Archive for the 'PA – Punitive Damages' Category

UPDATED: PENNSYLVANIA SUPREME COURT RULES MOTIVE OF SELF-INTEREST OR ILL-WILL NOT AN ELEMENT OF STATUTORY BAD FAITH CASE (Pennsylvania Supreme Court)

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Since 2007, Pennsylvania’s Superior Court has taken the position that proving statutory bad faith includes two elements: (1) the absence of a reasonable basis to deny a benefit and (2) knowledge or reckless disregard of the fact there was no reasonable basis to deny coverage. The elements were originally stated in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994). The Terletsky Court had also discussed the concepts of a carrier’s “motive of self-interest or ill-will,” and some courts concluded this was a third element of proof. The Superior Court rejected that position in 2007, holding that self-interest or ill-will (sometimes generically referred to as malice) can be evidence used to prove the second element, but was not an element of proof in itself. However, the position that self-interest or ill-will was a required third element of proof has continued in some Pennsylvania Federal District Court opinions.

Today, in Rancosky v. Washington National Ins. Co., Pennsylvania’s Supreme Court adopted the Superior Court’s position.

The Supreme Court stated:

we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.

The Court instructed the Superior Court to remand the action to the Trial Court for factual findings. “However, because it is unclear to what extent the trial court’s findings on the reasonable basis prong of Terletsky were intertwined with its erroneous belief that proof of Conseco’s motive of self-interest or ill-will was required, upon remand the trial court should consider both prongs of the Terletsky test anew.”

Some of the other key points in the opinion include:

  1. Punitive Damages. The Bad Faith Statute provides for attorneys’ fees, super-interest, and punitive damages. There is no higher standard of proof for plaintiffs seeking to prove bad faith with punitive damages, i.e., self-interest or ill-will do not become elements of proof where the plaintiff demands punitive damages as part of the statutory bad faith claim. The Court stated, “we find no basis for concluding that the General Assembly intended to impose a higher standard of proof for bad faith claims seeking punitive damages when it created the right of action.”
  2. No Effect of Prior Supreme Court Precedent. In footnote 10, the Court cites to three of its bad faith opinions: Toy, Birth Center and Mishoe. The Court makes clear that these “prior decisions interpreting Section 8371 do not directly control our disposition of the instant matter. Moreover, nothing we say here should be read as casting doubt on the validity of the holdings in those cases. As we have stated over the years on this blog, Toy can be interpreted to limit cognizable bad faith claims to those cases where there has been a denial of benefits in a first party case, or denial of a defense or coverage in third party cases. That issue was not addressed in Rancosky.
  3. Statutory Interpretation. The Court offers general instruction on how to apply principles of statutory construction under Pennsylvania law. In this case, the focus was on the history of bad faith law leading up to the 1990 adoption of the 42 Pa.C.S. § 8371, and the contemporaneous meanings of bad faith at the time of its adoption. The driving factor was the universal understanding that the legislation was in response to the Pennsylvania Supreme Court’s 1981 D’Ambrosio decision, and how the issue of what constitutes bad faith was framed in that case.
  4. Interesting Comments in Justice Wecht’s Concurrence. Justice Wecht’s concurrence focuses of how inclusion of ill-will/self-interest as an element would functionally swallow the Terletsky test. In describing this flaw, he makes an interesting point about the relationship between poor claims handling being tied into the denial of benefits to make out a bad faith claim: “Knowing or reckless claims-handling leading to objectively unreasonable denial of benefits, if proven by clear and convincing evidence, embodies the principle that a patent absence of good faith is tantamount to the presence of bad faith.” 

    Date of Decision:  September 28, 2017

    Rancosky v. Washington National Insurance Company, Pennsylvania Supreme Court, 28 WAP 2016 (Pa. Sept. 28, 2017)

PENNSYLVANIA SUPREME COURT RULES MOTIVE OF SELF-INTEREST OR ILL-WILL NOT AN ELEMENT OF STATUTORY BAD FAITH CASE (Pennsylvania Supreme Court)

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Since 2007, Pennsylvania’s Superior Court has taken the position that proving statutory bad faith includes two elements: (1) the absence of a reasonable basis to deny a benefit and (2) knowledge or reckless disregard of the fact there was no reasonable basis to deny coverage. The elements were originally stated in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994). The Terletsky Court had also discussed the concepts of a carrier’s “motive of self-interest or ill-will,” and some courts concluded this was a third element of proof. The Superior Court rejected that position in 2007, holding that self-interest or ill-will (sometimes generically referred to as malice) can be evidence used to prove the second element, but was not an element of proof in itself. However, the position that self-interest or ill-will was a required third element of proof has continued in some Pennsylvania Federal District Court opinions.

