PENNSYLVANIA INSURANCE BAD FAITH CASE BLOG

FEBRUARY 2012 BAD FAITH CASES: FEDERAL COURT DENIES NON-PARTY (INSURER) OBJECTIONS TO REINSURER’S RULE 45 SUBPOENA ISSUED IN CONNECTION WITH OUT OF STATE BAD FAITH CASE (Middle District)

admin — Sat, 18 Feb 2012 18:40:58 +0000

In Allied World Assurance Company v. Lincoln General Insurance Company, the court addressed a subpoena requesting documents relating to a bad faith case proceeding in the Middle District of Florida. The underlying bad faith action was brought by the guardian of an accident victim, who was hit by a driver during the scope of the driver’s employment. For the purposes of litigation, the insured-employer also assigned its rights to the victim’s guardian. Following the accident, the victim filed a personal injury claim against the driver and employer. The employer’s primary insurer investigated the claim and defended the insured-employer. The primary insurer also hired an adjuster to investigate the facts and an attorney to represent the insured driver and employer.
In May, 2008, the insurers offered a combined $2 million of coverage to the accident victim. The victim rejected the offer and on March, 20, 2009, a jury returned a $65 million verdict against the negligent driver and employer. After the judgment was returned, a series of mediations took place that involved all of the parties to the litigation. As a result, the judgment was satisfied as to the driver and partially satisfied as to the employer, whose primary insurer paid more than its $1 million policy limit. Thereafter, the guardian-assignee commenced the underlying bad faith action, seeking to recover the balance of the judgment from the excess insurer.
The insured-employer’s excess insurer issued the subpoena in question out of the Middle District of Pennsylvania, serving the employer’s primary carrier — a non-party in the bad faith action. The subpoena requested twenty-one documents relating to the bad faith lawsuit, including settlement reserve authority requests, the underwriting file held by the primary insurer, and the personnel file of the insurance adjuster hired by the primary insurer. The primary insurer objected and the court issued an opinion, grouping the objections into several categories.
First, the court addressed technical objections to the subpoena. The primary insurer argued that Federal Rule of Civil Procedure 45(a)(3) required the excess carrier’s attorney to be admitted to the district court where the subpoena was to be served. The court rejected this argument because the attorney that issued the subpoena was admitted in Florida, where the bad faith litigation was pending. The court also rejected an argument that the service of process itself was flawed because the person upon whom service was made is an agent of the primary insurer. Moreover, Rule 4(h) allows a corporation to be served in the same manner as a person.
Second, the primary insurer objected on the grounds of work-product, arguing that the excess insurer did not make a showing of “substantial need” or “undue hardship” as required by Rule 26(b)(3). The court ruled that, under Florida law, “work product material generated in the adjustment of an underlying claim . . . is discoverable in a third-party bad faith case.” Moreover, in the previous litigation, the primary insurer owed a fiduciary duty to the insured parties and the excess insurer seeking the documents. Accordingly, the court found that the work-product doctrine was inapplicable.
Third, the primary insurer argued that the attorney-client privilege rendered documents undiscoverable because the interests of the two parties are not aligned. However, the court reasoned that, during the previous personal injury suit, their interests were aligned in defense of the insured driver and employer. Because the parties’ interests were essentially the same in the prior dispute, the court held that “any correspondence between the insurer and the insurer’s retained counsel concerning the insured’s cases was not privileged and must be produced by the insurance company.” The parties shared a common interest in defending against the personal injury claim in the underlying litigation, rendering the privilege inapplicable.
Fourth, the primary insurer objected under Florida’s Mediation and Privilege Act, which states that “[a] mediation participant shall not disclose a mediation communication to a person other than another mediation participant or participant’s counsel.” The court reasoned that the privilege is inapplicable in this case because both insurers “were mediation participants and there has been no effort to disclose the communications to persons other than mediation participants.” The court also rejected the primary insurer’s objection to disclosing communications that occurred outside the mediation process.
Fifth, the excess insurer sought the employment file of the primary insurer’s adjuster who handled the personal injury claim. The court disagreed with the excess insurer that this request was overly broad. The court repeated its rationale that the primary insurer “was a party to, and assumed the responsibility of defending against claims made in the underlying litigation which led to the bad faith claim,” rendering the privilege inapplicable.
Sixth, the excess insurer observed that some of the documents produced by the primary insurer were redacted, seeking a privilege log from its opposition. The primary insurer defended that that no privilege log was necessary because of a prior comment by the excess insurer that it would not seek privileged information. The court again found for the excess insurer. It reasoned that Rule 45(d)(2)(A) allows a party to assess a claim of privilege through examining a general description of the sought after documents.
Lastly, the court held that, under Rule 45(c)(1), the excess insurer has “a duty to take reasonable steps to avoid imposing an undue burden or expense” upon the primary insurer.
Date of Decision: February 2, 2012
Allied World Assur. Co. v. Lincoln Gen. Ins. Co., NO. 1:11-mc-00342, 2012 U.S. Dist. LEXIS 12883 (M.D. Pa. Feb. 2, 2012) (Rambo, J.)

