Monthly Archive for February, 2017

FEBRUARY 2017 BAD FAITH CASES: INSURER BAD FAITH AT ISSUE IN EVALUATING SETTLEMENT PAYMENT; ADVICE OF COUNSEL NOT AT ISSUE UNLESS ASSERTED (Middle District)

An insurer sued its appointed defense counsel in connection with counsel’s defense of a UIM claim. The insurer claimed that counsel failed to assure that the UIM arbitration panel was instructed on the limits of insurance ($2 million), and that the carrier was subjected to the risk of having to pay an excess arbitration award of nearly $4 million above policy limits. The UIM plaintiff settled the claim with the carrier, which included receiving the full amount of the arbitration award above policy limits. Defense counsel asserted a defense of contributory negligence based on the insurer’s alleged bad faith handling of the UIM claim; and further argued that the settlement was not entirely for the $ 6 million arbitration award (to which sum it was identical), but included monetary consideration for the UIM plaintiff’s threatened bad faith claim as well.

The court granted partial summary judgment to strike the affirmative defense of contributory negligence, but only to the extent that this defense was based on the insurer’s conduct that was not causally related to the arbitration award. The court accepted counsel’s argument that part of the settlement payment was to get a release for the bad faith claim, and thus was part of the damages at issue. Therefore, it would permit some discovery on the argument that the insurer acted in bad faith in handling the underlying UIM claim, and paid some portion of the settlement to address that issue.

Thus, the Court found that “the fact and extent of [the insurer’s] bad faith handling of the [UIM] claim and concomitant exposure to bad faith liability are directly relevant to the question of the amount of damages it sustained due to [defense counsel’s] conduct. If [the insurer] is successful on its malpractice claim, it will have to prove actual losses that it suffered as a result of Defendants’ negligence. Because [the insurer] did not pay the arbitration award directly, it cannot claim that the excess award is the damages it now seeks. However, if [the insurer] attempts to prove that the settlement payment constitutes actual losses proximately caused by Defendants’ negligence, it must also prove with reasonable certainty what portion of the settlement payment in excess of its policy limits was paid to satisfy the arbitration award. Discovery on [the insurer’s] exposure to bad faith liability is therefore relevant to the scope of damages [the insurer] alleges to have sustained. And because [the insurer’s] bad faith conduct affects the amount of damages sought, the Court will not preclude Defendants from pursuing discovery on … bad faith.”

Next, the court addressed discovery issues.

The carrier had argued that certain documents in its own files were subject to the attorney-client privilege or work product doctrine. In addition, defense counsel sought discovery of the files of the attorney that replaced him in the UIM case.

As to the second category, the court could not rule because the privilege log was inadequate. The privilege log “entries do not contain specific sender and recipient information, and the Attorney Work Product entries do not state the specific party who created the work product. Additionally, the descriptions are too vague to permit the Court to find that each element of the privilege claimed is satisfied. [The insurer] therefore must supplement its privilege log with this information in order for the Court to determine whether the documents are in fact privileged.”

As to the insurer’s own documents, the court found that the work product doctrine applied to claim notes containing the mental impressions and strategies of the insurer’s attorneys and representatives. These notes were authored by an attorney or claim handler of the insurer.

The insurer also sought to withhold documents that were sent by the defendant defense counsel to the insurer regarding post-arbitration strategy. The court found the attorney-client privilege waived once the insurer sued its attorney, and that the attorney himself held the work product privilege, not the insurer.

The court found the carrier did not waive the privilege concerning communications with in-house counsel, and with the outside counsel subsequently retained. The carrier had disclosed a limited privileged document, but the court found this did not constitute waiver of the privilege as to every communication with counsel.

The court further found that the insurer was not asserting an advice of counsel defense, which could waive the privilege. The court observed that “an attorney’s ‘[a]dvice is not in issue merely because it is relevant, and does not necessarily become in issue merely because the attorney’s advice might affect the client’s state of mind in a relevant manner.’” “Rather, ‘[t]he advice of counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney client communication.’” Those circumstances were not present.

