Monthly Archive for May, 2017

MAY 2017 BAD FAITH CASES: WHERE INSURED HAS SUFFERED NO HARM, THERE IS NO BAD FAITH CLAIM TO BE ASSIGNED (Pennsylvania Superior Court) (Not Precedential)

Three brothers owned interests in a single property, but arguably only one of them insured his interests. Their tenants (the insured brother’s daughter and son-in-law), brought suit against her father and uncles for mold exposure. The father’s carrier provided a defense, and the case against him was dismissed on preliminary objections.

The uncles hired private counsel, who filed preliminary objections as well, but before those were decided, the uncles entered a joint tortfeasor release. The uncles assigned their contribution claims against the father and a bad faith claim against his insurer to their niece and nephew.

Subsequently, the attorney representing the niece entered appearances for the uncles (one was deceased, so his estate), and there was ultimately a $5.1 Million judgment entered against the uncles. Efforts to enforce that judgment against the father were denied by way of summary judgment. Still, the father later assigned any bad faith claims he might have against his insurer to his daughter and son-in-law, and they released the father from any claims arising out their original law suit.

The children brought bad faith claims against their father’s insurer. The resolution was simple because the $5.1 Million judgment obtained was not a judgment against the father. The father was both dismissed from the original case, and won a summary judgment motion that the judgment could not be enforced against him. Moreover, that judgment could not be enforced against any party in light of the releases.

As to the assigned claim, the Court concluded: “Since Appellants cannot enforce the [$5.1 Million] Judgment against [father], [father] suffered no harm and, therefore, had no bad faith claim to assign to Appellants.”

Date of Decision: April 26, 2017

Schriner v. One Beacon Ins. Co., No. 852 MDA 2016, 2017 Pa. Super. Unpub. LEXIS 1602 (Pa. Super. Ct. April 26, 2018) (Dubow, Lazarus, Stabile, JJ.) (Not Precedential)

ground-flowers-2017

 

MAY 2017 BAD FAITH CASES: COURT FINDS THAT JURY MUST DETERMINE WHETHER INSURED AND INSURER REACHED SETTLEMENT OF SUPERSTORM SANDY CLAIM (New Jersey Federal)

In this case, the insured submitted a claim to its insurer as a result of wind and flood damage sustained during Superstorm Sandy. The insured and the insurer each hired an engineer/contractor to determine the extent of damage to the building and the cost to repair. Emails between the two contractors seemed to indicate that a settlement had been reached with regard to the replacement cost of covered damage. The insured cashed the insurer’s checks, but never made repairs to the building. The insured’s counsel ultimately sent an additional estimate prepared by another engineer to the insurer. The insurer refused to pay the remaining balance as indicated on the additional estimate, and the insured filed suit for breach of contract and breach of the implied covenant of good faith and fair dealing.

The insurer moved for summary judgment, and argued that it had entered into a binding settlement agreement as a result of the email exchanges between the contractors respectively hired by the insured and the insurer. In response, the insured argued that the contractor it hired did not have authority to bind it to any settlement, and even if it had authority, no settlement had been agreed to.

The court noted that the insured had the burden of proving the elements of its claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Ultimately, the court found that it was for a jury to determine whether the parties entered into a settlement agreement that precludes the insured’s suit against the insurer. The court held that if “a jury finds that no enforceable settlement agreement exits, the jury must then determine whether [the insurer] breached the parties’ insurance contract and did not act in good faith” by failing to pay the balance of the additional estimate that the insured submitted.

Date of Decision: March 31, 2017

Coleman Enters. Co. v. Scottsdale Ins. Co., No. 1:14-cv-07533-NLH-AMD, 2017 U.S. Dist. LEXIS 50078 (D.N.J. March 31, 2017) (Hillman, J.)

tree-bud-2017

MAY 2017 BAD FAITH CASES: PUNITIVE DAMAGES CLAIM PROVIDES BASIS FOR FINDING JURISDICTIONAL MINIMUM MET, AND REMAND DENIED (Middle District)

The federal court refused to remand this UIM case, which had been removed by the insurer from Pike County Common Pleas. Among other things, the federal court found the diversity minimum met because the complaint sought punitive damages for bad faith. “Pennsylvania’s Bad Faith statute makes punitive damages available to Plaintiff and, in theory, makes the amount in controversy in excess of $75,000. Therefore, federal court jurisdiction is proper irrespective of the amount of uninsured motorist coverage in Plaintiff’s insurance policy and the precise amount of coverage is not relevant to the removal/remand question at hand.”

