Monthly Archive for November, 2015

NOVEMBER 2015 BAD FAITH CASES: COURT GRANTS INSURER SUMMARY JUDGMENT AFTER FINDING THAT INSURER HAD REASONABLE BASIS FOR ITS CLAIM DECISIONS (Middle District)

In Militello v. Allstate Property & Casualty Insurance Company, the insured raised claims for breach of contract and bad faith, and alleged that “his property insurance company failed to accurately assess and pay a covered loss, and made false representations for the purpose of denying the full value of the claim.” The insurer moved for summary judgment on both claims.

The insurer contended that it was entitled to summary judgment on the bad faith claim because it “had a reasonable basis for all of its claim decisions.” The court observed that “mere negligence or bad judgment is not bad faith,” and that an insured must demonstrate by “clear and convincing evidence” that an insurer acted in bad faith.

In holding that the insured could not defeat the insurer’s motion for summary judgment on the bad faith claim, the court noted that the insurer promptly began investigating the insured’s claim within five days of receiving notice and reopened the claim once the insured contended that it had learned of previously unknown facts related to the cause of the damage. Further, the insurer issued payment to the insured, and requested the parties enter an appraisal after the insured’s counsel continued to dispute the amount of the loss.

Additionally, the insurer continued negotiations even after the insured terminated the appraisal, as well as retaining an independent contractor to prepare an estimate for the property damages, and issued an additional check to the insured. The insurer also continued to negotiate after the insured retained new counsel and initiated suit. Finally, the court stated that deposition testimony of the insured’s contractors, which directly contradicted statements made by the insured in his deposition, provided an ample basis for the insurer’s withdrawal from the appraisal process. Accordingly, the court found that the insurer had a reasonable basis for its claim decisions and that the insured failed to show that the insurer acted in bad faith by clear and convincing evidence.

Date of Decision: November 18, 2015

Militello v. Allstate Prop. & Cas. Ins. Co., CIVIL ACTION No. 1:14-cv-0240, UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, 2015 U.S. Dist. LEXIS 155576 (M.D. Pa. November 18, 2015) (Rambo, J.)

 

Prior decisions in this case can be found here and here.

 

NOVEMBER 2015 BAD FAITH CASES: THERE CAN BE NO CLAIM FOR BAD FAITH WHERE NO INSURANCE POLICY WAS EVER ISSUED (Philadelphia Commerce Court)

In The Bank of New York Mellon v. Commonwealth Land Title Insurance, the putative insured brought claims for breach of contract and bad faith for denying coverage under a title insurance policy.

A commitment letter in connection with a loan, to issue a policy of title insurance in connection with the sale of property, had been transmitted by a non-party closing service.  The commitment letter stated that several conditions precedent had to be satisfied before the title insurance would be issued. Among other things, there was a mortgage that had to be satisfied. The plaintiff admitted that this condition was never fulfilled.  No title insurance policy was ever issued because that condition was not satisfied.

When the plaintiff made a claim to the title insurance company, the title insurer responded that coverage was being denied because, among other reasons, a policy had never been issued. The court found: “As a matter of law, because the policy was never issued, plaintiff’s claims of a breach under the policy and defendants alleged acts of bad faith under the policy cannot stand.”  It considered the existence of an insurance contract a necessary element of both the breach of contract and bad faith claims, in dismissing those claims.