FEBRUARY 2012 BAD FAITH CASES: COURT RULES THAT COMPLAINT ALLEGES PLAUSIBILE MISREPRESENTATION AND BREACH OF FIDUCIARY DUTY CLAIMS (Middle District)

admin — Sun, 05 Feb 2012 20:47:46 +0000

In Jones v. South Williamsport School District, the court examined a carrier’s motion to dismiss. After a failed appeal for health insurance coverage under an employer-sponsored insurance policy, the insured party filed suit for misrepresentation and breach of fiduciary duty against the carrier, who moved to dismiss the action. The court ruled that dismissal was improper because it was premature to determine who exercised control over the insured’s employee health plan. Second, the court ruled that the insured pleaded facts sufficient to sustain a breach of fiduciary duty claim, which the Third Circuit has permitted in ERISA cases where fiduciaries “materially mislead those to whom the duties of loyalty and prudence are owed.” Although Pennsylvania common law does not permit such a claim in tort, pursuant to Cowden v. Aetna Cas. & Sur. Co., the court interpreted the insured’s allegations as a contractual breach of fiduciary duty claim. The court denied the motion to dismiss and permitted this portion of the complaint to proceed to discovery.
Date of Decision: January 25, 2012
Jones v. South Williamsport School District, No. 4:11-cv-1179, 2012 U.S. Dist. LEXIS 10099 (M.D. Pa. Jan 25, 2012) (Kane, J.).

FEBRUARY 2012 BAD FAITH CASES: COURT DISMISSES INSURED’S BAD FAITH CLAIM WITHOUT PREJUDICE, BUT ALLOWS SUIT TO PROCEED TO DISCOVERY ON BREACH OF CONTRACT COUNT (Philadelphia Federal)

admin — Wed, 01 Feb 2012 01:38:06 +0000

In Blasetti v. Allstate Insurance Company, the court ruled upon a carrier’s motion for judgment on the pleadings in an action for breach of contract and bad faith. The suit stemmed from the carrier’s denial of insurance benefits under the insureds’ homeowner’s policy, after the insureds’ home sustained storm damages. Prior to alerting the carrier of their loss, the insureds had the damages repaired. Under their policy, the insureds were required to promptly give the carrier notice of their claim and provide the carrier with all relevant evidence of damages and repairs.
In March 2011, the insureds first apprised the carrier of their loss. In April, the carrier submitted a reservation of rights letter, requesting an opportunity to inspect the repairs. The insureds’ adjuster sent the carrier a letter shortly thereafter, explaining that it needed time for photographs. The insureds never submitted the photographs to the carrier. Instead, the insureds’ adjuster requested a settlement offer in May 2011. The carrier subsequently denied coverage.
The insureds filed suit in state court in October 2011 and the carrier removed to federal court in November, filing its motion for judgment on the pleadings.
First, the court examined the insureds’ breach of contract claim. The carrier argued that the claim should be dismissed because the insured never satisfied their obligations under the contract by failing to provide documentation of the loss, such as the requested photographs. However, the insureds claimed that such an argument assumes that the photographs were available but withheld. The court ruled that this argument was sufficient to defeat the carrier’s motion.
The carrier also claimed that the insureds failed to promptly report their loss within five months of the date of the occurrence. However, the policy did not state a specific timeframe within which the insureds were required to submit claims after a loss. As such, the court found that the insureds’ breach of contract claim should survive the carrier’s motion and proceed to discovery.
Second, the court ruled upon the insureds’ bad faith claims. The court dismissed the insureds’ claim, because the carrier did not possess the requisite wrongful state of mind to have acted in bad faith. The court reasoned that the insureds’ allegations were conclusory and improperly argued that the carrier’s denial of benefits alone constitutes bad faith. The court dismissed the claim without prejudice so that the insureds might amend their complaint if facts sufficient to allege bad faith arise during discovery.
Date of Decision: January 23, 2012
Blasetti v. Allstate Insurance Co., No. 11-69-20, 2012 U.S. Dist. LEXIS 7344 (E.D. Pa. Jan 12, 2012) (O’Neill, J.).

