Archive for the 'PA – Procedural Issues' Category

OCTOBER 2017 BAD FAITH CASES: BIFURCATION AND STAY OF BAD FAITH CLAIM DENIED ON ALL FOUR CRITERIA, INCLUDING SIMILARITY OF ISSUES, COMMON EVIDENCE, UNDUE EXPENSE TO THE INSURED, AND ABSENCE OF PREJUDICE (Middle District of Pennsylvania)

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An underinsured motorist injured the insureds. The tortfeasor’s insurer ultimately tendered $15,000 to the insureds. The insureds’ own UIM policy contained maximum benefits of $100,000, or $200,000 with stacking. The insureds demanded full benefits under the policy.

After investigation, the insurer offered $10,000 to settle the UIM claim. The insureds filed suit in the Court of Common Pleas. The insurer removed the action to federal district court and filed a motion to dismiss. The Court denied the insurer’s motion to dismiss. The insurer then filed a motion to bifurcate the bad faith claim pursuant to Federal Rule of Civil Procedure 42.

In considering a party’s bifurcation motion, courts are careful to consider whether a stay would damage a party. Specifically, courts consider four factors in deciding a Rule 42 motion: “(1) whether the issues are significantly different from each other; (2) whether they require separate witnesses and documents; (3) whether the nonmoving party would be prejudiced by bifurcation; and (4) whether the moving party would be prejudiced if bifurcation is not granted.” The movant bears the burden to show that bifurcation is appropriate.

  1. First, the Court found that the claims are not “so profoundly different” as to justify bifurcation.
  2. The Court ruled that “both claims would utilize similar documents, such as the [insurer’s] claim file, relevant medical evidence . . ., and the [insurer’s] settlement attempts.” In addressing the insurer’s concerns on privileged materials pursuant to the attorney work-product doctrine, the Court ruled that the insurer failed to identify specific documents that enjoy such privilege. Furthermore, the Court reasoned that the insurer is free to file such motions going forward in order to assert its privilege at any time.
  3. The Court held that the insured would suffer economically if the bad faith claim was stayed, because the insured would have to pay its attorney to do twice the work. “Bifurcation would require two discovery periods, double the dispositive motions, and double pre-trial motions.”
  4. Lastly, the Court held that the insurer would not be prejudiced were its motion to bifurcate be denied, because the insurer could simply defeat the bad faith claim by showing a reasonable basis for its settlement offer and investigatory conduct.

In conclusion, none of the four factors weighed in favor of bifurcation and the Court denied the motion to sever and stay the bad faith claim.

Date of Decision: September 18, 2017

Newhouse v. GEICO Cas. Co., No. 4:17-CV-00477, 2017 U.S. Dist. LEXIS 150793 (M.D. Pa. Sept. 18, 2017) (Brann, J.)

OCTOBER 2017 BAD FAITH CASES: PLEADING UIPA VIOLATIONS NOT FATAL WHERE THEY ARE NOT THE SOLE BASIS FOR STATUTORY BAD FAITH CLAIMS; COMPENSATORY AND CONSEQUENTIAL DAMAGES NOT WITHIN BAD FAITH STATUTE (Middle District of Pennsylvania)

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This bad faith case asserting common law and statutory bad faith, as well as regulatory violations, alleged the following.

The insured owned property covered under a homeowner’s insurance policy. In June of 2014, the insured entered into a listing contract with a real estate agent for the sale of the property. The insured relocated out of state two months later. In October of 2014, the insured accepted an offer to sell the property for $275,000. Before the sale, the real estate agent discovered that water pipes had burst, causing significant damage.

It was alleged that an adjuster for the insurer estimated the damage at $80,000, and suggested that the insured may have sabotaged the property. The insured asserted there was no reason to sabotage the property because the $275,000 sale price far exceeded the amount left on the mortgage, and the buyer remained willing to purchase the property so long as repairs were made. The insurer wrote to the insured regarding coverage obligations and requesting further documentation. The insured timely responded to insurer’s request and provided the requested information.

