Archive for the 'PA – Punitive Damages' Category

JANUARY 2016 BAD FAITH CASES: COURT ORDERS INSURER TO PRODUCE ALL RELEVANT DOCUMENTS PREPARED BEFORE LITIGATION WAS REASONABLY ANTICIPATED, REJECTED THE WORK PRODUCT ARGUMENT (Western District)

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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.)

ALL THE BEST IN THE NEW YEAR

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WE AT THE PENNSYLVANIA AND NEW JERSEY INSURANCE BAD FAITH CASE LAW BLOG WISH YOU ALL THE BEST IN 2016

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Some Fall Photos before the Coming Press of Postings

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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)

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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)

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In St. Clair v. State Farm Fire & Casualty Company, the court stated the following principles and legal conclusions:

 

  1. 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.

 

  1. 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.

 

  1. 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.]

 

  1. 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.”

 

  1. Compensatory and consequential damages are not available under the bad faith statute.

 

  1. 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.)

Enjoy this Spring day, May is going to be a busy month for bad faith blog posts

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MARCH 2015 BAD FAITH CASES: SUPERIOR COURT UPHOLDS BAD FAITH PUNITIVE DAMAGES AWARD, AND PERMITS INCLUSION OF ATTORNEY’S FEES AS PART OF BASE NUMBER UPON WHICH TO CALCULATE PUNITIVE DAMAGES (Superior Court of Pennsylvania, non-precedential)

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In Davis v. Fidelity National Title Insurance Company, a non-precedential decision of the Superior Court, the insured brought breach of contract and bad faith claims against its title insurer.  After a lengthy process from the time the claim was made to the time the insurer paid another party claiming an ownership interest to clear title, the insured alleged it suffered lost profits, and that the insured acted in bad faith by not addressing the claim promptly.  It was almost 5 years between the date the claim was made to the carrier, and the date payment was made to the third party to clear title.

The trial court awarded $224,760 in compensatory damages (combining increased buildings costs on the project and lost profits), which the Superior Court affirmed, agreeing that the future damages were not so speculative as to preclude recovery.  On the bad faith claim, the trial court further awarded $158,450 in attorney’s fees and $1,572,909.24 in punitive damages.  The insurer did not challenge the bad faith claim as such, but challenged the amount of the punitive damages award based upon (1) that it was excessive under U.S. Supreme Court standards as set forth in State Farm Mutual Automobile Insurance Company v. Campbell and its progeny; and (2) that the attorney’s fee award should not have been included in the compensatory damage base number on which to calculate punitive damages.  The Superior Court rejected both arguments.

The court cited a number of cases that included attorney’s fees in the compensatory damage base upon which punitive damages could be determined, rejecting the insurer’s argument on that point.  Further, including the attorney’s fees with the compensatory damages, the punitive damages award was a 4:1 ratio with the compensatory damages, well within Campbell’s constitutional parameters.  Moreover, the court reviewed the factors Campbell considered in determining punitive damages, focusing on the time delays as falling within the degree of reprehensibility factor (the most important factor to consider), and citing Pennsylvania’s Unfair Insurance Practices Act and Unfair Claims Settlement Practices Act regulatory standards in evaluating this factor.  The court stated that “it is difficult to find an area in which [the insurer] acted in conformance with accepted statutory, regulatory or internal standards.” It affirmed the bad faith award of punitive damages given by the trial court.

Date of Decision:  March 18, 2015

Davis v. Fidelity National Title Insurance Company, Superior Court of Pennsylvania, No. 672 MDA 2014 (Pa. Super. Ct. March 18, 2015) (Ott, Bowes, Stabile, JJ).

The trial court decision is Davis v. Fid. Nat’l Ins. Co., 2010-CV-8868, COMMON PLEAS COURT OF LACKAWANNA COUNTY, PENNSYLVANIA, 2014 Pa. Dist. & Cnty. Dec. LEXIS 225 (C.C.P. Lacka. March 28, 2014) (Minora, J.)

1,000th POSTING SINCE 2006

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Restatement of the Law of Liability Insurance Conference on February 27, 2015

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On Friday, February 27, 2015, Rutgers-Camden School of Law’s Center for Risk and Responsibility will be holding a conference on “The ALI’s Principles of the Law of Liability Insurance”, which will include, among others, Restatement of the Law, Liability Insurance, Reporters Tom Baker (Penn) and Kyle Logue (Michigan).  The program is described here, and you can sign up here.

Happy Thanksgiving to All

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