Monthly Archive for June, 2016

JUNE 2016 BAD FAITH CASES: COURT REFUSES TO DISMISS INSURER’S CLAIM FOR EQUITABLE RESCISSION OF POLICY; EQUITABLE RESCISSION ACTION DOES NOT REQUIRE PRIOR RETURN OF PREMIUMS (Philadelphia Federal)

In Aspen Specialty Insurance Company v. Hospitality Supportive Systems, LLC, an insurer sought equitable rescission of its policy. The insured moved to dismiss the rescission claims or for a move specific pleading of fraud under Rule 9. The motion was denied.

The court observed the applicable standard: “an insurer must demonstrate that (1) the insured made a false representation, (2) the insured knew the representation was false or made the representation in bad faith, and (3) the representation was material to the risk being insured.” The court found the insurer clearly pled facts sufficient to state a plausible claim for equitable rescission under Pennsylvania law by averring that the insured knew of potential claims additional named insured faced, while representing that no claims existed. The court found the claims were material to the insured risk, as the insurer potentially would have had the duty to defend and indemnify the insured and the additional named insureds on those claims.

The court distinguished rescission at law, which requires return of premiums before seeking rescission, from equitable rescission which has no such requirement. Moreover, even an expired policy can be rescinded, since it would never have been issued if the relief sought were warranted.  The court further found the insurer did not sit on its rights, but acted promptly after completing its investigation. The court also found the allegations of fraud sufficiently pleaded.

Date of Decision: June 9, 2016

Aspen Specialty Ins. Co. v. Hospitality Supportive Sys., LLC, 2016 U.S. Dist. LEXIS 75110 (E.D. Pa. June 9, 2016) (Dalzell, J.)

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JUNE 2016 BAD FAITH CASES: FAILURE TO ACCEDE TO SETTLEMENT DEMAND ALONE NOT BAD FAITH; ALLEGATION OF FAILURE TO REVIEW MEDICAL RECORDS DISMISSED AS CONCLUSORY (Philadelphia Federal)

In Camp v. New Jersey Manufacturers Insurance Company, the insurer refused to pay anything beyond the tortfeasor’s settlement of this UIM claim. The court dismissed the original bad faith claim for pleading only conclusory allegations, with leave to amend. The amended complaint added some detail, as set forth below, but the court still found it insufficient. The thrust of the complaint was that the insurer did not make an offer beyond the approximately $80,000 settlement, and her medical records showed a lifetime of medical costs at approximately $221,000.

The court found plaintiff’s allegations of failing to evaluate medical records in a demand package conclusory. The court further found the allegations plainly contradicted by the facts in the same pleading. The amended complaint alleged that the insurer’s representative stated that she had reviewed all relevant records in determining that it would not be approving the UIM claim, and the insured did not plead any contrary facts. Rather the insured only alleged legal conclusions that the claims handler did not do so. Contradicting a factual claim by the insurer with a legal conclusion was not to be afforded any weight.

The insured also alleged a failure to make a settlement offer in response to the insured’s claim. “However, failure of an insurer to ‘immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.’” The insured offered no facts as to why the failure to make a settlement offer was in bad faith. The court cited the proposition that making allegations that the insurer failed to make an offer, “without additional elements of “self-interest” or “ill will” do not amount to a claim for bad faith under 42 Pa. Cons. Stat. § 8371.”

While there is case law that self-interest or ill will are not elements of section 8371 bad faith, the court cited case law where bad faith was inadequately pleaded because: (1) “[n]othing in the complaint sets forth any facts regarding [d]efendant’s actions . . . from which the Court can infer a bad faith claim”; (2) plaintiff “failed to allege facts that reasonably suggest a ‘frivolous or unfounded refusal to pay proceeds of a policy’”; (3) and failing to “provide sufficient facts . . . to suggest that [d]efendant lacked a reasonable basis for the denial of [] benefits” fatal to bad faith claim at pleading stage.

The allegations found inadequate by the court were:

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff will incur a total lifetime cost of $221, 412.00 for medical treatment and medications related to injuries sustained in the subject motor vehicle accident. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff will incur a total lifetime cost of $221,412.00 for medical treatment and medications related to injuries sustained in the subject motor vehicle accident. See Exhibit B.

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre-existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff suffered and continues to suffer from severe pain and discomfort in her neck, right shoulder and right wrist, and will require Nucynta ER, and extended release opiate analgesic, to manage her chronic pain for the foreseeable future. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered and continues to suffer from severe pain and discomfort in her neck, right shoulder and right wrist, and will require Nucynta ER, and extended release opiate analgesic, to manage her chronic pain for the foreseeable future. See Exhibit B.

It must be noted that this opinion cites a considerable body of case law, and is a useful research tool and resource.

