Archive for the 'PA – Claims Handling Procedures' Category

FEBRUARY 2015 BAD FAITH CASES: COURT WOULD NOT STRIKE ALLEGATION THAT BAD FAITH EXISTED BASED UIPA VIOLATION, SINCE THE SAME CONDUCT THAT COULD VIOLATE UIPA MIGHT ALSO BE EVIDENCE TO ESTABLISH BAD FAITH, DISTINCTLY FROM BEING LABELED AS A UIPA VIOLATION (Philadelphia Federal)

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In Moore v. State Farm Fire & Cas. Co., the insurer moved to strike an averment that it violated the bad faith stated because it violated the Unfair Insurance Practices Act.  The court found that although the bad faith statute 42 Pa.C.S. § 8371 does not set forth a standard, Pennsylvania courts have uniformly adopted the Terletsky standard that an insured must prove “(1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.” Prior to Terletsky some courts had looked to the UIPA for standards, but that practice was not to be followed post-Terletsky.   “Thus, a violation of the UIPA does not per se constitute bad faith.”  On the other hand: “Nor does the fact conduct violates the UIPA prevent the conduct from also being evidence of bad faith.” “Instead, the question is whether the particular conduct (that may or may not violate the UIPA) is relevant to show that the insurer lacked a good faith basis for denying benefits and knowingly or recklessly disregarded that fact.” The court stated: “Based on these principles, the Court will not conclude at this juncture, that evidence regarding conduct that allegedly violated the UIPA ‘ha[s] no possible relation to the controversy’ or evaluate the extent to which it ‘may cause prejudice to one of the parties.’” The court thus refused to strike the averment.

Date of Decision: February 4, 2015

Moore v. State Farm Fire & Cas. Co., NO. 14-3113, 2015 U.S. Dist. LEXIS 13018 (E.D. Pa.  February 4, 2015) (Beetlestone, J.)

FEBRUARY 2015 BAD FAITH CASES: BAD FAITH CLAIM DISMISSED DUE TO LACK OF FACTUAL SUPPORT TO MAKE OUT A PLAUSIBLE CLAIM; PUTATIVE DISCOVERY VIOLATIONS DURING LITIGATION CANNOT CONSTITUTE BASIS FOR INSURANCE BAD FAITH CLAIM (Philadelphia Federal)

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In Morrissey v. State Farm Fire & Cas. Co., plaintiffs’ home was damaged by a fire, making it uninhabitable.  Their homeowners’ insurance policy provided coverage limits of $220,000 for the house, $165,000 for personal property, and the actual value of the loss of use sustained. Plaintiffs filed claims for the damage to the home, damage to their personal property, and costs for alternative housing while the home was being repaired.   The insurer filed a motion to dismiss the bad faith (and consumer protection law) count, which the court granted, without prejudice to amend, though the court noted amendment would appear to be futile.

The insurer investigated the claims and obtained sworn statements from the plaintiffs. After completing its investigation, the insurer extended coverage for the claim on damage to the home itself.  The check was made payable to plaintiffs, their attorney, and plaintiffs’ former bank.  Plaintiffs made repeated requests for the bank to endorse the check so repair work could begin on the home, but the bank refused because it no longer held the mortgage.  Eventually, plaintiffs’ counsel returned the check to the defendant and requested it be re-issued to the plaintiffs, plaintiffs’ counsel, and the plaintiffs’ current mortgage holder.  The insurer refused to do so based on an internal policy which required checks to be made to the bank that held the mortgage at the time of the loss.  Ultimately, a second settlement check was issued and processed four months after the original check was issued.  The insurer then provided notice it would only cover four more months of alternative housing.

Plaintiffs brought suit alleging the insurer violated the bad faith statute by: 1) issuing the settlement check over one year after the fire occurred; 2) delaying reissuing the check for three and a half months “for no valid reason”; 3) filing boilerplate objections to Plaintiff’s discovery to gain an advantage in the litigation; 4) arbitrarily refusing to settle their claims; and 5) breaching fiduciary duties and other state laws.  The Court, however, dismissed the claims.

