Archive for the 'PA – Lawyer’s – Attorney’s Fees' Category

SEPTEMBER 2017 BAD FAITH CASES: COURT GIVES CLOSE SCRUTINTY TO APPLICATION FOR STATUTORY FEES AND INTEREST: (1) NO INTEREST ON PUNITIVE DAMAGES; (2) NO FEES AND COSTS FOR INADEQUATELY SUBSTANTIATED AND MAINTAINED BILLING RECORDS; (3) RETROACTIVE GUESSING TO RECREATE TIME OF OTHERS OVER A PERIOD OF YEARS, AND FAILURE TO EXPLAIN HOURLY RATE, ADMONISHED AND (5) MATTER REFERRED TO DISCIPLINARY BOARD (Middle District)

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This is a very lengthy opinion, focusing on a successful bad faith plaintiff’s pursuit of statutory interest, attorney’s fees, and costs. The total sought was over 9 times greater than the UIM and bad faith recovery, and the Court scrutinized each time entry invoiced in determining the outcome, which included the Court’s referral of the matter to the Disciplinary Board.

The insured received a $25,000 settlement on his UIM claim, and a $100,000 punitive damages verdict on his bad faith claim. After that verdict, the plaintiff pursued attorney’s fees, statutory interest and costs under the Bad Faith Statute, totaling $1,122,156.43.

Regarding interest, the insured argued that the unpaid balance of $125,000 should bear interest from April 1, 2010 (the date the insured’s claim began) through November 6, 2015 (the date of the jury’s verdict). The insured sought $175,630.70 in total interest. The Court found this calculation flawed for multiple reasons. (1) The Court had previously found that the appropriate timeframe was June 21, 2011 through June 20, 2014. (2) The insured sought interest on the $100,000 punitive damage award, in addition to the $25,000 UIM payment. Such a request for interest on punitive damages is improper, as “there is no support either in the statute or in the applicable case law for such interest.” (3) The insured’s counsel failed to deduct the principal balance in calculating interest. (4) Using the prime rate of 3.25%, plus 3% statutory super-interest on the underlying UIM claim, the Court awarded $4,986.58 for interest.

In addressing attorney’s fees and litigation expenses, the Court reiterated that the purpose of an award of attorneys’ fees under § 8371 is “to make the successful plaintiff whole by allowing the plaintiff to recoup funds unnecessarily expended to force an insurance company to pay that which it should have paid.” In reviewing the request for fees and costs, the Court found that billing records were not properly maintained. Rather, one attorney reconstructed all time entries for every attorney, paralegal, and IT staff member billing time on the matter over a six-year period. This attorney did so by guessing as to how long each task took. The Court repeatedly referenced the word “guess” in the Opinion. (E.g., the Court stated: “In addition to the unconscionable number of vague entries which have been billed for (or more accurately guessed about) by the plaintiff’s counsel, there also appear to be a number of duplicative entries in the bad faith time logs for which no explanation is provided.”)

The Court scrutinized every entry billed, finding “that a vast number of the entries for paralegal services on the UIM claim should be disallowed as vague, excessive, duplicative or unnecessary.” Thus, the Court disallowed 84 hours out of a total of 106.5 hours submitted for paralegal services on the UIM claim, a 79% reduction. The Court found the same problems with respect to the paralegal hours billed for the bad faith claim, and disallowed 177.75 hours out of a total of 198 hours submitted, for a 90% reduction.

The Court found that entries submitted for the attorneys’ services also suffered from problems of vagueness and being duplicative. The Court stated that the “[insured’s] counsel . . . failed to meet even the most basic burden of providing the rate(s) charged for the[] entries, let alone establishing the reasonableness of such rate(s).” For the UIM claim, the Court disallowed all but 4 attorney hours from the 99 submitted, a 96% reduction. With respect to the bad faith claim, counsel submitted 1,984 attorney hours. The Court disallowed 1,662.5 of those hours, an 84% reduction. The Court additionally reduced the hours billed by the IT staff by 71%.

Lastly, the Court admonished counsel for failing to provide any justification for an hourly rate of $420. The Court forwarded a copy of its opinion to the Disciplinary Board of the Supreme Court of Pennsylvania.

Date of Decision: August 29, 2017

Clemens v. New York Cent. Mut. Fire Ins. Co., No. 3:13-2447, 2017 U.S. Dist. LEXIS 138557 (M.D. Pa. Aug. 29, 2017) (Mannion, J.)