Date of Decision: June 8, 2016

Camp v. N.J. Mfrs. Ins. Co., 2016 U.S. Dist. LEXIS 74496, *6-7 (E.D. Pa. June 8, 2016) (Heffley, U.S.M.J.)

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JUNE 2016 BAD FAITH CASES: COMMUNICATIONS BETWEEN IN-HOUSE COUNSEL OF (1) TPA AND (2) AUHTORIZED CLAIM REPRESENTATIVE WITH INSURER USING THEIR SERVICES IS PRIVILEGED (Middle District)

In Heller’s Gas v. International Insurance Company of Hannover, a breach of contract and bad faith case, the insured claimed that documents withheld or redacted did not fall within the attorney-client privilege, the work product doctrine, or reserve information. The insured argued that all but one document was either sent to or from employees of the insurer’s third party administrator (TPA) or its authorized claim representative, and as neither of these entities were subsidiaries of or owned by the insurer, the communications were not privileged.

In the Answer, the insurer did not assert an agency relationship with either the TPA or the authorized claims representative. It took the opposite position in the motion papers, arguing that communications between the TPA’s in-house counsel and/or the claim representative’s in-house counsel with the insurer fell within the scope of attorney-client privilege.

The court reviewed the unredacted documents in camera. The court stated: “After thoroughly examining the documents, this Court finds that the information redacted appropriately falls within the attorney-client privilege and work product doctrine and is consequently information directly related to or referencing legal strategy regarding the instant litigation. The correspondence further supports [the insurer’s] latterly-advanced argument that [the TPA and authorized claims representative] are essentially agents of [the insurer].”

Date of Decision: June 1, 2016

Heller’s Gas, Inc. v. Int’l Ins. Co. of Hannover Ltd., 4:15-CV-01350, 2016 U.S. Dist. LEXIS 71069 (M.D. Pa. June 1, 2016) (Brann, J.)

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JUNE 2016 BAD FAITH CASES: UIM BAD FAITH CLAIM INADEQUATELY PLEADED AND DISMISSED WITH PREJUDICE (Philadelphia Federal)

In Kiss v. State Farm Insurance Company, the District addressed a UIM bad faith claim. The court found the pleadings inadequate under Twombly/Iqbal, and stated as follows:

“In essence, plaintiff’s factual averments are that (1) plaintiffs are insured by defendant for underinsured motorist coverage; (2) the husband plaintiff was involved in a motor vehicle accident; (3) plaintiffs submitted medical records to defendant; (4) plaintiffs made a demand for payment of the underinsured motorist limits; and (5) plaintiffs did not agree with defendant’s valuation of the claim.”

“Plaintiff’s boilerplate allegations assert that defendant lacked a reasonable basis for denying plaintiffs’ claim for benefits, but do not provide any factual allegations from which the Court could make a plausible inference that defendant knew or recklessly disregarded its lack of a reasonable basis for denying benefits. …. Indeed, it is undisputed that the defendant in this case actually paid the underinsured motorist benefits pursuant to an arbitration award. While such assertions perhaps suggest that a bad faith claim is possible, they do not allow for any non-speculative inference that a finding of bad faith is plausible. …. The Rule 12(b)(6) standards, as interpreted by Twombly and Iqbal, require more.”

Unlike a number of other cases that failed the Twombly/Iqbal standards, this case was dismissed with prejudice.

Date of Decision: May 16, 2016

Kiss v. State Farm Ins. Co., 2016 U.S. Dist. LEXIS 64572 (E.D. Pa. May 16, 2016) (Schmehl, J.)

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JUNE 2016 BAD FAITH CASES: COURT RECOMMENDS ALLOWING INSURED TO REPLEAD ITS BAD FAITH CLAIM FOR UNREASONABLE POLICY INTERPRETATION, WHICH INTERPRETATION WAS LATER ABANDONED BY INSURER (Middle District)

In Long v. New Jersey Manufacturers Insurance Company, the insured brought a bad faith claim based upon the insurer’s allegedly unreasonable interpretation of the policy. The insurer did originally take the position complained of, limiting coverage to $100,000, but eventually dropped that position and came to agreement with the insured on there being greater coverage, $500,000. The insurer brought a motion to dismiss the bad faith claim based upon the insurer’s original position.

The pleadings showed the parties’ agreement that the insurer did for a period of time assert the more restrictive view, but later abandoned this interpretation. The bad faith case “involved an inquiry into the nature, magnitude, and reasonableness of this initial, and admittedly erroneous, interpretation of the policy….”

The court recognized “that an unreasonable, unwarranted, and unjustified interpretation of policy language may form the basis for a bad faith claim, but [there are] particularly exacting standards for such claims.” “Thus, an insurance company’s reliance on an incorrect interpretation of the law will not necessarily yield a finding of bad faith. If that interpretation of the law and policy language was erroneous, but reasonable, a bad faith may still claim fail. …. Likewise, if the insurance company had a number of bases for a legal position, some of which are objectively unreasonable, it may nonetheless defeat a bad faith claim by citing to any reasonable rationale for its action.”

