Yearly Archive for 2017

AUGUST 2017 BAD FAITH CASES: PLAUSIBLE BAD FAITH CLAIM WHERE INSURER FAILED TO PROMPTLY NEGOTIATE SETTLEMENT WITHIN POLICY LIMITS, WITH SOME INTERESTING DICTA ON COLLUSION AND BAD FAITH SETTLEMENTS (Superior Court of New Jersey Appellate Division) (Unpublished Opinion)

This case provides an exposition of the duty of good faith and fair dealing under Rova Farms, in the context of settlement negotiations where the potential loss exceeds policy limits, and the matter settled well above policy limits.

The insured rear-ended another vehicle seriously injuring that vehicle’s four passengers, who later brought suit against him. The insured’s policy limits provided $25,000 per person or $50,000 per accident, but the documented value of the injury claims alleged far exceeded those limits. The personal injury action eventually settled, with a consent judgment against the insured for $1.155 million dollars.

Prior to that settlement, the personal injury plaintiffs’ counsel made a policy limits settlement demand on the tortfeasor’s insurer. Eleven months later, and after an arbitration award against the insured for $1.3 million, the insurer belatedly tendered its policy limits. Plaintiffs’ counsel rejected this offer, and counteroffered to settle for the policy limits, adding a demand for an assignment of the insured’s breach of good faith and fair dealing against the insurer. The insurer rejected this counteroffer.

The personal injury plaintiffs and the insured subsequently settled by agreeing to a consent judgment in the amount of $1.155 million, with a further agreement that the insured would pursue a bad faith claim against its insurer.

As agreed, the insured brought a bad faith complaint. He alleged the insurer failed to respond to the settlement offer; failed to seek an extension of time to reply to the offer; and that the insurer negligently or intentionally failed to advise the insured of the settlement offer that was within the available policy limits. The insurer sought to dismiss the claim, and the trial court denied that motion.

On appeal, the Appellate Division stated that insurers have “a positive fiduciary duty to take the initiative and attempt to negotiate a settlement within the policy coverage[,]” and “[a]n insurer’s fiduciary duty requires it ‘to make an honest, intelligent and good faith evaluation of the case for settlement purposes and to weigh the probabilities in a fair manner.’” For purposes of a motion to dismiss, the appellate court would not rule on the issue of a putative collusive settlement, but recited the rule that an insurer could be bound to pay on a settlement sum that was reasonable and made in good faith. It held the bad faith complaint alleged sufficient facts and circumstances to make out a bad faith claim, by alleging that the insurer did not look to the insured’s interests and take the initiative in attempting to negotiate a settlement offer for its insured within the policy limits.

In dicta, the appellate court stated that there were potential issues on the collusion allegations that the trial court may have to allow the insurer to explore. “We add that Insurance Council’s [sic] assertion the settlement was a product of collusion and bad faith raises some interesting issues. One interpretation of the settlement agreement is that the personal injury plaintiffs will file warrants of satisfaction immediately upon conclusion of this bad faith action, regardless of the outcome. That construction suggests that if plaintiffs recover nothing under the bad faith action, the personal injury plaintiffs will collect nothing further… If that is so, then there is a significant question as to whether [the insured] will ever have to pay a sum in excess of the policy limits. Resolution of that issue may have a bearing on the viability of plaintiffs’ bad faith cause of action. We express no opinion as to that issue. The trial court may decide to conduct discovery and entertain dispositive motions on that issue before permitting the parties to engage in other extensive discovery. We leave that matter to the trial court’s sound discretion.”

Date of Decision: July 20, 2017

Ellington v. Cure Auto Ins., No. A-2470-16T4, 2017 N.J. Super. Unpub. LEXIS 1831 (N.J. Ct. App. July 20, 2017) (Currier, Geiger, Nugent, JJ.) (Unpublished)

AUGUST 2017 BAD FAITH CASES: “A PLETHORA OF CONCLUSORY ALLEGATIONS” DOES NOT SUPPORT A CLAIM OF BAD FAITH (Philadelphia Federal)

This case arose after a fire damaged the insured’s premises, resulting in a claim adjusted for $182,739.11, subject to a hold-back of recoverable depreciation of $58,075.29. The insurer ultimately issued a $123,663.82 payment to the insured. This amount represented the insurer’s calculation of the actual cash value of the loss, less depreciation and the insured’s deductible. The insured then filed suit for breach of contract and bad faith. The insured argued that the insurer wrongfully withheld additional funds owed to him.

