Archive for the 'PA – Claims Handling Procedures' Category

JULY 2016 BAD FAITH CASES: A LOW BUT REASONABLE LOSS ESTIMATE CANNOT BE BAD FAITH (Western District)

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In Gowton v. State Farm Fire & Casualty Company the insured’s sole allegation of bad faith was a conclusory averment that a refusal to pay in the amounts alleged due was bad faith. The complaint also averred at one point that the insurer relied on loss calculations that were unsupportable, without any explanation of why they were inadequate. Under Pennsylvania case law, a low but reasonable estimate of a loss is not bad faith. Thus, an unsupported claim that an insurer estimated low, by itself, cannot be bad faith. The court dismissed with leave to file an amended complaint.

Date of Decision: June 29, 2016

Gowton v. State Farm Fire & Cas. Co., No. 15-1164, 2016 U.S. Dist. LEXIS 84454 (W.D. Pa. June 29, 2016) (Bissoon, J.)

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JULY 2016 BAD FAITH CASES: REASONABLE INVESTIGATION ELIMINATES BASIS FOR BAD FAITH CLAIM, AS INSURED COULD NOT SHOW BY CLEAR AND CONVINCING EVIDENCE THAT INSURER HAD “NO GOOD REASON” TO DENY COVERAGE (Philadelphia Federal)

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Dougherty v. Allstate Property & Casualty Company involved a claim for water damage from burst pipes. The insurer took the position that the insured failed to properly maintain his furnace, leading to freezing and the burst pipes. The insurer asserted a frozen pipe exclusion and a maintenance failure exclusion. The insured brought breach of contract and bad faith claims. The court granted summary judgment to the insurer on both counts.

On the bad faith count, the court used a “no good reason” to deny coverage standard as a means of measuring bad faith. Thus, it was not unreasonable to focus the investigation on the furnaces’ condition “given that the water damage to the property occurred in January in Pennsylvania in an unoccupied property where the gauge on the oil tank read empty at the time of the loss (even though the gauge was later determined to be faulty).” The furnace had failed due to a clogged nozzle. The insured offered no evidence to show why the insurer should have concluded that “the discharge of water caused the furnace to malfunction and not the other way around.” The court also noted that the “plaintiff testified that he has no evidence that anyone [had] any ill will towards him or that anyone … tried to influence [the expert’s] conclusions.”

Date of Decision: May 5, 2016

Dougherty v. Allstate Prop. & Cas. Ins. Co., No. 14-7270, 2016 U.S. Dist. LEXIS 59667 (E.D. Pa. May 5, 2016)

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JULY 2016 BAD FAITH CASES: NO BAD FAITH ON BASIS OF: (1) LACK OF COMMUNICATION OR INVESTIATION, (2) DIFFERENCE OF OPINION IN CALCULATING LOSS OR (3) PUTATIVE FAILURE TO ASSIGN LARGE LOSS ADJUSTER (Philadelphia Federal)

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Whalen v. State Farm Fire & Casualty Co. involved a first party homeowners’ bad faith claim. The court dismissed that claim on summary judgment. The case involved a significant water damage loss due to a failed line going to an upstairs sink which went undetected for a substantial period while the insured was on vacation.

The first bad faith claim was based on an alleged failure to provide the homeowner with information, conduct a reasonable investigation, and to explain coverage decisions. The court drilled down into the detailed record of the insurer’s efforts and conduct, and found no clear and convincing evidence of bad faith on the summary judgment record. The insurer responded to the public adjuster, and offered reasons for its decision not to pay portions of the claimed losses.

The court next rejected the argument that the insurer’s loss calculations were made in bad faith. A difference of opinion in calculating the loss cannot constitute bad faith.

Finally, the court rejected the argument of bad faith failure to assign a large loss adjuster. The record did not establish by clear and convincing evidence this was factually true, but even if so, it would at most be negligence and negligence is not a basis for bad faith.

Date of Decision: April 25, 2016

Whalen v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 54628 (E.D. Pa. Apr. 25, 2016) (Padova, J.)

 

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JULY 2016 BAD FAITH CASES: EVEN A PITHY COMPLAINT CAN STATE A PLAUSIBLE CLAIM WHERE INSURER ALLEGEDLY MADE NO OFFER IN RESPONSE TO ALLEGEDLY COVERED LOSSES (Middle District)

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Turner v. State Farm Fire & Casualty Company was a first party fire loss case. The insurer moved to dismiss a bad faith count under Twombly/Iqbal, which the court denied. The court found the complaint, which was neither lengthy nor highly detailed, was still adequately pleaded.