The complaint itself was “spare” in its allegations of bad faith, and in the motion to dismiss process, both parties pointed to facts beyond the pleading in disputing whether the insurer’s position was reasonable. The court recognized that such factual disputes were properly addressed via a summary judgment motion. However, citing Rule 12(e), which allows a defendant to move for a more definite statement of facts in the complaint, the magistrate judge recommended dismissing the complaint without prejudice to allow plaintiff to set out a more definite statement in support of the bad faith claim in the complaint.

Date of Decision: May 17, 2016

Long v. N.J. Mfrs. Ins. Co., Civil No. 3:14-CV-2428, 2016 U.S. Dist. LEXIS 65575 (M.D. Pa. May 17, 2016) (Carlson, U.S.M.J.)

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JUNE 2016 BAD FAITH CASES: REMOVAL TO FEDERAL COURT NOT BAD FAITH (Pennsylvania Superior Court – Not Precedential)

In Racioppi v. Progressive Insurance Company, the court rejected an argument the carrier’s initial removal to federal court constituted bad faith insurance conduct. The matter was remanded once the parties realized there was not complete diversity. The court observed this was a litigation tactic, not related to insurance coverage.

Date of Decision: May 11, 2016

Racioppi v. Progressive Ins. Co., No. 3419 EDA 2015, 2016 Pa. Super. Unpub. LEXIS 1624 (Pa. Super. Ct. May 11, 2016) (Ford Elliott, Bender, Musmanno) (non-precedential)

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BAD FAITH BLOG'S 10TH ANNIVERSARY

It has been 10 years since we began the Bad Faith Blog, which now includes over 1,200 posts.  Bad faith litigation has remained a constant in state and federal courts over that time, and is a regular part of the litigation landscape.  There have been bad faith claims that did not survive motion practice, and some resulting in large awards.  As to the frequency of bad faith claims, one Third Circuit panel stated in 2012: “We note, however, that our experience in addressing Pennsylvania insurance coverage disputes has demonstrated that insureds tend to bring bad faith claims when insurers reject their claims even though there are legitimate disputes over whether the claims are covered.”

While there are many aspects of the law which merit  attention, one feature does earn special notice:  What is bad faith?

In 2007, it appeared that the Supreme Court provided definition to the meaning of bad faith under section 8371, in Toy v. Metropolitan Life. The Court, in both the majority and dissenting opinions, addressed the difference between bad faith conduct which is evidentiary in nature, and bad faith decisions which are actionable in and of themselves.  However, Toy is seldom cited, and there is a significant body of case law erasing the line between evidentiary conduct supporting a finding of bad faith, and that same conduct in and of itself being bad faith.  We will continue to report on the development of this fundamental issue, and on all aspects of an ever dynamic and constantly growing body of law.

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JUNE 2016 BAD FAITH CASES: ALLEGED DISCOVERY VIOLATIONS CANNOT FORM BASIS OF BAD FAITH CLAIM (Third Circuit)

In Duda v. Standard Insurance Company, the Third Circuit reiterated the longstanding rule that statutory bad faith claims cannot be based on alleged discovery violations in the bad faith litigation.

Date of Decision: May 10, 2016

Duda v. Std. Ins. Co., 2016 U.S. App. LEXIS 8602 (3d Cir. Pa. May 10, 2016) (McKee, Jordan, and Roth)

JUNE 2015 BAD FAITH CASES: INSURED’S COMPLAINT LACKS SPECIFICITY AND IS DISMISSED WITHOUT PREJUDICE SUBJECT TO DISCOVERY BEING TAKEN (Philadelphia Federal)

In Canizares v. Hartford Insurance Company, the insured brought breach of contract and bad faith claims. The bad faith claim was dismissed without prejudice, as it failed to meet the Twombly/Iqbal standards of pleading a plausible claim, rather than simply asserting legal conclusions.

The court observed that the insured’s “rudimentary allegations” all contained legal conclusions, “which are not entitled to the assumption of truth.” On the one claim coming closest to being adequate, that the insurer failed to respond to the benefits claim in a reasonable time, the court found this inadequate because the complaint failed “to include any specific dates detailing when the claim was submitted and when [the insurer] responded.”

However, the court did not dismiss with prejudice, in the eventuality that facts could later be developed in discovery that would form the basis of a bad faith claim. “Indeed, discovery into the handling of this claim will certainly be among the next steps in the case, and it may well be that the [insured] will seek permission to resume the bad-faith claim. They will be permitted to seek such permission if the facts so warrant.”

Date of Decision: May 27, 2016

Canizares v. Hartford Ins. Co., No. 16-1465, 2016 U.S. Dist. LEXIS 69668 (E.D. Pa. May 27, 2016)