Archive for the 'Procedural Issues' Category

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JANUARY 2012 BAD FAITH CASES: BREACH OF FIDUCIARY DUTY CLAIM REDUNDANT WITH INSURED’S BAD FAITH AND BREACH OF CONTRACT CLAIMS;NEGLIGENCE CLAIM BARRED BY GIST OF ACTION DOCTRINE (Western District)

Published on January 22, 2012 in Procedural Issues. Closed

In Krugh v. State Farm Insurance Company, the court considered a carrier’s motion to dismiss an insured’s complaint. The complaint alleged bad faith, violations of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), breach of contract, breach of fiduciary duty of good faith and fair dealing, and negligence.
Addressing each count individually, the court noted that the insured party alleged facts sufficient to state plausible bad faith, UTPCPL, and breach of contract claims. As such, the court denied the carrier’s motion to dismiss the first three counts, permitting them to proceed to discovery. However, the court dismissed the insured’s claim for punitive damages under its breach of contract claim.
With respect to the UTPCPL claim, the court held that the insured must prove that it “justifiably relied on the [carrier’s] wrongful conduct or representation and that [it] suffered harm as a result of that reliance.” Recognizing that this was merely a motion to dismiss, the court ruled that the UTPCPL count should be tested more thoroughly after discovery is conducted.
With respect to Count IV, the breach of implied covenant of good faith and fair dealing allegation, the court dismissed the insured’s claim. It reasoned that such a claim is “tantamount to a breach of contract” allegation, making Count IV redundant in conjunction with the insured’s additional bad faith and breach of contract claims. As such, the court dismissed Count IV of the complaint.
Turning to Count V, the negligence allegation, the court held that the “gist of the action” doctrine operates to bar tort claims rooted in a contractual suit. The court reasoned that, because Count V merely alleges that the carrier failed to “to exercise reasonable case in the handling of claims made under the Policy,” it is clear that the claims are “purely contractual,” arising only under the parties’ insurance policy.
Therefore, the court denied the insurer’s motion to dismiss with respect to Counts I-III, permitting the claims to proceed to discovery. However, the court granted the motion to dismiss with respect to Count IV, Count V, and the claim for punitive damages under Count III.
Date of Decision: January 17, 2012
Krugh v. State Farm Ins. Co., No. 2:11-cv-1484, 2012 U.S. Dist. LEXIS 4999 (W.D. Pa. Jan. 17, 2012) (Fischer, J.)

JANUARY 2012 BAD FAITH CASES: FEDERAL COURT REFUSES TO REMAND BECAUSE THE INSURED COULD NOT PROVE WITH LEGAL CERTAINTY THAT THE AMOUNT IN CONTROVERSY WOULD NOT EXCEED $75,000 (Western District)

Published on January 17, 2012 in Procedural Issues. Closed

In Vinski v. State Farm Mutual Automobile Insurance Company, the court examined an insured’s motion to remand to state court for lack of subject matter jurisdiction. The case stemmed from the insured’s claim for under-insured motorist (“UIM”) benefits after a car accident. After the insured filed suit in state court, for the UIM benefits and for breach of fiduciary duty in processing the claim, the carrier removed to federal court on the basis of diversity jurisdiction.
However, the insured opposed this removal and moved the district court to remand the case because the amount in controversy did not exceed $75,000. The insured’s original complaint alleged damages “in a sum in excess of” $25,000.00. Based upon this valuation, the insured took the position that the carrier could not maintain its claim for diversity jurisdiction.
In support of its argument, the insured argues that there was a pending offer to settle the claim for UIM benefits for the sum of $50,000. The insured claims that this offer is “valuable evidence of a reasonable estimate of the value of their claims.” However, the insured does not put forth an upper limit on recovery, should this case go to trial. As such, the court held, the insured failed to meet its burden that the jurisdictional limit could not be met as a legal certainty. Accordingly, the court denied the motion to remand.
Date of Decision: January 10, 2012
Vinski v. State Farm Mut. Auto. Ins. Co., No. 11-1326, 2012 U.S. Dist. LEXIS 2567 (W.D. Pa. Jan. 10, 2012) (Bissoon, J.)

