Archive for the 'PA – Experts' Category

MARCH 2017 BAD FAITH CASES: FINEMAN, KREKSTEIN & HARRIS OBTAINS SIGNIFICANT VICTORY FOR INSURER IN DEFEATING UIM BAD FAITH CLAIM AT TRIAL IN PHILADELPHIA’S COMMERCE COURT (Philadelphia Commerce Program)

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In a bad faith case that actually went to trial, in Philadelphia’s Commerce Court, Fineman, Krekstein & Harris won a finding in favor of the insurer in a hard fought case, involving a myriad of bad faith issues. The court issued a 37 page Findings of Fact and Conclusions of Law, vindicating the positions argued and case presented for the insurer.

The insureds argued, among other things, that there were undue delays in claims handling, adjusters did not keep claims files in accordance with policy manuals, and reserves were improperly set. Among other things, the insurer focused its arguments on the timing of the insureds first making a demand for payment; reliance upon competent counsel in reaching decisions; and that the insureds’ original demand for the $1,000,000 policy limits was never lowered through the course of the UIM case.

In its conclusions, among other things, the court observed there is no heightened duty to insureds in the UIM context, and that even negligence or bad judgments do not equate to bad faith. The court made clear that delay is not bad faith per se, and that evaluating delay includes an analysis of the reasonableness of denying a claim. Moreover, even if unreasonable, to constitute bad faith the delay must be knowing or reckless. Bad faith is measured from the time demand is made.

The court also stated that undervaluing a claim is not bad faith if there is a reasonable basis for the valuation. Thus, a low but reasonable valuation is not bad faith. A settlement offer in the insurer’s low range of estimated value also is not bad faith. On the facts of this case, the court observed that the insurer never took the position that it would pay nothing on the claim, and as described below, made a number of offers.

The court found it was reasonable under the circumstances for the insurer to decline mediation two weeks before the arbitration was to take place. The insurer’s counsel testified that it was too late to mediate, and that there was no indication the insureds would lower their demand. The court observed that in evaluating bad faith, courts weigh the insureds’ decision not to negotiate down from a policy limit demand, even though the insured is not required to negotiate. The court found that settlement almost always requires a mutual give and take, which did not occur in this case.

The insurer was required to pay $600,000 under the UIM arbitration award. The court found, however, there was no evidence the insureds would have accepted $600,000 to settle the case prior to arbitration.

The court also took into consideration the actual difference between the ultimate UIM arbitration award, the insurer’s final offer, and the insured’s demand. In this case, the insured’s final offer was approximately $182,000 below the ultimate award, but the insureds’ policy limit demand was $400,000 greater than the award. The court found the insurer’s final settlement offer was reasonable, and that earlier offers for lesser sums were permissible interim offers. The court explained the reasonableness of each offer in its context.

Among other facts addressed in the court’s conclusion of law, the court gave weight to the fact that the insurer’s UIM defense counsel received a report from his own expert that counsel had not requested. Furthermore, defense counsel disagreed with the report’s conclusions. However, instead of withholding the report, counsel and the insurer’s representatives produced it to the insureds.

Moreover, the insurer used a high-end number from this same report in coming up with the basis for its final offer. The arbitration panel also used that number, rather than the insureds’ expert’s even higher number, in coming up with its arbitration award. The court stated that the insurer did not have to base its decision upon the insured’s expert rather than the insurer’s own expert.

The court found the insurer’s investigation was lengthier than it should have been, but did not constitute bad faith. The court found the insurer’s request for an independent medical examination was not evidence of bad faith. Nor was this a case of setting a reserve and never moving from that number during the course of the claim. The court found no discrepancy in the manner of setting reserves and the nature of the investigation that showed intent or recklessness in undervaluing the claim. As to the claims handling, even if unduly lengthy or negligent, this did not constitute bad faith.

The court further found that the carrier’s representatives sought UIM defense counsel’s advice in good faith, and that counsel was competent to give advice on defense and valuation of the claim. Although this was not a strict advice of counsel defense, since the insurer’s representatives ultimately made their own decisions, the thorough nature of counsel’s advice, when considered as a component of their decision making, supported the reasonableness of their claims handling decisions.

