Archive for the 'PA – Claims Handling Procedures' Category

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.)

MAY 2015 BAD FAITH CASES: NO BAD FAITH BASED ON INVESTIGATION AND EXPERIENCE OF INSURANCE TEAM, EVEN THOUGH EXPERT NOT USED IN INVESTIGATION, AND ORIGINAL REFERENCES IN DENIAL LETTER WERE TO GENERIC POLICY AND NOT INSURED’S SPECIFIC POLICY (Middle District)

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In Boulware v. Liberty Insurance Corp., the insurer denied a claim for a damaged deck, under a homeowners policy, on the basis of exclusions for faulty workmanship, wear and tear and/or rot.  The insurer’s adjuster came to the scene and investigated, but did not bring an engineer.  He determined the cause was poor work or rot, and looking to a generic version of the homeowners policy at issue, not the specific policy, when he drafted a denial letter.  His supervisor, who had experience and training with such construction issues, also only referring to the generic policy, approved the denial letter.

The insured brought a bad faith claim, based in large part on the fact that the only on-site inspection was done by the adjuster, in under an hour; and that the insurer “did not retain any contractor experts or engineers to inspect her damage despite the fact that its adjusters and supervisors had authority to do so.” Rather, the insured argued that “during the entire claims process, [the insurer] failed to utilize a contractor expert or engineer to assist it to properly evaluate [the insured’s] claim and examine the cause of … loss, and that [it] should have retained such experts before it issued the two denial letters.” The insurer responded that based on the construction background of its personnel handling the claim, and the adjuster’s actual investigation, “it can hardly be said that their decisions were unreasonable or that they knew an expert or engineer was required to properly evaluate plaintiff’s claim yet recklessly disregarded this in denying her claim.” The court further focused on the adjuster’s detailed determinations at the actual inspection, where the adjuster concluded “that there was ‘improper, inadequate, defective workmanship or construction’ of the deck, and he stated that the method of attachment of the deck to plaintiff’s home was ‘with nails, instead of lag screws’ and that there ‘was no Z flashing present.’” He had also “concluded that there was defective construction of plaintiff’s deck since there was rot in the deck boards caused by the lack of Z flashing which allowed snow and water to rot out the boards over time.” The adjuster had “personally viewed the areas of rot and took photos of the areas, and his photos substantiated his findings regarding the use of nails and the deteriorating boards. … [and his] findings were entirely consistent with the opinions of the engineer expert defendant retained after this case was filed in court….”

Moreover, “the retention of an expert by the insurer after denying a claim is not bad faith and, that even if the insurer erred by not retaining an expert to examine the damage prior to the initial denial of a claim, this amounts to only negligence or poor judgment and not bad faith.” In any event, the court found that the denial was reasonable, even without first having retained an expert. That during litigation, the two experts differed on causation and thus cover, only created a dispute of fact over contract coverage, not bad faith.

The court found that the insurer “performed a reasonably detailed investigation of plaintiff’s claim notwithstanding the lack of an expert, and it supplied a reasonable basis to bolster its denial of her claim on two occasions.”

As to the adjusters’ not reviewing the insured’s specific policy, rather than a generic policy, this was not evidence of bad faith, as the adjuster “was well aware of the provisions in a standard … policy as well as the exclusions in the … standard policy when he inspected plaintiff’s property and drafted his first denial of coverage letter for plaintiff’s claim.”  The adjuster had even discussed the nuances of the policy exclusions with the insured at the time of his inspection. The supervisor’s review using the same general knowledge supported the adjuster’s conclusion.  Finally, when a third employee of the insurer, a team manager, got involved,  “he had all of the documents regarding [the] claim, including the original denial letter, the notes, the photographs, the log notes, all correspondence and [the] actual policy.” He reviewed the claim with the adjuster, “and he reviewed the definition of collapse in [the actual] policy and, they both agreed that the cause of her loss was ‘wear/tear/deterioration’ and that her loss ‘[did] not fit [the policy] definition of collapse.’”