The insurer filed a motion to dismiss the bad faith claim. The Court wrote that the insured’s complaint “offers a plethora of conclusory allegations regarding [insurer’s] unreasonableness, misrepresentation, and unfairness without identifying how something was done unreasonably, what specifically was misrepresented, or what circumstances made some action unfair.” As such, the Court held that the insured’s bad faith claim lacked sufficient factual detail.

Furthermore, the Court took judicial notice that the insurance policy at issued allowed for recovery of the withheld depreciation amount, if the insured repaired the damaged property within 180 days of the insurance payment. The insured failed to make the repairs within this time. Thus, the insured was not entitled to additional funds according to the terms of the policy.

The Court granted the insurer’s motion and dismissed the bad faith claim, with no reference to permitting an amended complaint on the issue.

Date of Decision: July 28, 2017

Fasano v. Allstate Indem. Co., No. 17-cv-1495, 2017 U.S. Dist. LEXIS 118558 (E.D. Pa. July 28, 2017) (Curtis Joyner, J.)

AUGUST 2017 BAD FAITH CASES: INJURED PARTY HAS NO STANDING TO BRING BAD FAITH CLAIM AGAINST TORTFEASORS’ INSURER (Middle District)

An injured plaintiff attempted to assert bad faith claims against the tortfeasor’s insurer and its adjuster. In his Report and Recommendation, the Magistrate Judge observed that third-party claimants do not have a contractual relationship with such insurers, and thus have no standing to assert a bad faith claim. The District Court Judge agreed, and dismissed the putative bad faith failure to negotiate claim.

Dates of Decision: June 20, 2017 and August 9, 2017

Starrett v. Coe, No. 3:16-cv-02272, 2017 U.S. Dist. LEXIS 95793 (M.D. Pa. June 20, 2017) (Saporito, M.J.) (Report and Recommendation)

Starrett v. Coe, No. 3:16-cv-02272, 2017 U.S. Dist. LEXIS 126348 (M.D. Pa. August 9, 2017) (Caputo, J.)

AUGUST 2017 BAD FAITH CASES: NO BAD FAITH IN CLAIMS HANDLING OR POLICY INTERPRETATON (Philadelphia Commerce Court)

This case involved a dispute over whether water damage was covered under various policy terms and endorsements. The basic facts involved the backup in a clogged roof drain during a rainstorm, leading to water damage. The carrier agreed the insured had limited coverage under a specific policy endorsement, while the insured sought greater coverage.

The court granted summary judgment to the carrier on the coverage issues. In addressing the bad faith claim, the court found that the insured provided no evidence that the insurer’s refusal to pay beyond the endorsement limit was in bad faith. The insurer had two separate inspections done by two different people regarding causation. After initially denying the claim entirely, when later presented with the insured’s report that the damage was caused by the clogged drain, the insurer paid for damages from that event up to the endorsement limits specifically covering that type of loss. Moreover, the insurer’s policy interpretation was reasonable and not made in bad faith where the policy language was clear and consistent with the insurer’s decisions.

Summary judgment was granted to the insurer on all grounds.

Date of Decision:  July 21, 2017

Reynolds v. Pennsylvania National Mutual Casualty Insurance Company, June Term 2015, No. 2031, 2017 Phila. Ct. Com. Pl. LEXIS 225 (C.C.P. Phila. July 21, 2017) (Djerrasi, J.) (Commerce Court)

AUGUST 2017 BAD FAITH CASES: NO BAD FAITH WHERE THE INSURED OBFUSCATED THE CLAIMS HANDLING PROCESS AND REFUSED TO COOPERATE WITH INSURER (Philadelphia Federal)

This 95-page opinion granting the insurer summary judgment provides an extremely detailed review of the facts, and considerable exposition of bad faith case law concerning investigation and claims handling.