AUGUST 2017 BAD FAITH CASES: COURT ADDRESSES NON-STATUORY PUNITIVE DAMAGE, SUPER-INTEREST AND ATTORNEY’S FEES CLAIMS; DIFFERENCE BETWEEN CONTRACTUAL DUTY OF GOOD FAITH AND BREACH OF FIDUCIARY DUTY; NO STATUTORY RIGHT TO WITNESS FEES; AND ADEQUACY OF DAMAGE PLEADINGS (Philadelphia Federal)

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This case provides an explanation of the distinct rights to relief under claims of breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. Ann. § 8371.

After a severe storm damaged the insured’s home, pool, and automobile, the insurer’s agent initially estimated the cost of repairs at $119,111.16 actual cash value and $131,185.96 replacement cost value. The insurer paid $119,111.16. No contractor agreed to make the repairs for that amount. One contractor gave the insured an estimate of $288,614.29 for the repairs. The insurer increased its loss estimate to $128,778.67 actual cash value and $141,166.41 replacement cost value.

The insured then sued for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty (Count II), and statutory bad faith (Count III). The insurer moved to strike the punitive damage claims in Counts I and II. The Court agreed, explaining that “[t]he law in Pennsylvania has always been that punitive damages cannot be recovered for breach of contract.”

The insurer also moved to strike the insured’s claims in Count II, arguing that Pennsylvania law does not recognize these distinct causes of action where a breach of contract claims is already alleged. The Court dismissed the insured’s breach of the implied covenant of good faith and fair dealing claim with prejudice, as it recognized that such claims “are subsumed in a breach of contract claim.”

As to the breach of fiduciary duty claim, the Court held that while a fiduciary relationship does not exist as a matter of law between the insurer and the insured, an insured could plead such facts that give rise to such a relationship. Thus, the Court dismissed that claim without prejudice, giving the insured the ability to plead such facts.

The insurer also moved to strike references to attorneys’ fees in Counts I and II. The Court agreed, finding that “there can be no recovery of attorneys’ fees . . . absent an express statutory authorization . . . .” The motion to strike also requested the Court to strike the insured’s request to recover interest at the prime rate plus three-percent in Counts I and II. Noting that only Pennsylvania’s bad faith statute authorizes such a super-interest remedy, the Court struck these references.

Additionally, the insurer argued that the Court should strike references to the insured’s alleged damages in Counts I and II because the complaint failed to allege sufficient facts to show that the damages resulted from the alleged breach of contract. The Court disagreed, and found that “details about [the insured’s] damages undoubtedly relate to his claim for breach of contract and, if proven, will be material to damages calculations.” Thus, the insured’s references to his alleged damages were not immaterial, impertinent, or scandalous, and the Court declined to strike them.

Lastly, the insurer sought to dismiss the insured’s request for expert witness fees in Count III (the bad faith claim). Citing prior case law from the Pennsylvania Superior Court, the Court held that the plain language of Section 8371 precludes recovery of expert witness fees, and therefore struck the insured’s request for such fees.

Date of Decision: August 14, 2017

Aaron v. State Farm Fire and Casualty Company, No. 17-2606, 2017 U.S. Dist. LEXIS 128994 (E.D. Pa. Aug. 14, 2017) (Pappert, J.)

 

 

 

MARCH 2016 BAD FAITH CASES: PHILADELPHIA COURT (1) APPLIES PENNSYLVANIA LAW TO STATUTORY BAD FAITH CLAIM AFTER CONDUCTING CHOICE OF LAW ANALYSIS; (2) FINDS GENUINE ISSUE OF MATERIAL FACT EXISTED AS TO WHETHER INSURER’S CLAIMS HANDLING OVER PAYMENTS OF DEFENSE COUNSEL FEES AMOUNTED TO BAD FAITH; (3) DISMISSES INSURED’S BREACH OF FIDUCIARY DUTY CLAIM AFTER FINDING IT WAS REDUNDANT OF BAD FAITH CLAIM (Philadelphia Commerce Court)

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In IMS Health Inc. v. Zurich American Insurance Company, the insured brought action against its insurer.  Suit previously had been filed in Philadelphia’s federal district court against the insured for tortious interference with contract and unfair competition under Pennsylvania common law. The insured tendered the defense, and the insurer agreed to defend the Philadelphia federal action under a reservation of rights. After an attorney fee rate dispute between the insured and the insurer, the insurer filed a declaratory judgment action in the United States District Court for the District of Connecticut concerning coverage as well as rates payable to the insured’s two sets of attorneys. Shortly thereafter, the insured filed the instant action in the Philadelphia Commerce Court against the insurer, and both parties filed partial motions for summary judgment in the Commerce Court.