Date of Decision: March 21, 2017

Richman v. Liberty Insurance Underwriters, Sept. Term 2014, No. 1552, Court of Common Pleas of Philadelphia (C.C.P. Phila. Mar. 21, 2017) (McInerney, J.) (Commerce Program)

S. David Fineman and Christina L. Capobianco of Fineman, Krekstein & Harris were defense counsel.

MARCH 2016 BAD FAITH CASES: LENGTHY INVESTIGATION ALONE INSUFFICIENT TO MAKE OUT BAD FAITH CASE; LATER LARGE JURY VERDICT ALONE COULD NOT SHOW BAD FAITH; TRIAL COURT HAS BROAD DISCRETION IN REJECTING EXPERT’S LEGAL CONCLUSIONS ON BAD FAITH (Third Circuit)

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In Shaffer v. State Farm Mutual Automobile Insurance Company, the Third Circuit upheld the trial court’s summary judgment decision in this underinsured motorist case, affirming that “no reasonable fact finder could conclude that there is “clear and convincing” evidence that the insurer acted in bad faith”.

In evaluating a bad faith claim the court observed that:  “A claim for bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant. ….  Although a delay between a demand for benefits and an insurer’s determination of whether to pay a claim is relevant, delay “does not, on its own, necessarily constitute bad faith.” ….  Rather than focusing solely on delay, courts have looked “to the degree to which a defendant insurer knew that it had no basis to deny the claim[].” Thus, “’[i]f delay is attributable to the need to investigate further or even to simple negligence,’ bad faith has not been shown.”

The insureds focused on the alleged delay in investigating and evaluating their UIM claim.  The court found that the insurer’s request to obtain the injured insured’s extensive medical file was not undertaken for the purpose of delaying the claim. Nor was there evidence that retaining a doctor to review the file was merely a pretext to effect a low payment the claim.  Even if the claims handling process was flawed, no evidence was presented that the delays or the insurer’s objectives were anything other than an effort to evaluate the insured’s medical history and determine the claim’s value.

After summary judgment on bad faith had been entered below, the case went to trial and the insureds won a substantial jury verdict.  The Third Circuit did not find this a basis to rewrite the lower court’s decision. The “jury’s later determination regarding the credibility of [the] medical review does not affect the reasonableness of [the insurer’s] earlier reliance on that review. Similarly, the fact that [the insurer’s] settlement offer was much lower than the amount the jury ultimately awarded would not necessarily affect the reasonableness of [the insurer’s] reliance on the review in making that offer.”

The court further ruled that the timing of the insurer’s opening the UIM file was not a basis for reversal; nor was the manner in which the carrier assessed medical expenses from the incident at issue vs. prior injuries.

Finally, the Third Circuit upheld the trial court’s decision to disregard the insured’s expert regarding the bad faith issue.  A trial court “has considerable discretion to accept or reject an expert’s conclusions on the question of bad faith.” And in this case, the expert review provides a legal conclusion without adding any additional facts, and so provides no factual evidence to support a claim of bad faith.”

Date of Decision:  March 10, 2016

Shaffer v. State Farm Mut. Auto. Ins. Co., No. 15-1196, 2016 U.S. App. LEXIS 4448 (3d Cir. March 10, 2016) (Jordan, McKie, Vanaskie, JJ.)

NOVEMBER 2015 BAD FAITH CASES: INSURANCE FRAUD CLAIMS BARRED BY STATUTE OF LIMITATIONS; LIMITS ON EXPERT TESTIMONY AS TO ULTIMATE ISSUE OF BAD FAITH (Philadelphia Federal)

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In Schatzberg v. State Farm Mutual Automobile Insurance Company, the insurer brought a statutory insurance fraud claim against a medical provider, under 18 Pa.C.S. § 4117, among other fraud based claims.  This claim has a two year statute of limitations. The court found that the insurer was on notice of the alleged fraudulent billing scheme well beyond the limitations periods applicable to the various claims; and the court rejected all tolling theories. Thus, summary judgment was granted against the insurer.

In an interesting alternative holding, the court found there could be no justifiable reliance on the alleged fraud after a certain period, because the insurer was aware of the fraud but kept making payments anyway.

In a second opinion the same day, granting the insurer partial summary judgment on the plaintiff’s defamation claims, the court made observations as to how experts could not testify on the ultimate legal issue of bad faith; and footnoted various statutory and regulatory provisions addressing the Pennsylvania Legislature’s concern with combating insurance fraud.

Dated of Decisions: October 7, 2015

Schatzberg v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 10-2900, 2015 U.S. Dist. LEXIS 136722 (E.D. Pa.  October 7, 2015) (QUIÑONES ALEJANDRO, J.)

