Yearly Archive for 2018

JANUARY 2018 BAD FAITH CASES: BAD FAITH POTENTIAL EXISTS WHERE INSURER ALLEGEDLY DID NOT INVESTIGATE AND THERE WERE INCONSISTENCIES IN THE CLAIMS FILE (Philadelphia Federal)

The insured’s policy provided income loss benefits and medical benefits up to $277,500. The insured was injured in a motor vehicle accident one month after purchasing the policy, and underwent physical therapy. The physical therapy notes indicated that, while he was still able to work 8 hours per day, the insured normally worked 12-hour days. The insured submitted his federal tax returns to the insurer, which showed a significant income decrease. Additionally, the insured was diagnosed with cancer in the same year; however, at the time of the accident, the cancer was in remission and the insured was no longer undergoing treatment.

Two years later, the insured submitted a formal demand of $465,000 in income loss benefits. The insurer denied the claim, arguing that the insured failed to provide disability documentation or other documentation stating that he was unable to work. The insured then filed suit for breach of contract and bad faith, and the insurer moved for summary judgment.

In ruling on the bad faith issue, the Court denied summary judgment, stating that while the insurer may have had a reasonable basis for denying the income loss claim, bad faith liability could lie because the insurer failed to properly investigate the insured’s claim. The Court took note of discrepancies in the insured’s claim file, and held that these discrepancies and contradictions “should have prompted [the insurer] to investigate . . ., but it did not.” Additionally, the Court denied the insurer summary judgment on the breach of contract claim, holding that the insured “demonstrated that there is a genuine issue of material fact concerning whether he was entitled to income loss benefits . . ..”

Date of Decision: January 10, 2018

Grossman v. Metro. Life Ins. Co., No. 17-2940, 2018 U.S. Dist. LEXIS 4672 (E.D. Pa. Jan. 10, 2018) (Beetlestone, J.)

JANUARY 2018 BAD FAITH CASES: COURT ALLOWS LIMITED BAD FAITH DISCOVERY ON THIRD PARTY ADMINISTRATOR THAT WAS NOT PARTY TO THE BAD FAITH ACTION (District of New Jersey)

In this reinsurance litigation, non-party Resolute Management, Inc. (“Resolute”) filed a motion to quash a FRCP 30(b)(6) deposition served upon it by Defendant/insured J.M. Huber Corporation. Resolute sought a protective order barring the insured from inquiring into certain subjects during the future depositions of two of its employees. Additionally, Plaintiff/insurer Continental Casualty moved for a protective order barring the insured from inquiring into certain subjects during the insurer’s 30(b)(6) deposition. The insured opposed both Resolute’s motion and the insurer’s motion.

BACKGROUND

The factual background is as follows: Between 1969 and 1994, the insurer issued policies to the insured that were subject to “incurred loss retrospective premium plans” whereby the insured’s premiums are calculated according to the total number of payments and reserves on claims submitted under the policies. The retrospective premiums are calculated annually on the 1st of December, and continue year to year until all claims submitted are closed or until the maximum premium is reached. These retrospective premiums are called “Rating Plan Adjustments.”

The insurer sued over multiple unpaid invoices from previous Rating Plan Adjustments. The insurer alleged it was owed $33,629 under a March 2012 invoice, $737,116 under a March 2013 invoice, and $978,222 under a February 2014 Rating Plan Adjustment calculation. As such, the insurer brought claims for breach of contract and unjust enrichment.

The insured then filed its answer and brought counterclaims for breach of contract and breach of the duty of good faith and fair dealing. The insured alleged that, for decades, both parties enjoyed a professional and amicable relationship where any questions the insured would have about the Rating Plan Adjustments would be satisfactorily answered by the insurer and then promptly paid. According to the insured, this all changed in 2010 when Berkshire Hathaway and its affiliates, Resolute and National Indemnity Company (“NICO”) “entered into an agreement with [the insurer] pursuant to which [the insurer’s] legacy asbestos and environmental pollution liabilities were transferred to NICO.”

It was alleged that once NICO assumed the insurer’s liabilities, Resolute became a third-party administrator of the insured’s asbestos and environmental claims. After having questions about the particular invoices on the Rating Plan Adjustments, the insured contends that neither the insurer nor Resolute satisfactorily addressed its concerns, and the insured was never provided with an adequate explanation as to the basis of the contested premiums.