The Commerce Court first addressed the insured’s claim that application of a 10% discount by the insurer on already reduced rates predetermined by the insurer constitutes a breach of the duty to defend and is bad faith. As a question of fact existed as to whether the insurer applied the discount improperly, the court refused to grant summary judgment on this issue.  Next, the court found that Connecticut law applied on the issue of whether the insurer could seek recoupment of attorney’s fees paid to defend the insured, a remedy not available under Pennsylvania law.

The court reached a different decision on the applicability of Pennsylvania law on bad faith, on the issue of bad faith in claims handling in the non-payment of defense costs for the Philadelphia federal action. The insurer argued that Connecticut law should apply to the bad faith claim, while the insured argued that Pennsylvania law should apply. The court found that a true conflict existed, as Connecticut recognizes a common law bad faith claim based on breach of an implied covenant of good faith and fair dealing as well as two statutory claims, but does not recognize a tort of bad faith based on claims mishandling. However, Pennsylvania provides for a private cause of action for bad faith insurance disputes under its bad faith statute, which can include a bad faith claim for claims handling.  In this case, the claims handling at issue was the calculation and payment of attorneys’ fees to the insured’s defense counsel in the federal action.

After conducting a conflict of law analysis, the court found Pennsylvania had the greater interest in applying its bad faith statute to “curtail certain bad faith acts by insurers” by “formally imposing a duty of good faith on insurers based on the apparent determination that such a provision was necessary to deter bad faith.” The court went on to deny summary judgment under Pennsylvania law, as genuine issues of material fact existed as to whether the insurer’s claims handling concerning the attorney’s fees amounted to bad faith.

Finally, the court granted the insurer’s motion for summary judgment on the breach of fiduciary duty claim filed by the insured, reasoning that Pennsylvania law “does not recognize a separate tort-law cause of action for breach of fiduciary duty against an insurer” aside from certain exceptions, and that Pennsylvania courts have dismissed claims for breach of fiduciary duty in the insurance context as “duplicative of statutory bad faith claims.” Here, the insured’s claim for breach of fiduciary duty arose from the same allegations of misconduct concerning the claims handling as to attorneys’ fees. Accordingly, the breach of fiduciary duty claims was found to be redundant of the bad faith claim and dismissed.

Date of Decision:  December 15, 2015

IMS Health Inc. v. Zurich Am. Ins. Co., April Term 2014, NO. 2046, 2015 Phila Ct. Com. Pl. LEXIS 387 (Phila. C.C.P. December 15, 2015) (McInerney, J.) (Commerce Program)

DECEMBER 2015 BAD FAITH CASES: (1) INSURED CANNOT PLEAD ATTORNEYS’ FEES IN BREACH OF CONTRACT CLAIM STANDING ALONE; (2) NO SEPARATE ACTION FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; AND (3) BOILERPLATE ALLEGATIONS OF STATUTORY BAD FAITH ARE GOING TO BE DISMISSED, AT BEST WITHOUT PREJUDICE, WHERE NO SUPPORTING FACTS ARE ALLEGED (Philadelphia Federal)

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In Soldrich v. State Farm Fire & Casualty Company, the court made three relevant holdings:

  1. An insured cannot include a claim for attorneys’ fees in its breach of contract count, standing alone, on the basis that attorneys’ fees may be awarded for violation of the bad faith statute. Such a claim can only be pleaded in the bad faith statute.
  2. An insured cannot plead a distinct cause of action for the breach of the implied covenant of good faith and fair dealing separate from a breach of contract claim, and where the allegations and relief sought are identical to the statutory bad faith claim.
  3. Statutory bad faith claims will be dismissed without prejudice where the complaint alleges a boilerplate litany of offensive conduct which is conclusory in nature, and fails to plead any substantiating facts.

In this case, the ineffective recitation was: “Plaintiff alleges that Defendant has failed to properly adjust Plaintiff’s claim and has acted in bad faith by (a) failing to pay the full amount owed to him under the policies; (b) failing to timely pay the amounts owed; (c) scheming to defraud him; (d) recklessly disregarding its obligations under the policy; (e) accepting premiums from him without intending to pay monies owed for covered losses; (f) fraudulently telling him that the losses were not covered despite evidence that they were; (g) claiming that losses were due to uncovered causes despite having no evidence to support that contention; (h) claiming that losses were due to uncovered causes despite evidence to support a covered loss; (i) unilaterally denying covered losses without proper investigation; and (j) falsely misrepresenting its responsibilities under the policy. Comp. ¶ 56. Furthermore, Plaintiff alleges that Defendant unreasonably and unjustifiably delayed the handling of Plaintiff’s insurance claim and knew or disregarded the fact that it was doing so. Id. ¶¶ 57-59. This failure to process the Plaintiff’s claims in a reasonable matter, Plaintiff alleges, amounts to bad faith by the Defendant. Id. ¶¶ 61.”

