JANUARY 2012 BAD FAITH CASES: COURT DENIES MOTION TO DISMISS FOR FAILURE TO JOIN A NECESSARY PARTY, BUT RULES THAT PARTY MUST BE JOINED (Philadelphia Federal)

Published on January 2, 2012 in Procedural Issues. Closed

In Cummings v. Allstate Insurance Company, the court was faced with a carrier’s motion to dismiss for failing to join a necessary party. The case was brought by the estate of a decedent insured that died following surgery needed to correct injuries caused by a faulty floor. The insured alleges that a faulty floor, ruined by water that escaped from a heating system, was covered under a Deluxe Homeowner’s Policy issued by the carrier. After the carrier refused to cover the damage, the decedent tripped and fell, requiring surgery, which ultimately lead to her fatal heart attack. The insured alleges that the decedent’s cardiac arrest is solely attributable to the carrier’s bad faith refusal to pay their claim.
The insured filed suit in Philadelphia County and the carrier removed to federal court. During discovery, however, it came to light that the insured hired a subcontractor to repair the floor. The carrier therefore filed the instant motion, claiming that the absent subcontractor is a necessary party.
The insured’s complaint contained two counts, alleging first that the carrier breached its insurance contract and is liable for damages for pain, suffering and mental anguish. The insured’s second count alleges that the carrier acted in bad faith by conducting only a cursory investigation of its claim.
However, the court primarily addressed the carrier’s motion to dismiss, examining the necessity of joining the insured’s former subcontractor as a defendant to the suit. The carrier argued that the absent party was necessary because, in the event the court denies the insured’s breach of contract claim, compensation would be unavailable to the insured without the subcontractor’s inclusion. The court highlighted the fact that the subcontractor claimed in his deposition that he completed the work before the carrier denied the insured’s claim. This fact, the court held, would be a critical point later in the apportionment of damages.
Furthermore, the court recognized that, if it later finds that the damage to the floor was a covered loss and that the carrier did breach its contract, then the subcontractor’s joinder is still necessary to determine whether the damages relating to the insured’s death were foreseeable. The court also reasoned that it may be the case that the subcontractor’s repairs to the floor constitute a break in the chain causation, meaning that he is ultimately liable to the insured. Given these facts and the potential factual determinations that may arise at a later point in the suit, the court found that the subcontractor was a necessary party. However, it denied the insured’s motion to dismiss.
Date of Decision: December 27, 2011
Cummings v. Allstate Ins. Co., No. 11-02691, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 148273 (E.D. Pa. Dec. 27, 2011) (Kelly, J.)

This case was also addressed in October 2011 and August 2011 on this Blog.

JANUARY 2012 BAD FAITH CASES: MOTION TO COMPEL DISCOVERY OF RESERVE INFORMATION GRANTED, BUT REQUEST FOR DOCUMENTS RELATING TO COUNSEL DENIED (Western District)

Published on January 2, 2012 in Discovery and Evidence. Closed

In Craker v. State Farm Mutual Automobile Insurance Company, the court heard a motion to compel discovery related to an insured’s claim for underinsured motorist benefits (“UIM”). Specifically, the insured moves to compel the carrier to release documents related to reserve information and information regarding the attorney actions as an insurance adjuster.
The court previously granted a similar motion on the reserve information, wherein the carrier had argued that such discovery, as well as discovery of mental impressions and evaluations, was premature because the UIM claim should be decided first; an argument the court rejected. In this second round, the carrier argued that the reserved information was irrelevant under any circumstances. The court rejected that second effort as well, and required production of reserve information, as well as the mental impressions and evaluations of the UIM claim, just as it did the first time.
However, the insureds were not successful on the second part of their motion, wherein they took the position that the carrier’s communications with counsel were not privileged because counsel was acting as an adjuster, not an attorney. This was based on the theory that the attorney “was not acting as an attorney before the complaint was filed, and was only discussing underlying facts at the time.”
The court ruled that the motion was both untimely and unsound. First, in connection with raising this motion at the end of the discovery period, the plaintiff had the carrier’s privilege log for some time and there were no new facts that justified any basis to raise this argument late in the day, rather than promptly upon receiving the privilege log. The court reasoned that “no further explanations from [the carrier] on subsequent Privilege Logs could change the fact that the communications occurred before the complaint was filed.” As such, the court disagreed with the insured because it had no reason to wait more than two months before filing a motion to compel on this basis.
The court also held that this portion of the insured’s motion was “substantively baseless.” Although the insured did not file a complaint in state court until 2011, they had been represented by counsel in this dispute since at least 2007. The insured’s attorney has communicated with the carrier and its counsel since that time. Therefore, this factual backdrop indicates that both parties were represented by counsel and preparing for litigation as early as 2007. There is no dispute that all of the controverted communications that the insured now seek occurred months after they sent their formal demand to the carrier in February of 2008.
Therefore, the court granted the insured’s motion to compel on the reserve information, but denied the insured’s request for additional documents relating to communications with the carrier’s attorney.
Date of Decision: December 9, 2011
Craker v. State Farm Mutual Automobile Insurance Company, No. 11-0225, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 141811 (W.D. Pa. Dec. 9, 2011) (Lancaster, J.)