Thus there was no bad faith because the court found that the insurer conducted a prompt and reasonably thorough investigation of the claimed loss, and provided a reasonable basis to deny the claim, and summary judgment was granted to the insurer.

Date of Decision: March 17, 2015

Boulware v. Liberty Ins. Corp., CIVIL ACTION NO. 3:13-CV-1541, 2015 U.S. Dist. LEXIS 32223 (M.D. Pa. March 17, 2015) (Mannion, J.)

APRIL 2015 BAD FAITH CASES: INSURED DENIED SUMMARY JUDGMENT WHERE CLAIMS HANDLING ISSUES AND BAD FAITH TO BE RESOLVED BY JURY (Middle District)

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In Scheirer v. Nationwide Insurance Company of America, the insured pleaded bad faith, among other claims, for an alleged inordinate delay in handling her claim. The claim involved alleged uninsured motorist (“UM”) benefits owed as a result of an injury the insured suffered in a bus accident. Both the insured and insurer brought motions for summary judgment.

The insured claimed the insurer acted in bad faith “by failing to properly and promptly evaluate and investigate her UM claim, by failing to timely respond to her demands, by failing to promptly resolve her claim within the policy limits, by failing to act promptly upon communication regarding her claim, by failing to have reasonable standards with respect to her claim, by failing to pay her claim when it had all of the necessary information, by failing to provide a fair and equitable settlement of her claim, by failing to negotiate with her counsel, by forcing her to commence litigation to recover her rightful amount due under her policy, and by offering her substantially less than the amounts due on her claim.”

The court cited to general bad faith principles in applying section 8371, and added, citing earlier cases, that “’Pennsylvania law does not limit bad faith claims to unreasonable denials of coverage[]’ and, ‘[a] bad faith can have various other bases, including an insurer’s lack of investigation, lack of adequate legal research concerning coverage, or failure to communicate with the insured.’”  The cases cited stood for the proposition that “a bad faith claim includes ‘a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured.’”

In this case, the insured based “in large part, her bad faith claim on the above stated alternative grounds. As stated, bad faith is not limited to the insurance company’s bad faith in denying its insured’s claim and can include the company’s investigative practices.”  The court found that “disputes exist as to whether defendant conducted a prompt investigation of plaintiff’s UM claim, as to whether defendant promptly evaluated and investigated plaintiff’s UM claim, as to whether defendant failed to timely respond to plaintiff’s demands, as to whether defendant failed to promptly resolve plaintiff’s claim within the $100,000 policy limits, as to whether defendant failed to act promptly upon communication regarding plaintiff’s claim, as to whether defendant failed to have reasonable standards with respect to plaintiff’s UM claim, and as to whether defendant failed to timely pay plaintiff’s UM claim when it had all of the necessary information.” The court held that “a reasonable trier of fact could find that the defendant failed to make a good faith and timely payment on plaintiff’s UM claim.” The open issues included the insurer’s position that it acted reasonably in light of not having all necessary information, or whether it had the necessary information; the timeliness of compensating the insured; the time between the incident and an IME; whether a deposition was unduly delayed; and the timing of responses to letters from the insured’s counsel and a monetary demand. The court stated: “In short, the record is not clear if defendant breached its duty of good faith regarding its handling of plaintiff’s UM claim and, if so, whether this breach was through a motive of self-interest or ill will as opposed to mere negligence.”  Thus, both summary judgment motions were denied.

Date of Decision: March 9, 2015

Scheirer v. Nationwide Insurance Company of America, Civil Action No. 3:13-CV-1397, 2015 U.S. Dist. LEXIS 28286 (M.D. Pa. March 9, 2015) (Mannion, J.)

