Archive for the 'PA – Coverage Issues' Category

JANUARY 2018 BAD FAITH CASES: INSUREDS ALLEGING BAD FAITH MUST “DESCRIBE WHO, WHAT, WHERE, WHEN, AND HOW THE ALLEGED BAD FAITH CONDUCT OCCURRED”; LETTER TO INSURANCE DEPARTMENT DID NOT SHOW BAD FAITH (Philadelphia Federal)

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The insured resided with her long-time partner at her home in Philadelphia when it was damaged by a fire. No one but the insured was listed on the policy.

Following the fire, the insured and her partner sought benefits under the policy for personal property destroyed and for home repairs. The insurer paid the insured $115,125.40 for home repairs, $160,982.21 for damage to personal property, and $37,784.81 for additional living expenses. The insurer did not pay the insured’s partner any benefits, arguing that he was not an insured person under the terms of the policy.

In addition, the insured received home repair estimates that ranged from $310,000 to $341,000, and the insurer did not pay any additional benefits beyond its $115,125.40 payment. The insured and her partner sued for bad faith, among other claims. The insurer moved for judgment on the pleadings.

The insured and her partner supported their bad faith claim with three arguments: (1) the insurer acted in bad faith when it sent a letter containing erroneous information about the claim to the Pennsylvania Insurance Department; (2) the insurer failed to obtain an appraisal; and (3) the insurer failed to properly investigate, evaluate, and communicate with the insured about the claim. The Court rejected all three of these arguments.

The court generally observed that “Pennsylvania federal and state courts have defined ‘bad faith’ as ‘a frivolous or unfounded refusal to pay proceeds of a policy.’” Specifically, as to the three arguments:

  1. The Court held that, in sending the letter containing erroneous information to the PID, there’s no evidence that this was done with a “motive of self-interest or ill will[,]” and was likely mere negligence.

[Note: The Court quoted case law stating, “A claimant must show that the insurer acted in bad faith based on some motive of self-interest or ill will.” However, this would appear to contradict the Supreme Court’s holding in Rancosky, that the motive of self-interest or ill will is not a required element of establishing a bad faith claim.]

  1. The policy stated that if there is an appraisal dispute, any party may demand an appraisal. The insured failed to make this demand.
  2. The Court held that the insured’s third argument was too vague to constitute bad faith, as insureds “must ‘describe who, what, where, when, and how the alleged bad faith conduct occurred.”

The Court dismissed all of the claims, but declined to award the insurer judgment on the pleadings, because it granted the insured leave to amend her complaint.

Date of Decision: December 21, 2017

Elican v. Allstate Ins. Co., No. 17-03105, 2017 U.S. Dist. LEXIS 209901 (E.D. Pa. Dec. 21, 2017) (Pappert, J.)

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE PLAINTIFF FAILS TO PLEAD KNOWLEDGE OR RECKLESS DISREGARD OF LACK OF A REASONABLE BASIS TO DENY COVERAGE, EVEN THOUGH COVERAGE WAS DUE (Western District)

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This case arises out of a fatal automobile accident, involving the son-in-law of the named insureds. The named insureds are the parents of the deceased’s wife, who is listed as a “household driver”. Following the accident, the insurer refused to pay her stacked UIM benefits, arguing that she does not reside with the named insureds and is thus not a “relative” under the policy. The insureds then sued for breach of contract and bad faith, among other claims. The insurer moved to dismiss under Federal Rule of Civil Procedure 12(b)(6).

In making the coverage determination, the Court found that “relative” in the policy includes “child”, and while “child” was not defined in the policy, it could reasonably be interpreted to include the deceased’s wife. Thus, the Court denied the insurer’s motion to dismiss the breach of contract claim.

