Monthly Archive for February, 2016

FEBRUARY 2016 BAD FAITH CASES: COURT EXPLAINS RELATIONSHIP OF COMMON LAW BAD FAITH AND STATUTORY BAD FAITH, AND DISTINCTIONS CONCERNING PRE-CONTRACTUAL CONDUCT AND TYPES OF DAMAGES (Middle District)

In Porter v. Safeco Insurance Company, the court addressed a first party fire loss claim.  The insured claimed he paid for coverage for his building, at an excessive premium, and this was a single building for all practical purposes even though it had two addresses and had been separate structures years earlier.  After the fire occurred, the insurer took the position that this was two buildings and would only pay for a portion of the loss for half of the building.  The insured alleged that even then, the insurer would only pay for a loss that was much less than the value of the insurance coverage being provided.

The insured claimed that the carrier had functionally recognized it was a single building, and also that the carrier had acted in bad faith and fraudulently in inducing the insured to pay a premium to cover a property value that the insurer knew was excessive and would never be in the realm of any loss should a loss arise.

The insured alleged brought breach of contract claims, as well as common law and statutory bad faith claims.  On a motion to dismiss, the court recognized that common law bad faith claims cannot be pleaded separately from the underlying breach of contract claim.  However, it did not dismiss the actionable common law bad faith claims, but read those claims as if they were part of the breach of contract count. The insured was permitted to pursue compensatory damages for this form of bad faith claim, even if compensatory damages are not permitted under the statutory bad faith claim; and thus the court would not dismiss the compensatory bad faith damages claim in full.

As to the statutory claims, following the Toy case, the court found any alleged fraud in charging premiums or deceptions concerning the amount of coverage needed to be outside the scope of a statutory bad faith claim.  A statutory bad faith claim is ultimately based on the denial of a benefit, and, as in Toy, pre-policy alleged fraud is not the denial of a benefit.  The court did find these allegations relevant to the breach of contract/common law bad faith count, and thus would not strike them.

The court did recognize a statutory bad faith was pleaded, based on allegations concerning the insurer’s response to plaintiff’s claims for coverage by denying coverage for half of the building, after allegedly conceding its responsibility to cover both sides of the building. Thus, plaintiff alleged a knowing disregard of a duty to provide insurance which the insurer reasonably knew to exist, and thus stated a statutory bad faith claim.

Date of Decision:  February 9, 2016

Porter v. Safeco Ins. Co., 2016 U.S. Dist. LEXIS 15877 (M.D. Pa. Feb. 9, 2016) (Mariani, J.)

FEBRUARY 2016 BAD FAITH CASES: NO BAD FAITH WHERE INSURER MAKES PAYMENT TO PLAINTIFF’S BANK WHICH WAS LISTED AS THE NAMED INSURED IN THE POLICY (New Jersey Federal)

In Hossain v. American Security Insurance Company, the court rejected the notion that an insurance payment to the plaintiff’s bank was made in bad faith.  Under the relationship between the insured and the bank, the insured’s policy listed the bank as the named insured, and the insured as the borrower. “The insurance policy … explains that loss payments ‘will be made payable to the named insured and the borrower as their interests appear.’” Thus, there was no violation by the insurer making payment directly to the bank.

Date of Decision:   February 8, 2016

Hossain v. Am. Sec. Ins. Co., Civil Action No. 15-8138, 2016 U.S. Dist. LEXIS 14871 (D.N.J. Feb. 8, 2016) (Simandle, J.)

Search Function on Web Page Reminder

We have moved up the search box on the Pennsylvania and New Jersey Bad Faith Case Law Blog to the upper left hand corner of the web page, just beneath the calendar.  After ten years, we have over 1,100 posts and a vast library of information.  The search function is a valuable tool to locate topics, cases by name, opinions by judge, etc.

