Monthly Archive for January, 2017

JANUARY 2017 BAD FAITH CASES: THERE CAN BE NO BAD FAITH WHERE THERE IS NO COVERAGE DUE (Western District)

The court found “’there can be no bad-faith claim [for denial of coverage] if the insurer was correct as a matter of law in denying coverage.’” It relied on the oft-cited 1999 Third Circuit opinion in Frog, Switch & Mfg. Co. v . Travelers. As the court had earlier found there was no viable breach of insurance contract claim, there could be no bad faith claim.

The court also addressed a putative failure to adequately investigate the claim. The insurer adduced various steps it had taken; and the insured alleged problems in investigation, but without providing evidence to resist a summary judgment motion.

Summary judgment was granted on all counts to the carrier.

Date of Decision: January 10, 2017

Wehrenberg v. Metro. Prop. & Cas. Ins. Co., No. 14-1477, 2017 U.S. Dist. LEXIS 3242 (W.D. Pa. Jan. 10, 2017) (Hornak, J.)

JANUARY 2017 BAD FAITH CASES: JUDGE MUNLEY GRANTS SUMMARY JUDGMENT TO CARRIER ON BAD FAITH CLAIMS AS TO ISSUES OF MULITPLE ADJUSTERS AND MULTIPLE ESTIMATES DURING CLAIMS PROCESS (Middle District)

Judge Munley granted the insurer’s summary judgment motion on bad faith. The insured’s claims rested on two arguments: (1) the insurer “assigned an inordinate number of representatives to her claim.”; amd (2) the insurer “refused to timely pay the full value of her loss. Rather, [it] provided multiple estimates and payments over a seven-month period.”

The court observed, “it is not bad faith to conduct a thorough investigation into a questionable claim.” The insured failed to present evidence that the claim management “was anything other than what it claimed: an attempt to further investigate the water damage at plaintiff’s home to determine the value of her claim.” No expert testimony was offered regarding the nature of the insurer’s investigation. No evidence of internal communications or testimony establishing that the carrier acted out of spite during its investigation was offered. There was “no competent evidence from which a reasonable jury could find that the number of … employees assigned to her claim establishes bad faith.”

Second, the court rejected the insured’s arguments that multiple estimates demonstrate bad faith. There was a difference of $19,000 over six months, and the insured argued this showed the insurer refused to fully investigate her claim and make timely payment. There was no authority to support this argument. The court cited appellate law for the point that “subsequent estimates assign[ing] a higher value to the claim is not ‘clear and convincing’ evidence that the insurer acted in bad faith in arriving at its initial estimate or by standing by that estimate until the appraisal process concluded.’” There was also a history of detailed investigations at the home, and an attempt to reconcile various estimates. At most, the evidence may have demonstrated the estimates were arguably negligent, but mere negligence is not bad faith.

Date of Decision: December 5, 2016

Yatsonsky v. State Farm Fire & Cas. Co., No. 3:15cv1777, 2016 U.S. Dist. LEXIS 167224 (M.D. Pa. Dec. 5, 2016) (Munley, J.)

2017 BAD FAITH CASES: THIRD CIRCUIT AFFIRMS NO DUTY RUNNING TO INSURED’S AVERSARY (Third Circuit, Pennsylvania)

The Third Circuit upheld the trial court’s dismissal of a bad faith claim. Among other things, it agreed that the plaintiff was not an insured, and the policy plainly set forth a duty to defend and indemnify the insured, not the insured’s adversary. The court observed: “[T]he duty to negotiate a settlement in good faith arises from the insurance policy and is owed to the insured, not to a third-party claimant.”

Date of Decision: December 12, 2016

Leboon v. Zurich Am. Ins. Co., No. 16-2088, 2016 U.S. App. LEXIS 22019 (3d Cir. Dec. 12, 2016) (Cowen, Fuentes, Shwartz, JJ.)