However, the Court granted the insurer’s motion to dismiss the bad faith claim, without prejudice, finding the insureds failed to provide any “allegation that [the insurer] knew or recklessly disregarded [a] lack of a reasonable basis when it denied [stacked] coverage.” For the same reasons, the Court also dismissed the insureds’ fraud claim. The Court further dismissed the insureds’ unjust enrichment claim with prejudice, ruling that such a claim is inappropriate where the relationship of the parties is governed by an express contract. The Court offered the insureds leave to file an amended complaint.

Date of Decision: December 1, 2017

Estate of Sippey v. Metro. Group Prop. & Cas. Ins. Co., CIVIL ACTION NO. 17-227, 2017 U.S. Dist. LEXIS 197533 (W.D. Pa. Dec. 1, 2017) (Bissoon, J.)

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE OWED, APPLYING EXCLUSION FOR ACTIONS AS OFFICER OF ANOTHER ENTITY (Philadelphia Federal)

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The plaintiff served in various official roles for the insured corporation. The insurer issued a DO&E policy to the corporate insured.

The plaintiff and another entity filed a conservatorship petition over property owned by the Underlying Plaintiffs. The Underlying Plaintiffs sued the plaintiff, that other entity, and the insured corporation for allegedly making false statements in the conservatorship petition as part of a “plan to run the [property owners] out of the neighborhood.” The court in the underlying action, however, dismissed all claims with prejudice against the insured corporation. The jury returned a verdict for the Underlying Plaintiffs, and against the plaintiff, among others.

The DO&E policy contained a coverage exclusion that stated, “The Insurer shall not pay Loss . . . (I) of an Insured Person based upon, arising from, or in any way related to such Insured Person’s service, at any time, as a director, officer, trustee, regent, governor, or equivalent executive or as an employee of any entity other than an Insured Entity . . . .” The insurer withdrew its defense of the plaintiff under this exclusion after the the insured corporation was dismissed with prejudice. The plaintiff then brought this action against the insurer for bad faith and breach of contract.

The court converted the insurer’s motion to dismiss into a summary judgment motion. The court stated, “it is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover.” When an underlying plaintiff drops an insured claim, this constitutes “absolutely clear” evidence that the action seeks relief that is not covered under the policy.

The court held that the insurer had no duty to defend the plaintiff once the underlying court dismissed the insured from that action. The court rejected the idea that insured corporation tacitly approved the plaintiff’s actions in filing the conservatorship petition because the insured was in no way involved in that petition. Furthermore, the plaintiff did not serve the insured corporation’s interest in any official capacity at the time the conservatorship petition was filed and “it is undisputed that [the plaintiff] . . . filed the conservatorship petition . . . in his capacity as President and owner of [another entity].”

The policy exclusion thus barred any coverage. Because the insurer did not owe a duty to defend or indemnify the plaintiff, his bad faith claim against the insurer necessarily failed.

Date of Decision: November 20, 2017

Palmer v. Twin City Fire Ins. Co., CIVIL ACTION NO. 17-826, 2017 U.S. Dist. LEXIS 190993 (E.D. Pa. Nov. 20, 2017) (Beetlestone, J.)

DECEMBER 2017 BAD FAITH CASES: BAD FAITH CAN EXIST WHERE INSURER NECESSARILY KNOWS POLICY LANGUAGE DOES NOT EXCLUDE COVERAGE AND DENIES CLAIM (Middle District)

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The insurer moved to dismiss a bad faith claim on the basis of boilerplate allegations, among other things. The court denied the motion.

The court not only found the facts adequately pleaded, it went on to rule that the insurer’s interpretation of the policy was unreasonable because there was no specific language excluding the homeowners’ loss at issue (the entire associated costs of reconstructing improperly conflated fresh water and sewer pipes).

