Archive for the 'PA – Claims Handling Procedures' Category

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)

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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.)

 

JANUARY 2017 BAD FAITH CASES: THERE CAN BE NO BAD FAITH WHERE THERE IS NO COVERAGE DUE (Western District)

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The court found “’there can be no bad-faith claim [for denial of coverage] if the insurer was correct as a matter of law in denying coverage.’” It relied on the oft-cited 1999 Third Circuit opinion in Frog, Switch & Mfg. Co. v . Travelers. As the court had earlier found there was no viable breach of insurance contract claim, there could be no bad faith claim.

The court also addressed a putative failure to adequately investigate the claim. The insurer adduced various steps it had taken; and the insured alleged problems in investigation, but without providing evidence to resist a summary judgment motion.

Summary judgment was granted on all counts to the carrier.

Date of Decision: January 10, 2017

Wehrenberg v. Metro. Prop. & Cas. Ins. Co., No. 14-1477, 2017 U.S. Dist. LEXIS 3242 (W.D. Pa. Jan. 10, 2017) (Hornak, J.)

JANUARY 2017 BAD FAITH CASES: JUDGE MUNLEY GRANTS SUMMARY JUDGMENT TO CARRIER ON BAD FAITH CLAIMS AS TO ISSUES OF MULITPLE ADJUSTERS AND MULTIPLE ESTIMATES DURING CLAIMS PROCESS (Middle District)

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Judge Munley granted the insurer’s summary judgment motion on bad faith. The insured’s claims rested on two arguments: (1) the insurer “assigned an inordinate number of representatives to her claim.”; amd (2) the insurer “refused to timely pay the full value of her loss. Rather, [it] provided multiple estimates and payments over a seven-month period.”

The court observed, “it is not bad faith to conduct a thorough investigation into a questionable claim.” The insured failed to present evidence that the claim management “was anything other than what it claimed: an attempt to further investigate the water damage at plaintiff’s home to determine the value of her claim.” No expert testimony was offered regarding the nature of the insurer’s investigation. No evidence of internal communications or testimony establishing that the carrier acted out of spite during its investigation was offered. There was “no competent evidence from which a reasonable jury could find that the number of … employees assigned to her claim establishes bad faith.”

Second, the court rejected the insured’s arguments that multiple estimates demonstrate bad faith. There was a difference of $19,000 over six months, and the insured argued this showed the insurer refused to fully investigate her claim and make timely payment. There was no authority to support this argument. The court cited appellate law for the point that “subsequent estimates assign[ing] a higher value to the claim is not ‘clear and convincing’ evidence that the insurer acted in bad faith in arriving at its initial estimate or by standing by that estimate until the appraisal process concluded.’” There was also a history of detailed investigations at the home, and an attempt to reconcile various estimates. At most, the evidence may have demonstrated the estimates were arguably negligent, but mere negligence is not bad faith.

Date of Decision: December 5, 2016

Yatsonsky v. State Farm Fire & Cas. Co., No. 3:15cv1777, 2016 U.S. Dist. LEXIS 167224 (M.D. Pa. Dec. 5, 2016) (Munley, J.)

JANAURY 2017 BAD FAITH CASES: A “LOW-BALL” OFFER TO SETTLE, WITHOUT MORE, IS INSUFFICIENT TO SHOW BAD FAITH (Philadelphia Federal)

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This first-party Uninsured/Underinsured Motorist Coverage claim involved allegations that the insurer acted in bad faith by making a “low-ball” offer to settle the insured’s personal injury claims. The case arose out of a car accident where the insured was rear ended in a hit and run and incurred medical bills totaling $8,232.00. The Insurer made an initial offer of $1,000 to settle the Insured’s UIM claim. This offer was rejected, and the Insurer refused to pay the full value of the Insured’s medical bills.

The Insured’s bad faith claim was based solely on the premise that the $1,000 offer, acting alone, was facially unreasonable in light of the $8,000 in medical bills and $25,000 policy limits. The Insured argued that a facially unreasonable offer is itself bad faith. The Court disagreed. According to the Court, a “low-ball” offer, without any other allegations of wrongful conduct, is insufficient to maintain a claim of bad faith. To prove bad faith, an insured must point to some action or inaction taken by the insurer which shows that the offer was not made negligently or as a negotiation strategy, but made as a result of bad faith conduct on the part of the insurer. Entirely missing from the Insured’s Complaint were any allegations that the Insurer failed to conduct a reasonable investigation or failed to have the medical records reviewed by an in-house doctor or nurse.