As set forth in the Opinion, the insured owned multiple rental properties that she leased out to college students. Beginning in 2005, she purchased landlord property insurance policies from the insurer. In 2014, tenants moved into the properties and alerted township police to deplorable conditions. The police report catalogued broken windows, buckled hardwood floors, water damage, ceiling damage, removed and damaged fixtures and doors, detached ceiling lights and smoke alarms, peeling paint, an overgrown lawn, broken appliances, trash, and mice droppings. The tenants then broke their leases, citing a breach of the implied warranty of habitability.

A township code official inspected and photographed the properties and prepared a list of code violations. The official posted violation notices, and revoked the insured’s student rental licenses. The insured notified both the insurer and her insurance broker, and made a claim for the property damage and lost rent.

The insurer mistakenly filed the insured’s communication in a preexisting file related to another claim with the same insured. However, an employee of the insurance broker immediately called the insured to request more facts relevant to the claim. The insured did not pick up the call and did not return the voicemail.

The township later brought a code violation action against the insured in the Court of Common Pleas, as well as for the insured’s failure to allow mandated property inspections over several years. The insured then reached out to the insurer, and repeatedly claimed that her earlier communications went unanswered. The insured’s story changed, however, after the insurer produced evidence of phone calls and emails from claims adjusters. The insured conceded that she did in fact speak to someone, but she only “sort of” recalled the conversation.

Even after the rental license revocations, the insured again rented properties to two other college students. Similar physical problems arose, and the new tenants were likewise unable to reside at the properties. The township locked the insured out of the properties.

Throughout this period, the insurer’s claims handlers continually attempted to communicate with the insured to gather more facts concerning the insured’s claim. The insured received an email stating “‘it is imperative that I make voice to voice contact with you to get accurate loss facts regarding the claim that you submitted’ since ‘the claims process is reliant on the information that is shared between ‘you’ the insured and ‘me’ the claims adjuster.’” Several days after the insured received that email, the adjuster had a telephone call with the insured, but the insured said she could not speak with the adjuster due to ongoing litigation. The insured then hung up the phone.

The insurer took the position that the policy did not provide coverage for property damage, lost rents or the township’s suit against the insured.

The insured sued the insurer for breach of contract, bad faith, and alleged violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The Court granted the insurer’s motion for summary judgment on the breach of contract claim, stating that the insurance policies were not “all risk” policies whereby coverage is automatically triggered in the event of loss. Furthermore, the insured failed to show that the losses occurred suddenly and accidentally, and the insured had no reasonable expectation of coverage. The court also found that the insurer had no duty to defend the insured in the state court action. Additionally, the court granted the insurer summary judgment on the UTPCPL claim, finding no fraud or misrepresentations to the insured with regard to the policies.

As to the bad faith claim, the insured alleged that the insurer intentionally delayed opening a claim, delayed commencing its investigation, and that it lacked a reasonable basis for refusing to pay the insured benefits under the policies. The Court found that there existed no clear and convincing evidence that the insurer acted in bad faith. The Court stated that “the record makes clear that [the insurer’s] delays are attributable to mistake, possible confusion between [the insurer] and [the broker,] and [the insured’s] obfuscation and refusal to cooperate with [the claims] representatives.” The Court further opined that the bad faith claim must fail because the evidence shows the insurer conducted an adequate investigation and had a reasonable basis for denying coverage. Any delays on the part of the insurer were attributable to the insured’s “repeated failures to provide the information necessary to open a claim….”

The Court granted the insurer’s motion for summary judgment in its entirety.

Date of Decision: April 6, 2017

Doherty v. Allstate Indem. Co., No. 15-05165, 2017 U.S. Dist. LEXIS 52795 (E.D. Pa. April 6, 2017) (Pappert, J.)

AUGUST 2017 BAD FAITH CASES: BASIS FOR DENYING CLAIM RELEVANT TO BOTH BAD FAITH AND BREACH OF CONTRACT CLAIMS, SUPPORTING COURT’S CERTIFYING CASE FOR IMMEDIATE APPEAL (Philadelphia Commerce Court)

In a lengthy opinion, the court ruled against the insurer on how to interpret the meaning of “actual cash value” under the policy. The issue was sufficiently significant that the Commerce Court certified its decision as a final appealable order to the Superior Court.

