Archive for the 'Claims Handling Procedures' Category

MAY 2012 BAD FAITH CASES: COURT CAN CONSIDER OTHER STATUTES IN FINDING BAD FAITH, CLAIMS HANDLING DELAYS IN BENEFIT CANNOT BE OBVIATED BY LATER PAYMENT, MANUAL ON LITIGATION AND LEGAL FEES ADMISSIBLE AND COURT NEEDS TO CONDUCT IN CAMERA REVIEW (Superior Court)

Published on May 16, 2012 in Claims Handling Procedures, Discovery and Evidence, Lawyer's - Attorney's Fees and Procedural Issues. Closed
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In Berg v. Nationwide Mut. Ins. Co., the Superior Court reversed the trial court’s grant of a directed verdict to the carrier on the insured’s bad faith claim. This was a first party claim against an insurer under Pennsylvania’s bad faith statute, among other claims.
The suit stemmed from faulty repairs to the insured automobile conducted by the carrier’s preferred repair facility. There was a bifurcated trial, the first part being Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claims before a jury, and the second the issue of treble damages under the UTPCPL and statutory bad (42 Pa.C.S. § 8371) before the judge. The jury found for the insured on the UTPCPL claims, and for the auto repairer and the carrier on the fraud claims and conspiracy claims. The jury awarded $1,925 against the car repair shop and $295 against the insurer.
In the second phase, after a 4 day trial, the trial judge granted a directed verdict to the carrier on statutory bad faith claim and the insured appealed. The crux of the insured’s claim was that the carrier acted in bad faith by “interfering with a total loss appraisal on their vehicle and later returning it to them despite known structural deficiencies that left it in a potentially dangerous condition.” Part of the trial court’s rationale for declining to find for the insured was that such a claim does not “arise under an insurance policy.” The lower court also found that there was no ultimate denial of a benefit. The Superior Court specifically found that such a claim does in fact arise under the insured’s policy with respect to its contractual duties, including good fair and fair dealing, and the carrier’s failure to effectuate a “prompt, fair, and equitable” settlement in the face of a clear statutory and contractual duty.
The Superior Court also found that the violation of other statutes can be used as evidence of violation of the bad faith statute because bad faith conduct may be “defined by reference to violations of statutes related to insurance practices.” Thus, in this case, the jury’s finding that the carrier violated Pennsylvania’s UTPCPL should have been considered as evidence of bad faith, and weighed under the clear and convincing evidence standard applicable to the bad faith statute, rather than the judge ruling on the issue as a matter of law.
The Superior Court also cited additional factors to consider. The carrier had the insured’s car sent to a different repair shop after the initial choice found that the insured’s car could not be repaired. Further, the manner in which the carrier discharged its duty of good faith during the pendency of the carrier’s insurance claim was subject to a bad faith analysis because of allegations that it was the carrier’s practice to vigorously defend small claims regardless of merits to discourage others from bringing suit. The appellate court would have permitted evidence in connection with carrier’s manual concerning that strategy and legal billing.
Further, the appellate court found that the lower court erred in not doing an in camera review on documents that were alleged to be privileged and had been redacted.
Date of Decision: April 17, 2012
Berg v. Nationwide Mut. Ins. Co., No. 12-MDA-2008, 2012 PA Super 88, Superior Court of Pennsylvania (Pa. Super. Ct. Apr. 17, 2012) (Donohue, J.)

MAY 2012 BAD FAITH CASES: COURT RULES THAT BAD FAITH DOES NOT EXIST IF CARRIER PREMISES DENIAL OF CLAIMS ON A LAPSE IN PAYMENT OF POLICY PREMIUMS, BUT LATER PAYS THE LIMITS OF THE POLICY PLUS INTEREST (Philadelphia Federal)

