Archive for the 'Punitive Damages' Category

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 Punitive Damages. Closed
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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 Punitive Damages. Closed
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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 Punitive Damages. Closed
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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 Punitive Damages. Closed
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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 Punitive Damages. Closed
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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 Punitive Damages. Closed
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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.
    

SEPTEMBER 2007 BAD FAITH CASES
LIABILIBY FOR BAD FAITH CONDUCT EVEN AFTER POLICY CANCELLED & PUNITIVE DAMAGES AWARD UPHELD BASED IN LARGE PART ON ATTORNEYS’ FEE AWARD (Third Circuit)

Published on September 5, 2007 in Punitive Damages. Closed
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In Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., the United States Court of Appeals for the Third Circuit affirmed the bad faith decision of the district court, even though reversing the breach of contract claim.  The insurer argued that it denied the insured’s claim because the policy had been cancelled at the time of the incident and, in the alternative, even if it had not been cancelled, the insurer acted reasonably in handling the claim.  The Court found that even though there was no breach of the insurance policy because the policy had been cancelled before the loss, the insurer did not assert the cancellation of the policy as a reason for the denial for more than 6 months, misrepresented the terms of the policy, dragged its feet in the investigation of the claim, hid information from the insured and continued to shift its basis for denial of the claim.  The Court concluded that because the parties believed that a policy existed when the claim was filed and acted accordingly, even though the policy had been cancelled, the insurer, thereafter, acted in bad faith for denying the claim.  Further, the Court rejected the argument that there could be no punitive damage claim because there were no compensatory damages on the underlying contract.  In part, the Court found that the $1.1 Million in attorneys fee that the trial court awarded under section 8371 could be included in the punitive damages ratio, relying on Willow Inn, Inc. v. Public Service Mutual Ins. Co.,

Date of Decision:  August 9, 2007

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States Court of Appeals for the Third Circuit, 2007 U.S. App. LEXIS 19069 (3d Cir. Aug. 9, 2007) (Fisher, J)

 

H.P.M./L.A.
    

SEPTEMBER 2006 BAD FAITH CASES
SUPREME COURT LETS LOWER COURT RULING STAND FOR $2.8 MILLION PUNITIVES AWARD ON BAD FAITH CLAIM, TEN TIMES GREATER THAN COMPENSATORY DAMAGES (Supreme Court)

Published on September 1, 2006 in Punitive Damages. Closed
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In Hollock v. Erie Insurance Exchange, the Supreme Court had granted an appeal to address two important issues:  (1) whether Pennsylvania’s Bad Faith statute encompasses conduct that occurs during the bad faith litigation itself; and (2) whether an award of punitive damages 10 times those of the compensatory damages is permissible.  The Trial Court had awarded punitive damages of $2.8 million, approximately ten times the compensatory damages award.  The compensatory damages substantially consisted of fees and costs incurred in the bad faith litigation.  Further the punitive damages award was itself based in large part on the carrier’s conduct during the bad faith litigation itself.

The case eventually came before an en banc Superior Court panel which upheld the trial court’s rulings.  More than two and one-half years after Pennsylvania’s Supreme Court accepted an appeal of the Superior Court’s decision, it dismissed the carrier’s appeal as improvidently granted. The Supreme Court Majority’s Order dismissing the appeal did not address these  issues nor state why the appeal was dismissed.  In dissenting from the dismissal, Chief Justice Cappy, joined by Justice Castille, wrote a lengthy dissenting statement, in which he would have vacated the punitive damage award for considering factors that occurred during trial, with instructions to adhere the U.S. Supreme Court’s ruling in State Farm v. Campbell.

For a discussion of Chief Justice Cappy’s statements concerning conduct during bad faith litigation, see “Categories, Litigation Conduct Claims”.

