Archive for the 'PA – Claims Handling Procedures' Category

AUGUST 2014 BAD FAITH CASES: FAILURE TO FOLLOW INVESTIGATIVE AND CLAIMS HANDLING STANDARDS IN INSURER’S OWN MANUAL, ADJUSTER’S FAILURE TO CONSULT WITH OTHERS AND GO BEYOND HER OWN CONCLUSIONS, AND FAILURE TO CONDUCT IME DEFEAT MOTION TO DENY BAD FAITH CLAIM (Western District)

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Mineo v. Geico involved a UIM claim.  The insured was a Vietnam War Veteran who had suffered significant combat injuries during the War.  Years later he was in a motor vehicle accident and suffered a shoulder injury.  After the accident, there was some record that he suffered a further shoulder injury.  The insurer offered a settlement sum that the insured rejected.  The insured contended that the adjuster incorrectly placed too much emphasis on the post-accident injury in devaluing the extent of his injury from the accident.

In addressing the insurer’s motion for summary judgment on the bad faith claim, the court stated that in evaluating the insured’s bad faith claim it could consider insurer’s because bad faith can include a lack of good faith investigation into facts, and failure to communicate with the claimant.  The court stated that an “insurance company … is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” However, it “must conduct a meaningful investigation, which may include an in-person interview, examination under oath, medical authorizations, and/or independent medical examinations.”

The adjuster relied on only one physical therapy record to justify her position that the injury was caused or aggravated by the post-accident fall. This was based on her review of the medical records, and her conclusion that no IME was needed.  The court observed she was not a doctor, knew that the insured disputed the record, and the insured’s physical therapist had explained that there was a significant left shoulder dysfunction prior to the post-accident fall.

The court cited to the insurer’s claims manual which “admonishes its adjusters to avoid drawing conclusions based on assumption or speculation,” and which “underscores the importance of completeness….”  The manual warned: “If the denial is unsound, the result may be a complaint or a lawsuit, either of which could have been avoided. Because some cases turn on very fine points, reports must be complete and accurate.”

The manual also included “a Sequence of Investigation, which ‘applies to the majority of cases,’ and sets forth that adjusters should: ‘Determine whether independent medical examinations are necessary, and if so, see your supervisor and then arrange for them. Determine whether medical peer review should be secured. If so, see your supervisor.’” The adjuster did neither, and the carrier only had an IME pursued post-litigation.

The court next addressed the issue of whether the insurer failed to meet its own standards of using a “90-Day Control” which is used to calculated and set reserves and to revisit these matters at 6, 12, and 18 months. Under the insured’s manual “Supervisors and managers review each summary and give direction, comments and instructions…. Each Summary and supervisor/manager review must be completed by the end of the month in which the 90th day falls.” The court questioned whether this was created or produced to the insured.In addressing stalled negotiations and the languishing nature of the process, the court stated that the insurer could have conducted an in-person interview, done an examination under oath, sought medical authorizations and/or an IME.  The IME eventually conducted appeared to favor the insured’s version of events; and the court cited case law for the proposition that a failure to conduct an IME could be the basis for a bad faith claim.  In this regard, the court was “mindful” of the Unfair Insurance Practices Act.

The summary judgment motion was denied.

Date of Decision:  July 15, 2014

Mineo v. Geico, Civil Action No. 12-1547, 2014 U.S. Dist. LEXIS 95686 (W.D. Pa. July 15, 2014) (Fischer, J.)

AUGUST 2014 BAD FAITH CASES: COURT DENIES INSURERS MOTIONS TO PRECLUDE EXPERT TESTIMONY, BIFURCATE THE TRIAL AND FOR SUMMARY JUDGMENT WHERE INSURER REQUIRED 3 IMES WHICH REACHED INCONSISTENT RESULTS (Middle District)

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In Monaghan v. Travelers Prop. Cas. Co. of Am., the Court, in three separate opinions, addressed the issues of the adequate burden of proof in bad faith claims, admissibility of expert testimony, and proper bifurcation of trial. The Court found that the pleading standards were met, that expert testimony should not be precluded, although the scope must be limited, and that defendants failed to meet their burden to establish that bifurcation was appropriate.

