Monthly Archive for November, 2017

NOVEMBER 2017 BAD FAITH CASES: NO EVIDENCE OF BAD FAITH OR SUPPORT IN POLICY LANGUAGE THAT INSURER ACTED IN BAD FAITH (Philadelphia Federal)

This case involved coverage based upon a flood during home renovations. The insureds brought breach of contract and bad faith claims, based upon the alleged failures “(1) to pay to replace the entire marble kitchen floor; (2) to pay for a two-bedroom suite; (3) to pay for additional costs for food; and, (4) to pay for depreciation.” The insurer sought summary judgment on the bad faith claims, which the court granted.

The court generally found the coverage and claims handling causes of action lacked factual support, and so could not support a bad faith claim. Its only detailed bad faith analysis went to a claim for providing adequate living accommodations when the insureds had to vacate their home for repairs.

“Plaintiffs claim that [the insurer] refused in bad faith to provide Plaintiffs a two-bedroom suite and now acts in bad faith by not paying the difference. Plaintiffs cite no record evidence suggesting [the insurer] unreasonably refused to provide them a two-bedroom suite. To the contrary, [the insurer] points to evidence that it did attempt to do so — after Plaintiffs requested to move from a two-bedroom suite already being provided by [the insurer] — but there were no two-bedroom suites available in the location Plaintiffs requested. Plaintiffs also do not identify a provision in the insurance contract obligating [the insurer] to pay the difference.”

Date of Decision: November 15, 2017

Barnwell v. Liberty Mutual Insurance Co., CIVIL ACTION NO. 16-4739, 2017 U.S. Dist. LEXIS 188427 (E.D. Pa. Nov. 15, 2017) (Beetlestone, J.)

NOVEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE; AND INDEPENDENTLY, NO BAD FAITH FOR FAILURE TO INVESTIGATE (Third Circuit)

In this case, the Third Circuit affirmed the trial court’s grant of summary judgment on coverage and bad faith claims. Quoting the relevant language on bad faith:

“[The insured] argues that [the carrier] acted in bad faith by refusing to cover the claim and by failing to adequately investigate it. We agree with the District Court that this claim has no merit. Generally, there can be no bad faith claim for denial of coverage if the insurer was correct as a matter of law in denying coverage. Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co.,193 F.3d 742, 751 n.9 (3d Cir. 1999). Thus, as we agree with the District Court that [the] breach of contract claim was meritless, so too was his bad faith claim.”

Even though the court stated the forgoing, it still addressed the issue of whether bad faith could be based solely upon a failure to investigate. As has been raised numerous times in this blog, there is an issue of whether section 8371 bad faith is cognizable for poor investigation practices in the absence of the denial (or delay in providing) of  a benefit.

“Nor can [the] bad faith claim stand independently based on [the] failure to investigate the claim before denying it. Rancosky v. Wash. Nat’l Ins. Co., 2015 PA Super 264, 130 A.3d 79, 94 (Pa. Super. 2015) (“Bad faith conduct includes lack of good faith investigation into the facts”). The record evidence clearly establishes that [the carrier] appropriately investigated [the] claim before determining that it was not covered under the Policy, inter alia, by hiring a private investigator to investigate the claim and to interview [the insured] and [the insured’s lessee], by sending a … field adjuster, and by setting forth the reasons for denial in a formal coverage opinion.”

Date of Decision: November 15, 2017

Wehrenberg v. Metropolitan Property & Casualty Insurance Co., U. S. Court of Appeals for the Third Circuit, No. 17-1327, 2017 U.S. App. LEXIS 22887 (3d Cir. Nov. 15, 2017) (Ambro, Krause, Rendell, JJ.)

NOVMEBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE TIMELY DENIAL BASED ON REASONABLE READING OF POLICY (Philadelphia Federal)

In this UIM case, the court found that “within approximately four weeks of being notified of Plaintiff’s claim, Defendant [insurer] apparently investigated and denied his claim on the basis of a reasonable reading of the Policy language and the law applicable to such situations. …. In such circumstances, there is no basis for finding that Defendant acted in bad faith, and summary judgment is proper.”