Published on May 1, 2012 in Claims Handling Procedures. Closed
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In Sicherman v. Nationwide Life Insurance Company, the court granted the carrier’s motion to dismiss the insured’s suit for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), bad faith and breach of contract. The suit stemmed from the carrier’s initial denial of life insurance benefits under a policy held by the insured.
In 2010, the insured began to receive letters from the carrier informing him that his life insurance premium would be increasing. The insured paid this amount along with other amounts owed on his auto and homeowner’s policies. The carrier sent a letter back notifying the insured that money was still owed on the life insurance policy and that it would not accept partial premiums. Months later, the carrier returned the insured’s check because the remainder of the balance had not been paid. Shortly after, the insured was diagnosed with cancer and passed away.
While the insured was sick, the carrier sent him a letter stating that “[y]our policy has lapsed. If you want to reinstate this coverage, please hurry. . . . If you act now and are still insurable, you may have this policy reinstated.” Neither the decedent-insured nor his wife received the letter regarding the policy’s lapse prior to the decedent’s death. When the insured’s wife requested payment of benefits under the policy, her request was denied.
The insured’s wife hired legal counsel, who requested that the denial of payment be reversed. The carrier obliged, awarding the insured’s wife $408,991.27, representing the face amount of the policy plus interest.
In the instant case, the insured’s wife alleged that the carrier misrepresented the terms of the policy and failed to conduct a reasonable investigation into the merits of its life insurance claim. However, the court ruled that the complaint failed to allege facts that demonstrate which terms of the policy were misrepresented or what information should have been considered in making its determination about life insurance benefits.
Moreover, the court reasoned that her claim that the carrier “refused to effectuate a prompt and fair settlement of [her] claim” is belied by the evidence that, upon challenge to the initial decision to deny her claim, the carrier immediately paid the policy limits in full with interest.
The carrier merely premised its initial denial of claims on a lapse in the payment of policy premiums, but ultimately paid the proceeds of the policy at issue in full when that denial was challenged. Because such conduct does not constitute bad faith, the court granted the carrier’s motion to dismiss the complaint.
Date of Decision: April 3, 2012
Sicherman v. Nationwide Life Ins. Co., NO. 11-7227, 2012 U.S. Dist. LEXIS 47630, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 3, 2012) (McLaughlin, J.)

APRIL 2012 BAD FAITH CASES: COURT STRIKES INSURED’S BAD FAITH LIABILITY EXPERT REPORT AS UNTIMELY, BUT DENIES SUMMARY JUDGMENT ON BAD FAITH WHERE MATERIAL ISSUE ON WHETHER CLAIMS UNDERVALUED (Western District)

Published on April 30, 2012 in Claims Handling Procedures and Experts. Closed
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In Craker v. State Farm Mutual Auto Insurance Company, the court heard the carrier’s motion for summary judgment on the insureds’ bad faith claims. The original suit arose from a 2007 car accident in which the insureds were injured. After the carrier refused to pay an additional $200,000 in underinsured motorist coverage (“UIM”), offering at most $113,700.00, the insureds filed suit alleging breach of contract and bad faith.
The carrier argued that the insureds’ bad faith claims were meritless because the dispute merely arose over difference of opinion on the value of the claim. However, the court disagreed, finding that one of the insured parties was fired from his position as a laborer because of the injuries he sustained, preventing him from earning a similar salary elsewhere without a college degree.
Yet, the carrier valued the insured’s lost wages as a total lack of employment for two years, followed by a return to the same type of employment he had before the accident. The court ruled that there was no reasonable basis for this evaluation indicating a decision that may amount to bad faith to a reasonable jury. The court also ruled that the other insured party injured in the accident was unreasonably denied benefits because the carrier refused to adjust the award after she received hip surgery. As such, the court denied the carrier’s motion for summary judgment.
However, the court did grant the carrier’s motion to strike the report and testimony of the insureds’ bad faith expert. At a Post-Discovery Status Conference, the insureds did not indicate that they needed any further experts to move forward with this case. However, they claim that they did not realize the need for such an expert until after the carrier filed for summary judgment. The court disagreed and refused to permit the expert testimony.
Date of Decision: April 4, 2012
Craker v. State Farm Mut. Auto. Ins. Co., No. 11-0225, 2012 U.S. Dist. LEXIS 48029, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Apr. 4, 2012) (Lancaster, J.)
This case has been previously addressed in this Blog in January 2012, October 2011, and May 2011.

