Monthly Archive for October, 2015

OCTOBER 2015 BAD FAITH CASES: COURT DOES NOT DISMISS CLAIMS FOR ATTORNEY’S FEES IN BREACH OF THE DUTY OF GOOD FAITH AND FAIR DEALING CLAIM AS POTENTIALLY BEING A FORM OF CONSEQUENTIAL DAMAGES (New Jersey Federal)

In Breitman v. National Surety Corporation, the court was faced with the question of whether an insured could request attorney’s fees as part of consequential damages to a claim of bad faith.

The case arose out of a Hurricane Sandy coverage dispute in which the insurer originally denied the insured’s claim for loss and damage to the insured’s property caused by flood, not wind, as a result of Hurricane Sandy. The insured alleged that the insurer “conducted an improper adjustment, wrongfully denied his claim, and delayed payment.” The insured filed suit and set forth claims for breach of contract, breach of the duty of good faith and fair dealing/bad faith, and violations of the New Jersey Consumer Fraud Act. The insurer moved to strike the request for attorney’s fees from the bad faith claim.

In refusing to strike the insured’s request for attorney’s fees as part of his claim for breach of the duty of good faith, the court noted that under New Jersey law, “attorney’s fees are recoverable where provided for under a court rule or statute, pursuant to a contract, or where counsel feels are a traditional element of damages in a particular cause of action.” The court acknowledged that New Jersey law does not allow for an insured to recover attorney’s fees in a direct suit against his insurer for coverage, but explained that fees may be recoverable on a bad faith claim because “consequential economic damages are part of the damages award in a cause of action for bad faith.” While the insurer urged the court to hold otherwise, the court stated that it was not necessary to conclusively decide this issue at such an early stage in the litigation. As the insured was able to plausibly show that fees may be part of the consequential damages on a claim of bad faith, the court permitted the request to remain, and reasoned that the issue of damages would be revisited if the insured later proved his claim against the insurer.

Date of Decision:  September 29, 2015

Breitman v. Nat’l Sur. Corp., CIVIL ACTION NO. 14-7843, 2015 U.S. Dist. LEXIS 130744 (D.N.J. September 29, 2015) (Simandle, J.)

OCTOBER 2015 BAD FAITH CASES: COURT GRANTS INSURER’S MOTION FOR SUMMARY JUDGMENT ON BAD FAITH CLAIMS AFTER FINDING THAT CLAIMS WERE TIME-BARRED AND WITHOUT MERIT (Philadelphia Federal)

In Blackwell v. Allstate Insurance Company, the Court dismissed the insured’s bad faith claim as time barred after the insured failed to establish an exception to the statute of limitations applied, independent of the whether the bad faith claim was without merit.

The insured’s complaint alleged that in March 2011, his home suffered water damage when a shut-off valve in a second floor bathroom failed. The insured hired a public adjuster as well as a water remediation company to mitigate the damage. Before the insurer could conduct its inspection of the property, the remediation company began tearing out portions of the insured’s property.

A representative of the insurer inspected the property and documented both the water damage and the tear-out in progress by the remediation company. On the day of the inspection, the insurer’s representative retained an engineer to determine whether the tear-out work constituted unnecessary demolition.

The insured subsequently fired the public adjuster and was advised by the insurer of the need to set up a claim for vandalism, as it had determined that the tear-out work was unnecessary and destructive. The insurer’s representative prepared two estimates in June 2011, and issued checks for damage caused by the shut-off valve and damage caused by the remediation company.

In November 2012, the insured requested replacement of his furnace, claiming that it was inoperable due to the shut-off valve failure that occurred in March 2011. The insurer acknowledged that it had included money to service, but not replace, the furnace in its previous estimate.

The insurer denied the claim and explained that an unreasonable amount of time had passed between the initial claim and discovery of damage to the furnace. The insured filed suit in November 2013, a year after the insurer denied the furnace replacement claim.

The insured alleged statutory bad faith. The insurer argued that the claim was time barred and without merit, as the insurer “acted promptly, provided a proper investigation, provided replacement value indemnification for an agreed upon amount, and had a reasonable basis for its coverage decisions.”

