Archive for the 'PA – Claims Handling Procedures' Category

JULY 2015 BAD FAITH CASES: COURT PERMITS BAD FAITH CLAIM TO PROCEED BECAUSE COMPLAINT PROVIDED SUFFICIENT FACTUAL ALLEGATIONS, AND INSURER’S ARGUMENTS WENT BEYOND THE BOUNDS OF WHAT THE COURT WOULD ADDRESS AT THE PLEADING STAGE (Western District)

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In Montgomery v. Allstate Property and Casualty Insurance Company, the court denied the insurer’s motion to dismiss the insureds’ bad faith claim based on averments set forth by the insureds that rose above conclusory allegations.

The insureds claimed that their mobile home and its contents were destroyed by fire. The insureds further attested that the insurer’s adjuster inspected the property and declared the home a “total loss”.  They allege that despite the home being a total loss, the insurer “refused to provide reimbursement for foundation repair/replacement, home jacks, replacement landscaping and other expenses that were assertedly covered under the policy.”

The insured filed suit for breach of contract and bad faith. The insurer moved to dismiss the bad faith count on the basis that the insureds failed to plead sufficient facts under Twombly.

The court found that the insureds did not “raise only conclusory allegations lacking specific factual support”.  They provided a “factual basis for [their] allegation of statutory bad faith.” In response to the insurer’s arguments for dismissal, the court specifically noted that a quick payment does not by itself preclude a bad faith claim where the insureds put at issue whether the payment was knowingly or recklessly unreasonable.  Further, the court added that the insurer’s defense of citing policy language and other assertions justifying its non-payment of the foundation expenses do not preclude a bad faith claim at the pleading stage.

The court then added, however, that the insurer could later raise the putative inadequacy of the bad faith claim, and that the insureds would ultimately have the burden of proving a bad faith claim by clear and convincing evidence.

Date of Decision: June 23, 2015

Montgomery v. Allstate Prop. & Cas. Ins. Co., Civ. No. 15-324, 2015 U.S. Dist. LEXIS 81163 (W.D. Pa. June 23, 2015) (Lenihan, U.S.M.J.)

JUNE 2015 BAD FAITH CASES: (1) COURT PERMITS CLAIMS TO PROCEED ON ALLEGATIONS THAT INSURER REFUSED TO CONTINUE DAMAGE APPRAISAL PROCESS UNLESS INSURED WITHDREW PENDING BAD FAITH CLAIMS; (2) COURT WOULD NOT CONSIDER INSURER’S FACTUAL ARGUMENTS ON MOTIVE TO ASSESS INSURED’S BAD FAITH IN SEEKING AMENDMENT, AT THE MOTION TO AMEND STAGE (Middle District)

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In Militello v. Allstate Property and Casualty Insurance Company, the court granted the insured’s motion for leave to file a second amended complaint to add an additional claim for bad faith based upon: (1) an alleged refusal to conduct the appraisal process unless the pending bad faith claim was dropped; and (2) that bad faith conduct occurring during litigation can be actionable.  The insured originally filed a complaint and amended complaint alleging breach of contract and bad faith, among other things.

The insured allegedly submitted a claim to its insurer after its horse barn sustained significant damage. After the insurer refused to pay the full amount demanded, the insured alleged a breach of the insurance contract by “failing to accurately assess and pay the loss,” and that the insurer acted in bad faith “by intentionally or recklessly making false representations for the purpose of denying the full value of the claim.”

The bad faith claim alleged that the parties agreed to use an appraisal process set forth in the underlying insurance policy to resolve the breach of contract claim, but not the bad faith claim.

The insured averred that the insurer “repeatedly attempted to pressure [the insured’s] counsel to drop the pending bad faith claim.” After the insured refused to do so, counsel for the insurer allegedly sent an email indicating that he could not “proceed to appraisal with the bad faith claim hanging over [his] head.” The insurer eventually withdrew from the appraisal process after “both parties identified their individual appraisers and selected a neutral appraiser, and [the insured’s] appraiser had submitted his appraisal report to [the insurer’s] appraiser.”

The insured sought a second amendment to the complaint based on the insurer’s withdrawal from appraisal process “to which it had contractually committed”.  The insured further included allegations of bad faith relating to the insurer’s “withdrawal from the appraisal process due to [the insured’s] refusal to terminate his bad faith claim in federal court.”

