Archive for the 'PA – Punitive Damages' Category

MAY 2017 BAD FAITH CASES: PUNITIVE DAMAGES CLAIM PROVIDES BASIS FOR FINDING JURISDICTIONAL MINIMUM MET, AND REMAND DENIED (Middle District)

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The federal court refused to remand this UIM case, which had been removed by the insurer from Pike County Common Pleas. Among other things, the federal court found the diversity minimum met because the complaint sought punitive damages for bad faith. “Pennsylvania’s Bad Faith statute makes punitive damages available to Plaintiff and, in theory, makes the amount in controversy in excess of $75,000. Therefore, federal court jurisdiction is proper irrespective of the amount of uninsured motorist coverage in Plaintiff’s insurance policy and the precise amount of coverage is not relevant to the removal/remand question at hand.”

Date of Decision: May 18, 2017

Koerner v. Geico Casualty Co., No. 17-455, 2017 U.S. Dist. LEXIS 75856 (M.D. Pa. May 18, 2017) (Conaboy, J.)
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MARCH 2017 BAD FAITH CASES: FINEMAN, KREKSTEIN & HARRIS OBTAINS SIGNIFICANT VICTORY FOR INSURER IN DEFEATING UIM BAD FAITH CLAIM AT TRIAL IN PHILADELPHIA’S COMMERCE COURT (Philadelphia Commerce Program)

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In a bad faith case that actually went to trial, in Philadelphia’s Commerce Court, Fineman, Krekstein & Harris won a finding in favor of the insurer in a hard fought case, involving a myriad of bad faith issues. The court issued a 37 page Findings of Fact and Conclusions of Law, vindicating the positions argued and case presented for the insurer.

The insureds argued, among other things, that there were undue delays in claims handling, adjusters did not keep claims files in accordance with policy manuals, and reserves were improperly set. Among other things, the insurer focused its arguments on the timing of the insureds first making a demand for payment; reliance upon competent counsel in reaching decisions; and that the insureds’ original demand for the $1,000,000 policy limits was never lowered through the course of the UIM case.

In its conclusions, among other things, the court observed there is no heightened duty to insureds in the UIM context, and that even negligence or bad judgments do not equate to bad faith. The court made clear that delay is not bad faith per se, and that evaluating delay includes an analysis of the reasonableness of denying a claim. Moreover, even if unreasonable, to constitute bad faith the delay must be knowing or reckless. Bad faith is measured from the time demand is made.

The court also stated that undervaluing a claim is not bad faith if there is a reasonable basis for the valuation. Thus, a low but reasonable valuation is not bad faith. A settlement offer in the insurer’s low range of estimated value also is not bad faith. On the facts of this case, the court observed that the insurer never took the position that it would pay nothing on the claim, and as described below, made a number of offers.

The court found it was reasonable under the circumstances for the insurer to decline mediation two weeks before the arbitration was to take place. The insurer’s counsel testified that it was too late to mediate, and that there was no indication the insureds would lower their demand. The court observed that in evaluating bad faith, courts weigh the insureds’ decision not to negotiate down from a policy limit demand, even though the insured is not required to negotiate. The court found that settlement almost always requires a mutual give and take, which did not occur in this case.

The insurer was required to pay $600,000 under the UIM arbitration award. The court found, however, there was no evidence the insureds would have accepted $600,000 to settle the case prior to arbitration.

The court also took into consideration the actual difference between the ultimate UIM arbitration award, the insurer’s final offer, and the insured’s demand. In this case, the insured’s final offer was approximately $182,000 below the ultimate award, but the insureds’ policy limit demand was $400,000 greater than the award. The court found the insurer’s final settlement offer was reasonable, and that earlier offers for lesser sums were permissible interim offers. The court explained the reasonableness of each offer in its context.

Among other facts addressed in the court’s conclusion of law, the court gave weight to the fact that the insurer’s UIM defense counsel received a report from his own expert that counsel had not requested. Furthermore, defense counsel disagreed with the report’s conclusions. However, instead of withholding the report, counsel and the insurer’s representatives produced it to the insureds.

Moreover, the insurer used a high-end number from this same report in coming up with the basis for its final offer. The arbitration panel also used that number, rather than the insureds’ expert’s even higher number, in coming up with its arbitration award. The court stated that the insurer did not have to base its decision upon the insured’s expert rather than the insurer’s own expert.

