Archive for the 'PA – Punitive Damages' Category

NOVEMBER 2012 BAD FAITH CASES: COURT STRIKES BAD FAITH CLAIM AND PREVENTS IT FROM MOVING TO A DE NOVO TRIAL BECAUSE THE INSURED FAILED TO MEANINGFULLY PARTICIPATE IN ARBITRATION PROCEEDINGS AS TO THAT COUNT OF ITS COMPLAINT; DENIES DISMISSAL FOR SPOLIATION ON REMAINING CLAIM (Philadelphia Federal)

Published on November 5, 2012 in PA - Punitive Damages. Closed
Print Friendly

In Rogers v. Allstate Ins. Co., the court heard a carrier’s motion to strike its insured’s request for Trial De Novo. The case was originally assigned for arbitration pursuant to Local Rule 53.2(3)(A) because it involved less than $150,000. However, during the arbitration, the insured’s attorney only presented evidence with respect to the breach of contract count.
Under Local Rule 53.2(5)(B), a party is required to meaningfully participate in such an arbitration proceeding. The carrier’s motion argued that the insured’s violation of this rule warranted striking the bad faith count. The court agreed, permitting only the breach of contract claim to proceed to a de novo trial.
The court also addressed the carrier’s motion to dismiss for spoliation of evidence. The insured allegedly disposed of a computer that should have been preserved as evidence. However, the court declined the motion because dismissal for spoliation is an extreme remedy and it cannot be proven that the insured should have foreseen the computer’s relevance to potential litigation.
Date of Decision: October 22, 2012
Rogers v. Allstate Ins. Co., No.: 11-cv-7776, 2012 U.S. Dist. LEXIS 151818, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Oct. 22, 2012) (Sitarski, J.)

NOVEMBER 2012 BAD FAITH CASES: INSURED ADDUCES DISPUTED FACT WITH REPSECT TO CARRIER’S ALLEGED BAD FAITH TRAINING OF CLAIMS ADJUSTER AND PROVIDING IMPROPER STANDARD TO INDEPENDENT MEDICAL ADJUSTER; COURT ALLOWS FOR EMOTIONAL DISTRESS DAMAGES POTENTIAL IN CONTRACTUAL BAD FAITH SETTING (Western District)

Published on November 5, 2012 in PA - Claims Handling Procedures, PA - Coverage Issues, PA - General Bad Faith and Litigation Issues and PA - Punitive Damages. Closed
Print Friendly

In Smith v. Allstate Ins. Co., the court head a carrier’s summary judgment motion stemming from its insured’s claims for contractual bad faith and statutory bad faith. The dispute arose from the carrier’s denial of an underinsured motorist claim (UIM) made by the insured after she was severely injured in an automobile accident. The carrier originally denied UIM coverage and the coverage issue went to arbitration, where the insured was awarded $135,000. the insured filed suit in state court for bad faith. The carrier removed to federal court and filed this motion for summary judgment.
First, the court examined the carrier’s motion contesting the insured’s contractual bad faith claim. The carrier argued that, when a carrier pays an insurance claim pursuant to an arbitration award, an insured is not permitted to assert a breach of contract claim arising from the carrier’s alleged bad faith claims handling. However, the court disagreed, noting that, although an insured may not make a claim for breach of contract damages, it may still maintain an action for the carrier’s breach of a contractual duty of good faith.
As such, the court concluded that the arbitration award did not preclude the insured’s claim for emotional damages arising from the carrier’s breach of its contractual duty. That award only served to resolve the UIM coverage dispute. The court concluded that, while emotional damages are typically not recoverable in a breach of contract action, an insured can pursue such a claim emotional distress damages where a serious emotional disturbance was likely to result from the carrier’s actions.
Second, the court addressed the carrier’s opposition to the insured’s statutory bad faith claim. The insured’s claim was based upon the carrier’s improper training of its claims adjusters and its providing an improper standard to its independent medical examiner. The carrier denied these claims but depositions showed that the adjuster might have been misinformed about injuries that breach the limited tort threshold. As such, the court denied the carrier’s motion in total because the insured set forth sufficient evidence to prove a disputed issue of fact that should be tried by a jury.
Smith v. Allstate Ins. Co., 3:11-CV-165, 2012 U.S. Dist. LEXIS 152773, U.S. District for the Western District of Pennsylvania (W.D. Pa. Oct. 24, 2012) (Gibson, J.)