The insurer opposed the motion on the basis that the facts would show it withdrew from the appraisal process because it concluded there was insurance fraud; and that it put the insured on notice it would be seeking to amend its answer to bring an insurance fraud counterclaim.  The insurer thus claimed the amendment was essentially a litigation tactic, and that the amendment should be denied for undue delay and bad faith.  The insurer also asserted the amendment was futile, chiefly based upon its factual arguments.

The court rejected all of the insurer’s positions.  First, the court was not convinced that the insured sought to amend its motion based on bad faith rather than “the otherwise colorable claims asserted in his second amended motion.” The court concluded that if it “should be found later that [the insured] lacks a good faith belief in the new facts upon which he bases his proposed amendment, [the insurer] is not without a remedy.”  The court found that the factual arguments the insurer asserted against permitting amendment raised disputes of fact which were matters to be addressed during the course of litigation. They were not accepted as true at this stage as a basis to deny an amended complaint.

As to the futility argument on the substance of the new bad faith allegations, the court first observed that bad faith conduct is actionable regardless of whether it “occurs before, during or after litigation.”  Distinguishing discovery disputes, the court stated that “an insurer can be held liable for bad faith conduct occurring during the pendency of litigation that was intended to evade a duty owed under the policy.” The bad faith alleged in this matter is the insurer’s allegedly “threatening to withdraw from the appraisal process if Plaintiff did not terminate his bad faith claim and by ultimately withdrawing from the process after Plaintiff refused to do so.” This stated a bad faith claim.

Date of Decision: June 16, 2015

Militello v. Allstate Prop. & Cas. Ins. Co., Civ. No. 14-cv-0240, 2015 U.S. Dist. LEXIS 77481 (M.D. Pa.  June 16, 2015) (Rambo, J.)

Go to this link for the summary of a prior decision in this case.

2015 BAD FAITH CASES: INSURED ADEQUATELY PLEADED BAD FAITH CLAIM BASED ON DELAYS IN THE CLAIMS HANDLING PROCESS (Middle District)

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In Baker v. State Farm Mutual Automobile Insurance Company, the Court denied the insurer’s motion to dismiss an insured’s bad faith claim based on the delay in handling an underinsured motorist claim. The insured was involved in a motor vehicle accident caused by the other driver, and allegedly suffered serious injuries. The insured’s husband was covered under an auto insurance policy with liability limits of $50,000. The insured was covered for three automobiles under a separate insurance policy issued by the defendant insurer, which had underinsured motorist coverage limits of $300,000.

The insured retained counsel, who informed the defendant insurer that the husband’s policy limits were only $50,000. The insured sent her insurer various medical records and provided information about her treatment, which detailed “the failure of a pain control device implemented in [the insured] and upcoming surgeries to correct that problem.” As funds were running low for the insured and her husband, she requested a “without prejudice advance” of $10,000 for treatment. The insurer responded that it would not issue any payment until it had completed its claims evaluation, and further requested an independent medical evaluation (“IME”) from the insured.

The insurer originally scheduled the IME at an office over 100 miles from the insured’s home. The insured asked for the IME to be rescheduled, and the insurer scheduled it at a physician’s office over 200 miles from the insured’s home.

The insured filed suit, asserting a claim for UIM benefits in the full amount of $300,000, and a statutory bad faith claim.

The insurer sought to dismiss the bad faith claim, arguing that “there are no facts in the amended complaint to suggest that it acted without a reasonable basis, or with the knowledge that it lacked a reasonable basis in handling Plaintiffs’ UIM claim.” The insurer further claimed that it used “ordinary, reasonable, good-faith” claims-handling, and the complaint showed nothing more. The insured responded that the bad faith claim focused on the delays in the claims handling process.

The Court found the facts were sufficiently pleaded to state a claim for bad faith. Specifically, the insureds alleged “that they notified Defendant on November 1, 2012, that [the husband’s carrier] had tendered its [$50,000] policy limits,” and forwarded all medical records to the insurer’s claims adjuster in August 2013. The insurer allegedly failed to inform the insured of the status of her claim, and waited approximately 15 months after receiving the insured’s medical records to schedule an IME. The Court found this delay, if proven, could be so unreasonable as to amount to bad faith, and refused to dismiss the bad faith claim at this stage of the litigation.

Date of Decision: June 11, 2015

Baker v. State Farm Mut. Auto. Ins. Co., No. 4:14-CV-2295, 2015 U.S. Dist. LEXIS 75529 (M.D. Pa. June 11, 2015) (Brann, J.)