Date of Decision: October 31, 2017

Reeves v. Travelers Cos., NO. 16-6448, 2017 U.S. Dist. LEXIS 179720 (E.D. Pa. Oct. 31, 2017) (Baylson, J.)

NOVEMBER 2017 BAD FAITH: WHERE NO COVERAGE IS DUE THERE CAN BE NO BAD FAITH EXCEPT IN RARE CASES (Western District)

After extensive analysis of coverage exclusions in a CGL policy relating to auto use, mobile equipment and loading/unloading, the court concluded no coverage was due. It the found: “As the Court has determined that [the insurer] had no duty to defend and no duty to indemnify … under the express language of the Policy, it likewise must conclude that [the insurer] did not act in bad faith in denying coverage and not providing him a defense.” In so holding the court cited Third Circuit precedent in observing, “it is a ‘rare’ case in which an insurer is liable for bad faith when there is no duty to provide coverage.”

Date of Decision: October 27, 2017

Marks v. Utica First Ins. Co., U. S. District Court, Western District of Pennsylvania, No. 16-1671, 2017 U.S. Dist. LEXIS 178036 (W.D.Pa. Oct. 27, 2017) (Fischer, J.)

NOVEMBER 2017 BAD FAITH CASES: JURY MUST DECIDE IF BASIS FOR DELAY IN PAYING BENEFITS WAS AN INNOCENT MISTAKE AND PART OF A STRATAGEM TO UNDERPAY THE INSURED (Middle District)

In this UIM bad faith case, the insurer paid the demand of $35,000 four months after demand was made. The insured asserted bad faith conduct during this period. The insured alleged unreasonable and intentional delays in payment, that should have been paid without delay. The key issue was whether the size of a workers’ compensation lien revealed that the insurer should have paid the demand immediately.

There was an issue over whether the claims handler innocently or knowingly misstated the size of the workers compensation lien. The court found this was a jury question: “If the jurors determine that there was an intentional effort to mislead Plaintiff into settling his case for less than the policy limits, an award of bad faith could be a reasonable result here. If the jurors determine that [the claims handler’s] misstatement regarding the size of the lien was a result of honest mistake, the jurors might reasonably conclude no bad faith was present.” Thus, summary judgment was denied.

Date of Decision: October 25, 2017

Farrell v. United Financial Casualty Co., CIVIL DIVISION NO. 3:16-CV-02180-RPC, 2017 U.S. Dist. LEXIS 177042 (M.D. Pa. Oct. 25, 2017) (Conaboy, J.)

NOVEMBER 2017 BAD FAITH CASES: FEDERAL DISTRICT COURT WOULD NOT ABSTAIN IN DECLARATORY JUDGMENT MATTER BASED ON ALLEGED FRAUD IN INSURANCE APPLICATION (New Jersey Federal)

An insurer brought a declaratory judgment action seeking policy rescission based upon alleged misstatements concerning the insured’s business in the application process. The insured was subject to a liability suit in state court, and asked the federal court to abstain from hearing this federal action. The federal court refused. It cited recent Third Circuit case law making clear that there is no policy favoring blanket abstention of insurance declaratory judgment actions; and focused on the fact that the two cases were not parallel proceedings and were not substantially similar.

Date of Decision: October 20, 2017

Scottsdale Indemnity Co. v. Collazos, Civil No. 16-8239 (RBK/KMW), 2017 U.S. Dist. LEXIS 173990 (D.N.J. Oct. 20, 2017) (Kugler, J.)

NOVEMBER 2017 BAD FAITH CASES: FIRST PARTY BAD FAITH CLAIM POSSIBLE EVEN IF NO CONTRACT OF INSURANCE BETWEEN INSURED AND AN INSURER MERELY SERVICING POLICY, ANALOGIZING TO DUTIES IMPOSED ON AGENTS (New Jersey Federal)

The insureds were homeowners who suffered property damage. “They were insured under a Prestige Home Premier Policy, issued by Fireman’s Fund, underwritten by National Surety, and serviced by ACE American.” The insureds alleged they reported the claim promptly, and interacted with representatives of the various insurer defendants for 20 months, but did not receive full payment on their claim. ACE sought to dismiss the breach of contract and bad faith claims on the basis that it did not issue any insurance policy, but rather National Surety was the insurer.