Schatzberg v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 10-2900, 2015 U.S. Dist. LEXIS 136730 (E.D. Pa.  October 7, 2015) (QUIÑONES ALEJANDRO, J.)

 

JUNE 2015 BAD FAITH CASES: COURT (1) FINDS RESERVES CAN BE ADMITTED INTO EVIDENCE; (2) SETS THE TIME PERIOD TO CONSIDER EVIDENCE OF BAD FAITH FROM ACTUAL NOTICE OF THE CLAIM UNTIL THE CLAIM WAS RESOLVED; (3) FINDS EVIDENCE OF OTHER CASES NOT ADMISSIBLE; AND (4) FINDS EXPERT TESTIMONY ON CLAIMS HANDLING ADMISSIBLE ON BAD FAITH (Middle District)

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In Clemens v. New York Central Mutual Fire Insurance Company, the court addressed numerous motions in limine, in a supplemental underinsured motorist action.  The motions directly addressing the bad faith claim are summarized below.

Reserves

The court rejected the insurer’s argument that evidence of reserves be barred from evidence.  The court cited case law going both ways on the subject: (1) “that the relationship between the amount an insurance company reserves for a claim and the amount it ultimately offers to resolve that claim is so tenuous as to make the size of the reserve irrelevant for purposes of determining a bad faith claim” vs. (2) “that the amount set aside in reserve necessarily reflects a company’s assessment of the potential worth of the claim and, to the extent the reserve is dissimilar from the amount offered in settlement, is germane to an analysis of whether the company acted in bad faith in pretrial settlement negotiations”.  The court adopted the second position accepting the evidence, but expressly made clear that the insurer would not be precluded “from producing testimony explaining the difference between its reserve and its settlement offer in this case.”

Time Period of Bad Faith Claim

The insurer took the position that the time period in which to consider the bad faith claim began when the insured’s attorney advised the carrier that the tortfeasor’s carrier had agreed to pay its policy limits; and ended the date suit was filed. The insured took the position that the relevant time frame should begin on the date that their counsel advised the insurer of a potential underinsured motorist claim, and never ended because the misconduct of an insurer, even after suit is filed, may constitute bad faith.

The court found that bad faith may not be predicated on the insurers “actions or lack of action before being notified of a claim”, and in this case counsel’s allusion to a potential claim did not trigger any duty.  Further, while case law does allow “for the introduction of evidence of an insurer’s bad faith even during the pendency of a lawsuit …. such evidence of bad faith cannot be provided simply by an insurer’s action of mounting an aggressive legal defense.”  The court ruled that resolution of the underinsured motorist claim ended any bad faith cause of action after that date, and no evidence of the insurer’s alleged bad faith occurring after that date would be permitted.

The cutoff date, i.e., the date the underinsured motorist claim was resolved, was June 20, 2014.  The insured’s suit was removed to federal court in September of 2013. Thus, the time period in which bad faith conduct could be considered encompassed part of the time period during the pendency of the bad faith litigation itself.

Other Cases

The court granted the motion in limine barring evidence of other insureds’ claims against the carrier.  The court found in particular that the U.S. Supreme Court had ruled that evidence of what happened to other insureds, not parties to the case at hand, could not be used to enhance punitive damages for the party actually in the case.

Expert Testimony on Bad Faith Claim Regarding Industry Standards & Claims Handling

The court observed its own broad discretion on evidentiary matters, and the Federal Rules favoring the admission of evidence to assist the trier of fact. It concluded that the insured’s expert testimony could be helpful to the jurors in their inquiry as to whether the insurer acted in bad faith. Thus, the court allowed the insured’s expert to testify regarding industry standards and claims handling practices.

Date of Decision:  June 15, 2015

Clemens v. New York Cent. Mut. Fire Ins. Co., Case No. 3:13-CV-2447, 2015 U.S. Dist. LEXIS 77180 (M.D. Pa. June 15, 2015) (Conaboy, J.)

This is the fourth opinion in this matter.  Here are links to the first three (1, 2, and 3).