Plaintiffs failed to set forth factual information to show that the defendant lacked a reasonable basis for delaying payment of their benefits, and also failed to offer information about the alleged repeated attempts to negotiate with the carrier.  They provided no facts to explain why the delay in settlement was arbitrary, or that the investigation was unwarranted or inadequate.  Rather, the insureds simply asserted the delay represented bad faith; however, a delay in payments of claims alone cannot constitute bad faith.  Finally, even if the delay was unreasonable, plaintiffs failed to show the insurer knew or disregarded a lack of a reasonable basis.

Allegations that the insurer acted in bad faith during the litigation by filing “boilerplate objections to Plaintiff’s discovery … for the purpose of preventing the drafting of a Complaint to get an advantage in this case” did not show bad faith. The court observed that “bad faith may extend to the misconduct of the insurer during the pendency of litigation.  ….  However, the defendant’s objections to the plaintiff’s request for pre-complaint discovery were not unreasonable. The plaintiffs’ allegation that these objections were meant to give the defendant an advantage are unsupported and merely conclusory. The court noted: “This is especially true given that the state court judge accepted the defendant’s argument that this request was a ‘fishing expedition’ and was unnecessary for the plaintiffs to file their complaint.” Further, boilerplate discovery objections do not constitute a basis for an insurance bad faith claim.

In sum, the court found that the insureds’ “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to state a valid cause of action. …. [and that the insureds] failed to assert a plausible bad faith claim under Pennsylvania law.”

Date of Decision: December 18, 2014

Morrisey v. State Farm Fire & Cas. Co., Civil Action No. 14-05193, 2014 U.S. Dist. LEXIS 174998 (E.D.Pa. Dec. 18, 2014) (Stengel, J.).

JANUARY 2015 BAD FAITH CASES: PLAINTIFF’S UIM BAD FAITH CLAIM NARROWLY SURVIVES SUMMARY JUDGMENT BECAUSE OF MUDDLED RECORD AS TO WHAT CAUSED DELAYS (Middle District)

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In Clemens v. New York Central Mutual Fire Insurance Company, plaintiff brought a UIM bad faith case, with the chief issues focusing on the 39 month time period between the claim being asserted and the filing of suit.  There were three areas at issue on cross motions for summary judgment as to this lengthy delay and who, if any one side, bore responsibility: the content and provision of medical authorizations, efforts to arbitrate the matter, and efforts to schedule a statement under oath.  The court ultimately concluded that the record was so unclear, it could rule for neither party.

The court stated that “in each of these areas, the parties exhibited a lack of civility and an inability to move this matter forward at a reasonable pace,” and “having reviewed that record, [the court] simply cannot conclude that either party has demonstrated as a matter of law that the other side was unilaterally responsible for the long delay between Plaintiffs’ transmission of its Notice of Intent to file an underinsured motorist claim and the filing of the complaint that initiated this matter.”

Further, the court stated that it could not find “as a fact that, to the extent the long delay was attributable to the Defendant, it was or was not motivated by ‘self-interest or ill will’ as required by Terletsky….”  This statement is noteworthy as some courts have concluded that self-interest and ill will are evidence of bad faith, not elements of bad faith.

The court also stated: “The Court is compelled to note at the outset that the hallmark of this case has been petulant and even acrimonious bickering among opposing counsel. The Court is also confounded that a relatively straightforward claim for underinsured motorist benefits that could not exceed $35,000.00 in value could have produced 83 docket items and more than 7,000 pages of correspondence and medical notes. That said, we turn to the question whether either party to this lawsuit may legitimately claim that no material fact is in dispute and that either one is now entitled to judgment as a matter of law. The Court concludes that the muddled record in this case cannot support summary judgment in favor of either party.” Thus, the matter had to go to a jury “to make the ultimate determination whether Defendant’s conduct in this matter was so unreasonable as to constitute ‘bad faith’ under 42 Pa.C.S. § 8371.”  The court did observe that because (1) a plaintiff has the burden to prove its case by clear and convincing evidence, and (2) “Plaintiffs’ persistent failures to cooperate in the discovery process and a failure to observe the literal requirements of Rule 56.1 of the local rules of court, Plaintiff escaped a judicial determination that bad faith cannot be determined from this record by the narrowest of margins.”

