Monthly Archive for January, 2016

JANUARY 2016 BAD FAITH CASES: BENEFICIARY’S CLAIMS FOR BAD FAITH AND PUNITIVE DAMAGES PREEMPTED BY ERISA (Third Circuit - Pennsylvania)

In Malishka v. MetLife, the insured brought suit against the insurer, claiming that the insurer improperly denied the insured’s life insurance benefits claim following her son’s death. The insured’s son was a member of a union, and was accordingly given the opportunity to purchase coverage under an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). The insurer serves as the claims administrator of the plan and has discretionary authority for interpretation and determination of eligibility requirements.

In determining whether the insured’s son was an eligible participant of the plan at the time of his death, the insurer relied on “detail summaries” prepared by the union, and ultimately determined that the insured’s son was not covered. Accordingly, the insurer denied the insured’s claim for life insurance benefits, and the insured brought suit.

Both parties filed motions for summary judgment and the insured moved to amend her complaint to include claims for penalties, attorneys’ fees, and bad faith damages. The court upheld summary judgment in favor of the insurer on appeal, reasoning that the court generally evaluates only the evidence that was before the administrator when it made the decision being reviewed, and the administrator is not bound by the Federal Rules of Evidence. Here, the court found that the insurer reasonably determined from the administrative record that the insured’s son was not eligible for the plan at the time of his death.

The insured’s motion to amend was denied, and on appeal the insured claimed the district court abused its discretion. However, the appeals court noted that only the plan administrator can be liable for statutory penalties for failing to provide plan documents, and ERISA preempts claims for bad faith and punitive damages. Thus, the order denying the insured’s motion for leave to amend her complaint was affirmed.

Date of Decision:  December 23, 2015

Malishka v. MetLife,  No. 14-4195, 2015 U.S. App. LEXIS 22487 (3d Cir. December 23, 2015) (Rendell, J.) (non-precedential)

JANUARY 2016 BAD FAITH CASES: INSURED’S CLAIM FOR BAD FAITH DISMISSED WHEN COURT FINDS NO COVERAGE (Pennsylvania Superior Court) (Not Precedential)

In Rogers v. Allstate Property and Casualty Insurance Company, the Superior Court of Pennsylvania affirmed the dismissal of bad faith claims asserted against Allstate, after finding that the insured’s auto insurance comprehensive clause did not cover negligent or poor workmanship repairs by a third-party repair shop.

The insured was involved in a collision, and permitted an unsolicited tow truck to transport her car to Collisionworks for repairs. An Allstate adjuster prepared an estimate of repairs, and Collisionworks agreed to complete the repairs for the cost proposed in the adjuster’s estimate. Because Collisionworks and Allstate were not partners, Allstate tendered the amount of the estimate directly to the insured, who in turn paid the money to Collisionworks. After the insured noticed issues with her car, she filed a claim with Allstate for the car’s condition, which was ultimately denied by Allstate. Allstate explained that although it does not required insureds to use an “Allstate priority repair option,” Allstate does not provide comprehensive coverage to for loss caused by negligent repairs.

After the denial, the insured brought suit against Allstate and Collisionworks. The trial court sustained Allstate’s preliminary objections, and dismissed the insured’s claims of breach of contract, negligence, violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law(“UTPCPL”), and bad faith with prejudice.

On appeal, the Court stated that the insured’s issues hinge upon the question of coverage. In its analysis, the Court stated that because the policy does not mention or explicitly exclude negligent or faulty workmanship, the “Scope of Coverage” clause must be reviewed in light of the entire policy to determine if there is ambiguity that should be construed in favor of coverage. After reviewing the policy, the Court concluded that only certain categories of harm were subject to coverage, including: 1) weather-related risks, 2) Civil unrest risks, 3) Criminal Acts, and 4) falling objects. The Court stated that the insured’s claim, as pled, can only be characterized as faulty or negligent workmanship, and not a criminal act.

Ultimately the Court agreed with the trial court and found that there was no coverage in this case, and Allstate did not act in bad faith, negligently, fraudulently, or in derogation of the UTPCPL.

Date of Decision: December 22, 2015

Rogers v. Allstate Prop. & Cas. Ins. Co., No. 161 EDA 2015, 2015 Pa. Super. Unpub. LEXIS 4644 (Pa. Super. December 22, 2015) (Wecht. J.)

 

JANUARY 2016 BAD FAITH CASES: COURT AFFIRMS BAD FAITH JUDGMENT AGAINST INSURER THAT FAILED TO ATTEND ARBITRATION HEARING (Superior Court of Pennsylvania – not precedential)

In Mangan v. Safe Auto Insurance Company, the insured brought claims for breach of contract and bad faith refusal to pay a claim arising from a traffic accident that the insured’s vehicle was involved in. The insurer asserted that it was not required to cover the damage to the vehicle under the terms of the policy.