The insurer referred the claim to its fraud unit. The insured provided requested information to the fraud unit, and sat for multiple examinations under oath. The insurer also requested phone records, financial information, and utility records.

The sale of the property fell through, and the property entered foreclosure proceedings. Counsel for the insured requested documentation from the insurer. The insurer allegedly failed to provide all of the requested documentation, but maintained its request for the insured’s cell phone records and financial information.

The insurer ultimately forwarded benefits totaling $110,510.20 to the insured. However, the insured estimated her damages at $155,785, and filed suit for breach of contract and bad faith, among other claims.

The insurer responded by filing a motion to dismiss the insured’s breach of contract claim. The Court refused to dismiss this claim, holding that the complaint “sufficiently sets forth the damages [the insured] purportedly suffered as a result of [the insurer’s] conduct.”

The insurer also filed a motion to strike the insured’s allegations of violations of the Unfair Insurance Practices Act (“UIPA”) and of Unfair Claims Settlement Practices Regulations (“UCSP”), arguing that these alleged violations cannot serve as the basis for private statutory bad faith claims. The Court stated that violations of the UIPA or UCSP are not per se violations of the bad faith statute, and added that the “Third Circuit and this Court have held that alleged violations of the Unfair Insurance Practices Act do not, in and of themselves, constitute bad faith….” The Court refused to strike those allegations, however, because the insured’s “bad faith claim does not rest solely on alleged UIPA or UCSP violations.”

The insured’s breach of contract claim included an alleged a breach of the implied covenant of good faith and fair dealing. The insurer also moved to strike this claim, arguing that the breach of contract claim subsumed it. The Court ruled that “as [the insured] has not pled a separate breach of contract claim, [the reference] may properly remain in the Complaint.”

Lastly, the Court struck the insured’s claims for compensatory and consequential damages, holding that such damages are not available under the Pennsylvania bad faith statute.

Date of Decision: September 19, 2017

Pratts v. State Farm Fire & Cas. Co., No. 16-2385, 2017 U.S. Dist. LEXIS 151650 (M.D. Pa. Sept. 19, 2017) (Caputo, J.)

SEPTEMBER 2017 BAD FAITH CASES: BAD FAITH CLAIM DISMISSED DUE TO A LACK OF FACT SPECIFIC ALLEGATIONS, INSURED GIVEN LEAVE TO AMEND (Philadelphia Federal)

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The insured filed a UIM claim with her insurer after sustaining injuries in an auto accident. The insurer denied the claim. The insured then sued the insurer and alleged breach of contract and bad faith. The insurer moved to dismiss the bad faith claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

The Court stated that in order “[t]o survive a motion to dismiss, [the insured’s] complaint must include factual allegations from which the Court may plausibly infer the unreasonable and intentional or reckless denial of benefits.” The insured alleged that the insurer failed to act with reasonable promptness in evaluating and responding to the insured’s claim; that the insurer failed to act with reasonable fairness; and that the insurer failed to conduct a proper investigation.

The Court found that complaint only asserted legal conclusions. The insured did not specifically allege how the insurer failed to properly investigate the claim or how the insurer acted unreasonably. Furthermore, the insured failed to cite any date of correspondence or other contact with the insurer.

Even accepting the insured’s complaint as true, the Court stated that it is unable to “plausibly infer from those facts that [insurer] acted unreasonably and intentionally or recklessly in denying benefits to [the insured].” The Court granted the insurer’s motion to dismiss the bad faith claim without prejudice, and granted the insured leave to amend her complaint.

Date of Decision: September 6, 2017

Myers v. State Farm Mutual Automobile Insurance Co., No. 17-3509, 2017 U.S. Dist. LEXIS 143794 (E.D. Pa. Sept. 6, 2017) (Surrick, J.)

Thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

SEPTEMBER 2017 BAD FAITH CASES: FEDERAL REMAND WHERE POLICY’S FORUM SELECTION CLAUSE ALLOWS INSURED OR ASSIGNEE TO CHOSE COURT; ANTI-ASSIGNMENT CLAUSE INEFFECTIVE WHERE ASSIGNMENT IS POST-OCCURRENCE (Philadelphia Federal)

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This action originated from a bad faith suit filed in the Philadelphia County Court of Common Pleas. The insured alleged that the insurer refused to defend and indemnify in a separate Lehigh County action which resulted in a judgment of $500,000 against the insured. The insured assigned its rights against the insurer to the instant plaintiff-assignee.

The insurer removed the matter to federal court. Plaintiff filed a motion to remand, arguing that the insurance policy contained a “Service of Suit Amendment” whereby the insurer agreed to litigate in any forum chosen by the insured. The insurer argued that the Service of Suit Amendment pertains only to the original insured party, and not to an assignee. The insurer further argued that the policy contained an anti-assignment clause, which further limits the plaintiff-assignee’s rights to enforce the forum selection clause.

Courts in the Third Circuit had not previously decided the question of whether an assignee could enforce a forum selection clause against an insurer. The Court held that “where an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of his rights.” The Court further ruled that per Pennsylvania law, “an insurer may not limit an insured’s ability to assign his or her rights under a policy after the occurrence of the event which gives rise to the insurer’s liability.” Because the assignment here occurred after the event that created liability, the plaintiff-assignee could enforce the forum selection clause against the insurer, despite the presence of an anti-assignment clause in the policy.

Lastly, the Court denied plaintiff-assignee’s request for attorneys’ fees, because the insurer did not lack an objectively reasonable basis for seeking removal.

Date of Decision: August 25, 2017

Wimberly v. First Fin. Ins. Co., No. 5:17-cv-02952, 2017 U.S. Dist. LEXIS 137380 (E.D. Pa. Aug. 25, 2017) (Leeson, Jr., J.)

AUGUST 2017 BAD FAITH CASES: REMOVAL PROPER WHERE DIVERSITY CANNOT BE DEFEATED BY DIRECT ACTION ARGUMENT, AND AMOUNT IN CONTROVERSY MET (Philadelphia Federal)

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This UIM action arose after the insureds were injured in an automobile accident and the insurer denied their claim. The insurer filed a notice to remove the action to federal court citing diversity jurisdiction. The insureds filed a motion to remand and argued that that the amount in controversy did not exceed the $75,000 jurisdictional threshold, and that there was no actual diversity of citizenship under a direct action theory.

Despite Illinois being the insurer’s principal place of business, the insureds argued that the Court should consider the insurer a citizen of Pennsylvania because this is a direct action. The Court disagreed, and held “[a] direct action only exists when ‘the cause of action against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured.’” Thus, the Court ruled that the insurer is a citizen of Illinois for purposes of diversity jurisdiction.

Furthermore, the Court found that the amount in controversy threshold was satisfied because the insureds each sought in excess of $50,000 under the insurance policy, $50,000 in loss of consortium, and punitive damages and attorneys’ fees under the bad faith statute.

Therefore, the Court found that removal was proper, and denied the insured’s motion.

Date of Decision: July 31, 2017

Allison v. State Farm Mutual Automobile Insurance Co., No. 17-2742, 2017 U.S. Dist. LEXIS 119476 (E.D. Pa. July 28, 2017) (Beetlestone, J.)

AUGUST 2017 BAD FAITH CASES: INSURER’S MOTION TO BIFURCATE BREACH OF CONTRACT AND BAD FAITH CLAIMS DENIED BECAUSE OF SIGNIFICANT OVERLAP IN EVIDENCE, AND LITTLE RISK OF PREJUDICE (Philadelphia Federal)

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In this UIM action, the insured alleged she suffered severe and permanent injuries following an auto accident that significantly exceeded the tortfeasor’s $25,000 policy limit. The insurer refused to accommodate the insured’s request of a $350,000 payment under the policy’s UIM provision. The insured brought breach of contract and bad faith claims.

