Archive for the 'PA – General Bad Faith and Litigation Issues' Category

JUNE 2017 BAD FAITH CASES: COURT DISMISSES SUIT AS SANCTION (Philadelphia Federal)

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This suit was brought by an insurer against its insured’s attorneys and an expert retained by its insured’s attorneys in a Washington State class action against the insurer. The following are excerpts from the court’s strongly worded opinion. The court dismissed the case as a sanction, under its inherent authority.

“A few years ago, two class actions were filed … in Washington state court. Not surprisingly, as in any litigation, a dispute arose about the use of documents in these Washington class actions. Rather than meet and confer with the plaintiffs’ lawyers (or file a motion in Washington court) about this dispute, [the insurer] sued them here in Philadelphia. That, however, was not enough to quench [the insurer]’s thirst for aggression. [It] also sued the plaintiffs’ lawyers’ expert witness and his company.”

“[The insurer] weaves some clever arguments in an attempt to justify its acts of obstruction. However, practicality, legal analysis, and common sense all make clear [the insurer] is attempting to stalemate the Washington class actions by suing the plaintiffs’ lawyers thousands of miles away from where those class actions are currently being litigated. The red herrings in this case are [the insurer]’s alleged ‘claims’ for trade secret misappropriation and unjust enrichment. Even if these ‘claims’ were anything more than red herrings—which they are not—they fail as a matter of law.”

“The defendants filed a motion to dismiss. In the alternative, defendants move to transfer this action to the U.S. District Court for the Western District of Washington. While transfer might be appropriate in this case, there is no need. I will not tolerate the attempted manipulation of our judicial process in this case. The case is dismissed.”

“In this case, while a close call, I cannot conclude that Rule 11 sanctions are proper because I do not find the [insurer]’s claims ‘patently unmeritorious or frivolous.’” “The claims are weak, to be sure, but they do possess a modicum of substance, thereby elevating them slightly above the level of ‘patently unmeritorious or frivolous.’” “Consequently, Rule 11 sanctions cannot be imposed.”

“However, I will impose sanctions, pursuant to my inherent power, for ‘conduct which abuses the judicial process.’” The insurer’s “conduct, in filing this lawsuit, was done in bad faith, vexatiously, and for oppressive reasons.” “This is the exact type of case where a response to ‘abusive litigation practices’ is warranted.”

The court dismissed the complaint “in its entirety, without prejudice. Whether [the insurer] will again be subject to sanctions under my inherent authority (or under Rule 11) will depend upon the renewed strength and plausibility of [the] claims in its amended complaint, should it decide to take this route and file one.”

Date of Decision: June 13, 2017

GEICO v. Nealey, No. 17-807, 2017 U.S. Dist. LEXIS 91219 (E.D. Pa. June 13, 2017) (Stengel, J.)

 

MAY 2017 BAD FAITH CASES: WHERE INSURED HAS SUFFERED NO HARM, THERE IS NO BAD FAITH CLAIM TO BE ASSIGNED (Pennsylvania Superior Court) (Not Precedential)

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Three brothers owned interests in a single property, but arguably only one of them insured his interests. Their tenants (the insured brother’s daughter and son-in-law), brought suit against her father and uncles for mold exposure. The father’s carrier provided a defense, and the case against him was dismissed on preliminary objections.

The uncles hired private counsel, who filed preliminary objections as well, but before those were decided, the uncles entered a joint tortfeasor release. The uncles assigned their contribution claims against the father and a bad faith claim against his insurer to their niece and nephew.

Subsequently, the attorney representing the niece entered appearances for the uncles (one was deceased, so his estate), and there was ultimately a $5.1 Million judgment entered against the uncles. Efforts to enforce that judgment against the father were denied by way of summary judgment. Still, the father later assigned any bad faith claims he might have against his insurer to his daughter and son-in-law, and they released the father from any claims arising out their original law suit.

The children brought bad faith claims against their father’s insurer. The resolution was simple because the $5.1 Million judgment obtained was not a judgment against the father. The father was both dismissed from the original case, and won a summary judgment motion that the judgment could not be enforced against him. Moreover, that judgment could not be enforced against any party in light of the releases.

As to the assigned claim, the Court concluded: “Since Appellants cannot enforce the [$5.1 Million] Judgment against [father], [father] suffered no harm and, therefore, had no bad faith claim to assign to Appellants.”

