Archive for the 'PA – Claims Handling Procedures' Category

JUNE 2017 BAD FAITH CASES: NO BAD FAITH DELAY IN CLAIMS HANDLING PROCESS (Philadelphia Federal)

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This summary judgment opinion involved a bad faith dispute based on alleged delay in claims handling in the course of an appraisal process valuing property loss. The court had earlier dismissed the insureds’ breach of contract claim, but had allowed the bad faith claim to proceed.

The court first observed that in its earlier decision, the dispute over the claim value was not the basis for a breach of contract claim, where the insureds could not show the actual breach of a contractual duty. In allowing the bad faith claim to proceed, the court had “expressly found that the amended complaint limited the bad faith claim to the delay in the appraisal process,” not value. Thus, it rejected the insureds’ current effort to assert bad faith for undervaluing of the claim, which the court found “irrelevant.”

The court summarized the law concerning delay and bad faith. “[A] bad faith insurance practice can include an unreasonable delay in handling or paying claims.” “Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.” It is “[t]he plaintiff [who] bears the burden of establishing delay by clear and convincing evidence.” “A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.” Further, “’[i]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’”

The court closely analyzed the history of the parties’ conduct of the appraisal process. The court found the first alleged delay of 5 weeks in acknowledging the appraisal demand was de minimis, and could not lead a reasonable jury to find bad faith. Moreover, after acknowledging the demand, the insurer’s appraiser reached out to the insureds’ appraiser, but the insureds’ appraiser stated he could not begin work until he had a signed agreement with the insureds. Once he had that signed agreement, the two appraisers then executed a joint declaration and began their inspections. This could not be the basis for a bad faith claim.

The court also rejected the argument for bad faith during a subsequent 5-month period during the appraisal process. Both appraisers carried out investigations during the first three months of this period. The insurer’s appraiser also had lab tests done regarding asbestos remediation, investigated the HVAC system, and conducted extensive research in response to the insureds’ claim for engineering and architectural fees, which involved multiple interviews with the plaintiffs’ engineer and architect. Part of a month-long time lapse thereafter included deference by the insurer to the insureds’ appraiser traveling to Florida for his mother’s funeral. Once he returned, both appraisers spoke again, and submitted the claim to an umpire.

In sum, plaintiffs could not meet their burden to establish that the putative “delay was unreasonable, that it was solely attributable to [the insurer] or that [the insurer] had no reasonable basis for causing any such delay.” Any alleged delays were “an ordinary part of legal and insurance work.” The eight months at issue from the time of demand to the time of the umpire’s meeting was “relatively minimal,” and during “that period, both parties’ appraisers were actively conducting investigations, with much of the actual delay attributable to plaintiffs’ own adjuster.”

The court granted summary judgment for the insurer.

Date of Decision: June 8, 2017

Dagit v. Allstate Property & Casualty Insurance Company, No. 16-3843, 2017 U.S. Dist. LEXIS 87971 (E.D. Pa. June 8, 2017) (O’Neill, Jr., J.)

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JUNE 2017 BAD FAITH CASES: INSURED CANNOT PROFIT BY BRINGING A BAD FAITH CASE DUE TO THEIR OWN LACK OF ACTION DURING CLAIM HANDLING (Middle District)

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This property loss case provides a good summary of basic bad faith law leading into its analysis of the facts, and then some strong language on bringing a bad faith claim where the insured’s own conduct led to the delays at issue.

Quoting the Court:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that “the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. “The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith.'” J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004).”

In this case, the insurer paid “no less than $347,000” for real and personal property loss from fire, with a remaining dispute over $17,000 for landscaping issues. That contract dispute could not be resolved on summary judgment. However, the bad faith claim was resolved on summary judgment, where the court found it “unthinkable” on the facts that a jury could find bad faith.

The bad faith claim centered on the timing of making payments for personal property loss (which had been ultimately paid to the policy limits). The court observed that the analytic framework for measuring claims of delay in making such payments began with the terms of the insurance policy itself. Unambiguous policy language placed most responsibility for the timing and amount of payments on actions required of the insureds. In this case, the insureds did not provide required documentation for over a year.