APRIL 2012 BAD FAITH CASES: COURT GRANTS CARRIER’S MOTION FOR SUMMARY JUDGMENT BECAUSE ISSUE PRECLUSION BLOCKED ASSIGNEES’ UNDERLYING BREACH OF CONTRACT CLAIM AND THERE WAS NO BREACH OF COMMON LAW DUTY OF GOOD FAITH AND FAIR DEALING (Philadelphia Federal)

Published on April 5, 2012 in Claims Handling Procedures and Coverage Issues. Closed
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In Grant v. State Farm Fire & Casualty, the court granted the carrier’s motion for summary judgment stemming from a breach of contract, breach of duty of good faith and fair dealing and fraud claims assigned by the putative insureds to the underlying plaintiff.
The original suit arose from a sexual assault that occurred in 2000. The carrier represented two brothers in a civil action brought in the Court of Common Pleas of Philadelphia. The brothers claimed insured status under their parents’ homeowners’ policy. The carrier defended them under a reservation of rights.
In 2003, the carrier was awarded a declaratory judgment by default in Federal District Court, which stated that the insurer did not have to defend or indemnify the brothers, under the policy at issue.
However, the carrier did continue to defend the brothers in the civil action against them, while denying any duty to indemnify. After a trial in 2005, the insureds were found not liable by the jury. The case was appealed and reversed by the Pennsylvania Supreme Court on the issue of affirmative defenses, and remanded to the trial court. At that point, in 2008, the carrier refused to provide a defense, and the carrier refused a $100,000 settlement demand from the underlying plaintiff, whose demand letter characterized a refusal of the demand to constitute bad faith. The carrier relied on the declaratory judgment in refusing to defend or settle, the matter went to arbitration and plaintiff was awarded $2,000,000. The brothers assigned their claims against the carrier to settle the matter with the plaintiff.
First, the assignees claimed that the carrier breached its contract to defend and indemnify the insureds in the sexual assault litigation. However, the District Court’s prior judgment precluded the assertion of this breach of contract claim because that decision adjudicated the precise question of the carrier’s contractual duties.
Second, the court turned to the assignees’ common law bad faith claims, which contained three specific allegations. The court ruled that, absent a contractual duty to the defendants in the sexual assault litigation, the carrier could not be liable for a bad faith failure to defend the insureds. The court also ruled that the carrier did not act in bad faith by controlling the underlying litigation. The carrier advised its insureds to obtain independent counsel, but the parties did not oblige, leaving the carrier to conduct the litigation on their behalf, which it chose to do. The court also refused to find that the carrier acted in bad faith pursuant to the assignees’ estoppel theory. Essentially, the carrier was not prevented from claiming that damages fell outside of the insureds’ policy because it submitted three reservation of rights letters to the insureds after choosing to act in their defense.
Third, the court rejected the assignees’ claim that the carrier acted fraudulently. The sole evidence of fraud was a self-serving affidavit that failed to establish anything other than a conclusory allegation of fraudulent conduct. As such, the court also denied this claim.
Date of Decision: March 2, 2012
Grant v. State Farm Fire & Casualty Company, No. 11-6283, U.S. District Court for the Eastern District of Pennsylvania, 2012 U.S. Dist. LEXIS 28695 (E.D. Pa. Mar. 2, 2012) (Schiller, J.)

FEBRUARY 2012 BAD FAITH CASES: COURT DISMISSES INSURED’S BAD FAITH CLAIM WITHOUT PREJUDICE, BUT ALLOWS SUIT TO PROCEED TO DISCOVERY ON BREACH OF CONTRACT COUNT (Philadelphia Federal)

Published on February 1, 2012 in Claims Handling Procedures and Procedural Issues. Closed
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In Blasetti v. Allstate Insurance Company, the court ruled upon a carrier’s motion for judgment on the pleadings in an action for breach of contract and bad faith. The suit stemmed from the carrier’s denial of insurance benefits under the insureds’ homeowner’s policy, after the insureds’ home sustained storm damages. Prior to alerting the carrier of their loss, the insureds had the damages repaired. Under their policy, the insureds were required to promptly give the carrier notice of their claim and provide the carrier with all relevant evidence of damages and repairs.
In March 2011, the insureds first apprised the carrier of their loss. In April, the carrier submitted a reservation of rights letter, requesting an opportunity to inspect the repairs. The insureds’ adjuster sent the carrier a letter shortly thereafter, explaining that it needed time for photographs. The insureds never submitted the photographs to the carrier. Instead, the insureds’ adjuster requested a settlement offer in May 2011. The carrier subsequently denied coverage.
The insureds filed suit in state court in October 2011 and the carrier removed to federal court in November, filing its motion for judgment on the pleadings.
First, the court examined the insureds’ breach of contract claim. The carrier argued that the claim should be dismissed because the insured never satisfied their obligations under the contract by failing to provide documentation of the loss, such as the requested photographs. However, the insureds claimed that such an argument assumes that the photographs were available but withheld. The court ruled that this argument was sufficient to defeat the carrier’s motion.
The carrier also claimed that the insureds failed to promptly report their loss within five months of the date of the occurrence. However, the policy did not state a specific timeframe within which the insureds were required to submit claims after a loss. As such, the court found that the insureds’ breach of contract claim should survive the carrier’s motion and proceed to discovery.
Second, the court ruled upon the insureds’ bad faith claims. The court dismissed the insureds’ claim, because the carrier did not possess the requisite wrongful state of mind to have acted in bad faith. The court reasoned that the insureds’ allegations were conclusory and improperly argued that the carrier’s denial of benefits alone constitutes bad faith. The court dismissed the claim without prejudice so that the insureds might amend their complaint if facts sufficient to allege bad faith arise during discovery.
Date of Decision: January 23, 2012
Blasetti v. Allstate Insurance Co., No. 11-69-20, 2012 U.S. Dist. LEXIS 7344 (E.D. Pa. Jan 12, 2012) (O’Neill, J.).

