Monthly Archive for March, 2014

MARCH 2014 BAD FAITH CASES: COURT REFUSED TO DISMISS BAD FAITH CLAIM ON STATUTE OF LIMITATIONS GROUNDS WHERE BOTH TIMING OF WHEN CLAIM BEGAN AND DISCOVERY RULE APPLICATION SHOULD BE LEFT TO TRIER OF FACT (Middle District)

In Agrotors, Inc. v. Ace Global Markets, the insured claimed bad faith, which the court analyzed solely as a section 8371 claim.  Such a claim is subject to a two year statute of limitations which accrues when the right to institute and maintain a lawsuit arises. However, pursuant to the discovery rule, the statute of limitations may be tolled until a party knows or reasonably should know that he has the right to sue. The parties disputed whether a pleaded action by the insured was an acknowledge of damages or an effort to mitigate losses. The insured further alleged that pursuant to the discovery rule, it could not have been aware that it suffered damages due to the carrier’s bad faith until a later date when it received a declination of coverage letter.

Drawing all reasonable inferences in the insured’s favor, and recognizing the Third Circuit’s admonition that when commencement of the limitations period is in dispute, the trier of fact should determine the point at which a plaintiff reasonably should have been aware of its cause of action, the trial court should not determine the commencement of the limitations period as a matter of law unless the facts are so clear that reasonable minds cannot differ,” the court refused to dismiss the claim.  Rather, it found it was not clear when the cause of action arose, nor when the insured should have reasonably been aware of its accrual. Thus, at that early stage of the litigation, the court was unable to conclude as a matter of law that the applicable statute of limitations barred the bad faith claim.

Date of Decision:  February 24, 2014

Agrotors, Inc. v. Ace Global Mkts., CIVIL ACTION NO. 1:13-CV-1604, 2014 U.S. Dist. LEXIS 22560 (M.D. Pa. February 24, 2014) (Conner, J.)

MARCH 2014 BAD FAITH CASES: INSURED’S CONCEALMENT OF FACT THAT MANUFACTURER PAID FOR LOSS DESPITE MAKING CLAIM AND RECEIVING FUNDS FROM CARRIER COULD NOT CREATE BAD FAITH IN CARRIER, BUT DID STATE A COLORABLE CLAIM AGAINST INSURED’S UNDER FRAUD PREVENTION ACTION (New Jersey Appellate Division)

In AIG Casualty Company of New York v. Walsh, AIG’s policy required it to pay for losses to a damage yacht engine, less a deductible, and it did so.  However, the manufacturer replaced the engine at no cost. The carrier sought return of the funds paid, as there was no loss, and the insureds refused on the basis that they could keep money because the amount they received from the carrier and the manufacturer did not “exceed” their loss. The court disagreed, finding that the insureds essentially received two payments for the loss.
Therefore, the insureds did not sustain any monetary loss as a result of the damage to the yacht’s engine, and the motion judge correctly determined that defendants were not entitled to retain the carrier’s payment.
The court also rejected the insured’s bad faith claim, for the insurer’s “excessively badgering” them for the return of funds.  An insurer owes its insured a duty of good faith and fair dealing in processing a first-party claim and an insured may assert a claim for breach of that duty. However, the insured must establish that the insurer did not have a reasonable basis to deny the claim. The insured also must establish that the insurer knew of or recklessly disregarded the lack of a reasonable basis for denying the claim. In this case,
the bad faith claim failed as a matter of law because the carrier had an absolute right to demand the return of the funds paid, and the insureds wrongfully refused to return the monies. Thus, whether the carrier’s demands for repayment amounted to “excessive badgering” is irrelevant because the carrier demanded the return of the monies in good faith.