The court analyzed the history and concluded: “In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Date of Decision: May 30, 2017

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)

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MAY 2017 BAD FAITH CASES: DELAY ALONE IS NOT SYNONYMOUS WITH BAD FAITH; SWORN STATEMENT NOT PROHIBITED SIMPLY BECAUSE OF PRIOR DEPOSITION IN UNDERLYING CASE; TECHNICAL REGULATORY VIOLATIONS NOT BAD FAITH PER SE (Middle District)

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A UIM claimant alleged bad faith based upon: “misstatement of … coverage limits, alleged delay in claims processing, insistence upon a sworn statement under oath …, persistence in collecting medical records and failure to comply with insurances regulations regarding periodic status notices to insureds as evidence of bad faith.” The insurer wanted summary judgment on the bad faith claim, which the court granted, stating: “that, while both parties indulged in occasional missteps in the process of reviewing and litigating this claim, the essentially uncontested evidence does not meet the demanding, precise and exacting legal standards prescribed under Pennsylvania law for a bad faith insurance processing claim.” The court observed the “well-established” principle “that it is not bad faith for an insurance company to ‘conduct a thorough investigation into a questionable claim.’” Insurers can be successful in defending against bad faith claim by showing that there were “red flags” warranting further investigation. Thus, delay alone does not equate to bad faith: “the mere passage of time does not define bad faith. Rather, an inference of bad faith only arises when time passes as part of a pattern of knowing or reckless delay in processing a meritorious insurance claim.”

The court observed that insurers in UIM cases need to deal with the claim against the underlying tortfeasor, which in this case went on for a number of years. Further, the insured did not place the insurer on notice of the UIM claim until nearly 5 years after the accident. Once the claim was made, the parties engaged in an ongoing process to attempt to resolve the dispute. Further, though the carrier did originally misstate the scope of coverage, this was an understandable mistake and was corrected, resulting only in a brief delay.

In addition, there was nothing untoward in seeking a sworn statement in light of multiple circumstances, including, e.g., incomplete medical information. The court did not accept the argument that no sworn statement was needed because the insured had been deposed two years earlier in the underlying litigation. Further, as stated, each party engaged in some missteps in exchanging medical information, and the insurer was justified in seeking further medical information after having obtained some records.

Next, in evaluating the claim the underlying tortfeasor only settled years after the accident, and for a sum less than policy limits; a factor going to the UIM insurer’s ability to evaluate the claim. The insured had originally demanded over double the UIM policy limits to settle, and then policy limits.

The final argument involved alleged violations of Pennsylvania’s Unfair Claims Settlement Practices Act and the Unfair Insurance Practices Act, specifically concerning the regulatory requirement to provide 45 day updates on the status of insurance claims. The court recognized that a “violation of these insurance rules can be considered when examining a bad faith claim under §8371.” The court then went on: “However, it is also clear beyond peradventure ‘that a violation of the UIPA or the UCSP is not a per se violation of the bad faith standard.’”

Applying these principles, the court concluded: “This case aptly illustrates why technical violations of these state insurance regulations cannot be equated with bad faith. The record before us amply reveals active, extensive and on-going communications …. Our review of the substance of these multiple communications … reveals that even when the communications are viewed in a light most favorable to [the insured], these communications do not support a claim of bad faith shown by clear and convincing evidence.”

The court then observed: “Given that the communications, in their substance, do not allow for a finding of bad faith here, it would be anomalous to conclude that the fact that the communications did not meet the technical frequency requirements mandated by insurance regulations, standing alone, established a bad faith claim in this case.”

Date of Decision: April 10, 2017

Ridolfi v. State Farm Mut. Auto. Ins. Co., No. 15-859, 2017 U.S. Dist. LEXIS 54267 (M.D. Pa. Apr. 10, 2017) (Carlson, M.J.)