 

JUNE 2015 BAD FAITH CASES: BAD FAITH UIM CASE PROPERLY PLEADED WHERE INSURED DETAILED HISTORY OF COOPERATION WITH INSURER, AND INSURER REFUSED TO PAY POLICY LIMITS (Western District)

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In Vankirk v. State Farm Mutual Automobile Insurance Company, the Court found that the insurer was not entitled to Rule 12(b)(6) dismissal of the insured’s bad faith claim.

The case arose out of a car accident in which the insured was struck by another motorist insured by the same carrier. During litigation against the other driver for her insurance policy limits, the insured provided her own medical records. She and her treating physician were both deposed. The tortfeasor was underinsured.

The insured demanded the policy limits and provided her insurer with updated medical records and documentation. The insurer requested, and was provided with, a Statement under Oath, an additional deposition of the insured, another expert report from the insured’s treating physician concerning ongoing treatment and a second surgery, and additional imaging studies. After the insurer only offered $5,000, below the coverage limit of $25,000, the insured filed an action for underinsured motorist (“UIM”) benefits and damages for bad faith.

The insurer argued that the insured’s bad faith claim should be dismissed because she failed to plead sufficient facts to support such a claim. The Court disagreed, and noted the insured’s Amended Complaint provided specific information as to the insurer’s “five-year involvement in this case, the nature of [the insured’s] injuries, the medical evidence provided, the chronology of events, the parties’ course of conduct, and the factual bases for [the insured’s] allegation of statutory bad faith as to [the insurer’s] handling of her UIM claim.”

The insurer further maintained that “allegations regarding the underlying litigation should be stricken because (a) Pennsylvania is not a “direct action” state (i.e., an injured party cannot directly sue the insurance company of the alleged tortfeasor) and an injured party may not “bring a direct action for bad faith against the tortfeasor’s liability carrier.” The Court held this argument to be facially inapposite, and concluded that an assessment into the handling of the UIM claim must be properly informed by a “factual understanding of its conduct, an understanding which necessarily includes, e.g., the history of [the insurer’s] knowledge regarding [the insured’s] injury and treatment.” The Court let the case go forward.

Date of Decision: May 11, 2015

Vankirk v. State Farm Mut. Automobile Ins. Co., Civil Action No. 15-199, 2015 U.S. Dist. LEXIS 62067 (W.D. Pa. May 11, 2015) (Lenihan, J.)

JUNE 2015 BAD FAITH CASES: SUPERIOR COURT VACATES JUDGMENT ON BAD FAITH CLAIM AFTER CLOSE FACTUAL ANALYSIS; AND DIRECTS TRIAL COURT ON REMAND TO ALLOW EXPERT TESTIMONY CONCERNING ADJUSTER’S OBLIGATION TO CLARIFY LEGAL INTERPRETATION OF POLICY TERMS, BUT NOT TO CONSIDER INSURED’S POST-DENIAL CONDUCT (Superior Court)

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In Mohney v. American General Life Insurance Company, the Superior Court reversed the trial court, and remanded the insured’s statutory bad faith case against his disability insurer for a new trial.  At the time of this decision, the case had been pending in some form for 20 years.

The insurer originally paid total disability benefits, based upon policy definitions of the insured’s “total disability”.  The insurer’s adjuster later made the decision, on his own understanding, to terminate benefits on the basis that the insured’s doctor stated the insured could work in some limited capacity.  However, the doctor’s statements upon which the adjuster based his decision were in fact equivocal and highly qualified as to whether the insured could perform alternative work in the future.

In an earlier trial on the breach of contract claim, the court found the insurer breached its contract. In a second trial, on bad faith, the trial court found there was no bad faith. While the insurer was incorrect in terminating benefits, it had not been unreasonable in its position or investigation, nor had it knowingly or recklessly disregarded that fact.  The appellate court disagreed.

The Superior Court stated that “bad faith” encompasses a variety of possibilities including “a frivolous or unfounded refusal to pay the proceeds of a policy done with dishonest purpose, motivated by self-interest or ill will”, conduct “lack[ing a] good faith investigation into facts, and failure to communicate with the claimant”, “where the insurer intransigently refused to settle a claim that could have been settled within policy limits, where the insurer lacked a bona fide belief that it had a good possibility of winning at trial, thus resulting in a large damage award at trial”, and it “may also extend to the insurer’s investigative practices”. The appellate court recited the bad faith standards: proof must be by clear and convincing evidence, the insurer’s position must have been unreasonable, and the insurer must have knowingly or recklessly disregarded the unreasonable nature of its position. In a clarifying footnote, the court reiterated its rulings in Nordi (2010) and Greene (2007) that the insured is not required to prove a motive of self-interest in or ill will as a third element of statutory bad faith; rather, evidence of self-interest or ill will are probative of the second element, i.e., that the insurer knew or recklessly disregarded the unreasonableness of its position.