On the day the complaint was filed, an arbitration hearing was scheduled, which neither defense counsel nor a representative for the insurer attended. Accordingly, the trial court held an ex parte trial, during which it heard testimony from the insured and the insured’s counsel. The trial court entered a verdict against the insurer for $35,000, which included over $24,000 in bad faith damages.

The insurer filed a motion for post-trial relief, asserting that the verdict should be vacated and the case should be scheduled for a new arbitration hearing, as no evidence showed that the insurer’s failure to appear was intentional and the insurer claimed it was not adequately notified of the time of the hearing. The insurer additionally claimed that the trial court erred by failing to “consider any lesser sanctions than imposing an ex parte verdict” and to “limit the non-jury award to $25,000” in violation of a local rule. The motion was denied and the insurer appealed.

In affirming the judgment, the Superior Court reasoned that the trial court thoroughly addressed the insurer’s claims, and determined that the court properly denied the insurer’s request that the verdict be vacated, “as defense counsel did not offer a satisfactory excuse for his failure to appear.”

Additionally, the court found that the transcript revealed clear and convincing evidence of the insurer’s bad faith conduct regarding the insured’s insurance claim, based upon the insured’s testimony, and that the trial court properly exercised its discretion in imposing bad faith damages. However, the court noted that the trial court incorrectly failed to limit the non-jury award to $25,000 pursuant to a local rule, and directed the trial court Prothonotary to modify the $35,000 verdict in favor of the insured to $25,000.

Date of Decision:  December 23, 2015

Mangan v. Safe Auto. Ins. Co., No. 1991 WDA 2014, 2015 Pa. Super. Unpub. LEXIS 4666 (Pa. Super. Ct. December 23, 2015,) (Musmanno, J.)

JANUARY 2016 BAD FAITH CASES: COURT ORDERS INSURER TO PRODUCE ALL RELEVANT DOCUMENTS PREPARED BEFORE LITIGATION WAS REASONABLY ANTICIPATED, REJECTED THE WORK PRODUCT ARGUMENT (Western District)

In Smith v. Progressive Specialty Insurance Company, the court wrote at length on the work-product doctrine, as applied to a claim handler’s file in a bad faith case. It ultimately ordered the insurer to produce all relevant documents from its claim file prepared before it could be reasonably anticipated that the claim would be litigated, finding that the work-product doctrine did not apply.  It did, however, protect claims of attorney-client privilege and attorney work product.

An insurer’s claims file can be discoverable in a bad faith case, as information in that file on the insurer’s decision to deny the claim is “relevant or could lead to potentially relevant information.” At the same time, however, the court noted that “institution of a bad faith claim does not automatically waive attorney-client privilege or the work product doctrine.”

The court acknowledged that not everything “prepared by or for the agents of an insurer” is protected by the work product doctrine, and that the doctrine only protects documents prepared in anticipation of litigation. Here, the insurer argued that litigation was anticipated as soon as the insured asserted an underinsured motorist (“UIM”) claim.

The court disagreed, and found that the insurer could not have reasonably anticipated litigation until the insurer’s position and the insured’s position as to the extent of the insured’s damages and lost wages came to “loggerheads.” Accordingly, documents prepared before that time fell outside the scope of the work product doctrine, and the court ordered these documents to be produced.

Date of Decision: December 15, 2015

Smith v. Progressive Specialty Ins. Co., 2:15-cv-528, 2015 U.S. Dist. LEXIS 167618 (W.D. Pa. December 15, 2015) (McVerry, J.)

JANUARY 2016 BAD FAITH CASES: COURT REFUSES TO GRANT INSUREDS’ MOTION FOR RECONSIDERATION AFTER DETERMINING THAT INSURER DID NOT ACT IN BAD FAITH BY RELYING ON UNPERSUASIVE LEGAL POSITION (Middle District)

In Douglas v. Discover Property & Casualty Insurance Company, the court was asked to reconsider its recent decision granting summary judgment in favor of an insurer on a bad faith claim brought by insureds.

The motion arose out of the parties’ cross motions for summary judgment, in which both parties sought judgment on the insureds’ claims for bad faith. In granting summary judgment in favor of the insurer, the court originally articulated two reasons for determining that ample evidence existed to show that the insurer acted reasonably in handling the insured’s claim.