JANUARY 2012 BAD FAITH CASES: JUDGMENT GRANTED TO INSURANCE AGENTS BECAUSE INSURED FAILED TO PRODUCE AN EXPERT REPORT AND COULD NOT ESTABLISH WHAT DUTY WAS OWED AND BREACHED (Philadelphia)

admin — Mon, 30 Jan 2012 15:57:57 +0000

In Randazzo v. National Penn Insurance Company, the court granted summary judgment to the defendants on the insured’s professional negligence and negligent misrepresentation claims. When the insured appealed, the court issued this opinion. It is not wholly clear from the recitation of the facts pleaded whether both sets of defendants were insurance agents and/or whether one of the defendants was also the insurer issuing the policy and/or only that insurer’s agent. The policy in effect at the time of the loss was issued by Penn American Insurance Company, and was brokered by defendant National Penn. The defendant is identified in the caption as National Penn Insurance Company and in the body of the opinion as National Penn Insurance Agency, Inc.
The insured owned real estate in Pennsburg, Pennsylvania. In the early 1990’s the insured contacted Swartley Insurance Agency to purchase insurance coverage for the property. Soon after, Swartley merged with National Penn and, William Griffith, its employee, brokered the insured a policy with a coverage limit of $350,000.00. In 2005, the insured allegedly asked Griffith to increase insurance coverage on the property to $700,000.00 and was assured by Griffith that the change would be effectuated. Griffith denies that this conversation ever occurred.
Plaintiff alleges that he had asked another agent to review his coverage, and was told by that agent that he had $850,000 in coverage. The second agent denied this, but admitted to assisting the plaintiff in obtaining a policy with $840,000 in coverage that would go into effect on October 9, 2007. However, on October 7, 2007, a fire destroyed the insured’s property. At the time of the fire loss, the insured’s property was insured by the carrier for $350,000.00.
On October 10, 2011, the insured filed suit in Philadelphia County, alleging professional negligence and negligent misrepresentation. After the court granted summary judgment to the carrier, the insured appealed, claiming that the trial court erred in granting the motion on the basis of its failure to file an expert report. The insured claims that such a report was unnecessary.
The motion for summary judgment argued that the insured’s failure to provide an expert report to substantiate his claims of professional negligence, misrepresentation, and damages, warranted the dismissal of the complaint. The court stated that the defendants were “insurance companies and/or agents affiliated with the insurance companies. As such, Defendants have a general duty to exercise the skill and knowledge normally possessed by members of the insurance profession and a failure to do so will render the company/agent liable for any loss of coverage.”
The court granted this motion because, even viewing the record in a light favorable to the non-moving party, the insured failed to prove that (1) the carrier owed a duty of care (2) the duty was breached, (3) the breach resulted in his injury, and (4) that the insured suffered an actual loss or damages. After the appeal was filed, the court defended its decision on two grounds.
The court focused on the need for expert testimony, stating that “the testimony of an expert is essential to aid the jury in understanding the complexities of the insurance practice and policies; and determining the facts in issue, the duty owed by Defendants to Plaintiff, the alleged breach of said duty, the adequacy of insurer’s investigation of claim, and the actual loss incurred since the knowledge and assessment of these facts are beyond that possessed by laypersons.” The court looked to law on insurance bad faith by carriers for guidance on the agent’s duties, and stated that “although insurance is not so highly technical a field that the public cannot understand at least the general nature of an insurer’s responsibilities, courts have held that expert testimony on the issue of an insurer’s duty of care is necessary where a plaintiff questions the adequacy of an insurer’s assessment of plaintiff’s insurance needs.”
The plaintiff in this case alleged that defendants failed to use due care in investigating his insurance needs and failed to obtain the coverage that a reasonably prudent insurance agent would have obtained under the circumstances. The court found that “[t]his allegation alone requires expert testimony, which Plaintiff has failed to engage.” “Further, when considering Plaintiff’s negligence claim, a fact-finder would be charged with the responsibility of comparing Defendants’ investigation of Plaintiff’s insurance needs to what the assessment of the average insurance agent and insurance agency would have provided. Such an assessment is well beyond a layperson’s knowledge. Where Defendants’ conduct is being judged by the acceptable insurance investigation standard/practices in the insurance industry, Plaintiff must produce an expert to establish the required standard and the alleged deviation from said standard.”
The court further found the negligent misrepresentation claims were inadequately pleaded, and that “[e]ven assuming that Plaintiff substantially relied on Defendants’ representations and thereby took no other action to increase the policy limits of his insurance policy, Plaintiff has not produced an expert report to substantiate his claim for damages, including, but not limited, to his claims of loss of rents, business income, and personal property damages. The lack of expert testimony also critically adversely affects Plaintiff’s case.”
Date of Decision: December 15, 2011
Randazzo v. National Penn Insurance Company, NO. 03243, 2011 Phila. Ct. Com. Pl. LEXIS 363 (Phila. Ct. Com. Pl. Dec 15, 2011) (Quinones Alejandro, J.)

