Archive for the 'Litigation Conduct Claims' Category

AUGUST 2008 BAD FAITH CASES
INSURER DID NOT ACT IN BAD FAITH MERELY BY INITIATING A DECLARATORY JUDGMENT ACTION WITH REGARD TO A LEGITIMATE COVERAGE ISSUE (Philadelphia Federal)

Published on August 4, 2008 in Litigation Conduct Claims. Closed
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In Victoria Insurance Company v. Li He Ren  the insurer brought a motion to dismiss in the United States District Court for the Eastern District of Pennsylvania after bad faith crossclaims were brought against it for seeking a declaratory judgment that it had no duty to defend or indemnify the insured in a tort action filed against the insured.  The underlying state action involved an injury to an ironworker on a construction site.  The injured worker was not the insured’s employee, but was an employee of an independent contractor retained by one of the insureds.  The insurer retained counsel to defend, yet at the same time instituted a declaratory judgment asserting that it had no duty to defend or indemnify.  The insurer relied on endorsements in the policy, one which excluded coverage for bodily injury to an employee or independent contractor of the insured, and another which asserts that there is no policy coverage in this situation to the additional insured part.            

The insured filed an answer to this declaratory judgment,  and alleged bad faith for filing the declaratory judgment action which allegedly raised inaccurate and baseless  coverage defenses. Specifically,  the insured argued that  reliance on the coverage exclusion for claims involving injury to an independent contractor was unreasonable.  The insurer filed a motions to dismiss because it is not bad faith to litigate legitimate coverage issues. 

The court stated that an insurer does not act in bad faith merely by initiating a declaratory judgment action.  The insurer did not act in bad faith by investigating and litigating issues of coverage.  In addition, the court  found that  reliance on the exclusion in the policy relating to injuries to an independent contractor was reasonable.  Therefore, the court found that the insureds failed to state a bad faith claim and  granted the insurer’s motion to dismiss the bad faith counterclaims. 

Date of Decision: June 9, 2008

Victoria Ins. Co. v. Li He Ren, 2008 U.S. Dist. LEXIS 44674 (E.D. Pa. June 9, 2008)(Padova, J.)

J.M.A.
    

JANUARY 2007 BAD FAITH CASES
INSURED MAY PRESENT EVIDENCE OF “BAD FAITH CONDUCT DURING LITIGATION” UNDER ORIGINAL CLAIM FOR BAD FAITH (Middle District)

Published on January 3, 2007 in Litigation Conduct Claims. Closed
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In Javorski v. Nationwide Mutual Insurance Company, the insured sought to amend her complaint to include a count for the insurer’s bad faith conduct during the litigation.  The motion was based on the Pennsylvania Superior Court case Hollock v. Erie Insurance,  which held that a carrier could be liable for bad faith conduct during the bad faith litigation.  The U.S. District Court denied the Motion.  According to the court, there was no need to amend the Complaint to add the “bad faith during litigation” allegations.  They were already encompassed by the insured’s original Count for bad faith under the Pennsylvania bad faith statute.  It should be noted that the decision was based in large part on the liberal “notice” pleading standards of federal court.  A litigant in federal court does not need to provide a detailed factual basis for bad faith in his/her complaint.  A litigant in state court in Pennsylvania would likely need to amend his/her complaint under the fact-based pleading standard.  However, under this court’s reasoning, a state court would likely allow the amendment.

Date of Decision: November 30, 2006.

Javorski v. Nationwide Mutual Insurance Company, United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-1071 (M.D. Pa. November 30, 2006) (Conaboy, J.).
    

SEPTEMBER 2006 BAD FAITH CASES
SUPREME COURT LETS LOWER COURT RULING STAND, PERMITTING BAD FAITH CLAIMS FOR CONDUCT DURING BAD FAITH LITIGATION, & 10 to 1 PUNITIVE DAMAGES AWARD (Supreme Court)

Published on September 2, 2006 in Litigation Conduct Claims. Closed
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In Hollock v. Erie Insurance Exchange, the Supreme Court had granted an appeal to address two important issues:  (1) whether Pennsylvania’s Bad Faith statute encompasses conduct that occurs during the bad faith litigation itself; and (2) whether an award of punitive damages 10 times those of the compensatory damages is permissible.  Along with the punitive damages award 10 times compensatory damages, in Hollock, the trial court included a substantial sum in attorneys’ fees incurred during the bad faith litigation within plaintiff’s compensatory damages; finding that bad faith can continue into the bad faith litigation itself.  An en banc Superior Court panel upheld the trial court’s rulings.  More than two and one-half years after Pennsylvania’s Supreme Court accepted the appeal on this highly significant and controversial ruling, however, it dismissed the carrier’s appeal as improvidently granted.