In the instant case, Plaintiff was injured in a motor vehicle accident and had an insurance policy with Defendant which included medical benefits up to $100,000 and wage loss benefits up to $15,000. The insurer required Plaintiff to undergo three separate independent medical examinations (IMEs) due to her physical injury claims. The first and second IMEs concluded that Plaintiff’s injuries were due to the accident, while only the third found that the injuries were unrelated. After the third IME, the Defendants stopped providing further benefits and, in response, Plaintiff filed a complaint alleging Breach of Contract, Bad Faith, and violation of the Unfair Trade Practice and Consumer Protection law.

In the Court’s first opinion, on a motion for summary judgment, it addressed Defendant’s claim that Plaintiff failed to provide evidence to support her contention that the discontinuance of benefits was due to self-interest or ill-will. According to Third Circuit precedent, a plaintiff must prevent clear and convincing evidence which shows that both 1) the insurer lacked a reasonable basis for denying benefits, and 2) the insurer knew or recklessly disregarded the lack of a reasonable basis. The Court held that Plaintiff had presented evidence that the third IME resulted in an opinion adverse to the first two, and that it was for a jury to determine whether the defendants engaged in bad faith by repeatedly sending Plaintiff to different doctors until one found that her injuries were unrelated to the accident.

The Court’s second opinion addressed the Defendant’s motion in limine seeking to preclude the testimony of Plaintiff’s insurance expert witness. Defendants argued that 1) the finder of fact does not need the assistance of expert testimony to comprehend the plaintiffs’ bad faith allegations, 2) that some of the expert’s opinions related to the ultimate issues of fact, and 3) the remainder of the expert’s opinions are not based on recognized insurance industry standards. The court first asked whether the factfinder would benefit from hearing the additional expert testimony and concluded that the case before it involved complicated issues of law under the insurance policy and Pennsylvania law which could potentially confuse a jury.

Specifically: “The issue of whether an expert is warranted in a bad faith action is very fact specific to each case and dependent on the complexity of the issues. Not all bad faith claims are equally complex. This case, however, appears to be one which is somewhat complex and in which the factfinder may find an expert useful. The allegations of bad faith involve medical professionals employed by defendant and their use of independent medical examiners’ opinions. It will be important for the factfinder to understand the obligations of first party medical benefit claims handlers in such situations. Moreover, plaintiff’s bad faith allegations include not only the defendants’ legal obligations under the policy, but also under Pennsylvania law.”

Next, the Court held that Defendants could object at trial to any testimony addressing the ultimate issue of fact, but refused to preclude the testimony before it was heard. Finally, in addressing the argument that Plaintiff’s expert’s opinion was not based on “insurance standards”, the Court observed the expert’s level of experience with automobile insurance, and stated that Defendants would have ample opportunity to attack the validity of the witness’s findings through cross-examination and argument at trial, and therefore, the motion in limine should be denied.

In its third opinion, the Court addressed the issue of bifurcation raised by Defendants, who sought to separate the bad faith liability trial from a trial on determining punitive damages if liability were to be found. The Defendants argued that there was significant danger of unfair prejudice once the jury heard the size of their net worth, and so bifurcation would be appropriate. Evidence presented in support of Plaintiff’s punitive damages claim included an estimate of Defendant’s net worth — $113.459 million in surplus and $412.275 million in total assets. Defendant claimed that the estimate of net worth could improperly induce the jury to find that bad faith existed, while Plaintiff contended that it was common knowledge that insurance carriers, as large corporations, had high net worth. The Court agreed with Plaintiff finding that the Court could construct a jury charge and verdict slip to eliminate prejudice such that the benefit derived from bifurcating the trial would be “vastly outweighed by the waste of time and resources inherent to holding two trials.” Therefore, Defendants’ motion to bifurcate was denied.

In sum, the Court found for plaintiff in all three opinions, denying Defendants’ motions for summary judgment, motion in limine to preclude expert testimony, and motion to bifurcate the trial.

Dates of Decision: June 16, 2014 (Opinion 1) and July 16, 2014 (Opinions 2 and 3)

Monaghan v. Travelers Prop. Cas. Co. of Am., No. 3:12cv1285, 2014 U.S. Dist. LEXIS 82368, (M.D. Pa. June 16, 2014) (Munley, J.)

Monaghan v. Travelers Prop. Cas. Co. of Am., No. 3:12cv1285, 2014 U.S. Dist. LEXIS 96524, (M.D. Pa. July 16, 2014) (Munley, J.)