 

JUNE 2015 BAD FAITH CASES: UNDISCLOSED PUTATIVE CONFLICT WITH DOCTOR PERFORMING IME NOT BASIS FOR BAD FAITH; INSURER CAN RELY ON IME WHERE NO EVIDENCE PUT FORWARD THAT IT WAS FLAWED (Middle District)

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In Neal v. State Farm Mutual Automobile Insurance Company, the Court granted the insurer’s motion for summary judgment and held that the insurer did not act in bad faith after denying benefits to the insured based on an independent medical examination (“IME”) that showed the insured had reached “pre-injury” status. In the underlying action, the insured was injured when a vehicle rear-ended the car in which the insured was a passenger. The insurer’s claim representative requested an IME to be performed on the insured to address if “her ongoing complaints were accident related and whether she had reached pre-injury status from the accident.” The insurer contacted a vendor to arrange an IME by an orthopedic surgeon. After a surgeon was selected, the insurer requested an examination closer to her residence, so the vendor arranged for another doctor to perform the IME. Prior to going to the IME, the insured briefly discussed that doctor with her own current physician, and it turned out that the two doctors formerly had a practice together.

After performing the IME, the doctor observed that, among other things, he was “unable to detect any specific injury which occurred from the most recent motor vehicle accident,” and that the insured had reached full recovery from the car accident. Subsequently, the insurer denied all bills for treatment that the insured received after the IME.

The insured’s bad faith claim was premised on allegations that the insurer did not act reasonably in “refusing to reconsider its decision or schedule a new IME when presented with a potential conflict of interest” and “choosing to automatically follow the findings of the IME Report despite conflicting evidence regarding the nature and causation of Plaintiff’s injuries.”

In granting the insurer’s motion for summary judgment on the bad faith claim, the Court stated with regards to the potential conflict of interest, “there is no dispute that [the insurer] did not know about the prior association between the doctors at the time [the vendor] arranged for the IME to be performed….” The Court pointed out that even though the insured knew of the doctors’ prior association, she did not inform her insurer of any alleged conflict, nor did she believe that the doctor would be biased against her in performing the IME. Because the insured did not show clear and convincing evidence of any bad faith, the Court could find no material disputes of fact on this issue.

As for the claim that the insurer automatically followed the findings of the IME, the Court reasoned that “an insurer is entitled to rely on the findings of an IME … even in the fact of contrary medical opinions.” Further, the insured presented no evidence that the IME was flawed. In sum, the Court found that “the record evidence [was] insufficient to allow a reasonable fact-finder to find that Defendant exhibited bad faith in relying on [the allegedly conflicted doctor’s] IME.”

Date of Decision: May 12, 2015

Neal v. State Farm Mut. Auto. Ins. Co., 1:13-cv-02309, 2015 U.S. Dist. LEXIS 61770 (M.D. Pa. May 12, 2015) (Kane, J.)

 

JUNE 2015 BAD FAITH CASES: SUPERIOR COURT VACATES JUDGMENT ON BAD FAITH CLAIM AFTER CLOSE FACTUAL ANALYSIS; AND DIRECTS TRIAL COURT ON REMAND TO ALLOW EXPERT TESTIMONY CONCERNING ADJUSTER’S OBLIGATION TO CLARIFY LEGAL INTERPRETATION OF POLICY TERMS, BUT NOT TO CONSIDER INSURED’S POST-DENIAL CONDUCT (Superior Court)

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In Mohney v. American General Life Insurance Company, the Superior Court reversed the trial court, and remanded the insured’s statutory bad faith case against his disability insurer for a new trial.  At the time of this decision, the case had been pending in some form for 20 years.

The insurer originally paid total disability benefits, based upon policy definitions of the insured’s “total disability”.  The insurer’s adjuster later made the decision, on his own understanding, to terminate benefits on the basis that the insured’s doctor stated the insured could work in some limited capacity.  However, the doctor’s statements upon which the adjuster based his decision were in fact equivocal and highly qualified as to whether the insured could perform alternative work in the future.

In an earlier trial on the breach of contract claim, the court found the insurer breached its contract. In a second trial, on bad faith, the trial court found there was no bad faith. While the insurer was incorrect in terminating benefits, it had not been unreasonable in its position or investigation, nor had it knowingly or recklessly disregarded that fact.  The appellate court disagreed.

The Superior Court stated that “bad faith” encompasses a variety of possibilities including “a frivolous or unfounded refusal to pay the proceeds of a policy done with dishonest purpose, motivated by self-interest or ill will”, conduct “lack[ing a] good faith investigation into facts, and failure to communicate with the claimant”, “where the insurer intransigently refused to settle a claim that could have been settled within policy limits, where the insurer lacked a bona fide belief that it had a good possibility of winning at trial, thus resulting in a large damage award at trial”, and it “may also extend to the insurer’s investigative practices”. The appellate court recited the bad faith standards: proof must be by clear and convincing evidence, the insurer’s position must have been unreasonable, and the insurer must have knowingly or recklessly disregarded the unreasonable nature of its position. In a clarifying footnote, the court reiterated its rulings in Nordi (2010) and Greene (2007) that the insured is not required to prove a motive of self-interest in or ill will as a third element of statutory bad faith; rather, evidence of self-interest or ill will are probative of the second element, i.e., that the insurer knew or recklessly disregarded the unreasonableness of its position.

