Archive for the 'PA – Punitive Damages' Category
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)
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.)
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.)
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.
In Smith v. Progressive Specialty Insurance Company, the court wrote at length on the work-product doctrine, as applied to a claim handler’s file in a bad faith case. It ultimately ordered the insurer to produce all relevant documents from its claim file prepared before it could be reasonably anticipated that the claim would be litigated, finding that the work-product doctrine did not apply. It did, however, protect claims of attorney-client privilege and attorney work product.
An insurer’s claims file can be discoverable in a bad faith case, as information in that file on the insurer’s decision to deny the claim is “relevant or could lead to potentially relevant information.” At the same time, however, the court noted that “institution of a bad faith claim does not automatically waive attorney-client privilege or the work product doctrine.”
The court acknowledged that not everything “prepared by or for the agents of an insurer” is protected by the work product doctrine, and that the doctrine only protects documents prepared in anticipation of litigation. Here, the insurer argued that litigation was anticipated as soon as the insured asserted an underinsured motorist (“UIM”) claim.
The court disagreed, and found that the insurer could not have reasonably anticipated litigation until the insurer’s position and the insured’s position as to the extent of the insured’s damages and lost wages came to “loggerheads.” Accordingly, documents prepared before that time fell outside the scope of the work product doctrine, and the court ordered these documents to be produced.
Date of Decision: December 15, 2015
Smith v. Progressive Specialty Ins. Co., 2:15-cv-528, 2015 U.S. Dist. LEXIS 167618 (W.D. Pa. December 15, 2015) (McVerry, J.)
2015 BAD FAITH CASES: THIRD CIRCUIT FINDS (1) INSURER HAS NO DUTY TO CONSIDER POTENTIAL FOR PUNITIVE DAMAGES WHEN NEGOTIATING SETTLEMENT OF UNDERLYING CASE; (2) PUNITIVE DAMAGES AGAINST INSURED MAY NOT BE CONSIDERED IN EVALUATING BAD FAITH CLAIMS AGAINST INSURER; BUT (3) CONTRACTUAL BAD FAITH CLAIM MAY PROCEED ON THEORY OF ENTITLEMENT TO NOMINAL DAMAGES; AND (4) STATUTORY BAD FAITH CLAIM MAY PROCEED EVEN IF NO COMPENSATORY DAMAGES DUE ON BREACH OF INSURANCE CONTRACT CLAIM (Third Circuit)
In Wolfe v. Allstate Property & Casualty Insurance Company, the Third Circuit was presented with the question of “whether punitive damages awarded against an insured in a personal injury suit are recoverable in a later breach of contract or bad faith suit against the insurer.” The Court predicted that Pennsylvania’s Supreme Court would rule consistent with Pennsylvania public policy that “insurers cannot insure against punitive damages” either directly or indirectly through a later bad faith claim. However, the Court did give more leeway on pursuing bad faith claims, even in the absence of any damages for unpaid benefits in breach of the insurance contract.
The insured was highly intoxicated at the time he injured the plaintiff in a motor vehicle collision. The insured had $50,000 in insurance, and his insurer defended him against the injured plaintiff’s claims. There were settlement negotiations where the injured plaintiff demanded $25,000 and the insurer offered less than $1,500. Two judges valued the case at $7,500, but the injured plaintiff would not reduce his demand below $25,000, and the insurer would not increase its offer unless the demand was reduced.
During the litigation, the injured plaintiff added a claim for punitive damages in light of the insured’s level of intoxication at the time of the collision, and his prior driving history. Also during the course of the matter, the insurer gave notice to the insured that the insured could be liable personally for any verdict in excess of the $50,000 policy limit; and that there was no insurance coverage at all for punitive damages, which were not covered under the policy.
The jury awarded less than $50,000 in compensatory damages, which the carrier paid; and $50,000 in punitive damages, which the carrier refused to pay as these were not covered under the policy. The insured assigned his breach of contract and bad faith claims to the injured plaintiff. [This is the same litigation in which the Third Circuit certified to the Supreme Court the question of whether bad faith claims could be assigned, which the Supreme Court answered in the affirmative.]
The Court faced two general issues concerning punitive damages: (1) was it error to allow evidence of the punitive damages award from the underlying personal injury suit to establish damages in the bad faith case; and (2) did the insurer have any duty to consider the potential for punitive damages in evaluating settlement of the underlying personal injury suit, as part of how it valued the compensatory damage claim, where the compensatory damages award was paid in full.