Monaghan v. Travelers Prop. Cas. Co. of Am., No. 3:12cv1285, 2014 U.S. Dist. LEXIS 96525, (M.D. Pa. July 16, 2014) (Munley, J.)

JULY 2014 BAD FAITH CASES: INSURED ADEQUATELY ALLEGED BAD FAITH CLAIMS BY PLEADING SPECIFIC FACTS CONCERNING DELAYS IN THE CLAIMS HANDLING PROCESS, A LACK OF COMMUNICATION, AND DISCREPANCY BETWEEN THE ALLEGED INJURY AND SETTLEMENT SUM OFFERED (Philadelphia Federal)

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In Padilla v. State Farm Mutual Automobile Insurance Company, the plaintiff brought a breach of contract and bad faith claim based on UIM coverage. The insurer took an examination under oath, had a medical examination done, and referred the case to counsel. The plaintiff alleged that the defendant acted in bad faith by delaying investigation of the plaintiff’s claim, offering a settlement that was unreasonable in light of the facts of the investigation, and failing to provide an evaluation of her claim, despite multiple requests for such information.

The plaintiff alleged serious injuries, that the same insurer insured both parties to the underlying accident which should presumably have expedited the process, that she made demands for settlement offers to her insurer with delays in getting any response, that her demands were made with requests for more information or ignored, that the settlement offer once made was unreasonably low based on the insurer’s own doctor’s report.

The insurer moved to dismiss the complaint. The court found that plaintiff pleaded unreasonable delays, lack of a reasonable basis for partial denial of benefits, and that the insurer acted out of its own self-interest. The court found that unreasonable delays and failure to communicate can go to an insurer’s bad faith. Further the court distinguished the insurer’s case law on the grounds that those cases either had thread bare allegations of wrongdoing, unlike the details in this case; and that the alleged delay in one other case once only a one-time event.

Thus, the motion to dismiss the complaint was denied.

Date of Decision: July 8, 2014

Padilla v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION No. 14-cv-2102, 2014 U.S. Dist. LEXIS 92230 (E.D. Pa. July 8, 2014) (Stengel, J.)

JULY 2014 BAD FAITH CASES: COURT FINDS THAT VIOLATION OF UIPA CAN NOT BE BASIS FOR BAD FAITH CLAIM; AND FINDS THAT INSURED COULD NOT MEET CLEAR AND CONVINCING EVIDENCE STANDARD ON REASONABLENESS PRONG OF BAD FAITH TEST (Western District)

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In United States Fire Insurance Company v. Kelman Bottles, LLC, property damage occurred for the insured from an event concerning an industrial glass making furnace. The insured’s all risk carrier brought a declaratory judgment action against the insured. The insured also had a Boiler and Machinery insurance policy, and it joined that carrier by way of third party complaint, raising breach of contract and bad faith claims.

There was preliminary contact between the Boiler and Machinery insurer and the insured, prior to a formal written denial of coverage. There was also an inspection and a report from an expert for the insurer, on which the insurer ultimately based its denial of coverage, concerning the cause of the incident. The insurer argued that the cause did not fall within the policy definition of covered occurrences. The insured asserted that the insurer’s stated reasons set forth in its declination letter were at a minimum unclear, and at worst, were intentionally vague in violation of Pennsylvania insurance law; and that within a month of the breakdown, the insurer’s adjuster, retained engineering expert, risk control specialist, and a subrogation specialist all concluded that the “breakdown” was “sudden and accidental”, which was a term of art which should have triggered coverage, not a denial of coverage. The insurer moved for summary judgment.

The court first rejected the insured’s argument that the allegedly unclear letter violated Pennsylvania’s Unfair Claims Practices Act or Unfair Insurance Practices Act (“UIPA”), stating that there is no private right of action under the UIPA, and thus this claim failed as a matter of law.  (This decision adds to the split in federal district courts about whether the UIPA can be used to argue a statutory bad faith claim in Pennsylvania.) The court then analyzed the letter, and concluded it could not provide the insured with clear and convincing evidence that the carrier was either intentionally vague or unclear as to its reasons for a denial, and found no genuine issue of material fact suggesting that this letter was intentionally vague or unclear.