The court found the insurer’s investigation was lengthier than it should have been, but did not constitute bad faith. The court found the insurer’s request for an independent medical examination was not evidence of bad faith. Nor was this a case of setting a reserve and never moving from that number during the course of the claim. The court found no discrepancy in the manner of setting reserves and the nature of the investigation that showed intent or recklessness in undervaluing the claim. As to the claims handling, even if unduly lengthy or negligent, this did not constitute bad faith.

The court further found that the carrier’s representatives sought UIM defense counsel’s advice in good faith, and that counsel was competent to give advice on defense and valuation of the claim. Although this was not a strict advice of counsel defense, since the insurer’s representatives ultimately made their own decisions, the thorough nature of counsel’s advice, when considered as a component of their decision making, supported the reasonableness of their claims handling decisions.

Date of Decision: March 21, 2017

Richman v. Liberty Insurance Underwriters, Sept. Term 2014, No. 1552, Court of Common Pleas of Philadelphia (C.C.P. Phila. Mar. 21, 2017) (McInerney, J.) (Commerce Program)

S. David Fineman and Christina L. Capobianco of Fineman, Krekstein & Harris were defense counsel.

MARCH 2017 BAD FAITH CASES: WHERE POLICY EXCLUSION PROPERLY APPLIED, REASONABLE BASIS TO DENY CLAIM EXISTS PER SE (Third Circuit, Pennsylvania)

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The Third Circuit upheld the district court’s grant of summary judgment to the insurer on breach of contract and bad faith claims. It found a maintenance exclusion applicable to the burst pipe claims at issue. The court rejected the insured’s attempt to strain the meaning of words in the policy to achieve coverage.

As to the bad faith claim, because the court concluded “that the maintenance exclusion was properly applied, [the insurer] by definition had a reasonable basis to deny [the] claim.” The court cited its prior decision in Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999), to support this principle.

The court then noted that “even if viewed as a distinct claim that requires us to consider only the facts [the insurer] knew at the time of the coverage determination to evaluate its subjective intent, the experts’ reports detailing the condition of [the] furnace coupled with the frozen condition of the home, [the insured’s] failure to ‘winterize’ his home, and [the insured’s] characterization of the incident as a ‘water-freeze’ to his public adjuster provided more than a reasonable basis for [the insurer] to deny coverage.”

Date of Decision: March 6, 2017

Dougherty v. Allstate Prop. & Cas. Ins. Co., No. 16-2680, 2017 U.S. App. LEXIS 3930 (3d Cir. Mar. 6, 2017) (Krause, Nygaard, Vanaskie, JJ.)

MARCH 2017 BAD FAITH CASES: WHERE NO DUTY TO COVER PUNITIVE DAMAGES, THERE CAN BE NO BAD FAITH IN REFUSING TO COVER PUNITIVE DAMAGES (Philadelphia Commerce Court)

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In this case, the insured was subject to a wrongful death judgment of over $2,000,000 in compensatory type damages and $5,000,000 in punitive damages. The umbrella insurer had reserved its rights to disclaim coverage for punitive damages, and persisted in that position through settlement, where it refused to contribute toward the punitive damages judgment.

There was no punitive damages exclusion in the policy. Rather, the insurer relied upon Pennsylvania public policy that there could be no insurance for punitive damages. The insured argued the vicarious liability exception to this public policy, but the court found that the punitive damages award was based on direct liability and not vicarious liability. Thus, it held there was no coverage due on the punitive damages settlement.

As to the insured’s bad faith claim, the court stated: “Since this court finds that there is no coverage for punitive damages, there can be no bad faith.” Thus, the bad faith count was dismissed.

Date of Decision: January 20, 2017

Bensalem Racing Ass’n v. Ace Prop. & Cas. Ins. Co., Feb. Term 2016, No., 4858, 2017 Phila. Ct. Com. Pl. LEXIS 11 (Phila. C.C.P. Jan. 20, 2017) (Djerassi, J.) (Commerce Program)

2017 BAD FAITH CASES: THIRD CIRCUIT AFFIRMS NO DUTY RUNNING TO INSURED’S AVERSARY (Third Circuit, Pennsylvania)

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The Third Circuit upheld the trial court’s dismissal of a bad faith claim. Among other things, it agreed that the plaintiff was not an insured, and the policy plainly set forth a duty to defend and indemnify the insured, not the insured’s adversary. The court observed: “[T]he duty to negotiate a settlement in good faith arises from the insurance policy and is owed to the insured, not to a third-party claimant.”