The insureds alleged the property was insured for contents coverage and other miscellaneous coverages in the amount of $159,060.00. The complaint alleged that despite repeated demands, the carrier refused to make any payment on claims subject to these coverages. The court stated: “Common sense does suggest that the items of personalty in the Plaintiffs’ damaged residence almost necessarily had some value. Because we are told that [the insurer] had offered nothing at the time the suit was filed, we are asked to assume that [the insurer’s] refusal to remit any amount in recognition of these claims is enough to establish that this complaint states a bad faith claim….” The insureds also alleged they documented the value of their claim through the report of a public adjuster, which was furnished to the insurer; and that despite being advised of the extent of the losses, the insurer made no offer to compensate the allegedly covered losses.

This was sufficient to meet the Twombly plausibility standard.

Date of Decision: January 14, 2016

Turner v. State Farm Fire & Cas. Co., Case No. 15-CV-906, 2016 U.S. Dist. LEXIS 4825 (M.D. Pa. January 14, 2016) (Conaboy, J.)

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JUNE 2016 BAD FAITH CASES: FAILURE TO ACCEDE TO SETTLEMENT DEMAND ALONE NOT BAD FAITH; ALLEGATION OF FAILURE TO REVIEW MEDICAL RECORDS DISMISSED AS CONCLUSORY (Philadelphia Federal)

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In Camp v. New Jersey Manufacturers Insurance Company, the insurer refused to pay anything beyond the tortfeasor’s settlement of this UIM claim. The court dismissed the original bad faith claim for pleading only conclusory allegations, with leave to amend. The amended complaint added some detail, as set forth below, but the court still found it insufficient. The thrust of the complaint was that the insurer did not make an offer beyond the approximately $80,000 settlement, and her medical records showed a lifetime of medical costs at approximately $221,000.

The court found plaintiff’s allegations of failing to evaluate medical records in a demand package conclusory. The court further found the allegations plainly contradicted by the facts in the same pleading. The amended complaint alleged that the insurer’s representative stated that she had reviewed all relevant records in determining that it would not be approving the UIM claim, and the insured did not plead any contrary facts. Rather the insured only alleged legal conclusions that the claims handler did not do so. Contradicting a factual claim by the insurer with a legal conclusion was not to be afforded any weight.

The insured also alleged a failure to make a settlement offer in response to the insured’s claim. “However, failure of an insurer to ‘immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.’” The insured offered no facts as to why the failure to make a settlement offer was in bad faith. The court cited the proposition that making allegations that the insurer failed to make an offer, “without additional elements of “self-interest” or “ill will” do not amount to a claim for bad faith under 42 Pa. Cons. Stat. § 8371.”

While there is case law that self-interest or ill will are not elements of section 8371 bad faith, the court cited case law where bad faith was inadequately pleaded because: (1) “[n]othing in the complaint sets forth any facts regarding [d]efendant’s actions . . . from which the Court can infer a bad faith claim”; (2) plaintiff “failed to allege facts that reasonably suggest a ‘frivolous or unfounded refusal to pay proceeds of a policy’”; (3) and failing to “provide sufficient facts . . . to suggest that [d]efendant lacked a reasonable basis for the denial of [] benefits” fatal to bad faith claim at pleading stage.

The allegations found inadequate by the court were:

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff will incur a total lifetime cost of $221, 412.00 for medical treatment and medications related to injuries sustained in the subject motor vehicle accident. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff will incur a total lifetime cost of $221,412.00 for medical treatment and medications related to injuries sustained in the subject motor vehicle accident. See Exhibit B.

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre-existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff suffered and continues to suffer from severe pain and discomfort in her neck, right shoulder and right wrist, and will require Nucynta ER, and extended release opiate analgesic, to manage her chronic pain for the foreseeable future. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered and continues to suffer from severe pain and discomfort in her neck, right shoulder and right wrist, and will require Nucynta ER, and extended release opiate analgesic, to manage her chronic pain for the foreseeable future. See Exhibit B.

It must be noted that this opinion cites a considerable body of case law, and is a useful research tool and resource.

Date of Decision: June 8, 2016

Camp v. N.J. Mfrs. Ins. Co., 2016 U.S. Dist. LEXIS 74496, *6-7 (E.D. Pa. June 8, 2016) (Heffley, U.S.M.J.)