First, the court reasoned that even if the insurer’s rejection form was invalid under case law, the insurer had other justifications for denying coverage. Second, the court noted that even if the insurer relied on unavailing legal theories, no evidence existed that would indicate that the insurer raised these arguments dishonestly or in bad faith. The insureds filed the instant motion for reconsideration, arguing that the court’s two grounds for granting judgment in favor of the insurer were legally erroneous.

While the insureds did not explicitly say so, the court observed that the insureds were claiming that the court’s decision contained a clear error of law or manifest injustice. Specifically, the insureds argued that the court never set forth the justifications that the insurer had in denying coverage. However, the court stated that its prior opinion addressed how issues of fact existed as to whether the insureds had been adequately compensated, and as such, it could not be “frivolous or unfounded” for the insurer to refrain from paying the claim.

Finally, the court reiterated its original position that the insurer’s decision to litigate a reasonable but unpersuasive legal position could not amount to bad faith under the existing case law.

Date of Decision:  December 7, 2015

Douglas v. Discover Prop. & Cas. Ins. Co., 3:08-cv-01607, 2015 U.S. Dist. LEXIS 163781 (M.D. Pa. December 7, 2015) (Mariani, J.)

 

JANUARY 2016 BAD FAITH CASES: COURT DISMISSES BAD FAITH CLAIM BASED ON THIRD CIRCUIT PRECEDENT AFTER CONDUCTING CHOICE-OF-LAW ANALYSIS TO APPLY PENNSYLVANIA LAW EVEN IN THE FACE OF A NORTH CAROLINA CHOICE OF LAW PROVISION (Western District)

In Alcantarilla v. State Farm Mutual Automobile Insurance Company, the insureds brought an action for breach of contract and bad faith arising out of a claim for underinsured motorist (“UIM”) coverage benefits filed by the insureds. The insureds had renewed their auto policy with the insurer while they were residents of North Carolina. The policy was identified as a “North Carolina” policy and contained a choice-of-law provision stating that the policy was governed by North Carolina state laws.

The insureds ultimately moved to Pennsylvania while the policy was still in force, and were involved in an accident in which one of the insureds was struck by a motor vehicle. The insured’s medical expenses exceeded the amount ultimately recovered from the driver that struck him, and the insured made a claim for UIM benefits under his insurance policy. The insurer refused to pay because the insureds’ UIM coverage did not exceed the driver’s policy limit.

The insureds filed suit, claiming that while the decision to deny coverage may be correct under North Carolina law and the terms of the policy, the more expansive definition of “underinsured” utilized by Pennsylvania should be applied, which would entitle the insureds to a greater amount of coverage. The insureds argued in the alternative that if Pennsylvania law did not apply, then the insurer misrepresented that nothing needed to be done to bring the policy into compliance with Pennsylvania law prior to the insureds’ move. The complaint set forth claims of; inter alia, breach of contract, and breach of fiduciary duty against the insurer and its agent. The claims against the agent were dismissed for lack of personal jurisdiction and the insurer moved to transfer venue from Pennsylvania to North Carolina.

After conducting a choice-of-law analysis, the court concluded that private factors weighed in favor of applying Pennsylvania law, as the insureds now reside in Pittsburgh and chose to litigate there. The court also found that public factors weighed in favor of Pennsylvania law, as no practical considerations existed that would suggest the case should be transferred.

The court ultimately decided that irrespective of the choice-of-law provision in the policy, Pennsylvania law should govern the policy terms as Pennsylvania had the most relevant contacts to the coverage dispute and the greatest interest in having its law applied. In view of that, the court refused to dismiss the breach of contract claim.

The court did dismiss the bad faith claim after noting that the Court of Appeals addressed almost identical allegations of bad faith under Pennsylvania law in another case and found that “the conduct alleged simply does not amount to bad faith.”

The breach of fiduciary duty claim that was plead in the alternative was also dismissed since the court determined that the insurer was required to provide excess coverage under the policy, and accordingly it could not be said that the insurer’s agent misrepresented the terms of the policy when the insureds contacted his office after they had moved to Pennsylvania.

Date of Decision:  December 15, 2015

Alcantarilla v. State Farm Mut. Auto. Ins. Co., No. 2:15-cv-1155, 2015 U.S. Dist. LEXIS 167623 (W.D. Pa. December 15, 2015,) (McVerry, J.)