The Court found that “in an action by an insured against his insurer for bad faith, the insured may not collect as compensatory damages the punitive damages awarded against it in the underlying lawsuit. Therefore, the punitive damages award was not relevant in the later suit and should not have been admitted.” In reaching this conclusion, the Court looked to both Pennsylvania principles against insuring punitive damages, and to how other states addressed the issue on potentially indemnifying an insured for punitive damages at this second stage of litigation. “California, Colorado, and New York have similar prohibitions on the indemnification of punitive damages, and those states’ highest courts have similarly held that an insured cannot shift to the insurance company its responsibility for the punitive damages in a later case alleging a bad faith failure to settle by the insurer.”
The Court specifically rejected the argument that if an insurer breached a common law contractual duty of good faith to settle within policy limits, and the case proceeded with a jury awarding punitive damages, then the punitive damages should be considered as consequential damages from the bad faith breach of an insurance contract. Rather, the Court ruled that punitive damages awarded in the underlying case are not properly considered compensable damages in the breach of contract claim against the insurer.
In sum, “an insurer has no duty to consider the potential for the jury to return a verdict for punitive damages when it is negotiating a settlement of the case. To impose that duty would be tantamount to making the insurer responsible for those damages, which … is against public policy.”
However, these rulings did not result in summary judgment on the contractual and statutory bad faith claims against the insurer.
The Court first looked at the contractual bad faith claim, citing to the leading Pennsylvania Supreme Court cases of Cowden and Birth Center. Looking to Cowden, the Court observed that an insurer “must consider in good faith the interest of the insured as a factor in deciding whether to settle a claim.” (Internal quotes omitted) Citing both cases, the Court further observed that only bad faith, not bad judgment, proven by clear and convincing evidence, can allow an insured to recover the “the known and/or foreseeable compensatory damages of its insured that reasonably flow from the bad faith conduct of the insurer.”
Even after eliminating punitive damages from this equation, the Court found that “if a plaintiff is able to prove a breach of contract but can show no damages flowing from the breach, the plaintiff is nonetheless entitled to recover nominal damages.” This makes summary judgment generally improper if sought solely on the basis that no damages can be proved. “Therefore, even without compensatory damages, an insurer can be liable for nominal damages for violating its contractual duty of good faith by failing to settle,” and summary judgment was properly denied on that ground as to the breach of contract claim.
On the statutory bad faith claim, the Third Circuit treaded onto the ground of whether bad faith claims can still exist when there is no contractual payment obligation remaining. [There are two general circumstances when this can occur. First, when the insurer eventually provides a benefit due, but has delayed in doing so in bad faith; second, when the insurer owes no benefit, e.g., because coverage is excluded, but has allegedly acted in bad faith in the manner it went about denying coverage. We have previously raised the issue of whether section 8371 was designed to provide a remedy in the second scenario. In this case the Third Circuit, as discussed below, appears to be focusing on the possibility that the insurer has unduly and in bad faith delayed in providing a benefit due, and that if there were no bad faith claim available in such circumstances, then a statutory goal of deterring intentional delays in providing reasonably known benefits due would fail.]
The Court cited the Superior Court’s Berg decision for the proposition that 42 Pa.C.S. § 8371 “sets forth no . . . requirement to be entitled to damages for the insurer’s bad faith,” and that “the focus in section 8371 claims cannot be on whether the insurer ultimately fulfilled its policy obligations, since if that were the case then insurers could act in bad faith throughout the entire pendency of the claim process, but avoid any liability under section 8371 by paying the claim at the end. . . . [T]he issue in connection with section 8371 claims is the manner in which insurers discharge their duties of good faith and fair dealing during the pendency of an insurance claim, not whether the claim is eventually paid.” (Emphasis in original)
Thus, “the policy behind section 8371—deterring insurance companies from engaging in bad faith practices—is furthered by allowing a statutory bad faith claim to proceed even where the insured has alleged no compensatory damages resulting from that conduct.” Under these principles, “removal of the … punitive damages award as damages in this suit has no bearing on the damages that can be awarded under the statutory bad faith claim.”