SEPTEMBER 2012 BAD FAITH CASES: COURT CONSTRUES AMBIGUOUS CHOICE OF UIM BENEFITS IN FAVOR OF INSURED, BUT RULES THAT CARRIER’S TENDER OF LOWER AMOUNT WAS NOT IN BAD FAITH BECAUSE OF THE INSURED’S UNCLEAR RESPONSE ON POLICY SELECTION FORM (Philadelphia Federal)

Published on September 2, 2012 in PA - Punitive Damages. Closed
Print Friendly

In Olender v. Nat’l Cas. Co., the court heard cross-motions for summary judgment stemming from the carrier’s denial of benefits under the insured’s under insured motorist (“UIM”) policy. The insured was the owner of an automotive garage and purchased a UIM policy through his company. However, when originally selecting his desired UIM coverage on the policy selection form, he initialed in two places, appearing to choose both $100,000 and $35,000 liability limits.
In 2008, the insured’s wife was driving an automobile owned by her husband’s company and was struck by a negligent driver. The driver was only insured for $15,000, an amount insufficient to cover the injuries she sustained. As such, she filed a UIM claim with the carrier. In mid-2009, the carrier tendered to the insureds a check in the amount of $35,000. The check was accompanied by a general release discharging the carrier from any further liability. The insureds refused to sign the release and returned the check, reasoning that they were entitled to the full $100,000 in coverage. The insureds later sent a demand letter to the carrier demanding that they be awarded the undisputed $35,000 amount, but the carrier refused.
Prior to the date of the demand letter, the insureds had filed an action for declaratory judgment, breach of contract and bad faith against the carrier, seeking a judgment that they were entitled to the full $100,000. The carrier removed the case to federal court and the parties filed cross-motions for summary judgment.
The insureds contended that they did not reduce their UIM policy limits to $35,000 and that the carrier’s refusal to tender the full $100,000 was a breach of their contract. The carrier claimed that the insureds had chosen the $35,000 limits because they signed next to that option on the policy selection form. The court agreed with the insureds that an examination of the policy selection form as a whole manifests a desire to obtain coverage for $100,000. A reading of the policy shows that the insured properly signed and initialed next to that amount.
The court reasoned that the carrier ignored the fact that the insured selected both options – he sought $100,000 in UIM limits, an amount equal to his bodily injury coverage. However, he also appeared to choose $35,000 in UIM limits. Under basic contract principles, the policy should be construed in favor of the insured. The court therefore ruled that the carrier was required to tender the $100,000 in UIM coverage.
As for the bad faith claim, the insured contended that the carrier’s refusal to initially tender the $35,000 sum without signing a general release constituted bad faith. However, the court reasoned that, due to the ambiguities contained in the insured’s selection form, the carrier’s decision was made in good faith on the basis of the designations of the selection form. The court did not address the issue of whether requesting the release of any bad faith claim was in itself bad faith.
The court therefore granted the insured’s motion on the breach of contract claim, but found for the carrier on the bad faith count.
Date of Decision: August 21, 2012
Olender v. Nat’l Cas. Co., 11-4098, 2012 U.S. Dist. LEXIS 117731, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Aug. 21, 2012) (Tucker, J.)

JUNE 2012 BAD FAITH CASES: SERVING RULE TO FILE A COMPLAINT ON WRIT OF SUMMONS NOT BAD FAITH; CLAIMS HANDLING NOT UNREASONABLE UNDER CIRCUMSTANCES (Middle District)