Date of Decision: August 11, 2016

West v. State Farm Ins. Co., No. 16-3815, 2016 U.S. Dist. LEXIS 106783 (E.D. Pa. Aug. 11, 2016) (Jones, II, J.)

JANUARY 2017 BAD FAITH CASES: NO BAD FAITH ON RECORD SHOWING REASONABLE INVESTIGATION AND CLAIMS HANDLING; AND COURT OBSERVES THAT WHERE PARTY DOES NOT IDENTIFY AND PROVIDE SUPPORTING FACTS, JUDGES ARE NOT LIKE PIGS, HUNTING FOR TRUFFLES BURIED IN THE RECORD (Middle District)

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The court granted summary judgment to the insurer in this bad faith case arising out of a fire at the insureds’ home. While the insurer provided a detailed factual recount from the record to makes its case, the court stated that the insureds “relied upon bare allegations and narrative argument that does little more than summarize bad-faith law in Pennsylvania, without showing how the facts of this particular case could support a claim under the statute.”   The insurer had paid nearly $150,000 after investigating the fire and losses therefrom, but it argued the items put in dispute by the insured were not connected to the fire, which the insured failed to factually refute.

The court observed that “It is not bad faith for an insurance company to ‘conduct a thorough investigation into a questionable claim.’” The insurer will be successful in defending a bad faith claim based on its investigation of the matter by “showing ‘a reasonable basis’ for investigating a claim, and is … entitled to judgment as a matter of law, where it demonstrates the existence of certain ‘red flags’ which prompted it to further investigate an insured’s claim.”

Red flags existed in this case where “the insurance policy had been purchased immediately prior to the fire and the determination by two fire experts that it had been caused by arson. The record also reveals that, rather than wasting time, [the insurer] began an investigation immediately, while at the same time advancing money to the plaintiffs for immediate needs such as clothing and hotel expenses.” Further, the insurer “promptly undertook investigation into the fire’s cause, the plaintiffs contributed directly to the duration of the investigation by delaying their examinations under oath, which State Farm had requested, roughly two months earlier.” And, “during this investigation, [the insurer] continued to pay the plaintiffs’ housing and living expenses, despite the ongoing nature of the investigation and the possibility that at the end of that process coverage would not be offered.” The insurer ultimately concluded that the matter was not arson, but as stated did not pay every claim the insureds made in connection with the loss.

The insurer routinely and appropriately sent correspondence in response to the insureds, and delays in the process were “not solely or even principally attributable to” the insurer.

Finally, the court rejected the notion that it should review evidence provided by the moving insurer, and “wade into that evidence in order to find some evidence that could rise to the level needed for the plaintiffs to carry their burden on this claim. This invitation is antithetical to good summary judgment practice, and the plaintiffs would do well to remember that “‘[j]udges are not like pigs, hunting for truffles buried in the record.’”

Date of Decision: November 16, 2016

Hoffman v. State Farm Fire & Cas. Co., No. 4:14-1978, 2016 U.S. Dist. LEXIS 158795 (M.D. Pa. Nov. 16, 2016) (Carlson, M.J.)

DECEMBER 2016 BAD FAITH CASES: VIOLATION OF UNFAIR CLAIMS SETTLEMENT PRACTICES REGULATIONS ALONE CANNOT FORM THE BASIS OF A BAD FAITH CLAIM (Philadelphia Federal)

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In this homeowners’ case, the insured alleged breach of contract and bad faith. On the contract claim, the court focused on the contractual limitations period for bringing suit. The insured argued, among other things, that the insurer had a duty under the Unfair Claims Settlement Practices Regulations (UCSPR) to give notice of the suit limitation period, and failure to do so tolled that period. The court rejected this argument as a basis to toll the contract claim, as well as a basis for the bad faith claims.

As to the bad faith claim, the court further observed that a violation of the UCSPR standing alone does not establish clear and convincing evidence of bad faith. The court also rejected an argument concerning negotiations over a boiler’s repair or replacement as the basis for a bad faith claim.

Date of Decision: November 9, 2016

Pecko v. Allstate Ins. Co., No. 16-1988, 2016 U.S. Dist. LEXIS 155355 (E.D. Pa. Nov. 9, 2016) (Pratter, J.)