The court noted that the insured had until July 2013 to timely file this suit, as the final check was issued in July 2011, yet the insured did not offer any explanation as to why he waited until the statute of limitations had passed. The insured contended that he was “deceptively lulled into inaction” and argued that that the doctrine of equitable estoppel should apply to preclude the insurer from claiming the defense of untimeliness. However, the court could not find any evidence to show that the insured was misled in any way, and dismissed the bad faith claim as time barred.

Moreover, the court went on to find that the bad faith claim was without merit even if it was not time barred, as no evidence showed that the insurer failed to promptly and reasonably investigate the insured’s claims, or unduly delayed in determining or providing coverage. Further, the insured could not point to any evidence demonstrating that the insurer knew or should have known that the checks issued were inadequate to complete all necessary repairs. Thus, the court reasoned that it would grant the insurer’s motion for summary judgment on the merits had it not found that the claims were not timely filed.

Date of Decision:  August 31, 2015

Blackwell v. Allstate Ins. Co., CIVIL ACTION NO. 14-878, 2015 U.S. Dist. LEXIS 115155 (E.D. Pa. August 31, 2015) (Rufe, J.)

 

OCTOBER 2015 BAD FAITH CASES: STATUTE OF LIMITATIONS DID NOT BEGIN TO RUN AT THE TIME OF THE INSURER’S ALLEGED DECLINATION LETTER, BECAUSE THE LANGUAGE IN THAT LETTER WAS AMBIGUOUS ON DENIAL (New Jersey Federal)

In Liguori v. Certain Underwriters at Lloyds London, the court held that the statute of limitations had not run on the insured’s claim for breach of the implied covenant of good faith and fair dealing, because the insurer’s declination letter was ambiguous as to whether or not the claim would be covered.

Date of Decision:  July 17, 2015

Liguori v. Certain Underwriters at Lloyds London, Civil No. 14-5898, 2015 U.S. Dist. LEXIS 93090 (D.N.J. July 17, 2015) (Kugler, J.)

OCTOBER 2015 BAD FAITH CASES: UNFAIR INSURANCE PRACTICES ACT CANNOT BE BASIS FOR PRIVATE CAUSE OF ACTION (Philadelphia Federal)

In Assurity Life Insurance Company v. Nicholas, the insured raised various counterclaims.  There was no bad faith count as such, but a count was pleaded for violation of the Unfair Insurance Practices Act.  The insurer moved to dismiss the court.

The court observed the well-recognized position that: “The UIPA expressly provides that enforcement of its provisions is the responsibility of the Insurance Commissioner and does not confer a private right of action.” The insured conceded the point, but attempted to argue that while the UIPA itself cannot be the basis for a claim, bad faith can be shown if the conduct at issue violated the UIPA.  The court stated that “there may be some extent to which conduct violative of the UIPA could serve as the basis for a bad faith claim,” citing Moore v. State Farm. However, the court did not have to reach the issue because there was no separate count for bad faith pleaded in this case.  Thus, it was clear that a “separate count asserting a claim directly under the UIPA cannot stand….”

Date of Decision: October 1, 2015

Assurity Life Ins. Co. v. Nicholas, CIVIL ACTION No. 14-6522, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2015 U.S. Dist. LEXIS 133701 (E.D. Pa. October 1, 2015) (Heffley, USMJ)

OCTOBER 2015 BAD FAITH CASES: “BARE BONES” PLEADING DISMISSED WITHOUT PREJUDICE, AND WITH LEAVE TO AMEND IN 20 DAYS (Philadelphia Federal)

In Mills v. Allstate Insurance Company, the insured homeowner brought breach of contract and bad faith counts based on smoke and soot damage, after the insurer denied his claims.  In the bad faith count,  the insured averred the following facts constituted bad faith: sending a letter stating the claim was not covered even though the insurer knew or should have known this was false and misleading; failing to effectuate a prompt, fair and equitable settlement of Plaintiff’s claim when its liability under the policy became reasonably clear; misrepresenting pertinent facts or policy or contract provisions relating to the coverages at issue; treating the insured with reckless indifference and disregard under the circumstances; not having a reasonable basis for denying the insured benefits under the policy and in knowingly or recklessly disregarding its lack of reasonable basis when it denied the insured’s claim; and interpreting ambiguous terms, provisions and/or conditions of the aforementioned policy in its favor and against the insured.

