Monthly Archive for September, 2015

SEPTEMBER 2015 BAD FAITH CASES: BOILERPLATE ALLEGATION OF BAD FAITH DID NOT MEET PENNSYLVANIA STANDARD REQUIRING PLAINTIFF TO PLEAD MATERIAL FACTS (Philadelphia Common Pleas)

In Feingold v. State Farm Insurance Company, the complaint alleged various conspiracy claims against the insurer and others, to deprive monetary awards to UIM claimants. As to the bad faith allegations, the court found the plaintiffs merely averred that the insurer did not make a good faith effort to resolve or pay a UIM claim. However, Pennsylvania is a fact pleading state, and the court found there were no material facts pled as to how the insurer acted in bad faith. This was found to be a boilerplate averment without any factual support, and thus the claim was dismissed with prejudice.

Date of Decision:  August 12, 2015

Feingold v. State Farm Mut. Ins. Co., Jan. Term 2015, NO. 2058, Court of Common Pleas of Philadelphia, 2015 Phila. Ct. Com. Pl. LEXIS 232 (C.C.P. Phila. August 12, 2015) (New, J.)

SEPTEMBER 2015 BAD FAITH CLAIMS: SETTLING AN APPARENTLY SIMILAR BUT IN FACT DISTINCT CLAIM, WHILE REFUSING TO DEFEND AND INDEMNIFY, IS NOT THE BASIS FOR A BAD FAITH CLAIM (Western District)

In Zhuang v. Hanover Insurance Company, the court addressed legal malpractice insurance coverage and a bad faith claim by the injured party against the defendant-lawyer’s insurer.  The lawyer had recommended an investment in a business owned by the lawyer, in which the plaintiff, among others, had invested.  The investment failed and the plaintiff brought action against the lawyer.  The lawyer’s insurer refused to defend or indemnify.

The lawyer’s relationship to the injured plaintiff, who obtained a default judgment against the insurer, was somewhat attenuated.  By contrast, there was another investor who likewise brought a malpractice claim against the lawyer, who had a longer standing lawyer client relationship with the lawyer.  The insurer settled that claim.

The lawyer assigned his rights against his carrier to the injured plaintiff.  The plaintiff brought claims for breach of contract and bad faith.  The bad faith claim focused in large part on this fact that the insurer participated in settlement of the other investor’s case, but refused to defend or indemnify in the case of the plaintiff’s investment.

The court ruled that the insurer did have a duty to defend the lawyer against the plaintiff’s claim, and that the claim was covered under the malpractice policy.  However, this was not enough in itself to establish bad faith: “Otherwise, essentially all situations where an insured’s claims were denied by an insurer may constitute bad faith; there must be something more to recover for bad faith.”  There were no facts “from which the Court can find, let alone find by clear and convincing evidence, that [the insurer] acted with improper purposes.”

The court did not accept the argument that paying the other investor’s claims, but not plaintiff’s, constituted bad faith. “An insurance company is permitted to investigate each claim independently and is not obliged to pay all claims that are submitted.”  The plaintiff has not provided “any evidence that the claim paid … was related to less egregious behavior on [the insured’s] part or any other factor that would obligate [the insurer] to pay both claims or be found to have acted in bad faith.”

Specifically, covering the claim brought by the long-term client rather negated the notion of bad faith “because this factor could reasonably be a basis for [the insurer] to believe that similar actions by [the insured attorney] with respect to an existing long-term client were covered, while a claim by an individual who did not have an existing relationship with the firm was arguably not covered by the Policy.” This claim was also settled before the malpractice claim at issue was filed.  Thus summary judgment was entered for the insurer on the bad faith claim.

Date of Decision:  September 3, 2015

Zhuang v. Hanover Ins. Co., 15cv0481, 2015 U.S. Dist. LEXIS 118047 (W.D. Pa. September 3, 2015) (Schwab, J.)