JANUARY 2012 BAD FAITH CASES: BREACH OF FIDUCIARY DUTY CLAIM REDUNDANT WITH INSURED’S BAD FAITH AND BREACH OF CONTRACT CLAIMS;NEGLIGENCE CLAIM BARRED BY GIST OF ACTION DOCTRINE (Western District)

admin — Sun, 22 Jan 2012 19:42:09 +0000

In Krugh v. State Farm Insurance Company, the court considered a carrier’s motion to dismiss an insured’s complaint. The complaint alleged bad faith, violations of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), breach of contract, breach of fiduciary duty of good faith and fair dealing, and negligence.
Addressing each count individually, the court noted that the insured party alleged facts sufficient to state plausible bad faith, UTPCPL, and breach of contract claims. As such, the court denied the carrier’s motion to dismiss the first three counts, permitting them to proceed to discovery. However, the court dismissed the insured’s claim for punitive damages under its breach of contract claim.
With respect to the UTPCPL claim, the court held that the insured must prove that it “justifiably relied on the [carrier’s] wrongful conduct or representation and that [it] suffered harm as a result of that reliance.” Recognizing that this was merely a motion to dismiss, the court ruled that the UTPCPL count should be tested more thoroughly after discovery is conducted.
With respect to Count IV, the breach of implied covenant of good faith and fair dealing allegation, the court dismissed the insured’s claim. It reasoned that such a claim is “tantamount to a breach of contract” allegation, making Count IV redundant in conjunction with the insured’s additional bad faith and breach of contract claims. As such, the court dismissed Count IV of the complaint.
Turning to Count V, the negligence allegation, the court held that the “gist of the action” doctrine operates to bar tort claims rooted in a contractual suit. The court reasoned that, because Count V merely alleges that the carrier failed to “to exercise reasonable case in the handling of claims made under the Policy,” it is clear that the claims are “purely contractual,” arising only under the parties’ insurance policy.
Therefore, the court denied the insurer’s motion to dismiss with respect to Counts I-III, permitting the claims to proceed to discovery. However, the court granted the motion to dismiss with respect to Count IV, Count V, and the claim for punitive damages under Count III.
Date of Decision: January 17, 2012
Krugh v. State Farm Ins. Co., No. 2:11-cv-1484, 2012 U.S. Dist. LEXIS 4999 (W.D. Pa. Jan. 17, 2012) (Fischer, J.)