JANUARY 2012 BAD FAITH CASES: MOTION TO DISQUALIFY DEFENSE COUNSEL DENIED - COUNSEL DID NOT RECEIVE INFORMATION RELATED TO BAD FAITH LITIGATION (Philadelphia Federal)

Published on January 2, 2012 in Discovery and Evidence. Closed

In Feingold v. Liberty Mutual Group, a bad faith action was raised in federal district court. The present issue is plaintiff’s motion to disqualify defense counsel in the federal action.
The motion to disqualify had its roots in a claim made by the decedent-insured’s estate for uninsured motorist (“UM”) benefits under a policy with the carrier. An arbitration panel awarded the insured $90,000, but found that the carrier was only obligated to pay a third of the award if it was determined that the insured had other available insurance coverage. As such, the carrier rejected the award. After several years, the insured petitioned the Court of Common Pleas of Philadelphia County to confirm the award. The court granted the petition and entered judgment in the amount of $90,000 plus interest in the insured’s favor. The carrier appealed to Pennsylvania’s Superior Court. This case involves a separate bad faith action based on diversity jurisdiction.
Plaintiff moves to disqualify current defense counsel based on the actions of an attorney now in the defense firm, who was previously employed by the carrier, and who had appeared as counsel on the insurer’s behalf in the Court of Common Pleas action. However, he withdrew his appearance in the state court action on August 2, 2011 and has never appeared on behalf of the carrier during the pending federal court litigation.
The insured first argues that the defense counsel is engaged in a “dual advocacy role” by reason of one of the firm’s attorney’s past involvement in the underlying state court action. The insured also claims that the defense counsel “has acquired confidential information from plaintiffs which is material to the defense in the present bad-faith litigation.”
Contrary to the insured’s assertions, there is no reason to believe that defense counsel has “acquired confidential information from plaintiffs” through one of its attorney’s involvement in the state court action. That attorney did not represent plaintiff in the first action, and any information provided by that attorney could not have been privileged or “confidential” because he was opposing counsel.
The court also held that there is no reason to disqualify defense counsel based on the insured’s statement that the attorney and possibly other members of the firm will be “necessary witnesses” at trial. The insured claims that defense counsel should be disqualified because of “its own potential liability exposure.” He argues that defense counsel will be exposed to a malpractice action by the controverted attorney’s omissions while working as an employee of the defendant.
The court flatly rejected this claim, ruling that the “mere possibility of a potential malpractice claim against an attorney does not result in automatic disqualification.” Where claims against an attorney are largely speculative, the court held, disqualification is not necessary. Therefore, the insured’s motion was denied.
Date of Decision: December 6, 2011
Feingold v. Liberty Mutual Group, NO. 11-5364, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 140336 (E.D. Pa. Dec 6, 2011) (Bartle III, J.)

DECEMBER 2011 BAD FAITH CASES SUPERIOR COURT AFFIRMS DENIAL OF BAD FAITH BECAUSE CARRIER RIGHTFULLY DELAYED INVESTIGATING CLAIM UNTIL KEY TESTIMONY AVAILABLE (Superior Court)