NOVEMBER 2016 BAD FAITH CASES: MISREPRESENTATION ALONE CANNOT VOID POLICY WITHOUT PROOF OF INTENT AND MATERIALITY; ISSUE OF INSURER BAD FAITH IN CLAIMS HANDLING WAS FOR JURY (Philadelphia Federal)

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This case involved accusations of bad faith running in both directions. The insurer sought to void numerous life insurance policies on the deceased insured, based on claims that the insured made material misrepresentations in his insurance applications (he had multiple life insurance policies). The insured’s estate brought claims of bad faith based on the insurance investigation (alleging that the insurer at different times claimed the insured was not dead, had committed suicide and/or had been the victim of foul play, in addition to arguing that the policy should be voided on the basis of misrepresentations in the applications). Summary judgment was sought all around.

There was no issue that misrepresentations were made on the insurance application. However, there were genuine issues regarding both the insured’s intent in making those misrepresentations, and whether they were material, i.e., whether the policies still would have been issued if the truth were known to the carrier. Thus, summary judgment was denied to the insurer, since determination of the insured’s intent and how the insurer would have handled the true information were jury questions.

The court denied summary judgment to both parties on the insured’s bad faith claim. This being a federal action, plaintiff’s statutory bad faith claim was subject to a jury trial. The issue was the manner in which the insurer investigated the death of the insured, and a delay in paying benefits. The court found that the jury had to decide issues regarding whether the estate provided sufficient proof of death, and whether the insurer’s investigation “demonstrated a reasonable basis for questioning and refusing the claims.”

Date of Decision: October 20, 2016

Lincoln Benefit Life Company v. Bowman, No. 15-6697, et al., 2016 U.S. Dist. LEXIS 145327 (E.D. Pa. Oct. 20, 2016) (Savage, J.)

NOVEMBER 2016 BAD FAITH CASES: NO BAD FAITH FOR FILING DECLARATORY JUDGMENT ACTION; AND WHERE RECORD SHOWS GENUINE INVESTIGATION AND NOT PUTATIVE PREDISPOSITION TOWARD DENIAL (Third Circuit, Pennsylvania) (Not precedential)

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This non-precedential Third Circuit opinion affirmed the trial court’s opinion granting summary judgment to the insurer on a statutory bad faith claim. (We will not repeat the facts, but instead link to our previous summary of the trial court opinion).

In reciting the elements of bad faith, among other things, the appellate panel stated that because the carrier “ultimately paid the full policy limit, Appellants’ bad faith claim is based on the company’s investigation of [the] claim.” The court cited the Superior Court’s decision Rancosky v. Wash. National Ins. Co., for the proposition that “Bad faith conduct includes lack of good faith investigation into the facts.” The court does not address the issue of whether poor claims handling alone, without the denial of a benefit, can be bad faith. The trial court had noted that a long enough delay in handling the claim can be treated as the equivalent of a denial of a benefit, but the Third Circuit did not address this nuance.

(Pennsylvania’s Supreme Court has taken up Rancosky to give address to the elements of what constitutes a statutory bad faith claim.)

In addressing the merits, the appellate court first looked at plaintiff’s assertions that there was a “predisposition toward denial” and that the insurer “focused upon exclusion and accepted no facts contrary to its initial conclusion” (theories that harken bank to the 2003 Luzerne County Corch decision). However, the Third Circuit agreed that “the claims file showed that [the insurer] evaluated [the]claim, consulted with legal counsel, and tried to determine” the key issue of employment status.

Moreover, the insurer did not deny the claim, but filed a declaratory judgment action to determine this key issue and how it affected coverage. The insurer’s ultimately paying the policy’s liability limit demonstrated its willingness to consider new evidence and adjust its position. The court added that: “In any event, [the insurer] had the right to investigate [the]claim and determine whether it was covered under the policy, regardless of whether [the insurer] initially sought to exclude the claim. Citing its own prior precedent: “[A]n insurer does not act in bad faith by investigating and litigating legitimate issues of coverage.”

The appellate court agreed that there was no bad faith under Pennsylvania law in filing a declaratory judgment action to seek a coverage determination, to resolve legal ambiguities after it had investigated the facts of the claim. The court observed that the insurer had consulted with in-house counsel before the decision to file the declaratory judgment action, showing that the insurer was still considering the insured’s claim.

The court affirmed the grant of summary judgment on the bad faith claim.

Date of decision: October 4, 2016

Bodnar v. Nationwide Mut. Ins. Co., No. 15-3485, 2016 U.S. App. LEXIS 17903 (3d Cir. Oct. 4, 2016) (Hardiman, McKee, Rendell, JJ.)