Moreover, the court found that the second bad faith element was met on the face of the complaint, stating:

“Under Pennsylvania law we construe any ambiguities in the policy ‘in favor of the insured to further the contract’s prime purpose . . . and against the insurer, as the insurer drafts the policy, and controls coverage.’ …. In the case at bar, when viewed in the light most favorable to the non-moving party, we do not confront an ambiguity in the policy. Rather, defendant’s basis for refusing coverage is simply not present in the policy. It is axiomatic that insurance policy language — or the lack thereof — is imputed to the insurer, because the insurer is the scrivener of the policy. We conclude, therefore, that defendant knew or recklessly disregarded its lack of reasonable basis for denying coverage regarding the entire combined water supply pipe/sewer pipe loss including the ordinance and law coverage pursuant to the value added policy.”

Date of Decision: November 30, 2017

Foss v. Phoenix Insurance Co., No. 3:17cv1757, 2017 U.S. Dist. LEXIS 196665 (M.D. Pa. Nov. 30, 2017) (Munley, J.)

NOVEMBER 2017 BAD FAITH CASES: NO EVIDENCE OF BAD FAITH OR SUPPORT IN POLICY LANGUAGE THAT INSURER ACTED IN BAD FAITH (Philadelphia Federal)

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This case involved coverage based upon a flood during home renovations. The insureds brought breach of contract and bad faith claims, based upon the alleged failures “(1) to pay to replace the entire marble kitchen floor; (2) to pay for a two-bedroom suite; (3) to pay for additional costs for food; and, (4) to pay for depreciation.” The insurer sought summary judgment on the bad faith claims, which the court granted.

The court generally found the coverage and claims handling causes of action lacked factual support, and so could not support a bad faith claim. Its only detailed bad faith analysis went to a claim for providing adequate living accommodations when the insureds had to vacate their home for repairs.

“Plaintiffs claim that [the insurer] refused in bad faith to provide Plaintiffs a two-bedroom suite and now acts in bad faith by not paying the difference. Plaintiffs cite no record evidence suggesting [the insurer] unreasonably refused to provide them a two-bedroom suite. To the contrary, [the insurer] points to evidence that it did attempt to do so — after Plaintiffs requested to move from a two-bedroom suite already being provided by [the insurer] — but there were no two-bedroom suites available in the location Plaintiffs requested. Plaintiffs also do not identify a provision in the insurance contract obligating [the insurer] to pay the difference.”

Date of Decision: November 15, 2017

Barnwell v. Liberty Mutual Insurance Co., CIVIL ACTION NO. 16-4739, 2017 U.S. Dist. LEXIS 188427 (E.D. Pa. Nov. 15, 2017) (Beetlestone, J.)

NOVEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE; AND INDEPENDENTLY, NO BAD FAITH FOR FAILURE TO INVESTIGATE (Third Circuit)

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In this case, the Third Circuit affirmed the trial court’s grant of summary judgment on coverage and bad faith claims. Quoting the relevant language on bad faith:

“[The insured] argues that [the carrier] acted in bad faith by refusing to cover the claim and by failing to adequately investigate it. We agree with the District Court that this claim has no merit. Generally, there can be no bad faith claim for denial of coverage if the insurer was correct as a matter of law in denying coverage. Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co.,193 F.3d 742, 751 n.9 (3d Cir. 1999). Thus, as we agree with the District Court that [the] breach of contract claim was meritless, so too was his bad faith claim.”

Even though the court stated the forgoing, it still addressed the issue of whether bad faith could be based solely upon a failure to investigate. As has been raised numerous times in this blog, there is an issue of whether section 8371 bad faith is cognizable for poor investigation practices in the absence of the denial (or delay in providing) of  a benefit.

“Nor can [the] bad faith claim stand independently based on [the] failure to investigate the claim before denying it. Rancosky v. Wash. Nat’l Ins. Co., 2015 PA Super 264, 130 A.3d 79, 94 (Pa. Super. 2015) (“Bad faith conduct includes lack of good faith investigation into the facts”). The record evidence clearly establishes that [the carrier] appropriately investigated [the] claim before determining that it was not covered under the Policy, inter alia, by hiring a private investigator to investigate the claim and to interview [the insured] and [the insured’s lessee], by sending a … field adjuster, and by setting forth the reasons for denial in a formal coverage opinion.”