Date of Decision: April 26, 2017

Schriner v. One Beacon Ins. Co., No. 852 MDA 2016, 2017 Pa. Super. Unpub. LEXIS 1602 (Pa. Super. Ct. April 26, 2018) (Dubow, Lazarus, Stabile, JJ.) (Not Precedential)

ground-flowers-2017

 

MAY 2017 BAD FAITH CASES: DECEPTIVE CONDUCT AFTER POLICY IS ISSUED MAY BE SUBJECT TO SECTION 8371 RELIEF (Philadelphia Federal)

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This case involves a dispute over the number of premium payments the insured was required to make. The insured thought it only had to make 6 payments each on two life insurance policies, and investment income would cover the rest. The income was insufficient and more premiums were sought. A number of misrepresentation theories were pleaded along with a statutory bad faith claim, which the insurer moved to dismiss. The bad faith claim was based on allegations that the insurer “intentionally reduced its investment return projections in order to conceal the risks associated with its vanishing premium scheme and to secure additional premium payments on the Policies.

In addressing the bad faith claim, the court observed that the Pennsylvania Supreme Court’s decision in Metropolitan Life Insurance Co. v. Toy found that the bad faith statute “does not give relief to an insured who alleges that his insurer engaged in unfair or deceptive practices in soliciting the purchase of a policy.” The court went on to state that “despite the Pennsylvania Supreme Court’s holding in Toy, which appeared to narrowly limit the circumstances under which a § 8371 claim of bad faith can arise, a number of courts have allowed bad faith claims in contexts beyond an insurer’s failure to indemnify or pay the insured.”

The court distinguished Toy, noting here that the bad faith claims not only included representations to induce sale of the insurance policies, but the insured also pleaded “deceptive practices occurring after the execution of the Policies,” i.e., the alleged manipulation of investment returns on the premiums paid. The court found that these allegations fell within the realm of “conduct in connection with [the] discharge of … obligations … after purchase” (emphasis in original) and so were actionable bad faith claims. Thus, the motion to dismiss was denied, and “[w]hether the deceptive conduct alleged … arose in the context of [the insurer’s] discharge of its obligations under the Policies will become more apparent through fact discovery.”

Date of Decision: April 13, 2017

West Chester University Foundation v. Metlife Insurance Co., No. 15-3627, 2017 U.S. Dist. LEXIS 56547 (E.D. Pa. April 13, 2017) (C. Darnell Jones, II, J.)

thai-fountain

 

MAY 2017 BAD FAITH CASES: COURT EXPLAINS HOW BAD FAITH MUST BE PLEADED (Philadelphia Federal)

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In this case, the court outlines the general law concerning both statutory bad faith and contractual bad faith, and how to plead bad faith to survive a motion to dismiss.

Some points of note on the legal overview: (1) The court states that statutory bad faith requires showing some motive of self-interest or ill will. This runs contrary to the case law in Pennsylvania’s Superior Court, and the issue of whether this is an element of bad faith is now pending before Pennsylvania’s Supreme Court in Rancosky.

(2) The court observes case law that “Pennsylvania law … does not recognize a separate breach of contractual duty of good faith and fair dealing where that claim is subsumed by a separately pled breach of contract claim.” The court states (in this uninsured/underinsured motorist case) that, “several courts have held that where the plaintiff alleges that the defendant breached its duty of good faith and fair dealing by denying first party benefits under an insurance policy, the claim is subsumed by the plaintiff’s breach of contract claim premised on the same conduct.”

The court next examines the insured’s complaint to determine the adequacy of the insured’s bad faith claims. The complaint was not clear as to whether the plaintiff was pleading statutory bad faith, contract based bad faith, or both. However, the pleadings were inadequate under any circumstances.

Plaintiff generally described the underlying accident, and then attempted to plead bad faith. The insured only made conclusory allegations that the insurer “acted in bad faith by failing to conduct an adequate and fair investigation, engaging in dilatory claims handling and refusing to pay for losses once its liability became reasonably clear.” No specific facts were alleged to support these generalities. The court instructed that a plaintiff “must ‘describe who, what, where, when, and how the alleged bad faith conduct occurred.’”

The complaint was dismissed without prejudice, giving the plaintiff leave to plead an adequate claim with sufficient factual details by way of an amended complaint.

Date of Decision: April 10, 2017

Mittman v. Nationwide Affinity Ins. Co., No. 16-4658, 2017 U.S. Dist. LEXIS 54220 (E.D. Pa. Apr. 10, 2017) (Pappert, 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: TYING PAYMENT TO RELEASE OF BAD FAITH CLAIMS IS ONLY BAD FAITH IF THAT REQUEST IS PART OF INSURER’S REGULAR PRACTICE; REFUSAL TO EXTEND ONE-YEAR SUIT PERIOD WAS NOT BAD FAITH (Philadelphia Federal)

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The homeowner’s policy at issue provided a one-year period in which to bring suit. Some repair work was identified and paid, but the repairs needed on other sections of the home would go beyond the one-year period. The insured attempted to negotiate an extension or tolling of the one-year period, pending the repairs. As the one-year term was approaching, the insured filed a writ of summons to toll the period and the insurer filed a Rule to File a Complaint.