FEBRUARY 2016 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S DENIAL OF COVERAGE WAS REASONABLE (Western District)

In Reginella Construction Company v. State Farm Fire & Casualty Company, the insured claimed the insurer acted in bad faith by failing to conduct a reasonable investigation, and by misinterpreting the policy terms.  The insurer responded by claiming that the case was really about the policy interpretation, and an incorrect but reasonable interpretation cannot be the basis for bad faith.  The court agreed.

An insured must prove bad faith by clear and convincing evidence, showing (1) that there was no reasonable basis to deny policy benefits; and (2) that the insurer knowingly or recklessly disregarded that fact.  In this case, the insurer’s position was based upon a plain reading of the policy, “and was in accordance with the law regarding coverage under occurrence-based policies.” Thus, there was a reasonable basis to deny coverage.

However, as this was at the motion to dismiss stage, and even though the court did not believe it likely that the complaint could be remedied to adequately plead claims against the insurer, “to the extent [the insured] determines that it can remedy the deficiencies identified herein, the Court will give it the opportunity to file an Amended Complaint.”

Date of Decision:  February 5, 2016

Reginella Constr. Co. v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 14213 (W.D. Pa. Feb. 5, 2016) (Kelly, M.J.)

FEBRUARY 2016 BAD FAITH CASES: INSUREDS ADEQUATELY PLEADED BAD FAITH UNDER TWOMBLY/IQBAL STANDARDS (Philadelphia Federal)

In Kelly v. Progressive Advance Insurance Company, the insurer sought to dismiss plaintiffs’ bad faith claims under the Twombly/Iqbal pleading standards.

The insureds were injured by a drunk driver and sought underinsured motorist coverage from their own carrier.  They alleged bad faith for improperly denying coverage, failure to make a reasonable settlement offer, failure to investigate the claims properly and disregarding documentation, including medical records.  The court found the pleading sufficient, and denied the motion to dismiss.

Date of Decision:  February 4, 2016

Kelly v. Progressive Advanced Ins. Co., 2016 U.S. Dist. LEXIS 13324 (E.D. Pa. Feb. 4, 2016) (Savage, J.)

FEBRUARY 2016 BAD FAITH CASES: BAD FAITH CLAIM BASED ON DENIAL OF UIM BENEFITS FAILS WHERE WAIVER IS VALID, EVEN THOUGH INSURED HIMSELF DID NOT WRITE IN THE DATE OF HIS SIGNING (Third Circuit)

In Lieb v. Allstate Property and Casualty Insurance Company, the Third Circuit Court of Appeals determined that the insured’s waiver of underinsured motorist coverage was valid, and affirmed the dismissal of the claims for underinsured motorists benefits and bad faith.

In May 2012, the insureds purchased an insurance policy on their car. As part of that transaction, the insured signed a waiver of underinsured motorist coverage, but did not handwrite a date on the waiver form. He then faxed the form back to insurer. When the insurer received the executed form, it contained a machine-written legend at the top, which included a timestamp, date, a fax number, and the insured’s employer’s name.

A little over a year later, the insureds were rear-ended by an underinsured driver, and claimed to have suffered permanent and disfiguring injuries. Thereafter, the insureds sued the carrier in Philadelphia’s Court of Common Pleas for underinsured motorist benefits and bad faith.  They alleged that the waiver of underinsured motorist coverage was invalid under the Motor Vehicle Financial Responsibility Law (MVFRL), because the insured did not date the waiver form himself.

The case was removed the case to the Eastern District of Pennsylvania. The insureds moved to amend their Complaint and remand the case back to state court. After permitting the insureds to amend their Complaint, the District Court denied the insureds’ motion to remand, and granted the insurer’s motion to dismiss.

On appeal, the Third Circuit affirmed the District Court’s denial of the insured’s request for remand finding that the parties were diverse and that the amount in controversy exceeded $75,000 when viewing the insureds’ claims for statutory damages, punitive damages, and attorneys’ fees.

The Court reviewed § 1731(c.1) of the MVFRL, relied on by the insureds. That provision mandated the precise language that must appear in a waiver form, stating that the form “must be signed by the first named insured and dated to be valid.” This did not, however, support the insured’s position.