The Court then provided a footnote to further explain its position:
Recovery on [the] breach of contract claim and [the] statutory bad faith claim are entirely independent of one another. Section 8371 allows punitive damages awards even without any other successful claim. … (“[Because] claims under section 8371 are separate and distinct causes of action and as the language of section 8371 does not indicate that success on the contract claim is a prerequisite to success on the bad faith claim, . . . an insured’s claim for bad faith brought pursuant to section 8371 is independent of the resolution of the underlying contract claim.”)…. Furthermore, [the] claim under section 8371 does not affect [the insured’s] ability to obtain compensatory damages, if they exist, under a breach of contract claim. “The statute does not prohibit the award of compensatory damages. It merely provides an additional remedy and authorizes the award of additional damages. ….
The Court further observed that compensatory damages are not required to succeed on a statutory bad faith claim, which only permits recovery of punitive damages, interest, and costs.
In sum, the Court denied summary judgment on the statutory bad faith claim because the inability to collect punitive damages as compensatory damages, standing alone, does not preclude recovery on the bad faith claim.
Date of Decision: June 12, 2015
Wolfe v. Allstate Prop. & Cas. Ins. Co., No. 12-4450, 2015 U.S. App. LEXIS 9876 (3d Cir. June 12, 2015) (Rendell, Jordan, Lipez, JJ.)
MAY 2015 BAD FAITH CASES: ATTORNEY’S FEES ONLY AVAILABLE IF THERE IS BAD FAITH; NO SEPARATE CLAIM FOR BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING; FACTS PLEADED MET PLAUSIBILITY STANDARD; COMPENSATORY AND CONSEQUENTIAL DAMAGES NOT AVAILABLE UNDER BAD FAITH STATUTE; AND PUNITIVE DAMAGES NOT AVAILABLE IN ACTION TO COMPEL SPECIFIC PERFORMANCE OF AN APPRAISAL (Philadelphia Federal)
In St. Clair v. State Farm Fire & Casualty Company, the court stated the following principles and legal conclusions:
- A plaintiff can recover attorney’s fees under the bad faith statute for a bad faith breach of an insurance contract, but cannot recover attorney’s fees for the simple breach of contract claim in the absence of bad faith, and claims for attorneys’ fees in such counts will be stricken.
- There is no claim for violation of a duty of good faith and fair dealing that can be pleaded outside a breach of contract claim, rather it is part of the breach of contract claim.
- Where an insured supports her breach of implied duty of good faith claim with the same allegations that she uses to support her statutory bad faith claim “the Third Circuit has held that ‘a party is not entitled to maintain an implied duty of good faith claim where the allegations of bad faith are “identical to” a claim for “relief under an established cause of action.”’” Because the insured supported her implied duty of good faith claim with allegations of bad faith that were identical to those used to support the statutory bad faith claim, the dismissed the action on this ground as well. [Note: It is clear that statutory bad faith and contractual bad faith may provide different remedies for the same conduct, so it is not clear if the court is stating that a breach of good faith claim untethered to a contract claim cannot stand because there is another cause of action to address that; or whether the court is stating that a breach of the contractual duty of good faith and fair dealing cannot stand if based on the same conduct as a statutory bad faith claim.]
- The Twombly Iqbal plausibility standard was met where the insured pleaded (i) she obtained a policy from the insurer that covered fire damages, (ii) she had a fire resulting in fire damage during the policy period, (iii) the insurer refused to pay the entire loss, (iv) that the insurer told her the loss was not covered but produced no evidence supporting that position, (v) that the insurer denied full payment while refusing to participate in the contractually required appraisal process on the basis that it did not have to participate in the appraisal process prior to agreeing to the scope of damage, contrary to the contract, (vi) that the insurer “fraudulently created values and assigned them to the covered losses to increase its own profitability, (vii) that the insurer accepted premiums intending not to pay out on covered losses; (viii) that the insurer denied the claim without proper investigation; and (ix) that the insurer “falsely misrepresented its responsibilities under the policy.”
- Compensatory and consequential damages are not available under the bad faith statute.
- Punitive damages are not available for a claim seeking to compel specific performance of the appraisal process under an insurance contract.
Date of Decision: May 6, 2015
St. Clair v. State Farm Fire & Cas. Co., CIVIL ACTION No. 15-0538, 2015 U.S. Dist. LEXIS 59117 (E.D. Pa. May 6, 2015) (Yohn, J.)