Date of Decision:  September 15, 2015

Bank of N.Y. Mellon v. Commonwealth Land Title Ins., June Term 2014, No. 00709, Court of Common Pleas of Philadelphia, 2015 Phila. Ct. Com. Pl. LEXIS 293 (CCP Phila. September 15, 2015,) (Glazer, J.) (Commerce Court)

 

NOVEMBER 2015 BAD FAITH CASES: COURT AFFIRMS JUDGMENTS FOR EXCESS INSURER: (1) PLAIN LANGUAGE OF POLICY MADE CLEAR THAT NEITHER EXCESS NOR UMBRELLA COVERAGE APPLIED; (2) DEFENSE PROVISION OF POLICY WAS NEVER TRIGGERED; AND (3) DECISION NOT TO PAY FOR APPEAL BOND WAS NOT BAD FAITH (Third Circuit - Pennsylvania)

In Charter Oak Insurance Company v. Maglio Fresh Foods, the Court affirmed a 2013 summary judgment in favor of the excess and umbrella insurer, and a 2014 non-jury verdict on the remaining claims. Among other things, the appellate court found that the insured failed to show that the excess and umbrella insurer “acted in bad faith or breached its contract with the insured because the defense provision of the policy was never triggered because the limit of the primary insurer’s policy was never exhausted by the payment of covered claims.”

The insured was originally sued by one of its competitors, and sought defense and indemnity from its primary insurer and its excess/umbrella insurer. The primary policy had a limit of $1,000,000, and covered claims for advertising injury but specifically excluded coverage for advertising injury “arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity.”

The excess policy at issue had a limit of $25,000,000, and provided excess coverage with the same terms and conditions as the underlying insurance, as well as umbrella coverage pursuant to its own terms. The primary policy included a duty to defend provision stating the duty would end once it had used up the limits of insurance for the payment of judgments or settlements, while the excess policy provided a duty to defend “when the applicable limit of underlying insurance has been exhausted by payment of claims for which coverage is afforded under this policy.”

The primary insurer agreed to defend the insured pursuant to a reservation of rights, and the excess and umbrella insurer determined that the case was unlikely to reach the excess layer of coverage. The primary insurer subsequently sought a declaratory judgment that the claims against the insured were not covered under the policy, and the excess and umbrella insurer brought a cross claim seeking a similar declaratory judgment. There were counter and cross claims for breach of contract and bad faith against the insurers. The District Court ruled in favor of the insurers. The insured argued that the lower court erred in determining that the excess insurer “was not obligated to indemnify it for the underlying verdicts and erred in rejecting its claims for bad faith and breach of contract.”

On appeal, the Third Circuit found that the plain language of the excess policy was clear that “neither its excess nor its umbrella coverage applied to the damages at issue.” Accordingly, the Court determined that the excess insurer could not have acted in bad faith by failing to defend the insured, especially since the primary insurer provided the insured with a defense throughout the underlying litigation.

Finally, the Court found that the only real issue was whether the excess insurer acted in bad faith by failing to post, or contribute to the posting, of an appeal bond. The Court held that the insurer had a reasonable basis for its conduct, as the limits of the primary policy were never exhausted and the defense provision of the excess policy was never triggered. The Court further stated that the excess insurer acted reasonably in assessing the insured’s claim, “investigating the claim, continuing to monitor the events of the underlying action, and hiring counsel to provide guidance as to its obligations.” As such, the insured failed to show that the insurer acted in bad faith.

The Court stated: “As we have elsewhere observed, however, it is a ‘rare’ case in which an insurer is liable for bad faith when there is no duty to provide coverage, … and, because [the excess insurer] had a reasonable basis for its conduct with respect to [the insured], this is not one of those rare cases.”

Date of Decision:  November 4, 2015

Charter Oak Ins. Co. v. Maglio Fresh Foods, CIVIL ACTION NO. 14-4094, 2015 U.S. App. LEXIS 19268 (3d Cir. November 4, 2015) (Barry, Fuentes, Smith JJ.)

NOVEMBER 2015 BAD FAITH CASES: INSUREDS’ COUNSEL COULD BE DEPOSED ON COMMUNICATIONS WITH INSURER’S ADJUSTER DURING PRE-SUIT CLAIMS HANDLING NEGOTIATIONS (Philadelphia Federal)

In Adeniyi-Jones v. State Farm Mutual Auto Insurance Company, the insureds brought an action against their insurer, alleging breach of contract as well as bad faith on the part of the insurer in negotiating regarding a claim for underinsured motorist benefits. The insurer moved to compel the deposition of counsel for the insureds, while the insureds countered with a motion for a protective order.