SEPTEMBER 2015 BAD FAITH CASES: SUMMARY JUDGMENT DENIED ON ARGUMENT INSURED FAILED TO MEET PREDICATES OF “SUIT AGAINST US PROVISION” WHERE INSURED REFUSED TO APPEAR IN PERSON FOR EXAMINATION UNDER OATH BUT AGREED TO APPEAR BY VIDEO CONFERENCE (Middle District)

In Royce v. Erie Insurance Exchange, the insured brought breach of contract and bad faith claims against an insurer for the insurer’s purported failure to fairly evaluate the insured’s claim and to promptly offer payment of the claim. The insurer sought summary judgment on the basis that the policy included a “suit against us” provision, which precluded the insured from bringing suit against the insurer unless the insured had fully complied with the policy.

The underlying claim involved a burglary to the insured property. Two days after his home was burglarized, the insured reported the burglary to the insurer and submitted a personal property inventory form as requested by the insurer, as well as a list of personal property stolen and lost from the burglary.

The policy at issue provided that the insurer could not be sued unless the insured complied with all the terms of the policy, which included the duty to submit to examinations and statements under oath at the request of the insurer. After the insurer requested that the insured and his wife submit to an examination under oath (“EUO”), counsel for the insured stated that while his clients were willing to submit to the EUO, it may be necessary to schedule the EUO by video conference as the insured and his wife were now residents of the state of Florida.

Counsel for the insurer responded by e-mail and explained that the insurer “could not agree to an EUO by video conference because a video conference would make the use of exhibits extremely difficult, if not impossible.” The insurer’s counsel further stated that because the claim arose out of a Pennsylvania contract and claim of loss, the EUOs would properly be taken in Pennsylvania. The insured’s counsel did not respond to this e-mail.

Over the next several months, the insurer’s counsel sent periodic e-mails to the insured’s counsel inquiring as to possible dates to schedule the EUOs in Pennsylvania. The insured’s counsel did not respond to any of these e-mails, and maintained that a response was not necessary because the insured and his wife had “previously made their position clear [that they would appear by video conference for the EUO] and any follow up letter was only repetitive and unnecessary given the [insurer’s] refusal to cooperate and act in good faith to investigate the loss given [the insured’s] physical condition.”

Subsequently, the insured’s counsel e-mailed the insurer’s counsel a doctor’s note restricting the insured’s travel due to the insured’s medical condition. Sometime prior to the burglary, the insured had allegedly been involved in a car accident, which caused him severe physical injury that prevented him from traveling. However, no mention had been made of this accident or the insured’s medical condition in his counsel’s previous request to the insurer for an EUO by video conference. In its reply brief to its motion for summary judgment, the insurer questioned the legitimacy of the doctor’s note and travel restrictions, specifically, “how [the insured] was able to travel from the Commonwealth of Pennsylvania to his current residence in Florida after the purported motor vehicle accident that caused his physical injuries.” The insurer also questioned how a “Pennsylvania physician was able to issue an ‘Excuse Slip’ noting [the insured’s] physical condition and travel restrictions when [the insured] was living in Florida and therefore, had not been physically examined by the Pennsylvania physician.” To date, there is no evidence in the record that the insured ever submitted to an EUO.

 

The insured filed suit and asserted breach of contract and bad faith claims against the insurer “on the basis that [the insurer] purportedly failed to, inter alia, fairly evaluate [the insured’s] claim and promptly offer payment of the claim.” The insured asserted that the insurer acted in bad faith “by failing to accommodate [the insured’s] disability in scheduling an EUO by video conference.” The insurer moved for summary judgment, and argued that because the insured failed to fully comply with the policy, he was precluded from bringing suit under the Policy’s “suit against us” provision. Specifically, the insurer alleged that the insured failed to comply with the Policy by “failing to (1) submit to an EUO in Pennsylvania and (2) provide documentation relating to his claim that [the insurer] had previously requested.”

The Court first acknowledged that the “suit against us” provision was enforceable under Pennsylvania law. The Court also noted that the insured had complied with the Policy in several ways, but at issue was whether the insured complied with the Policy’s requirements to (1) provide all supporting documentation related to his claim as [the insurer] may reasonably require and (2) submit to an EUO.” More specifically, at issue was whether the insured complied with three provisions of the Policy.