Date of Decision: December 12, 2016

Leboon v. Zurich Am. Ins. Co., No. 16-2088, 2016 U.S. App. LEXIS 22019 (3d Cir. Dec. 12, 2016) (Cowen, Fuentes, Shwartz, JJ.)

ON VETERANS DAY, WITH GREAT RESPECT AND GRATITUDE TO ALL WHO HAVE SERVED OUR NATION HONORABLY

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veterans-day

NOVEMBER 2016 BAD FAITH CASES: COURT WOULD NOT REMAND, EVEN WHERE ACTION WAS STARTED AS COMMON PLEAS ARBITRATION, WHERE COMPLAINT MADE CLEAR CLAIM COULD BE OVER $136,000 AND PUNITIVE DAMAGES WERE LEGITIMATELY CONSIDERED (Philadelphia Federal)

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This bad faith and breach of contract case was removed to federal court by the insurer, and the insured sought remand. The case was originally filed as an arbitration matter in the Court of Common Pleas of Philadelphia, i.e., it was filed with the representation that the matter was worth less than $50,000. Moreover, the parties even stipulated in the Court of Common Pleas that the matter was worth less than $50,000. However, subsequent to that stipulation the insured filed an amended complaint, indicating damages of over $136,000, though the matter appeared to still be no the arbitration track.

The court first observed that the arbitration statute in Pennsylvania does not create a mandatory damages cap of $50,000; but only a requirement that if a matter is alleged to involve less than $50,000 it is subject to de novo arbitration in the first instance. The court parsed authority going both ways on this issue in the Eastern District, and came down on the side of those courts finding this should not be treated as a damage cap. It then considered other evidence.

The proponent of federal jurisdiction must show “to a legal certainty” that the amount in controversy exceeds $75,000. “Because Pennsylvania state law permitted [the insured] to limit her monetary claims, see 42 Pa. Cons. Stat. § 7361; Pa. R. Civ. Pro. 1021(c), the Court [looked] to whether [her] ‘actual monetary demands in the aggregate exceed the threshold, irrespective of whether [the insured] states that the demands do not.’”

In this case, the insured’s had multiple ad damnum clauses seeking damages “not in excess of $50,000”; however, the amended complaint also stated a description of various losses, with invoices attached as exhibits, totaling $136,905.20. Such facts stood in “clear contrast to recent cases in this District holding that a defendant did not meet the burden to show the amount in controversy exceeded the $75,000 limit.” Thus, the insurer “met its heightened burden to prove to a legal certainty that the amount in controversy exceeds $75,000 because [the insured], in her own Amended Complaint, submitted proof that her damages exceeded $75,000.” In addition, the court observed that the insured sought punitive damages under the bad faith statute. “A district court must consider punitive damages when calculating the amount in controversy unless the claim for punitive damages is frivolous.” The present punitive damages claim was not frivolous because it was provided for in the bad faith statute’s language. “While a claim for punitive damages alone is too speculative to push the amount in controversy over the jurisdictional threshold … the Court finds that, in conjunction with estimated damages of $136,905.20, [the insured’s] claim for punitive damages weighs in favor of a determination that the amount in controversy requirement is met in this case.

Date of Decision: September 20, 2016

Pecko v. Allstate Ins. Co., CIVIL ACTION NO. 16-1988, 2016 U.S. Dist. LEXIS 1129569 (E.D. Pa. September 20, 2016) (Pratter, J.)

 

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MARCH 2016 BAD FAITH CASES: (1) BAD FAITH CLAIM FOR FAILURE TO COMMUNICATE SETTLEMENT DEMANDS WITHIN POLICY LIMITS REQUIRE SAME PROOF UNDER PENNSYLVANIA OR NEW JERSEY LAW; (2) POTENTIAL LOWER STANDARD FOR PUNITIVE DAMAGES IN PENNSYLVANIA NOT A BASIS TO DISMISS CLAIM; (3) ACTIONABLE CLAIM AGAINST AN INSURER’S MANAGING AGENT FOR CONTRIBUTION (New Jersey Federal)

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In Allegheny Plant Services v. Carolina Casualty Insurance Company, the insured was subject to personal injury tort claims. The carrier provided defense counsel, and the case went to trial.  The jury verdict exceeded policy limits by nearly $700,000.  The insured brought suit against its insurer for failing to settle and/or inform the insured that there was an opportunity to settle within policy limits.  The insurer also sued appointed defense counsel.  Defense counsel joined the insurer’s agent that was allegedly engaged to monitor and manage the defense litigation, on a theory that the agent knew the policy limits and failed to manage the litigation prudently.