The Superior Court then firmly rejected the trial court’s factual conclusion that the insurer’s termination of benefits was reasonable; thus, the insured met the burden on the first prong of the bad faith test.  The court went into an extremely detailed analysis of the factual record in reaching this conclusion.

As to the second prong, the appellate court likewise drilled down into facts going to the insurer’s state of mind.  It approved a standard that the insurer “’was required to conduct an investigation sufficiently thorough to provide it with a reasonable foundation for its actions.’” The absence of a reasonable basis to deny coverage was the cornerstone of undermining the insurer on the knowing or reckless disregard standard.  The appellate court found that the trial court largely ignored substantial evidence that the insurer’s investigation “was not sufficiently thorough to obtain the necessary information regarding [the insured’s] ability to work.” The appellate court also referenced evidence from the record that could establish knowing or recklessly culpable conduct by the insurer, in the nature of misrepresentations of fact in terminating the benefits, and conduct constituting a lack of honest or objective review.

Thus, the Superior Court rejected the trial court’s conclusion that there was no evidence supporting the second bad faith prong.  However, it did not automatically then rule for the insured.  Rather, it held that “while [the] misrepresentations are evidence of bad faith, they do not without more establish knowing or reckless misconduct as a matter of law by clear and convincing evidence on the record before us.” That issue could not be decided on appeal.

The insurer argued that the adjuster making the decisions on the claim at issue had broad discretion, within his experience, to evaluate the claim based on available medical records and his common sense. In the insurer’s training practices, the key policy term “total disability” was left to the adjuster’s common sense interpretation, based on his prior experience.  While the adjuster could seek advice from an attorney, he did not do so “because he did not believe that any additional legal construction of the term ‘total disability’ was necessary. Instead, he applied a plain and common sense meaning to the certificates’ definition of ‘total disability.’”

The appellate court had already ruled that the adjuster’s interpretation was contrary to the policy language itself, as well as Pennsylvania appellate law.Thus, the court stated that “in the absence of a standard policy manual or other specific guidance, it was left solely to [the adjuster’s] ‘common sense’ and discretion to decide whether it was necessary to consult with legal counsel on the proper (legal) interpretation of the policy term at issue.” There was no evidence in the record of industry standards on training adjusters in legal interpretations of policy language, or providing adjusters guidance of when to seek guidance from staff attorneys.

Prior to trial, the insured did provide an expert report stating, among other things, that insurers and their professionals “be informed on the established law which they would be expected to apply in the course of handling claims, specifically including the law regarding the interpretation of policy provisions and definitions.” That expert’s trial deposition also stated that there was a “need for adjusters to be trained in the proper application of established case law on applicable policy terms.” However, the expert report and testimony were excluded at trial, on the basis that they “consisted of legal conclusions that were improper and inadmissible, the facts underlying [the] bad faith claim were ‘readily ascertainable by the Court without the aid of expert testimony,’ and [the expert’s] testimony would not assist in the resolution of [the] bad faith claim.”

The Superior Court found this was an abuse of discretion because: “The issue in question, involving the standards in the insurance industry for the training of claims adjusters in applying legal precedent when deciding insurance claims, is sufficiently complex to permit the introduction of expert testimony. The … Trial Court’s written decision does not reflect that it had any specific knowledge of the industry standards in this area. Instead, the … Trial Court merely accepted [the adjuster’s] testimony that there was no need to consult with staff attorneys in this case, and in the absence of expert testimony … [the insured] had no ability to offer contradictory evidence to rebut [the adjuster’s] testimony.”

Thus, the lower court’s ruling on bad faith was vacated, and the case remanded for a new trial.

On remand, the Superior Court instructed that the trial court was not to consider evidence of the insured’s post denial conduct, which it had earlier done.  Further, the trial court had precluded the insurer’s expert report as a sanction, and the appellate court left it to the trial court as to whether it would revisit that sanction; but it did not vacate the sanction itself. Finally, the appellate court upheld the trial court’s decision not to allow an amended complaint to add bad faith allegations based upon litigation conduct, as being so untimely as to be prejudicial; but the appellate court did note that the insured never raised the more general argument that the insurer’s litigating this matter for 20 years, when there was no reasonable basis to do so, could conceivably be the basis for a bad faith claim.