Date of Decision: January 20, 2017

N.J. Mfrs. Ins. Co. v. Brady, No. 15-2236, 2017 U.S. Dist. LEXIS 8268 (M.D. Pa. Jan. 20, 2017) (Caputo, J.)

FEBRUARY 2017 BAD FAITH CASES: COURT DENIES SUMMARY JUDGMENT ON BAD FAITH CLAIM AS TO CARRIER’S ALLEGED FAILURE TO PROVIDE WRITTEN EXPLANATION OF COVERAGE DECISION; GRANTS SUMMARY JUDGMENT AFTER FINDING NO BAD FAITH ON CARRIER’S REASONABLE INTERPRETATION OF AMBIGUOUS POLICY LANGUAGE (Western District)

Judge Conti granted in part and denied the insurer’s summary judgment motion on the insured’s bad faith allegations. The insured’s claims rested on two arguments: (1) the insurer failed to provide a written explanation of its coverage decision relative to a machine used to generate radiation to treat patients with cancer; and (2) the insurer lacked a reasonable basis for treating the machine as business personal property subject to lower coverage limits.

The machine at issue was a linear accelerator designed to generate radiation used to treat cancer patients. Installation took approximately two months and required a team of specialized workers. The insured argued that the machine was permanently attached to the building, and should be covered under “building” coverage. The insurer argued that the machine was a “fixture” or “machinery and equipment” that is “business personal property.”

The court found the Policy’s language ambiguous, but that the insurer’s interpretation of the phrase “permanently attached” was reasonable. Given these facts, the court found that the insured could not show that the insurer acted in bad faith when it decided to cover the radiation machine as personal property of the insured.

However, the court denied the insurer’s motion for summary judgment as it related to the insurer’s failure to respond to the insured. Specifically, the insured’s expert noted that the insurer failed to respond to seven written requests from the insured for the carrier’s coverage position, which constituted a breach of industry standards. In response, the insurer alleged that the resolution of the claim was delayed due to the insured’s refusal to assist in the investigation of the claim and fulfill certain obligations under the policy.

Thus, the court concluded that the insurer’s arguments did not support a grant of summary judgment with regard to the insurer’s failure to provide a written explanation of a coverage decision, but did support a grant of summary judgment as it related to any other bad faith allegations.

Date of Decision: September 28, 2016

Rosewood Cancer Care, Inc. v. Travelers Indem. Co., No. 14-434, 2016 U.S. Dist. LEXIS 133075 (W.D. Pa. Sept. 28, 2016) (Conti, J.)

FEBRUARY 2017 BAD FAITH CASES: COURT WOULD NOT REMAND DECLARATORY JUDGMENT ACTION WHERE JOINED WITH BAD FAITH CLAIM; BAD FAITH CLAIM ADEQUATELY PLEADED TO SURVIVE MOTION TO DISMISS (Western District)

The district court refused to remand a declaratory judgment coverage action, principally because there was also a bad faith claim in the case. The court did look at some of the other Reifer factors before rendering its conclusion.

Having maintained jurisdiction, the court refused to dismiss the bad faith claim at the pleading stage. The insured had pleaded that a disclaimer letter prospectively denying a duty to defend was sent five months before any suit was filed. Further, this letter lacked an explanation of the carrier’s reasoning, and a later letter had the same failings in explaining the carrier’s position. The insured also alleged that the insurer failed to respond to the insured’s correspondence in another instance, and the insurer only conducted a cursory investigation into the claim. The insured further alleged that the insurer failed to provide a defense after the insured provided additional information and trial was approaching.

The court noted that the duty to defend is broader than the duty to indemnify, and it was not comfortable deciding the merits of potential coverage issues on a motion to dismiss, on the facts as pleaded. Rather, the court was persuaded that discovery was appropriate and the record should be further developed. The insurer could raise its defense later in the case, via summary judgment.