JANUARY 2012 BAD FAITH CASES: NAMED CARIER NOT PROPER PARTY BECAUSE DID NOT UNDERWRITE POLICY; FAULTY WORKMANSHIP IS NOT AN “OCCURRENCE” SUFFICIENT TO TRIGGER COVERAGE (Middle District)

Published on January 16, 2012 in Claims Handling Procedures, Coverage Issues and Procedural Issues. Closed

In L.R. Costanzo Company v. American Fire and Casualty Insurance Company, the court heard a defendant’s motion for summary judgment on the issue of whether it was a proper party to the suit. The suit commenced after the insured was sued for property damage upon conclusion of a project. As a result, the insured sued the carrier in the Lackawanna County Court of Common Pleas for a defense against the original suit. The insured allegedly possessed a commercial general liability policy with the carrier. Under the policy, the carrier’s duty to defend would be triggered by an “occurrence,” which means “an accident, including continuous exposure to substantially the same general harmful conditions.” The carrier removed the case to federal court.
The carrier, Ohio Casualty Insurance Company (“OCIC”) moved to dismiss, arguing that it did not issue the insurance policy in question, meaning that there was no contract between itself and the insured, but the Court denied the motion. After discovery, the carrier filed motions for summary judgment, seeking resolution upon the insured’s breach of contract and bad faith claims.
There were three primary issues before the court: 1) whether OCIC, the alleged carrier, is a proper defendant, 2) whether the carrier breached a duty to defend the insured in the underlying case, and 3) if so, whether the carrier acted in bad faith by not defending the insured.
First, the court found that American Fire (“AFCC”) issued the policy, not OCIC. Discovery had revealed that AFCC underwrote the policy – the insured’s insurance agent testified that AFCC underwrote the policy, while OCIC underwrote the umbrella policy. Much of the confusion also comes from the similarity of its name to Ohio Casualty Group (“OCG”). OCG is the parent company of AFCC, OCIC, and ten other insurance companies, and it is the trademark umbrella under which these subsidiary companies operate. Moreover, OCG’s letterhead says “Ohio Casualty,” “Ohio Casualty Group,” or “Ohio Casualty™.” The insured does not provide any evidence to dispute these findings. The only evidence that suggests OCIC is the underwriter is the initial denial of coverage letter that stated, “We have investigated this claim and have determined that the allegations fall outside of the coverage provided by your liability policy carried with Ohio Casualty Insurance Company.”
Second, the court held that there was no “occurrence” under the policy to trigger the carrier’s duty to defend. In the underlying complaint, the insured alleged that faulty workmanship was the basis for its claims. As such, the carrier’s duty to defend depends upon whether the faulty workmanship qualified as an “occurrence,” or “an accident, including continuous exposure to substantially the same general harmful conditions” under the policy. Relying on relevant precedent, the court ruled that faulty workmanship is not an occurrence, meaning that the carrier had no duty to defend.
Lastly, the court ruled that the carrier did not act in bad faith. First, the court held, because there was no “occurrence” under the policy, the carrier did not act in bad faith in denying a defense to Plaintiff in the underlying case. Second, the court recognized that the record shows that the carrier engaged in a thorough inquiry before determining there was no duty to defend. The insured’s main argument for bad faith was that the carrier conducted an inadequate investigation before declining to defend the insured in the underlying suit. As such, the court granted summary judgment to the carrier.
Date of Decision: January 6, 2012
L.R. Costanzo Co. v. Am. Fire & Cas. Ins. Co., No. 3:10-CV-774, 2012 U.S. Dist. LEXIS 1655 (M.D. Pa. Jan. 6, 2012) (Mariani, J.)