The court had earlier stated that an insurer did not have to show its conclusions were correct, or “that its conclusion more likely than not was accurate.” “Nor is the insurance company required to show that the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.”  “Instead, an insurance company must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.” As to the plaintiff’s burden under the clear and convincing evidence standard, the plaintiff has to show that “the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith.”

Date of Decision:  January 15, 2015

Clemens v. New York Cent. Mut. Fire Ins. Co., Case No. 3:13-CV-2447, 2015 U.S. Dist. LEXIS 4903 (M.D. Pa. Jan. 15, 2015) (Conaboy, J.)

 

JANUARY 2015 BAD FAITH CASES: UIM BAD FAITH PLAINTIFF ADEQUATELY PLEADS CLAIM WHERE CARRIER SWITCHES POSITIONS ON BASIS FOR DENIAL (Philadelphia Federal)

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In Lyman v. State Farm Mutual Automobile Insurance Company, plaintiffs brought breach of contract and bad faith claims against their UIM insurer.  The carrier sought to dismiss the claims, asserting they were mere boilerplate and could not stand under Twombly.  The court disagreed.

The court found that the complaint alleged specific acts of bad faith, including allegations that: the insurer asked the insured to undergo an evaluation conducted by a chiropractor selected by the insurer,  who opined in her report that the insured’s “condition was caused by the accident in question; that her condition was not going to improve into the future and had reached the maximum level of improvement; and that further medical care … was not warranted because it would not make her any better.” The complaint alleged “that, notwithstanding the report’s findings, [that chiropractor] and the defendants ignored [the insured’s] need for palliative care, i.e., care administered to relieve pain as opposed to achieving a rehabilitative cure.”

The insured also alleged that “the defendants abused and/or violated the Peer Review … by finding that medical treatment was not reasonable or necessary without following the procedures set forth in the statute.”  The insured further alleged “that the defendants refused ongoing medical care for her, which prevented ongoing medical documentation and medical proof of her injuries admittedly caused by the accident, in order to frustrate and/or limit her claim for underinsured motorist benefits.”  These allegations supported the claim that “the defendants knew of their lack of a reasonable basis to deny medical treatment and to deny underinsured motorist benefits.” Further, the complaint alleged “that while the defendants refused to change their position on the denial of benefits, they shifted their reasons for denying them,” and that in “stark contradiction to their adoption of the chiropractor’s findings, the defendants suddenly denied that the ongoing care was related to the injuries caused by the accident in question.” The assertion was that this shift occurred to deny medical care and eliminate UIM exposure.  The court stated that: “By subsequently changing their position and asserting that [the insured’s] ongoing medical condition was not caused by the accident, a position contrary to the medical conclusions and determinations of their own chiropractor, the defendants give credence to the plaintiffs’ allegation that the defendants knowingly denied underinsured motorist benefits without a reasonable basis.” Date of Decision:  December 16, 2014

Lyman v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 14-6235, 2014 U.S. Dist. LEXIS 173345(E.D. Pa. December 16, 2014) (Stengel, J.)

NOVEMBER 2014 BAD FAITH CASES: INSURER EXPOSED TO BAD FAITH CLAIM BY USING INSURED IN CLAIMS HANDLING PROCESS INSTEAD OF PAYING FOR THIRD PARTY TO DO THE WORK (WHERE INSURED FELL THROUGH A ROOF) (Western District)

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In Selmek v. State Farm Fire & Cas. Co. the insurance adjuster had asked for some assistance from the insured in inspecting a damaged roof and securing it from further damage, as a result of which the insured fell through the roof.  The insured brought claims for negligence and bad faith.  The Court found that the insurer had a contractual duty of good faith to inform the insured that under the policy the insurer had to pay for a third party contractor to take on these sorts of risks in securing the property.  The insured alleged that the insurer had the insured take on these tasks to improperly save money by not hiring a contractor, as required under the policy.  This sufficiently stated a statutory bad faith claim.

Date of Decision:  September 20, 2014

Selmek v. State Farm Fire & Cas. Co., No. 14-388, 2014 U.S. Dist. LEXIS 162294 (W.D. Pa. Sept. 20, 2014) (Fischer, J.)