The insurer moved to bifurcate the trial of both claims. In deciding the insurer’s motion, the Court considered “(1) whether the claims sought to be tried separately are significantly different from one another, (2) whether the claims require different evidentiary proof, (3) whether the non-moving party will be prejudiced by severance, and (4) whether the moving party will be prejudiced by proceeding to one trial.”

The insurer argued there is no evidentiary overlap between the two claims; that the resolution of the breach of contract claim may render the bad faith claim moot; and that some evidence relevant to the breach of contract claim may be protected attorney work product, thus prejudicing the insurer and causing juror confusion. The Court rejected the insurer’s arguments.

While the Court acknowledged the distinct causes of action between a breach of contract claim and a bad faith claim, it found that “any reasonableness of [insurer’s] investigation would surely include the facts and documentation surrounding the underlying accident, meaning that both claims are likely to rely on the same documentation and witness testimony at trial….” Given the overlapping nature of the evidence, the Court ruled that bifurcation would be a waste of judicial resources. Furthermore, the Court found that even if the parties resolved the contract claim, the insured could still pursue her bad faith claim on a theory of undue delay in claims handling. Thus, resolution of the breach of contract claim does not necessarily render the bad faith claim moot. Lastly, the Court held that it is more efficient to require the insurer to prove its entitlement to any attorney work product, rather than to bifurcate the claims. The Court is equipped to address any issue of prejudice that may arise through the normal rules and procedures of litigation.

Therefore, the Court ruled that insurer failed to meet its burden to show the appropriateness of bifurcation, and denied the motion.

Date of Decision: July 31, 2017

Jones-Silverman v. Allstate Fire & Casualty Insurance Co., No. 17-1711, 2017 U.S. Dist. LEXIS 119878 (E.D. Pa. July 31, 2017) (Baylson, J.)

AUGUST 2017 BAD FAITH CASES: “A PLETHORA OF CONCLUSORY ALLEGATIONS” DOES NOT SUPPORT A CLAIM OF BAD FAITH (Philadelphia Federal)

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This case arose after a fire damaged the insured’s premises, resulting in a claim adjusted for $182,739.11, subject to a hold-back of recoverable depreciation of $58,075.29. The insurer ultimately issued a $123,663.82 payment to the insured. This amount represented the insurer’s calculation of the actual cash value of the loss, less depreciation and the insured’s deductible. The insured then filed suit for breach of contract and bad faith. The insured argued that the insurer wrongfully withheld additional funds owed to him.

The insurer filed a motion to dismiss the bad faith claim. The Court wrote that the insured’s complaint “offers a plethora of conclusory allegations regarding [insurer’s] unreasonableness, misrepresentation, and unfairness without identifying how something was done unreasonably, what specifically was misrepresented, or what circumstances made some action unfair.” As such, the Court held that the insured’s bad faith claim lacked sufficient factual detail.

Furthermore, the Court took judicial notice that the insurance policy at issued allowed for recovery of the withheld depreciation amount, if the insured repaired the damaged property within 180 days of the insurance payment. The insured failed to make the repairs within this time. Thus, the insured was not entitled to additional funds according to the terms of the policy.

The Court granted the insurer’s motion and dismissed the bad faith claim, with no reference to permitting an amended complaint on the issue.

Date of Decision: July 28, 2017

Fasano v. Allstate Indem. Co., No. 17-cv-1495, 2017 U.S. Dist. LEXIS 118558 (E.D. Pa. July 28, 2017) (Curtis Joyner, J.)

AUGUST 2017 BAD FAITH CASES: INJURED PARTY HAS NO STANDING TO BRING BAD FAITH CLAIM AGAINST TORTFEASORS’ INSURER (Middle District)

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An injured plaintiff attempted to assert bad faith claims against the tortfeasor’s insurer and its adjuster. In his Report and Recommendation, the Magistrate Judge observed that third-party claimants do not have a contractual relationship with such insurers, and thus have no standing to assert a bad faith claim. The District Court Judge agreed, and dismissed the putative bad faith failure to negotiate claim.