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APRIL 2017 BAD FAITH CASES: NO ACTIONABLE BAD FAITH CLAIM FOR NORMAL LITIGATION CONDUCT (Centre County Common Pleas)

APRIL 2017 BAD FAITH CASES: CONCLUSORY ALLEGATIONS DO NOT GIVE RISE TO A BAD FAITH CLAIM (Philadelphia Federal)

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The court granted an insurer’s 12(b)(6) motion on a bad faith claim related to the handling of an insured’s motorcycle accident. The insured’s complaint contained nineteen separate general allegations of conduct that purportedly demonstrated the insurer’s bad faith in handling the insured’s claim. The allegations were broadly worded and included assertions, among others, that the insurer had failed to “properly investigate” the insured’s claim and had “adopted a company practice of intentionally undervaluing uninsured motorist claims and delaying paying said claims for an unreasonable period of time.” The complaint, however, was devoid of any specific facts that the court could reasonably rely on to support a plausible claim for liability toward the insurer.

The court explained that “plaintiff had not alleged sufficient or specific facts to support his claim that [the insurer] had acted in bad faith . . ..” The court further observed that the insured had actually “not set forth any factual allegations to support his general legal claims.” Thus, the court dismissed the insured’s bad faith count, but without prejudice.

Date of Decision: December 5, 2016

Talotta v. State Farm Mut. Auto. Ins. Co., No. 16-55557, 2016 U.S. Dist. LEXIS 167248 (E.D. Pa. Dec. 5, 2016) (Ditter, J.)

APRIL 2017 BAD FAITH CASES: CONSUMER PROTECTION LAW VIOLATIONS MAY BE EVIDENCE IN BAD FAITH CASES (Middle District)

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The insured brought a consumer protection law claim for allegedly abusive claims handling practices and denial of her insurance claim. The court observed that in the insurance context, Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL) “applies only to conduct related to the sale of an insurance policy, not to the handling of insurance claims.” However, in a footnote, the court added that in Berg v. Nationwide Mut. Ins. Co., Inc., 44 A.3d 1164 (Pa. Super. Ct. 2012), the Superior Court dealt with whether a UTPCPL violation is evidence of statutory bad faith under. Under that case, while the UTPCPL did “not provide for a separate cause of action for a UTPCPL violation, … such violation may constitute evidence to support a bad faith cause of action.”

Date of Decision: April 7, 2017

Machado v. Safeco Ins. Co., No. 16cv1685, 2017 U.S. Dist. LEXIS 53604 (M.D. Pa. Apr. 7, 2017) (Munley, J.)

APRIL 2017 BAD FAITH CASES: ON REMAND TRIAL COURT MUST REVIEW POTENTIAL BAD FAITH CLAIMS FOR: (1) DENIAL OF COVERAGE, (2) INDEPENDENT CLAIMS HANDLING ALLEGATIONS, (3) PLEADING DEFENSES IN BAD FAITH, AND (4) DENIAL OF DUTY TO DEFEND (Pennsylvania Superior Court)

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In this case, among other things, the Superior Court stated the principle that statutory bad faith can exist independently of the insurer’s denying a benefit under the policy. The Court relied upon its earlier decisions in Condio (2006) and Nealy (1997). It did not address what effect, if any, that the Supreme Court’s 2007 decision in Toy v. Metropolitan Life Insurance Company had on those opinions, or to what extent Toy might limit the scope of cognizable claims for statutory bad faith to denial of benefits or conduct that is intertwined with a denial of benefits.

As to the particulars, this case involved title insurance. The insured believed she purchased two parcels, but the deed and title insurance policy only set out the legal description for one parcel. When she attempted to sell the properties years after her initial purchase, the potential buyer withdrew from the agreement and sued for damages because she had promised to convey both properties, but could not. She brought a third party action against the title insurer.

The Court found that the error in describing only one parcel in the original deed was in no way the insured’s fault. The insured alleged “that she … entered into a contract under which [the insurer] agreed to provide ‘real estate transactional services’ — including title searches and the drafting and filing of a deed — for her purchase of the property, and to issue a policy insuring title to the property.” The insured alleged that the title insurer was liable to her because the erroneous description on the deed and “in the Policy resulted from [the insurer’s] failure to conduct a proper title search and to provide a policy covering all of 4 Mill Street and the entire premises covered by her Agreement of Sale.”

In terms of insurance coverage, the Court looked at case law on reasonable expectations and estoppel. It cited numerous cases where mistakes in property descriptions could not be used to avoid coverage. It also looked to general case law on reasonable expectations, where the insurer could not evade the consequences of promises or conduct of its own agents in leading the insured to believe that certain coverage was being provided. (The Court cited the seminal Tonkovic case. It also cited Pressley v. Travelers, 817 A.2d 1131 (Pa. Super. Ct. 2003), where the agent at issue had authority to bind the insurer as its agent, but apparently was the insured’s agent as well). Thus, the court reversed the trial court’s finding that no coverage was due as a matter of law based on the policy language.

