Monthly Archive for December, 2015

DECEMBER 2015 BAD FAITH CASES: MOTION TO AMEND AND ADD (1) UIPA ACTION DENIED AS FUTILE (2) BAD FAITH CLAIM DENIED AS UNTIMELY AND PREJUDICIAL

In United National Insurance Company v. Indian Harbor Insurance Company, the insured sought to amend its complaint to add claims under the Unfair Insurance Practices Act (“UIPA”) and the statutory Bad Faith Act.  The court denied amendment as to the UIPA claim as there is no private right of action under the UIPA, and thus such an amendment would be futile.  As to the bad faith claim, discovery had been completed for months, a trial date was set, and allowing such an amendment would require more discovery and additional expert reports.  The court found an undue delay, that this was prejudicial and would not allow it.

Date of Decision:  December 9, 2015

United Nat’l Ins. Co. v. Indian Harbor Ins. Co., CIVIL ACTION NO. 14-6425, 2015 U.S. Dist. LEXIS 16475, (E.D. Pa. December 9, 2015) (Bartle III, J.)

DECEMBER 2015 BAD FAITH CASES: WHERE NO COVERAGE DUE AND INSURER GAVE HIGHLY PLAUSIBLE EXPLANATION TO DENY COVERAGE, INSURED CANNOT MEET FAIRLY DEBATABLE STANDARD TO PROVE BAD FAITH (New Jersey Federal)

In One James Plaza Condominium Association v. RSUI Group, Inc., the court found coverage was excluded under a condominium association’s claims made policy, by a Specific Litigation Exclusionary Provision.  The issue was whether a second lawsuit against the insured’s board members was related to a prior litigation.

In addressing whether there could be a bad faith claim for refusing to defend the condominium board members, the court applied the rule found in Pickett v. Lloyd’s:  “to state a claim for bad faith denial of insurance coverage, Plaintiff must show: (1) the insurer lacked a reasonable basis for its denying benefits, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”  These cases are analyzed by the “fairly debatable” standard, i.e., “[i]f a claim is ‘fairly debatable,’ no liability in tort will arise.’” To meet that standard an insured has to establish that it would have a right to summary judgment as a matter of law.  Put another way, if there is an issue of material fact as to the underlying claim regarding Plaintiff’s entitlement to insurance benefits, there is no bad faith.”

In this case, the insurer issued a denial of coverage letter, giving an extensive explanation as to why there was no coverage.  The insurer’s explanation provided plausible reasons for the denial of coverage and demonstrated genuine issues whether claims fell within the coverage provided. Thus, the bad faith claim was dismissed.

Dated:  December 2, 2015

One James Plaza Condominium Association v. RSUI Grp., Inc., 2015 U.S. Dist. LEXIS 161460, Civil Action No. 15-294, (D.N.J. December 2, 2015) (Rodriguez, J.)

DECEMBER 2015 BAD FAITH CASES: (1) ISSUES OF DISPUTED FACT ON CLAIMS HANDLING AND COVERAGE SUPPORTED INSURER’S CASE THERE WAS NO BAD FAITH; (2) AN INSURER’S INVESTIGATION INTO WHETHER EXCLUSION APPLIES IS NOT BAD FAITH; AND (3) FILING A DECLARATORY JUDGMENT IS NOT THE EQUIVALENT OF DENYING COVERAGE (Middle District)

In Bodnar v. Amco Insurance Company, the insured sought reconsideration of the court’s decision granting the insurer summary judgment on bad faith.  The insured repeated a litany of facts in arguing that the court made credibility determinations, which were inappropriate on summary judgment.

The court rejected, this argument, pointing out that the insured misconstrued the prior decision.  It was not that the court made creditability determinations on disputed issues, but that the very existence of so many disputed issues established that the insurer’s decisions were not unreasonable, and therefore the first element of any bad faith case – that there was no reasonable basis to deny coverage — could not be met.  “It was precisely because so many pieces of contradictory evidence existed that we concluded that it could not.”

The court also reiterated the bases for portions of its prior decision.  The court observed that an insurer has a duty to determine whether coverage exists.  It makes no difference whether this duty is framed positively as searching for coverage or negatively as searching for the application of exclusion.  The only issue is whether the investigation into coverage is done in good faith. “In other words, even if [insurer] ‘searched for an exclusion,’ this would not necessarily be in bad faith if the exclusion actually applied … and did in fact bar … coverage.”

The court also addressed the argument that its prior decision was based upon the insurer’s relying on advice of counsel.  There was no advice of counsel put at issue by the insurer, and the court expressly did not rely upon materials that were redacted in reaching its decision.  In this vein, the court stated that whatever the lawyer’s advice had been, it only led to a determination to file a declaratory judgment action, not to deny coverage. “[A] decision to seek a judicial determination on whether coverage existed is not indicative of bad faith or breach of contract, especially when, as here, the implications of the background facts at issue are legally ambiguous.”