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JUNE 2016 BAD FAITH CASES: COURT RECOMMENDS ALLOWING INSURED TO REPLEAD ITS BAD FAITH CLAIM FOR UNREASONABLE POLICY INTERPRETATION, WHICH INTERPRETATION WAS LATER ABANDONED BY INSURER (Middle District)

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In Long v. New Jersey Manufacturers Insurance Company, the insured brought a bad faith claim based upon the insurer’s allegedly unreasonable interpretation of the policy. The insurer did originally take the position complained of, limiting coverage to $100,000, but eventually dropped that position and came to agreement with the insured on there being greater coverage, $500,000. The insurer brought a motion to dismiss the bad faith claim based upon the insurer’s original position.

The pleadings showed the parties’ agreement that the insurer did for a period of time assert the more restrictive view, but later abandoned this interpretation. The bad faith case “involved an inquiry into the nature, magnitude, and reasonableness of this initial, and admittedly erroneous, interpretation of the policy….”

The court recognized “that an unreasonable, unwarranted, and unjustified interpretation of policy language may form the basis for a bad faith claim, but [there are] particularly exacting standards for such claims.” “Thus, an insurance company’s reliance on an incorrect interpretation of the law will not necessarily yield a finding of bad faith. If that interpretation of the law and policy language was erroneous, but reasonable, a bad faith may still claim fail. …. Likewise, if the insurance company had a number of bases for a legal position, some of which are objectively unreasonable, it may nonetheless defeat a bad faith claim by citing to any reasonable rationale for its action.”

The complaint itself was “spare” in its allegations of bad faith, and in the motion to dismiss process, both parties pointed to facts beyond the pleading in disputing whether the insurer’s position was reasonable. The court recognized that such factual disputes were properly addressed via a summary judgment motion. However, citing Rule 12(e), which allows a defendant to move for a more definite statement of facts in the complaint, the magistrate judge recommended dismissing the complaint without prejudice to allow plaintiff to set out a more definite statement in support of the bad faith claim in the complaint.

Date of Decision: May 17, 2016

Long v. N.J. Mfrs. Ins. Co., Civil No. 3:14-CV-2428, 2016 U.S. Dist. LEXIS 65575 (M.D. Pa. May 17, 2016) (Carlson, U.S.M.J.)

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APRIL 2016 BAD FAITH CASES: INSURED MET FEDERAL PLEADING STANDARDS IN ALLEGING BAD FAITH DELAY IN CLAIMS HANDLING, AND CONSIDERED VIOLATIONS OF STATE REGULATIONS AS WELL IN DECLINING MOTION TO DISMISS (Middle District, Magistrate's Report and Recommendation)

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In Ridolfi v. State Farm Mutual Automobile Insurance Company, the insured brought breach of contract and bad faith claims against its own insurer in connection with an automobile accident.  The insured pleaded that she had been trying to resolve the case with her insurer for over two and one half years.  She alleged that the insurer had misstated its policy limits on at least two occasions; made repeated, redundant and unnecessary requests for medical records; ignored correspondence from the plaintiff and her counsel for months; and attempted to improperly subpoena medical records of the plaintiff without providing the plaintiff proper notice. The insurer moved to dismiss the bad faith count, but the court refused to dismiss the claim. The court found that plaintiff met federal pleading standards. The complaint the claim, and delays caused by an allegedly improper investigation, coupled with an alleged lack of response to numerous legitimate requests for assistance and information from the plaintiffs. The complaint further alleged that the insurer’s claims handling violated specific state insurance claims processing laws and regulations, citing these statutory and regulatory violations as further proof of bad faith. The court refused to go beyond the pleadings, and the Magistrate Judge issued a Report and Recommendation that the motion to dismiss be denied.

Date of Decision:  March 24, 2016

Ridolfi v. State Farm Mut. Auto. Ins. Co., No. 1:15-CV-859, 2016 U.S. Dist. LEXIS 38344 (M.D. Pa. Mar. 24, 2016) (Carlson, U.S.M.J.) (Report and Recommendation)

APRIL 2016 BAD FAITH CASES: THERE CAN BE NO BAD FAITH IN FAILING TO PROVIDE INFORMATION TO BENEFICIARY OR DENYING LIFE INSURANCE BENEFITS WHERE INSURED HAD LET POLICY LAPSE BY PREMIUM NON-PAYMENT (Middle District)

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In Moll v. Pruco Life Insurance Company, the Court held that an insurer did not act in bad faith during the claims process or in denying payment on a life insurance policy, after determining that the policy had lapsed for non-payment.