JANUARY 2012 BAD FAITH CASES: CONTRACT STATUTE OF LIMITATIONS APPLIES UNLESS APPLICABLE CLAUSES IN A DISPUTED CONTRACT PROVIDE DIFFERENTLY (Philadelphia Federal)

Published on January 3, 2012 in Procedural Issues. Closed

In Leporace v. New York Life & Annuity, the court was faced with a carrier’s motion to dismiss an insured’s suit for breach of contract, declaratory judgment, and bad faith. In 1995, the insured purchased an insurance policy from the carrier. In early 1996, he suffered a traumatic event that caused emotional and mental instability, leading to his filing a claim with the carrier. In 2005, the carrier stopped paying the insured’s monthly benefits, claiming that he no longer fit the definition of disabled in his policy.
In 2010, the insured sought a reinstatement of the benefits. The carrier denied reimbursement for the period between 2005 and 2010 and did not honor the insured’s request for continued benefits. In early 2011, the insured filed suit against the carrier, to which the carrier responded with a motion to dismiss.
The subject of the instant opinion was the carrier’s contention that the insured’s claims are untimely. Pennsylvania has a four-year statute of limitations for contractual and declaratory judgment claims and a two-year statute of limitations for bad faith claims.
The insured countered the carrier’s claims by arguing that the language of the policy itself, not Pennsylvania law, determines the applicable statute of limitations. In response, the carrier argued that the insured’s reliance on precedent favorable to its case is misplaced because the case is not about the “Legal Actions” or “Proof of Loss” clauses in the insurance policy.
Examining a series of applicable Third Circuit cases to discern the applicable statute of limitations, the court first noted that, in a contractual suit arising from the denial of insurance benefits, the cause of action accrues when the insured first knows that its claim has been denied. This is the point where an insured could have first maintained a lawsuit to a successful conclusion.
However, the court also gauged the applicability of Hofkin v. Provident Life & Accident Ins. Co., a precedential Third Circuit opinion that considered whether an insured’s claims were timely by interpreting the “Proofs of Loss” and “Legal Actions” provisions contained in his insurance contract. The insured in this case argued that Hofkin governs and signals that its claim was timely, based upon the language of the contract it signed with the carrier. The court disagreed, finding that Pennsylvania’s usual statute of limitations on contracts governed, and was not based upon the Proofs of Loss and Legal Actions provisions contained in his insurance contract, which would be governed by 40 P.S. § 753.
The court examined Hofkin’s progeny, as well as opinions from other Circuit Courts, in finding that the denial of benefits evinced in this case, the fact that the Proof of Loss and Legal Action based claims were not at issue, and other factors did not follow the fact scenario found in Hofkin, and so did not warrant its application. The court concluded that the analysis applied in the Hofkin line of cases demonstrates that when the Proof of Loss and Legal Actions provisions are not at issue, the breach of contract statute of limitations period still applies.
Therefore, the court granted the carrier’s motion to dismiss.
Date of Decision: December 21, 2011
Leporace v. New York Life & Annuity, NO. 11-2000, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 147056 (E.D. Pa. Dec. 21, 2011) (Baylson, J.)

JANUARY 2012 BAD FAITH CASES: COURT DENIES MOTION TO DISMISS FOR FAILURE TO JOIN A NECESSARY PARTY, BUT RULES THAT PARTY MUST BE JOINED (Philadelphia Federal)

Published on January 2, 2012 in Procedural Issues. Closed

In Cummings v. Allstate Insurance Company, the court was faced with a carrier’s motion to dismiss for failing to join a necessary party. The case was brought by the estate of a decedent insured that died following surgery needed to correct injuries caused by a faulty floor. The insured alleges that a faulty floor, ruined by water that escaped from a heating system, was covered under a Deluxe Homeowner’s Policy issued by the carrier. After the carrier refused to cover the damage, the decedent tripped and fell, requiring surgery, which ultimately lead to her fatal heart attack. The insured alleges that the decedent’s cardiac arrest is solely attributable to the carrier’s bad faith refusal to pay their claim.
The insured filed suit in Philadelphia County and the carrier removed to federal court. During discovery, however, it came to light that the insured hired a subcontractor to repair the floor. The carrier therefore filed the instant motion, claiming that the absent subcontractor is a necessary party.
The insured’s complaint contained two counts, alleging first that the carrier breached its insurance contract and is liable for damages for pain, suffering and mental anguish. The insured’s second count alleges that the carrier acted in bad faith by conducting only a cursory investigation of its claim.
However, the court primarily addressed the carrier’s motion to dismiss, examining the necessity of joining the insured’s former subcontractor as a defendant to the suit. The carrier argued that the absent party was necessary because, in the event the court denies the insured’s breach of contract claim, compensation would be unavailable to the insured without the subcontractor’s inclusion. The court highlighted the fact that the subcontractor claimed in his deposition that he completed the work before the carrier denied the insured’s claim. This fact, the court held, would be a critical point later in the apportionment of damages.
Furthermore, the court recognized that, if it later finds that the damage to the floor was a covered loss and that the carrier did breach its contract, then the subcontractor’s joinder is still necessary to determine whether the damages relating to the insured’s death were foreseeable. The court also reasoned that it may be the case that the subcontractor’s repairs to the floor constitute a break in the chain causation, meaning that he is ultimately liable to the insured. Given these facts and the potential factual determinations that may arise at a later point in the suit, the court found that the subcontractor was a necessary party. However, it denied the insured’s motion to dismiss.
Date of Decision: December 27, 2011
Cummings v. Allstate Ins. Co., No. 11-02691, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 148273 (E.D. Pa. Dec. 27, 2011) (Kelly, J.)