Date of Decision: May 18, 2017

Koerner v. Geico Casualty Co., No. 17-455, 2017 U.S. Dist. LEXIS 75856 (M.D. Pa. May 18, 2017) (Conaboy, J.)
tropic

 

MAY 2017 BAD FAITH CASES: COURT DISCUSSES STAY AND SEVERANCE OF BAD FAITH CLAIMS, IN CONTEXT OF SETTING STANDARD FOR DISCOVERY OF EXTRINSIC EVIDENCE ON COVERAGE/CONTRACT CLAIMS (Middle District)

This exhaustive opinion on discovery of extrinsic evidence sets forth a working standard for determining permissible discovery in declaratory judgment insurance coverage contract actions. After a detailed overview of pertinent case law and the 2015 rule amendments focusing on proportionality, the court held that “litigants who wish to discover extrinsic evidence in a contract interpretation case must (1) point to specific language in the agreement itself that is genuinely ambiguous or that extrinsic evidence is likely to render genuinely ambiguous; and (2) show that the requested extrinsic evidence is also likely to resolve the ambiguity without imposing unreasonable expense.” In this case, the discovery sought did not fall within those aims and a motion to compel was denied.

To provide context by contrast, the court included an analysis of discovery in bad faith cases within its overall discussion. In instances where a plaintiff seeks underwriting files and claims manuals, the presence of a bad faith claim makes their “discoverability more likely, yet it by no means guarantees it.” In that context, “[t]he issue in a bad faith case is whether the insurer acted recklessly or with ill will towards the plaintiff in a particular case, not whether the defendants’ business practices were generally reasonable.” By contrast, under Pennsylvania law, declaratory judgment actions for coverage are contract-based claims controlled by the express language in the contract, and the language of such integrated contracts will “often will suffice to dictate the proper outcome without reference to any external sources.”

To provide further contrast, the court looked at district court case law in the Third Circuit on stays, and severance of bad faith claims from coverage actions, where courts bifurcated the two claims and the different discovery related to them. These cases observe the differences between discovery and proof in bad faith cases and coverage cases, and that the coverage/contract claims can require less discovery in reaching resolution. [The court in this case had previously dismissed plaintiff’s bad faith claim].

Date of Decision: May 12, 2017

Westfield Insurance Company v. Icon Legacy Custom Modular Homes, No. 15-539, 2017 U.S. Dist. LEXIS 72624 (M.D. Pa. May 12, 2017) (Brann, J.)

glad-2017-2

MAY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S INTERPRETATION OF POLICY LANGUAGE WAS FAIRLY DEBATABLE (New Jersey Federal)

In this case, the insured was an insurer itself (the plaintiff), which was in turn insured under a Trustees Errors and Omissions Liability Insurance for Self Insured Funds by the bad faith defendant insurer (defendant). The plaintiff had settled a matter for its insured above its policy limits, expecting contribution from excess insurers. The excess insurers asserted that they had not received proper notice from plaintiff that the claim could exceed policy limits, and denied any duty to pay toward the settlement.

Without admitting any actual error, the plaintiff sought coverage from defendant for the sum over its policy limits, should that exposure remain due to plaintiff’s failure to give notice to the excess insurers. The defendant denied coverage, asserting that there was no “claim” against the plaintiff as defined in the policy because there was no demand made or threat of litigation against the plaintiff. The defendant had asked that the plaintiff keep it advised of any such developments.

The court found that the policy language was unambiguous and the defendant’s basis for denying coverage was “fairly debatable”. Thus, there could be no bad faith claims, and such claims were dismissed.