Published on June 14, 2012 in PA - Punitive Damages. Closed
Print Friendly

In Fabrikant v. State Farm Fire & Casualty Co., the court ruled for a carrier that had filed a motion for summary judgment in opposition to the insured’s breach of contract, bad faith, and Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claims. The insured originally filed his complaint in the Lackawanna County Court of Common Pleas, prompting the carrier to remove to federal court and file a motion to dismiss. The court denied the motion and the case moved to discovery.
The case arose from a fire at the insured’s residence that destroyed his home on Thanksgiving Day, 2009. Initial police reports stated that the cause of the fire was a space heater. One day later, the carrier’s claims manager learned that the insured was having severe financial difficulties, had recently been divorced, and owned a failing business. Because he could not pay his gas bills, the insured had been heating his home exclusively with space heaters. The next day, the carrier’s representatives examined the property and smelled flammable liquids, determining that the cause of the fire was “incendiary.”
Given the insured’s financial situation and the evidence of flammable substances, the carrier then referred the case to its Special Investigative Unit (“SIU”). In his preliminary report, the SIU investigator determined that the fire was set with gasoline. During the entire investigative process, the carrier continued to reserve its rights on the insured’s claims. An SIU report later concluded that the solvent used in the space heater did not show up in the lab samples and was unlikely to have been the ignition source.
Throughout the investigation, the insured was uncooperative, failing to provide information requested by the carrier, despite his contractual obligation to comply. As a result, the carrier refused to waive the one-year suit limitation provision in the insured’s policy. In response, the insured filed a Praecipe for Writ of Summons in Lackawanna County in late 2010. A month later, the carrier filed a Praecipe requesting that the court issue a Rule on Plaintiff to file a Complaint within twenty days. In response to the carrier’s Rule to File Complaint, the insured filed a complaint alleging breach of contract and bad faith on behalf of the carrier.
Regardless of the difficulties in adjusting the insured’s claim, the carrier paid $154,422.75 for the dwelling claim, $109,975.00 for the personal property claim, and a final $2,500 representing the insured’s jewelry/fur policy limit in early 2011.
The court first examined the insured’s breach of contract allegation, which the carrier defended as moot since it had paid the limits of the insured’s policy. The court agreed, granting summary judgment to the carrier on this count.
It also found that the insured had not proven the carrier’s investigation to be untimely or unreasonable, especially given the circumstances surrounding the claim. Moreover, the insured was uncooperative, delaying the investigation.
The insured also alleged that the carrier was in breach because it forced him to file a Writ of Summons prior to the one-year suit limitation. Had the carrier waived the time limit, the insured claimed, he would not have been forced to file the Writ. However, the court disagreed, ruling that the carrier did not force the insured to litigate by filing a Rule to File Complaint in response to the Writ. The court reasoned that this procedural maneuvering was wholly in accordance with Pa. R. Civ. P. 1037, which provides that “the Prothonotary, upon praecipe of the defendant, shall enter a rule upon plaintiff to file a complaint.” Therefore, the carrier acted in accordance with Pennsylvania law by filing the Rule in response to the insured’s Writ. Nothing in the policy’s suit provision prohibited the carrier from exercising this right, despite the fact it chose not to waive the one-year limitation.
With respect to the insured’s bad faith claims, the court also granted summary judgment to the carrier. The insured’s argument relied upon the carrier’s allegedly “unreasonable handling” of his claim. The court disagreed, citing the numerous “red flags” that warranted an extended investigation. The court also rejected the insured’s claim that the carrier acted in bad faith by adhering to the one-year suit limitation clause. The carrier acted properly in refusing to waive the provision in light of the insured’s uncooperative behavior.
The crux of the court’s holding, however, related to the carrier’s choosing to serve the insured with the Rule to File Complaint. While the court reasoned that forcing an insured to litigate in this manner might represent bad faith in some contexts, there was no evidence of “a dishonest purpose” here. The carrier merely exercised a procedural right, which, given the facts of this case, did not represent bad faith. The court recognized that it might have been better for the carrier to delay requiring the insured to file a complaint since the coverage decision was in its final stages. Yet, the court deemed this decision mere “bad judgment,” refusing to find the carrier’s actions constituted bad faith.
With respect to the insured’s UTPCPL claim, the court ruled that, because the carrier had been up front with the insured, reserving its rights through the process, there was no consumer protection violation.
The court therefore granted summary judgment to the carrier on all counts.
Date of Decision: May 14, 2012
Fabrikant v. State Farm Fire & Casualty Co., 2012 U.S. Dist. LEXIS 67017, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. May 14, 2012) (Conaboy, J.)

MAY 2012 BAD FAITH CASES: COURT REMANDS FOR LACK OF JURISDICTION ON BASIS THAT CLAIMS CANNOT BE AGGREGATED AND CONCERN WITH A “REMOVE AND DISMISS” APPROACH BY THE CARRIER (Philadelphia Federal)