The Superior Court then firmly rejected the trial court’s factual conclusion that the insurer’s termination of benefits was reasonable; thus, the insured met the burden on the first prong of the bad faith test.  The court went into an extremely detailed analysis of the factual record in reaching this conclusion.

As to the second prong, the appellate court likewise drilled down into facts going to the insurer’s state of mind.  It approved a standard that the insurer “’was required to conduct an investigation sufficiently thorough to provide it with a reasonable foundation for its actions.’” The absence of a reasonable basis to deny coverage was the cornerstone of undermining the insurer on the knowing or reckless disregard standard.  The appellate court found that the trial court largely ignored substantial evidence that the insurer’s investigation “was not sufficiently thorough to obtain the necessary information regarding [the insured’s] ability to work.” The appellate court also referenced evidence from the record that could establish knowing or recklessly culpable conduct by the insurer, in the nature of misrepresentations of fact in terminating the benefits, and conduct constituting a lack of honest or objective review.

Thus, the Superior Court rejected the trial court’s conclusion that there was no evidence supporting the second bad faith prong.  However, it did not automatically then rule for the insured.  Rather, it held that “while [the] misrepresentations are evidence of bad faith, they do not without more establish knowing or reckless misconduct as a matter of law by clear and convincing evidence on the record before us.” That issue could not be decided on appeal.

The insurer argued that the adjuster making the decisions on the claim at issue had broad discretion, within his experience, to evaluate the claim based on available medical records and his common sense. In the insurer’s training practices, the key policy term “total disability” was left to the adjuster’s common sense interpretation, based on his prior experience.  While the adjuster could seek advice from an attorney, he did not do so “because he did not believe that any additional legal construction of the term ‘total disability’ was necessary. Instead, he applied a plain and common sense meaning to the certificates’ definition of ‘total disability.’”

The appellate court had already ruled that the adjuster’s interpretation was contrary to the policy language itself, as well as Pennsylvania appellate law.Thus, the court stated that “in the absence of a standard policy manual or other specific guidance, it was left solely to [the adjuster’s] ‘common sense’ and discretion to decide whether it was necessary to consult with legal counsel on the proper (legal) interpretation of the policy term at issue.” There was no evidence in the record of industry standards on training adjusters in legal interpretations of policy language, or providing adjusters guidance of when to seek guidance from staff attorneys.

Prior to trial, the insured did provide an expert report stating, among other things, that insurers and their professionals “be informed on the established law which they would be expected to apply in the course of handling claims, specifically including the law regarding the interpretation of policy provisions and definitions.” That expert’s trial deposition also stated that there was a “need for adjusters to be trained in the proper application of established case law on applicable policy terms.” However, the expert report and testimony were excluded at trial, on the basis that they “consisted of legal conclusions that were improper and inadmissible, the facts underlying [the] bad faith claim were ‘readily ascertainable by the Court without the aid of expert testimony,’ and [the expert’s] testimony would not assist in the resolution of [the] bad faith claim.”

The Superior Court found this was an abuse of discretion because: “The issue in question, involving the standards in the insurance industry for the training of claims adjusters in applying legal precedent when deciding insurance claims, is sufficiently complex to permit the introduction of expert testimony. The … Trial Court’s written decision does not reflect that it had any specific knowledge of the industry standards in this area. Instead, the … Trial Court merely accepted [the adjuster’s] testimony that there was no need to consult with staff attorneys in this case, and in the absence of expert testimony … [the insured] had no ability to offer contradictory evidence to rebut [the adjuster’s] testimony.”

Thus, the lower court’s ruling on bad faith was vacated, and the case remanded for a new trial.