Date of Decision: November 15, 2017

Wehrenberg v. Metropolitan Property & Casualty Insurance Co., U. S. Court of Appeals for the Third Circuit, No. 17-1327, 2017 U.S. App. LEXIS 22887 (3d Cir. Nov. 15, 2017) (Ambro, Krause, Rendell, JJ.)

NOVMEBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE TIMELY DENIAL BASED ON REASONABLE READING OF POLICY (Philadelphia Federal)

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In this UIM case, the court found that “within approximately four weeks of being notified of Plaintiff’s claim, Defendant [insurer] apparently investigated and denied his claim on the basis of a reasonable reading of the Policy language and the law applicable to such situations. …. In such circumstances, there is no basis for finding that Defendant acted in bad faith, and summary judgment is proper.”

Date of Decision: October 31, 2017

Reeves v. Travelers Cos., NO. 16-6448, 2017 U.S. Dist. LEXIS 179720 (E.D. Pa. Oct. 31, 2017) (Baylson, J.)

NOVEMBER 2017 BAD FAITH: WHERE NO COVERAGE IS DUE THERE CAN BE NO BAD FAITH EXCEPT IN RARE CASES (Western District)

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After extensive analysis of coverage exclusions in a CGL policy relating to auto use, mobile equipment and loading/unloading, the court concluded no coverage was due. It the found: “As the Court has determined that [the insurer] had no duty to defend and no duty to indemnify … under the express language of the Policy, it likewise must conclude that [the insurer] did not act in bad faith in denying coverage and not providing him a defense.” In so holding the court cited Third Circuit precedent in observing, “it is a ‘rare’ case in which an insurer is liable for bad faith when there is no duty to provide coverage.”

Date of Decision: October 27, 2017

Marks v. Utica First Ins. Co., U. S. District Court, Western District of Pennsylvania, No. 16-1671, 2017 U.S. Dist. LEXIS 178036 (W.D.Pa. Oct. 27, 2017) (Fischer, J.)

OCTOBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE OWED PER POLICY EXCLUSION (Philadelphia Federal)

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The insured engaged in basic grout and tile work, and had a CGL. While performing work in the lobby of a commercial premises, grout dust and other particulates settled in other parts of the premises. The owner submitted a claim for the clean-up costs to its insurer, which ultimately paid the claim and then made demand on the CGL insurer. That insurer denied coverage under the “Deleterious Substances Exclusion”.

The property’s owner’s insurer sued the contractor, which notified its CGL insurer and requested defense and indemnification. Again, the CGL insurer denied coverage pursuant to the deleterious substances exclusion. The insured engaged private counsel, who asserted that the type of grout dust involved is not included in the policy exclusion. The insurer hired an expert who concluded that the grout dust was of a type precluded from coverage by the exclusion.

The insured executed a stipulated judgment to limit its legal expenses, and then sued its insurer for breach of contract and bad faith. The insurer moved for summary judgment.

The Court held that the deleterious substance exclusion was unambiguous, and the insurer did not owe coverage under the CGL policy. As such, the insurer did not breach its contract with the insured.

The insured argued that the insurer should be estopped from denying coverage because it initially failed to raise a deleterious substances exclusion specifically including silica, which is ultimately what precluded coverage. However, the Court ruled, “[i]t cannot be said in this matter that [the insurer’s] failure to cite the relevant policy language about silica . . . prejudiced [the insured], as [the insured] was already on notice that [the insurer] was disclaiming coverage, albeit under a different provision of the exclusion.” The Court further reasoned that the insurer could not have known about the applicability of this particular silica exclusion prior to the retaining of its own expert.

Lastly, the Court granted the insurer’s motion for summary judgment as to the bad faith claim, holding that “[t]here can be no finding of bad faith where the insurer did not have a duty to provide coverage under the provisions of the Policy.”