The court would not dismiss the complaint. First, it remained unclear on the face of the pleading if there was some kind of contract with ACE. The more interesting holding was that a potential bad faith claim could exist even if there were no insurance policy issued by ACE, rejecting the argument that “without a contract there can be no claim for bad faith.” The court specifically did not accept the argument that any cause of action can only arise out of the implied contractual duty of good faith and fair dealing.

The court looked to the leading first party bad faith case of Pickett v. Lloyds. The court ruled, “Pickett itself … seems to contemplate a bad faith cause of action against a party other than the primary insurance company. Indeed, it reasoned that because an agent owes a duty to the insured, the insurer must ‘owe[] an equal duty.’” It referenced Picket as “affirming a jury award where the jury found the insurer’s agent liable ‘for a lack of good faith and fair dealing outside of its agency relationship with Lloyd’s [the insurer]’ and stating that ‘[a]gents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds’”

Thus, the court held that “[e]ven if the [insureds] fail to establish the existence of a contract with ACE American, their bad faith cause of action may still be viable.”

Date of Decision: October 20, 2017

Fischer v. National Surety Corp., Civ. No. 16-8220 (KM) (MAH), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.)

NOVEMBER 2017 BAD FAITH CASES: NO CLAIM SEVERANCE BECAUSE (1) EXTRA LITIGATION STEPS PREJUDICE INSURED AND BURDEN COURT; (2) LOSING UIM COVERAGE CLAIM DOES NOT AUTOMATICALLY RESOLVE BAD FAITH CLAIM; (3) AND DISCOVERY AND EVIDENTIARY ISSUES COULD BE HANDLED DURING DISCOVERY PROCESS AND/OR AT TRIAL (Middle District)

The Court denied a motion to sever and stay in this UIM bad faith case.

The tortfeasor’s insurer had paid its policy limits, the insured sought her $300,000 UIM limit, but her carrier offered $40,000 to settle. The insured brought breach of contract and bad faith claims. The insurer sought to sever and stay the insured’s bad faith claim.

The federal court found under the Federal Rules that “both the convenience of the parties and judicial economy weigh against severance.” Specifically, the court found that “if the bad faith claim is severed, Plaintiff would have to bear the costs of two trials and the resolution of both claims would be delayed.” Further, “although Defendant argues that resolution of the breach of contract action will greatly impact and potentially moot the bad faith claim, it is sufficient to note that ‘litigation on the bad faith claim is not contingent upon the success of the breach of contract claim.’” The court stated that an insured could “’simultaneously prevail on a bad faith claim and lose on a UIM claim.’”

The court went on that “severance would hinder judicial economy by requiring separate cases and separate trials instead of handling these claims in a single action.” The court did not “see how [bifurcation] is reasonable given the circumstances. Discovery, dispositive motions, pre-trial motions, and trial place a substantial burden on any party. Bifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pre-trial motions, and a completely separate second trial.’” Any potential prejudice from simultaneous litigation of contract and bad faith claims did not outweigh “countervailing interests of judicial economy and the prompt resolution of this entire matter.”

“Additionally, the potential evidentiary problems identified by Defendant do not provide a sufficient basis for severing the claims in this matter.” Under the Federal Rules of Evidence, “documents and testimony to be entered for narrow purposes[, and at] this point it is premature to determine whether specific pieces of evidence would be admissible wholly or on a limited basis. The best way to make that determination is to keep the matters joined, allow discovery to proceed, and bring both claims to trial as quickly as possible. Any discovery disputes or questions of privilege can be handled through the discovery dispute procedures employed by the court.” The insurer’s “proffer of prejudice does not outweigh the interests of convenience and judicial economy, nor does it justify the severance and stay of Plaintiff’s bad faith claim.”

Date of Decision: October 11, 2017

Mulgrew v. Government Employees Insurance Co., No. 3:16-CV-02217, 2017 U.S. Dist. LEXIS 167770 (M.D. Pa. Oct. 11, 2017) (Caputo, J.)