ARGUMENTS

In filing the motion to quash, Resolute wanted to prevent the insured from exploring particular subjects during depositions concerning Resolute’s and the insurer’s (1) corporate practices, (2) claims handling procedures, and (3) the corporate relationships between the insurer, Resolute, NICO, and Berkshire Hathaway. The motion concerns both the Rule 30(b)(6) depositions and the depositions of particular Resolute employees.

The insurer and Resolute argued that the insured’s 30(b)(6) deposition topics were overbroad, would cause an undue burden, and would seek irrelevant information. They argued that the insured should only seek information relevant to the calculation of the retrospective premiums, and that the insured’s efforts were unreasonably duplicative because the insured seeks very similar, if not identical, information from both Resolute and the insurer. The insured argued that all of the information was necessary for the claims and relevant. Resolute and the insurer also filed a motion for a protective order, seeking to bar the insured from inquiring into certain topics during the depositions of two particular Resolute employees. The insured took the position these employees are key witnesses.

COURT’S ANALYSIS

Initially, in discussing Federal Rule of Civil Procedure 26, the Court stated that “[it] is required to limit discovery where (i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).” The Court also addressed FRCP 45 governing subpoenas. The Court stated that four circumstances would warrant it to quash or modify a subpoena: (i) if the subpoena fails to allow a reasonable time to comply; (ii) if it requires a person to comply beyond the geographical limits specified in Rule 45(c); (iii) if it requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) if it subjects a person to an undue burden.

Failure to specify basis for objections and harm from compliance

The Court ruled that Resolute failed to (1) state its objections to the insured’s subpoena with specificity, and (2) it further failed to articulate any specific harm that could arise with its compliance. Thus, the court denied Resolute’s motion to quash. For the same reasons, the Court also denied Resolute’s motion for a protective order.

Discovery limited on some topics

Ruling in Resolute’s favor, the Court found that some of the insured’s deposition topics did exceed the scope of permissible discovery, and specifically limited such topics. These included (1) privileged information between Resolute and the insurer, (2) lawsuits against Resolute involving its administration of claims on behalf of other insurers, (3) particular document demands it found unreasonably cumulative, and (4) the insurer’s losses under other policies and Resolute’s knowledge thereof.

Discovery of corporate relationships, claims handling, and operating protocols relevant within limits

The Court further ruled that “discovery into the corporate relationships between [the insurer, Resolute, NICO, and Berkshire Hathaway], along with Resolute’s claims handling practices and operating protocols, is relevant to [the insured’s] claims and defenses in this matter.” However, the Court went on to limit the discovery here to only relevant pieces of information, such as Resolute’s corporate structure and its affiliations. The Court further limited the insured’s inquiries to “communications and correspondence regarding Resolute’s administration of Defendant’s claims; and Resolute’s policies, procedures and practices regarding the administration of claims on behalf of Plaintiffs involving retrospective premiums and its financial goals related to the same.”

The Court looked at a prior case involving Resolute, Pepsi-Cola Metro. Bottling Co. v. Ins. Co. of N. Am., No. CIV 10-MC-222, 2011 U.S. Dist. LEXIS 154369, 2011 WL 239655 (E.D. Pa. Jan. 25, 2011). That case also involved a bad faith claim against insurers, where the insureds “sought discovery from the insurers’ claims handler, non-party Resolute Management, Inc. by way of a 30(b)(6) subpoena. The 30(b)(6) subpoena sought information related to Resolute’s corporate relationships and structure and its operating protocols and business practices. Resolute moved for a protective order and to quash the 30(b)(6) subpoena claiming that the information sought regarding its corporate relationships and business practices was irrelevant to the plaintiff’s claims against its insurers for bad faith.” Resolute argued “that its operating protocols and business practices were irrelevant to the plaintiff’s allegations….” The Pepsi Court “noted that [t]o show bad faith, as opposed to mere negligence ‘a review of the policies and procedures of the companies in order to determine whether those policies instructed claims handlers to act in bad faith or provided them with an incentive structure that led to bad faith action is necessary,” “Accordingly, in light of the plaintiff’s contention that the reinsurance relationship between the plaintiff’s insurers and Resolute and their claims handling practices may have resulted in the bad faith denial of the plaintiff’s claims, the [Pepsi] court found that the plaintiff had provided sufficient evidence of the relevance of the information sought by the subpoena and allowed the plaintiff to obtain discovery regarding Resolute’s corporate relationships and structure and its operating protocols and business practices.”