NOVEMBER 2014 BAD FAITH CASES: INSURED FAILED TO PLEAD SUFFICIENT FACTS TO MAKE OUT BAD FAITH CLAIM WHERE PARTIAL PAYMENT MADE BY CARRIER, BUT LEAVE TO AMEND GRANTED (Middle District)

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In Stephens v. State Farm Fire & Cas. Co., a husband and wife brought suit against their homeowners’ insurance carrier alleging breach of contract, statutory bad faith, and a claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.  Plaintiffs alleged they suffered concurrent losses to their home via theft, vandalism, and water damage.  An adjuster visited the property to view the damages and evaluate the claimed losses, and, based on that evaluation, the carrier paid some benefits toward the claimed losses.   Plaintiffs then filed suit against the insurer.

Plaintiffs initially brought their action pro se, however, four days prior to the statute of limitations, they moved for leave to amend and filed an amended complaint.  In the bad faith count of the amended complaint, Plaintiffs alleged the insurer only paid them partial benefits on their claim, and that the claims had been given three different claim numbers despite being related to concurrent loss events.  The carrier opposed the motion for leave, arguing the amended complaint was untimely and futile since the claims raised by the plaintiffs failed as a matter of law.

The Magistrate Judge’s Report and Recommendation, later adopted by the District Court, denied the carrier’s motion as to lack of timely filing because Plaintiffs filed their motion and amended complaint prior the deadline, albeit four days prior.  It did, however, grant the motion with respect to futility on the bad faith count.  The court found two key problems with plaintiffs’ bad faith claim.  First, it faced a “threshold factual hurdle,” as Plaintiffs received a partial payment of their claim under the policy, which the court found to be inconsistent with a claim of complete bad faith on the part of the insurer.  Secondly, the claim failed as a matter of law, because Plaintiffs merely made conclusory allegations that the partial payment constituted a breach of the contract, and therefore the carrier had engaged in bad faith conduct.  The court determined that without a factual basis to support the claim, established case law required the complaint be dismissed.

The district court judge adopted the magistrate’s opinion, and dismissed the claim without prejudice, allowing Plaintiffs the opportunity to further amend the claim and articulate a factual basis to support the bad faith allegations against the carrier.

Date of Decision: September 12, 2014

Stephens v. State Farm & Cas. Co., Civil Action No. 1:14-CV-160, 2014 U.S. Dist. LEXIS 147953 (M.D.Pa. Sept. 12, 2014) (Carlson, U.S.M.J.)

Adopted in Stephens v. State Farm Fire & Cas. Co., NO. 1:14-CV-160,2014 U.S. Dist. LEXIS 147180 (M.D. Pa., Oct. 16, 2014) (Conner, J.)

NOVEMBER 2014 BAD FAITH CASES: CARRIER’S INVESTIGATION AND DENIAL OF UIM BENEFITS FOLLOWING PAYMENT OF FIRST PARTY MEDICAL CLAIM NOT BAD FAITH; NEITHER LENGTH OF INVESTIGATION ALONE NOR DISPUTING CAUSATION AFTER NOT MAKING IT AN ISSUE IN ORIGINAL CLAIM CREATE BAD FAITH PER SE (Middle District)

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In Shaffer v. State Farm Mut. Auto. Ins. Co., plaintiff and his wife brought a bad faith claim against their carrier after being denied UIM coverage, following payment of medical coverage on a first party claim.  The claim resulted from a motor vehicle accident in which the other driver was primarily at fault.  After the collision, the carrier conducted an internal arbitration, but declined to award to damages to either party.  At that time, Plaintiff sought conservative medical treatment under his policy, but declined to file a UIM claim.  Over the next year, the carrier repeatedly requested documentation from Plaintiff regarding his medical treatment, including a completed application for benefits, and medical record authorizations, but Plaintiff failed to return the application, authorization, or any medical records to the carrier.

Eventually, Plaintiff’s counsel informed the carrier Plaintiff required back surgery, and indicated the carrier would be sent a copy of the bill for the surgery, and requested he be advised if Plaintiff’s medical coverage was close to being exhausted.  Shortly after the surgery, Plaintiff’s counsel and the carrier discussed the possibility of a UIM claim for the first time, but Plaintiffs’ counsel merely indicated he would contact the carrier in the future if he felt a UIM claim was necessary.  The carrier received a final treatment bill, and medical records indicating the back surgery’s success; thus, having received no contact in over six months from Plaintiff or his counsel, the carrier closed the file.