The case also involved a bad faith claim, which came into play when determining whether to certify the appeal. The interpretation of pertinent policy language was intertwined with the issue of whether the insurer had a reasonable basis to deny benefits and/or recklessly disregarded the potential lack of a reasonable basis to deny benefits. The “statutory bad faith analysis is quite clearly related to whether plaintiff is entitled to damages on its breach of contract claim.” Later, the court stated that “immediate appellate review promotes judicial economy because appellate analysis will provide instruction, one way or the other, on open trial level issues relating to both class certification and bad faith. Pre-trial review in the event of affirmance is expected to be extensive and should be provided only after the threshold legal question is settled.”

Date of Decision: July 21, 2017

Kurach v. Truck Insurance Exchange, July Term 2015, No. 339, 2017 Phila. Ct. Com. Pl. LEXIS 228 (C.C.P. Phila. July 21, 2017) (Djerassi, J.) (Commerce Court)

AUGUST 2017 BAD FAITH CASES: POLICYHOLDER GRANTED LEAVE TO AMEND COMPLAINT TO ALLEGE A BAD FAITH CLAIM (Philadelphia Federal)

Plaintiff-policyholders filed suit after a dispute over a denial of coverage regarding their homeowner’s insurance policy. Initially, defendant-insurer faced claims for breach of contract and a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. On April 26, 2017, seeking to assert a bad faith claim, the plaintiffs filed a Motion for Leave to Amend their (already) Amended Compliant.

The case arises out of severe property damage incurred by plaintiffs due to a January 2016 snowstorm. The snowstorm damaged the interior, exterior, and roof of the main residence, and damaged the roof of plaintiffs’ detached garage. The insurer provided plaintiffs with a payment of $5,801.77, which only covered damage to the interior of the main residence, minus the deductible and depreciation. The insurer denied plaintiffs’ claim for the exterior damage to the main residence, including the roof of the main residence and the roof of the detached garage. The exterior damages totaled $54,180.76.

The insurer argued that addition of a bad faith claim is futile. “’Futility means that the complaint, as amended, would fail to state a claim upon which relief could be granted.” The Court reiterated the liberal procedural standard for the amending of pleadings, and stated that defendants have “a heavy burden” in showing that plaintiffs’ amendment would be futile.

The Court ultimately granted the insureds leave to amend, because they argued that the insurer acted in bad faith by failing to provide reasons for its denial of coverage and failing to conduct a proper investigation of the claim. In support of its futility argument, the insurer attempted to have the Court review letters which included detailed and specific reasons for claim denial, along with proof that it offered to reinvestigate the claim. Nevertheless, the Court could not consider these documents at this stage because they were not attached to the amended complaint, nor were they matters of public record.

Date of Decision: July 18, 2017

Mitchell v. State Farm Fire & Cas. Ins. Co., No. 17-0737, 2017 U.S. Dist. LEXIS 111088 (E.D. Pa. July 18, 2017) (Surrick, J.)

AUGUST 2017 BAD FAITH CASES: CARRIER THAT DID NOT ISSUE POLICY STILL POTENTIALLY LIABLE FOR BAD FAITH ON A CLAIMS HANDLING THEORY (Western District)

This case involved at least claims for breach of contract, breach of fiduciary duty, and breach of the contractual duty of good faith and fair dealing. The court also stated there was a statutory bad faith claim.

Two related insurers were named as defendants. One of the insurers did not issue the policy, but was alleged to have been involved in bad faith claims handling.

First, the court dismissed the breach of fiduciary duty claim under the gist of the action doctrine. The court found that any duty solely arose from the contract, so there could be no separate tort claim outside of the contract.

Second, the court agreed there could be no breach of contract claim against an insurance company that did not issue the policy. However, the court found that this did not automatically preclude a statutory bad faith claim against that insurance company based solely on its claims handling. [This holding runs up against the idea that statutory bad faith must be based on the denial of a benefit under the insurance contract, but is in general accord with case law finding that claims handling alone, without the denial of a benefit, can be the basis for a bad faith claim.]