In response to the insured’s counsel continuing to seek a tolling agreement, the insurer’s “counsel responded that Plaintiff would have to release any bad faith claim … in order for [the insurer] to consider entering into a tolling agreement.” “Plaintiff’s counsel offered to waive any claims of past bad faith in exchange for a tolling agreement which would give Plaintiff an additional year to complete any necessary repairs.” In response, the insurer “sent a status letter reiterating the one-year suit limitation provision and did not respond to Plaintiff’s offer.” Plaintiff then filed a breach of contract and bad faith complaint.

The focus of the bad faith claim was the alleged unreasonable refusal to enter a tolling agreement. However, the pleading did not meet Twombly/Iqbal standards, and was dismissed without prejudice. The most the complaint said was that the insured had a homeowner’s policy, suffered a covered loss for which he received some benefits, and was refused an extension of the one-year suit period. The complaint did not offer any basis from which the court could conclude that the refusal to extend was not made on a reasonable basis.

More interestingly, the court then addressed the issue of the insurer’s tying a release of bad faith claims to its entering a tolling agreement. The insured argued that this violated Pennsylvania’s Unfair Insurance Practices Act (UIPA). The court accepted the Superior Court of Pennsylvania’s view that UIPA violations can be evidence of bad faith.

The regulation at issue “forbids insurers from ‘request[ing] a first-party claimant to sign a release that extends beyond the subject matter that gave rise to the claim payment,’ where it is shown that the insurer makes such requests ‘with a frequency that indicates a general business practice.’” Even though plaintiff alleged that the insurer conditioned its agreement on releasing bad faith claims, he “alleges no facts showing that [the insurer] had a regular practice of forcing insureds to release claims in this way….” Thus, the court could not “consider the potential violation of the regulation as a factor swaying against dismissal.”

Date of Decision: March 3, 2017

Jack v. State Farm Fire & Cas. Co., No. 16-5771, 2017 U.S. Dist. LEXIS 30136 (E.D. Pa. Mar. 3, 2017) (Baylson, J.)

OCTOBER 2016 BAD FAITH CASES: BAD FAITH CLAIM ADEQUATELY PLEADED, HOWEVER, UIPA VIOLATIONS CANNOT STATE A BAD FAITH CLAIM (Middle District)

MARCH 2017 BAD FAITH CASES: STATUTORY BAD FAITH CLAIMS CANNOT BE BROUGHT AGAINST ADJUSTERS; ISSUING PAYMENT CHECK PER POLICY LANGUAGE CANNOT BE BAD FAITH (Pennsylvania Superior Court)

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This case involved coverage for a fire loss on a property where a father and daughter were named insureds. Suit was brought solely by the daughter and her husband, with the father, the insurer, and the claim adjuster named as defendants. The insurer’s loss payment check was issued to both the father and daughter. The daughter and her husband included in their bad faith claims that the insurer intended to wrongly pay 100% of the proceeds to the father; and that there was a conspiracy to this effect among the insurer, the claim adjuster and the father.

On the bad faith issues addressed by the court, the insureds had brought bad faith claims against the adjuster, as well as their insurer. The Superior Court held that statutory bad faith claims can only be made against insurers, and dismissed the claim against the adjuster.

The daughter and her husband also brought a bad faith claim over the manner in which the insurance company issued its check to the insureds, with both the father and daughter on the same check. However, this payment was made consistently with the policy language. The insurer instructed the daughter to have her father (both named insureds) give written consent to the issuance of two separate reimbursement checks, and the insurer was even willing to interplead the funds into court so the father and daughter could determine their entitlement to the funds. However, the daughter and her husband did not proceed on either option, and “[a]s a result, the check could only issue in both [the daughter’s and father’s] names.” Thus, there was no bad faith in issuing one check, in the name of both the father and daughter.

Date of Decision:  March 10, 2017

Brown v. Everett Cash Mut. Ins. Co., No. 1549 WDA 2015, 2017 Pa. Super. LEXIS 161 (Pa. Super. Ct. Mar. 10, 2017) (Lazarus, Solano, Strassburger, JJ.)

 

MARCH 2017 BAD FAITH CASES: BAD FAITH LAW NOT APPLICABLE TO CONDUCT RELATING TO SALE OF AN INSURANCE POLICY (Philadelphia Federal)

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In this case, the court observed the distinction between applicable legal theories addressing conduct before and after an insurance policy is issued. The court observed that pre-sale conduct, if actionable, is subject to Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, not its Bad Faith Statute.