The court also concluded that the carrier’s position that the event was not sudden accidental was reasonable.  The carrier’s own adjuster included in his notes that the expert said the event was sudden and accidental, which was not the expert’s conclusion or analysis in his report. Thus, the court granted summary judgment, even though the contradictions existed within the insurer’s own records. The court explained that while it was technically correct that the claim note contradicted the carrier’s position, the putative contradiction was “of no moment” because the claim note was the adjuster’s interpretation/characterization of what the expert told him orally during a telephone conversation, the expert’s testimony that he would not have used the terms “sudden and accidental” during that  conversation with the adjuster, and the statements and conclusions set forth in the expert’s written report clearly contradict a “sudden and accidental” finding. Thus, the court concluded that the singular claim note did not provide clear and convincing evidence that the insurer engaged in bad faith.

The insured also asserted bad faith in the claims handling process, which argument ultimately was not based on UIPA violations. Rather, it asserted that the adjuster misrepresented the policy language; that letters from the carrier suggested it was investigating the claim when it was not; and that the carrier refused to provide any further explanation and factual support for its denial of coverage.

On the first point, the court found there was no evidence that the statement at issue was anything more than a simple mistake, and there was no evidence offered of ill will or intent, and therefore the insured could not meet its burden of showing bad faith on this point.

Next, as to the letters, the court found no bad faith.The insurer’s prior oral notification that a denial of coverage was imminent, but delay in issuing its written denial of coverage while monitoring the investigation of another insurance company, did not constitute bad faith.  The court found that the insured did not offer evidence as to how the delay between the oral and written denials illustrated breach of the duty of good faith and fair dealing through a motive of self-interest or ill will. Finally, the court ruled that the alleged refusal to supply additional information following the issuance of the denial letter was not bad faith. The court found that the carrier did not ignore the request for additional information. Rather, it directed the insured back to its denial letter for the answers. Furthermore, there was no evidence of a dishonest purpose in the alleged refusal to provide additional information outside of what was contained in the denial letter. Rather, the court viewed this aspect of the dispute as a disagreement on coverage, which was to be resolved via the breach of contract claim.

A motion for reconsideration, heard by Judge Fischer of the Third Circuit sitting as a trial judge by designation, was denied.  The Third Circuit has previously addressed a coverage issue in the case, but the court found that this ruling was not applicable in analyzing the bad faith claim.

Date of Original Decision: May 23, 2014

United States Fire Ins. Co. v. Kelman Bottles LLC, 11cv0891, 2014 U.S. Dist. LEXIS 71220 (W. D. Pa. May 23, 2014) (Schwab, J.)

Date of Decision on Reconsideration: June 27, 2014

United States Fire Ins. Co. v. Kelman Bottles LLC, 11cv0891, 2014 U.S. Dist. LEXIS 88256 (W.D. Pa. June 27, 2014) (Fisher, J.)

JULY 2014 BAD FAITH CASES: NO SEPARATE TORT CAUSE OF ACTION FOR BREACH OF DUTY OF GOOD FAITH; STATUTORY BAD FAITH CLAIM PLEADED MERE POSSIBILITY OF BAD FAITH, NOT A PLAUSIBLE BAD FAITH CLAIM, AND WAS DISMISSED WITH LEAVE TO AMEND (Western District)

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In Plummer v. State Firm Fire & Casualty Insurance Company, the insureds made a first party damage claim, involving storm damage to its roof. The insureds claimed that the insurer failed to pay anything toward the roof damage, while paying a claim for roof damage to their neighbor for damage to the neighbor’s roof from the same storm. There was a finding in arbitration in state court, solely on a breach of contract claim, that the carrier owed damage payments for the roof to the insureds.

After a somewhat complicated procedural history, the case was removed to federal court, and included breach of contract, breach of the duty of good faith and fair dealing, and statutory bad faith claims. As to the breach of the duty of good faith and fair dealing claim, the court treated this as a distinct tort claim and dismissed it under the gist of the action doctrine. Any such claim was subsumed in the breach of contract claim, and would have to be pursued as a breach of contract.

As to the statutory bad faith claim, the insureds/plaintiffs attached numerous documents to their response to the carrier’s motion to dismiss that claim. The court observed that it could not consider these documents to the extent they were outside the complaint. It found that although the insured listed 14 different kinds of bad faith in the complaint, these were conclusory allegations that did not meet the Twombly standard. The only specifically pleaded allegations addressing bad faith were that a claim was paid on the neighbor’s roof on the same storm, but not plaintiff. The court found that it was left to speculate as to why the neighbor’s circumstances were the same as the insured/plaintiff, and thus made the bad faith claim on this basis a mere possibility, and not a plausible claim under Twombly. However, the plaintiff was given leave to file an amended complaint if they could set out a plausible bad faith claim.