This case was also addressed in October 2011 and August 2011 on this Blog.

NOVEMBER 2011 BAD FAITH CASES
THIRD CIRCUIT REVERSE ON CHOICE OF LAW RULES, & APPLIES PENNSYLVANIA LAW PROVIDE INSURED BENEFIT OF STACKING UNDERINSURED MOTORIST BENEFITS (Third Circuit)

Published on November 7, 2011 in Procedural Issues. Closed

In Amica Mutual Insurance Company v. Fogel, the Third Circuit faced an insured’s appeal from the Middle District of Pennsylvania. The district court had granted summary judgment to the carrier on a bad faith claim and choice of law dispute, applying New Jersey law to the insured’s policy.

In 2007, the insured purchased a policy from the carrier in New Jersey, but moved to Pennsylvania in early 2008. The insured apprised the carrier of its relocation and was told to get a Pennsylvania license and register its two cars in Pennsylvania before obtaining a rewritten policy. Before doing so, the insured was involved in a fatal traffic accident in Pennsylvania, caused by an underinsured motorist, that triggered the policy claim.

In 2009, the carrier sought declaratory relief in the Superior Court of New Jersey, believing that New Jersey law applied to the insured’s policy. Under New Jersey law, an insured may not “stack” benefits on multiple vehicles, while in Pennsylvania an insured is permitted to “stack” benefits. The insured removed to the District of New Jersey, which sua sponte transferred the case to the Middle District of Pennsylvania.

The choice of law and bad faith claims were submitted to a Magistrate (see this blog), who applied Pennsylvania’s choice of law rules and concluded that New Jersey law applied to the policy. It also recommended denial of summary judgment on the bad faith claim. The Middle District of Pennsylvania adopted the R&R (see this blog) and the insured appealed.

The Third Circuit first addressed the choice of law issue, applying the choice of law rules of New Jersey. Then, it applied New Jersey law under State Farm v. Estate of Simmons, which instructs courts to use the “most significant relationship” standard in choice of law disputes. This standard seeks to examine each state’s contacts, such as place of contracting, location of subject matter of the contract, domicile and residence, “according to relative importance.”

The court recognized that, with respect to the “stacking” issue, a conflict of laws existed between Pennsylvania and New Jersey. Because an actual conflict existed, the Third Circuit looked to precedential case law detailing the Simmons approach. The court focused on New Jersey Manufacturer’s Insurance Company v. MacVicar, which factually resembled the instant dispute.

That case also decided between applying New Jersey and Pennsylvania law in a dispute over an insured’s entitlement to the “stacking” of underinsured motorist benefits. Though MacVicar was never removed to federal court, the trial court found for the carrier on the choice of law issue during the summary judgment phase. In that case, the New Jersey Appellate Court later reversed the grant of summary judgment, applying Simmons and the “most significant relationship” test.

The standard led that court to conclude that the “justified expectations of the parties shifted” when the insured moved to Pennsylvania. Because the “location of the insured risk” moved with the insured party, Pennsylvania had the most “natural interest” in the application of its law. Moreover, the MacVicar court held that Pennsylvania had the most significant governmental interest in the controversy, given the firm public policy of affording residents the benefit of “stacked” underinsured motorist policies.