Note: As reported over the years throughout this Blog, there is some question whether bad conduct in claims handling, without a denial of any benefit, can be a basis for statutory bad faith.  This is most notable in the context where it turns out no coverage was ever due under the policy, e.g., because of any exclusion.

Poor conduct that leads to delay in payment of a benefit (or provision of a defense in a third party case) can be seen as a denial of a benefit (“a delay in payment of a third party claim, if of inordinate and unreasonable length, effectively becomes a denial of the claim.”).  However, to the extent that a benefit is neither denied nor delayed, whether there is a cause of action under section 8371 for, e.g., failures to communicate or poor investigation practices alone, remains open to challenge.  By way of comparison some courts find that violations of the Unfair Insurance Practices Act, in and of themselves, cannot be the basis for a statutory bad faith claim or even be considered as evidence of bad faith, following D’Ambrosio; whereas some courts would allow this as evidence of bad faith, but not bad faith per se. Even here, however, there seem to be some decisions indicating UIPA violations can be the basis of a bad faith claim. In light of D’Ambrosio, this may simply be that the same conduct violating the UIPA simultaneously creates the basis for section 8371 bad faith, and it is not the UIPA violation as such that creates bad faith, but the conduct itself.  Additionally, there is the issue of whether there can be bad faith if no coverage was ever due, because the reasonable basis prong of the bad faith test is objectively met.

MARCH 2015 BAD FAITH CASES: SUPERIOR COURT UPHOLDS BAD FAITH PUNITIVE DAMAGES AWARD, AND PERMITS INCLUSION OF ATTORNEY’S FEES AS PART OF BASE NUMBER UPON WHICH TO CALCULATE PUNITIVE DAMAGES (Superior Court of Pennsylvania, non-precedential)

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In Davis v. Fidelity National Title Insurance Company, a non-precedential decision of the Superior Court, the insured brought breach of contract and bad faith claims against its title insurer.  After a lengthy process from the time the claim was made to the time the insurer paid another party claiming an ownership interest to clear title, the insured alleged it suffered lost profits, and that the insured acted in bad faith by not addressing the claim promptly.  It was almost 5 years between the date the claim was made to the carrier, and the date payment was made to the third party to clear title.

The trial court awarded $224,760 in compensatory damages (combining increased buildings costs on the project and lost profits), which the Superior Court affirmed, agreeing that the future damages were not so speculative as to preclude recovery.  On the bad faith claim, the trial court further awarded $158,450 in attorney’s fees and $1,572,909.24 in punitive damages.  The insurer did not challenge the bad faith claim as such, but challenged the amount of the punitive damages award based upon (1) that it was excessive under U.S. Supreme Court standards as set forth in State Farm Mutual Automobile Insurance Company v. Campbell and its progeny; and (2) that the attorney’s fee award should not have been included in the compensatory damage base number on which to calculate punitive damages.  The Superior Court rejected both arguments.

The court cited a number of cases that included attorney’s fees in the compensatory damage base upon which punitive damages could be determined, rejecting the insurer’s argument on that point.  Further, including the attorney’s fees with the compensatory damages, the punitive damages award was a 4:1 ratio with the compensatory damages, well within Campbell’s constitutional parameters.  Moreover, the court reviewed the factors Campbell considered in determining punitive damages, focusing on the time delays as falling within the degree of reprehensibility factor (the most important factor to consider), and citing Pennsylvania’s Unfair Insurance Practices Act and Unfair Claims Settlement Practices Act regulatory standards in evaluating this factor.  The court stated that “it is difficult to find an area in which [the insurer] acted in conformance with accepted statutory, regulatory or internal standards.” It affirmed the bad faith award of punitive damages given by the trial court.

Date of Decision:  March 18, 2015

Davis v. Fidelity National Title Insurance Company, Superior Court of Pennsylvania, No. 672 MDA 2014 (Pa. Super. Ct. March 18, 2015) (Ott, Bowes, Stabile, JJ).