However, the appellate court did reverse the trial court’s dismissal of the carrier’s fraud claim against the insureds under the Fraud Prevention Act.  A person or practitioner violates the Act if he or she “[c]onceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.]” N.J.S.A. 17:33A-4(a)(3). In addition, a person or practitioner violates the Act if he or she “knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act.” N.J.S.A. 17:33A-4(b).
The carrier alleged that the insureds submitted repair estimates upon which the insurer paid the claim based, without disclosing that the manufacturer paid for the repair and replacement of the engine. The carrier also claimed that the insureds tried, by various means, to conceal the fact that they had been compensated twice for the loss, alleging that defendants did not disclose that they had received payment from the manufacturer until they filed their answer to the amended complaint.
The insureds argued that the manufacturer paid for the repair and/or replacement of the engine after the insurer paid the claim, and the policy does not specifically require them to return the monies that the insurer paid on the claim; and claimed that under the circumstances, they had a good faith basis to refuse to return the insurance payment until that issue was resolved by a court.

The appellate court found that the carrier established a prima facie case under the Act, as the record showed that the insureds were paid on their claim for repair and/or replacement of the yacht’s engine, and the manufacturer thereafter paid these costs. The insureds did not inform the carrier about this within a reasonable time, and the carrier only learned about it via its own investigation.  Thus, the facts as alleged supported a claim that the insureds acted to conceal facts material to their right to retain the insurance benefits paid to them.
Date of Decision:  February 12, 2014

AIG Cas. Co. of N.Y. v. Walsh, DOCKET NO. A-1784-12T1, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 283 (N.J. App. Div. February 12, 2014) (Per Curiam)

MARCH 2014 BAD FAITH CASES: COURT WOULD NOT DISMISS BAD FAITH CLAIM AT PLEADING STAGE BASED ON INSURER’S CLAIM THAT IT RELIED UPON EXPERT REPORT (Middle District)

In Aldsworth v. State Farm Fire & Casualty Co., the insured initially claimed that they suffered water infiltration in their home after a wind and rain storm damaged the roof.  The insurer sent out an engineer.  The engineer concluded that the cause of the loss was a construction defect on the part of a roofing contractor who had performed work on Plaintiffs’ roof in 2002. Plaintiffs had retained a public adjuster who amended the claim to being a claim for collapse based on Defendant’s engineer’s report. Defendant’s engineer had concluded that it was snow loads that exceeded the load capacity of the roof that caused the collapse. The collapse caused by weight of ice, snow or sleet is a covered loss under the policy. The carrier denied the claim. The insured brought claims for breach of contract and bad faith.

The court set out a very broad statement on bad faith, based on Pennsylvania Superior Court opinions, e.g., bad faith during the pendency of litigation may be considered as evidence of bad faith; bad faith is not restricted to an insurer’s denial of benefits and includes a wide variety of objectionable conduct including lack of good faith investigation and failure to communicate with a client; a claim for bad faith may be based on an alleged violation of the Unfair Insurance Practices Act (this later position being frequently rejected by other District Courts, while accepted in the Superior Court). The court did state that negligence or bad judgment do not constitute bad faith, and to support a finding of bad faith, the insurer’s conduct must be such as to “import a dishonest purpose,” and the plaintiff must show that the insurer breached its duty of good faith through some motive of self-interest or ill will.

The insurer sought to dismiss the bad faith claim on the basis that it obtained an expert report from an engineer.  The insured took the position, that even assuming everything the engineer said was true, under its view of coverage, the insurer should still have covered the claim.  The court agreed with the insurer that the parties have a difference of opinion regarding coverage of the claim. However, it looked to the insured’s averment that “[u]nder the terms of the policy, assuming arguendo that the engineer’s conclusions are accurate, the loss remains covered”, the reasonableness of Defendant’s basis for denying coverage is an issue. In other words, if the engineer’s conclusions do not eliminate coverage under the policy, Defendant’s interpretation of those conclusions is at issue and, at this stage of the proceedings, it cannot avoid a bad faith claim based on its reliance on the engineer’s report.
In light of Defendant’s motion to dismiss burden and the facts and circumstances presented here, we conclude that dismissal of Plaintiffs’ bad faith claim would be premature. While discovery may not provide Plaintiffs with the required clear and convincing evidence that Defendant “(1) did not have a reasonable basis for denying benefits under the policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim,” a determination on these matters is not properly made on the record before us. Therefore, Defendant’s motion to dismiss Plaintiffs’ bad faith claim is properly denied.

