Archive for the 'PA – Punitive Damages' Category

AUGUST 2017 BAD FAITH CASES: CARRIER THAT DID NOT ISSUE POLICY STILL POTENTIALLY LIABLE FOR BAD FAITH ON A CLAIMS HANDLING THEORY (Western District)

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This case involved at least claims for breach of contract, breach of fiduciary duty, and breach of the contractual duty of good faith and fair dealing. The court also stated there was a statutory bad faith claim.

Two related insurers were named as defendants. One of the insurers did not issue the policy, but was alleged to have been involved in bad faith claims handling.

First, the court dismissed the breach of fiduciary duty claim under the gist of the action doctrine. The court found that any duty solely arose from the contract, so there could be no separate tort claim outside of the contract.

Second, the court agreed there could be no breach of contract claim against an insurance company that did not issue the policy. However, the court found that this did not automatically preclude a statutory bad faith claim against that insurance company based solely on its claims handling. [This holding runs up against the idea that statutory bad faith must be based on the denial of a benefit under the insurance contract, but is in general accord with case law finding that claims handling alone, without the denial of a benefit, can be the basis for a bad faith claim.]

Date of Decision: July 20, 2017

Golon, Inc. v. Selective Insurance Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 113385 (W.D. Pa. July 20, 2017) (Schwab, J.)

 

JULY 2017 BAD FAITH CASES: SETTLING AND EXHAUSTING POLICY LIMITS AS TO LESS THAN ALL INSUREDS PERMISSIBLE IF REASONABLE AND DONE IN GOOD FAITH (New Jersey Law Division)

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An interesting New Jersey 2016 trial court opinion on settling for less than all insureds.

As the court framed the issue: Did the insurer have “the discretion under the policy to settle the claims against [one insured] and thereby exhaust the policy without also obtaining a release from the Plaintiff of the claims against the [other insureds?]” The party resisting the partial settlement was a different insurer for these other insureds, which brought suit to stop the partial settlement.

The settling insurer wanting brought its own arguments to the table that it did have “discretion to exhaust its policy limit in good faith to settle the underlying claims against one of its insureds even if that settlement does not extinguish the claims against its other insureds….” The opposing carrier countered “that any proposed settlement on behalf of only one of [the] insureds would be unreasonable under the circumstances and would constitute bad faith.” The court found in favor of discretionary partial settlement, holding that the insurer “has discretion to exhaust its policy limit in good faith to settle the underlying claims against one of its insureds even if that settlement does not extinguish the claims against its other insureds….”

The court recognized that “an insurance company owes its insured a duty of good faith that applies when, as here, the insurer reserves control of settlement negotiations….” It examined both New Jersey and other states’ case law on bad faith settlements. This included a Pennsylvania Commonwealth Court decision standing for the proposition that an “insurer should not be precluded from accepting reasonable settlement offer for fewer than all insureds when no evidence establishing that the proposed settlements are unreasonable” and finding “that [an] insurer may be subject to bad faith action if evidence of unreasonable settlement.” Citing relevant New Jersey case law, the court emphasized a carrier’s “broad discretion to evaluate and settle claims in good faith as they see fit.”

The court considered it significant that a partial settlement would not leave the other insureds bare of any defense or coverage; rather, two other carriers provided potential defense and indemnification for them.

The court found “no impediment to the [insurer’s] exhaustion of its policy to settle the claims against [one insured] without also obtaining a release of the claims against the [other insureds]. The plain language of the policy affords the carrier discretion to investigate occurrences and settle claims as they see fit, so long as the decision is made in good faith.” Moreover, as stated above, “the two additional insureds in this case each have their own primary liability policies.” Further, “one of the additional insureds … [had] rebuffed Plaintiff’s request to make a meaningful contribution to a global settlement. …. [H]aving failed despite extensive efforts to achieve a global settlement, the carrier has decided to effect a partial settlement to cap the exposure of [the settling insured]. Moreover, in this case, given the amount of coverage both primary and excess available to the [other insureds], the prospect that the settlement would be found in bad faith are in the court’s judgment remote.”

Thus, summary judgment was granted to the settling insurer.

Date of Decision: November 18, 2016

National Surety Corp. v. First Specialty Insurance Corp., No. L-3983-16, 2016 N.J. Super. Unpub. LEXIS 2570 (N.J. L. Div. Essex County Nov. 18, 2016) (Mitterhoff, J.)

JULY 2017 BAD FAITH CASES: CLEAR POLICY LANGUAGE SUPPORTED PLAINTIFFS’ BAD FAITH CLAIM (Philadelphia Federal)

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After purchasing a new car, the insureds were involved in an accident with an uninsured motor vehicle. The insureds tendered a claim for UIM benefits to their automobile insurance provider who denied the claim. The basis for the denial was that the newly purchased car was not insured at the time of the accident. The insureds brought suit, alleging claims for breach of contract, statutory bad faith, and negligence for failure to procure insurance.

The Court issued two opinions concerning the insureds bad faith claims. In the first opinion, the District Court granted the insurers’ Motion to Dismiss, without prejudice, holding that the Complaint contained only conclusory legal recitations, and lacked factual recitations of any bad faith conduct. The Court found an absence of any “facts showing how [the insurer] lacked a reasonable basis for its decision to not pay UIM benefits,” or “facts specifically describing what was unfair about [the insurer’s] denial or refusal to pay UIM benefits.” Although the Court granted the insurer’s Motion, it gave the insureds leave to file an amended complaint.

The insureds filed an amended complaint, and the insurer again moved to dismiss. In its second opinion, the District Court came to a vastly difference conclusion. In the amended complaint, the insureds attached their automobile policy which expressly promised “to insure the plaintiffs as long as they request a car be added to the policy within 30 days of acquiring the car.” The amended complaint alleged that the insureds did just that. According to the court, the inclusion of this policy was, in and of itself, sufficient proof of bad faith. The Court explained that “an insurance company ignoring its costumer’s claim in the face of its own policy language clearly guaranteeing coverage for the very claim at issue certainly forms the basis for a bad faith claim.”

Dates of Decisions: April 10, 2017 & July 11, 2017

Riedi v. Geico Casualty Co., No. 16-6139, 2017 U.S. Dist. LEXIS 54952 (E.D. Pa. April 10, 2017) (Stengel, J.)

Riedi v. Geico Casualty Co., No. 16-6139, 2017 U.S. Dist. LEXIS 106678 (E.D. Pa. July 11, 2017) (Stengel, J.)

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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