JANUARY 2012 BAD FAITH CASES: FEDERAL COURT REFUSES TO REMAND BECAUSE THE INSURED COULD NOT PROVE WITH LEGAL CERTAINTY THAT THE AMOUNT IN CONTROVERSY WOULD NOT EXCEED $75,000 (Western District)

admin — Tue, 17 Jan 2012 03:04:03 +0000

In Vinski v. State Farm Mutual Automobile Insurance Company, the court examined an insured’s motion to remand to state court for lack of subject matter jurisdiction. The case stemmed from the insured’s claim for under-insured motorist (“UIM”) benefits after a car accident. After the insured filed suit in state court, for the UIM benefits and for breach of fiduciary duty in processing the claim, the carrier removed to federal court on the basis of diversity jurisdiction.
However, the insured opposed this removal and moved the district court to remand the case because the amount in controversy did not exceed $75,000. The insured’s original complaint alleged damages “in a sum in excess of” $25,000.00. Based upon this valuation, the insured took the position that the carrier could not maintain its claim for diversity jurisdiction.
In support of its argument, the insured argues that there was a pending offer to settle the claim for UIM benefits for the sum of $50,000. The insured claims that this offer is “valuable evidence of a reasonable estimate of the value of their claims.” However, the insured does not put forth an upper limit on recovery, should this case go to trial. As such, the court held, the insured failed to meet its burden that the jurisdictional limit could not be met as a legal certainty. Accordingly, the court denied the motion to remand.
Date of Decision: January 10, 2012
Vinski v. State Farm Mut. Auto. Ins. Co., No. 11-1326, 2012 U.S. Dist. LEXIS 2567 (W.D. Pa. Jan. 10, 2012) (Bissoon, J.)

JANUARY 2012 BAD FAITH CASES: NAMED CARIER NOT PROPER PARTY BECAUSE DID NOT UNDERWRITE POLICY; FAULTY WORKMANSHIP IS NOT AN “OCCURRENCE” SUFFICIENT TO TRIGGER COVERAGE (Middle District)

admin — Mon, 16 Jan 2012 14:40:28 +0000

In L.R. Costanzo Company v. American Fire and Casualty Insurance Company, the court heard a defendant’s motion for summary judgment on the issue of whether it was a proper party to the suit. The suit commenced after the insured was sued for property damage upon conclusion of a project. As a result, the insured sued the carrier in the Lackawanna County Court of Common Pleas for a defense against the original suit. The insured allegedly possessed a commercial general liability policy with the carrier. Under the policy, the carrier’s duty to defend would be triggered by an “occurrence,” which means “an accident, including continuous exposure to substantially the same general harmful conditions.” The carrier removed the case to federal court.
The carrier, Ohio Casualty Insurance Company (“OCIC”) moved to dismiss, arguing that it did not issue the insurance policy in question, meaning that there was no contract between itself and the insured, but the Court denied the motion. After discovery, the carrier filed motions for summary judgment, seeking resolution upon the insured’s breach of contract and bad faith claims.
There were three primary issues before the court: 1) whether OCIC, the alleged carrier, is a proper defendant, 2) whether the carrier breached a duty to defend the insured in the underlying case, and 3) if so, whether the carrier acted in bad faith by not defending the insured.
First, the court found that American Fire (“AFCC”) issued the policy, not OCIC. Discovery had revealed that AFCC underwrote the policy – the insured’s insurance agent testified that AFCC underwrote the policy, while OCIC underwrote the umbrella policy. Much of the confusion also comes from the similarity of its name to Ohio Casualty Group (“OCG”). OCG is the parent company of AFCC, OCIC, and ten other insurance companies, and it is the trademark umbrella under which these subsidiary companies operate. Moreover, OCG’s letterhead says “Ohio Casualty,” “Ohio Casualty Group,” or “Ohio Casualty™.” The insured does not provide any evidence to dispute these findings. The only evidence that suggests OCIC is the underwriter is the initial denial of coverage letter that stated, “We have investigated this claim and have determined that the allegations fall outside of the coverage provided by your liability policy carried with Ohio Casualty Insurance Company.”
Second, the court held that there was no “occurrence” under the policy to trigger the carrier’s duty to defend. In the underlying complaint, the insured alleged that faulty workmanship was the basis for its claims. As such, the carrier’s duty to defend depends upon whether the faulty workmanship qualified as an “occurrence,” or “an accident, including continuous exposure to substantially the same general harmful conditions” under the policy. Relying on relevant precedent, the court ruled that faulty workmanship is not an occurrence, meaning that the carrier had no duty to defend.
Lastly, the court ruled that the carrier did not act in bad faith. First, the court held, because there was no “occurrence” under the policy, the carrier did not act in bad faith in denying a defense to Plaintiff in the underlying case. Second, the court recognized that the record shows that the carrier engaged in a thorough inquiry before determining there was no duty to defend. The insured’s main argument for bad faith was that the carrier conducted an inadequate investigation before declining to defend the insured in the underlying suit. As such, the court granted summary judgment to the carrier.
Date of Decision: January 6, 2012
L.R. Costanzo Co. v. Am. Fire & Cas. Ins. Co., No. 3:10-CV-774, 2012 U.S. Dist. LEXIS 1655 (M.D. Pa. Jan. 6, 2012) (Mariani, J.)