The Third Circuit’s decision echoes this rationale; it ruled that the carrier no longer had a justified expectation that New Jersey remained the principal location of the insured risk. The court reversed the Middle District’s grant of summary judgment to the carrier on the choice of law issue and applied Pennsylvania law. The case was remanded so that the insured could receive the benefit of “stacked” underinsured benefits.

Lastly, the court addressed the insured’s bad faith claim, which alleged that the carrier failed to adequately investigate its claim and improperly denied them “stacked” benefits under their policy. The court upheld the Middle District’s grant of summary judgment to the carrier, finding that the carrier’s adjuster was reasonable to believe that New Jersey law would apply at the beginning of the dispute.

Date of Decision: September 8, 2011

Amica Mutual Insurance Company v. Fogel, 656 F.3d 167 (3d Cir. 2011) (Ambro, J.)

OCTOBER 2011 BAD FAITH CASES
COURT TREATS MOTION TO SEVER AND STAY AS A MOTION TO PHASE DISCOVERY; ADDRESSES DISCOVERY ON INSURER’S UIM FILE (Western District)

Published on October 11, 2011 in Procedural Issues. Closed

In Craker v. State Farm Mutual Automobile Insurance Company, the court was presented with an insured’s motion to compel discovery and a carrier’s motion to sever and stay a bad faith claim. The parties were engaged in discovery during the pendency of these motions, which stem from a dispute over $200,000 in alleged underinsured motorist benefits (UIM) arising from a car accident that injured the insured. The insured party sued the carrier for its benefits after being denied its UIM benefits. The insured also brought a bad faith claim. The carrier later removed to federal court.

Discovery was originally to be completed by August, but the insured successfully moved to extend the discovery phase. The court set December 1, 2011 as the new deadline. At the same time, the insured also moved to compel discovery relating to its bad faith claim. The carrier filed a motion to sever and stay the bad faith claim until after the UIM claim was decided. According to the carrier, it would suffer irreparable harm if forced to disclose its mental impressions and evaluation of the insured’s claim. Such information, it argued, was only relevant to the bad faith claim and not the UIM litigation.

The court addressed the carrier’s objectives in pushing back discovery on the bad faith claim. It therefore reasoned that the carrier was not really moving to bifurcate the trial, under Federal Rule 42(b), but to obtain a phased discovery plan under Rule 26. After identifying “the true issue to be decided,” the court rejected the carrier’s motion to phase discovery. It so held because such a motion was not mentioned in the parties’ Rule 26(f) Report, used to anticipate necessary disclosures and discovery.

Aside from these procedural difficulties, the court also rejected the carrier’s motion on the merits. Because postponing discovery on the bad faith claim would delay the resolution of the case, it was inappropriate. It is inefficient, the court held, to create a new discovery plan after the UIM claim is decided. Moreover, such a situation would increase costs for the parties and require witnesses to be re-deposed. The court concluded that the carrier identified no benefit to proceeding as it proposed, other than its own attempt to shield unfavorable evidence.

Furthermore, the court rejected the carrier’s objections that were based on confidentiality grounds. While the court did acknowledge that some of the discoverable materials were sensitive, it noted that “confidentiality agreements and protective orders” were a more appropriate means of proceeding.

The court also questioned the carrier’s strategy. It noted that the carrier really wanted the advantage of “favorable rulings made by state court judges in this judicial district regarding the administration of bad faith claims.” However, the carrier removed the case to federal court and chose its desired venue. Although a state court may have granted this motion, it was too late to seek a phased discovery plan under the Federal Rules.

The insured’s motion to compel alleged that the carrier failed to adequately respond to its interrogatories. In opposition, the carrier claimed that the motion was premature, called for a violation of privilege and work product doctrines, sought confidential information, and sought irrelevant information. The court agreed with the carrier’s first objection, recognizing that the insured failed to meet and confer prior to its filing. However, the court opted to advise the insured, rather than sanction them.

The court also noted that several of the objections had been discussed by the parties and resolved. For instance, the carrier provided the insured with several privilege logs and agreed to produce confidential materials subject to entry of a protective order. As such, the court ordered the carrier to provide a “log explaining its assertions of the attorney-client privilege and the work product doctrine, and that the parties enter into an appropriate protective order to permit the exchange of confidential information.”