The insurer sought to depose counsel for the insureds regarding “discussions that she had with [the insurer’s] claims adjuster concerning the [insureds’] insurance claims before filing this lawsuit.” The insurer argued that these conversations concerned central factual issues that were relevant in determining whether the insurer acted in bad faith in negotiating settlement of the insurance claim.

The insurer noted that in support of their bad faith claim, the insureds alleged that the insurer failed to request a statement under oath or a medical examination of one of the insureds. The insurer argued that it acted reasonably pursuant to an oral agreement with the insureds’ counsel, however, that counsel would provide the insurer with information that would render a statement under oath and medical examination unnecessary. The court stated that the existence of this oral agreement was central to both the bad faith claim and defense of the claim, and acknowledged that a deposition of counsel is appropriate where “the attorney’s conduct itself is the basis of a claim or defense, [and] there is little doubt that the attorney may be examined as any other witness.”

Because counsel for the insureds had factual information regarding the agreement that was only available from her, the court found that the insureds could not meet their burden of showing that “the information is so readily available from other sources that an order compelling [counsel’s] deposition would be oppressive.”

Further, the court found that harm to the insureds’ representational rights would be minimal, as the communications at issue were not protected by the attorney-client privilege. Accordingly, the court granted the insurer’s motion and held that the insurer may depose the insureds’ counsel “limited to her communications with [the insurer] regarding the [insureds’] pre-litigation insurance claim.” The insureds’ motion for a protective order was denied.

Date of Decision: October 21, 2015

Adeniyi-Jones v. State Farm Mut. Auto. Co., CIVIL ACTION NO. 14-7101, 2015 U.S. Dist. LEXIS 142822 (E.D. Pa. October 21, 2015) (Bartle III, J.)

 

NOVEMBER 2015 BAD FAITH CASES: COURT ORDERS INSURER TO PRODUCE (1) RESERVE INFORMATION (2) CLAIMS FILES FOR IN CAMERA REVIEW AND (3) PROPRIETARY INFORMATION SUBJECT TO CONFIDENTIALITY ORDER (Western District)

In Smith v. Progressive Specialty Insurance Company, the court granted in part the insured’s motion to compel discovery after finding that redacted information provided by the insurer was discoverable and relevant to the determination of whether the insurer acted in bad faith.

The insured originally filed a complaint against her automobile insurer, alleging state law claims for breach of contract and bad faith relative to an underinsured motorist (“UIM”) claim. The insured served discovery requests on the insurer, and the insurer provided the insured with non-privileged portions of UIM claim notes along with a privilege log.

Upon receipt of the requested documents, the insured filed a motion to compel in which she argued that the redactions related to the insurer’s valuation of her UIM claim and reserves are “relevant to [her] bad faith claim, as it has been alleged that [the insurer] failed to properly investigate and evaluate her case in accordance with the duty of good faith and fair dealing.” The insurer opposed the motion and argued that its UIM claim notes and reserve information were protected from discovery as opinion work product. Alternatively, the insurer urged the court to conduct an in camera review of the documents before ordering the production of same.

The court acknowledged that there is “competing treatment of whether reserve information is discoverable in a bad faith lawsuit,” but ultimately determined that the amount set aside for reserves is germane to any analysis that the insurer made of the claim’s value and relevant to the determination of whether the insurer acted in bad faith in processing the claim. Accordingly, the court ordered the insurer to produce any previously redacted reserve information in the claim file.

The court next pointed to Pennsylvania case law for the proposition that an insurer’s “claims file is discoverable in a bad-faith case like this one, as information in that file on [the insurer’s] decision to deny the claim is relevant or could lead to potentially relevant information.” Thus, the insurer was ordered to produce to the court all entries it had previously redacted in the UIM claim notes based upon the work product doctrine in order for the court to conduct an in camera review.