Date of Decision: February 14, 2014

Aldsworth v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 3:13-CV-2941, 2014 U.S. Dist. LEXIS 18656 (M.D. Pa. February 14, 2014) (Conaboy, J.)

MARCH 2014 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED ON BAD FAITH CLAIM WHERE INVESTIGATION WAS REASONABLE, DELAYS ATTRIBUTABLE TO BOTH PARTIES, AND WHERE INSURER ENGAGED EXPERTS THAT RESOLVED ANY CONTRADICTION BY ITS PRIOR EXPERT ON NEED FOR REPLACMENT OVER REPAIR (Middle District)

Moran Industries v. The Netherlands Insurance Company involved numerous disputes between the insured and the insurer over the extent of fire damage to a building and the terms of an insurance policy.  The carrier claimed there was a contractual two year limitations period for bringing a claim, and the insured denied ever receiving that endorsement, and so denied it was part of the contract.  There were additional disputes between experts over whether the fire requirement roof repair or replacement.  The carrier sought summary judgment on the breach of contract and bad faith counts.

The court found an issue of fact existed as to the actual insurance policy between the parties, including the contractual limitations endorsement.  However, the court found that if such a term did exist it would be enforceable as it was not unconscionable or in violation of public policy; was not barred by estoppel; and did not require a prior showing of prejudice.

The court did grant summary judgment on the bad faith claim.  It observed that an insurer may defeat a bad faith claim by showing it had a reasonable basis for its actions, and may do so by demonstrating it conducted a sufficiently thorough review or investigation, which it used as a foundation for its subsequent decisions. The insurer need not show that its investigation “yielded the correct conclusion or even that its conclusion more likely than not was accurate,” only that its actions were reasonable.
The insured presented no evidence that a reasonable jury could find the insurer acted in bad faith by a clear and convincing standard. The insured alleged delay in investigating the claim and finalizing its position; the carrier’s communications failures; and that the insurer’s expert expressed the opinion the roof may need to be replaced, rather than repaired—a fact the insurer disputed. The court found that the insurer demonstrated that it had a reasonable basis for its actions with respect to each of these allegations. It started its investigation within two days of the formal claim and acted with reasonable diligence throughout the investigation of the claim. It also made payment on the claim and gave the insured notice of its final position on the claim with reasonable diligence and well before the limitations period expired.
Second, regarding communication failures, the record did demonstrate some lapses in communication between the parties. The most significant communication difficulties occurred during the two-month period in which the parties attempted to arrange a meeting of their roofing consultants. The record further demonstrates, however, that the communication lapses were due to failures by both parties. Moreover, the record shows that the insurer acted with reasonable diligence following up missed communications and was conscious of the relative urgency. The insured offered no evidence demonstrating an ill-will, self-interest, or dishonest purpose on this point, and did not provide other evidence with which a reasonable jury could find bad faith by the clear and convincing standard.
Third, the insured’s allegation that the insurer disregarded its own expert’s alleged belief that the roof needed to be replaced does not establish bad faith by clear and convincing evidence, because the insurer demonstrated other reasonable bases for its actions. Even taking the facts in the light most favorable to the non-moving party and assuming the expert did manifest that the roof needed to be replaced, the insurer followed up on it expert’s assessment with a second assessment by an architect and engineer, whose report indicated an opinion that only a subsection of the roof needed to be repaired or replaced, not the entire portion of the roof as Moran contends.
Date of Decision:  February 19, 2014

Moran Indus. v. Neth. Ins., Co., Case No. 4:12-cv-01435, 2014 U.S. Dist. LEXIS 20081 (M.D. Pa. February 19, 2014) (Brann, J.)