Date of Decision: June 27, 2014

Plummer v. State Farm Fire & Cas. Co., Civil Action No. 2:13-cv-01579, 2014 U.S. Dist. LEXIS 87570 (W.D. Pa.  June 27, 2014) (Conti, J.)

JULY 2014 BAD FAITH CASES: COURT FINDS THAT UIPA VIOLATIONS CAN SUPPORT STATUTORY BAD FAITH CLAIM; AND THAT INSURED PLEADED SUFFICIENT FACTS REGARDING ALLEGED UNDERVALUATION TO STATE A CLAIM FOR BAD FAITH (Middle District)

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In Militello v. Allstate Property & Casualty Insurance Company, the insured owned a horse barn that suffered damage when one of the horses struck a support.  The insured made a claim, and the carrier offered to pay approximately half the claim.  The insured asserted that the barn was otherwise in good condition, and it was the horse that caused the problem.  The insured alleged that the carrier asserted that there were a variety of structural problems independent of the horse’s actions, for which payment was not due under the policy.  The insured alleged that the carrier’s assertion concerning these independent structural issues were false representations.  The insured also asserted violations of the Unfair Insurance Practices Act (UIPA) as a basis for his claims.  The carrier moved to strike the references to the UIPA and to dismiss the bad faith claim as merely embodying a dispute over value, and that mere failure to accede to the insured’s demands cannot be bad faith.

Citing prior Middle District precedent and the Pennsylvania Superior Court, the court found that UIPA violations could form the basis of a bad faith.  Further, the court found that the complaint, on its face, involved allegations of more than a valuation dispute, and that the case involved more than a simple claim that the insurer failed to meet the insured’s demand.  “Although the amended complaint would have ideally included additional facts suggesting that Defendant’s payment on the claim was purposely less than the full amount to which Plaintiff was entitled, the complaint does allege that Defendant made multiple representations to Plaintiff for purposes of undervaluing his property claim.” Thus, the court stated that: “In light of the parties’ burdens at the motion to dismiss stage, and viewing the facts as true and granting Plaintiff all reasonable inferences, the court concludes that dismissal of Plaintiff’s bad faith claim would be premature. While discovery may provide a reasonable explanation for Defendant’s conduct, Plaintiff’s allegations raise a plausible inference of bad faith. As such, Defendant’s motion to dismiss Plaintiff’s bad faith claim will be denied.”

Date of Decision:  June 26, 2014

Militello v. Allstate Prop. & Cas. Ins. Co., Civ. No. 14-cv-00240 , 2014 U.S. Dist. LEXIS 86945, (M.D. Pa. June 26, 2014) (Rambo, J.)

JUNE 2014 BAD FAITH CASES: CONCLUSORY LEGAL ALLEGATIONS ARE INSUFFICIENT TO STATE BAD FAITH CLAIM UNDER TWOMBLY/IQBAL, BUT COURT GAVE PLAINTIFF OPPORTUNITY TO AMEND AND CURE PLEADING DEFICIENCIES (Middle District)

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In Warnstorff v. State Farm Automobile Insurance Company, the insured brought a bad faith claim against its carrier for unreasonably delaying the evaluation of her underinsured motorist claim, and withholding payment. The plaintiff alleged four specific actions in her complaint which she claimed constituted bad faith. These allegations were: “failing to promptly evaluate the claim and make an offer,” “failing to promptly request any additional information [the insurer] believes it needs and evaluate that information and make an offer [sic],” “attempting to find any unfounded reason to refuse to pay underinsured motorist benefits,” and “delaying in evaluating the claim and making an offer.” Applying the Twombly/Iqbal standards, the court found that these allegations were conclusory legal statements; and were therefore insufficient to create a cause of action for bad faith.

First, the insured did not provide any indication of the length of time over which all the events occurred to support her allegation of unreasonable delay. The court clearly found that it was necessary to plead facts indicating the time frame in which the claim was or was not evaluated, or the allegation was not factual but a mere legal conclusion. Next, without any factual support about the length of any delay, the allegation that the carrier failed to promptly request any information it would have needed to fully evaluate the claim was again a mere conclusion.