JANUARY 2012 BAD FAITH CASES: NAMED CARIER NOT PROPER PARTY BECAUSE DID NOT UNDERWRITE POLICY; FAULTY WORKMANSHIP IS NOT AN “OCCURRENCE” SUFFICIENT TO TRIGGER COVERAGE (Middle District)

Published on January 16, 2012 in Claims Handling Procedures, Coverage Issues and Procedural Issues. Closed
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In L.R. Costanzo Company v. American Fire and Casualty Insurance Company, the court heard a defendant’s motion for summary judgment on the issue of whether it was a proper party to the suit. The suit commenced after the insured was sued for property damage upon conclusion of a project. As a result, the insured sued the carrier in the Lackawanna County Court of Common Pleas for a defense against the original suit. The insured allegedly possessed a commercial general liability policy with the carrier. Under the policy, the carrier’s duty to defend would be triggered by an “occurrence,” which means “an accident, including continuous exposure to substantially the same general harmful conditions.” The carrier removed the case to federal court.
The carrier, Ohio Casualty Insurance Company (“OCIC”) moved to dismiss, arguing that it did not issue the insurance policy in question, meaning that there was no contract between itself and the insured, but the Court denied the motion. After discovery, the carrier filed motions for summary judgment, seeking resolution upon the insured’s breach of contract and bad faith claims.
There were three primary issues before the court: 1) whether OCIC, the alleged carrier, is a proper defendant, 2) whether the carrier breached a duty to defend the insured in the underlying case, and 3) if so, whether the carrier acted in bad faith by not defending the insured.
First, the court found that American Fire (“AFCC”) issued the policy, not OCIC. Discovery had revealed that AFCC underwrote the policy – the insured’s insurance agent testified that AFCC underwrote the policy, while OCIC underwrote the umbrella policy. Much of the confusion also comes from the similarity of its name to Ohio Casualty Group (“OCG”). OCG is the parent company of AFCC, OCIC, and ten other insurance companies, and it is the trademark umbrella under which these subsidiary companies operate. Moreover, OCG’s letterhead says “Ohio Casualty,” “Ohio Casualty Group,” or “Ohio Casualty™.” The insured does not provide any evidence to dispute these findings. The only evidence that suggests OCIC is the underwriter is the initial denial of coverage letter that stated, “We have investigated this claim and have determined that the allegations fall outside of the coverage provided by your liability policy carried with Ohio Casualty Insurance Company.”
Second, the court held that there was no “occurrence” under the policy to trigger the carrier’s duty to defend. In the underlying complaint, the insured alleged that faulty workmanship was the basis for its claims. As such, the carrier’s duty to defend depends upon whether the faulty workmanship qualified as an “occurrence,” or “an accident, including continuous exposure to substantially the same general harmful conditions” under the policy. Relying on relevant precedent, the court ruled that faulty workmanship is not an occurrence, meaning that the carrier had no duty to defend.
Lastly, the court ruled that the carrier did not act in bad faith. First, the court held, because there was no “occurrence” under the policy, the carrier did not act in bad faith in denying a defense to Plaintiff in the underlying case. Second, the court recognized that the record shows that the carrier engaged in a thorough inquiry before determining there was no duty to defend. The insured’s main argument for bad faith was that the carrier conducted an inadequate investigation before declining to defend the insured in the underlying suit. As such, the court granted summary judgment to the carrier.
Date of Decision: January 6, 2012
L.R. Costanzo Co. v. Am. Fire & Cas. Ins. Co., No. 3:10-CV-774, 2012 U.S. Dist. LEXIS 1655 (M.D. Pa. Jan. 6, 2012) (Mariani, J.)