The insurer had issued a life insurance policy, pursuant to which the insured owed premiums on the on the 3rd of every month, but had a 31-day grace period to make a payment before the contract would be void. The insured made monthly payments from September 2012 through February of 2013. Thereafter, the insured elected to cancel the policy.  The insurer mailed several notices of the upcoming March 3rd premium due date, and informed the insured that the policy would lapse at the end of the grace period on April 3rd if he failed to make a payment.  Still, the insured made no further payments.  On April 8th the insured died.

When his beneficiary contacted the insurer about the death benefits, she was informed that the policy had lapsed and no death benefits were due.  In response, she asked for specific information about the policy, but was informed that the insurer could not release any information without a court order appointing the executor/administrator for the insured’s estate.  Four months later, after opening an estate, the now-Administratrix repeated the request on behalf of the insured’s estate.  Although it took an additional four months, the insurer finally released information about the policy.

The estate later brought claims for breach of contract and bad faith.  Among other things, the estate alleged bad faith by failing to release information about the policy until an estate was opened, refusing to answer questions about the denial of benefits in a timely manner, and challenging the insurer’s interpretation of how premiums were to be paid and applied.  In holding that the insurer did not act in bad faith, the Court stated that Pennsylvania does not recognize a common law remedy for bad faith, and analyzed all the claims under Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. § 8371.

Pursuant to the statute, the Court looked no further than determining that the insurer had a reasonable basis for denying coverage.  Notably, the Court did not even address the arguments regarding the failure to provide information and failure to respond in a timely manner.  Instead, the Court relied on the fact that the insured made no premium payments to avoid lapse.  Thus, the Court held that the insurer appropriately and timely declined the death benefits, and granted summary judgment to the insurer.

Date of Decision:  February 26, 2016

Nicole Moll v. Pruco Life Ins. Co., NO. 1:14-CV-1040, 2016 U.S. Dist. LEXIS 23464 (M.D. Pa. February 26, 2016) (Conner, J.)

MARCH 2016 BAD FAITH CASES: (1) BAD FAITH CLAIM FOR FAILURE TO COMMUNICATE SETTLEMENT DEMANDS WITHIN POLICY LIMITS REQUIRE SAME PROOF UNDER PENNSYLVANIA OR NEW JERSEY LAW; (2) POTENTIAL LOWER STANDARD FOR PUNITIVE DAMAGES IN PENNSYLVANIA NOT A BASIS TO DISMISS CLAIM; (3) ACTIONABLE CLAIM AGAINST AN INSURER’S MANAGING AGENT FOR CONTRIBUTION (New Jersey Federal)

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In Allegheny Plant Services v. Carolina Casualty Insurance Company, the insured was subject to personal injury tort claims. The carrier provided defense counsel, and the case went to trial.  The jury verdict exceeded policy limits by nearly $700,000.  The insured brought suit against its insurer for failing to settle and/or inform the insured that there was an opportunity to settle within policy limits.  The insurer also sued appointed defense counsel.  Defense counsel joined the insurer’s agent that was allegedly engaged to monitor and manage the defense litigation, on a theory that the agent knew the policy limits and failed to manage the litigation prudently.

Although the case was transferred to New Jersey, the insured brought a Pennsylvania statutory bad faith claim against the insurer. The insurer sought to dismiss that claim on summary judgment. The court denied that motion.  Likewise the court denied the managing agent’s motion to dismiss defense counsel’s claim for contribution.

The court applied a conflict of laws analysis on the bad faith claim. Although New Jersey’s insurance bad faith claim is based in common law (the “fairly debatable” standard), not statute, the basic standards of proof are the same:  the lack of a reasonable basis to deny benefits, and a knowing or reckless disregard of that fact in denying benefits. The court observed that Pennsylvania’s courts had rejected proof of self-interest or ill-will as a third element.

The court then addressed the potential conflict between Pennsylvania’s right to punitive damages under the Bad Faith statute, and New Jersey’s general statute on punitive damages. It found a lack of clarity in the law on when punitive damages may be allowed under Pennsylvania’s Bad Faith statute, i.e., can punitive damages be awarded solely on a finding of statutory bad faith, and is that a different, lower, standard than an award of traditional punitive damages?