Date of Decision:  November 25, 2015

Soldrich v. State Farm Fire & Cas. Co., No. 5:15-cv-01438, 2015 U.S. Dist. LEXIS 159125 (E.D. Pa.  November 25, 2015) (Leeson, J.)

JULY 2015 BAD FAITH CASES: (1) INSURANCE BAD FAITH STATUTE DOES NOT APPLY TO SURETIES; (2) PRINCIPLES ALLOWING AWARD OF ATTORNEY’S FEES FOR BAD FAITH CONDUCT IN BRINGING/DEFENDING/PURSUING LITIGATION CANNOT BE USED TO END RUN THE INSURANCE BAD FAITH STATUTE (Philadelphia Federal)

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In Board of Trustees, Roofers Union Local 30 v. Liberty Mutual Insurance Company the court reiterated, with thorough citation of authority, that Pennsylvania’s insurance bad faith statute does not apply to sureties.

The court also made clear that a plaintiff cannot use the argument that it is entitled to attorney’s fees under a bad faith, wanton, oppressive, and vexatious conduct theory, as such extraordinary relief from the “American Rule” that each side pays its own attorney’s fees in the absence of a statute or contract allocating fees, addresses an entirely different context than the insurance bad faith statute. This exception, as set forth in federal case law cited by the court, “deals with either bad faith initiation/defense of the lawsuit or conduct of the party or its attorney during the course of the litigation—it is not intended as an end run around the insurance bad faith statutes or to punish bad faith that does not involve willful abuse of the judicial process.”

Though not mentioned in this federal opinion discussing Third Circuit case law on awarding attorney’s fees in this limited context, the same argument would likely apply to Pennsylvania statutes 42 Pa.C.S. §§ 2503(6)(7)(9), on the right to receive attorney’s fees as taxable litigation costs:

“The following participants shall be entitled to a reasonable counsel fee as part of the taxable costs of the matter: (6) Any participant who is awarded counsel fees as a sanction against another participant for violation of any general rule which expressly prescribes the award of counsel fees as a sanction for dilatory, obdurate or vexatious conduct during the pendency of any matter.   (7) Any participant who is awarded counsel fees as a sanction against another participant for dilatory, obdurate or vexatious conduct during the pendency of a matter. (9) Any participant who is awarded counsel fees because the conduct of another party in commencing the matter or otherwise was arbitrary, vexatious or in bad faith.”

Date of Decision:   July 14, 2015

Bd. of Trs. v. Liberty Mut. Ins. Co., CIVIL ACTION NO. 15-2820, 2015 U.S. Dist. LEXIS 91723 (E.D. Pa. July 14, 2015) (Buckwalter, J.)

MAY 2015 BAD FAITH CASES: ATTORNEY’S FEES ONLY AVAILABLE IF THERE IS BAD FAITH; NO SEPARATE CLAIM FOR BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING; FACTS PLEADED MET PLAUSIBILITY STANDARD; COMPENSATORY AND CONSEQUENTIAL DAMAGES NOT AVAILABLE UNDER BAD FAITH STATUTE; AND PUNITIVE DAMAGES NOT AVAILABLE IN ACTION TO COMPEL SPECIFIC PERFORMANCE OF AN APPRAISAL (Philadelphia Federal)

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In St. Clair v. State Farm Fire & Casualty Company, the court stated the following principles and legal conclusions:

 

  1. A plaintiff can recover attorney’s fees under the bad faith statute for a bad faith breach of an insurance contract, but cannot recover attorney’s fees for the simple breach of contract claim in the absence of bad faith, and claims for attorneys’ fees in such counts will be stricken.

 

  1. There is no claim for violation of a duty of good faith and fair dealing that can be pleaded outside a breach of contract claim, rather it is part of the breach of contract claim.

 

  1. Where an insured supports her breach of implied duty of good faith claim with the same allegations that she uses to support her statutory bad faith claim “the Third Circuit has held that ‘a party is not entitled to maintain an implied duty of good faith claim where the allegations of bad faith are “identical to” a claim for “relief under an established cause of action.”’” Because the insured supported her implied duty of good faith claim with allegations of bad faith that were identical to those used to support the statutory bad faith claim, the dismissed the action on this ground as well. [Note:  It is clear that statutory bad faith and contractual bad faith may provide different remedies for the same conduct, so it is not clear if the court is stating that a breach of good faith claim untethered to a contract claim cannot stand because there is another cause of action to address that; or whether the court is stating that a breach of the contractual duty of good faith and fair dealing cannot stand if based on the same conduct as a statutory bad faith claim.]

