Archive for the 'PA – Coverage Issues' Category

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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.)

APRIL 2017 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED WHERE INSURER DID NOT ACT IN BAD FAITH WHERE IT PROPERLY EVALUATED SCOPE OF COVERAGE, MADE GOOD FAITH PAYMENTS, AND ARRANGED FOR TEMPORARY HOUSING FOR INSURED (Middle District)

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In this case, the insured owned two adjacent properties, which both the Magistrate Judge and District Court Judge concluded were distinct properties, and which had distinct insurance policies over time. The policy lapsed on one property (property 1), but a different policy remained in effect on property 2. A fire started on property 1, which ultimately damaged both property 1 and property 2. The insurer for property 2 would not pay for claims on property 1.

The insured asserted breach of contract and bad faith and argued that the insurer failed to act promptly on the insured’s claims, failed to undertake a reasonable investigation and make timely payment, and refused to cover losses arising at an adjoining property, which was not covered under the insured’s policy. The insurer sought summary judgment on the basis that its insurance policy only applied to property 2. The insurer argued that the undisputed facts showed that it properly evaluated the scope of coverage, made good faith payments totaling over $50,000 to the insured, and arranged seven months of temporary housing for the insured, based on the fire damage to property 2.

The court found that the insurer acted reasonably in addressing the insured’s claim, and noted that the insured was seeking coverage from the insurer for losses on a property that was not covered by the insurer’s policy. Additionally, the insurer immediately began investigating the claim after notice of the loss, arranged and paid for immediate short-term housing lasting more than seven months, and promptly attempted to undertake remediation and restoration efforts.

The insurer addressed any coverage questions with the insured, and paid undisputed claims totaling approximately $30,000 within two months of the reported loss. Further, the insurer worked with the public adjuster retained to evaluate other potentially covered losses, and made an additional $20,000 in payments over the course of approximately four months.

The Magistrate Judge found that these facts could not support a finding of bad faith, but may “at most – represent the remnants of a good faith insurance policy coverage contractual dispute.” In adopting the Report and Recommendation, the District Court Judge set forth additional facts supporting the Magistrate Judge’s Report and Recommendation concerning the two properties being distinct, and adopted the Report and Recommendation in granting the insurer’s motion for summary judgment.

Dates of Decisions: February 6, 2017 (Report and Recommendation) and March 24, 2017 (District Court decision)

Porter v. Safeco Ins. Co., No. 15- 759, 2017 U.S. Dist. LEXIS 17142 (M.D. Pa. Feb. 6, 2017) (Carlson, J.)

Porter v. Safeco Ins. Co., No. 15- 759, 2017 U.S. Dist. LEXIS 43498 (M.D. Pa. March 24, 2017) (Mariani, J.)

 

APRIL 2017 BAD FAITH CASES: FACTS SHOWING AN INSURER ACTED RECKLESSLY OR KNOWINGLY ARE REQUIRED TO WITHSTAND A MOTION FOR JUDGMENT ON THE PLEADINGS (Philadelphia Federal)

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This bad faith claim arises out of an insurer’s refusal to participate in an appraisal of the insured’s property damage claim. The insurer paid for some of the loss, but refused the insured’s request for appraisal. The insurer asserted that because the request was made a year after the loss, it was not required by the policy. The insured sued for breach of contract and bad faith, alleging that the policy mandated an appraisal.

The insurer filed a Motion for Judgment on the Pleadings, arguing that the factual allegations in the complaint were insufficient to sustain a bad faith claim. The Court agreed, placing its focus on the second element of a statutory bad faith claim – that the insurer knew or disregarded its lack of a reasonable basis for denying benefits. Specifically, the Court found that the Plaintiff had failed to allege any facts to show that the insurer acted knowingly or recklessly. Merely reciting the elements of the bad faith claim, supported only by conclusory statements, is insufficient. In this respect, the Court found the insured’s complaint lacking where it merely alleged, inter alia, that the insurer placed “its interests over the interests of its insureds” and did not have “a reasonable basis for denying Plaintiff the benefits due under the policy.”

Further, the Court refused to consider whether the insurer’s explanation for refusing appraisal was ultimately correct. Instead, the Court found that the sole issue was whether there were any facts in the complaint showing that the insurer knew or recklessly disregarded its lack of a reasonable basis for denying benefits. The correctness of the policy issue itself was an issue best explored in a breach of contract claim, not one for bad faith.