MARCH 2014 BAD FAITH CASES: THIRD CIRCUIT APPLIES RESTATEMENT TO DETERMINE APPLICABLE STATE’S LAW ON POLICY INTERPRETATION WHERE PENNSYLVANIA AND NEW JERSEY CONFLICTED ON SCOPE OF “EMPLOYER’S EXCLUSION”; NO BAD FAITH WHERE INSURED SUPPLIED INSURER WITH WRONG DOCUMENTS AS BASIS FOR COVERAGE, AND WHERE THERE WAS A DISPUTE OF LAW ON APPLICABILITY OF EMPLOYER’S EXCLUSION AND TRIAL COURT HAD FOUND NEW JERSEY LAW TO REACH A SIMILAR CONCLUSION AS PENNSYLVANIA LAW (Third Circuit)

In Arcelormittal Plate, LLC v. Joule Tech. Servs., the issue involved yet another case on the effect of an employer’s exclusion upon an insured that did not itself employ the injured plaintiff-employee. The injured employee was an employee of a the named insured, who brought a claim against an additional insured.  The case hinged on a choice-of-law analysis as Pennsylvania law would apply the exclusion to all insureds, while New Jersey law would apply it solely to the insured employing the plaintiff-employee, under the policy language at issue.  If resolved in favor of New Jersey law on the key exclusion issue, then the court would have to address the arguments of late notice, and that there was no written contract in place at the time of the injury giving the additional insured, additional insured status at the relevant time.

The policy language at issue involved the employee of “the insured” language, as opposed to the employee of “any insured” language.  It contained a provision alternately known as an “employer’s liability exclusion,” an “employer’s exclusion,” or an “employee exclusion.” The exclusion stated as follows: “[t]his insurance does not apply to . . . ‘[b]odily injury’ to (1) [a]n ’employee’ of the insured arising out of and in the course of (a) [e]mployment by the insured; or (b) [p]erforming duties related to the conduct of the insured’s business[.]” Insured was defined as “any person or organization qualifying as such under SECTION II [entitled “WHO IS AN INSURED”].”

An endorsement to the policy amended Section II to “include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract.”

The policy also contained a severability clause, sometimes known as a “separation of insureds” clause, stating that “[t]his insurance applies: a. As if each Named Insured were the only Named Insured; and b. Separately to each insured against whom claim is made or ‘suit’ is brought.” The policy provided that Liberty had “the right and duty to defend the insured against any ‘suit’ seeking [bodily injury] damages.”

The court found a conflict of laws, and determined New Jersey law should apply under Pennsylvania’s choice-of-law rules, which followed the Restatement (Second) of Conflicts of Laws. In conducting this analysis, it made clear that: “The authors of the Restatement expressed a preference ‘that only one set of laws govern a given insurance contract, and . . . disapproval of the possibility that the laws of different jurisdictions might apply to different risks under the policy.'”  Applying Pennsylvania choice-of-law rules, the court had to determine which state had the greater interest in the application of its law, which involved weighing the parties’ contacts and relationships with each state on a qualitative scale according to their relation to the policies and interests underlying the particular issue.
The Restatement (Second) of Conflict of Laws, in an official comment, explains that in an insurance dispute, a court should generally give the location of the insured risk “greater weight than any other single contact.” Nonetheless, if the policy covers “a group of risks that are scattered throughout two or more states,” the location of the risk has “less significance” to the choice-of-law determination. In that case, because the Policy covered all of named insured’s operations, and because the named insured dispatches its employees to several states, the “location of the insured risk” is scattered among jurisdictions. The court was thus obligated to consider a number of other factors, under Restatement section 188(2): “(1) the place of contracting; (2) the place of negotiation of the contract; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation and place of business of the parties.” Considering these factors on a “qualitative scale,” the court concluded that New Jersey had a greater interest in the application of its law than Pennsylvania. The contract itself was made in New Jersey, involved a New Jersey primary insured, and covered the diverse risks associated with the activities of that company across several states. This conclusion also renders less likely the possibility that the insurer and the insured will face varying obligations under the same policy depending on the locus of the underlying tort.

Specifically, the place of contracting was New Jersey, which is where the insurance company delivered the insurance contract to the insured. Second, the insurer did not rebut the additional insured’s assertion that at least some of the negotiations took place in New Jersey. Third, the place of performance, and fourth, the location of the contract’s subject matter, both extend into the several jurisdictions where the insured sends its employees. Last, the parties are diverse. The insurer is a Massachusetts corporation with its principal place of business in Massachusetts. The primary insured is a New Jersey corporation with its principal place of business in New Jersey. And the additional insured is subject to several layers of corporate ownership such that its principals are considered citizens of Nova Scotia, Quebec, and Luxembourg.