 

  1. The Twombly Iqbal plausibility standard was met where the insured pleaded (i) she obtained a policy from the insurer that covered fire damages, (ii) she had a fire resulting in fire damage during the policy period, (iii) the insurer refused to pay the entire loss, (iv) that the insurer told her the loss was not covered but produced no evidence supporting that position, (v) that the insurer denied full payment while refusing to participate in the contractually required appraisal process on the basis that it did not have to participate in the appraisal process prior to agreeing to the scope of damage, contrary to the contract, (vi) that the insurer “fraudulently created values and assigned them to the covered losses to increase its own profitability, (vii) that the insurer accepted premiums intending not to pay out on covered losses; (viii) that the insurer denied the claim without proper investigation; and (ix) that the insurer “falsely misrepresented its responsibilities under the policy.”

 

  1. Compensatory and consequential damages are not available under the bad faith statute.

 

  1. Punitive damages are not available for a claim seeking to compel specific performance of the appraisal process under an insurance contract.

 

Date of Decision: May 6, 2015

St. Clair v. State Farm Fire & Cas. Co., CIVIL ACTION No. 15-0538, 2015 U.S. Dist. LEXIS 59117 (E.D. Pa. May 6, 2015) (Yohn, J.)

MARCH 2015 BAD FAITH CASES: SUPERIOR COURT UPHOLDS BAD FAITH PUNITIVE DAMAGES AWARD, AND PERMITS INCLUSION OF ATTORNEY’S FEES AS PART OF BASE NUMBER UPON WHICH TO CALCULATE PUNITIVE DAMAGES (Superior Court of Pennsylvania, non-precedential)

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In Davis v. Fidelity National Title Insurance Company, a non-precedential decision of the Superior Court, the insured brought breach of contract and bad faith claims against its title insurer.  After a lengthy process from the time the claim was made to the time the insurer paid another party claiming an ownership interest to clear title, the insured alleged it suffered lost profits, and that the insured acted in bad faith by not addressing the claim promptly.  It was almost 5 years between the date the claim was made to the carrier, and the date payment was made to the third party to clear title.

The trial court awarded $224,760 in compensatory damages (combining increased buildings costs on the project and lost profits), which the Superior Court affirmed, agreeing that the future damages were not so speculative as to preclude recovery.  On the bad faith claim, the trial court further awarded $158,450 in attorney’s fees and $1,572,909.24 in punitive damages.  The insurer did not challenge the bad faith claim as such, but challenged the amount of the punitive damages award based upon (1) that it was excessive under U.S. Supreme Court standards as set forth in State Farm Mutual Automobile Insurance Company v. Campbell and its progeny; and (2) that the attorney’s fee award should not have been included in the compensatory damage base number on which to calculate punitive damages.  The Superior Court rejected both arguments.

The court cited a number of cases that included attorney’s fees in the compensatory damage base upon which punitive damages could be determined, rejecting the insurer’s argument on that point.  Further, including the attorney’s fees with the compensatory damages, the punitive damages award was a 4:1 ratio with the compensatory damages, well within Campbell’s constitutional parameters.  Moreover, the court reviewed the factors Campbell considered in determining punitive damages, focusing on the time delays as falling within the degree of reprehensibility factor (the most important factor to consider), and citing Pennsylvania’s Unfair Insurance Practices Act and Unfair Claims Settlement Practices Act regulatory standards in evaluating this factor.  The court stated that “it is difficult to find an area in which [the insurer] acted in conformance with accepted statutory, regulatory or internal standards.” It affirmed the bad faith award of punitive damages given by the trial court.

Date of Decision:  March 18, 2015

Davis v. Fidelity National Title Insurance Company, Superior Court of Pennsylvania, No. 672 MDA 2014 (Pa. Super. Ct. March 18, 2015) (Ott, Bowes, Stabile, JJ).

The trial court decision is Davis v. Fid. Nat’l Ins. Co., 2010-CV-8868, COMMON PLEAS COURT OF LACKAWANNA COUNTY, PENNSYLVANIA, 2014 Pa. Dist. & Cnty. Dec. LEXIS 225 (C.C.P. Lacka. March 28, 2014) (Minora, J.)

