Monthly Archive for December, 2017

DECEMBER 2017 BAD FAITH CASES: APPLYING NEW YORK LAW OR PENNSYLVANIA LAW, MISTAKE DID NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

The tortfeasor struck the insured as he was riding his bicycle. USAA insured the tortfeasor under a policy containing a liability limit of $15,000. The insured held policies with Progressive (providing for $50,000 in UIM benefits) and State Farm (providing for $100,000 in UIM coverage). USAA tendered its policy limits to the insured in an attempt to settle the claim, which the insured accepted. The insured requested consent with Progressive to settle the claim, and while the insured’s attorney contacted State Farm to notify it of the claim, there was no mention made of the settlement offer. A second correspondence to State Farm also failed to notify it of the settlement.

The State Farm policy contained language denying coverage if the insured settles any lawsuit “without our written consent.” State Farm denied coverage because it believed that the USAA policy provided benefits “equal to or exceeding” the benefits provided under the State Farm policy. This mistake “occurred after [the insured] had extinguished State Farm’s right of subrogation, and nothing [the insured] did was the result of State Farm’s initial mistake.” State Farm acknowledged its claim handling mistake, but then denied UIM coverage because the insured “never [gave] notice and sought consent to accept USAA’s tender of liability limits available under the [tortfeasor’s] policy.”

The insured sued for bad faith, and State Farm moved for summary judgment. The court previously decided that New York law controls. The court ruled that the insureds failed to show that (1) the USAA settlement did not prejudice State Farm’s subrogation rights; and (2) State Farm did not waive the insured’s obligation to provide it with advance notice of settlement of the claim.

As to the bad faith claim, the Court held that “State Farm had a valid basis for denying benefits under New York law.” The Court reasoned that State Farm’s initial claims handling error does not rise to the level of bad faith, because the error was not only corrected, but it was “not causally related to the legitimate basis on which it denied the [UIM] claim.” The Court further held that even if Pennsylvania law controlled, nothing in this case would be sufficient to support a bad faith claim. The Court granted State Farm’s motion for summary judgment.

Date of Decision: November 30, 2017

Bennett v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 15-5170, 2017 U.S. Dist. LEXIS 197515 (E.D. Pa. Nov. 30, 2017) (McHugh, J.)

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE OWED, APPLYING EXCLUSION FOR ACTIONS AS OFFICER OF ANOTHER ENTITY (Philadelphia Federal)

The plaintiff served in various official roles for the insured corporation. The insurer issued a DO&E policy to the corporate insured.

The plaintiff and another entity filed a conservatorship petition over property owned by the Underlying Plaintiffs. The Underlying Plaintiffs sued the plaintiff, that other entity, and the insured corporation for allegedly making false statements in the conservatorship petition as part of a “plan to run the [property owners] out of the neighborhood.” The court in the underlying action, however, dismissed all claims with prejudice against the insured corporation. The jury returned a verdict for the Underlying Plaintiffs, and against the plaintiff, among others.

The DO&E policy contained a coverage exclusion that stated, “The Insurer shall not pay Loss . . . (I) of an Insured Person based upon, arising from, or in any way related to such Insured Person’s service, at any time, as a director, officer, trustee, regent, governor, or equivalent executive or as an employee of any entity other than an Insured Entity . . . .” The insurer withdrew its defense of the plaintiff under this exclusion after the the insured corporation was dismissed with prejudice. The plaintiff then brought this action against the insurer for bad faith and breach of contract.

The court converted the insurer’s motion to dismiss into a summary judgment motion. The court stated, “it is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover.” When an underlying plaintiff drops an insured claim, this constitutes “absolutely clear” evidence that the action seeks relief that is not covered under the policy.

The court held that the insurer had no duty to defend the plaintiff once the underlying court dismissed the insured from that action. The court rejected the idea that insured corporation tacitly approved the plaintiff’s actions in filing the conservatorship petition because the insured was in no way involved in that petition. Furthermore, the plaintiff did not serve the insured corporation’s interest in any official capacity at the time the conservatorship petition was filed and “it is undisputed that [the plaintiff] . . . filed the conservatorship petition . . . in his capacity as President and owner of [another entity].”

The policy exclusion thus barred any coverage. Because the insurer did not owe a duty to defend or indemnify the plaintiff, his bad faith claim against the insurer necessarily failed.

Date of Decision: November 20, 2017

Palmer v. Twin City Fire Ins. Co., CIVIL ACTION NO. 17-826, 2017 U.S. Dist. LEXIS 190993 (E.D. Pa. Nov. 20, 2017) (Beetlestone, J.)