The court cited its prior analysis of pleading bad faith under the heightened standards found in the Supreme Court’s Iqbal decision, and the Third Circuit’s Fowler decision, where an insured makes “bare-bones” allegations devoid of factual specificity.  The court found that this described the instant pleadings.  The complaint was dismissed without prejudice, with 20 days to amend.

Date of Decision:  September 29, 2015

Mills v. Allstate Ins. Co., CIVIL ACTION NO. 15-4824, 2015 U.S. Dist. LEXIS 130862 (E.D. Pa. September 29, 2015) (Baylson, J.)

 

OCTOBER 2015 BAD FAITH CASES: COURT REFERENCES UNFAIR INSURANCE PRACTICES ACT AS JUSTIFICATION FOR INSURER NOT HAVING INTERFERED WITH CONTRACTUAL RELATIONS BETWEEN INSURER AND THIRD PARTY (Philadelphia Federal)

In Charbonneau v. Chartis Property Casualty Company, the Court had previously dismissed bad faith claims directly against the insurer, brought by an assignee of the insured.  After a non-jury trial, the court addressed the assignee’s claims against the insurer for alleged intentional interference with contract between the assignee and the insured.  In finding that there was no such interference, and that the insurer’s actions in settling the claim were justified, the court stated:

“[U]nder Pennsylvania’s Unfair Insurance Practices Act (“UIPA”), an insurer is prohibited from engaging in ‘an unfair method of competition’ or ‘an unfair or deceptive act or practice.’ 40 Pa. Stat. § 1171.4. Those terms are set out in the UIPA to encompass ‘unfair claim settlement or compromise practices,’ which specifically include ‘[n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear.’ Id. § 1171.5.”

After addressing the investigation and facts leading up to the settlement between the insurer and the insured, the court stated that where the insured “was willing to resolve his homeowner’s claim for $18.5 million, it may well have amounted to an unfair claim settlement practice for [the insurer] to have refused to settle. Indeed, as [the insurer] further notes, such a refusal could have bolstered a claim of bad faith against the insurer under 42 Pa. Cons. Stat. Ann. § 8371. See Parasco v. Pac. Indem. Co., 920 F. Supp. 647, 655 & n.5 (E.D. Pa. 1996) (noting that ‘a violation of the UIPA does not constitute bad faith per se; rather, the UIPA serves as a reference from which a court may determine whether an insurer has acted in bad faith in a given case’). It cannot be the case that [the insurer] violated ‘the rules of the game’ when it avoided acting in bad faith toward [the insured], its homeowner’s policyholder, as it did in settling his claim.”

Date of Decision:  September 21, 2015

Charbonneau v. Chartis Prop. Cas. Co., CIVIL ACTION NO. 13-4323, 2015 U.S. Dist. LEXIS 126733 (E.D. Pa. September 21, 2015) (Yohn, J.)

OCTOBER 2015 BAD FAITH CASES: IF TERLETSKY STANDARDS COULD BE MET, BAD FAITH CLAIMS CAN BE PURSUED FOR: (1) WITHHOLDING PAYMENTS, EVEN WHEN PARTIAL PAYMENTS ARE MADE; (2) FAILURE TO INVESTIGATE; AND (3) ABSENCE OF REASONABLE EXPLANATION. A COURT MAY CONSIDER UIPA VIOLATIONS, AND INSURED NEED NOT PROVE ILL-WILL (Philadelphia Federal)

In Scott v. Foremost Insurance Company, Judge Baylson was called upon again to address statutory bad faith claims in the claims handling process.