The only remaining issue for the court was the insured’s claim that the carrier waived its attorney-client privilege by asserting an advice of counsel defense. Yet, the insured failed to identify what statements lead to this assumption, prompting the court to reject this claim on the basis that it lacked adequate information.

The court concluded by denying the carrier’s motion to sever and stay, without prejudice, so that it might seek bifurcation of the trial at the post-discovery status conference. The court also summarized that the insured’s motion to compel has been resolved in some respects due to agreement between the parties, granted in some respects as a result of the denial of the carrier’s motion, and denied as to the advice of counsel issue, without prejudice to the insured’s ability to file a properly supported motion in light of the impending discovery cut-off date.

Date fo Decision: September 29, 2011

Craker v. State Farm Mutual Automobile Insurance Company, No. 11-0225, U.S. District Court for the Western District of Pennsylvania,
2011 U.S. Dist. LEXIS 111862 (W.D. Pa. Sept. 29, 2011) (Lancaster, J.)

SEPTEMBER 2011 BAD FAITH CASES
COURT MAINTAINS THAT INDEPENDENT CONTRACTOR’S ALLEGATIONS DO NOT STATE CAUSE OF ACTION UNDER PA BAD FAITH STATUTE (Philadelphia)

Published on September 27, 2011 in Procedural Issues. Closed

In Nantieh v. First Keystone Risk Retention Group, Inc., the trial judge trial issued an opinion to support his December 2, 2010 decision, which has been appealed. The case stems from an accident that occurred in 2009, when a driver, operating a taxi as an independent contractor, suffered personal injuries in a car accident.

The driver sought first party benefits under his employer’s insurance policy. Days after notifying the carrier of this claim, the driver was apprised that he was excluded from coverage and was not permitted to drive vehicles insured by the carrier.

The driver submitted a doctor’s note to the carrier, requesting that he be permitted to operate a taxi under the policy. His request was denied. The driver continued to operate a taxi and was involved in a second accident three weeks later.

In February 2009, the driver filed a complaint, alleging that the carrier’s actions, which including prohibiting the driver from operating a taxi and excluding him from coverage under the policy, constituted bad faith..

The carrier filed objections to these claims and the driver subsequently filed an amended complaint. In the amended complaint, the driver alleged that the carrier excluded him from coverage “in order to dissuade [the driver] from availing himself of benefits for reasonable and necessary medical treatment.” The driver also claimed that the carrier had “no legitimate basis to exclude him from…operating his taxi,” when he was cleared by a physician to do so. The trial court dismissed these arguments as contained within the amended complaint. That ruling is now the subject of a pending appeal.

The trial court ruled that the driver had not specifically claimed that he was denied payment of medical benefits by the carrier. Moreover, to the extent that the driver was asserting his right to medical benefits, the only available benefits “would be first party benefits pursuant to the Pennsylvania Motor Vehicle Financial Responsibility Law 75 Pa.C.S.A. § § 1711.”

The court reasoned that, under both state and federal precedent, the PMVFRL is the applicable statute in these circumstances, not Pennsylvania’s bad faith statute. The court concluded that the Pennsylvania legislature intended the “PMVFRL to provide the exclusive first party remedy for bad faith denials by insurance companies.”

The court also addressed the driver’s second claim – that there was no legitimate basis to exclude him from coverage under the policy and prohibit him from driving a taxi. The court held that the driver’s “ability to drive has no connection whatsoever to any benefit or coverage provided by the policy.” Moreover, the driver’s ability to operate a taxi cannot amount to the denial of any benefit provided under the policy.

The court therefore concluded that the driver’s allegations did not fall within the scope of a proper a bad faith claim.

Date of Decision: December 2, 2010

Nantieh v. First Keystone Risk Retention Group, Inc., Feb. Term 2010, No. 3276, Common Pleas Court of Philadelphia County, Pennsylvania, Civil Trial Division, 2010 Phila. Ct. Com. Pl. LEXIS 405, 20 Pa. D. & C.5th 13 (Dec. 2, 2010) (Tereshko, J.)