JANUARY 2012 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED BECAUSE ESTIMATES WERE OBJECTIVELY REASONABLE AND INSURED’S EXPERT REPORT NOT COMPETENT (Western District)

admin — Mon, 16 Jan 2012 00:47:38 +0000

In Seto v. State Farm Insurance Company, the court heard a carrier’s motion for summary judgment in response to an insured’s claim for breach of contract and bad faith. The case arose from two fires that destroyed the insured’s home. The insured sought to recover under its homeowner’s insurance policy. After a year of investigation, the carrier proposed $116,321.67 in benefits, which represented the actual cash value (“ACV”). However, the insured’s contractor found that the replacement cost value (“RCV”) was $208,061.01.
Soon thereafter, there was a second fire in the insureds’ home, which caused additional damages. The carrier issued $43,635.02 to the insureds for the damages caused by the second fire. The insureds acquired a second estimate, but did not apprise the carrier until after the suit was filed.
In late 2009, the carrier tendered $157,717.00 to the insureds and also paid additional life expenses (“ALE”) benefits totaling $30,425.01. The insureds then brought suit for bad faith and breach of contract. The carrier moved for summary judgment.
First, the court examined the insureds’ allegation that the carrier delayed in tendering payment under the policy, amounting to bad faith. Specifically, the insureds argue that although the carrier was provided with the second estimate in 2009, it did not respond until 2011. The record, however, indicates that the insureds never personally submitted the second estimate. In fact, the carrier only received a copy when the insureds served their complaint in late 2010. The court, therefore, found that the delay was directly caused by insureds’ failure to personally delivery the estimate to the carrier.
Second, the court analyzed the insureds’ claim that the carrier low-balled its offer that was significantly lower than other estimates the insureds obtained. After the first fire, the carrier immediately inspected the property, created an itemized estimate of damages, and promptly paid $116,321.67 to Plaintiffs. Then, when the carrier received a higher estimate from the insured’s contractor, it agreed to review and consider that estimate. However, before the carrier could consider the estimate, a second fire occurred. Because the second fire appeared to be purposeful, an investigation ensured. Afterwards, the carrier paid an additional $43,635.02 to the insureds for their home. Thereafter, the carrier reviewed and considered the second estimate and issued a supplemental payment of $29,000.00.
In support of their claim for additional benefits, the insureds procured an expert report on the quality of the carrier’s valuation loss, finding it “incomplete in the extreme.” However, the expert’s report was not supported by an affidavit or declaration, and under Third Circuit case law this was required to consider an expert report in the context of a summary judgment motion. As such, the court deemed the report “not competent to be considered.” Even if considered, the court found that the expert report would not have created a material issue of fact on bad faith.
Lastly, the court heard the insured’s argument for additional ALE while they were living in Florida. The court denied this claim, finding the carrier’s denial of additional ALE benefits to be objectively reasonable. Because the insured failed to produce sufficient documentation to support their claim for additional ALE benefits, they were not entitled to their claim. Therefore, the court granted summary judgment to the carrier on all counts.
Date of Decision: January 11, 2012
Seto v. State Farm Ins. Co., No. 2:10-cv-00505, 2012 U.S. Dist. LEXIS 3306, (W.D. Pa. Jan. 11, 2012) (McVerry, J.)

JANUARY 2012 BAD FAITH CASES: COURT PROVIDES WORK PRODUCT PROTECTION TO ADJUSTER'S MENTAL IMPRESSIONS, CONCLUSIONS AND OPINIONS (LACKAWANNA)

admin — Tue, 03 Jan 2012 04:22:23 +0000

In Church of the Forgotten Souls v. NGM Insurance Company, the insured brought breach of contract and bad faith claims. At issue in this opinion is the insured’s seeking discovery of the insurer’s adjustment agent’s mental impressions, conclusions or opinions and whether this was protected from discovery under Pa.R.C.P. 4003.3. The issue was whether such arose in anticipation of litigation.