 

NOVEMBER 2016 BAD FAITH CASES: ALLOWING REINSURER TO IMPROPERLY HANDLE CLAIM EXPOSES INSURER TO BAD FAITH CLAIMS; REINSURER CANNOT BRING DIRECT CLAIMS AGAINST INSURED FOR REVERSE BAD FAITH OR INSURANCE FRAUD (Western District)

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This factually complicated case involved reverse bad faith and 18 Pa.C.S. § 4117 insurance fraud claims by an insurer and reinsurer, and bad faith claims by the insured against its insurer.

The court first ruled that a reinsurer could not void an insurance policy to which it was not a party, since it had no contractual privity with the insured. It then concluded that the reinsurer could not be considered an insurer for purposes of section 4117(g) fraud claims. Finally, after discussing the state of the law on “reverse bad faith”, the court again found this to be a contractually based claim, and the reinsurer simply did not have a contract with the insured. Summary judgment was granted against the reinsurer on all of these issues.

The insured claimed that the insurer breached the insurance contract by allowing the reinsurer to adjust the claim and to take the lead in decision making on claims handling. The court ruled this was an issue for the jury to decide and would not grant summary judgment. However, the court also left it to the jury whether the insured could recover if the insured’s conduct also breached the insurance agreement.

As to the insurer’s summary judgment motion on the insured’s counterclaims, the court found that in electing to affirm the contract and pursue money damages, rather than to seek rescission, the insured cannot argue that a breach of its own obligations under the policy can somehow be ignored in addressing the insurer’s defense.

As to the alleged fraud claim against the insured, the insured took the position that the alleged fraud was carried out by a third party. The insurer argued apparent authority, and the court concluded that the issue of apparent authority in making out a fraud claim against the insured was a jury issue. There was also extensive and detailed discussion of the particulars of the alleged fraud, which will not be addressed here.

The insured also brought claims for common law and statutory bad faith against its insurer. [In looking at the statutory bad faith case law, the court cited authority reiterating the questionable theory that the bad faith statute was intended to address conduct beyond the denial of a benefit.] The court found that the both claims survived summary judgment.

The insured’s basic theory was that the insurer “essentially abandoned its insured during the claims adjustment process by turning [the insured’s] fate over to an unrelated third party that, as a practical matter, was not subject to [the insurer’s] control, had no contractual accountability to [the insured], and had a financial incentive to minimize the amount of payments that would be made to [the insured] under the Policy.” The third party is the reinsurer, and evidence was presented to the court that the reinsurer “was given the final say on various issues that were important, if not critical, to the adjustment of [the] loss and the continuation of [the insured’s] business, including the valuation of [the insured’s] daily revenue value (which were important for purposes of calculating its business income losses), the determination that business income payments would cease upon [the insured’s] relocation to the new … facility, and the ultimate decision to cancel the Policy. [The insured] has also produced evidence from which a factfinder could infer that [the reinsurer], in exercising its discretion, placed its own financial interests ahead of [the direct carrier’s] insured.

The court also cited to conflicts in claims handling mandates of the reinsurance treaty, and evidence suggesting that the insurer disagreed with the reinsurer’s “course of action in important respects, yet failed to take any corrective action for the benefit of its insured.” The court stated that the direct insurer “may be held liable … for the acts committed by [the reinsurer] in connection with the investigation and adjustment of its claim.” Thus, the court concluded that the evidentiary record construed in the non-movant insured’s favor “could support a finding of bad faith on the part of [the insurer] as it relates to the investigation and adjustment of [the insured’s] loss.” Summary judgment was thus denied to the insurer on the bad faith claims.

Date of Decision: September 29, 2016

Hartford Steam Boiler Inspection & Insurance Company v. International Glass Products, LLC, No. 2:08cv1564, 2016 U.S. Dist. LEXIS 135045 (W.D. Pa. Sept. 29, 2016) (Cercone, J.)

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NOVEMBER 2016 BAD FAITH CASES: BAD FAITH IMPOSSIBLE WHERE INSURER COMPLIED WITH ALL COVERAGE TERMS (Pennsylvania Superior Court) (Not Precedential)

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In a short unpublished opinion, the Superior Court affirmed a trial court’s finding of no bad faith. The dispute centered around replacement value vs. actual cash value, policy language capping damages, and policy exclusions. Both the trial and appellate courts found the policy unambiguous, that coverage was for actual cash value, and that other claims were capped or excluded. Thus, the insurer acted in accordance with the policy language and there could be no bad faith.
Date of Decision: September 13, 2016
Rogers v. Harleysville Ins., No. 289 MDA 2016, 2016 Pa. Super. Unpub. LEXIS 3339 (Pa. Super. Ct. 2016) (Bowes, Gantman, Platt, JJ.) (not precedential)

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