Date of Decision: May 8, 2015

Mohney v. American General Life Insurance Company, No. 2030 WDA 2013, SUPERIOR COURT OF PENNSYLVANIA, 2015 Pa. Super. LEXIS 250 (Pa. Super. Ct. May 8, 2015) (Donahue, Allen, and Strassburger, JJ.)

MAY 2015 BAD FAITH CASES: NO BAD FAITH BASED ON INVESTIGATION AND EXPERIENCE OF INSURANCE TEAM, EVEN THOUGH EXPERT NOT USED IN INVESTIGATION, AND ORIGINAL REFERENCES IN DENIAL LETTER WERE TO GENERIC POLICY AND NOT INSURED’S SPECIFIC POLICY (Middle District)

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In Boulware v. Liberty Insurance Corp., the insurer denied a claim for a damaged deck, under a homeowners policy, on the basis of exclusions for faulty workmanship, wear and tear and/or rot.  The insurer’s adjuster came to the scene and investigated, but did not bring an engineer.  He determined the cause was poor work or rot, and looking to a generic version of the homeowners policy at issue, not the specific policy, when he drafted a denial letter.  His supervisor, who had experience and training with such construction issues, also only referring to the generic policy, approved the denial letter.

The insured brought a bad faith claim, based in large part on the fact that the only on-site inspection was done by the adjuster, in under an hour; and that the insurer “did not retain any contractor experts or engineers to inspect her damage despite the fact that its adjusters and supervisors had authority to do so.” Rather, the insured argued that “during the entire claims process, [the insurer] failed to utilize a contractor expert or engineer to assist it to properly evaluate [the insured’s] claim and examine the cause of … loss, and that [it] should have retained such experts before it issued the two denial letters.” The insurer responded that based on the construction background of its personnel handling the claim, and the adjuster’s actual investigation, “it can hardly be said that their decisions were unreasonable or that they knew an expert or engineer was required to properly evaluate plaintiff’s claim yet recklessly disregarded this in denying her claim.” The court further focused on the adjuster’s detailed determinations at the actual inspection, where the adjuster concluded “that there was ‘improper, inadequate, defective workmanship or construction’ of the deck, and he stated that the method of attachment of the deck to plaintiff’s home was ‘with nails, instead of lag screws’ and that there ‘was no Z flashing present.’” He had also “concluded that there was defective construction of plaintiff’s deck since there was rot in the deck boards caused by the lack of Z flashing which allowed snow and water to rot out the boards over time.” The adjuster had “personally viewed the areas of rot and took photos of the areas, and his photos substantiated his findings regarding the use of nails and the deteriorating boards. … [and his] findings were entirely consistent with the opinions of the engineer expert defendant retained after this case was filed in court….”

Moreover, “the retention of an expert by the insurer after denying a claim is not bad faith and, that even if the insurer erred by not retaining an expert to examine the damage prior to the initial denial of a claim, this amounts to only negligence or poor judgment and not bad faith.” In any event, the court found that the denial was reasonable, even without first having retained an expert. That during litigation, the two experts differed on causation and thus cover, only created a dispute of fact over contract coverage, not bad faith.

The court found that the insurer “performed a reasonably detailed investigation of plaintiff’s claim notwithstanding the lack of an expert, and it supplied a reasonable basis to bolster its denial of her claim on two occasions.”

As to the adjusters’ not reviewing the insured’s specific policy, rather than a generic policy, this was not evidence of bad faith, as the adjuster “was well aware of the provisions in a standard … policy as well as the exclusions in the … standard policy when he inspected plaintiff’s property and drafted his first denial of coverage letter for plaintiff’s claim.”  The adjuster had even discussed the nuances of the policy exclusions with the insured at the time of his inspection. The supervisor’s review using the same general knowledge supported the adjuster’s conclusion.  Finally, when a third employee of the insurer, a team manager, got involved,  “he had all of the documents regarding [the] claim, including the original denial letter, the notes, the photographs, the log notes, all correspondence and [the] actual policy.” He reviewed the claim with the adjuster, “and he reviewed the definition of collapse in [the actual] policy and, they both agreed that the cause of her loss was ‘wear/tear/deterioration’ and that her loss ‘[did] not fit [the policy] definition of collapse.’”