The Third Circuit concluded that, given the plain reading of the provision, the law does not require that the waiver form be signed and dated by the insured; rather it must only be signed by the insured. The Court went on to state that consumer protection regulations should be applied in “a common sense manner to effectuate their purpose without giving an insured a windfall in circumstances where the reasons for the protection afforded are not implicated.” The Court concluded that the insureds’ interpretation would allow “wily insureds to file undated waiver forms in the hope of duping an inattentive insurer, only to later demand coverage if an accident were to occur.” Ultimately the Court held that the machine-written timestamp on the waiver sufficed for the form to have been “dated” in accordance with Pennsylvania law.”

Date of Decision: January 6, 2016

Lieb v. Allstate Prop. & Cas. Ins. Co., No. 14-4788, 2016 U.S. App. LEXIS 287 (3d Cir. Jan. 6, 2016) (Fuentes, Jordan, and Vanaskie, JJ.)

FEBRUARY 2016 BAD FAITH CASES: ERISA DID NOT PREEMPT BAD FAITH CLAIM, AND THUS REMOVAL WAS IMPROPER (Philadelphia Federal)

In Fitzsimmons v. Aetna, Inc., the federal court found that ERISA did not preempt the alleged bad faith claims, and thus removal was improper.

Date of Decision:  January 7, 2016

Fitzsimmons v. Aetna, Inc., CIVIL ACTION NO. 15-3297, 2016 U.S. Dist. LEXIS 2115 (E.D. Pa. January 7, 2016) (Surrick, J.)

FEBRUARY 2016 BAD FAITH CASES: BAD FAITH CLAIM BASED ON INSURER’S ALLEGED COOPERATION WITH POLICE INVESTIGATION OF INSURED BARRED BY STATUTE OF LIMITATIONS (Philadelphia Court of Common Pleas)

In Fieldhouse v. Metropolitan Property & Casualty Insurance Company, the Philadelphia Court of Common Pleas granted summary judgment on the insured’s bad faith claims, finding that the insured’s claim was barred by the applicable two-year limitations period.

On January 24, 2013, the insured filed a Complaint, alleging that he was in a car accident and his covered vehicle was damaged after striking a pedestrian. The insured’s car was impounded, and the insured submitted a claim to his insurer. In support of his claim for bad faith, the insured averred that the insurer’s employee assigned to investigate the claim acted in bad faith by “electing to actively participate in and contribute to a criminal investigation of the policyholder initiated by the Pennsylvania State Police… and obtained information which he thereafter shared with the Pennsylvania State Police.” The insured averred the employee’s actions occurred between August 13, 2008 and January 5, 2009.

The insurer asserted that the Pennsylvania State Police solicited information from the insurer as part of the police investigation into the insured. Moreover, it argued that the bad faith claims were time barred; that it was statutorily immune from civil suits for sharing information with law enforcement; there can be no bad faith by initiating a fraud investigation; the insured never presented a claim for damage, but even if he had presented a claim, it would be barred under the terms of the policy, and thus there could be no bad faith absent coverage.

The insurer argued that the statute of limitation began to run at the latest on January 5, 2009, when the employee last communicated with the police. The insured argued that the statute of limitations was tolled upon the institution of criminal charges, which were later noelle prossed.

The Court stated that “an action for bad faith may extend to an insurer’s investigative practices.” With regard to the two year statute of limitations for claims of bad faith, the Court stated that “the courts have expressly noticed that in contract actions the tolling of the statute begins at the time of the initial breach, whether or not the breach continues throughout the trial.” The court rejected the insured’s argument that the statute did not begin to run until the institution of criminal charges because there was no evidence that he was “induced not to sue”; and the criminal charges were brought at the instigation of the police, not the insurer. Ultimately, the Court held that a cause of action accrues at the time of the insurer’s actions at issue, and because the alleged cooperation with the police was no later than January 5, 2009, the two year period ran before suit was instituted. [Note:  The court did not specifically address whether the statute of limitations accrues in bad faith cases at the time a benefit is denied, and how conduct evidencing bad faith relates to triggering the statute of limitations.  The Superior Court recently took a similar view that the statute of limitations in bad faith cases can be triggered by bad faith conduct which is not in and of itself the denial of a benefit.]