The first required the insured to submit certain documentation relating to his claim. The insurer asserted that the insured failed to submit this documentation, while the insured asserted that he did in fact produce the requested documents. The Court determined that it was unclear what other documentation had been requested by the insurer that had not been provided by the insured. Thus, a genuine issue of material fact existed with regards to this issue.

The second required the insured to submit to an EUO. The Court noted that “[r]egardless of whether or not [the insured’s] medical condition restricts him from traveling to the Commonwealth of Pennsylvania to physically appear for an EUO, he agreed to submit to an EUO by video conference, and it is not clear from the terms of the Policy that this constitutes a failure to fully comply ….” The Court further acknowledged that the provision only required the insured to submit to an EUO, but did not reference where the examination must take place. Thus, a genuine issue of material fact existed as to whether the insured’s offer to submit to an EUO by video conference was in full compliance with the Policy.

The third required the insured to “cooperate with [the insurer] in [their] investigation of a loss and any suits.” The Court determined that it was a question for the fact-finder as to whether the insured’s offer to submit to an EUO by video conference satisfied this provision to “cooperate” with the insurer in its investigation. In addition, the Court found that “a reasonable juror could find that the repeated failure by [the insured] and his counsel to respond to [the insurer’s] letters and e-mails over a course of four (4) months requesting an EUO and additional documentation also fails to satisfy this provision.” Thus, genuine issues of material fact existed as to whether or not the insured fully complied with the Policy such that he would be precluded from filing suit, and the Court denied the insurer’s motion for summary judgment.

Date of Decision: August 21, 2015

Royce v. Erie Ins. Exch., Case No. 3:15-CV-00058, 2015 U.S. Dist. LEXIS 110656 (M.D. Pa. August 21, 2015) (Caputo, J.)

SEPTEMBER 2015 BAD FAITH CASES: WHERE INSURER’S MOTION TO DISMISS A BAD FAITH CLAIM DEPENDED SOLELY ON THE ARGUMENT THERE WAS NO COVERAGE, A PLAUSIBLY PLEADED COVERAGE CLAIM DEFEATED THE MOTION TO DISMISS BOTH THE CONTRACT AND BAD FAITH CLAIMS (Western District)

In Wehrenberg v. Metropolitan Property and Casualty Insurance Company, the insured brought breach of contract and bad faith claims against an insurer refusing to provide coverage for alleged vandalism to a house owned by the insured.

The insured had previously leased the insured property to a lessee in October 2011 for five years starting in November, 2011. The house was subject to a mortgage, and the lessee was to pay each month’s rent directly to the mortgage company. In early 2012, the lessee stopped making his monthly rent payments and the insured received notice from the mortgage company that foreclosure proceedings had begun. After unsuccessfully attempting to email and call the lessee, the insured visited the house around June 24, 2012, and found that the locks had been changed. The insured observed through the windows that the house had been gutted. The insured was able to reach the lessee by phone and told the lessee that he did not have permission to gut the house or perform any work on the house, and that the property had been damaged. The lessee responded that he was a contractor, that the house had major structural problems which he felt were necessary to fix by gutting the house, and that he would put the house back together.

The insured did not notify the insurer of what the lessee had done, but instead allowed the lessee to continue his “work” on the house. The insured told the lessee to get the mortgage caught up and put the house back together as soon as possible.

In January, 2013, the insured visited the property and found that not only was the first floor in the same disassembled condition, but that the basement and second floor had been gutted as well. According to the insured, “[t]hree bathrooms, flooring, bedroom walls, closets, furnaces, and air conditioner had all been removed.” However, the furnaces and air conditioners had been replaced.

In February 2013, the insured filed a claim with the insurer, asserting that the property had been vandalized. The insured alleged the insurer refused to cover the claim and neglected to return any of the insured’s phone calls. The insured eventually lost the house to foreclosure. The issue then became whether the lessee’s “work” on the property constituted vandalism, for which coverage would be provided, or renovations, for which coverage would be denied under the policy.