On remand, the Superior Court instructed that the trial court was not to consider evidence of the insured’s post denial conduct, which it had earlier done.  Further, the trial court had precluded the insurer’s expert report as a sanction, and the appellate court left it to the trial court as to whether it would revisit that sanction; but it did not vacate the sanction itself. Finally, the appellate court upheld the trial court’s decision not to allow an amended complaint to add bad faith allegations based upon litigation conduct, as being so untimely as to be prejudicial; but the appellate court did note that the insured never raised the more general argument that the insurer’s litigating this matter for 20 years, when there was no reasonable basis to do so, could conceivably be the basis for a bad faith claim.

Date of Decision: May 8, 2015

Mohney v. American General Life Insurance Company, No. 2030 WDA 2013, SUPERIOR COURT OF PENNSYLVANIA, 2015 Pa. Super. LEXIS 250 (Pa. Super. Ct. May 8, 2015) (Donahue, Allen, and Strassburger, JJ.)

MAY 2015 BAD FAITH CASES: TERMINATING POLICY WITH KNOWLEDGE THAT PROPER NOTICES WERE NOT SENT STATED AN ACTIONABLE BAD FAITH CLAIM; STATUTE OF LIMITATIONS WAS TRIGGERED UPON CLEAR NOTICE OF DENIAL WHICH BARRED POLICY HOLDER CLAIMS, BUT NOT BENEFICIARY CLAIMS, UNDER THE DISCOVERY RULE (Philadelphia Federal)

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In Hilston v. American General Life Insurance Company, the plaintiff brought breach of contract and bad faith claims against her late father’s life insurer, the policy being held in a trust.  The court found that her claim as substitute trustee was barred by the two year statute of limitations, in light of notice to earlier trustees; but her bad faith claim as an individual beneficiary was not.

The pertinent facts are that the prior trustee paid the premiums every year for 12 years (1996-2008). The policy required the insurer to provide written notice at the beginning of each year, setting out that year’s  premium.  The complaint alleged that the proper notice was not provided in the 13th year, and the trustee did not make the premium payment.

After not receiving payment, the insurer decided to “lapse the Policy” for failure to pay premiums due. The plaintiff alleged the insurer sent no notice of the lapse, grace period, termination, or reinstatement of rights, and that neither she, her father, nor the trustee knew the policy had lapsed until years later. The policy could not be reinstated due to the insured’s poor health, and he died in July 2012.

Plaintiff sued the trustee in 2013, during which case she issued a subpoena to discover any notices the insurer had provided.  There was no response, and she demanded payment of death benefits in April 2012.  This demand was rejected later in April 2014, and plaintiff filed suit in December 2014.

In addressing the trustee’s claim, the court observed that “an action for bad faith denial of coverage accrues when the insured first learned that the insurance company was denying coverage.” This trigger does not always require an actual formal denial, as “[w]hile it is an unfounded refusal to pay proceeds of policy that is at the heart of a bad faith claim, at some point, the failure of the insurer to . . . provide coverage puts the insured on notice that the insurer has denied coverage.”  The court then cited a litany of cases for the idea that bad faith can be found for conduct other than denial of a benefit.

[Note:  As stated on this blog previously, there is an issue as to whether “bad faith” conduct that does not involve denial of a benefit, can, in and of itself, constitute section 8371 bad faith; or whether that conduct is an indicia or evidence of bad faith supporting that the delay or denial of a benefit is actionable under section 8371.  In a footnote, the court stated that: “We follow the federal courts within this Circuit and find that violations of the [Unfair Insurance Practices Act] cannot support a statutory bad faith claim.”]

In this case, the allegations indicated that the trustee did not actually learn the policy was not in effect for over two years, stating the trustee and insured were surprised when they learned that fact; especially in the absence of any notice from the insurer.  In ensuing correspondence in 2011, it was unambiguous to the trustee and the insured that the insurer took the position the policy lapsed.  The court was willing to apply the discovery rule to extend the trigger for the statute of limitations, but the statute was triggered in 2011 when the insurer made clear in writing that it was going to deny any benefits under the policy. “The subsequent denial of benefits in 2014 can simply be classified as a ‘continuing refusal’ to provide benefits under the policy and is not actionable.” Thus, the statute of limitations ran on the trust in 2013, over a year before suit was filed.

The analysis for the plaintiff as beneficiary had a different result.  A beneficiary does not have standing to sue until the death of the insured.  Although more than two years passed after she gained standing, before suit was filed, plaintiff pleaded that “she did not become aware of [the insurer’s] deficient notices until 2014.” Thus, for pleading purposes, the allegations were accepted as true and the claim could not be dismissed, applying the discovery rule.