Although the case was transferred to New Jersey, the insured brought a Pennsylvania statutory bad faith claim against the insurer. The insurer sought to dismiss that claim on summary judgment. The court denied that motion.  Likewise the court denied the managing agent’s motion to dismiss defense counsel’s claim for contribution.

The court applied a conflict of laws analysis on the bad faith claim. Although New Jersey’s insurance bad faith claim is based in common law (the “fairly debatable” standard), not statute, the basic standards of proof are the same:  the lack of a reasonable basis to deny benefits, and a knowing or reckless disregard of that fact in denying benefits. The court observed that Pennsylvania’s courts had rejected proof of self-interest or ill-will as a third element.

The court then addressed the potential conflict between Pennsylvania’s right to punitive damages under the Bad Faith statute, and New Jersey’s general statute on punitive damages. It found a lack of clarity in the law on when punitive damages may be allowed under Pennsylvania’s Bad Faith statute, i.e., can punitive damages be awarded solely on a finding of statutory bad faith, and is that a different, lower, standard than an award of traditional punitive damages?

The court then stated: “I find it plausible that Pennsylvania would permit, if not require, a punitive damages award based on a bad faith verdict. Such a verdict, however, would have to carry within it the factual basis for a traditional award of punitive damages. Otherwise, punitive damages would be awarded in every bad faith case; if that had been intended, I would have expected a much clearer legislative statement to that effect. At any rate, such a conflict as to punitive damages—even if it existed—would not require me to dismiss Count 3, the relief sought here.”

Without resolving this critique of Pennsylvania law, the court went on to observe that should this issue arise at trial, Pennsylvania and New Jersey law could apply to proving bad faith, as both state’s laws are identical on that issue.  And, if it came down to it at trial, the parties could again move to determine which state’s law applied to punitive damages. Thus, there was still no basis to dismiss the case under either state’s law. Further, were there a true conflict, the court concluded that Pennsylvania law would apply; which would seem to resolve the punitive damages issue, but the court appeared to leave that open up to the time of trial.

As to the managing agent’s motion to dismiss, the court observed that the key to a viable claim for contribution among joint tortfeasors  is “common liability to the plaintiff at the time the cause of action accrued.” The court found that defense counsel’s third party complaint against the alleged agent adequately set forth a claim that that the managing agent contributed to a unitary injury suffered by the insured. Factual issues concerning the ability to control the defense, and the alleged agent’s contractual relations with the insurer, among other things, could not be disposed of at the motion to dismiss stage.

Date of Decision:  March 17, 2016

Allegheny Plant Servs. v. Carolina Cas. Ins. Co., No. 14-4265, 2016 U.S. Dist. LEXIS 35189 (D.N.J. Mar. 17, 2016) (McNulty, J.)

MARCH 2016 BAD FAITH CASES: BAD FAITH CLAIM NOT SUBJECT TO REMAND IN LIGHT OF POTENTIAL PUNITIVE DAMAGES UNDER BAD FAITH STATUTE (Philadelphia Federal)

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In West Chester University Foundation v. Metlife Insurance Company, the court had to decide a motion to remand after the case has been removed from the Court of Common Pleas of Chester County.  The court’s focus was on the potential punitive damages claim in the statutory Bad Faith count, as pushing the potential claim over the $75,000 jurisdictional minimum.  It found that under applicable case law, a punitive damage award on a potential $57,000 claim (the number the court had calculated) would put the case over the jurisdictional minimum, and declined the motion to remand.  The court observed attorney’s fees were also available for statutory Bad Faith, but did not need to speculate about potential attorney’s fees to make its decision.

Date of Decision:  February 8, 2016

West Chester Univ. Found. v. Metlife Ins. Co., 2016 U.S. Dist. LEXIS 15437 (E.D. Pa. Feb. 8, 2016) (Jones, J.)

Search Function on Web Page Reminder

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We have moved up the search box on the Pennsylvania and New Jersey Bad Faith Case Law Blog to the upper left hand corner of the web page, just beneath the calendar.  After ten years, we have over 1,100 posts and a vast library of information.  The search function is a valuable tool to locate topics, cases by name, opinions by judge, etc.