Date of Decision: May 11, 2017

New Jersey Schools Insurance Group v. Meadowbrook Insurance Group, No. 16-1199, 2017 U.S. Dist. LEXIS 71908 (D.N.J. May 11, 2017) (Bumb, J.)

glad-may-2017

MAY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER REASONABLY RELIES ON CASE LAW, AND LAW IS IN FLUX (Middle District)

The insurance policy required insureds to submit to independent medical examinations after making a bodily injury claim for medical benefits arising out of auto accidents. The policy stated the insurer did not have to make any payments prior to that exam.

A federal judge in the Eastern District had ruled in 2009 that these kinds of policy terms were enforceable, and were not inconsistent with Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL), relying upon case law from Pennsylvania’s Superior Court. There has been no ruling from Pennsylvania’s Supreme Court on the issue; however, the judge in this 2017 Middle District case came to a different conclusion, finding the provision unenforceable.

The insured claimed that the requirement to have an IME, along with the refusal to pay medical benefits before the IME took place were violations of the bad faith statute. The court disagreed. The language of the policy permitted it, and there was prior case law from a court of co-ordinate jurisdiction finding that language enforceable. The court observed that reasonable but incorrect interpretations of the policy and law do not form the basis for bad faith. This is especially true where the law is in flux.

The court found that the insurer “clearly had a reasonable basis for denying … medical benefits” where the Supreme Court had not decided the issue and another court found that the policy language was enforceable. The court specifically stated it was reasonable for the insurer to have relied on the earlier opinion.

The court also dismissed the insured’s claim for breach of the implied duty of good faith and fair dealing because the implied covenant alleged conflicted with an express term of the policy.

Date of Decision: May 10, 2017

Sayles v. Allstate Ins. Co., No. 3:16-cv-01534, 2017 U.S. Dist. LEXIS 71760 (M.D. Pa. May 10, 2017) (Caputo, J.)

lily

MAY 2017 BAD FAITH CASES: FINEMAN, KREKSTEIN & HARRIS OBTAINS DISMISSAL OF BAD FAITH CLAIM WHERE COMPLAINT FAILS TO ALLEGE ACTIONABLE CLAIM OF IMPROPER INVESTIGATION (New Jersey Federal)

Fineman, Krekstein & Harris obtained dismissal of a bad faith claim against the insurer where the insured’s complaint did not set out sufficient facts to make a plausible claim for an inadequate investigation.

The court observed that under the federal rules, courts carry out a three-tiered test to determine if a complaint can survive a motion to dismiss: (1) the court “must take note of the elements the plaintiff must plead to state a claim.”; (2) “the court ‘should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth.”; and (3) “when there are well-pleaded factual allegations, the court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.”

In applying this process, the court observed that under New Jersey law, a bad faith plaintiff must show both “the absence of a reasonable basis for denying the claim for coverage; and … that the insurer knew or recklessly disregarded its absence of a reasonable basis.” Further, “if an insurance company’s reasons for denying coverage are ‘fairly debatable,’ then the insurance company cannot be liable for bad faith.”

In this case, the issue was whether the insured’s property loss was the result of vandalism or theft. The insurer’s investigator concluded, after providing the details for his reasoning, that the loss was due to uncovered theft. The insurer denied coverage on that basis. The insured alleged coverage was denied in bad faith on the alleged basis that the insurer did not “undertake an independent investigation into the cause of the alleged loss.”

The court rejected this argument. It found that the insured “failed to allege facts demonstrating that [the insurer] lacked a reasonable basis for denying the claim for coverage, or that it knew or recklessly disregarded its absence of a reasonable basis.” There was no dispute that an investigation was conducted and the investigator concluded the loss was due to theft, not vandalism. There were no allegations of fact to support a claim that the investigation was conducted in bad faith. Rather, the pleadings merely showed that the insured disagreed with how the insurer conducted its investigation. Even if this alleged negligence, “allegations of simple negligence or mistake cannot support a claim for bad faith.”