Dates of Decision: June 20, 2017 and August 9, 2017

Starrett v. Coe, No. 3:16-cv-02272, 2017 U.S. Dist. LEXIS 95793 (M.D. Pa. June 20, 2017) (Saporito, M.J.) (Report and Recommendation)

Starrett v. Coe, No. 3:16-cv-02272, 2017 U.S. Dist. LEXIS 126348 (M.D. Pa. August 9, 2017) (Caputo, J.)

AUGUST 2017 BAD FAITH CASES: BASIS FOR DENYING CLAIM RELEVANT TO BOTH BAD FAITH AND BREACH OF CONTRACT CLAIMS, SUPPORTING COURT’S CERTIFYING CASE FOR IMMEDIATE APPEAL (Philadelphia Commerce Court)

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In a lengthy opinion, the court ruled against the insurer on how to interpret the meaning of “actual cash value” under the policy. The issue was sufficiently significant that the Commerce Court certified its decision as a final appealable order to the Superior Court.

The case also involved a bad faith claim, which came into play when determining whether to certify the appeal. The interpretation of pertinent policy language was intertwined with the issue of whether the insurer had a reasonable basis to deny benefits and/or recklessly disregarded the potential lack of a reasonable basis to deny benefits. The “statutory bad faith analysis is quite clearly related to whether plaintiff is entitled to damages on its breach of contract claim.” Later, the court stated that “immediate appellate review promotes judicial economy because appellate analysis will provide instruction, one way or the other, on open trial level issues relating to both class certification and bad faith. Pre-trial review in the event of affirmance is expected to be extensive and should be provided only after the threshold legal question is settled.”

Date of Decision: July 21, 2017

Kurach v. Truck Insurance Exchange, July Term 2015, No. 339, 2017 Phila. Ct. Com. Pl. LEXIS 228 (C.C.P. Phila. July 21, 2017) (Djerassi, J.) (Commerce Court)

AUGUST 2017 BAD FAITH CASES: POLICYHOLDER GRANTED LEAVE TO AMEND COMPLAINT TO ALLEGE A BAD FAITH CLAIM (Philadelphia Federal)

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Plaintiff-policyholders filed suit after a dispute over a denial of coverage regarding their homeowner’s insurance policy. Initially, defendant-insurer faced claims for breach of contract and a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. On April 26, 2017, seeking to assert a bad faith claim, the plaintiffs filed a Motion for Leave to Amend their (already) Amended Compliant.

The case arises out of severe property damage incurred by plaintiffs due to a January 2016 snowstorm. The snowstorm damaged the interior, exterior, and roof of the main residence, and damaged the roof of plaintiffs’ detached garage. The insurer provided plaintiffs with a payment of $5,801.77, which only covered damage to the interior of the main residence, minus the deductible and depreciation. The insurer denied plaintiffs’ claim for the exterior damage to the main residence, including the roof of the main residence and the roof of the detached garage. The exterior damages totaled $54,180.76.

The insurer argued that addition of a bad faith claim is futile. “’Futility means that the complaint, as amended, would fail to state a claim upon which relief could be granted.” The Court reiterated the liberal procedural standard for the amending of pleadings, and stated that defendants have “a heavy burden” in showing that plaintiffs’ amendment would be futile.

The Court ultimately granted the insureds leave to amend, because they argued that the insurer acted in bad faith by failing to provide reasons for its denial of coverage and failing to conduct a proper investigation of the claim. In support of its futility argument, the insurer attempted to have the Court review letters which included detailed and specific reasons for claim denial, along with proof that it offered to reinvestigate the claim. Nevertheless, the Court could not consider these documents at this stage because they were not attached to the amended complaint, nor were they matters of public record.

Date of Decision: July 18, 2017

Mitchell v. State Farm Fire & Cas. Ins. Co., No. 17-0737, 2017 U.S. Dist. LEXIS 111088 (E.D. Pa. July 18, 2017) (Surrick, J.)