SEPTEMBER 2011 BAD FAITH CASES
COURT REQUIRES COMMON LAW BAD FAITH CLAIM TO BE PLEADED AS PART OF BREACH OF CONTRACT CLAIM (Western District)

Published on September 14, 2011 in Procedural Issues. Closed

In Cicco v. State Farm Fire & Casualty Co., the court ruled upon a partial motion to dismiss by the carrier, which claimed that two counts of the insured’s three-count bad faith claim were redundant. The insured originally sued the carrier for breach of contract, contractual bad faith, and statutory bad faith under Pennsylvania law. The carrier moved to dismiss, claiming that the insured’s second allegation is redundant in light of the first count for breach of contract. The insured refused to concede to the redundancy of its complaint, but indicated a willingness to merge its two bad faith claims into one.

The court found that the insured’s second claim was redundant because it contained, verbatim, the same allegations set forth in counts one and three. Therefore, the court held that, because the insured adequately pled a breach of contract cause of action in count one, and that the allegations set forth in count three adequately raise a statutory bad faith claim, count two of the insured’s complaint was redundant.

Accordingly, the court denied the carrier’s motion to dismiss count three and gave the insured time to amend counts one and two of its complaint to properly incorporate its allegations and factual averments into an amended complaint.

Date of Decision: September 2, 2011

CICCO v. STATE FARM FIRE & CASUALTY CO., No. 11cv0946, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 99161, (W.D. Pa. Sept. 2, 2011) (Schwab, J.)

AUGUST 2011 BAD FAITH CASESSTATE LAW BAD FAITH CLAIM PREEMPTED BY FEDERAL LAW UNDER ERISA (Western District)

Published on August 30, 2011 in Procedural Issues. Closed

In Harding v. Provident Life and Accident Insurance Company and Unum Group, the court was faced with the issue of whether a long-term disability plan qualified as an ERISA plan under federal law and therefore preempted the employee’s breach of contract, bad faith and unfair trade practices state law claims. The insurer filed a motion to dismiss, which the court treated as a motion for summary judgment.

The employee purchased an individually owned long-term insurance policy from the insurer, under which her employer sent monies to the insurer after deducting them from her paychecks. Employees were a granted a small discount on the premiums as a result of this payment arrangement. Although the employer never formally made the policy an ERISA plan, it formally complied with the federal ERISA regulations. After the employee incurred a disability in 2005, her coverage ran out in 2010. The employee made a claim for residual benefits under her long-term disability plan, but was denied by the insurer. The employee never appealed and failed to exhaust her administrative remedies.

The employee argued that, because her employer never intended the plan to qualify as an ERISA plan and the company never filed the proper paperwork, the court should not interpret the plan under ERISA. However, the court rejected this logic because the plan established a fund for a defined risk group. Moreover, the employee contributed to the fund, which was maintained by her employer and was originally established for the purpose of providing benefits to its participants. The court concluded that these elements established the employee’s long-term disability plan as an ERISA plan.

The employee also claimed that, despite the court’s finding, the policy should be exempt from ERISA under the Department of Labor’s “Safe Harbor” provisions. However, the court concluded that she did not meet the first of four elements required of a policy to fall under the DOL’s “Safe Harbor” provisions and therefore did not qualify for exemption from ERISA.

Having concluded that the carrier’s policy was governed by ERISA, it found that the breach of contract, bad faith, and unfair trade practices claims were preempted by federal law. The Third Circuit has definitively held that state law bad faith claims will be preempted by ERISA.

The court also noted that the employee’s failure to exhaust her administrative remedies allowed the insurer to state a valid affirmative defense. Under Third Circuit law, an employee’s failure to invoke administrative procedures will prevent relief in federal court for an ERISA claim. Such a rule, the court noted, is strictly enforced.

Therefore, the court granted summary judgment to the insurer and ruled that the policy fell under ERISA, preempting the employee’s ability to bring a state law claim for bad faith.

Date of Decision: August 19, 2011

Theresa Harding v. Provident Life and Accident Insurance Company and Unum Group, No. 11-481, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 93622, 809 F. Supp. 2d 403 (W.D. Pa. Aug. 19, 2011) (Fischer, J.)

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