JANUARY 2017 BAD FAITH CASES: COURT REFUSED TO DISMISS BAD FAITH CLAIM AT PLEADING STAGE ON THE BASIS OF COVERAGE AND LATE NOTICE ARGUMENTS (Western District)

This case involved claims arising out of construction work. The carrier argued it was not required to defend or indemnify on late notice grounds, as well as a defense that coverage was not due under the policy language. The insured brought breach of contract and bad faith claims, and the carrier moved to dismiss.

Reading the complaint in the light most favorable to the plaintiff insured, the court denied motions to dismiss the contract and bad faith claims. As to the bad faith claim, the court stated the complaint was sufficient to overcome a late notice defense. The court found it relevant that plaintiff alleged the carrier had “refused to provide coverage in the underlying cases without any legal or contractual justification despite the fact that [it] was aware of the [underlying] cases and had set aside a litigation budget for them, and that [the insurer] continued in its refusal after both [the insured] and a mediator informed [the insurer] of its purported obligation.” Thus, the insurer’s “unsupported assertion that it was correct in its refusal to provide coverage is not sufficient for the dismissal of … well-pled claims of insurance bad faith without the opportunity for discovery.”

As to the governing law, the court stated that “a claim of insurance bad faith arises where an insurer refuses—without good cause—to defend or indemnify where the policy provides for coverage. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 750-51, n.9 (3d Cir. 1999). Such a claim may be supported by allegations showing a frivolous or unfounded refusal to pay, a lack of investigation into the facts, or a failure to communicate with the insured. … Mere negligence or bad judgment does not constitute bad faith, but actual knowledge or reckless disregard of a lack of a basis for the denial of coverage may.”

Date of Decision: November 28, 2016

NVR, Inc. v. Motorist Mut. Ins. Co., No. 2:16-cv-00722, 2016 U.S. Dist. LEXIS 163351 (W.D. Pa. Nov. 28, 2016) (Hornak, J.)

JANUAY 2017 BAD FAITH CASES: INSURER’S LITIGATION CONDUCT CAN ONLY PROVIDE BASIS FOR BAD FAITH CLAIM WHERE CONDUCT IS EXTRAORDINARY OR EGREGIOUS – WHICH DID NOT OCCUR IN THIS CASE (Western District).

The court predicted, and held, that evidence of litigation conduct is admissible as evidence of bad faith only “in the rare cases involving extraordinary facts.”

The insured was injured in a motor vehicle accident. There were underinsured policy limits of $500,000, which the insured demanded. The carrier rejected the policy limits demand, and the case went to trial. During trial, the parties signed a “Binding High-Low Settlement Agreement” that contained a provision dismissing all claims for bad faith occurring “prior to” the execution of the Agreement, but preserving all claims for bad faith occurring “after the date” of the Agreement’s execution.

On the same day the parties executed the Agreement, during trial, the insurer introduced videotaped testimony of two medical experts. During closing arguments, the insurer referenced their testimony. The jury returned a verdict in favor of the insured. The insurer filed a motion to mold the verdict to the “high” set forth in the Agreement, and further sought to dismiss the insured’s bad faith claim “as of” the date of the Agreement. The insured argued that, pursuant to the Agreement, only claims for bad faith occurring “prior to” the date of the Agreement should be dismissed. The trial court ruled for the insured.

The insured filed a separate lawsuit, alleging that the insurer acted in bad faith when it introduced the videotaped deposition of the medical experts, whom the insured felt was biased; referenced their testimony during closing; and filed the motion to mold the verdict with what the insured believed had inaccurate wording. The insurer filed a motion to dismiss the insured’s complaint.

In addressing the litigation conduct as bad faith issue, the Court found there was an: “ill-defined line… drawn between conduct which can be described as ‘defending the claim’ and that which suggests ‘that the conduct was intended to evade the insurer’s obligations under the insurance contract.’” The Court reviewed decisions from other jurisdictions that had “developed more comprehensive rules for dealing with bad faith claims premised on litigation conduct.” It found that the other jurisdictions employ four approaches.