NOVEMBER 2017 BAD FAITH CASES: PLAUSIBLE BAD FAITH CLAIM BASED ON ALLEGED DILATORY CONDUCT AND UNDER-EVALUATION (Middle District)

This UIM bad faith case was previously dismissed for failure to set out a plausible claim. Given leave to amend, the insured successfully defeated a second motion to dismiss, now adequately alleging bad faith investigation and claim evaluation. The insured alleged the following.

The insured gave notice of his uninsured motorist claim, supplying the insurer with a police report and requesting copies of property damage photos in the insured’s files. One month later the insured provided treatment information and medical records, and a workers’ compensation decision finding the insured was entitled to benefits. Very shortly after that, the insured submitted to an orthopedic IME, with the doctor concluding the insured was in guarded condition and injured in the accident at issue. Three months later, the insurer provided updated treatment records.

Eight months after initial notice the insured provided a “specific and detailed liability and damages package, including hundreds of pages of Plaintiff’s medical records, which went without a response.” One month later the insured asked for a status report, which was promised but was not provided. Another request was made an ignored later that same month, and the following month, the insured gave the insurer permission to obtain investigation records.

Status was again requested, and the adjuster promised to get back to the insured, but did not do so with an actual report on the status. Additional status requests were made without any definitive responses, though the insurer did supply a copy of its investigative file over one year after the notice of claim was first made.

The insured went to the adjuster’s supervisor to ask for a settlement offer, which was made in the amount of $225,000. The existing medical lien and wage loss claims at the time were $122,000 and increasing. The insurer increased its settlement offer and ultimately retained counsel, who arranged for 3 additional medical examinations. These occurred over the following month.

The insured made a policy limits demand, and alleged that the insurer wrote back “setting forth falsities designed to devalue Plaintiff’s claim, including that he delayed in reporting the accident, that Plaintiff had a ‘significant medical history’, that there was only ‘minor property damage’, and that there were ‘other relevant factors’ that Defendant failed to identify.” The insured alleges that a response rebutting these errors was made the next day, “and to request a more reasonable offer in light of Plaintiff’s injuries.”

The court refused to dismiss the statutory bad faith claim, finding these allegations went beyond the bare bones and conclusory averments in the original complaint. Rather, “the Amended Complaint sets forth factual support pertaining to Defendant’s alleged refusal to promptly communicate with Plaintiff, its repeated misrepresentations to Plaintiff, and its failure to comply with various insurance regulations.” The court then found that the averments could constitute bad faith. “With respect to the claimed lack of prompt communication with Defendant, Plaintiff pleads with specificity numerous instances where he contacted Defendant regarding the status of his uninsured motorist claim and his inquiries were either ignored or dealt with in a cursory, non-responsive manner.”

“Third, the Amended Complaint supplies additional facts regarding Defendant’s bad faith in connection with its initial settlement offer by alleging that, at the time the offer was made, Defendant knew Plaintiff, nearly thirty (30) months after the hit-in-run accident, was still unable to work and undergoing continued medical treatment. As a result, Defendant knew that Plaintiff’s medical and wage loss liens were rapidly increasing. Viewing these facts in the light most favorable to Plaintiff, he alleges plausible bad faith claims.”

“Fourth, the Amended Complaint contains adequate allegations calling into question the sufficiency and timeliness of Defendant’s investigation and evaluation of Plaintiff’s uninsured motorist claim. In particular, despite repeated requests from Plaintiff to evaluate his claim and consider the claim for review, Defendant’s adjuster seemingly ignored those requests and did not get the claim scheduled for review for over two (2) months. These allegations provide further factual support of plausible bad faith conduct.”

“Finally, where, as here, bad faith claims are based on ‘an entire course of alleged dilatory conduct, rather than on a particular incident or denial of a claim, the finder of fact will have to consider the entire course of conduct in order to determine whether the Defendant’s handling of [Plaintiff’s uninsured motorist] claim was conducted in bad faith.’”

Date of Decision: October 10, 2017

Meyers v. Protective Ins. Co., NO. 3:16-CV-01821, 2017 U.S. Dist. LEXIS 166955 (M.D. Pa. Oct. 10, 2017) (Caputo, J.)