The court stated: “Indeed, there are no factual allegations indicating that [the insurer] conducted a sham investigation in order to wrongfully deny [the] claim, or that [the] investigation was so woefully deficient that it should have known it lacked a reasonable basis to deny coverage.”

Thus, the motion to dismiss was granted, the court adding that the insured “may move to amend its counterclaim should discovery later reveal bad faith conduct….”

Date of Decision: April 25, 2017

American Southern Home Insurance Company v. Unity Bank, No. 16-3406, 2017 U.S. Dist. LEXIS 62381 (D.N.J. Apr. 25, 2017) (Wolfson, J.)

Hema Mehta of Fineman, Krekstein & Harris was defense counsel.

 

MAY 2017 BAD FAITH CASES: MOTION TO STAY DISCOVERY IN UIM CASE DENIED; SEVERANCE AT TRIAL GRANTED WITH A TWIST

In its leading work on keeping up with post-Koken motions to stay discovery and/or sever bad faith claims, the Tort Talk blog has an interesting post where the insured brings common law bad faith claims as well as statutory bad faith claims.

MAY 2017 BAD FAITH CASES: NO BAD FAITH WHERE REASONABLE BASIS TO DENY ULTIMATELY COVERED CLAIM, AND GOVERNING LAW UNDEVELOPED AT THE TIME OF DENIAL (New Jersey Appellate Division)

The appellate court addressed bad faith in this environmental contamination coverage case. The panel reiterated the law that “an insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence. In the case of denial of benefits, bad faith is established by showing that no debatable reasons existed for denial of the benefits. In the case of processing delay, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.”

The court then restated the “fairly debatable” standard, which mandates that an insured bad faith plaintiff must be able to establish “as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.” The court affirmed that the trial court’s summary judgment dismissing the bad faith claim was proper. Although the appellate court affirmed a finding that coverage was due, the insurer had a reasonable basis to deny the claim, “particularly considering that the governing law was not as developed at that time as it is now.”

Date of Decision: April 21, 2017

Mid-Monmouth Realty Assocs. v. Metallurgical Indus., DOCKET NO. A-0237-14T2, 2017 N.J. Super. Unpub. LEXIS 993 (App.Div. Apr. 21, 2017) (Brown, Fuentes, Simonelli, JJ.)

molly-skyline-may-2017

Photo by M. M. Ginsberg

MAY 2017 BAD FAITH CASES: MATERIAL MISREPRESENTATIONS IN APPLICATION MAKE POLICY VOID AB INITIO EVEN IF NOT MADE IN BAD FAITH (Philadelphia Commerce Court)

In this Commerce Court case involving a declaratory judgment action concerning coverage for the horrific 2013 wall collapse on the Salvation Army store in Philadelphia, the court found the policy void ab initio “[b]ecause the misrepresentations in this case are palpably and manifestly material to the insurance company’s decision to take on a risk.” This action concerned the policy issued to the contractor involved in the collapse.

The court found that the contractor made palpably and manifestly material misrepresentations in its application, allowing for rescission. Specifically, the court found that the contractor “misrepresented that he had documented the condition of nearby structures before undertaking the demolition work, and he knew his statement was a lie. He similarly lied when claiming he had a safety program in place. He lied when he told insurance companies that he had a risk manager or safety director assess the demolition job on Market Street. And he lied when he said he was not using a subcontractor when in fact” he was. These falsehoods were material “since each one, ‘if given, would have influenced the judgment of … [the insurer] in issuing the policy, in estimating the degree and character of the risk, or in fixing a premium rate.’” Moreover, “a showing of bad faith is unnecessary where the misrepresentations contained in an insurance application were palpably and manifestly material to the risk assumed by the insurer.”

Date of Decision: April 18, 2017

Berkley Assurance Co. v. Campbell, Aug. Term 2013, No. 129, 2017 Phila. Ct. Com. Pl. LEXIS 110 (Phila. C.C.P. April 18, 2017) (Djerrasi, J.) (Commerce Program)