Date of Decision:  December 3, 2015

Bodnar v. Amco Insurance Co., No. 3:12-CV-01337, 2015 U.S. Dist. LEXIS 162169, December 3, 2015 (M.D. Pa. December 3, 2015) (Mariani, J.)

DECEMBER 2015 BAD FAITH CASES: RESERVE INFORMATION DISCOVERABLE IN BAD FAITH CASES (Western District)

In Smith v. Progressive Specialty Insurance Company, the court was asked to reconsider its recent discovery decision compelling production of reserve information. The insurer again tried to argue “that this was opinion work product which is entitled to near absolute protection from discovery while Plaintiff’s claim for underinsured motorist (“UIM”) benefits is still pending and being litigated.”

The court observed that motions for reconsideration are designed to address manifest errors of law or fact, a change in governing law, or to bring out newly discovered evidence.  They are not a second bit at the apple.  None of these exceptions applied.  The insurer simply wanted the court to rely upon the set of cases favoring its view, rather than the legal opinions the court previously cited to support its decision in favor of production.  The court reiterated that the key difference it found was in the case at issue, reserves were sought in connection with a bad faith claim, while such a claim was not at issue in the cases the insurer adduced.

Date of Decision:  December 15, 2015

Smith v. Progressive Specialty Ins. Co., 2:15-cv-528, 2015 U.S. Dist. LEXIS 167619 (W.D. Pa. December 15, 2015) (McVerry, J.)

 

DECEMBER 2015 BAD FAITH CASES: (1) INSURED CANNOT PLEAD ATTORNEYS’ FEES IN BREACH OF CONTRACT CLAIM STANDING ALONE; (2) NO SEPARATE ACTION FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; AND (3) BOILERPLATE ALLEGATIONS OF STATUTORY BAD FAITH ARE GOING TO BE DISMISSED, AT BEST WITHOUT PREJUDICE, WHERE NO SUPPORTING FACTS ARE ALLEGED (Philadelphia Federal)

In Soldrich v. State Farm Fire & Casualty Company, the court made three relevant holdings:

  1. An insured cannot include a claim for attorneys’ fees in its breach of contract count, standing alone, on the basis that attorneys’ fees may be awarded for violation of the bad faith statute. Such a claim can only be pleaded in the bad faith statute.
  2. An insured cannot plead a distinct cause of action for the breach of the implied covenant of good faith and fair dealing separate from a breach of contract claim, and where the allegations and relief sought are identical to the statutory bad faith claim.
  3. Statutory bad faith claims will be dismissed without prejudice where the complaint alleges a boilerplate litany of offensive conduct which is conclusory in nature, and fails to plead any substantiating facts.

In this case, the ineffective recitation was: “Plaintiff alleges that Defendant has failed to properly adjust Plaintiff’s claim and has acted in bad faith by (a) failing to pay the full amount owed to him under the policies; (b) failing to timely pay the amounts owed; (c) scheming to defraud him; (d) recklessly disregarding its obligations under the policy; (e) accepting premiums from him without intending to pay monies owed for covered losses; (f) fraudulently telling him that the losses were not covered despite evidence that they were; (g) claiming that losses were due to uncovered causes despite having no evidence to support that contention; (h) claiming that losses were due to uncovered causes despite evidence to support a covered loss; (i) unilaterally denying covered losses without proper investigation; and (j) falsely misrepresenting its responsibilities under the policy. Comp. ¶ 56. Furthermore, Plaintiff alleges that Defendant unreasonably and unjustifiably delayed the handling of Plaintiff’s insurance claim and knew or disregarded the fact that it was doing so. Id. ¶¶ 57-59. This failure to process the Plaintiff’s claims in a reasonable matter, Plaintiff alleges, amounts to bad faith by the Defendant. Id. ¶¶ 61.”

Date of Decision:  November 25, 2015

Soldrich v. State Farm Fire & Cas. Co., No. 5:15-cv-01438, 2015 U.S. Dist. LEXIS 159125 (E.D. Pa.  November 25, 2015) (Leeson, J.)

DECEMBER 2015 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE AND CLAIM WAS FULLY INVESTIGATED (New Jersey Federal)

In Stiso v. State Farm Fire & Casualty Company, a Hurricane Sandy case involving significant interior water damage, the court found coverage was excluded and then went on to address the insureds’ claims for (1) the breach of the implied covenant of good faith and fair dealing and (2) bad faith.  It stated that both claims are tantamount to the same cause of action. To prove a first party bad faith claim, the insured must show that (1) the insurer lacked a fairly debatable reason for denying coverage, and (2) insurer knew of or recklessly disregarded the lack of a reasonable basis for denying coverage.

The court stated that:  “Plaintiffs clearly have not established these above-referenced factors because they have failed to show, as discussed at length [in analyzing the coverage issue], that [the insurer] lacked a reasonable basis for denying coverage.” With emphasis the court then added: “Indeed, I have granted summary judgment on Plaintiffs’ breach of contract claim.” The claim was investigated by multiple representatives of the insurer, and in reaching its decisions on coverage, the insurer did nothing that convinced the court that the insurer had no reasonable basis for denying certain coverage. Summary judgment was granted on all issues.