Finally, the court ordered the insurer to produce to the insured any information it had previously redacted pursuant to its so-called “confidential and proprietary” privilege, finding that disclosure of this information appeared adequately protected by the parties’ confidentiality agreement.

Date of Decision:  November 4, 2015

Smith v. Progressive Specialty Ins. Co., CIVIL ACTION NO. 2:15-cv-528, 2015 U.S. Dist. LEXIS 149835 (W.D. Pa. November 4, 2015) (McVerry, J.)

The court denied a subsequent motion for reconsideration on the reserve issue.

NOVEMBER 2015 BAD FAITH CASES: COURT (1) SEVERS BAD FAITH CLAIM FROM BREACH OF CONTRACT CLAIM, AND (2) STAYS BAD FAITH CLAIM PENDING RESOLUTION OF BREACH OF CONTRACT CLAIM (New Jersey Federal)

In Bridgewater Wholesalers, Inc. v. Pennsylvania Lumbermens Mutual Insurance Company, a recent Hurricane Sandy coverage case, the Court granted the insurer’s motion to sever the insured’s bad faith claim and stay that claim pending the resolution of the insured’s breach of contract claim.

The case arose out of an alleged breach of insurance contract between the insurer and the insured for claims stemming from losses sustained during Hurricane Sandy. The insured alleged that the insurer underpaid its business loss of income claim, and filed suit alleging breach of contract and breach of the implied duty of good faith.

The Court listed the following factors to consider in determining whether severance was warranted: “(1) whether the issues sought to be tried separately are significantly different from one another, (2) whether the separable issues require the testimony of different witnesses and different documentary proof, (3) whether the party opposing the severance will be prejudiced if it is granted, and (4) whether the party requesting severance will be prejudiced if it is not granted.”

In finding that the first relevant factor weighed in favor of severance, the Court stated that the breach of contract claim concerned lost sales and the insurer’s obligation under the contract, while the bad faith claim addressed the insurer’s general claims handling procedures. Accordingly, the Court found that viewing these claims as separate and distinct actions would promote judicial economy.

Second, the two claims required testimony of different witnesses and different documentary proof. Specifically, the insured sought numerous documents not directly relevant to the contract claim, which the Court found would distract from and delay the resolution of the primary focus of the case – whether the contract claim should be paid in the amount of the claim or at all.

Third, the Court found that the insured would not be prejudiced by severance because the bad faith claim may be premature and the insured would still have the ability to pursue its bad faith claim if it prevailed on its breach of contract claim.

Finally, the Court found that the insurer would be prejudiced if the claims were not severed, reasoning that in order to litigate the bad faith claim now, the insurer would suffer by engaging in expensive and time-consuming discovery that would ultimately be rendered needless if the insurer prevails. Accordingly, the claims were severed and the bad faith issues stayed pending the adjudication of the breach of contract claim.

Date of Decision: November 2, 2015

Bridgewater Wholesalers, Inc. v. Pa. Lumbermens Mut. Ins. Co., Civil Action No. 2:14-CV-3684-SDW-SCM, 2015 U.S. Dist. LEXIS 148551 (D.N.J. November 2, 2015) (Mannion, M. J.)

 

 

NOVEMBER 2015 BAD FAITH CASES: COURT WOULD NOT ASSUME INSURER WAS WITHHOLDING DOCUMENTS, AND WOULD NOT REQUIRE DISCLOSURE OF UNRELATED MATTERS REDACTED FROM CLAIM FILE PRODUCTION (Philadelphia Federal)

In Quinn v. State Farm Fire & Casualty Company, the insured brought breach of contract and bad faith claims based on a fire loss.  The insurer provided redacted documents from its claim files in discovery, and the insured moved to strike the redactions.  The insurer did not keep hard copies of documents, but only electronic files, and could not guaranty that the electronic files included copies of all documents that had existed in paper form, but which were no longer kept. The insured also moved to compel copies of any missing documents that had not been produced.  The court denied the insured’s motion on all grounds.

