Archive for the 'PA – Coverage Issues' Category

AUGUST 2017 BAD FAITH CASES: NO BAD FAITH IN CLAIMS HANDLING OR POLICY INTERPRETATON (Philadelphia Commerce Court)

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This case involved a dispute over whether water damage was covered under various policy terms and endorsements. The basic facts involved the backup in a clogged roof drain during a rainstorm, leading to water damage. The carrier agreed the insured had limited coverage under a specific policy endorsement, while the insured sought greater coverage.

The court granted summary judgment to the carrier on the coverage issues. In addressing the bad faith claim, the court found that the insured provided no evidence that the insurer’s refusal to pay beyond the endorsement limit was in bad faith. The insurer had two separate inspections done by two different people regarding causation. After initially denying the claim entirely, when later presented with the insured’s report that the damage was caused by the clogged drain, the insurer paid for damages from that event up to the endorsement limits specifically covering that type of loss. Moreover, the insurer’s policy interpretation was reasonable and not made in bad faith where the policy language was clear and consistent with the insurer’s decisions.

Summary judgment was granted to the insurer on all grounds.

Date of Decision:  July 21, 2017

Reynolds v. Pennsylvania National Mutual Casualty Insurance Company, June Term 2015, No. 2031, 2017 Phila. Ct. Com. Pl. LEXIS 225 (C.C.P. Phila. July 21, 2017) (Djerrasi, J.) (Commerce Court)

JULY 2017 BAD FAITH CASES: BAD FAITH CLAIM DISMISSED WHERE PLAINTIFF FAILED TO PROVIDE SPECIFIC FACTUAL ALLEGATIONS (Philadelphia Federal)

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In this UIM based action, the Plaintiff sued his alleged insurer after being injured in a Florida motorcycle accident. He incurred over $3,000,000 in medical expenses, but only recovered $12,000 from the tortfeasor’s carrier.

His parents reside in Pennsylvania, and are the named insureds on the policy at issue. Furthermore, the policy lists three cars as insured vehicles, but not their son’s motorcycle. The insurer denied the son’s UIM claim, and the son brought suit for breach of contract and bad faith.

On the breach of contract claim, the Court refused to grant the insurer’s motion to dismiss because certain factual questions remained as to whether coverage was due to the son. These questions included whether he resided with his parents, and whether he owned the motorcycle.

However, the Court granted the insurer’s motion to dismiss as to the bad faith claim. The Court found that the Plaintiff failed to state any plausible allegations of bad faith supported by specific facts. The Court reiterated the bad faith standard, stating that a bad faith plaintiff is required “to prove with clear and convincing evidence that ‘(1) the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.’” All this Plaintiff alleged was that the insurer acted unfairly, but he did not specify the unfair conduct. Because his bad faith claim consisted only of conclusory statements devoid of factual substance, the Court granted the insurer’s motion to dismiss as to the bad faith claim. Moreover, unlike many claims failing to meet the Twombly/Iqbal pleading standards, the Court did not give this Plaintiff an opportunity to re-plead by way of an amended complaint.

Date of Decision: July 6, 2017

Toner v. GEICO Ins. Co., No. 17-0458, 2017 U.S. Dist. LEXIS 104075 (E.D. Pa. July 6, 2017) (Slomsky, J.)

JULY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S DENIAL WAS BASED ON AN EXPLICIT AND CLEAR POLICY EXCLUSION, AND CONFUSION OVER NATURE OF CLAIM DID NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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In this case, the plaintiff leased office space to the insured for day-to-day use. In exchange for a rent reduction, the insured agreed to store corporate documents and other assets belonging to the plaintiff in a secured filing cabinet on the property. During a later cleaning and reorganizing project undertaken by the insured, the contents in the filing cabinet were mistakenly disposed of. Plaintiff’s accountant estimated the intrinsic value of the filing cabinet contents at $262,045.

Defendant insurer issued an insurance policy to the insured that covered the office space property. The plaintiff took various informal attempts to settle the loss directly with the insurer. The insurer offered to process plaintiff’s claim as a first-party claim, and required plaintiff to submit certain documentation substantiating the loss. Furthermore, the insurer advised plaintiff that the policy limit for a first-party claim was only $100,000.00, well below plaintiff’s $262,045 claim.