As to the bad faith claim, the finding of potential coverage undermined much of the insurer’s argument that it could not have acted in bad faith. In addition, the court found there could be distinct claims for “claims handling conduct which occurred over a six month period before finally advising” that coverage was denied. This would need to be addressed on remand. The Court further stated that the insured made bad faith allegations that the insurer improperly raised defenses alleging that the insured failed to cooperate and that the insured’s own actions, or that of her counsel, were the proximate cause of her own losses. The Court instructed the trial court to review these claims for bad faith on remand.

Finally, the Court remanded the bad faith claim on the insured’s argument that the insurer failed in its duty to defend the insured from the buyer’s claims for breach of the sales agreement.

Date of Decision: April 11, 2017

Michael v. Stock, No. 1229 EDA 2017, Pa. Super. LEXIS 245 (Pa. Super. Ct. Apr. 11, 2017) (Fitzgerald, Olson, Solano, JJ.)

APRIL 2017 BAD FAITH CASES: (1) INSURER INTERPRETS POLICY CORRECTLY, SO NO BAD FAITH; (2) NO BAD FAITH WHERE INSURER AGREED TO DEFEND ONLY COVERED CLAIMS, BECAUSE OF NOVEL ARGUMENT THAT USUAL RULE DID NOT APPLY TO TITLE INSURANCE (Philadelphia Federal)

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This dispute arises out of a Title Insurance Company’s initial refusal to defend its insured against a third party claim. The plaintiff in the underlying action proceeded pro se, and filed three different complaints before obtaining counsel. Based on the confusing and unclear language in the complaints, the insurer denied coverage.

It was not until a fourth Complaint was filed that the insurer provided a defense under a reservation of rights. Notably, however, the insurer only agreed to defend the covered claims, and refused to provide a defense for the uncovered claims. The insurer’s position went against well-established Pennsylvania case law requiring insurers to defend against both covered and uncovered claims until all potentially covered claims had been dismissed or resolved.

The insured brought suit alleging that the insurer acted in bad faith by delaying its defense, and by refusing to defend against all claims as required under Pennsylvania law. In determining that there was no bad faith, the Court reviewed the policy and held that the insurer correctly determined that its duty to defend was not triggered until the filing of the fourth Complaint. Because the insurer’s refusal to defend was based on a correct interpretation of the policy, its denial of benefits was not unreasonable, and the plaintiff was unable to satisfy the first element of bad faith.

With regard to insurer’s refusal to defend all claims, the court observed that the general rule that if any claim is covered, then under Pennsylvania law, the insurer must defend all claims, i.e., both covered and uncovered claims. The title insurer argued, however, “that title insurance policies should be construed differently, to extend the duty to defend only to those claims within the contours of the policy.” The title insurer relied upon case law from other jurisdictions and the title policy language; and the insured relied upon Pennsylvania public policy as set forth in case law. The court determined that it should rely upon Pennsylvania precedent, and rejected the title insurer’s argument.

As to bad faith, however, the court held that the insurer’s position was not taken in bad faith for two reasons. First, although unsupported by any Pennsylvania case law, this title insurance exception was an issue of first impression and had apparently never been presented before a Pennsylvania court. Second, the insurer’s position was supported by case law from other jurisdictions that had carved out similar exceptions for Title Insurance Companies.

Date of Decision: March 27, 2017

Lupu v. Loan City, LLC, No. 12-4556, 2017 U.S. Dist. LEXIS 45135 (E.D. Pa. Mar. 27, 2017) (Rufe, J.)

APRIL 2017 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED WHERE INSURER DID NOT ACT IN BAD FAITH WHERE IT PROPERLY EVALUATED SCOPE OF COVERAGE, MADE GOOD FAITH PAYMENTS, AND ARRANGED FOR TEMPORARY HOUSING FOR INSURED (Middle District)

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In this case, the insured owned two adjacent properties, which both the Magistrate Judge and District Court Judge concluded were distinct properties, and which had distinct insurance policies over time. The policy lapsed on one property (property 1), but a different policy remained in effect on property 2. A fire started on property 1, which ultimately damaged both property 1 and property 2. The insurer for property 2 would not pay for claims on property 1.