JANUARY 2012 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED BECAUSE ESTIMATES WERE OBJECTIVELY REASONABLE AND INSURED’S EXPERT REPORT NOT COMPETENT (Western District)

Published on January 16, 2012 in Claims Handling Procedures and Experts. Closed
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In Seto v. State Farm Insurance Company, the court heard a carrier’s motion for summary judgment in response to an insured’s claim for breach of contract and bad faith. The case arose from two fires that destroyed the insured’s home. The insured sought to recover under its homeowner’s insurance policy. After a year of investigation, the carrier proposed $116,321.67 in benefits, which represented the actual cash value (“ACV”). However, the insured’s contractor found that the replacement cost value (“RCV”) was $208,061.01.
Soon thereafter, there was a second fire in the insureds’ home, which caused additional damages. The carrier issued $43,635.02 to the insureds for the damages caused by the second fire. The insureds acquired a second estimate, but did not apprise the carrier until after the suit was filed.
In late 2009, the carrier tendered $157,717.00 to the insureds and also paid additional life expenses (“ALE”) benefits totaling $30,425.01. The insureds then brought suit for bad faith and breach of contract. The carrier moved for summary judgment.
First, the court examined the insureds’ allegation that the carrier delayed in tendering payment under the policy, amounting to bad faith. Specifically, the insureds argue that although the carrier was provided with the second estimate in 2009, it did not respond until 2011. The record, however, indicates that the insureds never personally submitted the second estimate. In fact, the carrier only received a copy when the insureds served their complaint in late 2010. The court, therefore, found that the delay was directly caused by insureds’ failure to personally delivery the estimate to the carrier.
Second, the court analyzed the insureds’ claim that the carrier low-balled its offer that was significantly lower than other estimates the insureds obtained. After the first fire, the carrier immediately inspected the property, created an itemized estimate of damages, and promptly paid $116,321.67 to Plaintiffs. Then, when the carrier received a higher estimate from the insured’s contractor, it agreed to review and consider that estimate. However, before the carrier could consider the estimate, a second fire occurred. Because the second fire appeared to be purposeful, an investigation ensured. Afterwards, the carrier paid an additional $43,635.02 to the insureds for their home. Thereafter, the carrier reviewed and considered the second estimate and issued a supplemental payment of $29,000.00.
In support of their claim for additional benefits, the insureds procured an expert report on the quality of the carrier’s valuation loss, finding it “incomplete in the extreme.” However, the expert’s report was not supported by an affidavit or declaration, and under Third Circuit case law this was required to consider an expert report in the context of a summary judgment motion. As such, the court deemed the report “not competent to be considered.” Even if considered, the court found that the expert report would not have created a material issue of fact on bad faith.
Lastly, the court heard the insured’s argument for additional ALE while they were living in Florida. The court denied this claim, finding the carrier’s denial of additional ALE benefits to be objectively reasonable. Because the insured failed to produce sufficient documentation to support their claim for additional ALE benefits, they were not entitled to their claim. Therefore, the court granted summary judgment to the carrier on all counts.
Date of Decision: January 11, 2012
Seto v. State Farm Ins. Co., No. 2:10-cv-00505, 2012 U.S. Dist. LEXIS 3306, (W.D. Pa. Jan. 11, 2012) (McVerry, J.)

DECEMBER 2011 BAD FAITH CASES
NO BAD FAITH WHERE MATERIAL BREACHES OF COOPERATION OBLIGATIONS AND REASONABLE TO INVESTIGATE ARSON (Middle District)

Published on December 1, 2011 in Claims Handling Procedures. Closed
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In Verdetto v. State Farm Fire and Casualty Company, the court was faced with a carrier’s motion for summary judgment on an insured’s breach of contract and bad faith claims. The suit arose from a fire that occurred at a property rented by the insured. At the time of the incident, the insured had renter’s insurance with the carrier.

The insured moved into the rental home and shortly thereafter a fire erupted at the property. The fire marshal investigating the matter ruled that the fire was the result of arson. The insured began the claims process by filling out an inventory form, as required by the carrier. The forms indicated a large amount of valuable items, many of them less than two years old.