The present Court followed the Pepsi opinion, and agreed with the insureds’ position in concluding “that Defendant has demonstrated the requisite relevance of the information it seeks to its claims in this matter. In this case, Defendant claims that once Resolute became Plaintiffs’ third-party administrator, Defendant received improper and unexplained retrospective premium notices from Resolute and a letter from Resolute ‘abruptly’ denying coverage for a claim which Plaintiffs had long been providing coverage. …. Because Defendant’s bad faith claims against Plaintiffs result from conduct which arose when Resolute began handling Defendant’s claims, Defendant claims that the corporate relationships between Plaintiffs, Resolute, NICO and Berkshire Hathaway, and the corporate practices of these entities as they relate to Resolute’s claims handling practices is relevant to Defendant’s bad faith claim against Plaintiffs.” Thus, “discovery into the corporate relationships between Resolute and Plaintiffs and Resolute as its affiliates, along with Resolute’s claims handling practices and operating protocols, is relevant to Defendant’s claims and defenses in this matter.” The Court went to limit that discovery: “However, while the Court will permit discovery into Resolute’s corporate relationships and general practices, Defendant’s requests must be narrowed to seek such information only as relevant to the claims in this matter.”

The Court found that the insurer failed to articulate the specific harm it would suffer if it complied with the insured’s subpoena, so its motion for a protective order was denied. Similarly, the Court also limited the scope of the insured’s discovery against the insurer to relevant information.

Date of Decision: December 19, 2017

Continental Casualty Co. v. J.M. Huber Corp., No. 13-4298 (CCC), 2017 U.S. Dist. LEXIS 208182 (D.N.J. Dec. 19, 2017) (Clark, III, M.J.)

 

JANUARY 2018 BAD FAITH CASES: INSUREDS ALLEGING BAD FAITH MUST “DESCRIBE WHO, WHAT, WHERE, WHEN, AND HOW THE ALLEGED BAD FAITH CONDUCT OCCURRED”; LETTER TO INSURANCE DEPARTMENT DID NOT SHOW BAD FAITH (Philadelphia Federal)

The insured resided with her long-time partner at her home in Philadelphia when it was damaged by a fire. No one but the insured was listed on the policy.

Following the fire, the insured and her partner sought benefits under the policy for personal property destroyed and for home repairs. The insurer paid the insured $115,125.40 for home repairs, $160,982.21 for damage to personal property, and $37,784.81 for additional living expenses. The insurer did not pay the insured’s partner any benefits, arguing that he was not an insured person under the terms of the policy.

In addition, the insured received home repair estimates that ranged from $310,000 to $341,000, and the insurer did not pay any additional benefits beyond its $115,125.40 payment. The insured and her partner sued for bad faith, among other claims. The insurer moved for judgment on the pleadings.

The insured and her partner supported their bad faith claim with three arguments: (1) the insurer acted in bad faith when it sent a letter containing erroneous information about the claim to the Pennsylvania Insurance Department; (2) the insurer failed to obtain an appraisal; and (3) the insurer failed to properly investigate, evaluate, and communicate with the insured about the claim. The Court rejected all three of these arguments.

The court generally observed that “Pennsylvania federal and state courts have defined ‘bad faith’ as ‘a frivolous or unfounded refusal to pay proceeds of a policy.’” Specifically, as to the three arguments:

  1. The Court held that, in sending the letter containing erroneous information to the PID, there’s no evidence that this was done with a “motive of self-interest or ill will[,]” and was likely mere negligence.

[Note: The Court quoted case law stating, “A claimant must show that the insurer acted in bad faith based on some motive of self-interest or ill will.” However, this would appear to contradict the Supreme Court’s holding in Rancosky, that the motive of self-interest or ill will is not a required element of establishing a bad faith claim.]