Five months later, Plaintiff settled his claim against the other driver for $72,500 of the driver’s $100,000 policy limit, and then filed a claim for UIM coverage under his own policy.  Plaintiffs’ auto policy provided coverage for medical payments and $100,000 in UIM coverage, and allowed for “stacked” UIM coverage, yielding $200,000 in total UIM coverage.  Plaintiff presented the carrier with over 800 pages of medical records to the carrier both pre-dating and post-dating his treatment for the injuries related to the accident, and then provided the carrier with a $250,000 demand, requesting the carrier tender $100,000, the amount of one of the policy limits.

Two months later, plaintiff gave his statement under oath and finally provided all signed medical authorizations.  The carrier then began collecting the medical records, which took another ten months, due in part to Plaintiff’s withdrawal of his initial demand to add additional injuries to his claim.  After compiling all the records, the carrier had its orthopedic expert review the records and write a report evaluating the claim.  The expert concluded most of the injuries were chronic, and not materially or substantially changed by the accident, and that Plaintiff would have eventually needed the back surgery regardless of the crash.

Based on this report, the carrier set a reserve range of $0 to $40,000, and offered Plaintiff $10,000 to settle the claim.  Plaintiff rejected the offer, and one year later filed a lawsuit alleging the carrier violated Pennsylvania’s bad faith statue through its delay in investigating and evaluating the UIM claim.

The court found Plaintiffs’ bad faith claim without merit and dismissed it on summary judgment.  Although the carrier closed the file in December of 2010, it did not become aware of Plaintiffs’ intention to file a UIM claim until April of 2011.  After receiving the claim, a UIM adjuster was immediately assigned, and the carrier spent two years collecting medical records, obtaining plaintiff’s statement under oath, and arranging for review of Plaintiff’s medical records by its expert.  The court conceded that two years was a long time for claim investigation, but noted a long investigation period does not in and of itself constitute bad faith, absent obfuscation, dishonesty, or malice on the part of the carrier. Plaintiff also argued the carrier’s questioning of causation in the UIM claim was improper because it did not question causation in the first party claim; however, case law has established payment of first party benefits does not constitute an admission of causation in subsequent claims.  Therefore, the carrier was free to investigate causation of the UIM claim.

Finally, no evidence existed that the carrier did not conduct its investigation in a reasonable manner, even if the carrier did not move as quickly as Plaintiffs would have liked, or anticipate the UIM claim even before Plaintiffs’ counsel notified the carrier of the claim.

Date of Decision: Oct. 20, 2014

Shaffer v. State Farm Mut. Auto. Ins. Co., Civil Action No. 1:13-cv-01837, 2014 U.S. Dist. LEXIS 149095 (M.D.Pa. Oct. 20, 2014) (Rambo, J.).

OCTOBER 2014 BAD FAITH CASES: NO BAD FAITH IN UIM CASE WHERE INSURER CORRECTLY DETERMINED COVERAGE BASED ON INSUREDS’ CONTRACTUAL CHOICE TO LIMIT UIM AMOUNTS, AND WHERE NO OTHER FORM OF BAD FAITH ASIDE FROM COVERAGE DENIAL WAS PLEADED (Philadelphia Federal)

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In Davis v. Allstate Property & Casualty Company, the UIM plaintiff brought claims for breach of contract and bad faith, based upon an alleged failure to pay $600,000 in connection with a fatal car accident.  The court found, however, that the insureds had complied with all the requirements necessary under Pennsylvania’s Motor Vehicle Financial Responsibility Act to reduce their policy’s underinsured motorist coverage to $15,000 per person and $30,000 per accident, and thus the insurer correctly denied claims in excess of the contractually agreed upon coverage amount.  The claim for breach of an implied covenant of good faith and fair dealing was likewise dismissed, because Pennsylvania law precludes that claim from proceeding independently of the contract claim on which it is based.