Date of Decision: August 22, 2006

Hollock v. Erie Ins. Exch., 2006 Pa. LEXIS 1544, No. 67 MAP 2005 (Pa. 2006) (Per Curiam) (order of dismissal) (dissenting statement)

U. S. SUPREME COURT TO HEAR NEW CASE ON PUNITIVE DAMAGES TO INTERPRET REPREHENSIBILITY FACTOR AND ROLE OF IMPACT ON OTHERS (U.S. Supreme Court)

Published on July 13, 2006 in Punitive Damages. Closed
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The U.S. Supreme Court has granted certiorari in Williams v. Philip Morris, Inc. on two questions:  (1) “Whether, in reviewing a jury’s award of punitive damages, an appellate court’s conclusion that a defendant’s, conduct was highly reprehensible and analogous to a crime can ‘override the constitutional requirement that punitive damages be reasonably related to the plaintiff’s harm?” and (2) “Whether due process permits a jury to punish a defendant for the effects of its conduct on non-parties.”  This was not a bad faith case, but will likely have a direct impact on bad faith cases, and is the first case following the Court’s last ruling on punitive damages, State Farm Mutual Auto. Ins. Co. v. Campbell, see “Links of Note” on this blog, which dealt with bad faith.  Despite the ruling in Campbell, which would indicate the application of single digit ratios generally, the Oregon Supreme Court upheld a punitive damages award of nearly 100 times the compensatory damages based upon “extraordinarily reprehensible” conduct, and giving consideration to similar harms to others, in the context of discussing and applying the U.S. Supreme Court’s jurisprudence.

Williams v. Philip Morris, Inc., 126 S.Ct. 2329 (2006) (certiorari granted on two issues).

 

On February 20, 2007, the Supreme Court issued its Opinion in Philip Morris, USA v. Williams, 127 S.Ct. 1057 (2007).  The Court held that a jury could not award punitive damages based upon harm to others, as a taking that violated due process.  However, the Court held that evidence of harm to others was relevant to the reprehensibility prong of the punitive damages analysis.  The Court stated:  “Given the risks of unfairness that we have mentioned, it is constitutionally important for a court to provide assurance that the jury will ask the right question, not the wrong one. … We therefore conclude that the Due Process Clause requires States to provide assurance that juries are not asking the wrong question, i.e., seeking, not simply to determine reprehensibility, but also to punish for harm caused strangers.” 

Summing up, the Court stated:

How can we know whether a jury, in taking account of harm caused others under the rubric of reprehensibility, also seeks to punish the defendant for having caused injury to others? Our answer is that state courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring. In particular, we believe that where the risk of that misunderstanding is a significant one — because, for instance, of the sort of evidence that was introduced at trial or the kinds of argument the plaintiff made to the jury — a court, upon request, must protect against that risk. Although the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases.

 

The original Oregon Supreme Court Opinion is Williams v. Philip Morris, Inc.,127 P.3d 1165 (Or. 2006)

 
    

JUNE 2006 BAD FAITH CASES
STAY OF EXECUTION OF JUDGMENT PENDING APPEAL - DEFENDANT MUST POST BOND FOR ENTIRE JUDGMENT (Western District)

Published on June 29, 2006 in Punitive Damages. Closed
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In Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., defendant insurance company filed a motion to stay execution of judgment pending appeal, after the jury found that the company lacked a reasonable basis for denying benefits to plaintiff and awarded $20 million in punitive damages on the bad faith claim.  This award was thereafter reduced by the trial court to $4.5 Million. The company sought to stay execution of the judgment without posting a bond for the entire judgment. The company argued that the bond it posted during the post-trial motions was sufficient. The trial court disagreed, and held that the company must post a bond representing the full amount of the judgment.  The trial court concluded that the stay would become effective when the entire judgment was posted.

Date of decision:  June 13, 2006

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United Stated District Court for the Western District of PA, No. 02-2116, 2006 U.S. Dist. LEXIS 38990 (W.D. Pa. June 13, 2006) (Ambrose, C. J.)