The plaintiff also alleged an unreasonable refusal to pay benefits, but she did not allege the total amount of her damages. She only pleaded that she received $90,000 from the underinsured tortfeasor, and that she felt entitled to more. These allegations only show that there is some dispute over her insurance contract that has, at the time of the complaint, not concluded in her favor. This failed to plead sufficient facts to state a claim to relief that is plausible on its face. Further, the plaintiff did not raise a reasonable expectation that discovery would reveal evidence of necessary elements to prove her bad faith claim.

Plaintiff attempted to flesh out her claims by attaching letters to her brief opposing the motion to dismiss, which were not part of the complaint.  The court declined to consider those documents outside the complaint, and, for the forgoing reasons dismissed the bad faith claim.  However, the court granted leave to amend to provide plaintiff with the opportunity to cure the pleading deficiencies.

Date of Decision: June 19, 2014

Warnstorff v. State Farm Auto. Ins. Co., CIVIL ACTION NO. 3:14-0077, 2014 U.S. Dist. LEXIS 83551 (M.D. Pa. June 19, 2014) (Mannion, J.)

 

JUNE 2014 BAD FAITH CASES: INSURED STATED A BAD FAITH CLAIM BY ALLEGING ENOUGH FACTS TO PUT REASONABLENESS OF THE INSURER’S COVERAGE DENIAL AT ISSUE, AND THUS DISCOVERY WAS NEEDED TO DETERMINE THE ISSUED OF REASONABLENESS (Middle District)

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In Rizk v. State Farm Fire & Cas. Co., the insured had a homeowners policy that excluded coverage for frozen plumbing pipes; however, the exclusion did not apply “if the insured used reasonable care to maintain heat in the building.” The insured alleged that although he was away from the home during the winter months, attending school, he had a friend come to the house to set the thermostat at an appropriate temperature to prevent freezing; and that they would come and check the house periodically during January. Still the pipes froze. The carrier denied coverage, and the insured brought breach of contract and bad faith claims. The carrier argued the bad faith count should be dismissed for not setting forth a plausible bad faith claim.

The court rejected this argument. First, the insured specifically alleged that he took reasonable care to maintain heat by having a friend set the thermostat to an appropriate temperature, and by checking on the property at various times in January 2013. Second, the insured further alleged that the carrier purposefully interpreted the policy to resolve ambiguities in favor of itself; failed to provide a reasonable basis for denial of the claim; and failed to reasonably and adequately investigate the claim.

The court cited Judge Conaboy’s February 2014 decision in Aldsworth for the proposition that “where the reasonableness of the defendant’s basis for denying coverage was a factual issue, dismissal of the plaintiff’s bad faith claim was premature.” Whether the insurer in this case had a reasonable basis for denying the claim depended on the factual issue of whether the insured took reasonable care to maintain heat in the residence. Again, citing Aldsworth: “While discovery may not provide Plaintiffs with the required clear and convincing evidence that Defendant ‘(1) did not have a reasonable basis for denying benefits under the policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim,’ a determination on these matters is not properly made on the record before us.”

Date of Decision: May 21, 2014

Rizk v. State Farm Fire & Cas. Co., CIVIL NO. 1:14-CV-619, 2014 U.S. Dist. LEXIS 70460 (M.D. Pa. May 21, 2014) (Caldwell, J.)

MAY 2014 BAD FAITH CASES: ON MOTION IN LIMINE, COURT DECIDES: (1) PLAINTIFF’S INSURANCE CLAIM HANDLING EXPERT CANNOT TESTIFY ON MEDICAL ISSUES OR RESERVES; (2) EVIDENCE OF RESERVES NOT PROPER IN DISABILITY INSURANCE CLAIM; (3) PAST GENERAL CLAIMS HANDLING PRACTICES NOT ADMISSIBLE, BUT PRE-CLAIM EVIDENCE CONCERNING ACTUAL INSURED ADMISSIBLE; (4) PLAINTIFF CAN RECOVER FOR EMOTIONAL DISTRESS UNDER COMMON LAW CONTRACT BREACH OF DUTY OF GOOD FAITH; BUT (5) PLAINTIFF CANNOT RECOVER FOR “LITIGATION STRESS” EXPERIENCED IN THE BAD FAITH LITIGATION ITSELF (PHILADELPHIA FEDERAL)

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In Leporace v. New York Life & Annuity Corp. the court addressed various motions in limine on a bad faith claim against a disability insurer.