Further, there could be no statutory bad faith for denying coverage in these circumstances.  The court stated:  “When an insurer makes a correct determination of the amount owed under a policy, it has a reasonable basis for denying an insured’s claims for a higher amount,” and “plaintiff’s bad faith claim fails as a matter of law because a correct determination of coverage precludes a bad faith claim predicated on a theory that the insurer unreasonably denied coverage.”

Nor, was any other form of bad faith pleaded. The court stated that “Pennsylvania law does not limit bad faith claims to unreasonable denials of coverage. A bad faith [claim] can have various other bases, including an insurer’s lack of investigation, lack of adequate legal research concerning coverage, or failure to communicate with the insured.” However, no factual averments were pleaded to support even the inference that the insurer did not conduct an investigation, failed to conduct adequate legal research, or did not communicate with the insured.

That being said, the bad faith claims were dismissed without prejudice for plaintiff to file a second amended complaint which adequately sets forth her bad faith claims.

Comment:  This latter point raises the debated issue of whether a poor claims handling practice that may even be a violation of the UIPA, but which in no way results in, or is connected to, the actual delay or denial of a benefit because no benefit is owed under the policy, can constitute statutory bad faith.  See, e.g., Berks Mut. Leasing Corp. v. Travelers Prop. Cas., NO. 01-CV-6784,2002 U.S. Dist. LEXIS 23749, footnote 8 (E.D. Pa.  Dec. 9, 2002) (Yohn, J.) (“Accordingly, I find plaintiff’s interpretation of the statute unpersuasive. Instead, I conclude that Section 8371   is limited to causes of actions arising out of the bad faith handling or payment of claims and does not apply to conduct unrelated to the denial of a claim. In so holding, I join other courts that have expressly embraced this interpretation of Section 8371.”); Focht v. State Farm (“In this regard, it is relevant that the District Court for the Eastern District of Pennsylvania has held that, in determining whether a defendant had a “reasonable basis” for denying an insurance claim, the test elucidated in Terletsky “is an objective one” and that as long as “a” reasonable basis exists to deny the claim, “there cannot, as a matter of law, be bad faith.”); but see Shannon v. New York Cent. Mut. Ins. Co. (“Given the remedial purpose underpinning the Bad Faith Statute, we are not persuaded that permitting an insurer to evade its statutory obligation due to some fortuitous fact to which it was oblivious is consistent with the legislature’s intent.”).

Date of Decision: September 30, 2014

Davis v. Allstate Prop. & Cas. Co., Civil Action No. 13-cv-07038, 2014 U.S. Dist. LEXIS 138022 (E.D. Pa. September 30, 2014) (Knoll Gardner, J.)

OCTOBER 2014 BAD FAITH CASES: COURT FINDS “LACK-OF-FORTUITY” EXCLUSION IMPLIED IN EVERY ALL RISK INSURANCE POLICY, AND NO BAD FAITH WHERE DENIAL HAD A REASONABLE BASIS (Philadelphia Federal)

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In Fry v. Phoenix Insurance Company, the insured homeowners suffered a wall collapse, after a long history of issues with the wall. There were various expert reports on problems with the wall that led the court to conclude that the insureds had knowledge of both potential problems causing the collapse, and that they failed to timely act to prevent the collapse after having been specifically warned it would occur absent certain actions.

First, coverage was properly denied because the policy only covered collapses if the causes were hidden from the insured, and such was not the case here.

Second, and of significant interest, is the court’s then finding that there was no coverage because the collapse was not the result of chance or accident, i.e., it was not fortuitous. The court specifically found that “under Pennsylvania law, a lack-of-fortuity exclusion is implied in every all-risk policy, such as the Policy at issue here.”

The court ruled that Third Circuit precedent established this principle, citing support from appellate case law: “there is an implied exclusion in every all-risk insurance policy for losses that are not fortuitous”; the “Supreme Court of Pennsylvania would recognize a ‘judicially created “fortuity” exclusion from coverage’ based on the generally accepted principle that ‘every “all risk” contract of insurance contains an unnamed exclusion — the loss must be fortuitous in nature’”; “The fortuity requirement is based on ‘[p]ublic policy considerations and the general nature of insurance,’ preventing an insurance policy ‘from providing coverage for a policyholder’s losses unless those losses are fortuitous.’”; “[W]e predict that the Pennsylvania Supreme Court would place on the insurer the burden of proving that the circumstances of the loss were such that coverage would be inconsistent with that public policy.”