The insureds complaint alleged that their homes suffered damages from an electrical surge.  Their public adjuster estimated damages well in excess of $300,000 to the home and appliances, which the insureds claimed were covered.  They allege the insurer’s representative told them the insurer would cover the claim if they provided three estimates.  They did so, and the insurer offered approximately 1/3 of the estimates.  They allege their public adjuster assessed the entire loss, which the insurer disputed without providing a reasonable explanation. The insurer did send an investigator.  The insured’s alleged that this investigator conducted no actual investigation however, and falsely accused the insureds of falsifying their damages on the basis that the damage was caused by lightning, rather than a power surge.  Initially the insurer relied upon this inspector to deny the claim. The insureds alleged that three months later, the insurer did agree they suffered a loss, and the insureds demanded certain remedial work; but they claim charges were improperly placed on them for this work, instead of the insurer, causing them extreme financial distress.

The court found a bad faith claim was stated, on the basis that withholding payments absent a reasonable basis, with intent or reckless disregard, can constitute bad faith. The insureds alleged no reasonable explanation was offered in disputing their estimates, and that there was a failure to conduct any investigation.  Further, a bad faith plaintiff need not prove ill-will. Nor does making partial payment preclude a statutory bad faith claim.

Finally, this federal court apparently accepted the argument that it is not improper to rely upon violations of the Unfair Insurance Practices Act (UIPA) in supporting a bad faith claim, citing Bombar v. West American Insurance Company.  By contrast, some federal cases appear to hold that reference to the UIPA cannot be used as the basis for a bad faith claim.  In a recent decision, posted yesterday, Magistrate Judge Mitchell in the Western District noted the split in authority on reference to the UIPA. Date of Decision:  September 30, 2015

Scott v. Foremost Ins. Co., CIVIL ACTION NO. 15-3257, 2015 U.S. Dist. LEXIS 133698 (E.D. Pa. September 30, 2015) (Baylson, J.)

OCTOBER 2015 BAD FAITH CASES: INSURER’S ALLEGED FAILURE TO INVESTIGATE INSURED’S MENTAL COMPETENCY AT THE TIME HE ALTERED POLICY BENEFITS COULD BE BASIS FOR A BAD FAITH CLAIM (Western District)

In Hess v. Nationwide Life Insurance Company, the beneficiary of a life insurance policy pleaded that the insurer failed to pay full policy proceeds.  The insured’s husband had submitted a document to the insurer that reduced the benefit, but she argued that he was mentally incompetent when he did so, and thus the reduction was of no legal effect.  In bringing a bad faith claim, she pleaded that the insurer failed to conduct an investigation into her husband’s mental state in refusing to pay the sum originally due, absent his signing the document reducing her benefits.  The insurer moved to dismiss the claim.  The court denied the motion.

The insurer argued that the claim should be dismissed because it was based upon a violation of the Unfair Insurance Practices Act (UIPA), and the UIPA could not form the basis for bad faith claims under Third Circuit precedent.  The court noted that the Third Circuit and Pennsylvania federal courts do show some conflict on this point; however, because the complaint did not solely rely upon the UIPA violation, the court did not have to resolve the issue.

Rather, the court found that the complaint generally alleged a failure to investigate the husband’s mental state at all, in determining the validity of the beneficiary’s position. It focused on the contention that the insurer had been presented with medical evidence of incompetency, but refused to investigate the matter and reconsider the decision.” The court stated the proposition that “bad faith may occur before, during and after litigation and may include an insurer’s failure to investigate.” (citing Thomer v. Allstate Ins. Co.) Finally, the court rejected the argument that plaintiff could not make her case by showing clear and convincing evidence that the insurer lacked a reasonable basis to deny the claim. The analysis of this claim was premature at the motion to dismiss stage, under the circumstances of this case.  Such an analysis and determination could only be made after the record has been developed. Date of Decision:  September 17, 2015

Hess v. Nationwide Life Ins. Co., Civil Action No. 15-692, 2015 U.S. Dist. LEXIS 124339 (W.D. Pa. September 17, 2015) (Mitchell, U.S.M.J.)