In the first approach, there is a blanket prohibition on introducing evidence to show an insurer’s bad faith. In the second approach, an insured may introduce evidence of unreasonable settlement behavior, while introduction of litigation conduct, techniques and strategies is prohibited. In the third approach, an insured may introduce litigation strategies and techniques, “as long as the insurer knowingly encouraged, directed, participated in, relied upon, or ratified the alleged wrongful conduct.” In the fourth approach, utilized by most jurisdictions, evidence of litigation conduct is admissible evidence of bad faith in “rare cases involving extraordinary facts.”

The Court found that Pennsylvania’s Supreme Court has not adopted any of the four approaches. It predicted that the Supreme Court would adopt the fourth approach for three reasons: (1) The fourth approach “most effectively balances an insurer’s interest in defending itself and the ability of courts and rules of civil procedure to handle most litigation abuses with the relatively broad scope of § 8731.”; (2) Most of the other jurisdictions utilize the fourth approach; and (3) The fourth approach is the most consistent with the Pennsylvania case law that exists on the issue.

Applying this standard, the Court ruled that the insured’s allegations relating to the insurer’s medical experts were not rare, extraordinary, or egregious; and did not rise to the level of bad faith. Specifically, in regards to the first medical expert, the Court rejected the insured’s argument that the expert was biased, given the contradiction between the expert’s report and his deposition testimony. The insured’s allegations were merely conclusory. As to the second expert, the Court found that the insured was able to fully address his concerns through cross-examination, that the expert “always finds in favor of the party paying him”.

As to referencing the medical experts’ during closing argument, the Court held that if the insurer’s use of the expert testimony did not constitute bad faith, then referencing it during closing arguments similarly could not constitute bad faith. The Court stated that the insured did not suffer any prejudice. More importantly, the Court explained: “parsing an insurer’s closing argument after the fact through a bad faith action endangers an insurer’s ability to defend itself.” Furthermore, the Court stated that it would threaten the insurer’s attorney’s duty to competently and zealously represent a client.

Finally, with regard to the insured’s allegations based upon the insurer’s motion to mold the verdict, via putative improper wording, the Court held that the allegations did not rise to the level of bad faith. Specifically, the Court found that the insurer’s wording “seem[ed] reasonable given the somewhat ambiguous wording of the [A]greement itself.”

Ultimately, the Court granted the insurer’s motion to dismiss the insured’s complaint.

The case is currently on appeal with the U.S. Court of Appeals for the Third Circuit.

Date of Decision: August 26, 2016

Homer v. National Mutual Ins. Co., No. CV 15-1184, 2016 WL 4493689, 2016 U.S. Dist. LEXIS 114548 (W.D. Pa. Aug. 26, 2016) (Barry Fischer, J.)

JANUARY 2017 BAD FAITH CASES: UNSUCCESSFUL, BUT REASONABLE, LEGAL ARGUMENT CANNOT BE THE BASIS FOR A BAD FAITH CLAIM (Western District)

The insureds won a legal argument as to whether they were entitled to stacking. The insureds later argued that the court should find bad faith against the insurer, on the basis of the insureds’ legal argument prevailing on coverage.

The bad faith claim failed, however, because the carrier’s position was reasonable, even though unsuccessful. “The crux of the Parties’ disagreement – – whether the [vehicle] was added to the [insureds’] policy by endorsement or by the ‘newly acquired vehicle’ clause of the policy – -was resolved in the [the insureds’] favor by this Court, but the authority for both Parties’ positions was reasonably supported by the cases they respectively cited.” Summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: November 28, 2016

Trustgard Ins. Co. v. Campbell, No. 16cv1013, 2016 U.S. Dist. LEXIS 163606 (W.D. Pa. Nov. 28, 2016) (Schwab, J.)

reflecting-pond

Photograph by M. M. Ginsberg

JANAURY 2017 BAD FAITH CASES: A “LOW-BALL” OFFER TO SETTLE, WITHOUT MORE, IS INSUFFICIENT TO SHOW BAD FAITH (Philadelphia Federal)

This first-party Uninsured/Underinsured Motorist Coverage claim involved allegations that the insurer acted in bad faith by making a “low-ball” offer to settle the insured’s personal injury claims. The case arose out of a car accident where the insured was rear ended in a hit and run and incurred medical bills totaling $8,232.00. The Insurer made an initial offer of $1,000 to settle the Insured’s UIM claim. This offer was rejected, and the Insurer refused to pay the full value of the Insured’s medical bills.