MARCH 2015 BAD FAITH CASES: WHERE MATERIAL ISSUES OF FACT EXIST OVER ALLEGED MISREPRESENTATIONS BY INSURED, COURT WOULD NEITHER DISMISS THE INSURED’S BREACH OF CONTRACT CLAIM OR THE INSURER’S STATUTORY FRAUD CLAIM; HOWEVER, STATUTORY BAD FAITH CLAIM COULD BE DISMISSED (Philadelphia Federal)

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In Henriquez-Disla v. Allstate Property & Casualty Insurance Company, the court addressed a battle of bad faith claims, the insured alleging breach of contract and bad faith for claim denials; and the insurer alleging insurance fraud in seeking dismissal of the insureds’ claims, and in pursuing affirmative relief under the insurance fraud statute, 18 Pa. C.S.A. § 4117(a)(2).  The insured and his wife made certain misstatements in applying for insurance and in seeking coverage for losses from a fire and earlier theft.  The insured disputed the materiality of these misstatements and raised issues as to intent, focusing on either a language barrier issue or that the misstatements were explicable, or de minimis in nature.  The court went through each alleged misrepresentation in detail, and concluded that the insurer’s motion for summary judgment would be granted on the bad faith claim, but that the breach of contract claim could proceed.  On the other end, the court denied the plaintiffs’ summary judgment on the insurance fraud claim, and allowed that claim to proceed as well.

As to the bad faith claim, this was “premised on the denial of benefits, the investigatory methods utilized, and [the carrier’s] alleged use of [the insured’s] language barrier as a pretext to deny coverage.” The insurer countered that the insureds did not produce any evidence that the carrier acted unreasonably or in bad faith.  The insureds attempted to counter this, by arguing that the carrier had admitted the insureds were not responsible for the theft or fire for which they were making claims.

Observing that an insurer’s investigation need not be flawless, and that negligence is not enough to show bad faith, the court agreed that the plaintiff failed to meet the burden of showing that the insurer lacked a reasonable basis for denying the claims. The court focused on the inconsistencies in the insureds’ statements, and that “there were sufficient contradictions in the testimony to justify [the insurer’s] decision. The court cited the principle that: “An insurer ‘may defeat a bad faith claim “by showing that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”’”

As to the contract claim, the insurer sought summary judgment on the basis that the policy should be found void for material misrepresentation. The court, however, refused to find the record so clear on material misrepresentation that this count could be dismissed. The court found “that it would be inappropriate on the current record to find as a matter of law that the inconsistencies … are material misrepresentations. As previously stated, innocent mistakes are insufficient to warrant summary judgment. …. As explained, many of the inconsistencies may be the product of miscommunication, misunderstanding, or a language barrier.”

However, this same lack of clarity also preserved the insurer’s fraud claim against the insured.  To make out a claim under section 4117, the alleged false claimant must “knowingly or with the intent to defraud the insurer present false, incomplete or misleading information regarding a material fact.” The court had ruled earlier a jury could find that the “inconsistencies in Plaintiffs’ statements may be the product of miscommunication, misunderstanding, a language barrier, or an attempt to mislead the insurer.”  Thus, summary judgment was inappropriate.

The court did go on to make some significant observations on the insurance fraud statute.  The court found the fact that the insureds themselves had no connection to the theft or fire for which they sought coverage insufficient to escape the fraud statute’s scope. Rather, the statute does not require them to be responsible for the loss itself.  Rather, if an insured makes a false statement concerning a subject relevant and germane to the insurer’s investigation as it was proceeding, that could be a material misrepresentation under the statute, which could afford the insurer relief. Thus, in this case, “[s]tatements regarding the [insureds’] whereabouts at the time of the losses, how they learned of the losses, and resultant damages, among others, are clearly germane to the insurer’s investigation.”

Next, the court refused to grant the insureds summary judgment on the basis that the insurer failed to allege damages. The court recognized that the damages would not be known until after the trial had concluded, if the insurer were successful, and that such a damages determination “is routinely left for the court after a verdict has been returned in favor of the insurer. At that point, the counter-claimant presents the court with a request for expenses, costs and fees.”

Finally, the court observed that the parties disputed the insurer’s burden of proof under the fraud statute, i.e., preponderance of the evidence vs. clear and convincing evidence. The court stated the statute was silent on this issue, and courts were split on the issue.  The court instructed the parties to do further briefing, as this would be an issue at trial. The court specifically directed the parties to address a Pennsylvania Superior Court case applying the clear and convincing evidence standard when an insurer is seeking to void a policy ab initio for fraud, and a 1998 district court case which had applied the preponderance of the evidence standard to section 4117, observing “that the legislature could have adopted a clear and convincing standard but did not….”

