Monthly Archive for November, 2014

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.)

NOVEMBER 2014 BAD FAITH CASES: INSURED FAILED TO PLEAD SUFFICIENT FACTS TO MAKE OUT BAD FAITH CLAIM WHERE PARTIAL PAYMENT MADE BY CARRIER, BUT LEAVE TO AMEND GRANTED (Middle District)

In Stephens v. State Farm Fire & Cas. Co., a husband and wife brought suit against their homeowners’ insurance carrier alleging breach of contract, statutory bad faith, and a claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.  Plaintiffs alleged they suffered concurrent losses to their home via theft, vandalism, and water damage.  An adjuster visited the property to view the damages and evaluate the claimed losses, and, based on that evaluation, the carrier paid some benefits toward the claimed losses.   Plaintiffs then filed suit against the insurer.

Plaintiffs initially brought their action pro se, however, four days prior to the statute of limitations, they moved for leave to amend and filed an amended complaint.  In the bad faith count of the amended complaint, Plaintiffs alleged the insurer only paid them partial benefits on their claim, and that the claims had been given three different claim numbers despite being related to concurrent loss events.  The carrier opposed the motion for leave, arguing the amended complaint was untimely and futile since the claims raised by the plaintiffs failed as a matter of law.

The Magistrate Judge’s Report and Recommendation, later adopted by the District Court, denied the carrier’s motion as to lack of timely filing because Plaintiffs filed their motion and amended complaint prior the deadline, albeit four days prior.  It did, however, grant the motion with respect to futility on the bad faith count.  The court found two key problems with plaintiffs’ bad faith claim.  First, it faced a “threshold factual hurdle,” as Plaintiffs received a partial payment of their claim under the policy, which the court found to be inconsistent with a claim of complete bad faith on the part of the insurer.  Secondly, the claim failed as a matter of law, because Plaintiffs merely made conclusory allegations that the partial payment constituted a breach of the contract, and therefore the carrier had engaged in bad faith conduct.  The court determined that without a factual basis to support the claim, established case law required the complaint be dismissed.

The district court judge adopted the magistrate’s opinion, and dismissed the claim without prejudice, allowing Plaintiffs the opportunity to further amend the claim and articulate a factual basis to support the bad faith allegations against the carrier.

Date of Decision: September 12, 2014

Stephens v. State Farm & Cas. Co., Civil Action No. 1:14-CV-160, 2014 U.S. Dist. LEXIS 147953 (M.D.Pa. Sept. 12, 2014) (Carlson, U.S.M.J.)

Adopted in Stephens v. State Farm Fire & Cas. Co., NO. 1:14-CV-160,2014 U.S. Dist. LEXIS 147180 (M.D. Pa., Oct. 16, 2014) (Conner, J.)

NOVEMBER 2014 BAD FAITH CASES: CARRIER’S INVESTIGATION AND DENIAL OF UIM BENEFITS FOLLOWING PAYMENT OF FIRST PARTY MEDICAL CLAIM NOT BAD FAITH; NEITHER LENGTH OF INVESTIGATION ALONE NOR DISPUTING CAUSATION AFTER NOT MAKING IT AN ISSUE IN ORIGINAL CLAIM CREATE BAD FAITH PER SE (Middle District)

In Shaffer v. State Farm Mut. Auto. Ins. Co., plaintiff and his wife brought a bad faith claim against their carrier after being denied UIM coverage, following payment of medical coverage on a first party claim.  The claim resulted from a motor vehicle accident in which the other driver was primarily at fault.  After the collision, the carrier conducted an internal arbitration, but declined to award to damages to either party.  At that time, Plaintiff sought conservative medical treatment under his policy, but declined to file a UIM claim.  Over the next year, the carrier repeatedly requested documentation from Plaintiff regarding his medical treatment, including a completed application for benefits, and medical record authorizations, but Plaintiff failed to return the application, authorization, or any medical records to the carrier.

Eventually, Plaintiff’s counsel informed the carrier Plaintiff required back surgery, and indicated the carrier would be sent a copy of the bill for the surgery, and requested he be advised if Plaintiff’s medical coverage was close to being exhausted.  Shortly after the surgery, Plaintiff’s counsel and the carrier discussed the possibility of a UIM claim for the first time, but Plaintiffs’ counsel merely indicated he would contact the carrier in the future if he felt a UIM claim was necessary.  The carrier received a final treatment bill, and medical records indicating the back surgery’s success; thus, having received no contact in over six months from Plaintiff or his counsel, the carrier closed the file.