Published on December 30, 2011 in Discovery and Evidence. Closed

In Portside Investors, L.P. v. Northern Insurance Company, the Superior Court heard cross appeals from the Court of Common Pleas of Philadelphia County, which awarded the insured $1.2 million dollars following a non-jury trial. The insured argued that the court erred by finding for the carrier on its bad faith claim. The carrier’s cross-appeal challenges the verdict awarded to the insured in a jury trial on the breach of contract claim. Specifically, the carrier argues that the evidence fails to support various factual findings, that the insured’s valuation expert was unqualified and articulated an improper formula for determining value, and that the court erred by estopping the carrier from asserting the policy’s limitation of suit provision.
The initial suit arose from the collapse of pier 34 on the Delaware River in Philadelphia. After the insured was denied coverage, it sought a bifurcated trial for bad faith, tried by a judge, and breach of contract, tried by a jury. (See this blog). The judge in the bad faith action rejected the insured’s bad faith allegations, but a jury awarded the insured $1.2 million dollars for the carrier’s breach of contract.
The court first examined the insured’s sole claim on appeal, which challenged the summary judgment entered in favor of the carrier on the insured’s bad faith count. The carrier had originally claimed that it could not proceed with the claim without an examination under oath of Michael Asbell, the owner of the pier that had recently been indicted for his pre-collapse knowledge of the pier’s underwater decay. Asbell had chosen to exert his Fifth Amendment rights and did not testify at all during the course of his criminal case. However, under the insured’s policy, coverage was unavailable for a loss caused by “decay” unless the decay was “hidden decay.” As the criminal indictment gave reason to believe that Pier 34’s collapse resulted from something other than “hidden decay,” the carrier’s decision to insist on a statement from Asbell as to what he knew prior to collapse was not an exercise in statutory bad faith. Therefore, the court denied the insured’s appeal.
Turning to the carrier’s cross-appeal, the court first examined the contention that the carrier is entitled to judgment notwithstanding the verdict regarding the Actual Cash Value (“ACV”) of the damaged portion of Pier 34 because the insured’s expert, an insurance adjuster, neither was qualified to offer an informed opinion on ACV nor actually offered one at trial.
At trial, the expert testified that the replacement value of the pier was $13 million. However, in light of the policy limit of $4.9 million, replacement would be impossible. Therefore, the expert sought to determine the ACV of the lost section of the pier. He listed several factors to consider when making such a calculation, including depreciation, maintenance, and replacement cost value, and gave a thorough explanation to the court. The carrier’s cross-examination at trial consisted of attacks upon the expert’s training and experience. The carrier also introduced testimony to prove that the ACV was really $0.
However this court reasoned that the carrier’s cross-examination and experts never established that the insured’s ACV/depreciation methodology was unreliable, lacked a foundation in fact, or, most important, conflicted with either accepted industry practice or the insurance policy’s specific definition of ACV. The court therefore denied the carrier’s post-trial motion for a judgment notwithstanding the verdict.
Next, the court focused on the carrier’s argument that the two-year statute of limitation period was applicable to the insured’s lawsuit. The policy stated that (1) the insured has complied with all terms of the “Coverage” part; and (2) the action is brought within two years after the date on which direct physical loss or damage occurred. It is undisputed that the December 6, 2002 date on which the insured commenced the breach of contract action was more than two years after the May 18, 2000 collapse in question. The court examined statements made by the carrier that implied that it would consider the insured’s claim without the suit limitation clause. This correspondence was part of the record established at around the time of Ashbell’s criminal trial. The carrier essentially was telling the insured that it would resume action in the civil case after the criminal trial had concluded.
Lastly, the carrier alleged that the trial court erred by awarding pre-judgment interest to the insured. That party contended that the insured caused several delays in moving forward on its claim by: deferring suit until almost 14 months after the carrier refused to pay on the claim without an EUO of Michael Asbell; obtaining a stay of two years and eight months to accommodate criminal proceedings against Michael Asbell; and waiting another 11 months to resume discovery after the stay was lifted. The court agreed with this contention and remanded the issue solely for calculation of pre-judgment interest. As for the rest of the claims, the court affirmed the judgment of both the non-jury and jury trials.
Date of Decision: November 23, 2011
Portside Investors, L.P. v. Northern Insurance Company, 2011 PA Super 252 (Pa. Super. Ct. Nov. 23, 2011) (Stevens, P.J.)

DECEMBER 2011 BAD FAITH CASES
NO BAD FAITH WHERE MATERIAL BREACHES OF COOPERATION OBLIGATIONS AND REASONABLE TO INVESTIGATE ARSON (Middle District)

Published on December 1, 2011 in Claims Handling Procedures. Closed

In Verdetto v. State Farm Fire and Casualty Company, the court was faced with a carrier’s motion for summary judgment on an insured’s breach of contract and bad faith claims. The suit arose from a fire that occurred at a property rented by the insured. At the time of the incident, the insured had renter’s insurance with the carrier.

The insured moved into the rental home and shortly thereafter a fire erupted at the property. The fire marshal investigating the matter ruled that the fire was the result of arson. The insured began the claims process by filling out an inventory form, as required by the carrier. The forms indicated a large amount of valuable items, many of them less than two years old.