The insured argued that the filing of suit should provide a bright line test for when anticipation of litigation is triggered. The court cited Judge Wettick’s decision in Mueller v. Nationwide Mutual Ins. Co., 31 D. & C.4th (C.C.P. Allegheny 1996) in rejecting that test, as “Rule 4003.3 protects any mental impressions, conclusions, or opinions respecting the value or merit of a claim or defense.” Such could have been developed where the insurer and adjuster clearly envisioned litigation could be instituted, even prior to any initiation of suit.

Thus, the key issue is when the insurer and adjuster envisioned litigation vs. a time when they had not contemplated that litigation could arise. The burden would be on the carrier, as the party opposing discovery, to make its case. The court ordered the carrier and adjuster to create a privilege log as to any such materials as to which they were asserting work product, with the matter being remanded to the discovery master to review such materials for the work product privilege in the first instance.
Date of Decision: October 5, 2011
Church of the Forgotten Souls d/b/a Heaven Help Us Thrift Store v. NGM Ins. Co., C.C.P. Lackawanna No. 10 CV 7078 (Oct. 5, 2011).

JANUARY 2012 BAD FAITH CASES: CONTRACT STATUTE OF LIMITATIONS APPLIES UNLESS APPLICABLE CLAUSES IN A DISPUTED CONTRACT PROVIDE DIFFERENTLY (Philadelphia Federal)

admin — Tue, 03 Jan 2012 03:45:59 +0000

In Leporace v. New York Life & Annuity, the court was faced with a carrier’s motion to dismiss an insured’s suit for breach of contract, declaratory judgment, and bad faith. In 1995, the insured purchased an insurance policy from the carrier. In early 1996, he suffered a traumatic event that caused emotional and mental instability, leading to his filing a claim with the carrier. In 2005, the carrier stopped paying the insured’s monthly benefits, claiming that he no longer fit the definition of disabled in his policy.
In 2010, the insured sought a reinstatement of the benefits. The carrier denied reimbursement for the period between 2005 and 2010 and did not honor the insured’s request for continued benefits. In early 2011, the insured filed suit against the carrier, to which the carrier responded with a motion to dismiss.
The subject of the instant opinion was the carrier’s contention that the insured’s claims are untimely. Pennsylvania has a four-year statute of limitations for contractual and declaratory judgment claims and a two-year statute of limitations for bad faith claims.
The insured countered the carrier’s claims by arguing that the language of the policy itself, not Pennsylvania law, determines the applicable statute of limitations. In response, the carrier argued that the insured’s reliance on precedent favorable to its case is misplaced because the case is not about the “Legal Actions” or “Proof of Loss” clauses in the insurance policy.
Examining a series of applicable Third Circuit cases to discern the applicable statute of limitations, the court first noted that, in a contractual suit arising from the denial of insurance benefits, the cause of action accrues when the insured first knows that its claim has been denied. This is the point where an insured could have first maintained a lawsuit to a successful conclusion.
However, the court also gauged the applicability of Hofkin v. Provident Life & Accident Ins. Co., a precedential Third Circuit opinion that considered whether an insured’s claims were timely by interpreting the “Proofs of Loss” and “Legal Actions” provisions contained in his insurance contract. The insured in this case argued that Hofkin governs and signals that its claim was timely, based upon the language of the contract it signed with the carrier. The court disagreed, finding that Pennsylvania’s usual statute of limitations on contracts governed, and was not based upon the Proofs of Loss and Legal Actions provisions contained in his insurance contract, which would be governed by 40 P.S. § 753.
The court examined Hofkin’s progeny, as well as opinions from other Circuit Courts, in finding that the denial of benefits evinced in this case, the fact that the Proof of Loss and Legal Action based claims were not at issue, and other factors did not follow the fact scenario found in Hofkin, and so did not warrant its application. The court concluded that the analysis applied in the Hofkin line of cases demonstrates that when the Proof of Loss and Legal Actions provisions are not at issue, the breach of contract statute of limitations period still applies.
Therefore, the court granted the carrier’s motion to dismiss.
Date of Decision: December 21, 2011
Leporace v. New York Life & Annuity, NO. 11-2000, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 147056 (E.D. Pa. Dec. 21, 2011) (Baylson, J.)