Date of Decision: January 30, 2017

Chester v. Utica First Ins. Co., No. 16-1671, 2017 U.S. Dist. LEXIS 12096 (W.D. Pa. Jan. 30, 2017) (Barry Fischer, J.)

 

FEBRUARY 2017 BAD FAITH CASES: CONCLUSORY ALLEGATIONS NOT ENTITLED TO PRESUMPTION OF TRUTH, AND FEW FACTUAL ALLEGATIONS DID NOT REACH LEVEL OF BAD FAITH (Philadelphia Federal)

Plaintiffs failed to plead an adequate bad faith complaint under Twombly/Iqbal, but were given leave to amend.

Among the averments that did not meet muster were allegations that the insurer falsely represented that the loss which was not covered, and that the insurer’s representative knew this representation was false, fraudulent and misleading and made solely for the purpose of depriving plaintiffs of the benefits of the Policy. The representative’s letter was actually was attached to the complaint and explained that “[b]ased on [the] investigation and review of [a forensic analysis and engineering report] . . . the damage to the bridge is the result of wear, tear, deterioration, and erosion, which is not covered under the Policy.”

Other inadequate averments were that the insurer and its agents:

failed to complete a prompt and thorough investigation before denying the claim,

failed to pay in a prompt and timely manner,

failed to objectively and fairly evaluate the claim,

conducted an unfair and unreasonable investigation,

asserted Policy defenses without a reasonable basis in fact,

flatly misrepresented pertinent facts or policy provisions relating to coverages at issue and placed unduly restrictive interpretations on the Policy and/or claim forms,

failed to keep the insureds fairly and adequately advised as to the status of the claim, unreasonably valued the loss and failed to negotiate the amount of the loss,

failed to promptly provide a reasonable factual basis for the denial of the claim,

unreasonably withheld policy benefits,

acted unreasonably and unfairly when responding to the claim,

and unnecessarily and unreasonably compelled a lawsuit.

These allegations did not allege sufficient facts to state a claim of bad faith against defendant. They merely restated the possible conduct that may be considered to be bad faith. They were merely conclusory allegations. While the allegation “that a representative of defendant forwarded correspondence to plaintiffs is a factual allegation, the allegations that this correspondence ‘falsely represented’ that the loss was not covered and that the representative ‘knew this representation was false, fraudulent and misleading and made solely’ to deprive plaintiffs of the benefits of the Policy are conclusory.

The court found such “conclusory allegations … are not entitled to the presumption of truth in determining whether the Complaint states a claim for bad faith.” At most, the factual allegations actually pleaded in the Complaint and the exhibits “allege … that defendant’s analysis of the damage to the Property and/or the Policy’s coverage was incorrect. Without more, the Complaint does not sufficiently allege a claim of bad faith conduct by defendant.”

Date of Decision: January 24, 2017

Alidjani v. State Farm Fire & Cas. Co., 2017 U.S. Dist. LEXIS 9387, *6-8 (E.D. Pa. Jan. 24, 2017) (DuBois, J.)

FEBRUARY 2017 BAD FAITH CASES: INSURER CAN UNILATERALLY RESCIND POLICY ON BASIS OF MATERIAL MISREPRESENTATION IN APPLICATION (Philadelphia Federal)

This case involved an alleged material misrepresentation in a health insurance policy application. The court found that the insurer did not have to seek rescission via bringing suit in court, but could “unilaterally rescind” the policy, and take the risk that the insured would bring future claims against the insurer for breach or bad faith. Thus, in the court’s reading of Pennsylvania law, “unilateral rescission of a contract remains an optional remedy for an insurance carrier. The fact that carriers often choose to proceed conservatively by bringing suit does not limit the array of remedies permitted by common law….”

Date of Decision: December 19, 2016

King v. Golden Rule Ins. Co., No. 16-3614, 2016 U.S. Dist. LEXIS 175157 (E.D. Pa. Dec. 19, 2016) (McHugh, J.)