Date of Decision: February 10, 2015

Henriquez-Disla v. Allstate Property & Casualty Insurance Company, CIVIL ACTION NO. 13-284, 2015 U.S. Dist. LEXIS 15699 (E.D. Pa. February 10, 2015) (Hey, U.S.M.J.)

FEBRUARY 2015 BAD FAITH CASES: COURT DISMISSES BAD FAITH CLAIM TO THE EXTENT IT SOUGHT EMOTIONAL DAMAGES UNDER THE BAD FAITH STATUTE, FINDING THE PENNSYLVANIA STATUTE PRESCRIBES SPECIFIC REMEDIES (Middle District)

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In Hoffman v. State Farm Fire & Cas. Co., plaintiffs brought suit alleging a claim of breach of insurance contract and a statutory bad faith claim.  Plaintiff purchased a homeowners’ insurance policy from the insurer, after which a fire rendered the home uninhabitable.   The firefighters at the scene of the fire concluded the incident was accidental and electrical in origin.  The loss was immediately reported to the insurer, who then began a year-long investigation into the cause and nature of the fire.  Plaintiffs alleged this investigation unreasonably cast suspicion upon them, and caused an unnecessary delay in the resolution of the claim.  Furthermore, the insurer’s investigator removed electrical boxes and writing from the home without the homeowners’ permission.  The lengthiness of the investigation forced the plaintiffs to seek alternative housing, which they allege the insurer did not assist in obtaining, forcing them to live nearly 50 miles from their children’s school.  Furthermore, the insurer delayed its payments of plaintiffs’ $150,000 claims, making an initial payment of only $59,000, and never paying the full value of the claim.

After plaintiffs filed suit, the insurer filed a motion to dismiss some of the claims set forth in the complaint.  Specifically, the insurer sought dismissal of a claim for attorney’s fees based on the breach of contract claim, dismissal of any claim for emotional distress based on the bad faith actions of the insurer, dismissal of the breach of contract claim for inadequately describing the damages sought by plaintiff, and dismissal of the bad faith claim in its entirety due to failure to state a claim.

The Magistrate Judge recommended granting the motions to dismiss as to the attorney’s fees associated with the breach of contract claim, and any claim for emotional distress on the basis of the insurer’s bad faith, but denying the motion as to all other requests.  In his opinion, the Magistrate Judge determined that under Pennsylvania law, attorney’s fees are not recoverable in a contract action absent an explicit provision allowing for such damages in the original contract.  Furthermore, no claim for pain, suffering, or emotional distress is permitted under the bad faith statute.  Rather, the statute explicitly prescribes the relief available should an insurer act in bad faith, allowing for an award of interest on the amount of the claim from the time the claim was made at a prime rate of interest plus 3%, punitive damages, and courts costs and attorney fees.  Therefore, damages for pain, suffering, and emotional distress simply cannot be recovered under the statute.  The District Court adopted the report and recommendation, granting the motion to dismiss only to the attorney’s fees associated with the breach of contract claim, and emotional distress damages based on bad faith actions brought against the insurer under the bad faith statute.  By contrast, some courts have held that emotional distress claims are available for common law breach of contract based bad faith actions, under Birth Center.

Date of Decisions: December 10, 2014 and January 21, 2015

Hoffman v. State Farm Fire & Cas. Co., Civil No. 4:14-CV-1978, 2014 U.S. Dist. LEXIS 180870 (M.D. Pa., Dec. 10, 2014) (U.S.M.J. Carlson) adopted by Hoffman v. State Farm Fire & Cas. Co., Civil No. 4:14-CV-1978, 2015 U.S. Dist. LEXIS 6701 (M.D. Pa., Jan. 21, 2015) (Brann, J.).

JULY 2014 BAD FAITH CASES: BERKS COUNTY TRIAL JUDGE AWARDS $18,000,000 IN PUNITIVE DAMAGES AND $3,000,000 IN ATTORNEY’S FEES AND COSTS (Berks County Court of Common Pleas)

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Following in temper the trial court judges’ decisions in Hollock v. Erie Insurance Exchange, 54 Pa. D.&C. 4th 449 (C.C.P. Luzerne 2002), and Corch Construction Company v. Assurance Company of America, 64 Pa. D.&C. 4th 496 (C.C.P. Luzerne 2003), a Berks County Judge has issued a decision imposing $18,000,000 in punitive damages, and $3,000,000 in attorney’s fees and costs, against an insurer for section 8371 bad faith.