Date of Decision: September 29, 2017

Ginther v. Preferred Contrs. Ins. Co. Risk Retention Group, No. 16-686, 2017 U.S. Dist. LEXIS 161720 (E.D. Pa. Sept. 29, 2017) (Schmehl, J.)

 

OCTOBER 2017 BAD FAITH CASES: APPLYING CALIFORNIA LAW, MOTION TO DISMISS DENIED WHERE ALLEGATIONS SUPPORT BREACH OF CONTRACT, BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING, AND TORTIOUS BREACH OF THE IMPLIED COVENANT CLAIMS (Philadelphia Federal)

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This action is similar to other life insurance litigation recently before Judge Pappert.  This case was determined under California law.

The insureds had flexible premium universal life insurance policies, and alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and tortious breach of the implied covenant of good faith and fair dealing. Under these policies, policyholders may adjust both the amount and frequency of their premium payments, so long as they maintain sufficient funds in the account to cover a monthly deduction. The monthly deduction is comprised of a cost of insurance (“COI”) charge and other related expenses.

According to the insureds, the COI is the “largest and most significant charge” of the monthly deduction. A policyholder may elect to pay a premium in excess of the monthly deduction, and the policy provides that those excess funds will accrue interest at a rate of at least 4%. However, if the monthly deduction exceeds the value of the premium paid, the policy value is reduced.

The insureds allege that the insurer breached the policies by increasing the COI, because the COI rate increase was not based on a list of enumerated factors in the policies. The insureds further argued that the increase was not applied on a uniform basis for insureds of the same rate classes. The insurer moved to dismiss.

Specifically, the parties disagreed as to the proper interpretation of the insurer’s COI Notice Letter, which states, “the amount of the COI rate change depends upon the product, underwriting class and duration.” While the parties provided different explanations for their understanding of the terms in the Notice Letter, the Court stated that the insureds’ allegations are sufficient to state a claim for breach of contract.

The Notice Letter also contained language stating the COI increase was necessary because the insurer “was ‘operating in a challenging and changing environment as we continue to face nearly a decade of persistently low interest rates, including recent history lows, and volatile financial markets.’” Based upon this language, and other statements made to brokers and agents, the Court held that the insureds stated plausible allegations to support their breach of contract claim.

After conducting a choice of law analysis, the Court then addressed the insureds’ breach of the implied covenant of good faith and fair dealing claim. The insureds argued that the insurer deliberately attempted to force the insureds to either pay exorbitant premiums that the insurer knew would not justify the ultimate benefits of the policy, or force the insureds to surrender the policies upon lapse. The Court held again that the insureds’ allegations were adequate to allege that the insurer breached the implied covenant with its actions that were “unreasonable and unfair . . . with the bad faith intent of inducing lapses, frustrating policyholders’ expectations and depriving them of the benefit of the agreement.”

While Pennsylvania law does not recognize a cause of action for tortious breach of the implied covenant, California law does recognize such a claim where the plaintiff shows “(1) [that] benefits due under the policy were withheld; and (2) the reason for withholding the benefits must have been unreasonable or without proper cause.” To support this claim, the insureds alleged that the insurer’s COI increase was unlawful, excessive, and denied the insureds the benefit of their policies. Citing its previous reasoning, the Court held the insureds’ allegations were sufficient to state a claim for tortious breach of the implied covenant. The Court also declined to dismiss the insureds’ punitive damages claim at this stage of the litigation.

In sum, the Court denied the insurer’s motion to dismiss the breach of contract and both breach of the implied covenant claims.

Date of Decision: September 22, 2017

EFG Bank AG v. Lincoln National Life Ins. Co., No. 17-02592, 2017 U.S. Dist. LEXIS 154985 (E.D. Pa. Sept. 22, 2017) (Pappert, J.)