The trial court decision is Davis v. Fid. Nat’l Ins. Co., 2010-CV-8868, COMMON PLEAS COURT OF LACKAWANNA COUNTY, PENNSYLVANIA, 2014 Pa. Dist. & Cnty. Dec. LEXIS 225 (C.C.P. Lacka. March 28, 2014) (Minora, J.)

MARCH 2015 BAD FAITH CASES: WHERE MATERIAL ISSUES OF FACT EXIST OVER ALLEGED MISREPRESENTATIONS BY INSURED, COURT WOULD NEITHER DISMISS THE INSURED’S BREACH OF CONTRACT CLAIM OR THE INSURER’S STATUTORY FRAUD CLAIM; HOWEVER, STATUTORY BAD FAITH CLAIM COULD BE DISMISSED (Philadelphia Federal)

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In Henriquez-Disla v. Allstate Property & Casualty Insurance Company, the court addressed a battle of bad faith claims, the insured alleging breach of contract and bad faith for claim denials; and the insurer alleging insurance fraud in seeking dismissal of the insureds’ claims, and in pursuing affirmative relief under the insurance fraud statute, 18 Pa. C.S.A. § 4117(a)(2).  The insured and his wife made certain misstatements in applying for insurance and in seeking coverage for losses from a fire and earlier theft.  The insured disputed the materiality of these misstatements and raised issues as to intent, focusing on either a language barrier issue or that the misstatements were explicable, or de minimis in nature.  The court went through each alleged misrepresentation in detail, and concluded that the insurer’s motion for summary judgment would be granted on the bad faith claim, but that the breach of contract claim could proceed.  On the other end, the court denied the plaintiffs’ summary judgment on the insurance fraud claim, and allowed that claim to proceed as well.

As to the bad faith claim, this was “premised on the denial of benefits, the investigatory methods utilized, and [the carrier’s] alleged use of [the insured’s] language barrier as a pretext to deny coverage.” The insurer countered that the insureds did not produce any evidence that the carrier acted unreasonably or in bad faith.  The insureds attempted to counter this, by arguing that the carrier had admitted the insureds were not responsible for the theft or fire for which they were making claims.

Observing that an insurer’s investigation need not be flawless, and that negligence is not enough to show bad faith, the court agreed that the plaintiff failed to meet the burden of showing that the insurer lacked a reasonable basis for denying the claims. The court focused on the inconsistencies in the insureds’ statements, and that “there were sufficient contradictions in the testimony to justify [the insurer’s] decision. The court cited the principle that: “An insurer ‘may defeat a bad faith claim “by showing that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”’”

As to the contract claim, the insurer sought summary judgment on the basis that the policy should be found void for material misrepresentation. The court, however, refused to find the record so clear on material misrepresentation that this count could be dismissed. The court found “that it would be inappropriate on the current record to find as a matter of law that the inconsistencies … are material misrepresentations. As previously stated, innocent mistakes are insufficient to warrant summary judgment. …. As explained, many of the inconsistencies may be the product of miscommunication, misunderstanding, or a language barrier.”

However, this same lack of clarity also preserved the insurer’s fraud claim against the insured.  To make out a claim under section 4117, the alleged false claimant must “knowingly or with the intent to defraud the insurer present false, incomplete or misleading information regarding a material fact.” The court had ruled earlier a jury could find that the “inconsistencies in Plaintiffs’ statements may be the product of miscommunication, misunderstanding, a language barrier, or an attempt to mislead the insurer.”  Thus, summary judgment was inappropriate.

The court did go on to make some significant observations on the insurance fraud statute.  The court found the fact that the insureds themselves had no connection to the theft or fire for which they sought coverage insufficient to escape the fraud statute’s scope. Rather, the statute does not require them to be responsible for the loss itself.  Rather, if an insured makes a false statement concerning a subject relevant and germane to the insurer’s investigation as it was proceeding, that could be a material misrepresentation under the statute, which could afford the insurer relief. Thus, in this case, “[s]tatements regarding the [insureds’] whereabouts at the time of the losses, how they learned of the losses, and resultant damages, among others, are clearly germane to the insurer’s investigation.”