JANUARY 2016 BAD FAITH CASES: COURT DENIES SUMMARY JUDGMENT ON INSURANCE FRAUD CLAIM AGAINST INSURED AFTER FINDING GENUINE ISSUES OF MATERIAL FACT EXIST REGARDING WHETHER INSURED MADE MATERIAL MISREPRESENTATIONS (Eastern District)

In Reese v. Allstate Vehicle & Property Insurance, the insured brought a breach of contract claim against the insurer based on a fire loss, and the insurer responded with a civil insurance fraud claim against the insured, as well as a third party complaint for civil insurance fraud against the insurer’s boyfriend, under 18 Pa.C.S. § 4117. Before the court was the insurer’s motion for summary judgment seeking judgment in its favor on the insured’s complaint, along with the insurer’s counterclaim and third party complaint.

The court declined to grant summary judgment for the insurer on the breach of contract claim, finding that genuine issues of material fact existed regarding whether the insured made material misrepresentations that would preclude coverage under the policy.

The court next addressed the insurer’s argument that summary judgment should be granted in its favor with regard to its counterclaim against the insured for insurance fraud. Finding that inconsistencies in the record may have resulted from misconstrued evidence or improperly performed investigations, rather than knowing misrepresentations by the insured, the court declined to grant summary judgment on the insurance fraud counterclaim.

Finally, the court denied summary judgment on the insurer’s third party claim for insurance fraud. The insurer argued that throughout the course of its investigation of the fire loss, the insured’s boyfriend continually assisted the insured in presenting a claim containing false or incomplete information, as well as falsified documents concerning facts of things material to her claim for benefits. However, the court reasoned that the record was replete with genuine issues of material facts as to whether the insured’s boyfriend intentionally and fraudulently misrepresented facts about the alleged loss. Accordingly, the court declined to grant summary judgment to any claim in the case, noting that the evidence created a highly disputed record.

Date of Decision:  December 9, 2015

Reese v. Allstate Vehicle & Prop. Ins., CIVIL ACTION NO. 14-1034, 2015 U.S. Dist. LEXIS 164772 (E.D. Pa. December 9, 2015) (Buckwalter, J.)

JANUARY 2016 BAD FAITH CASES: AGENT’S INVESTIGATION AND COMMUNICATIONS WERE ADEQUATE; INSURER’S FAILURE TO COMMUNICATE EVERY 45 DAYS PER UIPA WAS NEGLIGENCE AT MOST, NOT INTENTIONAL OR RECKLESS BAD FAITH (Philadelphia Federal)

In Smith v. State Farm Fire & Casualty Company, the insureds brought suit against their insurer for breach of contract and bad faith in dealings arising from the insurer’s partial denial of coverage of the insureds’ homeowner’s insurance policy claim. The insurer moved for summary judgment, and argued that the insureds failed to prove bad faith by clear and convincing evidence, and the court granted the motion.

The insureds originally commissioned an inspection of their house for potential water damage after learning their neighbors were having issues with water damage, even though the insureds had not observed any water damage in their home at the time. The inspection revealed numerous design flaws and installation deficiencies, along with water damage. The insureds filed an insurance claim eighteen (18) months after receiving the inspection report.

The insurer sent an agent to inspect the home. The agent observed that certain damages would not be covered, but agreed to review the request for certain water damage. Twenty minutes after this inspection, the insurer reassigned the handling of the claim to another agent, who introduced himself to the insureds that same day. The new agent attempted to contact the insureds several times before finally performing an inspection weeks after the first inspection. The agent ultimately drafted a partial denial letter which was approved by another agent and sent to the insureds.

The insureds alleged that the insurer acted in bad faith by “refusing to honor their claim to replace the exterior insulation of their home, denying coverage without reasonable basis, and knowingly or recklessly disregarding its lack of reasonable basis for denying the claim.” The insureds asserted an unreasonable delay in adjusting the claim, failing to communicate, inadequately investigation, frivolous refusal to pay, misrepresenting policy provisions, and violating proper investigation standards.

The court reasoned that the insureds provided no evidence for their assertion that the original agent assigned to the claim intended to approve coverage; nor did the insureds explain why the seven days it took the subsequent agent to record the inspection he performed was an unreasonable amount of time. While the insurer did fail to communicate with the insureds every forty-five days, the court characterized this as “mere negligence,” which does not constitute bad faith.

Finally, although the insureds alleged that the insurer unreasonably interpreted and misrepresented the policy provisions, the court found that this disagreement was a contractual dispute. In a bad faith case, the court is only tasked with determining whether the insurer’s interpretation was unreasonable, not whether its ultimate decision was correct. The court found that the insurer’s denial letter established a reasonable basis for its decision, and granted summary judgment for the insurer.

Date of Decision:  November 24, 2015

Smith v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 15-670, 2015 U.S. Dist. LEXIS 159127 (E.D. Pa. November 24, 2015) (Beetlestone, J.)