The insurer argued that the claim was not covered as a matter of law for two reasons. (1) The insured “failed to carry his burden of pleading that his loss falls within the Policy because he has not averred facts from which it could be shown that his loss could be considered ‘vandalism or malicious mischief.’” (2) The insurer averred that the loss characterized by the insured as vandalism was actually an incomplete renovation, subject to a policy exclusion.

The Court held that the insurer’s arguments failed for several reasons. First, the insurer failed to demonstrate that the facts alleged could never be “vandalism or malicious mischief.” The Court noted that if the complaint solely relied on the initial house-gutting, then the insurer might have a winning argument under the theory that the insured acquiesced to the act, from which malice could not be implied.

However, the Court acknowledged that after the insured instructed the lessee to repair the damage, the insured returned to the property six (6) months later and found additional damage done. Thus, the Court reasoned that it was “certainly plausible that [the insured] did not acquiesce in the second incident in which [the lessee] removed even more elements from [the insured property] without [the insured’s] permission.” Accordingly, the Court could not say at this point, as a matter of law, that the lessee’s actions could not constitute vandalism or malicious mischief, as the Court did not have enough information to make a determination either way.

Further, the Court stated that the insurer had not pointed to any applicable law “that stands for the proposition that vandalism could never be found under facts such as alleged here.” Here, the facts showed that the lessee committed a wrongful act in conscious or intentional disregard of the insured’s rights, which was allegedly the proximate cause of significant damage to the insured. Thus, “the further damage done to the property was not necessarily renovation gone wrong – it could plausibly have been vandalism.” Accordingly, the Court denied the insurer’s motion to dismiss the insured’s complaint.

As to the bad faith claim, the insurer focused on the argument that because there was no coverage obligation, there could be no bad faith as a matter of law.  However, because the Court found a plausibly pleaded argument for coverage, this argument necessarily failed (“i.e., the Court has not concluded as a matter of law that no coverage existed for [the insured’s] insurance claim for vandalism”). The insurer had apparently not pursued an argument that the bad faith claim should be dismissed in any event, because even if coverage was plausible the insurer’s position was not unreasonable as a matter of law.

Date of Decision: August 7, 2015

Wehrenberg v. Metro. Prop. & Cas. Ins. Co., Case No. 2:14-CV-01477, 2015 U.S. Dist. LEXIS 103758 (W.D. Pa. August 7, 2015) (Hornak, J.)

 

SEPTEMBER 2015 BAD FAITH CASES: COURT (1) FINDS CLAIM FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING SUBSUMED IN COUNT FOR BAD FAITH; AND (2) DISMISSES DEMANDS FOR PUNITIVE DAMAGES AND ATTORNEY’S FEES IN FIRST PARTY BREACH OF CONTRACT/BAD FAITH CASE (New Jersey Federal)

In Gilliam v. Liberty Mutual Fire Insurance Company, the insureds brought claims for breach of contract, breach of the covenant of good faith and fair dealing, and bad faith denial of insurance benefits after the insureds’ home suffered damage caused by Hurricane Sandy.

The insureds alleged that the insurer “improperly adjusted the claims” and “wrongfully denied at least a portion of the claim without adequate investigation.” The insureds further claim that they were underpaid for damages caused by Hurricane Sandy, and also alleged that the insurer “failed to affirm or deny coverage for their losses within a reasonable time period.”

The insurer sought to dismiss the breach of the implied covenant of good faith and fair dealing claim “on the ground that the claim is subsumed within [the insureds’] bad faith claim set forth in the third count of the complaint.”