The carrier was put in contact with the investigating fire marshal, who ruled the fire arson and told the carrier that he did not see very much person property at the residence. He also reported that the insured had previously been involved in arson of another property. The carrier then decided to have the matter further investigated.

The carrier requested that the insured party sign various authorization forms, as required under the policy, requesting phone and financial records. The insured refused. The carrier also hired a salvage company to begin working on the damaged property, but the insured’s landlord denied entrance to their home for several weeks. The carrier subsequently sent the insured a Reservation of Rights letter, citing questions over the cause of the fire and whether the insured misrepresented their claims. The carrier hired an outside party to conduct an Examination under Oath, but the insured again refused to cooperate with the investigation. After the carrier denied coverage, the insured filed suit.

The court first examined the insured’s bad faith claim, finding that the carrier acted reasonably and did not delay or stall the investigation of the insured’s claim. Specifically, several significant “red flags” provided a reasonable basis for investigating the claim, including: the fire being ruled an arson; the claim being on a policy less than six months old; and the history of late payments on the policy. Moreover, the insured refused to turn over the records they were contractually obligated to provide. Without the requested financial and telephone records, which were critical to determining the insured’s motive and opportunity for setting the fire, the carrier could not complete the investigation. Therefore, the court concluded that summary judgment was appropriate on the bad faith claim.

The court also granted summary judgment on the insured’s breach of contract claim. The insured was contractually bound to provide any documents requested by the carrier. The refusal to do so was a significant departure from the terms of their policy and substantially prejudiced the carrier’s investigation of the claim. Therefore, the court disposed of the matter because the insured’s material breach of the terms of its policy precluded any finding of liability on the part of the carrier.

Date of Decision: November 23, 2011

Verdetto v. State Farm Fire and Casualty Company, NO. 3:10-CV-1917, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 135287 (M.D. Pa. Nov. 23, 2011) (Caputo, J.)

NOVEMBER 2011 BAD FAITH CASES
BAD FAITH COULD EXIST EVEN IF SETTLEMENT OFFER MADE, THOUGH NOT IN THIS CASE; DISCUSSIONS WITH UNREPRESENTED WITNESS WERE NOT IMPROPER(Philadelphia Federal)

Published on November 4, 2011 in Claims Handling Procedures. Closed
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In CarCarey v. GEICO General Insurance Company, the court considered a carrier’s motion for summary judgment to dispose of an insured’s claim for breach of contract and bad faith.  The suit stemmed from an automobile accident in which the insured’s son was struck and killed by an unidentified driver while walking on the side of the road.  The decedent was with his girlfriend at the time of the accident.

In September 2007, the insured filed an uninsured motorist claim with the carrier.  During the following two years, the carrier investigated the claim.  First, the carrier requested proof of the decedent’s residency, proof of death, papers of administration, the police report, and a witness statement from the decedent’s girlfriend.

The insured provided this information to the carrier in mid-2008.  In 2009, the carrier was advised that the insured had changed attorneys.  The carrier later spoke with the insured’s former attorney, who told the carrier that neither the decedent, nor his girlfriend, were living with the insured’s family at the time of the accident.  This information would affect the insured’s entitlement to benefits.

In June of 2009, the carrier offered $75,000.  Days later, the insured filed this suit.  The carrier responded with a $100,000 offer and moved for summary judgment on the insured’s bad faith claim.

The insured’s suit alleged three counts of bad faith, claiming that (1) the carrier offered less than 25% of the insured’s original $400,000 claim, (2) the carrier spoke with the insured’s former attorney after its new attorney had taken over representation, and (3) the carrier’s attorney engaged in bad faith by speaking with the decedent’s girlfriend before her deposition, where she would have had counsel present.

The carrier first argued that a bad faith claim requires that it refused to pay the insured’s claim.  However, the court disagreed, stating that bad faith claims do not require the carrier’s refusal to pay an insured’s claim.  The court cited Third Circuit case law where bad faith claims were considered, regardless of a carrier’s refusal to pay a claim.  The court reasoned that this case really turned upon the reasonable basis behind the carrier’s decision-making, not its payment or non-payment of the insured’s claim.  As such, the court ruled, a jury could not conclude that the carrier acted in bad faith.