The court then addressed what the Third Circuit meant by “fortuity”. “A fortuitous event … is an event which so far as the parties to the contract are aware, is dependent on chance.” “Such an event ‘may be beyond the power of any human being to bring the event to pass; it may be within control of third persons, provided that the fact is unknown to the parties. The thrust of the definition is that the occurrence be unplanned and unintentional in nature.’” “’In essence, the doctrine precludes coverage from losses that are certain to occur.’” “’Typically, the inherent fortuity doctrines preclude coverage based on what the insured knew or should have known about its potential liability at the inception date of the insurance policy at issue….”

Moreover, the court ruled that the determination of whether a claimed loss is fortuitous is a question of law for the court. Although the court indicated the determination of fortuity was solely a legal issue, the court concluded its analysis that the loss in this case was not fortuitous because no reasonable jury could find the loss fortuitous, thus indicating there may be some role for the jury on the issue.

As to the specific record, independent of the precise cause, all of the experts had told the insureds the wall would collapse unless they took certain actions, they did not, and the wall collapsed, i.e., no fortuity.

Thus summary judgment was granted on the breach of contract claims, and the bad faith claim was dismissed as the court’s analysis demonstrated denial was reasonable.

Date of Decision:  September 19, 2014

Fry v. Phoenix Ins. Co., CIVIL ACTION NO. 12-4914, 2014 U.S. Dist. LEXIS 131504 (E.D. Pa. September 19, 2014) (Stengel, J.)

OCTOBER 2014 BAD FAITH CASES: NO BAD FAITH CLAIM WHERE INSURER CARRIED OUT REASONABLE INSPECTION AND CAME TO CONCLUSION THAT RESULT OF THE INSPECTION FELL WITHIN AN EXCLUSION, & INSUREDS DID NOT OFFER MATERIAL FACTS TO SHOW, EVEN IF WRONG, THAT POSITION WAS UNREASONABLE OR THE RESULT OF INTENT SUFFICIENT TO MEET THE BAD FAITH STANDARD (Middle District)

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In Focht v. State Farm Fire & Casualty Company, the homeowner insureds brought breach of contract and bad faith claims centering on a water based loss.  The coverage issue centered on whether the damage at issue was caused by flood damage arising up inside the house, or water penetrating the house during a storm and causing damage from above.  The former was not covered.  The insurer investigated and found that the storm damage in the upper part of the house did not correlate with water damage, but the water damage was consistent with flooding.  The insured’s public adjuster found evidence to support that the water did infiltrate from above.

The court ruled that while a reasonable jury could find for the insureds, there was no evidence to support a bad faith claim.  The insureds’ allegations at most added up to negligence or bad judgment, not bad faith.  That the insurer covered a water damage claim 8 years earlier that was arguably excluded, did not help the insureds make out a case.  Even if the exclusion had applied and the insurer paid anyway, “all that could mean is that Plaintiffs received money … to which they were not entitled.”  Such an oversight by the carrier 8 years earlier could not be evidence of bad faith in a separate claim, “when Plaintiffs’ policy specifically excludes the damage that [the insurer] determined was at issue [8 years later] and when there is no evidence in the record that that determination was motivated by dishonesty or a breach of known duty as would be required to establish bad-faith liability under Terletsky.”

In addressing the factual assertions the insureds made to defend against summary judgment, it was significant to the court that a number of facts or issues raised were not actually relevant to the coverage dispute actually at issue, particular observing that the dispute over surface vs. subsurface water was immaterial as neither was covered.  The court also found that the length of time the insurer’s inspector took with the property, 25-30 minutes, did not create an issue where there was no other evidence to indicate it should have taken longer.

Date of Decision:  September 5, 2014

Focht v. State Farm Fire & Cas. Co., 3:12-CV-01199, 2014 U.S. Dist. LEXIS 124561 (M.D. Pa. September 5, 2014) (Mariani, J.)