The court then stated: “I find it plausible that Pennsylvania would permit, if not require, a punitive damages award based on a bad faith verdict. Such a verdict, however, would have to carry within it the factual basis for a traditional award of punitive damages. Otherwise, punitive damages would be awarded in every bad faith case; if that had been intended, I would have expected a much clearer legislative statement to that effect. At any rate, such a conflict as to punitive damages—even if it existed—would not require me to dismiss Count 3, the relief sought here.”

Without resolving this critique of Pennsylvania law, the court went on to observe that should this issue arise at trial, Pennsylvania and New Jersey law could apply to proving bad faith, as both state’s laws are identical on that issue.  And, if it came down to it at trial, the parties could again move to determine which state’s law applied to punitive damages. Thus, there was still no basis to dismiss the case under either state’s law. Further, were there a true conflict, the court concluded that Pennsylvania law would apply; which would seem to resolve the punitive damages issue, but the court appeared to leave that open up to the time of trial.

As to the managing agent’s motion to dismiss, the court observed that the key to a viable claim for contribution among joint tortfeasors  is “common liability to the plaintiff at the time the cause of action accrued.” The court found that defense counsel’s third party complaint against the alleged agent adequately set forth a claim that that the managing agent contributed to a unitary injury suffered by the insured. Factual issues concerning the ability to control the defense, and the alleged agent’s contractual relations with the insurer, among other things, could not be disposed of at the motion to dismiss stage.

Date of Decision:  March 17, 2016

Allegheny Plant Servs. v. Carolina Cas. Ins. Co., No. 14-4265, 2016 U.S. Dist. LEXIS 35189 (D.N.J. Mar. 17, 2016) (McNulty, J.)

MARCH 2016 BAD FAITH CASES: LENGTHY INVESTIGATION ALONE INSUFFICIENT TO MAKE OUT BAD FAITH CASE; LATER LARGE JURY VERDICT ALONE COULD NOT SHOW BAD FAITH; TRIAL COURT HAS BROAD DISCRETION IN REJECTING EXPERT’S LEGAL CONCLUSIONS ON BAD FAITH (Third Circuit)

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In Shaffer v. State Farm Mutual Automobile Insurance Company, the Third Circuit upheld the trial court’s summary judgment decision in this underinsured motorist case, affirming that “no reasonable fact finder could conclude that there is “clear and convincing” evidence that the insurer acted in bad faith”.

In evaluating a bad faith claim the court observed that:  “A claim for bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant. ….  Although a delay between a demand for benefits and an insurer’s determination of whether to pay a claim is relevant, delay “does not, on its own, necessarily constitute bad faith.” ….  Rather than focusing solely on delay, courts have looked “to the degree to which a defendant insurer knew that it had no basis to deny the claim[].” Thus, “’[i]f delay is attributable to the need to investigate further or even to simple negligence,’ bad faith has not been shown.”

The insureds focused on the alleged delay in investigating and evaluating their UIM claim.  The court found that the insurer’s request to obtain the injured insured’s extensive medical file was not undertaken for the purpose of delaying the claim. Nor was there evidence that retaining a doctor to review the file was merely a pretext to effect a low payment the claim.  Even if the claims handling process was flawed, no evidence was presented that the delays or the insurer’s objectives were anything other than an effort to evaluate the insured’s medical history and determine the claim’s value.

After summary judgment on bad faith had been entered below, the case went to trial and the insureds won a substantial jury verdict.  The Third Circuit did not find this a basis to rewrite the lower court’s decision. The “jury’s later determination regarding the credibility of [the] medical review does not affect the reasonableness of [the insurer’s] earlier reliance on that review. Similarly, the fact that [the insurer’s] settlement offer was much lower than the amount the jury ultimately awarded would not necessarily affect the reasonableness of [the insurer’s] reliance on the review in making that offer.”

The court further ruled that the timing of the insurer’s opening the UIM file was not a basis for reversal; nor was the manner in which the carrier assessed medical expenses from the incident at issue vs. prior injuries.

Finally, the Third Circuit upheld the trial court’s decision to disregard the insured’s expert regarding the bad faith issue.  A trial court “has considerable discretion to accept or reject an expert’s conclusions on the question of bad faith.” And in this case, the expert review provides a legal conclusion without adding any additional facts, and so provides no factual evidence to support a claim of bad faith.”

Date of Decision:  March 10, 2016

Shaffer v. State Farm Mut. Auto. Ins. Co., No. 15-1196, 2016 U.S. App. LEXIS 4448 (3d Cir. March 10, 2016) (Jordan, McKie, Vanaskie, JJ.)