First, there was no evidence of intentional or bad faith destruction of documents or that any documents were in fact missing; so the court could not compel production of documents that may have existed, but which had not been produced.  In this section of its opinion, the court also rejected the insured’s argument to bar the claims adjuster from testifying about matters not in the physical claims filed, fearing that the adjuster would fill in redacted information from memory.  The court rejected that argument as having no basis in the law or discovery rules.

As to the redactions, the court would not strike redactions to items concerning matters occurring two years before the incident at issue, as there was no showing of relevance.  Nor would it strike redactions concerning third party liability claims, being likewise irrelevant to the case at hand.

Next, the court observed that it could not rule on striking redactions based on the condition of the document, when the plaintiff had not attached the document for the court’s review.

The insurer apparently produced unrelated photographs with the claims file, and the insured argued that related photographs had been redacted, and should be produced.  However, there was nothing to establish that there were related photographs which had been withheld or redacted, and that part of the motion was denied as well.

Similarly, the court would not require production of unredacted sections of production concerning “scope of loss” where the insured did not point to specific redactions allegedly made on this topic, or where relevant additional information was missing. The court observed: “I cannot compel defendant to produce unidentifiable unredacted documents or entries.”

Date of Decision:  October 6, 2015

Quinn v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 14-4281, 2015 U.S. Dist. LEXIS 135984 (E.D. Pa. October 6, 2015) (O’Neill, J.)

NOVEMBER 2015 BAD FAITH CASES: NO FIRST PARTY BAD FAITH CLAIM POSSIBLE WHERE NO COVERAGE DUE; DAMAGE WAS EXCLUDED WHETHER CAUSED BY FLOOD WATER OR SUBSTANCES IN FLOOD WATER (New Jersey Appellate Division)

In Riccio v. Allstate Insurance Company, the Court found that the insureds’ bad faith claims were precluded because their claim of loss was properly denied by the insurer.

The insureds originally filed a claim with the insurer after their home suffered damage from Hurricane Sandy. After the insurer rejected the claim pursuant to a “flood and flowing substance exclusion” in the policy, the insureds filed suit alleging breach of contract, breach of implied covenant of good faith and fair dealing, and breach of fiduciary duties. Specifically, the insureds argued that the property damage resulted from “substances in the water, not a flood.”

In affirming the ruling of the Law Division, the New Jersey Superior Court reasoned that the exclusionary clause in the policy, which precluded coverage for “property loss caused by or consisting of flood damage”, included “damage caused by the toxic substances carried by the flood waters and left behind after that water recedes.” The Court was unconvinced by the insureds’ argument that the terms of the policy were ambiguous, noting that the insureds contended that their damage was caused by substances contained in flood water, while the exclusion “expressly included losses caused by water or any other substances regardless of its source.”

Finally, the Court rejected the bad faith claims brought by the insureds, and noted that in order to establish a first-party bad faith claim for denial of benefits in New Jersey, an insured must show “that no debatable reasons existed for denial of the benefits.” Here, because the claim of loss was properly denied by the insurer, the Court found that the insureds were not entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim, and affirmed summary judgment in favor of the insurer.

Date of Decision:  October 22, 2015

Riccio v. Allstate Ins. Co., DOCKET NO. A-4628-13T2, 2015 N.J. Super. Unpub. LEXIS 2417 (App. Div. October 22, 2015) (Yannotti, St. John, and Guadagno, JJ.)