Published on May 1, 2012 in PA - Punitive Damages. Closed
Print Friendly

In Cruz v. State Farm Insurance Company, the court denied the carrier’s motion to dismiss and remanded the insureds’ bad faith claims to state court. The case was initially filed in Lehigh County’s Court of Common Pleas as a suit for underinsured motorist benefits by two accident victims insured by the carrier. The carrier then removed the action to federal court on the basis of diversity jurisdiction, alleging that the insured’s punitive damage claims for bad faith would bring the total claims above the jurisdictional requirement of $75,000.
In its original petition for removal, the carrier alleged that each insured party sought $50,000 and punitive damages, contending that this amount in controversy exceeds the jurisdictional requirement of $75,000.00. The court recognized that this is an incorrect understanding of the law, because two separate claims by two distinct plaintiffs may not be aggregated for jurisdictional purposes. However, the court also noted that the carrier has been inconsistent – first they used the projected punitive damage award as the basis for removal, and then second sought to dismiss the suit for damages as baseless. The court rejected these so-called “remove-and-dismiss” tactics and ordered the case to be remanded back to state court.
Date of Decision: April 19, 2012
Cruz v. State Farm Ins. Co., NO. 12-cv-1629, 2012 U.S. Dist. LEXIS 55157, United States District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 19, 2012) (Davis, J.).

APRIL 2012 BAD FAITH CASES: COURT DENIES INSURED’S MOTION FOR RECONSIDERATION, WHICH REPEATED ARGUMENTS FROM THE PARTIES’ MOTION OPPOSING SUMMARY JUDGMENT (Middle District)

Published on April 6, 2012 in PA - Punitive Damages. Closed
Print Friendly

In Verdetto v. State Farm Fire and Casualty Company, the insured parties’ filed a motion for reconsideration of the court’s granting of the carrier’s motion for summary judgment. The action arose out of a coverage dispute between the insureds and their carrier after a fire at the insureds’ rental property.
In 2008, the insureds rented a home and purchased renter’s insurance from the carrier. In early 2009, the insureds moved from the rental home. Before the move was complete however, the insureds’ first rental home caught fire. The cause of the fire was determined to be arson. After the fire, the insureds contacted the carrier to recover for damage to personal property left at the rental home during their move in 2009.
After discovering the cause of the fire, the carrier became aware of several “red flags” relating to the insureds’ claim. As a result, the carrier determined that further investigation of the claim was necessary. The insureds refused to cooperate with the investigation, prompting the carrier to deny coverage for personal property destroyed in the fire. The insureds filed suit and the carrier moved for summary judgment, which the court granted.
Turning to the insureds’ motion for reconsideration, the court recognized that the parties merely relied upon the same unavailing arguments that they had asserted during the summary judgment phase. The court reiterated that the existence of “red flags” may form the basis for an insurer’s investigation and that the insureds had a contractual obligation to comply with the insurer’s requests. This failure to cooperate, the court reasoned, was more than a technical departure from the terms of the policy, severely prejudicing the carrier’s interests. As such, it was not erroneous for the court to have granted summary judgment to the carrier.
Date of Decision: March 6, 2012
Verdetto v. State Farm Fire and Casualty Co., NO. 3:10-CV-1917, U.S. District Court for the Middle District of Pennsylvania, 2012 U.S. Dist. LEXIS 29593 (M.D. Pa. Mar. 6, 2012) (Caputo, J.)

APRIL 2009 BAD FAITH CASES
EMOTIONAL DISTRESS & COMPENSATORY/CONSEQUENTIAL DAMAGES NOT AVAILABLE UNDER STATUTE; BUT EMOTIONAL DISTRESS ACTIONABLE FOR BAD FAITH CONTRACT BREACH (Middle District)

Published on April 1, 2009 in PA - Punitive Damages. Closed
Print Friendly

In Amitia v. Nationwide Mutual Insurance Company, the court addressed both statutory bad faith under 42 Pa.C.S. § 8371 and contractually based bad faith.  The court dismissed emotional distress allegations and the request for compensatory and/or consequential damages sought under the bad faith statute because neither is specifically recoverable under that law.  It did, however, refuse to dismiss the bad faith statutory claims entirely because the claim rested on many allegations of bad faith actions and not merely on the two offered by the insurer as being unfounded.

The insured in this case was unable to return to work due to serious injuries sustained in an automobile accident.  He also pleaded various forms of emotional distress, which apparently had a physical manifestation, as a result of the insurer’s handling of the claim and underlying UIM arbitration.  The insurer eventually paid the policy benefits for underinsured motorist and income loss coverage, but the insured filed suit on several counts, including bad faith for the way the claim was handled.  The insurer moved for dismissal.

The court dismissed the emotional distress allegations as asserted under the statutory bad faith claim because these types of damages for emotional distress are not covered by the statute, citing two state cases for that principle.  However, the Court added, without similar citation to authority, that such emotional distress claims “are instead covered by the punitive damages.” It is not wholly clear from the opinion whether this is so because emotional distress damages can go into the total compensatory damages under a breach of contract theory (see below), which increases the base number from which punitive damages can be multiplied; and/or whether this form of harm can be considered the kind of physical harm to be weighed in the U.S. Supreme Court’s punitive damage factors.