FEBRUARY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER DID NOT SECRETLY CONCEDE COVERAGE, NOR RELY UPON A CLEAR ERROR IN ITS DENIAL LETTER (New Jersey Federal)

The New Jersey federal court had to apply the “reasonably debatable” standard to the bad faith denial claim in this matter. The insured had two theories of bad faith liability.

The first was that the insurer’s adjuster sent an internal email conceding coverage. However, what the email actually stated was that while the damage claims may have fallen within one policy definition, it also referenced potentially applicable exclusions. “Thus, the critical email fails to support [the insured’s] repeated allegation that the email unequivocally reflects that [the insurer] believed that [its insured] had coverage. Instead, the email itself states that exclusions may apply which would negate coverage.”

Second, the insurer’s denial letter included an erroneous interpretation of the policy, affecting the exclusion. The insurer admitted it made this error. There was no bad faith, however, because the insurer never pressed forward on this position, and it “took the same position regarding denial of coverage without reference to either limitation.” By contrast: “If the facts were different, for example if [the insured] had evidence that [the insurer] denied the claims believing that they were in fact covered, but attempted to pull a sleight of hand by pointing to irrelevant policy provisions, the Court’s decision concerning bad faith could be different.” This was not the case, and summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: December 30, 2016

National Manufacturing Co. v. Citizens Ins. Co. of Am., No. 13-314, 2016 U.S. Dist. LEXIS 180145 (D.N.J. Dec. 30, 2016) (Vazquez, J.)

FEBRUARY 2017 BAD FAITH CASES: INSURER NOT REQUIRED TO REIMBURSE PRIVATE DEFENSE COUNSEL (New Jersey Appellate Division)

A default was taken against the insured, who hired his own counsel to defend the matter, without notice to the insurer. The court found this a breach of the insured’s duty. However, once put on notice of the suit and default, the insurer took prompt action to vacate the default and settle the matter.

Among other things, the insured sued for bad faith on the basis of the insurer’s refusal to reimburse private counsel’s legal fees. The court granted summary judgment, as the insurer never denied coverage, there was no reason to hire private counsel had the insured put the insurer on notice, and there was no permission from the insurer to hire that counsel as required by the policy.

Date of Decision: December 7, 2016

Kim v. Leading Ins. Group & Leading Ins. Servs., No. A-5161-14T1, 2016 N.J. Super. Unpub. LEXIS 2599 (App.Div. Dec. 7, 2016) (Reisner and Sumners, JJ.) (Unpublished)

FEBRUARY 2017 BAD FAITH CASES: COURT PROVIDES GOOD OVERVIEW OF LAW ON DISMISSING BOILERPLATE BAD FAITH ALLEGATIONS (Western District)

In this case, the insured bad faith plaintiff pleads conclusory language taken from case law and the Unfair Insurance Practices Act, all of which failed to meet the Twombly/Iqbal pleading standards. The opinion provides a list of other cases as reference points of such failed pleadings. That being said, dismissal of the bad faith count was without prejudice, so that the plaintiff could attempt to plead a plausible bad faith claim.

Date of Decision: December 21, 2016

Mondron v. State Farm Mut. Auto. Ins. Co., No. 16-412, 2016 U.S. Dist. LEXIS 176404 (W.D. Pa. Dec. 21, 2016) (Bissoon, J.)

FEBRUARY 2017 BAD FAITH CASES: USE OF UMBRELLA TRADE NAME DOES NOT DEMONSTRATE BAD FAITH (New Jersey Federal)

The insureds move to remand this New Jersey federal action back to Superior Court. The insureds argued at one point that the insurer defendants, “anticipating a lawsuit, acted in bad faith, using the name ‘Chubb Insurance’ in correspondence to mislead them into naming a defendant that is not a legal entity.” The court stated that: “An entity’s use of an umbrella trade or business name that differs from its legal name does not in itself demonstrate bad faith.”

Date of Decision: December 9, 2016

Fischer v. Chubb Ins., No. 16-8220, 2016 U.S. Dist. LEXIS 170590 (D.N.J. Dec. 9, 2016) (McNulty, J.)