Next, the court refused to grant the insureds summary judgment on the basis that the insurer failed to allege damages. The court recognized that the damages would not be known until after the trial had concluded, if the insurer were successful, and that such a damages determination “is routinely left for the court after a verdict has been returned in favor of the insurer. At that point, the counter-claimant presents the court with a request for expenses, costs and fees.”

Finally, the court observed that the parties disputed the insurer’s burden of proof under the fraud statute, i.e., preponderance of the evidence vs. clear and convincing evidence. The court stated the statute was silent on this issue, and courts were split on the issue.  The court instructed the parties to do further briefing, as this would be an issue at trial. The court specifically directed the parties to address a Pennsylvania Superior Court case applying the clear and convincing evidence standard when an insurer is seeking to void a policy ab initio for fraud, and a 1998 district court case which had applied the preponderance of the evidence standard to section 4117, observing “that the legislature could have adopted a clear and convincing standard but did not….”

Date of Decision: February 10, 2015

Henriquez-Disla v. Allstate Property & Casualty Insurance Company, CIVIL ACTION NO. 13-284, 2015 U.S. Dist. LEXIS 15699 (E.D. Pa. February 10, 2015) (Hey, U.S.M.J.)

MARCH 2015 BAD FAITH CASES: INSURED’S BAD FAITH CLAIM COULD NOT BE DISMISSED SOLELY ON BASIS THAT EXAMINATION UNDER OATH HAD NOT OCCURRED PRIOR TO FILING SUIT, UNDER THE CIRCUMSTANCES OF THIS CASE (Western District)

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In Johnson v. State Farm Mutual Automobile Insurance Company, the insured wife was hit by an underinsured motorist while jogging.  The insureds’ own UIM limits were $250,000.  The injuries were diagnosed as serious and she sought policy limits.

During negotiations in early 2014, the insurer made offers of less than policy limits, and when the matter did not settle, sought an examination under oath (“EUO”) and/or statement under oath.  The insured’s counsel responded that the matter clearly was headed to litigation, and the EUO could be done in the form of a deposition.  Breach of contract and bad faith litigation was instituted about two months later.

The insurer moved to dismiss the bad faith claim on the basis of the insureds’ declining to submit to EUOs prior to filing suit: approximately 20 months after their filing the original UIM claim with the insurer; 8 months after the ongoing provision of significant and uncontroverted record medical evidence to the insurer; and 2 months after the insurer’s request for the injured wife’s EUO.

The court denied the motion as to both claims.  As to the contract claim, it observed case law that a refusal to submit to an examination under oath could be the basis to deny a claim in some circumstances; but here, the insured had offered to present herself for a deposition and the insurer had not taken up that offer.  Thus, the EUO was not a condition precedent to bringing suit.

As to the bad faith claim, the Court found that the insureds had pleaded more than bare bones allegations, by providing  specific allegations as to the nature of the injury, medical evidence provided to the insurer, a chronology of events, a description of the parties’ course of conduct, and the bases for the allegation of statutory bad faith, “e.g., that the ‘uncontradicted medical evidence provided’ of the ‘totality and permanency’ of Plaintiff Wife’s injury was sufficient, in the circumstances of the case, to require[]payment in full of UMC benefits under its ‘obligation and duty of good faith and fair dealing.’” The court contrasted this with earlier case law where a plaintiff failed to clearly plead that injuries were from the accident at issue, and the plaintiff had refused to submit to a further IME which apparently could have provided some clarity on that issue.

Thus, the motion to dismiss the bad faith claim was denied, the court observing that the insurer had the ability to attack that claim later, after discovery had been taken.  Moreover, instead of simply ordering the insurer to answer, the court stated that the matter would proceed to “Answer and deposition”.