The legal effect of this decision is to allow the Superior Court’s decision to stand, without giving a definitive ruling on whether that decision will ultimately become the law in Pennsylvania (if the Supreme Court ever permits an appeal on the subject in the future).  The practical effect is that the Superior Court’s decision will bind all Pennsylvania state trial courts, and will be highly influential on all Pennsylvania federal courts, until the Pennsylvania Supreme Court says otherwise.

In a non-jury trial, the trial Judge had found that, “most of the testimony of [the carrier’s] employees [during the bad faith litigation] was an intentional attempt to conceal, hide or otherwise cover-up the conduct of [its] employees in the handling of the [insured’s] claim.”  In affirming the Court of Common Pleas, the Superior Court made two important rulings.  First, the Court ruled that a carrier could be liable for bad faith conduct during the bad faith litigation, even though the carrier paid the benefits due on the underlying claim before the current bad faith action was tried.  Second, the Superior Court affirmed the trial court’s award of punitive damages, which was based in part on the conduct of the insurer during the bad faith litigation itself.  The Trial Court had awarded punitive damages of $2.8 million, approximately ten times the compensatory damages award. 

The Supreme Court Majority’s Order dismissing the appeal did not address these  issues nor state why the appeal was dismissed.  In dissenting from the dismissal, Chief Justice Cappy, joined by Justice Castille, wrote a lengthy dissenting statement, laying out the nature and significance of the Superior Court’s decision; that this decision would effectively continue as the law in the Commonwealth; and that, in his view, the Superior Court was incorrect in finding that the Legislature intended to include bad faith conduct during the bad faith litigation as part of the claim.  Justice Cappy stated: “In my opinion, once the insurer is asked to defend an action under the [bad faith] statute, there can no longer be a relationship with its insured subject to a duty to act in good faith; adequate means exist to control the behavior of the insurer, or any party, during the litigation.”  He further noted his belief that the Court’s decision not to hear the appeal would only, “delay the task and allow the lower courts to continue to follow, what I believe is, an incorrect application of this statutory claim.”

Date of Decision: August 22, 2006

Hollock v. Erie Ins. Exch., 2006 Pa. LEXIS 1544, No. 67 MAP 2005 (Pa. 2006) (Per Curiam) (order of dismissal) (dissenting statement)

JANUARY 2006 BAD FAITH CASES
ISSUING RESERVATION OF RIGHTS LETTER DID NOT ESTABLISH BASIS FOR POST-LITIGATION BAD FAITH CLAIM (Philadelphia Federal)

Published on January 31, 2006 in Litigation Conduct Claims. Closed
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In Saldi v. Paul Revere Life, plaintiff sought leave to amend the complaint to add various averments of material fact, as well as claims for post-litigation bad faith conduct.  Specifically, plaintiff sought to add a post-litigation bad faith claim based upon the fact that defendants paid his benefits but continued to “maintain a reservation of rights until Saldi’s death, even after defendants knew and/or recklessly disregarded that they lacked any medically supported reasonable basis for reservation of rights.”  The U.S. District Court for the Eastern District of Pennsylvania would not allow the additional post-litigation bad faith claims, noting that the reservation of rights is itself a means of preventing a bad faith claim by the insured, as it allows an insurer to make payments to an insured while maintaining the right to seek reimbursement if it later becomes clear that the insured was not entitled to the payments.  The court also found defendants presented a reasonable basis for making such reservation of rights, on the grounds that defendants reviewed new documentation from plaintiff’s medical providers in making their decision.

Date of Decision:  January 13, 2006

Saldi v. Paul Revere Life, United States District Court of the Eastern District of PA, Civil Action No. 99-CV-6563, 2006 U.S. Dist. LEXIS 1315 (D. Pa. 2006) (Surrick, J.)

JANUARY 2006 BAD FAITH CASES
RETAINING VALUATION EXPERT IN CASE IS NOT EVIDENCE OF POST-LITIGATION BAD FAITH CONDUCT (Western District)

Published on January 31, 2006 in Litigation Conduct Claims. Closed
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In Gallatin Fuels, Inc. v. Westchester Fire Insurance Company, plaintiff loss payee sued its insurer, seeking payment under an insurance policy issued to a mining company, and alleging bad faith.  In ruling on various Motions in Limine filed by both parties, the U.S. District Court for the Western District of Pennsylvania held that plaintiff was not entitled to an order that it was up to the jury whether attorney’s fees should be awarded under Pennsylvania’s bad faith statute; this was a question for the court to decide only if the jury found in plaintiff’s favor on its bad faith claim.  Plaintiff also asserted that defendant’s retention of a valuation expert was evidence of bad faith; however, the court found that though an insurer’s conduct during the pendency of litigation may be considered as evidence of bad faith under Pennsylvania’s bad faith statute, it is only relevant where the conduct shows the insurer’s intent to evade its obligations under a policy.

Date of Decision:  January 13, 2006

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States District Court for the Western District of PA, Civil Action No. 02-2116, 2006 U.S. Dist. LEXIS 1327 (W.D. Pa. Jan. 13, 2006) (Ambrose, C.J.)