After finding coverage, the court next considered the bad faith claims under New Jersey law on the basis of there being no contract creating additional insured status, and late notice.  The New Jersey Supreme Court has described the standards applicable to a claim for bad faith denial of insurance benefits as follows: “To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one. . . . [I]mplicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless . . . indifference to facts or to proofs submitted by the insured.” A plaintiff must prove that “no debatable reasons existed for denial of the benefits.”

The insurer adduced expert testimony from a claims handling expert, who concluded that under applicable law and industry standards, the insurer had performed an “intelligent, honest, fair and reasonable review and investigation” into the additional insured’s demand for coverage, based on three justifications:  (1) the additional insured’s initial demand letter did not cite the contract that the named the additional insureds, and which the additional insureds eventually acknowledged governed this dispute; but instead asserted coverage based on purchase orders which the insurer reasonably determined did not establish a right to coverage; and the insurer did not get the applicable contract for over a year; (2) the insurer was justified in denying coverage because that contract did not entitle the additional insured to coverage for bodily injury to the named insured’s employee resulting from the additional insured’s own negligence; and (3) the insurer was justified in denying coverage because of unduly late notice regarding the underlying lawsuit, which the expert believed irreparably prejudiced the insurer’s ability to defend the claim.

The additional insured claimed that the carrier had the relevant contract in its possession at an earlier date, and suggested that the carrier had “an action plan” to deny coverage on a meritless ground. The court found the “action plan” language innocuous when taken in context, and that it went back to the issue of relying on the wrong documents to make a claim for coverage.
The District Court had dismissed the bad faith claim for two reasons: (1) its finding that the employee exclusion barred the claim and (2) the fact that additional insured initially predicated its claim on the incorrect documents. The Third Circuit concluded that in light of the District Court’s ruling and the Pennsylvania Supreme Court’s taking a different position than New Jersey courts on the same language, whether the employee exclusion barred the claims presented a legal issue that was at least “fairly debatable.” Moreover, the additional insured’s misplaced reliance on certain irrelevant documents throughout much of the dispute, including up to and beyond the start of the instant litigation, was uncontested. In sum, because the insurer denied coverage based on factual and legal grounds that were at least plausible at the time of its decision, the insurer was entitled to summary judgment on the bad faith denial of coverage.

Date of Decision:  February 18, 2014

Arcelormittal Plate, LLC v. Joule Tech. Servs., No. 13-1212, 2014 U.S. App. LEXIS 2905, (3d Cir. Feb. 18, 2014) (Vanaskie, J.).

Welcome Spring 2014

Our first post of the Spring finds a rainy day, but it all looks like bright sunshine now that the snow has gone.  We at the Pennsylvania and New Jersey Insurance Bad Faith Insurance Blog wish you bright days ahead.

SpringDays2014(2) SpringDays2014

Pictures by M. M. Ginsberg

MARCH 2014 BAD FAITH CASES: BAD FAITH CLAIM SURVIVES SUMMARY JUDGMENT WHERE DENIAL OF COVERAGE BASED ON NON-COOPERATION HAD MATERIAL ISSUES OF FACT OPEN AS TO THE SUBSTANTIALITY OR PREJUDICE OF MATTERS ON WHICH INSURED DID NOT TIMELY PROVIDE INFORMATION (Philadelphia Federal)

In Page v. Infinity Indemnity Insurance Company, the insured’s car was destroyed in a fire, which resulted from arson.  The insurer investigated the claim at great length, on the possibility that the insured’s were responsible for the fire, including pursuit of financial records and the insured’s history of shopping for a new vehicle.  The court found that the investigation itself could not be the basis for a bad faith claim.  However, at one point, the carrier denied the claim for failure to cooperate in producing certain information, with a statement that the claim could be reopened if there was future cooperation.