Date of Decision: March 7, 2017

Romero v. Allstate, No. 16-4037, 2017 U.S. Dist. LEXIS 31965 (E.D. Pa. Mar. 7, 2017) (Schmehl, J.)

FEBRUARY 2017 BAD FAITH CASES: INSURER BAD FAITH AT ISSUE IN EVALUATING SETTLEMENT PAYMENT; ADVICE OF COUNSEL NOT AT ISSUE UNLESS ASSERTED (Middle District)

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An insurer sued its appointed defense counsel in connection with counsel’s defense of a UIM claim. The insurer claimed that counsel failed to assure that the UIM arbitration panel was instructed on the limits of insurance ($2 million), and that the carrier was subjected to the risk of having to pay an excess arbitration award of nearly $4 million above policy limits. The UIM plaintiff settled the claim with the carrier, which included receiving the full amount of the arbitration award above policy limits. Defense counsel asserted a defense of contributory negligence based on the insurer’s alleged bad faith handling of the UIM claim; and further argued that the settlement was not entirely for the $ 6 million arbitration award (to which sum it was identical), but included monetary consideration for the UIM plaintiff’s threatened bad faith claim as well.

The court granted partial summary judgment to strike the affirmative defense of contributory negligence, but only to the extent that this defense was based on the insurer’s conduct that was not causally related to the arbitration award. The court accepted counsel’s argument that part of the settlement payment was to get a release for the bad faith claim, and thus was part of the damages at issue. Therefore, it would permit some discovery on the argument that the insurer acted in bad faith in handling the underlying UIM claim, and paid some portion of the settlement to address that issue.

Thus, the Court found that “the fact and extent of [the insurer’s] bad faith handling of the [UIM] claim and concomitant exposure to bad faith liability are directly relevant to the question of the amount of damages it sustained due to [defense counsel’s] conduct. If [the insurer] is successful on its malpractice claim, it will have to prove actual losses that it suffered as a result of Defendants’ negligence. Because [the insurer] did not pay the arbitration award directly, it cannot claim that the excess award is the damages it now seeks. However, if [the insurer] attempts to prove that the settlement payment constitutes actual losses proximately caused by Defendants’ negligence, it must also prove with reasonable certainty what portion of the settlement payment in excess of its policy limits was paid to satisfy the arbitration award. Discovery on [the insurer’s] exposure to bad faith liability is therefore relevant to the scope of damages [the insurer] alleges to have sustained. And because [the insurer’s] bad faith conduct affects the amount of damages sought, the Court will not preclude Defendants from pursuing discovery on … bad faith.”

Next, the court addressed discovery issues.

The carrier had argued that certain documents in its own files were subject to the attorney-client privilege or work product doctrine. In addition, defense counsel sought discovery of the files of the attorney that replaced him in the UIM case.

As to the second category, the court could not rule because the privilege log was inadequate. The privilege log “entries do not contain specific sender and recipient information, and the Attorney Work Product entries do not state the specific party who created the work product. Additionally, the descriptions are too vague to permit the Court to find that each element of the privilege claimed is satisfied. [The insurer] therefore must supplement its privilege log with this information in order for the Court to determine whether the documents are in fact privileged.”

As to the insurer’s own documents, the court found that the work product doctrine applied to claim notes containing the mental impressions and strategies of the insurer’s attorneys and representatives. These notes were authored by an attorney or claim handler of the insurer.

The insurer also sought to withhold documents that were sent by the defendant defense counsel to the insurer regarding post-arbitration strategy. The court found the attorney-client privilege waived once the insurer sued its attorney, and that the attorney himself held the work product privilege, not the insurer.

The court found the carrier did not waive the privilege concerning communications with in-house counsel, and with the outside counsel subsequently retained. The carrier had disclosed a limited privileged document, but the court found this did not constitute waiver of the privilege as to every communication with counsel.

The court further found that the insurer was not asserting an advice of counsel defense, which could waive the privilege. The court observed that “an attorney’s ‘[a]dvice is not in issue merely because it is relevant, and does not necessarily become in issue merely because the attorney’s advice might affect the client’s state of mind in a relevant manner.’” “Rather, ‘[t]he advice of counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney client communication.’” Those circumstances were not present.

Date of Decision: January 20, 2017

N.J. Mfrs. Ins. Co. v. Brady, No. 15-2236, 2017 U.S. Dist. LEXIS 8268 (M.D. Pa. Jan. 20, 2017) (Caputo, J.)