Date of Decision: December 1, 2015 Fieldhouse v. Metro. Prop. & Cas. Ins. Co., October Term 2012 No. 2205, 2015 Phila. Ct. Com. Pl. LEXIS 396 (C.C.P. Philadelphia Dec. 1, 2015) (Wright Padilla, J.)

FEBRUARY 2016 BAD FAITH CASES: STATUTE OF LIMITATIONS CAN BE TRIGGERED BY DENIAL OF BENEFIT, OR FAILURE TO INVESTIGATE THE SAME CLAIM AFTER DENIAL, WHERE INSURER IS PROVIDED WITH NEW INFORMATION (Pennsylvania Superior Court)

In Rancosky v. Washington National Insurance Company, the Superior Court addressed a bad faith claim in the first party context, where the insured had purchased a “Cancer Policy”.  The Superior Court ruled that the bad faith claim fell within the two year statute of limitations period based upon poor investigative practices, even when the original denial of the benefit was beyond the two year period.

The insurance policy had a contractual “suit limitations clause,” providing legal actions for benefits.  However, for purposes of the bad faith claim, the court ultimately focused on the two year statute of limitations. The policy also contained detailed waiver of premium provisions based upon a manifestation of cancer and disability therefrom.  The policy also addressed the situation where an insured ceased making direct premium payments via payroll checks, but could convert to making direct payments personally, while keeping coverage.  After going into the facts in painstaking detail, the Superior Court concluded that the waiver of premium provision should have applied; that there was no need to address conversion for future premium payments; and thus that the insurer’s denial of benefits for missing premium payments was an unreasonable position for the insurer to take.

At trial level, after a jury ruled for the insured on the breach of contract claim, the trial court ruled for the insurer on the bad faith claim.  The Superior Court reversed, and among other things in its close factual analysis, stated: “The record reflects that [the insurer] did not purport to conduct any investigation regarding [the] claim until it received [the insured’s] request for reconsideration … eighteen months after it had first received conflicting information regarding the starting date of [her] disability.” Before that time, the insured had provided 8 authorizations, all of which permitted the carrier to contact her employer and physicians “regarding the date when she first became unable, due to cancer, to perform all the substantial and material duties of [her] regular occupation.”  Instead, “despite requiring that [the insured] sign these authorizations, [the insurer] never bothered to use them to obtain the information that it needed in order to make an accurate determination as to the starting date of her disability.”

LEGAL ANALYSIS

  1. Self Interest and Ill Will are not elements of a bad faith claim.

First, the trial court effectively ruled that a bad faith plaintiff must establish the insurer had a motive of self-interest or ill will.  As the Superior Court has stated numerous times in earlier opinions, this is not an element of proof in a statutory bad faith claim. Ill will or self-interest are only evidence that can be used to establish the second element of statutory bad faith, i.e., that the insurer knowingly or recklessly disregarded the first element, that there was no reasonable basis to withhold the benefit.  While the trial court had ruled that self-interest or ill will were considered in weighing the first element, absence of a reasonable basis, the Superior Court found this was merely a back door ruling that self-interest or ill will were required elements to establish the claim.

  1. Superior Court defines bad faith expansively.

Second, as stated above, the appellate court reviewed the record and concluded that the trial court erred in finding there was a reasonable basis to deny coverage.  In reaching this decision, the court rendered an expansive view of the bad faith statute.