The court further found that plaintiff had stated a bad faith claim, in alleging the insurer knowingly “failed to provide notices of premium due, grace period, lapse, reinstatement, or termination to [the trustee] or [the insured],” and still terminated the policy. She also alleged that the insurer had failed to investigate the propriety of letting the policy lapse, and whether the requisite notices were sent.  The court ruled that if the insurer “did in fact lapse the Policy with knowledge that it had not sent the required notices, then it arguably lacked a reasonable basis to terminate the Policy. Further, if [the insurer] had that knowledge and still terminated the Policy, it disregarded its lack of a reasonable basis.”

Date of Decision:  May 12, 2015

Hilston v. Am. Gen. Life Ins. Co., CIVIL ACTION NO. 14-7269, 2015 U.S. Dist. LEXIS 61804 (E.D. Pa. May 12, 2015) (Kearney, J.)

 

MAY 2015 BAD FAITH CASES: INSURED PLEADS PLAUSIBLE CLAIM FOR BAD FAITH CLAIMS HANDLING AND LOW SETTLEMENT OFFER AS TO BOTH STATUTORY AND CONTRACTUAL BAD FAITH; CONSEQUENTIAL DAMAGES THEORETICALLY AVAILABLE ON CONTRACTUAL BAD FAITH CLAIM (Middle District)

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In Lane v. State Farm Mutual Automobile Insurance Company, the insured was injured in an accident with an uninsured motorist. The insured sought the $100,000 limit from his carrier, and the carrier offered well below that figure.  The insured brought breach of contract, contractual bad faith, and statutory bad faith claims.  The carrier moved to dismiss the bad faith claims.

On the statutory bad faith claim, there were some boilerplate allegations, but there were also specific factual allegations supporting plaintiff’s claim to make it plausible under Twombly/Iqbal, and the motion to dismiss was denied. The court recited the 7 month period before any offer was made, which supported the claim of delay; that an offer was made only after being threatened with bad faith, and even then was unreasonably low; that the carrier did not act on medical information provided to it for months; and the allegation that the insurer subjected the plaintiff to what may be interpreted as needlessly duplicative procedures that did not further advance the disposition of the insurance claim.  The court rejected the insurer’s argument that its investigation methods fell within those generally permitted under the insurance policy, as an abstraction that did not provide an absolute defense; as the implementation of those methods in fact could still have been carried out through a dishonest purpose or breach of a known duty.

The court refused to dismiss the contractual bad faith claims for similar reasons, and it cited the Pennsylvania Supreme Court’s Birth Center decision for the proposition that contractual bad faith can exist “where an insurer refuses to settle a claim without a good faith basis to do so.”  The court further cited to Birth Center in rejecting the insurer’s motion to strike plaintiff’s claim for consequential damages as a matter of law: “the insurer is liable for the known and/or foreseeable compensatory damages of its insured that reasonably flow from the insurer’s bad faith conduct.”

Date of Decision:  May 7, 2015

Lane v. State Farm Mut. Auto. Ins. Co., 3:14-CV-01045, 2015 U.S. Dist. LEXIS 60064 (M.D. Pa. May 7, 2015) (Mariani, J.)

2015 BAD FAITH CASES: THIRD CIRCUIT AFFIRMS SUMMARY JUDGMENT ON BAD FAITH CLAIM WHERE NO DISPUTE OF FACT INVESTIGATION WAS REASONABLE, “INITIAL” SETTLEMENT OFFERS COULD BE MADE SUBJECT TO FURTHER DISCOVERY AND EVALUATION, AND INSURED FAILED TO SHOW SELF INTEREST OR ILL WILL UNDER THE SUPERIOR COURT’S GROSSI DECISION (Third Circuit)

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In Miezejewski v. Infinity Auto Insurance  Company, the insured was injured in an auto accident, and not only suffered physical injury, but alleged her physical condition deteriorated over time, causing her to be terminated from her employment.  She claimed that the carrier’s claim evaluation was too low, and failed to consider lost wages.  The district court granted the insurer summary judgment on the statutory bad faith claim.  On appeal, the Third Circuit affirmed.

The carrier’s claim representative acknowledged the UIM claim and noted that the policy limit was $15,000. He requested all documents and records supporting the UIM claim from the insureds’ attorney. The representative was provided with various discovery materials discovered in the litigation against the tortfeasor, including  post-accident medical records and a transcript of a deposition of the insured’s former employer’s human relations manager. The claims representative reviewed the documents and questioned whether the insured’s pain stemmed from a pre-existing degenerative condition.

