Archive for the 'PA – Coverage Issues' Category

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.)

SEPTEMBER 2017 BAD FAITH CASES: INSURED STATED CLAIMS FOR STATUTORY BAD FAITH IN CONTEXT OF MULTIPLE POLICIES[ AND CONTRACT BASED BAD FAITH WHERE BAD FAITH CONDUCT MIGHT DIFFER FROM CONDUCT BREACHING CONTRACT (Middle District)

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Plaintiffs sued defendant life insurer as beneficiaries of a term life insurance policy issued to the insured. The insurer denied payment of full death benefits due to a suicide exclusion in the policy.

The insured entered into the original policy in September 1986. This policy contained a death benefit of $25,000. Insurer then increased this benefit to $100,000 in December of 1995 upon the insured’s request. In August of 2007, the insurer issued a replacement policy to the insured, also with a death benefit of $100,000. The insured committed suicide in May 2009, and the insurer only paid out $288.54, which represented the premiums paid by the insured on the replacement policy, plus 4.5% interest. The suicide exclusion clause read:

“If the insured dies by suicide while sane or insane or by intentional self-destruction while insane, we will not pay any death proceed payable on amounts of insurance which have been in effect for less than 2 years. If the suicide or intentional self-destruction is within the first 2 contract years, we will pay as death proceeds the premiums you paid.”

The plaintiffs sued for breach of contract, unjust enrichment, promissory estoppel, breach of the implied covenant of good faith and fair dealing, and bad faith.

As to the bad faith claim, the plaintiffs’ argued that because the insured maintained $100,000 in coverage since 1995, the insurer’s denial is “manifestly unreasonable, and constitutes a frivolous and unfounded refusal to pay because it is directly contradicted by the language in the policy.” Plaintiffs’ further argued that insurer either knew or should have known that its refusal was unreasonable, frivolous, and unfounded. Insurer argued that it based its denial of full death benefits on the second sentence in the suicide exclusion, and thus the beneficiaries were only entitled to the premiums paid on the August 2007 replacement policy. The Court found that at this early stage in the litigation, and for Federal Rule of Civil Procedure 12(b)(6) purposes, “Plaintiffs plausibly allege facts, which the Court must accept as true, [that] support the statutory bad faith claim . . .” against the insurer.

The insurer argued that the Court should dismiss the plaintiff’s breach of the implied covenant of good faith and fair dealing claim, because that claim is subsumed in a breach of contract claim. The Court held, however, that “[n]othing in the case law . . . bars a plaintiff from bringing a cause of action for breach of contract and a cause of action for breach of the duty of good faith and fair dealing when those two actions are based on separate conduct.” The Court explained that at this early pleading stage, it is not clear that the same conduct forms the basis for both the breach of contract and breach of the covenant of good faith and fair dealing claims. Thus, the Court denied insurer’s motion to dismiss as to that claim.

Date of Decision: September 6, 2017

Lomma v. Ohio Nat’l Life Assur. Corp., No. 3:16-cv-2396, 2017 U.S. Dist. LEXIS 144227 (M.D. Pa. Sept. 6, 2017) (Mariani, J.)

SEPTEMBER 2017 BAD FAITH CASES: SUMMARY JUDGMENT WHERE NO EVIDENCE THAT CLAIM DENIAL WAS FRIVOLOUS OR UNFOUNDED, AND POLICY LANGUAGE WAS NOT AMBIGUOUS (Philadelphia Federal)

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The insured filed a claim under his homeowner’s insurance policy after a leak in an air conditioner condensation line caused damage to his basement. Initially, the insured retained an independent claims adjuster to investigate the claim, who ultimately estimated the repair costs at $38,307.97. The insurer’s claims adjuster then investigated the property, and observed basement water damage, including “evidence of mold, rot, and deterioration damage to the building materials.” The insurer’s claims adjuster also noted bleach sprayed on the carpet in an attempt to remove the mold.

The insurer denied coverage due to exclusions precluding coverage for “damage caused by ‘continuous or repeated seepage or leakage of water’ from an air conditioning system, ‘which occurs over a period of time,’ water damage . . . and damage caused by the use of improper materials in the construction or repair of the property. . . .”

The insured requested reconsideration of the denial, arguing that the claim stemmed from “a ‘one time occurrence and [was] not due to repeated seepage.’” The insurer reviewed the insured’s request, but denied coverage again because the insured submitted no new information warranting coverage. The insured sued for breach of contract and bad faith, and the insurer moved for summary judgment on the bad faith claim.

In alleging bad faith, the insured argued that insurer failed to cite a factual basis for its coverage denial; that insurer unreasonably relied on an ambiguous and unenforceable policy exclusion for a loss caused by continuous or repeated seepage; and that there was no evidence that repeated seepage or leakage of water caused the loss.

After reiterating the “clear and convincing” evidentiary standard required for a bad faith claim, the Court concluded that no evidence in the record supported a finding that the insurer’s denial was frivolous, unfounded, or motivated by self-interest or ill will. On the contrary, the Court found that the insurer “acted reasonably and in good faith at all times during the claims investigation and handling process.” [The issue of whether self-interest/ill will are elements of statutory bad faith claims is now pending before Pennsylvania’s Supreme Court in Rancosky. Oral argument was heard in April 2017.]

Furthermore, the Court found that the policy exclusions were neither ambiguous nor unenforceable. The mere fact that the insured may have interpreted those exclusions differently is not sufficient to support a bad faith claim. Lastly, the insurer provided expert evidence to show repeated seepage of water caused the loss, and the insured submitted no conflicting expert evidence.

The Court granted the insurer’s partial motion for summary judgment as to the bad faith claim.

Date of Decision: August 25, 2017

Brodzinski v. State Farm Fire & Casualty Company, No. 16-6125, 2017 U.S. Dist. LEXIS 136644 (E.D. Pa. Aug. 25, 2017) (Surrick, J.)

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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