  1. The policy stated that if there is an appraisal dispute, any party may demand an appraisal. The insured failed to make this demand.
  2. The Court held that the insured’s third argument was too vague to constitute bad faith, as insureds “must ‘describe who, what, where, when, and how the alleged bad faith conduct occurred.”

The Court dismissed all of the claims, but declined to award the insurer judgment on the pleadings, because it granted the insured leave to amend her complaint.

Date of Decision: December 21, 2017

Elican v. Allstate Ins. Co., No. 17-03105, 2017 U.S. Dist. LEXIS 209901 (E.D. Pa. Dec. 21, 2017) (Pappert, J.)

JANUARY 2018 BAD FAITH CASES: NO BAD FAITH AFTER INSURER REFUSED TO PAY BENEFITS DUE TO A PROPER RECISSION OF THE POLICY (Middle District)

The insured procured a life insurance policy with a benefit of $200,000, and listed his wife (the plaintiff in this action) as the beneficiary. Ten months later, the insured passed away from respiratory failure. Plaintiff submitted a claim to the insurer for the life insurance benefits. The insurer denied the claim, arguing that it had rescinded the policy due to material misrepresentations made by the insured during the application process. The plaintiff then sued the insurer for breach of contract, bad faith, and negligent supervision/vicarious liability. The insurer filed a motion for summary judgment on all claims.

The Court reiterated the Rule 56 summary judgment standard, which is appropriate only where the record contains no genuine issue of material fact. Specifically at issue was whether the insured materially misrepresented his medical history on the policy application.

The Court stated that “Pennsylvania law allows for rescission of an insurance contract when, in applying for a policy, an applicant makes a 1) false representation; 2) which the insured knew was false when made or was made in bad faith; and 3) the representation was material to the risk being insured.” The Court found all three of these elements present.

  1. The insured falsely denied being treated for or diagnosed with cancer, and falsely denied being treated for or diagnosed with any lung disorder.
  2. With regard to the second element (knowledge of falsity), the plaintiff argued that, although the insured signed the application, the application was erroneously completed by a third party. The Court rejected this argument and discussed existing case law that holds “a ‘party is bound to know what he signs[,]’” and “the general rule is that one who signs an application for insurance without reading it, when he might have done so will be held to have read it.”
  3. Lastly, the Court found that the false answers provided by the insured were material, because they “influence[d] the judgment of the insurer in selling the policy and accepting the risk.”

Thus, rescission was proper and the Court granted summary judgment.

Date of Decision: December 18, 2017

Kelly v. Lincoln Benefit Life Co., No. 3:16-cv-1335, 2017 U.S. Dist. LEXIS 207546 (M.D. Pa. Dec. 18, 2017) (Munley, J.)

JANUARY 2018 BAD FAITH CASES: TRIAL COURT ERRS IN DECIDING BAD FAITH PREMATURELY AS BASIS NOT TO MOLD VERDICT TO POLICY LIMITS (New Jersey Appellate Division)

This appeal stems from an underlying UIM action that involved a 2012 automobile accident. The insured settled with the underinsured-tortfeasor for $15,000 and filed a UIM claim with the insurer. After settlement negotiations failed, the insured filed suit against the insurer, and each party then filed an offer of judgment. The insurer offered $30,000 and the insured’s offer of judgment amounted to $85,000. Policy limits were $100,000.

The jury ultimately returned a verdict for $375,000. The trial court entered judgment on the verdict for $360,000 plus interest after subtracting the initial $15,000 settlement without prejudice to either party’s right to file a post-judgment motion for molding or other relief. The insurer filed a motion to mold the verdict to the policy limits. The insured filed a motion to amend the complaint to add a bad faith claim and for counsel fees.

The trial court denied the insured’s motion to amend, but allowed her to file a new complaint asserting a bad faith claim. As to the insurer’s motion to mold to the $100,000 policy limit, the trial court stated that it had discretion not to mold the verdict because the insurer engaged in “scorched earth” settlement practices. Lastly, the trial court awarded the insured counsel fees on the non-molded verdict, per the offer of judgment rule.