Five months later, Plaintiff settled his claim against the other driver for $72,500 of the driver’s $100,000 policy limit, and then filed a claim for UIM coverage under his own policy.  Plaintiffs’ auto policy provided coverage for medical payments and $100,000 in UIM coverage, and allowed for “stacked” UIM coverage, yielding $200,000 in total UIM coverage.  Plaintiff presented the carrier with over 800 pages of medical records to the carrier both pre-dating and post-dating his treatment for the injuries related to the accident, and then provided the carrier with a $250,000 demand, requesting the carrier tender $100,000, the amount of one of the policy limits.

Two months later, plaintiff gave his statement under oath and finally provided all signed medical authorizations.  The carrier then began collecting the medical records, which took another ten months, due in part to Plaintiff’s withdrawal of his initial demand to add additional injuries to his claim.  After compiling all the records, the carrier had its orthopedic expert review the records and write a report evaluating the claim.  The expert concluded most of the injuries were chronic, and not materially or substantially changed by the accident, and that Plaintiff would have eventually needed the back surgery regardless of the crash.

Based on this report, the carrier set a reserve range of $0 to $40,000, and offered Plaintiff $10,000 to settle the claim.  Plaintiff rejected the offer, and one year later filed a lawsuit alleging the carrier violated Pennsylvania’s bad faith statue through its delay in investigating and evaluating the UIM claim.

The court found Plaintiffs’ bad faith claim without merit and dismissed it on summary judgment.  Although the carrier closed the file in December of 2010, it did not become aware of Plaintiffs’ intention to file a UIM claim until April of 2011.  After receiving the claim, a UIM adjuster was immediately assigned, and the carrier spent two years collecting medical records, obtaining plaintiff’s statement under oath, and arranging for review of Plaintiff’s medical records by its expert.  The court conceded that two years was a long time for claim investigation, but noted a long investigation period does not in and of itself constitute bad faith, absent obfuscation, dishonesty, or malice on the part of the carrier. Plaintiff also argued the carrier’s questioning of causation in the UIM claim was improper because it did not question causation in the first party claim; however, case law has established payment of first party benefits does not constitute an admission of causation in subsequent claims.  Therefore, the carrier was free to investigate causation of the UIM claim.

Finally, no evidence existed that the carrier did not conduct its investigation in a reasonable manner, even if the carrier did not move as quickly as Plaintiffs would have liked, or anticipate the UIM claim even before Plaintiffs’ counsel notified the carrier of the claim.

The court’s decision was subsequently affirmed on appeal by the Third Circuit.

Date of Decision: Oct. 20, 2014

Shaffer v. State Farm Mut. Auto. Ins. Co., Civil Action No. 1:13-cv-01837, 2014 U.S. Dist. LEXIS 149095 (M.D.Pa. Oct. 20, 2014) (Rambo, J.).

NOVEMBER 2014 BAD FAITH CASES: EXCESS INSURER HAD NO DUTY TO POST APPEAL BOND AND COULD NOT BE LIABLE IN BAD FAITH FOR FAILING TO DO SO; COURT OBSERVES THAT PROOF OF BAD FAITH IS MORE DIFFICULT WHERE LAW AT ISSUE ON COVERAGE IS UNSETTLED (Philadelphia Federal)

In the most recent decision in Charter Oak Ins. Co. v. Maglio Fresh Food, which has been discussed at length in previous postings in 2013 and 2014, the Court addressed claims against the excess insurer after holding a short non-jury trial.  It concluded that under the unique circumstances of that case, the excess insurer did not owe a duty to post a supersedeas bond for purposes of the insured’s taking an appeal of a jury verdict that would likely put the insured out of business. The court found that any duty to post a bond was not clearly either within the realm of the duty to defend or the duty to indemnify, being a kind of hybrid.  However, the larger issue was that the excess insurer’s duty to make any payment was not triggered, because even though underlying carrier paid out its full policy limits, it did not do so in connection with the one covered claim. Thus, its full limit was not exhausted for purposes of triggering the excess insurer’s duties concerning the covered claim.

The court discussed bad faith throughout its opinion, in dicta and on the issue at hand.  As to the latter, as no duty was triggered to post the bond, there could be no bad faith in refusing to do so.  The Court also observed that because the lawsuit presented questions of unsettled law, this made it more difficult for the insured to show bad faith because “an insurer’s denial of a claim does not constitute bad faith if it is based on a reasonable legal position in an unsettled area of the law.”

The Court more generally provided its observations on the differences and commonalities between contract based bad faith claims and statutory bad faith, which is tort based in nature.

Date of Decision:  September 9, 2014

Charter Oak Ins. Co. v. Maglio Fresh Food, CASE NO. 12-3967, 2014 U.S. Dist. LEXIS 125621 (E.D. Pa. September 9, 2014) (Baylson, J.)