“The medical records, which raised red flags, included the ‘recommendation’ of an orthopaedic specialist who treated [the insured] for post-accident pain in her left knee: ‘I think this accident definitely exacerbated some pre-existing arthritis.’” In addition another doctor concurred, and the insured herself testified about the scope of her arthritis. This “post-accident medical information struck the claim representative as ‘indicative of prior related conditions that [he] would want to review.’” The insured never provided prior medical records; nor did their counsel  “at any point explain the absence of pre-accident treatment information.”

The claim representative also doubted whether the insured’s firing was accident-related. He noted that she was rated as either meeting or exceeding expectations on a performance evaluation four months after the car accident, and it was eight months later that she was fired. The claim representative characterized the former employer’s HR manager’s testimony as conflicting on the idea that she was rated well four months after the accident, but then the accident somehow caused her firing after that.

After a review of materials from the insured’s counsel, the adjuster evaluated the claim at $5-7,000 net the $25,000 from the tortfeasor. “The representative noted, ‘[a]nything more than that could require some additional discovery,’ including [the insured’s] pre-accident medical records and additional information concerning her termination.” Offers of $5,000 and then later $7,500 were rejected.

Applying the Superior Court’s Grossi decision, the Third Circuit stated the following standards to prove statutory bad faith, which must be accomplished through clear and convincing evidence: “The Pennsylvania Superior Court has held that to prevail under the bad faith statute, the insured must show that the insurer did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.’ An insurer need not engage in fraud to be subject to the statute; however, ‘mere negligence or bad judgment is not bad faith. The insured must also show that the insurer breached a known duty (i.e., the duty of good faith and fair dealing) through a motive of self-interest or ill will.’” [It is interesting to observe here that self-interest or ill-will appear to hold the status of elements of a bad faith claim, whereas there was some prior case law that self-interest or ill will are only evidence of the second element, and not an element themselves.]

Applying this test, the appellate court affirmed the grant of summary judgment to the insured on the bad faith claim.  “Consistent with [the insurer’s] ‘ongoing vital obligation,’ its claim representative acted in good faith—i.e. with a reasonable basis for his assessments and interactions with the [insureds]’ attorney—throughout ‘the entire management of the claim.’” The settlement offers fell within the initial valuation, and the insurer’s representative had emphasized they were not final, and informed the insureds’ counsel, however, that any higher offer would require some additional discovery as to the prior medical history and more information about why the insured was terminated. The court further noted that “after the close of discovery in this lawsuit, which included a deposition of the executive who made the termination decision, [the insurer] tendered to the [the insureds] the $15,000 policy limit they initially sought.”

The court specifically held that it is not bad faith for an insurer to make an initial settlement offer subject to further discovery and evaluation after that discovery. The court concluded that the insurer’s “representative acted reasonably in light of the evidence, both presented and inexplicably withheld.” Further, there was simply no evidence of self-interest or ill will. Date of Decision:  April 28, 2015 Miezejewski v. Infinity Auto Ins. Co., No. 14-1603, 2015 U.S. App. LEXIS 6984 (3d Cir.  April 28, 2015)  (Roth, Ambro, and Fuentes, JJ.)

MAY 2015 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT ON BAD FAITH CLAIM BASED ON REASONABLENESS OF INSURER’S VALUATION OF INSURED’S UIM CLAIM BY A SEASONED ADJUSTER (Philadelphia Federal)

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In Insetta v. First Liberty Insurance Cop., the insurer made a verbal offer of $34,000 to the insured plaintiff, to settle his UIM claim. The insurer’s adjuster placed a monetary value on the claim based upon a review of plaintiff’s medical records and economic data showing wage losses due to the accident; and also took into account the $15,000 already paid to plaintiff by the tortfeasor’s insurance. The insurer’s valuation further included an acceptance of the full disability time/wage loss sought by plaintiff. Nevertheless, the insured rejected the insurer’s settlement offer.