On appeal, the Appellate Division ruled that the trial court erred in declining to mold the verdict. The Court primarily relied upon case law that commands molding the verdict, because “UIM cases are first-party contract claims against insurers, but they are generally tried as if they were third-party tort actions with the insurer standing in for the uninsured or underinsured tortfeasor . . . . Thus, courts have appropriately recognized the need to mold jury verdicts in these cases to reflect the rights and duties of the parties under the insurance policy.”

The Appellate Division added that the trial court erred in molding the verdict based upon the insurer’s alleged bad faith, when the issue of bad faith had never been pleaded or adjudicated. It rejected the idea of deciding the bad faith issue without giving both parties the opportunity to litigate the issue.

The Appellate Division did affirm the insured’s right to counsel fees under the offer of judgment rule, however, the sum awarded was in error because the fee application submitted to the trial court was deficient. The Appellate Division stated that “a fee application must ‘be supported by an affidavit of services addressing the factors enumerated by RPC 1.5(a)’ and must include a specific enumeration of the services performed and the hours spent.”

The Appellate Division remanded the action back to the trial court for the various reasons articulated.

Date of Decision: December 14, 2017

Seamon v. State Farm Ins. Co., DOCKET NO. A-0293-16T3, 2017 N.J. Super. Unpub. LEXIS 3069 (New Jersey Appellate Division Dec. 14, 2017) (Reisner and Gilson, JJ.)

JANUARY 2018 BAD FAITH CASES: NO BAD FAITH WHERE SETTLEMENT OFFER WAS MADE AND JURY AWARD IN EXCESS OF POLICY LIMITS WAS NOT REASONABLY ANTICIPATED (New Jersey Appellate Division)

This opinion is the culmination of over a decade of litigation, originating in an April 2000 automobile accident. Nancy Palmer, as assignee of the insured-tortfeasor, brought suit against the tortfeasor’s insurer after a three-day trial in August 2004, which resulted in a $460,000 award in Palmer’s favor. The insured-tortfeasor had a $300,000 policy limit.

Prior to filing the underlying lawsuit, Palmer’s attorney made a demand to the insurer for $40,000. The insurer responded that it was not going to engage in any settlement talks, because it did not believe Palmer could meet her burden under New Jersey’s Automobile Insurance Cost Reduction Act, which required a heightened burden of proof for Palmer to recover non-economic damages. After filing the underlying lawsuit, Palmer reduced her demand amount, and an arbitrator entered a non-binding award of $22,500. The insurer rejected this arbitration award, and demanded a trial de novo, which led to the $460,000 verdict.

The insurer unsuccessfully appealed the $460,000 result, and ultimately paid Palmer. Thereafter, the insured-tortfeasor assigned Palmer the right to bring a bad faith claim against the insurer.

After an August 2015 non-jury trial, the trial court ruled that Palmer failed to meet her burden to show that the insurer acted in bad faith, either before the jury verdict or thereafter. Palmer appealed the trial court’s decision, and argued (1) the insurer’s claims handling activities violated its duty to exercise due care in protecting its insured; (2) the insurer failed to employ proper expertise in both investigating and negotiating settlement of the claim; (3) the insurer violated the law in appealing the August 2004 verdict without a reasonable probability of reversal; (4) the insurer failed to put the insured’s interests first; (5) the insurer failed to pursue all available settlement avenues; and (6) the trial judge misinterpreted the law and the evidence.

The Appellate Division disagreed, and affirmed the trial court’s decision. The Court ruled that the trial judge was owed considerable deference in “her critical finding that [the insurer] did convey an offer to settle the case for the policy limits while the appeal of the jury verdict was still pending.” Furthermore, the jury verdict in excess of the policy limits was neither reasonably anticipated nor reflective of Palmer’s own settlement demands. Lastly, the Appellate Division wrote, “we accept the judge’s finding that the insurer’s delay in making the post-verdict offer was neither reflective of bad faith nor that it produced appreciable prejudice to . . . the insured, beyond the happenstance of the excess verdict itself.”

Date of Decision: December 14, 2017

Palmer v. New Jersey Manufacturers Ins. Co., DOCKET NO. A-0854-15T3, 2017 N.J. Super. Unpub. LEXIS 3060 (New Jersey Appellate Division Dec. 14, 2017) (Sabatino, Ostrer, and Whipple, JJ.)