Date of Decision: February 24, 2015

Johnson v. State Farm Mut. Auto. Ins. Co., Civil Action No. 14 – 928, 2015 U.S. Dist. LEXIS 21786 (W.D. Pa. February 24, 2015) (Lenihan, U.S.M.J.)

MARCH 2015 BAD FAITH CASES: SUMMARY JUDGMENT CANNOT BE GRANTED WHERE ISSUES OF FACT ON REASONABLENESS AND INTENT PRONGS OF BAD FAITH STANDARDS EXIST, FOCUSING ON DECISION NOT TO TAKE A DEPOSITION OR STATEMENT UNDER OATH DURING CLAIM PROCESS (Middle District)

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In Connolly v. Progressive Northern Insurance Company, the injured insured received a $250,000 settlement from a third party tortfeasor in connection with an auto accident.  She pursued underinsured motorist coverage from her own insurer, and also alleged there were multiple policies entitling her to stacking.  The insurer’s position was that the value of the injuries fell within the $250,000, and further that there was no stacking.

The insured claimed that there is an ambiguity as to which policy controlled because the insurer never provided a “certified” copy of the policies placed in issue. She also claimed that this refusal to provide certified copies of the relevant insurance documents and the insurer’s refusal to conduct a reasonable investigation of her claim combine to demonstrate statutory bad faith.  More specifically, the insured claimed bad faith on the basis that 1) the insurer failed to communicate with the insured and her counsel regarding provision of “a certified copy of the policies” in order to clarify the issue regarding stacked coverage; and (2) the insurer failed to perform a reasonable and timely investigation of the insured’s claim as indicated by the insurer’s failure to schedule her deposition or to request her Statement Under Oath.  The court noted that there was no case law cited to support entitlement to a certified copy of the policy.

The insurer responded that because there is a genuine dispute over the claim’s value, there can be no bad faith, averring: “(1) The Plaintiff’s receipt of a $250,000.00 recovery from the tortfeasor;(2) Plaintiff’s release to “normal activity” with “no restrictions” approximately one month after the accident; (3) An orthopedic physician’s opinion that Plaintiff’s lacerations were “healed” less than two months after the accident; (4) The fact that Plaintiff last sought medical treatment for her injury [18 months after it occurred]; and (5) Plaintiff’s refusal to provide Defendant with updated information on her physical status despite Defendant’s numerous requests for such information.”

The court agreed that the insured’s failure to provide updated medical information despite numerous requests by the insurer over many months is not in dispute. However, the court still declined to grant summary judgment; rather leaving it to a jury to determine the reasonableness of the insurer’s conduct toward the insured.  The court stated:

“One may wonder why Defendant did not schedule Plaintiff’s deposition or at least solicit her SUO and see these omissions as possible evidence of an unreasonably slow investigation on Defendant’s part. On the other hand, one could conclude that Defendant reasonably considered updated medical information on Plaintiff a necessary precursor to its request for a deposition or SUO. In any event, the caselaw [governing statutory bad faith claims] will require that Plaintiff demonstrate, by clear and convincing evidence, either that Defendant unreasonably delayed its investigation of her claim or refused to make an offer with reckless disregard of medical documentation in its possession that would clearly indicate that she was due additional money under the policy in question.”

The court had “not been provided with medical documentation from which it could categorically determine that [the insured] had not received a full recovery from the tortfeasor’s carrier. Thus, it appears that the credibility of the witnesses on these points will be a key issue in the determination of the bad faith issue.”

Date of Decision:  February 4, 2015

Connolly v. Progressive N. Ins. Co., Case No. 3:13-CV-2717, 2014 U.S. Dist. LEXIS 17074 (M.D. Pa. February 4, 2015) (Conaboy, J.)

A link to the court’s decision can be found on the excellent Tort Talk blog.