The insured was deposed, and later provided bank statements and a police report, and the carrier spoke with representatives of car dealerships identified by plaintiffs.  The carrier ultimately paid the claim.  The insured still brought a bad faith claim.  The court allowed the bad faith claim to proceed on the basis of the denial for non-cooperation.  The court observed that the non-cooperation had to be both substantial and prejudicial to provide a legitimate basis to deny a claim.  The court found there was an issue for the trier of fact on the substantial and prejudicial nature of the putative failures to provide the bank statements and police report; but that the failure to identify car dealerships was not substantial non-cooperation as a matter of law.  Thus, the carrier motion for summary judgment on the bad faith claim was denied.

Date of Decision:  January 31, 2014

Page v. Infinity Indemnity Insurance Company, CIVIL ACTION No. 13-1118, 2014 U.S. Dist. LEXIS 13790 (E.D. Pa. Jan. 31, 2014) (Shapiro, J.)

MARCH 2014 BAD FAITH CASES: COURT GRANTS MOTION FOR SUMMARY JUDGMENT WHERE PLAINTIFF FAILED TO SUBMIT TO INDEPENDENT MEDICAL EXAMINATION BASED ON VIOLATION OF COOPERATION CLAUSE IN INSURANCE POLICY (Philadelphia Federal)

In Goddard v. State Farm, plaintiff brought suit against his insurer alleging breach of contract and bad faith arising from the insurer’s refusal to pay UM/UIM benefits to plaintiff for an accident which took place on August 6, 1998.  Although the claim was timely submitted to the insurer, plaintiff refused or failed to submit to an independent medical examination following his submission of the claim.  In 2001, plaintiff filed a motion to compel arbitration.  An arbitrator was selected for the case in June of 2005.  At the time the arbitrator was selected, the insurer conditioned the arbitration on plaintiff’s completion of a medical examination.  Between September 2005 and February 2007, the insurer continued its attempts to acquire a medical examination of plaintiff to no avail. Plaintiff obtained a new attorney in February 2007, who requested to proceed to arbitration, but the insurer instead denied the claim and closed the file, citing plaintiff’s failure to submit to a medical exam, and the insurer’s belief the statute of limitations on plaintiff’s claim had expired.  Plaintiff did not file suit until October of 2011.

The insurer filed a motion for summary judgment, asserting plaintiff violated the cooperation clause in his policy by refusing to submit to a medical examination after the accident.  The insurer further asserted it had been deprived of its opportunity to assess plaintiff’s condition following the accident, determine the legitimacy of his injuries, and in the interim between the accident and closing of the file, had lost the ability to determine whether any separate injuries might have occurred.  The insurer also asserted plaintiff’s bad faith claim was time barred by the two-year statute of limitations on such claims, because the alleged bad faith action took place in 2007, and plaintiff did not file his cause until October 7, 2011.  Plaintiff argued his motion to compel arbitration tolled the statute of limitations on the claim.

While the parties argued about which action triggered the statue of limitations, the judge considered such a determination irrelevant, as plaintiff’s motion to compel arbitration in 2001 effectively tolled the statute of limitations, regardless of when it was triggered.  Therefore, the statute of limitations had not run, and there were no grounds to grant summary judgment on that issue.  The court did, however, grant summary judgment on the issue of plaintiff’s breach of the cooperation clause in his insurance policy.  The court found prejudice as a matter of law because the insurer was irrevocably denied the opportunity to evaluate the state of plaintiff’s health at the time of his claim, as well as the opportunity to determine whether all of the conditions for which he sought treatment were from the accident.  Furthermore, plaintiff’s refusal to participate in the examination prevented the insurer from determining whether it could seek contribution under the policy, and resulted in prejudice to the insurer.  Therefore, the court granted defendant’s motion for summary judgment.

Date of Decision: January 16, 2014

Goddard v. State Farm Mut. Auto. Ins. Co., Civil Action No. 11-6309, 2014 U.S. Dist. LEXIS 5974 (E.D. Pa. Jan. 16, 2014) (O’Neill, Jr., J.).