The court also dismissed the request for “other compensatory and/or consequential damages” under the bad faith claim because the statute does not provide for such damages.  The court did note, however, that this dismissal would have no practical effect because committing a common law bad faith breach of the contractual duty of good faith can still result in an award of compensatory damages, as was done in the Birth Center case.

The court denied dismissal of the statutory bad faith count because it found that the claim rested on more than thirty allegations which, if taken as true as required under a Rule 12(b)(6) motion, would constitute bad faith.  The allegations include failure to conduct a timely and thorough investigation, failure to evaluate the insured’s claim fairly, and failure to promptly evaluate and pay the claim.  There was also alleged bad faith in refusing to settle and in the conduct of the underlying UIM arbitration.

As to the breach of the contractual duty of good faith, the court determined that a breach of contract claim could continue even though the insurer had paid all policy benefits due.  The insured is not seeking policy benefits but, rather, is seeking compensation for emotional distress caused by non-payment or delayed payment, and the manner in which that occurred.  Quoting Pennsylvania’s Supreme Court, the federal court observed that “Emotional distress damages may be recoverable on a contract where . . . the breach is of such a kind that serious emotional disturbance was a particularly likely result.” The insurer allegedly was aware of the insured’s physical and financial condition and thus could reasonably foresee such emotional distress so the court could not dismiss the claim.

Date of Decision:  January 15, 2009

Amitia v. Nationwide Mut. Ins. Co., No. 3:08cv335, 2009 U.S. Dist. LEXIS 2840 (M.D. Pa. Jan. 15, 2009)(Munley, J.)

MARCH 2009 BAD FAITH CASE
THIRD CIRCUIT REDUCES PUNITIVE DAMAGES AWARD TO 1:1 RATIO (Third Circuit)

Published on March 17, 2009 in PA - Punitive Damages. Closed
Print Friendly

In a non-precedential Third Circuit Opinion, Jurinko v. The Medical Protective Company, the case involved the assignment of a bad faith claims to the patients of the insured doctor.  The case had gone to trial, and the insureds had obtained an excess verdict against the doctor for medical malpractice, and he assigned his claims against the carrier in lieu of making the excess payment.  On the assigned claims against the insurer, the patients received a jury verdict of $1,658, 345 and punitive damages of $6,250,000.  The trial court upheld the jury award, and then molded the verdict concerning attorney’s fees, costs and interest.

The case’s factual history reveals a story of settlement recommendations by judges, and the doctor’s own defense counsel (appointed by the carrier), that far exceeded anything the carrier was willing to pay toward settlement; and in fact, throughout the course of settlement discussions and recommendations, the carrier’s offer to contribute toward a settlement never rose above $50,000 (on a $200,000 policy), and where the insured’s potential exposure was evaluated by the judges and/or defense counsel at numbers between $750,000 and $2,000,000.  The doctor himself had wanted to settle.

Astonishingly, the carrier’s own adjuster testified that he acted unreasonably and irresponsibly in settlement negotiations” and that he denied the doctor an effective defense by appointing the same lawyer to represent that doctor, and a co-defendant doctor (against whom plaintiffs asserted crossclaims should have been asserted, but could not be because of a conflict).  Counsel denied that the purported conflict had any real effect, as there eventually was separate counsel and he could argue reliance on the other doctor at trial.

The bad faith aspect of the claim is discussed elsewhere on this site.

On the issue of punitive damages, the court first found that the insurer’s conduct was sufficiently outrageous to support the jury’s conclusion of outrageous conduct warranting punitive damages.  Next, the Court conducted a constitutional analysis of the punitive damage award, following the U.S. Supreme Court’s three guideposts in State Farm v. Campbell of the “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential  harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the [factfinder] and the civil penalties authorized or imposed in comparable cases.” 

Reprehensibility is measured “by considering whether the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.” There was no issue of physical harm or health issues.  There was evidence of the insured doctor’s financial vulnerability, and recidivist behavior solely by reference to repeated bad conduct in the case at hand, which has less force than if the recidivism involves other parties, and only amounted to minimal evidence of reprehensibility.  The conduct was intentional.