The insured and his wife brought claims for breach of contract, bad faith, and loss of consortium. Plaintiffs based their bad faith claim on the allegedly low figure offered, and also contended that the insurer’s “reliance on the findings of [a specific doctor] as to Plaintiff’s injuries exhibits that Defendant acted only in a self-interested fashion.” Further, the insureds alleged that the insurer’s adjuster did not engage in a good faith review of plaintiff’s injury. In support of this argument, they pointed to the adjuster’s alleged “failure to review the Plaintiff’s file before her deposition,” “the fact that [the adjuster] did not have the authority to settle claims for more than $40,000 without further authorization,” “[the adjuster’s] failure to consult a physician as to Plaintiff’s injuries or to have a records review done by a physician,” and her “inability to answer certain questions relating to the computation of Plaintiff’s injury claim.”

The insurer moved for summary judgment on the bad faith claim.

The Court set forth the familiar two-part test that any bad faith plaintiff must satisfy by clear and convincing evidence to support a claim of bad faith under 42 Pa. C.S. § 8371: “(1) that Defendant lacked a reasonable basis for denying benefits; and (2) that Defendant knew or recklessly disregarded its lack of reasonable basis.” In granting summary judgment to the carrier on the bad faith claim, the Court reasoned that plaintiffs did not show by clear and convincing evidence that the valuation the insurer placed on plaintiff’s injuries was unreasonable. The Court also observed that the insurer’s adjuster had forty-two years of experience as a claims adjuster, and undertook a “substantial and thorough investigation” into plaintiffs’ UIM claim, which provided a reasonable basis for the insurer’s decision. Because Plaintiffs failed to show the insurer lacked a reasonable basis, the Court dismissed the bad faith claim and granted the insurer’s motion for partial summary judgment.

Date of Decision: March 20, 2015

Insetta v. First Liberty Ins. Corp., Civil No. 14-1890, 2015 U.S. Dist. LEXIS 34798, (E.D. Pa. March 20, 2015) (Kelly, J.)

MAY 2015 BAD FAITH CASES: BAD FAITH CLAIM COULD PROCEED TO TRIAL ON THEORY THAT INSURER’S ADJUSTER REFUSED TO DISCUSS A SPECIFIC POLICY COVERAGE PROVISION WITH THE INSURED (Philadelphia Federal)

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In Windowizards, Inc. v. Charter Oak Fire Insurance Company, the insured sought coverage for damaged roof trusses and losses for required upgrades based upon ordinance violations, in a commercial building. The insurer accepted that the damage to some of the trusses may be covered if damaged by snow, but not others if the damage was the result of deterioration over time.  During the claims process, after a new tenant had moved in, the fire marshal inspected the building and caused it to be vacated “due to code violations from the use of improvised electrical connections originating from another building, propane space heaters, and the support braces shoring up the roof.”  These items would have to be repaired.

The policy included a provision “Ordinance or Law Coverage” “[f]or loss or damage caused by the enforcement of any ordinance or law that” “[r]equires the demolition of parts of the same property not damaged by a Covered Cause of Loss,” “[r]egulates the construction or repair of buildings,” and “[i]s in force at the time of the loss.” However, under this provision, the insurer will not pay for increased construction costs . . . (a) Until the property is actually repaired or replaced, at the same location or elsewhere; and (b) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed 2 years. We may extend this period in writing during the 2 years.”

The insured argued that it was forced to make repairs for ordinance violations due to the poor condition of the structure, and this type of loss was covered.  The court found that the “enforcement” process had begun within the meaning of that policy condition.  The court further found that the insured was not barred from bringing the claim for failure to effectuate repairs in two years on a theory of anticipatory breach of the insurance contract.  The insured made this argument on the basis that the insured had communicated with the insurer on the need for repairs, but the insurer did not adequately respond on the ordinance violations; and in making payments for covered claims.  The insurer argued that any lack of funds arose because the insured spent the insurance proceeds on non-related expenses, and the insured disputed those facts. These created factual issues that could not be resolved on summary judgment.

Specifically, the insured contended that “it attempted to discuss code upgrade issues with [the] adjuster… on many occasions, but that he refused to consider them in breach of his good faith obligations.” The court found that the insured had a viable breach of contract claim and denied the insurer summary judgment. The court further concluded that “in light of, inter alia, [the insured’s] evidence that [the insurer’s adjuster] mishandled the claim by purposefully refusing to discuss the code compliance coverage, we conclude that genuine issues of material fact prevent summary judgment on [the bad faith] claim as well.”

Date of Decision:  March 27, 2015

Windowizards, Inc. v. Charter Oak Fire Ins. Co., CIVIL ACTION NO. 13-7444, 2015 U.S. Dist. LEXIS 39063 (E.D. Pa. March 27, 2015) (Strawbridge, U.S.M.J.)