The insured asserted breach of contract and bad faith and argued that the insurer failed to act promptly on the insured’s claims, failed to undertake a reasonable investigation and make timely payment, and refused to cover losses arising at an adjoining property, which was not covered under the insured’s policy. The insurer sought summary judgment on the basis that its insurance policy only applied to property 2. The insurer argued that the undisputed facts showed that it properly evaluated the scope of coverage, made good faith payments totaling over $50,000 to the insured, and arranged seven months of temporary housing for the insured, based on the fire damage to property 2.

The court found that the insurer acted reasonably in addressing the insured’s claim, and noted that the insured was seeking coverage from the insurer for losses on a property that was not covered by the insurer’s policy. Additionally, the insurer immediately began investigating the claim after notice of the loss, arranged and paid for immediate short-term housing lasting more than seven months, and promptly attempted to undertake remediation and restoration efforts.

The insurer addressed any coverage questions with the insured, and paid undisputed claims totaling approximately $30,000 within two months of the reported loss. Further, the insurer worked with the public adjuster retained to evaluate other potentially covered losses, and made an additional $20,000 in payments over the course of approximately four months.

The Magistrate Judge found that these facts could not support a finding of bad faith, but may “at most – represent the remnants of a good faith insurance policy coverage contractual dispute.” In adopting the Report and Recommendation, the District Court Judge set forth additional facts supporting the Magistrate Judge’s Report and Recommendation concerning the two properties being distinct, and adopted the Report and Recommendation in granting the insurer’s motion for summary judgment.

Dates of Decisions: February 6, 2017 (Report and Recommendation) and March 24, 2017 (District Court decision)

Porter v. Safeco Ins. Co., No. 15- 759, 2017 U.S. Dist. LEXIS 17142 (M.D. Pa. Feb. 6, 2017) (Carlson, J.)

Porter v. Safeco Ins. Co., No. 15- 759, 2017 U.S. Dist. LEXIS 43498 (M.D. Pa. March 24, 2017) (Mariani, J.)

 

APRIL 2017 BAD FAITH CASES: FACTS SHOWING AN INSURER ACTED RECKLESSLY OR KNOWINGLY ARE REQUIRED TO WITHSTAND A MOTION FOR JUDGMENT ON THE PLEADINGS (Philadelphia Federal)

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This bad faith claim arises out of an insurer’s refusal to participate in an appraisal of the insured’s property damage claim. The insurer paid for some of the loss, but refused the insured’s request for appraisal. The insurer asserted that because the request was made a year after the loss, it was not required by the policy. The insured sued for breach of contract and bad faith, alleging that the policy mandated an appraisal.

The insurer filed a Motion for Judgment on the Pleadings, arguing that the factual allegations in the complaint were insufficient to sustain a bad faith claim. The Court agreed, placing its focus on the second element of a statutory bad faith claim – that the insurer knew or disregarded its lack of a reasonable basis for denying benefits. Specifically, the Court found that the Plaintiff had failed to allege any facts to show that the insurer acted knowingly or recklessly. Merely reciting the elements of the bad faith claim, supported only by conclusory statements, is insufficient. In this respect, the Court found the insured’s complaint lacking where it merely alleged, inter alia, that the insurer placed “its interests over the interests of its insureds” and did not have “a reasonable basis for denying Plaintiff the benefits due under the policy.”

Further, the Court refused to consider whether the insurer’s explanation for refusing appraisal was ultimately correct. Instead, the Court found that the sole issue was whether there were any facts in the complaint showing that the insurer knew or recklessly disregarded its lack of a reasonable basis for denying benefits. The correctness of the policy issue itself was an issue best explored in a breach of contract claim, not one for bad faith.

Date of Decision: March 30, 2017

Long v. Farmers New Century Ins. Co., No. 15-6724, 2017 U.S. Dist. LEXIS 47552 (E.D. Pa. Mar. 30, 2017) (Stengel, J.)