Today, in Rancosky v. Washington National Ins. Co., Pennsylvania’s Supreme Court adopted the Superior Court’s position.

The Supreme Court stated:

“we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.”

More to follow.

Bad Faith Blog Nominated in Best Legal Blog Contest

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The Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog has been nominated to participate in The Expert Institute’s Best Legal Blog Contest, in the Niche and Specialty category.

Please consider giving us your vote, via this voting Link.

Thanks from all of us at the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog!

 

AUGUST 2017 BAD FAITH CASES: COURT ADDRESSES NON-STATUORY PUNITIVE DAMAGE, SUPER-INTEREST AND ATTORNEY’S FEES CLAIMS; DIFFERENCE BETWEEN CONTRACTUAL DUTY OF GOOD FAITH AND BREACH OF FIDUCIARY DUTY; NO STATUTORY RIGHT TO WITNESS FEES; AND ADEQUACY OF DAMAGE PLEADINGS (Philadelphia Federal)

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This case provides an explanation of the distinct rights to relief under claims of breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. Ann. § 8371.

After a severe storm damaged the insured’s home, pool, and automobile, the insurer’s agent initially estimated the cost of repairs at $119,111.16 actual cash value and $131,185.96 replacement cost value. The insurer paid $119,111.16. No contractor agreed to make the repairs for that amount. One contractor gave the insured an estimate of $288,614.29 for the repairs. The insurer increased its loss estimate to $128,778.67 actual cash value and $141,166.41 replacement cost value.

The insured then sued for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty (Count II), and statutory bad faith (Count III). The insurer moved to strike the punitive damage claims in Counts I and II. The Court agreed, explaining that “[t]he law in Pennsylvania has always been that punitive damages cannot be recovered for breach of contract.”

The insurer also moved to strike the insured’s claims in Count II, arguing that Pennsylvania law does not recognize these distinct causes of action where a breach of contract claims is already alleged. The Court dismissed the insured’s breach of the implied covenant of good faith and fair dealing claim with prejudice, as it recognized that such claims “are subsumed in a breach of contract claim.”

As to the breach of fiduciary duty claim, the Court held that while a fiduciary relationship does not exist as a matter of law between the insurer and the insured, an insured could plead such facts that give rise to such a relationship. Thus, the Court dismissed that claim without prejudice, giving the insured the ability to plead such facts.

The insurer also moved to strike references to attorneys’ fees in Counts I and II. The Court agreed, finding that “there can be no recovery of attorneys’ fees . . . absent an express statutory authorization . . . .” The motion to strike also requested the Court to strike the insured’s request to recover interest at the prime rate plus three-percent in Counts I and II. Noting that only Pennsylvania’s bad faith statute authorizes such a super-interest remedy, the Court struck these references.

Additionally, the insurer argued that the Court should strike references to the insured’s alleged damages in Counts I and II because the complaint failed to allege sufficient facts to show that the damages resulted from the alleged breach of contract. The Court disagreed, and found that “details about [the insured’s] damages undoubtedly relate to his claim for breach of contract and, if proven, will be material to damages calculations.” Thus, the insured’s references to his alleged damages were not immaterial, impertinent, or scandalous, and the Court declined to strike them.

Lastly, the insurer sought to dismiss the insured’s request for expert witness fees in Count III (the bad faith claim). Citing prior case law from the Pennsylvania Superior Court, the Court held that the plain language of Section 8371 precludes recovery of expert witness fees, and therefore struck the insured’s request for such fees.

Date of Decision: August 14, 2017

Aaron v. State Farm Fire and Casualty Company, No. 17-2606, 2017 U.S. Dist. LEXIS 128994 (E.D. Pa. Aug. 14, 2017) (Pappert, J.)

 

 

 

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.)