Thus there was no bad faith because the court found that the insurer conducted a prompt and reasonably thorough investigation of the claimed loss, and provided a reasonable basis to deny the claim, and summary judgment was granted to the insurer.

Date of Decision: March 17, 2015

Boulware v. Liberty Ins. Corp., CIVIL ACTION NO. 3:13-CV-1541, 2015 U.S. Dist. LEXIS 32223 (M.D. Pa. March 17, 2015) (Mannion, J.)

OCTOBER 2014 BAD FAITH CASES: COURT FINDS “LACK-OF-FORTUITY” EXCLUSION IMPLIED IN EVERY ALL RISK INSURANCE POLICY, AND NO BAD FAITH WHERE DENIAL HAD A REASONABLE BASIS (Philadelphia Federal)

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In Fry v. Phoenix Insurance Company, the insured homeowners suffered a wall collapse, after a long history of issues with the wall. There were various expert reports on problems with the wall that led the court to conclude that the insureds had knowledge of both potential problems causing the collapse, and that they failed to timely act to prevent the collapse after having been specifically warned it would occur absent certain actions.

First, coverage was properly denied because the policy only covered collapses if the causes were hidden from the insured, and such was not the case here.

Second, and of significant interest, is the court’s then finding that there was no coverage because the collapse was not the result of chance or accident, i.e., it was not fortuitous. The court specifically found that “under Pennsylvania law, a lack-of-fortuity exclusion is implied in every all-risk policy, such as the Policy at issue here.”

The court ruled that Third Circuit precedent established this principle, citing support from appellate case law: “there is an implied exclusion in every all-risk insurance policy for losses that are not fortuitous”; the “Supreme Court of Pennsylvania would recognize a ‘judicially created “fortuity” exclusion from coverage’ based on the generally accepted principle that ‘every “all risk” contract of insurance contains an unnamed exclusion — the loss must be fortuitous in nature’”; “The fortuity requirement is based on ‘[p]ublic policy considerations and the general nature of insurance,’ preventing an insurance policy ‘from providing coverage for a policyholder’s losses unless those losses are fortuitous.’”; “[W]e predict that the Pennsylvania Supreme Court would place on the insurer the burden of proving that the circumstances of the loss were such that coverage would be inconsistent with that public policy.”

The court then addressed what the Third Circuit meant by “fortuity”. “A fortuitous event … is an event which so far as the parties to the contract are aware, is dependent on chance.” “Such an event ‘may be beyond the power of any human being to bring the event to pass; it may be within control of third persons, provided that the fact is unknown to the parties. The thrust of the definition is that the occurrence be unplanned and unintentional in nature.’” “’In essence, the doctrine precludes coverage from losses that are certain to occur.’” “’Typically, the inherent fortuity doctrines preclude coverage based on what the insured knew or should have known about its potential liability at the inception date of the insurance policy at issue….”

Moreover, the court ruled that the determination of whether a claimed loss is fortuitous is a question of law for the court. Although the court indicated the determination of fortuity was solely a legal issue, the court concluded its analysis that the loss in this case was not fortuitous because no reasonable jury could find the loss fortuitous, thus indicating there may be some role for the jury on the issue.

As to the specific record, independent of the precise cause, all of the experts had told the insureds the wall would collapse unless they took certain actions, they did not, and the wall collapsed, i.e., no fortuity.

Thus summary judgment was granted on the breach of contract claims, and the bad faith claim was dismissed as the court’s analysis demonstrated denial was reasonable.

Date of Decision:  September 19, 2014

Fry v. Phoenix Ins. Co., CIVIL ACTION NO. 12-4914, 2014 U.S. Dist. LEXIS 131504 (E.D. Pa. September 19, 2014) (Stengel, J.)

SEPTEMBER 2014 BAD FAITH CASES: AFTER JURY VERDICT FOR DISABILITY INSURER IN BAD FAITH CASE, COURT FOUND THAT (1) LIMITED DISCLOSURE OF EVIDENCE ON REGULATORY HISTORY WAS WITHIN THE COURT’S DISCRETION; (2) ALLOWING WIDE LATITUDE ON CROSS OF EXPERT MET DAUBERT; AND (3) JURY HAD SUFFICIENT EVIDENCE, TAKEN IN LIGHT MOST FAVORABLE TO THE VERDICT WINNER, TO RULE AS IT DID (Philadelphia Federal)

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In Leporace v. New York Life and Annuity Corp., involving a disability policy, the jury found for the insurer on the contractual and statutory bad faith claims.  In summarizing the law on both causes of action, Judge Baylson looked to Judge McLaughlin’s Dewalt opinion in addressing the different standards of proof, and the type of knowledge required to make out these claims.