DECEMBER 2017 BAD FAITH CASES: BAD FAITH CAN EXIST WHERE INSURER NECESSARILY KNOWS POLICY LANGUAGE DOES NOT EXCLUDE COVERAGE AND DENIES CLAIM (Middle District)

The insurer moved to dismiss a bad faith claim on the basis of boilerplate allegations, among other things. The court denied the motion.

The court not only found the facts adequately pleaded, it went on to rule that the insurer’s interpretation of the policy was unreasonable because there was no specific language excluding the homeowners’ loss at issue (the entire associated costs of reconstructing improperly conflated fresh water and sewer pipes).

Moreover, the court found that the second bad faith element was met on the face of the complaint, stating:

“Under Pennsylvania law we construe any ambiguities in the policy ‘in favor of the insured to further the contract’s prime purpose . . . and against the insurer, as the insurer drafts the policy, and controls coverage.’ …. In the case at bar, when viewed in the light most favorable to the non-moving party, we do not confront an ambiguity in the policy. Rather, defendant’s basis for refusing coverage is simply not present in the policy. It is axiomatic that insurance policy language — or the lack thereof — is imputed to the insurer, because the insurer is the scrivener of the policy. We conclude, therefore, that defendant knew or recklessly disregarded its lack of reasonable basis for denying coverage regarding the entire combined water supply pipe/sewer pipe loss including the ordinance and law coverage pursuant to the value added policy.”

Date of Decision: November 30, 2017

Foss v. Phoenix Insurance Co., No. 3:17cv1757, 2017 U.S. Dist. LEXIS 196665 (M.D. Pa. Nov. 30, 2017) (Munley, J.)

DECEMBER 2017 BAD FAITH CASES: BAD FAITH CASE REINSTATED WHERE COVERAGE FOR SECONDARY LIABILITY ON PUNITIVE DAMAGES WAS POSSIBLE (Superior Court of Pennsylvania)

A jury awarded punitive damages against the insured, and the trial court ruled there would be no coverage as a matter of public policy, and dismissed breach of contract and bad faith claims, even absent a punitive damages exclusion in the policy. The Superior Court reversed. Public policy only prohibits coverage for punitives damages against insureds for their direct conduct. Public policy does not prohibit coverage where the insured’s liability for punitive damages is derivative from the acts of another. Because the carrier had not proven the punitive damages were solely from the insured’s own acts the judgment was reversed and the case was remanded to proceed on the issues of coverage and bad faith.

Date of Decision: November 30, 2017

Bensalem Racing Association v. Ace Property & Casualty Insurance Co., No. 530 EDA 2017, 2017 Pa. Super. Unpub. LEXIS 4395 (Pa. Super. Ct. Nov. 30, 2017) (Dubow, Panella, Ranson, JJ.)

IF YOU HAVE A BAD FAITH CASE IN FEDERAL COURT, READ THIS COURT’S OPENING PARAGRAPH ON BAD FAITH CLAIMS AND PLEADING (Philadelphia Federal)

We let the Court’s opening paragraph speak for itself in describing the law and result of failure to plead plausible bad faith claims:

“Pennsylvanians suing their automobile insurer for failing to pay their insurance claim may allege breach of the insurance policy and bad faith under a Pennsylvania statute. They are not the same claim. Alleging bad faith requires facts showing how the insurer acted unreasonably both in denying the policy benefits and later ignoring its unreasonable denial. When, as today, the insured pleads facts from over two years ago which detail the insurer’s responsive steps but then fail to allege a single fact thereafter to describe why the claim is not paid other than concluding the claim is not paid, we are left without a basis to understand if the insurer acted in bad faith. Failure to pay a claim may be a breach of contract but is not bad faith without pleading specific facts as to the insurer’s responses to the claim. The insured also cannot allege a breach of an implied covenant of good faith in the insurance policy when suing for breach of the same undisputed policy. Nor can the insured obtain attorney’s fees for the remaining breach of contract claim. In the accompanying Order, we grant the insurer’s motion to dismiss without prejudice to allow the insured to possibly plead facts supporting a bad faith claim under Fed.R.Civ.P. 11.”

Date of Decision: November 17, 2017

Sherman v. State Farm Ins. Co., CIVIL ACTION NO. 17-4822, 2017 U.S. Dist. LEXIS 190363 (E.D. Pa. Nov. 17, 2017) (Kearney, J.)