In evaluating the punitive damages ratio compared to compensatory damages, the Court measured it as 3.13:1 and not over 6:1, because it included attorneys’ fees and costs into the compensatory damage number.  It looked to the U.S. Supreme Court principles that the ratio should seldom be more than single digits, that an award beyond 4:1 may push the limit and a substantial compensatory damage award reduces the need for a higher punitive damage award, where a matching sum may reach the constitutional limit.  The Court then cited a series of cases with substantial compensatory damage awards where the 1:1 ratio was found most appropriate, and found that the guideposts favored a reduced award.  Finally, the relevant civil penalties under the Unfair Insurance Practices Act also militated against the size of the award.  It reduced the punitives award to a 1:1 ratio.

Date of Decision:  December 24, 2008

Jurinko v. The Medical Protective Company, Nos. 06-3519 & 06-3666, 2008 U.S. App. LEXIS 26263 (3d Cir. December 24, 2008) (Scirica, J.)

FEBRUARY 2009 BAD FAITH CASES
INSURED’S MOTION TO REMAND DENIED WHERE THERE WAS A VALID CLAIM FOR PUNITIVE DAMAGES (Middle District)

Published on February 10, 2009 in PA - Punitive Damages. Closed
Print Friendly

In Webb v. Discover Property & Casualty Insurance Company, the insured instituted suit against the insurer contesting, among other things, the validity of the forms used by the insurer for the rejection of underinsured motorist coverage.   The complaint, which was brought in the Court of Common Pleas, Luzerne County, Pennsylvania, included a bad faith claim, wherein the insured sought punitive damages.  

The insurer removed the case to the United States District Court for the Middle District of Pennsylvania. According to the insurer, because the insured sought punitive damages, the  claim satisfied the $75,000.00 “amount in controversy” threshold and therefore, removal was appropriate.  The insured disagreed and filed a motion to remand the case to state court.     

The court held that if an insured makes an appropriate claim for punitive damages, the amount in controversy requirement is generally met “because it cannot be stated to a legal certainty that the value of the plaintiff’s claim is below the statutory minimum.” Because the insured in this case made a valid claim for punitive damages under its bad faith cause of action, the Court opined that it could not find, to a legal certainty, that the value of the insured’s claims are below the statutory threshold and, therefore denied the insured’s motion to remand.  

Date of Decision: November 24, 2008

Webb v. Discover Prop. & Cas. Ins. Co., No. 3:08cv1607, 2008 U.S. Dist. LEXIS 95431 (M.D. Pa. Nov. 24, 2008)(Munley, J.). 

 

J.M.A.

SEPTEMBER 2008 BAD FAITH CASES
REMAND DENIED WHERE REASONABLE TO FIND INSURED’S CLAIMS COULD SATISFY AMOUNT IN CONTROVERSY REQUIREMENT BY ASSUMING 4 TO 1 PUNITIVES RATIO (Philadelphia Federal)

Published on September 12, 2008 in PA - Punitive Damages. Closed
Print Friendly

    

In Harvey v. United States Life Insurance Company in the City of New York,  the insured’s bad faith claim was based on his disability insurer’s alleged improper reduction of his benefits after he received  a lump sum worker’s compensation settlement.  The insured initiated a putative class action suit in the Court of Common Pleas of Philadelphia and alleged breach of contract and bad faith. The insured sought compensatory damages of $14,000 as well as punitive damages and attorneys fees under the bad faith statute for himself.  The insurer then successfully removed the action to the United States District Court for the Eastern District of Pennsylvania. The insured then filed a motion for reconsideration of the court’s denial of his motion to remand.

As this was a non-CAFA class action, the court looked to the jurisdictional amount of the plaintiff’s individual claim.  In this case, no specific sum was pleaded as to the total amount of the claim.  Where a specific amount of total damages is not put in the complaint, the case must be remanded only if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount. 

The amount in controversy requirement will be satisfied if the claims total more  than $75,000.  The court found that a four to one ratio of punitive damages could meet constitutional muster, which would yield $14,000 in compensatory damages, plus $56,000 in punitives, for a total of $70,000.  The court then concluded that an award of at least $5,001 in counsel fees based on the insured’s claims seemed more than reasonable at this stage.  Thus, the jurisdictional threshold was met, and the case stayed removed. 

Date of Decision: July 18, 2008

Harvey v. United States Life Ins. Co., Civil Action No. 08-2175, 2008 U.S. Dist. LEXIS 55574 (E.D. Pa. July 18, 2008) (Harvey Bartle III, J.)

J.M.A.