The District Court stated that the New Jersey Supreme Court “has recognized a cause of action for, and established the applicable standard governing, an insurance company’s bad faith refusal to pay a claim pursuant to a policy of insurance.” In a case in which the insured brought an action against its insurance carrier, claiming breach of the implied covenant of good faith and fair dealing for failing to timely pay the insured’s claim, the New Jersey Supreme Court had found that the bad faith cause of action rested upon the implied covenant of good faith and fair dealing, which is “to be implied in every contract.” Thus, the present District Court decision found that any analysis relevant to the determination of the insureds’ claim for breach of the implied covenant of good faith and fair dealing would be implicitly incorporated into the bad faith cause of action, and it dismissed this claim.

The District Court next addressed whether “punitive damages may be assessed against an insurance carrier for the allegedly wrongful withholding of insurance benefits.” In making this determination, the Court pointed to New Jersey case law for the proposition that punitive damage awards are prohibited in contract actions absent a special relationship between the parties. This “special relationship” exception has been narrowed to the extent that “an insurer’s task of determining whether the insurance policy provided coverage of an accident cannot be deemed to give rise to … a [fiduciary] duty on the part of the insurer.”  Rather, “[t]he parties, in this respect, are merely dealing with one another as they would in a normal contractual situation. They are not acting as principal and agent.”

In the present case, the insureds failed to plead facts that would show such egregious, intolerable, or outrageous conduct that would be sufficient to support an award of punitive damages. Further, the case was a first party insurance claim, which “cannot support a finding of a fiduciary relationship sufficient to invoke the special relationship exception to the general rule prohibiting punitive damage awards in actions of this form.” Thus, there was no more than a breach of contract action, which lacked “in both aggravated circumstances and facts indicative of a fiduciary, or agent-principal, relationship between the parties,” and the Court dismissed the claim for punitive damages.

The Court also rejected the insureds’ claim for attorney’s fees because the matter involved a first party claim for which counsel fees may not be recovered.

Date of Decision: September 25, 2014

Gilliam v. Liberty Mut. Fire Ins. Co., CIVIL NO. 14-cv-00361, 2014 U.S. Dist. LEXIS 184510 (D.N.J. September 25, 2014) (Sheridan, J.)

This opinion is virtually identical to the decision in Torres v. Liberty Mutual Fire Insurance Company

SEPTEMBER 2015 BAD FAITH CASES: IN ADDRESSING MOTION TO COMPEL COURT: (1) FINDS COMMUNICATIONS WITH ATTORNEYS PRIVILEGED; (2) WORK PRODUCT DOCTRINE DID NOT APPLY PRIOR TO DATE LITIGATION THREATENED; AND (3) RESERVES DISCOVERABLE IN BAD FAITH CASES (Middle District)

In Cicon v. State Farm Mutual Automobile Insurance Company, the insured brought an uninsured motorist bad faith claim against an insurer refusing to pay policy limits.  In discovery, the insurer had produced a privilege log claiming attorney client privilege and work product protection; and further asserting reserves are not discoverable.

The court first observed the breadth of the attorney client privilege under Pennsylvania law. The insured argued that it could obtain attorney client communications that occurred before the insured filed the bad faith action.  The court appeared to accept the notion that somehow attorney client communications could be discoverable if not related to the defense of the case, but were only related to mere business purposes; but concluded that there was no evidence to show the communications concerned anything other than defending against the insured’s claims.

As to the work product doctrine, which went to the internal communications of the insurer’s representatives other than attorneys, the court readily protected such communications after the date the insured’s counsel threatened litigation, presuming that “all inter-office communications in this file after that date were prepared in anticipation of litigation and are, thus, properly excluded from discovery except in the redacted form [the insurer] has proposed.” In doing so, the court was not necessarily ruling that an express threat of litigation was required to create “anticipation of litigation”; but the parties here had offered no details about prior events that would have revealed an earlier date to anticipate litigation.

However, as to the communications described in the privilege log predating the express threat of litigation, where the insurer court not “reasonably be seen as having anticipated litigation”, the court found these communications were “prepared in the ordinary course of business, and, consequently, are not subject to work product protection.”  The court did refuse to allow discovery of these materials “to the extent that any of these documents contain explicit discussion of an attorney’s advice or direction,” recognizing these discussions would be redacted.  This would imply that the attorney client privilege is broader that what the court appeared to earlier suggest, i.e., that even a communication with an attorney during a time period when this was in the ordinary course of business is still protected.

