group name or another member of the group is named as a defendant.  In this breach of contract/breach of the covenant and good faith and fair dealing case, the insurer named on the policy was issued by Citizens Insurance Company, which was part of the Hanover Insurance Group, Inc. However, the insured named Hanover Insurance Company, another member of Hanover Insurance Group, as the defendant.  The court dismissed the claims as the Hanover Insurance Company was not a party to the insurance contract.

Date of Decision:  October 27, 2014

Klein v. Hanover Insurance Company, Civil Action No.: 14-1055, 2014 U.S. Dist. LEXIS 152407 (D.N.J. Oct. 27, 2014) (Cecchi, J.)