 

JANUARY 2016 BAD FAITH CASES: COURT DISMISSES BAD FAITH CLAIM BASED ON MISSTATEMENT OF POLICY LIMITS AND UNREASONABLE DELAY AFTER FINDING THAT INSURED FAILED TO PROVIDE ADDITIONAL FACTUAL SUPPORT FOR ALLEGATIONS (Middle District)

In Ridolfi v. State Farm Mutual Automobile Insurance Company, the insured brought claims for bad faith and breach of duty of good faith and fair dealing. The insurer moved to dismiss, arguing that the insured’s allegations were conclusory and boilerplate assertions.

The underlying claim arose out of a motor vehicle accident. The insured filed claims with both the insurer of the other driver, as well as her own insurer. She ultimately settled with the other insurer, and demanded policy limits from her insurer. She subsequently found a document in her legal file from her suit against the other insurer showing that the policy limits were higher than originally reported by her insurer.

The insured alleged that her insurer’s actions constituted bad faith, specifically that the insurer “knowingly and fraudulently” incorrectly reported her policy limits, and delayed its investigation into her claim.

With regard to the insured’s first contention, the court found that the insured failed to provide facts to support the assertion that the insurer acted “knowingly and fraudulently” in reporting incorrect policy limits. The court further reasoned that the insured’s allegation of a knowing and fraudulent misstatement of policy limits amounted to no more than a conclusory allegation that the information must have been sent with some motive of self-interest or ill will simply because it was inaccurate.

Similarly, with regard to the insured’s second contention, that the insurer delayed its investigation into her claim, the court found that the insured failed to allege facts allowing the court to draw a reasonable inference that the insurer acted in bad faith. Specifically, the insured alleged that the insurer made “ongoing requests for information from physicians who [the insured] was never treated by and other inquiries which are irrelevant and duplicative.” However, the court reasoned that the insured’s allegations did not identify how the requests were irrelevant, duplicative, or designed to delay settlement, and were nothing more than conclusory assertions of delay. Accordingly, the court dismissed the insured’s claim of bad faith, without prejudice to re-plead.

Date of Decision:  November 19, 2015

Ridolfi v. State Farm Mut. Auto. Ins. Co., No. 1:15-cv-00859, 2015 U.S. Dist. LEXIS 156687 (M.D. Pa. November 19, 2015,) (Kane, J.)

JANUARY 2016 BAD FAITH CASES: PENNSYLVANIA COURT APPLYING NEW JERSEY LAW FINDS THAT BAD FAITH QUESTION COULD GO TO JURY, EVEN WITHOUT ADJUSTER’S TESTIMONY FOR SUMMARY JUDGMENT PURPOSES, IN THE ABSENCE OF ANY SETTLEMENT OFFER BY INSURED WHERE THERE SEEMED TO BE NO DEFENSE TO ONE COMPONENT OF INSURED’S DAMAGES CLAIMS (Philadelphia Federal)

In Stern v. AAA Mid-Atlantic Insurance Company, the Pennsylvania federal court applied New Jersey bad faith law to an Underinsured Motorist claim.

The court applied the fairly debatable standard, which it quoted as: “To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one. * * * implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless * * * indifference to facts or to proofs submitted by the insured.”

The insured put on a case at arbitration showing physical injuries, pain and suffering, and economic damages, which resulted in a meaningful award, including a specific finding of economic damages. The insurer’s refusal to pay the insured anything focused on claims for non-economic damages, with no explanation about why it would not settle the economic damages claim.  The court found that “Defendant’s failure to make any settlement offer in the face of Plaintiffs’ proofs and a substantial arbitration award relating specifically to economic losses could be interpreted by a reasonable juror as reckless indifference to the facts.”  The insurer’s verbal threshold argument was deemed inapplicable to underinsured claims.

The court concluded, in denying the insurer’s summary judgment motion: “At trial, Defendant will undoubtedly present testimony from its adjusters as to their analysis of both the economic and non-economic components of the claim, and Plaintiffs will be at a tactical disadvantage by having failed to depose them. The defense is correct that ordinarily a plaintiff’s failure to explore the thought process of the claims adjusters would be fatal to a claim for bad faith. But given the broad confines of this case and Defendant’s failure to make any offer whatsoever, there is a basis on which a jury could reasonably find bad faith. The evidence may be scant, but I cannot conclude that it is non-existent.”

Date of Decision:  December 3, 2015

Stern v. AAA Mid-Atlantic Ins. Co., CIVIL ACTION No. 15-0960, 2015 U.S. Dist. LEXIS 162713 (E.D. Pa. December 3, 2015) (McHugh, J.)