Finally, while recognizing a split in the district courts, the court ruled that discovery of reserve information in bad faith cases in permissible.

Date of Decision: August 21, 2015

Cicon v. State Farm Mut. Auto. Ins. Co., Case No. 3:14-CV-2187, 2015 U.S. Dist. LEXIS 111104 (M.D. Pa. August 21, 2015) (Conaboy, J.)

SEPTEMBER 2015 BAD FAITH CASES: COURT (1) FINDS CLAIM FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING SUBSUMED IN COUNT FOR BAD FAITH; AND (2) DISMISSES DEMANDS FOR PUNITIVE DAMAGES AND ATTORNEY’S FEES IN FIRST PARTY BREACH OF CONTRACT/BAD FAITH CASE (New Jersey Federal)

In Torres v. Liberty Mutual Fire Insurance Company, the insureds brought claims for breach of contract, breach of the covenant of good faith and fair dealing, and bad faith denial of insurance benefits after the insureds’ home suffered damage caused by Hurricane Sandy.

The insureds alleged that the insurer “improperly denied at least a portion of the claim without adequate investigation” and they claimed to have been “underpaid to date for the damages sustained as a result of Hurricane Sandy.” The insureds further argued that the insurer “failed to affirm or deny coverage for their losses within a reasonable time period.” The insurer moved to have the breach of the covenant of good faith and fair dealing count dismissed, along with the insureds’ demands for punitive damages and attorney’s fees.

The insurer sought to dismiss the breach of the implied covenant of good faith and fair dealing claim “on the ground that the claim is subsumed within [the insureds’] bad faith claim set forth in the third count of the complaint.”

The District Court stated that the New Jersey Supreme Court “has recognized a cause of action for, and established the applicable standard governing, an insurance company’s bad faith refusal to pay a claim pursuant to a policy of insurance.” In a case in which the insured brought an action against its insurance carrier, claiming breach of the implied covenant of good faith and fair dealing for failing to timely pay the insured’s claim, the New Jersey Supreme Court had found that the bad faith cause of action rested upon the implied covenant of good faith and fair dealing, which is “to be implied in every contract.” Thus, the present District Court decision found that any analysis relevant to the determination of the insureds’ claim for breach of the implied covenant of good faith and fair dealing would be implicitly incorporated into the bad faith cause of action, and it dismissed this claim.

The District Court next addressed whether “punitive damages may be assessed against an insurance carrier for the allegedly wrongful withholding of insurance benefits.” In making this determination, the Court pointed to New Jersey case law for the proposition that punitive damage awards are prohibited in contract actions absent a special relationship between the parties. This “special relationship” exception has been narrowed to the extent that “an insurer’s task of determining whether the insurance policy provided coverage of an accident cannot be deemed to give rise to … a [fiduciary] duty on the part of the insurer.”  Rather, “[t]he parties, in this respect, are merely dealing with one another as they would in a normal contractual situation. They are not acting as principal and agent.”

In the present case, the insureds failed to plead facts that would show such egregious, intolerable, or outrageous conduct that would be sufficient to support an award of punitive damages. Further, the case was a first party insurance claim, which “cannot support a finding of a fiduciary relationship sufficient to invoke the special relationship exception to the general rule prohibiting punitive damage awards in actions of this form.” Thus, there was no more than a breach of contract action, which lacked “in both aggravated circumstances and facts indicative of a fiduciary, or agent-principal, relationship between the parties,” and the Court dismissed the claim for punitive damages.

It also rejected the insureds’ claim for attorney’s fees because the matter involved a first party claim for which counsel fees may not be recovered.

Date of Decision: September 26, 2014

Torres v. Liberty Mut. Fire Ins. Co., CIVIL NO. 13-CV-06051, 2014 U.S. Dist. LEXIS 184534 (D.N.J. September 26, 2014) (Sheridan, J.)