OCTOBER 2015 BAD FAITH CASES: ASSUMING THAT SUBJECTIVE BAD FAITH IS THE STANDARD OF REASONABLENESS, THE INSURER’S INTERPRETATION OF GOVERNING CASE LAW DURING LITIGATION WAS REASONABLE, EVEN IF WRONG (Middle District)

In Douglas v. Discover Property & Casualty Insurance Company, Judge Mariani again identified the issue that there is a split in authority on whether an objectively reasonable basis to deny coverage can per se defeat the first prong of a plaintiff’s statutory bad faith claim, and preclude such a claim from going forward on an “objective” basis.  Put another way, if an insurer delays in paying a claim or denies a claim based on specific reasoning which is incorrect, but it is later determined that no coverage was due under the policy for a different reason, is it still possible to bring a bad faith claim even though no coverage was ever due under the policy.  The majority of cases stated stand for the proposition that a bad faith claim could not be pursued in those circumstances, because there is an objectively reasonable basis for denying coverage; and thus the plaintiff/insured cannot meet the first prong of the Terletsky test.  However, as in the prior cases identifying this issue, the court did not have to decide the issue, because there was no actionable bad faith claim in any event, and summary judgment was granted to the insurer on the basis that the insured could not even establish subjective unreasonableness.

In that UIM case the insured argued that the insurer relied upon a rejection form it knew to be invalid in denying coverage.  However, the insurer had other independent justifications for denying coverage even if the form was invalid.  Further, although an earlier decision went against the insurer on this issue, under the Superior Court’s Vaxmonsky decision, the insurer’s arguments distinguishing that case as to the form’s validity, asserted repeatedly during the litigation process, was not unreasonable.

On the later point, the court stated: “It does not matter that these arguments have been unsuccessful in court so far. ‘[T]o recover under a claim of bad faith, the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim,’ which requires some sort of dishonest purpose on the part of the Defendant. …. The record contains no reason to believe that Defendant’s legal arguments have been raised dishonestly. Instead, it simply appears that Defendants have hewn to good faith but unavailing legal theories. This does not qualify as bad faith conduct under the standards set forth above.”

Date of Decision: September 29, 2015

Douglas v. Discover Prop. & Cas. Ins. Co., 3:08-CV-01607, 2015 U.S. Dist. LEXIS 131601 (M.D. Pa. September 29, 2015) (Mariani, J.)

OCTOBER 2015 BAD FAITH CASES: THIRD CIRCUIT EXPRESSLY WITHHOLDS RULING ON WHETHER PEER REVIEW DOCTORS WHO OWE NO DUTY TO A PATIENT, MAY BE AIDERS AND ABETTORS TO AN INSURANCE BAD FAITH CLAIM (Third Circuit, New Jersey)

In Skelcy v. United Health Group, Inc., the insured had sought to continue medication and a program of therapy which his doctors had successfully used and continued to recommend.  The insurer had agreed to the original use, but denied the later claim to use the drug at issue.  There was an appeal, and the insurer assigned the appeal to a provider of peer review assessments, which assigned it to a doctor.  That doctor concluded that the treatment requested was not the standard of care.  The insurer declined to approve the treatment based on this analysis.  The treating physicians pleaded with the insurer in light of the insured’s dire condition, and repeated that the treatment had previously been successful.  The insurer changed its position a little over a month later, but the insured died within 36 hours of the reversal.

The appellate court affirmed the trial court’s holding that the peer review entity and the physician carrying out the peer review did not owe a duty to the deceased. In so holding, the Court stated in a footnote: “Our holding is strictly limited to the claims contained in [the] complaint. We do not opine whether entities and physicians could be liable as aiders and abettors in a scheme designed to deny insurance claims in bad faith.”

Date of Decision:  September 22, 2015

Skelcy v. UnitedHealth Group, Inc., No. 15-1012, 2015 U.S. App. LEXIS 16772 (3d Cir., September 18, 2015) (Chagares, Fisher and Jordan, JJ.)