In Berg v. Nationwide Mutual Insurance Company, after reversal and remand from a broad bad faith opinion in the Superior Court, Judge Sprecher’s finding of facts and discussion describe an auto damage property claim that could have been resolved for a $25,000 payment for the vehicle’s total loss.  Instead, the carrier was found to have paid $3,000,000 in legal fees to support the propriety of its decision that the car could have been repaired for half that sum. The litigation is over 15 years old, with the dispute starting earlier, and the plaintiff died of cancer prior to this judgment being entered, a fact mentioned to close the Court’s decision.

The Court found as fact numerous examples of bad faith conduct, beginning with the reversal of the appraiser’s initial position to pay the damages as a total loss, subsequent failures to disclose information about the vehicle’s repair and safety condition (including life threatening information), abusing the discovery and litigation process, failing to negotiate in good faith, violating the Unfair Insurance Practices Act, and paying a disproportionate sum in defending the case. The Court looked closely at the experts who examined the vehicle, and those who testified about claims handling practices in evaluating bad faith.  At its essence, however, was the Court’s finding that that the carrier did not go to these lengths simply to defeat Ms. Berg’s claim in this single dispute. Rather, the Court found, that the carrier’s conduct was part of an overall strategy regarding all of its insureds’ claims for $25,000 or less; a strategy expressly condemned by the Superior Court in Boneberger.

The Court found that this strategy was intended to send a message to insureds and the plaintiffs’ bar that it was not worth their while to bring suit against the carrier in cases worth $25,000 or less.  To quote the Court:

“What Defendant managed to do was send the ultimate message to Plaintiffs, their attorney, and the Plaintiffs’ bar in smaller cases of $25,000 or less. It screamed to the litigation world that it is “a defense minded carrier in the minds of the plaintiff legal community.” It fully accomplished its goal of broadcasting its litigation avoidance strategy. Simply put, what Plaintiff, and more importantly, what lawyer in his right mind, will compete with a conglomerate insurance company if the insurance company can drag the case out 18 years and is willing to spend $3 million in defense expenses to keep the policyholder from getting just compensation under the contract. Its message is 1) that it is a defense minded carrier, 2) do not mess with us if you know what is good for you, 3) you cannot run with the big dogs, 4) there is no level playing field to be had in your case, 5) you cannot afford it and what client will pay thousands of dollars to fight the battle, 6) so we can get away with anything we want to, and 7) you cannot stop us.”

In making its $18,000,000 punitive damages award, the court considered Pennsylvania’s criteria for evaluating a punitive damages claim: the character of the act; the nature and extent of the harm; and the wealth of the defendant.  The Court found that these factors mirrored the U.S. Supreme Court’s “guideposts” on punitive damages: the degree of reprehensibility of the defendant’s conduct; the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

On the issue of reprehensibility, the court was most troubled by its finding of the life and safety risks to the insured’s in continuing to drive the vehicle, and that the defendant “knew that the vehicle was returned to Plaintiffs with hidden structural repair failures or in the alternative, … [but] Defendant did not care if the frame and all other repairs it required were done properly, by [the] body shop. Both scenarios equate to acts of omission or commission in bad faith against the Plaintiffs.” The court also focused on the scorched earth litigation policy, as an institutional policy.  It found the $18,000,000 represented no financial jeopardy to the insurer, constituting only 0.2% of the $9 billion in its excess Statutory Surplus.

The $3,000,000 in attorney’s fees awarded to plaintiff’s contingent fee counsel approximated the fees paid to defense counsel over the life of the litigation. The Court looked at the hours counsel had spent in over a decade on the complex litigation, that counsel themselves had advanced all legal fees and costs with no compensation over that time, and that counsel persevered while being “led through a murky, tumultuous sea of litigation facing deadly obstacles every stroke of the way,” but stayed with the case and its risks, even “when hit between the eyes by Defendant’s insurmountable defense strategy….” Given all of the facts recited in the Court’s ruling, as well as the foregoing, Judge Sprecher stated that: “in the interest of fundamental fairness this court is reluctant to award counsel fees to the Plaintiffs in any amount less than Defendant paid its own attorneys who were paid timely and without risk.”

Date of Decision:  June 12, 2014

Berg v. Nationwide Mutual Insurance Company, No 98-813 (C.C.P. Berks June 12, 2014) (Sprecher, J.)

Our thanks to the Tort Talk Blog for bringing this case to our attention, and for posting a copy of the Opinion.

We would also like to congratulate Daniel E. Cummins of Tort Talk for being awarded PDI’s annual award as Distinguished Defense Counsel.  Well done!