Date of Decision: July 20, 2017

Golon, Inc. v. Selective Insurance Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 113385 (W.D. Pa. July 20, 2017) (Schwab, J.)

 

JULY 2017 BAD FAITH CASES: STATUTE OF LIMITATIONS NOT TOLLED BY SETTLEMENT NEGOTIATIONS (Philadelphia Common Pleas)

In this case, the Philadelphia Court of Common Pleas Judge stated that the two year bad faith statute of limitations began to run with the date of loss. Settlement negotiations did not toll the running of the statute of limitations. Under those principles, the claims in this case were time-barred.

Date of Decision: July 3, 2017

Dutton v. American Bankers Insurance Company, September Term 2016, No. 1412, 2017 Phila. Ct. Com. Pl. LEXIS 181 (C.C.P. Phila. July 3, 2017) (Anders, J.)

JULY 2017 BAD FAITH CASES: SETTLING AND EXHAUSTING POLICY LIMITS AS TO LESS THAN ALL INSUREDS PERMISSIBLE IF REASONABLE AND DONE IN GOOD FAITH (New Jersey Law Division)

An interesting New Jersey 2016 trial court opinion on settling for less than all insureds.

As the court framed the issue: Did the insurer have “the discretion under the policy to settle the claims against [one insured] and thereby exhaust the policy without also obtaining a release from the Plaintiff of the claims against the [other insureds?]” The party resisting the partial settlement was a different insurer for these other insureds, which brought suit to stop the partial settlement.

The settling insurer wanting brought its own arguments to the table that it did have “discretion to exhaust its policy limit in good faith to settle the underlying claims against one of its insureds even if that settlement does not extinguish the claims against its other insureds….” The opposing carrier countered “that any proposed settlement on behalf of only one of [the] insureds would be unreasonable under the circumstances and would constitute bad faith.” The court found in favor of discretionary partial settlement, holding that the insurer “has discretion to exhaust its policy limit in good faith to settle the underlying claims against one of its insureds even if that settlement does not extinguish the claims against its other insureds….”

The court recognized that “an insurance company owes its insured a duty of good faith that applies when, as here, the insurer reserves control of settlement negotiations….” It examined both New Jersey and other states’ case law on bad faith settlements. This included a Pennsylvania Commonwealth Court decision standing for the proposition that an “insurer should not be precluded from accepting reasonable settlement offer for fewer than all insureds when no evidence establishing that the proposed settlements are unreasonable” and finding “that [an] insurer may be subject to bad faith action if evidence of unreasonable settlement.” Citing relevant New Jersey case law, the court emphasized a carrier’s “broad discretion to evaluate and settle claims in good faith as they see fit.”

The court considered it significant that a partial settlement would not leave the other insureds bare of any defense or coverage; rather, two other carriers provided potential defense and indemnification for them.

The court found “no impediment to the [insurer’s] exhaustion of its policy to settle the claims against [one insured] without also obtaining a release of the claims against the [other insureds]. The plain language of the policy affords the carrier discretion to investigate occurrences and settle claims as they see fit, so long as the decision is made in good faith.” Moreover, as stated above, “the two additional insureds in this case each have their own primary liability policies.” Further, “one of the additional insureds … [had] rebuffed Plaintiff’s request to make a meaningful contribution to a global settlement. …. [H]aving failed despite extensive efforts to achieve a global settlement, the carrier has decided to effect a partial settlement to cap the exposure of [the settling insured]. Moreover, in this case, given the amount of coverage both primary and excess available to the [other insureds], the prospect that the settlement would be found in bad faith are in the court’s judgment remote.”

Thus, summary judgment was granted to the settling insurer.

Date of Decision: November 18, 2016

National Surety Corp. v. First Specialty Insurance Corp., No. L-3983-16, 2016 N.J. Super. Unpub. LEXIS 2570 (N.J. L. Div. Essex County Nov. 18, 2016) (Mitterhoff, J.)