On the first issue, both parties attempted to disqualify the other’s experts. Plaintiff’s expert was qualified on most issues, but was not permitted to testify on the strengths of medical opinions or medical care. Furthers, she was not permitted to testify on reserves. The Court concluded that introducing evidence on reserves would be contrary to the concepts behind competitive and confidential reserve practices of insurance companies, and should not be permitted in a bad faith case on a disability insurance claim.

As to the insurer’s expert, the court allowed expert testimony on the basis of the expert’s conclusions regarding the carrier’s claims manual that the insurer met its obligations; however, it found this expert’s reliance on Pennsylvania statutory and regulatory positions, the NAIC Market Regulation Handbook and various on-line websites “doubtfully relevant, if at all….”

The court would not allow a volume of evidence on the carrier’s practices, prior to the date that the court found the claim at issue started; however, the court did allow limited evidence under Federal Rule of Evidence 404(b) on the specific issue of the carrier identifying the insured as a “malingerer” during a five year period prior to the current claim.

Next, citing Birth Center and the recent Peruggia decision, the court did permit plaintiff to see damages for emotional distress under a common law contract claim for breach of the duty of good faith.

Finally, the court would not allow expert testimony, or recovery, on the insured’s claims for “litigation stress”. The court analyzed this issue closely, and gave two reasons that the insured could not seek recovery for the stress of the bad faith lawsuit itself. First, it cited a body of cases from various jurisdictions rejecting “litigation stress” because there is no question that filing a lawsuit is the plaintiff’s decision, and imposing additional damages on the defendant for defending against the plaintiff’s claims would impair the defendant’s right to defend itself. Second, once a lawsuit is instituted, the party becomes subject to the contentions of an opposing party and the rulings of a court, and the stress may be from the insurer’s counsel conduct of the case or even the court’s ruling, and not the insurer itself.

Date of Decision: May 7, 2014

Leporace v. N.Y. Life & Annuity Corp., CIVIL ACTION NO. 11-2000, 2014 U.S. Dist. LEXIS 62911 (E.D.Pa. May 7, 2014) (Baylson, J.)

 

MAY 2014 BAD FAITH CASES: COURT REJECTS INSUREDS’ ATTACK ON THEIR OWN APPRAISER, AND DENIES MOTION TO SET ASIDE APPRAISAL AWARD (Philadelphia Federal)

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In Mitchell v. Safeco Insurance Company, a fire loss action, the appraisers for the insured and insurer agreed to the value of the loss, without the need to go to the umpire, and stipulated in writing to the appraisal award. The insureds, however, challenged the result on the basis that their own appraiser suffered some form of mental breakdown which rendered him incompetent to adequately advocate for them; and they brought breach of contract and bad faith claims against the carrier. To pursue these claims, they moved to have the court set aside the appraisal award.

The court observed that judicial review of an appraisal award is severely limited. In order to set aside an appraisal award, a plaintiff must clearly establish that they were denied a hearing, or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable, or unconscionable award. The court observed that it could determine whether appraisers exceed their authority. The court assumed arguendo that challenging their own appraiser’s mental capacity was a proper basis to overturn the appraisal; however, the insureds introduced no evidence in this regard at the hearing. At most, the evidence demonstrated that the insureds’ appraiser was somewhat dilatory and non-responsive to the insureds, their public adjuster, and to the insurer’s appraiser. However, the insureds’ appraiser inspected the property in question and had three meetings with the defendant’s appraiser. The two appraisers agreed that the insurer’s appraiser would prepare the first draft of the appraisal and forward it to the insured’s appraiser for his review and critique. The court observed that this not an uncommon appraisal procedure; and that both appraisers do not always prepare their own initial appraisals. At their final meeting, based on a suggestion by the insureds’ appraiser, the actual cash value of the loss was increased by $13,000 in the original draft; and this sum was incorporated in the jointly signed appraisal award. There was neither actual evidence that the insureds’ appraiser had any mental breakdown; nor any evidence of fraud, misconduct, corruption or other irregularity in the appraisal process. Neither appraiser exceeded his authority. Accordingly, the petition to set aside the appraisal was denied.

Date of Decision: May 6, 2014

Mitchell v. Safeco Ins. Co., CIVIL ACTION NO. 14-625, 2014 U.S. Dist. LEXIS 62661 (E.D. Pa. May 6, 2014) (Bartle, J.)