Date of Decision: March 30, 2017

Long v. Farmers New Century Ins. Co., No. 15-6724, 2017 U.S. Dist. LEXIS 47552 (E.D. Pa. Mar. 30, 2017) (Stengel, J.)

MARCH 2017 BAD FAITH CASES: BAD FAITH CLAIMS ARE PREDICATED ON A DENIAL OF BENEFITS (Western District)

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This dispute arose after an insurer denied underinsured motorist coverage to its insured. The Insured later sued for breach of contract and for violations of Pennsylvania’s Bad Faith Statute, 42 Pa. C.S. § 8371. The Court dismissed the breach of contract claim and held that because there was no coverage under the policy, the insured could not sustain a bad faith claim. The Court explained that because bad faith claims are predicated on a denial of benefits, an insurer cannot act in bad faith where there was no coverage, and the insurer was never obligated to pay.

Date of Decision: March 13, 2017

Bish v. American Collectors Insurance, Inc., NO. 2:16- 01434, 2017 U.S. Dist. LEXIS 35205 (W.D. Pa. Mar. 13, 2017) (Eddy, M. J.)

MARCH 2017 BAD FAITH CASES: SPLIT IN RELEVANT CASE LAW IS NOT AN ABSOLUTE DEFENSE TO A BAD FAITH INTERPRETATION OF POLICY LANGUAGE CLAIM, AS REASONABLENESS REMAINS THE MEASURE (Philadelphia Federal)

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The interesting part of this case involved the court’s subtle distinction when lack of clarity in the relevant case law on how to interpret the insurance policy language at issue provides a bad faith defense. The specific issue was application of an intentional act exclusion to a violent assault fact pattern, where the insured claimed he was too drunk to know what he was doing.

The insurer argued “that an insurer does not act in bad faith if it relies on a reasonable interpretation of unsettled case law,” and cited at least three opinions supporting its position that the exclusion applied to the fact pattern at issue. The court described this argument as “incomplete”.

The court stated: “Supporting authority, though highly relevant, does not automatically defeat a bad faith claim. This was made clear by J.H. France Refractories Co. v. Allstate Insurance Co., 534 Pa. 29, 626 A.2d 502 (1993). There, the Pennsylvania Supreme Court found that [the insurer] had not acted in bad faith in denying coverage where it had relied on an ‘excessive pluralism and disparity . . . in the decisions of the many courts which ha[d] entertained similar litigation.’ …. But the Court did not hold that the mere existence of disparate decisions precluded bad faith—instead, it took care to note both that it did ‘not regard the issues presented in this case as simple ones’ and that each of the varying approaches other courts had taken ‘seem[ed] reasonable from some point of view.’ …. Indeed, bad faith claims are highly ‘fact specific,’ … and their touchstone—‘reasonableness’—only ‘has meaning in the context of each case[.]’”

After observing this subtle distinction in how to analyze the effect of disparate case law on bad faith claims, the court still ruled in the insurer’s favor, finding its position reasonable. Thus, there was no bad faith.

Date of Decision: March 13, 2017

Allstate Ins. Co. v. Lagreca, No. 13-6039, 2017 U.S. Dist. LEXIS 35197 (E.D. Pa. Mar. 13, 2017) (McHugh, J.)

MARCH 2017 BAD FAITH CASES: WHERE NO DUTY TO COVER PUNITIVE DAMAGES, THERE CAN BE NO BAD FAITH IN REFUSING TO COVER PUNITIVE DAMAGES (Philadelphia Commerce Court)

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In this case, the insured was subject to a wrongful death judgment of over $2,000,000 in compensatory type damages and $5,000,000 in punitive damages. The umbrella insurer had reserved its rights to disclaim coverage for punitive damages, and persisted in that position through settlement, where it refused to contribute toward the punitive damages judgment.

There was no punitive damages exclusion in the policy. Rather, the insurer relied upon Pennsylvania public policy that there could be no insurance for punitive damages. The insured argued the vicarious liability exception to this public policy, but the court found that the punitive damages award was based on direct liability and not vicarious liability. Thus, it held there was no coverage due on the punitive damages settlement.

As to the insured’s bad faith claim, the court stated: “Since this court finds that there is no coverage for punitive damages, there can be no bad faith.” Thus, the bad faith count was dismissed.

Date of Decision: January 20, 2017

Bensalem Racing Ass’n v. Ace Prop. & Cas. Ins. Co., Feb. Term 2016, No., 4858, 2017 Phila. Ct. Com. Pl. LEXIS 11 (Phila. C.C.P. Jan. 20, 2017) (Djerassi, J.) (Commerce Program)