NOVEMBER 2015 BAD FAITH CASES: COURT DISMISSES INSURED’S BAD FAITH CLAIM AFTER INSURER SHOWS REASONABLE BASIS FOR (1) REQUESTING INDEPENDENT MEDICAL EXAMINATION, (2) REFUSING TO PROCEED TO ARBITRATION WITHOUT AN EXAMINATION, AND (3) DENYING INSURED’S CLAIM (Third Circuit)

In Feingold v. State Farm Mutual Automobile Insurance Company, the insured brought breach of contract and bad faith counts in a suit brought approximately thirteen years after a vehicular accident. In August 1998, the insured was involved in a motor vehicle accident and filed a personal injury protection claim with his insured. Over the next few months, the insurer made multiple attempts to schedule an independent medical examination (“IME”). Despite the fact that the policy required the insured to cooperate with the insurer by submitting to reasonable requests for medical examination, the insured failed to attend multiple scheduled appointments and refused to provide the insurer with other convenient dates.

The insurer eventually obtained peer reviews of the insured’s medical reports, which determined that the insured had reached maximum medical improvement. In contrast, the insured produced a doctor’s report that discussed additional treatment options.

Two years after the insurer’s last request for an IME, the insured filed a petition to appoint arbitrators for uninsured/underinsured motorist claims, which the insurer eventually agreed to. Nevertheless, the insured refused to submit to an IME, and the insurer warned that it would refuse to proceed to arbitration until the examination occurred. The insurer eventually informed the insured that it was closing his file because his failure to submit to an IME indicated that he did not intend to pursue a claim.

In December 2010, twelve years after the accident occurred, the insured’s newly hired counsel requested that the insurer proceed to arbitration, which the insurer refused to do and responded that the file was closed and the claim was time-barred. In October 2011, the insured filed the instant suit for breach of contract and bad faith. The District Court granted summary judgment in favor of the insurer after finding that the insured’s failure to submit to an IME constituted a material breach of the agreement that had prejudiced the insurer, and the insured appealed.

In affirming summary judgment on the insured’s bad faith claim, the Court found that the insurer had a reasonable basis for requesting an IME, refusing to proceed to arbitration without an examination, and denying the insured’s claim. Specifically, the Court reasoned that an IME was needed to determine the cause of the insured’s injuries and to clarify inconsistencies in the prognosis.

Date of Decision: October 27, 2015

Feingold v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 14-1414, 2015 U.S. App. LEXIS 18700 (3d Cir. Pa. October 27, 2015) (Ambro, Roth, Scirica, JJ.)

 

 

NOVEMBER 2015 BAD FAITH CASES: INSURANCE FRAUD CLAIMS BARRED BY STATUTE OF LIMITATIONS; LIMITS ON EXPERT TESTIMONY AS TO ULTIMATE ISSUE OF BAD FAITH (Philadelphia Federal)

In Schatzberg v. State Farm Mutual Automobile Insurance Company, the insurer brought a statutory insurance fraud claim against a medical provider, under 18 Pa.C.S. § 4117, among other fraud based claims.  This claim has a two year statute of limitations. The court found that the insurer was on notice of the alleged fraudulent billing scheme well beyond the limitations periods applicable to the various claims; and the court rejected all tolling theories. Thus, summary judgment was granted against the insurer.

In an interesting alternative holding, the court found there could be no justifiable reliance on the alleged fraud after a certain period, because the insurer was aware of the fraud but kept making payments anyway.

In a second opinion the same day, granting the insurer partial summary judgment on the plaintiff’s defamation claims, the court made observations as to how experts could not testify on the ultimate legal issue of bad faith; and footnoted various statutory and regulatory provisions addressing the Pennsylvania Legislature’s concern with combating insurance fraud.

Dated of Decisions: October 7, 2015

Schatzberg v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 10-2900, 2015 U.S. Dist. LEXIS 136722 (E.D. Pa.  October 7, 2015) (QUIÑONES ALEJANDRO, J.)

Schatzberg v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 10-2900, 2015 U.S. Dist. LEXIS 136730 (E.D. Pa.  October 7, 2015) (QUIÑONES ALEJANDRO, J.)