Plaintiff advised the insurer that it would be pursuing a third-party claim, upon learning of the $100,000 first-party claim limit. The insurer, however, had already investigated and analyzed coverage for the loss as a third-party claim, and concluded that the insurance policy excluded coverage for property in the care, custody, and control of the insured. Based on this analysis, the insurer had previously issued the insured a denial letter to the insured on the third-party claim.

The plaintiff brought suit against the insured in the Court of Common Pleas. The insurer denied any duty to defend and indemnify, per the above reasoning. The insured later assigned plaintiff its contract and bad faith rights against the insurer. Plaintiff, as assignee, alleged breach of contract and bad faith.

Specifically, plaintiff alleged the insurer refused to cover the third-party claim, and continually treated plaintiff as a first-party claimant. The court granted the defendant insurer’s motion for summary judgment on the contract claim. The court found that an explicit policy exclusion precluded coverage for the third-party claim because the contents of the filing cabinet were in the care, custody, and control of the insured.

As to the bad faith claim, the court stated that statutory bad faith “is not restricted to an insurer’s bad faith in denying a claim, but rather may extend to a variety of actions such as the insurer’s investigative practices or failure to communicate with the insured.” Still, as the court had ruled the insurer “correctly determined that plaintiff’s claim fell within a policy exclusion … [that] conclusion compels the finding that defendant’s denial of coverage does not constitute bad faith.”

Further, to “the extent that plaintiff alleges that defendant willfully misinterpreted plaintiff’s claim to be requesting first-party property coverage rather than third-party liability coverage, the undisputed evidence of record does not support a reasonable inference that defendant acted in bad faith.” The court concluded: “Plaintiff produced no evidence that defendant lacked reasonable basis for its initial understanding or persisted in this position despite clarification to the contrary. To the contrary, the evidence of record clearly establishes that defendant’s initial confusion was nothing more than mere error. Indeed, defendant’s mistaken characterization of the claim as seeking first-party coverage actually subjected it to more liability exposure—up to $100,000—than it would have under the third-party liability provisions. Given the complete absence of bad faith evidence, I find that this claim fails on summary judgment review.”

Date of Decision: June 27, 2017

Wugnet Publications, Inc. v. Peerless Indemnity Insurance Company, No. 16-4044, 2017 U.S. Dist. LEXIS 98948 (E.D. Pa. June 27, 2017) (O’Neill, Jr., J.)

JULY 2017 BAD FAITH CASES: SUMMARY JUDGMENT ON CONTRACT CLAIM MEANT INSURER’S DENIAL WAS REASONABLE, AND MANDATED SUMMARY JUDGMENT ON BAD FAITH CLAIMS (Western District)

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In this case, the court previously had denied a motion to dismiss the statutory bad faith claim. The matter was now before the court on summary judgment.

The court concluded that insurer did not withhold payments due, but rather was correct in not making the claimed payments at issue. Thus, there was no breach of the insurance contract. The insured conceded these actions in not making payment were reasonable.

Moreover, the insured had already conceded that if the insurer “was entitled to summary judgment on the breach of contract claim because it paid … the entire amount that was due under the Policies, then this claim for insurance bad faith necessarily fails.” Thus, the court granted summary judgment on both the contract and bad faith claims.

Date of Decision: July 6, 2017

First National Bank of Pennsylvania v. Transamerica Life Insurance Company, No. 14-1007, 2017 U.S. Dist. LEXIS 104082 (W.D. Pa. July 6, 2017) (Reed Eddy, M.J.)

JUNE 2017 BAD FAITH CASES: EXCESS VERDICT ABOVE TENDERED UIM POLICY LIMITS IS NOT BAD FAITH CONSEQUENTIAL DAMAGES (Middle District)

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The UIM insured brought breach of contract, common law contractual bad faith, and statutory bad faith claims. The court recognized that the scope of common law bad faith damages described by the Supreme Court’s Birth Center decision in the third party context, also applies in the first party context. Thus, while payment of full UIM benefits might moot the contract claim, it does not automatically address a potential common law bad faith claim for consequential damages.