The Insured’s bad faith claim was based solely on the premise that the $1,000 offer, acting alone, was facially unreasonable in light of the $8,000 in medical bills and $25,000 policy limits. The Insured argued that a facially unreasonable offer is itself bad faith. The Court disagreed. According to the Court, a “low-ball” offer, without any other allegations of wrongful conduct, is insufficient to maintain a claim of bad faith. To prove bad faith, an insured must point to some action or inaction taken by the insurer which shows that the offer was not made negligently or as a negotiation strategy, but made as a result of bad faith conduct on the part of the insurer. Entirely missing from the Insured’s Complaint were any allegations that the Insurer failed to conduct a reasonable investigation or failed to have the medical records reviewed by an in-house doctor or nurse.

Date of Decision: August 11, 2016

West v. State Farm Ins. Co., No. 16-3815, 2016 U.S. Dist. LEXIS 106783 (E.D. Pa. Aug. 11, 2016) (Jones, II, J.)

JANUARY 2017 BAD FAITH CASES: NO BAD FAITH ON RECORD SHOWING REASONABLE INVESTIGATION AND CLAIMS HANDLING; AND COURT OBSERVES THAT WHERE PARTY DOES NOT IDENTIFY AND PROVIDE SUPPORTING FACTS, JUDGES ARE NOT LIKE PIGS, HUNTING FOR TRUFFLES BURIED IN THE RECORD (Middle District)

The court granted summary judgment to the insurer in this bad faith case arising out of a fire at the insureds’ home. While the insurer provided a detailed factual recount from the record to makes its case, the court stated that the insureds “relied upon bare allegations and narrative argument that does little more than summarize bad-faith law in Pennsylvania, without showing how the facts of this particular case could support a claim under the statute.”   The insurer had paid nearly $150,000 after investigating the fire and losses therefrom, but it argued the items put in dispute by the insured were not connected to the fire, which the insured failed to factually refute.

The court observed that “It is not bad faith for an insurance company to ‘conduct a thorough investigation into a questionable claim.’” The insurer will be successful in defending a bad faith claim based on its investigation of the matter by “showing ‘a reasonable basis’ for investigating a claim, and is … entitled to judgment as a matter of law, where it demonstrates the existence of certain ‘red flags’ which prompted it to further investigate an insured’s claim.”

Red flags existed in this case where “the insurance policy had been purchased immediately prior to the fire and the determination by two fire experts that it had been caused by arson. The record also reveals that, rather than wasting time, [the insurer] began an investigation immediately, while at the same time advancing money to the plaintiffs for immediate needs such as clothing and hotel expenses.” Further, the insurer “promptly undertook investigation into the fire’s cause, the plaintiffs contributed directly to the duration of the investigation by delaying their examinations under oath, which State Farm had requested, roughly two months earlier.” And, “during this investigation, [the insurer] continued to pay the plaintiffs’ housing and living expenses, despite the ongoing nature of the investigation and the possibility that at the end of that process coverage would not be offered.” The insurer ultimately concluded that the matter was not arson, but as stated did not pay every claim the insureds made in connection with the loss.

The insurer routinely and appropriately sent correspondence in response to the insureds, and delays in the process were “not solely or even principally attributable to” the insurer.

Finally, the court rejected the notion that it should review evidence provided by the moving insurer, and “wade into that evidence in order to find some evidence that could rise to the level needed for the plaintiffs to carry their burden on this claim. This invitation is antithetical to good summary judgment practice, and the plaintiffs would do well to remember that “‘[j]udges are not like pigs, hunting for truffles buried in the record.’”

Date of Decision: November 16, 2016

Hoffman v. State Farm Fire & Cas. Co., No. 4:14-1978, 2016 U.S. Dist. LEXIS 158795 (M.D. Pa. Nov. 16, 2016) (Carlson, M.J.)