First, the carrier was aware of the decedent’s limited income prior to his death and the fact that he did not live with his family when he died, raising questions about coverage.  Furthermore, there was evidence that the decedent may have been negligent at the time of the accident.  The court therefore found that the $100,000 offer was not made in bad faith. 

As to the other two counts, the parties’ reports of the events that occurred prior to the girlfriend’s deposition were not contradictory and the court accepted the representations as true.  There was some confusion about whether a third party witness would or would not speak to the carrier’s counsel without having her own lawyer present.  Defense counsel had told the witness she could speak to him without her a lawyer present if she wanted, at which point either she or the insured became upset and Plaintiff’s counsel joined them.  The conversation between the witness and the carrier’s counsel seems to have gone no further than whether she wanted to speak to him with counsel or not.  The court ruled that these actions did not amount to an impropriety or bad faith. 

Date of Decision: October 25, 2011

Carcarey v. GEICO General Insurance Company, No. 10-3155, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 123679 (E.D. Pa. Oct. 25, 2011) (McLaughlin, J.)

SEPTEMBER 2011 BAD FAITH CASES
COURT REJECTS INSURED’S CLAIM THAT CARRIER WAS ADVERSARIAL IN ITS INVESTIGATION (WESTERN DISTRICT)

Published on September 26, 2011 in Claims Handling Procedures. Closed
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In Schmitt v. State Farm Insurance Company, the Magistrate Judge’s Report and Recommendation was adopted by the District Court.

The case arose in June 2008 from a water leak caused by a broken water pressure gauge in the insured’s basement.  After submitting its claim to the carrier, the insured began to move damaged items and attempted to salvage clothing that had been soaked by washing them in the laundry room.

Later in June 2008, a property restoration company arrived at the insured’s residence to begin removing damaged items.  While the workers began to discard damaged items, the insured sat and watched, giving approval of items to discard and taking note of everything that was being thrown away.

The insured submitted a claim for $37,979.61.  The carrier determined that the actual cash value of the claim was $24,682.91.  The carrier advanced $3000.00 to the insured while it reviewed the claims.  The carrier also sought records of the insured’s purchases during 2007 and 2008.  However, the insured claimed that these records were destroyed in the loss and told the carrier she could provide other financial records.

In September 2008, representatives of the carrier met with the insured.  At that time, the insured attempted to submit an additional list of items that had been destroyed in the loss.  This list exceeded $10,000.00.  According to the insured, the carrier told her that these items were documented and would be reimbursed.  On September 10, the carrier sent a check to the insured for the remaining $21,682.91. 

On September 23, the insured submitted an additional list of damaged items to the carrier.  During this time, relations between the carrier’s representatives and the insured soured.  On September 29, the carrier submitted the insured’s additional claim to its Special Investigative Unit.  This investigation yielded some doubt as to the additional list of items damaged in the loss.  For example, the carrier was concerned about the large amount of clothing that was claimed on the additional list, as this clothing was in the laundry room when the restoration company arrived.  Moreover, the restoration company testified that it had been instructed by the insured to discard items showing little or no damage.

The carrier then requested that the insured submit to an examination under oath.  The insured claimed that an injury prevented her from taking the examination.  Before the EUO could be scheduled, the insured filed suit against the carrier.  The carrier moved for summary judgment on the bad faith count.

The crux of the insured’s claim is that the carrier treated “the claim investigation process as an adversarial process” by “treating [the insured] as adversaries rather than as policyholders.” 

Citing precedent, the court reasoned that, where a carrier has reason to suspect fraud, it is permitted to examine the insured under oath to determine the truthfulness of its claim.  Moreover, the court held that the carrier did not lack a reasonable basis for denying the insured’s additional claim.  Moreover, the carrier conducted a thorough investigation of the insured’s loss, even looking into the additional claim.

As such, the magistrate recommended to the District Court that it should grant summary judgment to the carrier on the bad faith count.  The District Court adopted the Magistrate Judge’s Report and Recommendation.

Date of Decision: August 12, 2011 (Report and Recommendation)

September 19, 2011 (Adopted by District Court)

Schmitt v. State Farm Ins. Co., No. 09-1517, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 105834 (W.D. Pa. Aug. 12, 2011) (Lenihan, J.), adopted in Schmitt v. State Farm Ins. Co., No. 2:09cv1517, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 105836 (W.D. Pa. Sept. 19, 2011) (Cercone, J.)