It began by stating that “a heightened duty of good faith was imposed on [the insurer] in this first-party claim because of the special relationship between the insurer and its insured, and the very nature of the insurance contract.”  It then stated that statutory bad faith under section 8371 “is not restricted to an insurer’s bad faith in denying a claim.” The Superior Court then cited six of its prior decisions as examples to support this point.  It did not cite or discuss the Supreme Court’s 2007 Toy decision in this context, as to what constitutes a cognizable section 8371 bad faith claim. It solely cited language from the prior Superior Court decisions on, e.g., the breadth of the statute’s aim to stop all forms of bad faith, and that section 8371 was intended to address conduct that evades “the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.”

  1. Bad Faith statute of limitations period can be extended by conduct of investigative practices, irrespective of the time when the claim was originally denied.

Third, and most significantly, the Superior Court addressed when the statute of limitations begins to run.  It observed that “there is an important distinction between an initial act of alleged bad faith conduct and later independent and separate acts of such conduct.”  It ruled that: “When a plaintiff alleges a subsequent and separately actionable instance of bad faith, distinct from and unrelated to the initial denial of coverage, a new limitations period begins to run from the later act of bad faith.” Thus, “[a]n inadequate investigation is a separate and independent injury to the insured.”

[Note: This conclusion is measured against a prior Superior Court opinion, and does not address the Supreme Court’s Toy decision. The court cites the Supreme Court’s Ash opinion on the bad faith statute’s limitations period, though it does not reference footnote 10 of the Ash opinion on the scope of the bad faith statute (“The bad faith insurance statute, on the other hand, is concerned with ‘the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.”)]

The court then states that “a refusal to reconsider a denial of coverage based on new evidence is a separate and independent injury to the insured. The statute of limitations for such injuries begins to run, in the first instance, when the insurer communicates to the insured the results of its inadequate investigation, and in the latter instance, when the insurer communicates to the insured its refusal to consider the new evidence that discredits the insurer’s basis for its claim denial.” The Superior Court found that had the insurer conducted a “meaningful investigation” and “good faith investigation” into the additional information, or “undertaken to ‘research’ the new information” it would have discovered that there was no reasonable factual basis to deny coverage. Thus, the insurer’s “failure to conduct an meaningful investigation of [the] claim when it undertook to do so in [8 months after its original denial of the benefit], and its refusal to reconsider its denial of coverage based on the new information provided by [the insured] in her November 30, 2006 letter [7 months after the insurer’s original denial], constituted new injuries to the insured.”

By contrast, the Dissent in this 2-1 decision would have ruled that the statute of limitations began to run when the insurer first denied the benefit was due. In response, the majority stated that the Dissent unduly focused on the denial of the benefit as the basis for the bad faith claim, “without considering [the insured’s] claim for bad faith based on [the insurer’s] lack of good faith investigation.” Once again, citing prior Superior Court case law without reference to Toy or Ash, the court observed that “a claim for bad faith may be based on an insurer’s investigative practices.” Thus, “[i]n declining to acknowledge these tenets of Pennsylvania’s bad faith law, the Dissent has failed to acknowledge [the insured’s] claims for bad faith based on a lack of good faith investigation, or identify the date(s) on which such claims accrued. Thus, we abide by our conclusion that [insured’s] bad faith claim is not time-barred.”

4.  Failure to allege bad faith based on litigation conduct waived 

The insured also sought reversal on the basis that the trial court failed to consider the insurer’s litigation conduct during the bad faith litigation and trial itself.  However, the insured had never made this argument prior to trial, and such an argument was waived.

  1. Court finds bad faith claim by a distinct insured was properly dismissed on summary judgment.

Lastly, the court affirmed a summary judgment against the foregoing insured’s husband, who likewise had developed cancer and was seeking relief from the same insurer.  The court found that the husband insured had not provided evidence as to why it was not reasonably possible for him to have given the required notice under the policy.

While upholding this later judgment, the case was reversed and remanded on the wife insured’s bad faith claim.

Date of Decision:  December 16, 2015

Rancosky v. Wash. Nat’l Ins. Co., Superior Court No. 1282 WDA 2014, 2015 Pa. Super. LEXIS 822 (Pa. Super. Ct. December 16, 2015)