In this case, policy limits were tendered after litigation began, so the court looked at the claim for additional damages in evaluating the common law bad faith claim. The insured asserted that an award in excess of the policy limits would fall within the kind of consequential damages allowed for in a common law bad faith claim. However, looking at Birth Center and Cowden, the court concluded that an excess verdict on a first party claim does not fall within the category of consequential damages permitted in common law bad faith claims. Thus, the contract claim and common law bad faith claim were dismissed.

The court also made clear that compensatory and consequential damages cannot be recovered for statutory bad faith.

Date of Decision: June 14, 2017

Koerner v. GEICO Casualty Co., NO. 3:17-cv-455, 2017 U.S. Dist. LEXIS 91836 (M.D. Pa. June 14, 2017) (Conaboy, J.)

The court had previously refused a motion to remand this action.

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JUNE 2017 BAD FAITH CASES: DISPUTE OVER POLICY CANCELLATION PREVENTS DISMISSAL OF BAD FAITH CLAIM (Middle District)

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This case centered on plaintiff’s allegations that the defendant insurers simply refused to pay claims under an applicable policy.  The insured pleaded the policy was in effect at the time of the injuries at issue. The insurers argued that the policy had been cancelled. The court could not resolve this fundamental issue at the pleading stage, and so denied the motion to dismiss the insured’s bad faith claim.

Date of Decision: June 9, 2017

TNT Services Corp., LLC v. Houston International Insurance Group, No. 3:16cv1505, 2017 U.S. Dist. LEXIS 89119 (M.D. Pa. June 9, 2017) (Munley, J.)

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JUNE 2017 BAD FAITH CASES: NO BAD FAITH WHERE REASONABLE BASIS TO DENY BENEFITS (Third Circuit, Pennsylvania law)

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In this case, the court determined on the facts that the insured’s life insurance policy had lapsed for non-payment. It rejected the estate’s efforts at construing relevant insurance statutes, concerning payment timing, against the carrier’s coverage position.

Addressing bad faith, the court found that the insurer’s “actions did not constitute bad faith because [it] had a reasonable basis for denying benefits.” The insured “knew of his ‘impending policy lapse’ but ‘made no premium payments to prevent this lapse, [so] [the insurer] appropriately and timely declined to pay the death benefits.’”

Date of Decision: May 18, 2017

Moll v. Pruco Life Insurance Co., 2017 U.S. App. LEXIS 8698 (3d Cir. May 18, 2017) (Greenaway, Jordan, Rendell, JJ.)

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MAY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER REASONABLY RELIES ON CASE LAW, AND LAW IS IN FLUX (Middle District)

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The insurance policy required insureds to submit to independent medical examinations after making a bodily injury claim for medical benefits arising out of auto accidents. The policy stated the insurer did not have to make any payments prior to that exam.

A federal judge in the Eastern District had ruled in 2009 that these kinds of policy terms were enforceable, and were not inconsistent with Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL), relying upon case law from Pennsylvania’s Superior Court. There has been no ruling from Pennsylvania’s Supreme Court on the issue; however, the judge in this 2017 Middle District case came to a different conclusion, finding the provision unenforceable.

The insured claimed that the requirement to have an IME, along with the refusal to pay medical benefits before the IME took place were violations of the bad faith statute. The court disagreed. The language of the policy permitted it, and there was prior case law from a court of co-ordinate jurisdiction finding that language enforceable. The court observed that reasonable but incorrect interpretations of the policy and law do not form the basis for bad faith. This is especially true where the law is in flux.

The court found that the insurer “clearly had a reasonable basis for denying … medical benefits” where the Supreme Court had not decided the issue and another court found that the policy language was enforceable. The court specifically stated it was reasonable for the insurer to have relied on the earlier opinion.

The court also dismissed the insured’s claim for breach of the implied duty of good faith and fair dealing because the implied covenant alleged conflicted with an express term of the policy.

Date of Decision: May 10, 2017

Sayles v. Allstate Ins. Co., No. 3:16-cv-01534, 2017 U.S. Dist. LEXIS 71760 (M.D. Pa. May 10, 2017) (Caputo, J.)

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

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

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

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

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

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

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

Date of Decision: April 11, 2017

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

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

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

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

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

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

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

Date of Decision: March 27, 2017

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