MARCH 2014 BAD FAITH CASES: COURT REMANDS AFTER DEFENDANT FAILS TO PROVIDE EVIDENCE ESTABLISHING AMOUNT IN CONTROVERSY TO REQUISITE LEGAL CERTAINTY (Western District)

In Brewer v. GEICO, plaintiff filed suit appealing an arbitration award, seeking damages for personal injury suit and bad faith. The insurer removed the case to federal court just before the pre-trial conference took place.  Plaintiff filed a motion to remand, arguing his case did not meet the amount in controversy requirement, and therefore the Western District lacked subject matter jurisdiction.  Plaintiff informed the district court he would be willing to sign a stipulation that the combined award would not exceed $75,000.  The insurer indicated it was not willing to consent to remand because it preferred the availability of a jury trial in federal court.

The court applied the “legal certainty” test to plaintiff’s motion, under which courts will remand only where, on the face of the pleadings, it is apparent to a legal certainty that the plaintiff cannot recover the amount claimed by the removing party.  The burden of demonstrating the case is properly before the court is placed on the removing party.  The insurer argued the court should disregard plaintiff’s proposed stipulation, because the federal jurisdiction question is to be answered by looking at the face of the complaint, not any post-removal stipulations.  Rather than present evidence as to the extent of plaintiff’s injuries, plaintiff’s counsel’s hourly rates or potential attorney fees that might accumulate, or case law demonstrating similar plaintiffs recovered in excess of $75,000, defendants asserted only a “good faith belief” that the award would exceed $75,000.  The court found a mere good faith belief insufficient to establish the requisite “legal certainty” that plaintiff’s complaint met the amount in controversy.  Based on this finding, the court remanded the case to state court.

Date of Decision: January 22, 2014

Brewer v. GEICO, Civil Action No. 13-1809, 2013 U.S. Dist. LEXIS 7531 (W.D. Pa. Jan. 22, 2014) (Fischer, J.)

MARCH 2014 BAD FAITH CASES: MIDDLE DISTRICT DISMISSES COMPLAINT FOR FAILURE TO PLEAD SPECIFIC ACTIONS CONSTITUTING BAD FAITH (Middle District)

In Wanat v. State Farm, plaintiff was hit by an underinsured motorist, and settled with the driver’s insurer for $48,000, just under the $50,000 policy limit.  Plaintiff then filed an underinsured claim under her own policy which provided $25,000 in underinsured coverage and $25,000 in liability, non-stacked.  The insurer denied the claim, claiming plaintiff had been fairly compensated by the other driver’s policy, and instructed plaintiff she would not receive any payments on the claim. Plaintiff filed suit alleging breach of contract, bad faith denial of her claim, and a violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.  The insurer removed the suit to federal court and filed a motion to dismiss the entire complaint.  Plaintiff voluntarily dismissed the breach of contract and unfair practices claims, leaving only the bad faith claim on the motion to dismiss.

Plaintiff did not alleged any evidence as to why the insurer’s decision to decline payment of the uninsured benefits constituted a bad faith decision.  The court found plaintiff’s complaint relied entirely on allegations paraphrasing the elements of a bad faith claim.  Plaintiff merely alleged the insurer lacked a reasonable basis for denying the claim, acted knowingly and recklessly, and failed to properly investigate, evaluate and compensate the claim were not backed by any specific facts of such actions.  Case law dictates that such “conclusory” or “bare-bones” allegations that an insurance company acted in bad faith are insufficient to withstand a motion to dismiss.  However, plaintiff alleged the exhibits, which she attached to the complaint filed in state court, were not sent to the district court upon removal, and that such documents would enable the complaint to stand.  Therefore, the motion to dismiss was granted, but without prejudice as to allow the plaintiff to file an amended complaint setting forth the elements of the bad faith claim with greater clarity.

Date of Decision: Report and Recommendation of October 11, 2013, adopted on January 21, 2014

Wanat v. State Farm Mut. Auto. Ins. Co., Civil No. 4:13-CV-1366, 2013 U.S. Dist. LEXIS 183948 (M.D. Pa. Oct. 11, 2013) (Carlson, M.J.).

Wanat v. State Farm Mut. Auto. Ins. Co., Civil No. 4:13-CV-1366, 2014 U.S. Dist. LEXIS 7016 (M.D. Pa. Jan. 21, 2014) (Carlson, J.).