Date of Decision: November 18, 2015

Stiso v. State Farm Fire & Cas. Co., Civil Action No. 13-5741 (FLW), 2015 U.S. Dist. LEXIS 155762 (D.N.J. Nov. 18, 2015) (Wolfson, J.)

DECEMBER 2015 BAD FAITH CASES: COURT DISMISSES INSUREDS’ CLASS-WIDE BAD FAITH CLAIMS WHILE ALLOWING INSUREDS’ INDIVIDUAL STATUTORY BAD FAITH CLAIMS TO PROCEED (Western District)

In Papurello v. State Farm Fire & Casualty Company, the insureds brought individual and class-wide claims for breach of contract and bad faith against an insurer for paying initial amounts under homeowners’ insurance policies determined by a two-step procedure, under which the insurer made a payment under the first step equal to the amount of estimated replacement costs of materials, taxes, and labor less depreciation.

Specifically, the insureds alleged on behalf of a putative class of Pennsylvania homeowners that: “(i) the insurer breached a contractual duty imposed by the express Policy term “actual cash value”; or (ii) in the alternative, the insurer breached the implied contractual duty of good faith and fair dealing in the policy.”

In support of their argument that the insurer violated the policy’s implied duty of good faith and fair dealing, the insureds claimed that the policy did not specify whether the insurer may subtract depreciation from the estimated replacement costs, and that by subtracting depreciation, the insurer “knowingly” and “intentionally” frustrated their reasonable expectations that the actual cash value would not be altered in any way.

The court rejected this argument, and reasoned that the policy language was not confusing, misleading, or ambiguous in providing that the insureds “must first endeavor to repair or replace before receiving full replacement cost” from the insurer. In addition, the court noted that the two-step loss settlement provision was set forth conspicuously in the policy. Consequently, the insureds’ class-wide breach of contract bad faith claim was dismissed.

The court also found that the insureds failed to state plausible class-wide statutory bad faith claims, and noted that the success of the statutory bad faith claim was contingent upon a finding that the insurer’s payment procedure constituted a breach of contract with respect to putative class members.

However, the court found that the insureds did state a plausible individual statutory bad faith claim against the insurer because the parties disputed whether the insurer had a reasonable basis upon which to deny the insureds benefits under the policy.

Date of Decision:  November 16, 2015

Papurello v. State Farm Fire & Cas. Co., Civil Action No. 15-1005, 2015 U.S. Dist. LEXIS 154356 (W.D. Pa. November 16, 2015) (Conti, J.)

DECEMBER 2015 BAD FAITH CASES: COURT DISMISSES INSUREDS’ CLASS-WIDE BAD FAITH CLAIMS WHILE ALLOWING INSUREDS’ INDIVIDUAL STATUTORY BAD FAITH CLAIMS TO PROCEED (Western District)

In Papurello v. State Farm Fire & Casualty Company, the insureds brought individual and class-wide claims for breach of contract and bad faith against an insurer for paying initial amounts under homeowners’ insurance policies determined by a two-step procedure, under which the insurer made a payment under the first step equal to the amount of estimated replacement costs of materials, taxes, and labor less depreciation.

Specifically, the insureds alleged on behalf of a putative class of Pennsylvania homeowners that: “(i) the insurer breached a contractual duty imposed by the express Policy term “actual cash value”; or (ii) in the alternative, the insurer breached the implied contractual duty of good faith and fair dealing in the policy.”

In support of their argument that the insurer violated the policy’s implied duty of good faith and fair dealing, the insureds claimed that the policy did not specify whether the insurer may subtract depreciation from the estimated replacement costs, and that by subtracting depreciation, the insurer “knowingly” and “intentionally” frustrated their reasonable expectations that the actual cash value would not be altered in any way.

The court rejected this argument, and reasoned that the policy language was not confusing, misleading, or ambiguous in providing that the insureds “must first endeavor to repair or replace before receiving full replacement cost” from the insurer. In addition, the court noted that the two-step loss settlement provision was set forth conspicuously in the policy. Consequently, the insureds’ class-wide breach of contract bad faith claim was dismissed.

The court also found that the insureds failed to state plausible class-wide statutory bad faith claims, and noted that the success of the statutory bad faith claim was contingent upon a finding that the insurer’s payment procedure constituted a breach of contract with respect to putative class members.

However, the court found that the insureds did state a plausible individual statutory bad faith claim against the insurer because the parties disputed whether the insurer had a reasonable basis upon which to deny the insureds benefits under the policy.

Date of Decision:  November 16, 2015

Papurello v. State Farm Fire & Cas. Co., Civil Action No. 15-1005, 2015 U.S. Dist. LEXIS 154356 (W.D. Pa. November 16, 2015) (Conti, J.)