The court issued prior opinions on the statute of limitations, expert testimony and the admissibility of evidence.  The court found no reason to reconsider the statute of limitations argument, and then addressed plaintiff’s claims of trial errors, chiefly concerning new evidentiary issues.

The insured focused on the court’s precluding evidence, but failed to show prejudice.  Moreover, wide latitude was given in permitting plaintiff’s evidence, and the court’s rulings on the evidence were within a trial judge’s discretion.  The insured alleged that he was barred from introducing evidence on Market Conduct Examinations and the Regulatory Settlement Agreements and amendments thereto, but this was not the case. The court had allowed “testimony about these adverse regulatory actions regarding defendant, when they pertained to issues directly affecting the plaintiff, and/or were not already subsumed within [the insurer’s] own standards for reviewing disability claims.” But the court “ruled that admitting evidence as to the origin of these regulatory materials was not relevant to plaintiff’s claim and would have been unduly prejudicial to the defendants….”  It did not exclude, however, “reference to these regulatory standards in total….” Further, the insured “was given significant and wide latitude in introducing both factual testimony and expert testimony supporting his claims, with adequate reference to the regulatory proceedings….”

The court found that the “jury had a full picture of the plaintiff’s claims and the reasons for [the insurer]’s conduct.” There was evidence that both sides causing delays in claims handling; and that the insured received benefits due for a significant period of time. The jury had these facts, and resolved in favor of the defendant; the court observing that the facts are taken in the light most favorable to the verdict winner when moving to set aside the verdict.

Finally, the insured attempted to argue trial error in connection with allowing the defense’s expert testimony.  The court observed that “plaintiff was given wide latitude to cross examine [the expert] about his qualifications before he was allowed to testify as an expert,” meeting Daubert’s requirements.

Date of Decision:  August 7, 2014

Leporace v. N.Y. Life & Annuity Corp., CIVIL ACTION NO. 11-2000, 2014 U.S. Dist. LEXIS 108804 (E.D. Pa. August 7, 2014) (Baylson, J.)

SEPTEMBER 2014 BAD FAITH CASES: CPA EXPERT PRECLUDED FROM TESTIFYING ABOUT INSURANCE LAWS AS IRRELEVANT AFTER PRIOR RULING ON BAD FAITH CLAIMS, BUT ALSO BECAUSE OF RISK OF JURY CONFUSION (Western District)

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In United States Fire Ins. Co. v. Kelman Bottles, a case with a lengthy history concerning a number of bad faith claims the insured attempted to assert which were limited by the court, the court addressed numerous motions in limine prior to trial.  This included efforts by the insurer to limit the testimony of one of the insured’s experts, a CPA.  The court allowed testimony on accounting matters, but not matters related to insurance regulations and statutes, specifically, the Unfair Insurance Practices Act, 40 Pa. Stat. § 1171.1 (UIPA), and the Unfair Claims Settlement Practices regulations, 31 Pa. Code § 146.1 (UCSP).

Federal Rule of evidence 403 provides that a “court may exclude relevant evidence if its probative value is substantially outweighed by a danger of . . . unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” The insurer argued that an earlier decision broadly rejecting much of the insured’s bad faith claims mooted the testimony on these subjects.  The insured argued that that “a violation of the UCSP and UIPA is not per se bad faith, and that no such sweeping prohibition for violations of the two exists in the Third Circuit.” The insured attempted to distinguish a prior non-precedential Third Circuit 2002 case which held that “evidence of an insurer’s violation of the UIPA and UCSP was properly excluded under Rule 403 due to risk of prejudice.” The court rejected the insured’s arguments “insofar as evidence of [the insurer’s] violation of the Pennsylvania insurance laws is not relevant to any of [the insured’s] remaining viable claims. Moreover, even if the evidence were probative, the risk of jury confusion is great. Absent relevance and in light of the risk of confusion of issues,” the motion to preclude this testimony was granted.

Date of Decision:  August 8, 2014

United States Fire Ins. Co. v. Kelman Bottles LLC, 11cv0891, 2014 U.S. Dist. LEXIS 109982 (W.D. Pa. August 8, 2014) (Fisher, J. sitting by designation of U.S. Court of Appeals for the Third Circuit).