The carrier was put in contact with the investigating fire marshal, who ruled the fire arson and told the carrier that he did not see very much person property at the residence. He also reported that the insured had previously been involved in arson of another property. The carrier then decided to have the matter further investigated.

The carrier requested that the insured party sign various authorization forms, as required under the policy, requesting phone and financial records. The insured refused. The carrier also hired a salvage company to begin working on the damaged property, but the insured’s landlord denied entrance to their home for several weeks. The carrier subsequently sent the insured a Reservation of Rights letter, citing questions over the cause of the fire and whether the insured misrepresented their claims. The carrier hired an outside party to conduct an Examination under Oath, but the insured again refused to cooperate with the investigation. After the carrier denied coverage, the insured filed suit.

The court first examined the insured’s bad faith claim, finding that the carrier acted reasonably and did not delay or stall the investigation of the insured’s claim. Specifically, several significant “red flags” provided a reasonable basis for investigating the claim, including: the fire being ruled an arson; the claim being on a policy less than six months old; and the history of late payments on the policy. Moreover, the insured refused to turn over the records they were contractually obligated to provide. Without the requested financial and telephone records, which were critical to determining the insured’s motive and opportunity for setting the fire, the carrier could not complete the investigation. Therefore, the court concluded that summary judgment was appropriate on the bad faith claim.

The court also granted summary judgment on the insured’s breach of contract claim. The insured was contractually bound to provide any documents requested by the carrier. The refusal to do so was a significant departure from the terms of their policy and substantially prejudiced the carrier’s investigation of the claim. Therefore, the court disposed of the matter because the insured’s material breach of the terms of its policy precluded any finding of liability on the part of the carrier.

Date of Decision: November 23, 2011

Verdetto v. State Farm Fire and Casualty Company, NO. 3:10-CV-1917, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 135287 (M.D. Pa. Nov. 23, 2011) (Caputo, J.)

NOVEMBER 2011 BAD FAITH CASES
JUDGMENT WHERE INSURED DID NOT SEND PREUMIUM DURING LIFETIME & MISREPRESENTED HEALTH INFORMATION ON APPLICATION (Middle District)

Published on November 30, 2011 in Reverse Bad Faith. Closed

In Estate of Genovese v. AAA Life Insurance Company, the court was faced with a carrier’s motion for summary judgment to dispose of an insured’s claim seeking benefits under a life insurance policy.

The case arises from a life insurance policy purchased by the decedent insured. In 2010, the carrier sent the insured a questionnaire asking several health-related questions. As a part of the document, the decedent wrote that she had not used nicotine in over 12 months and signed the form. Moreover, the carrier requested that the insured submit her initial premium payment. The insured submitted credit card information, but the carrier was unable to process the information. The insured was notified that she would be sent an invoice.

The insured died before submitting payment, however. Three days later, the insured’s estate informed the carrier that it would be submitting payment and requested information in order to submit a claim under the policy. The carrier, having already been apprised of the insured’s death, refused to process the insured’s premium and declined payment to the insured’s estate under the life insurance policy. The insured commenced this action in the Court of Common Pleas for Pike County and the carrier removed to federal court.

The court first addressed the issue of the first premium as a condition precedent to the policy. In this case, it was undisputed that the insured must comply with the first premium payment in order to trigger policy coverage. The insured claimed that the policy was in effect because it intended to pay the premium, but was unable to submit payment via credit card. The court disagreed, likening the insured’s attempted payment to a bounced check. It found that a payment is not actually made until the carrier receives the money.

The court also found that the second attempted payment, made after the insured’s death, was invalid because the individual had already died, nullifying any offer of coverage. Furthermore, the court dismissed the insured’s claims that the carrier’s issuance of an insurance certificate created coverage. The fact that the insured did not pay the first premium within 31 days of the offer of insurance, as required under the policy, was enough in itself to void any suggestion that the decedent was insured. The court concluded that summary judgment was appropriate on this issue.

Next, the court addressed the insured’s misrepresentations about smoking on her application for coverage. Specifically, the carrier alleged that the decedent lied when she claimed no use of nicotine within twelve months on the application. On the day of her death, however, the insured’s husband told emergency medical personnel that she smoked “a lot.”

The insured also reported on her application that she had never sought treatment for high blood pressure, tumors, or chest pain. Yet, medical records reveal that the decedent was in fact treated for these ailments prior to submitting its application to the carrier. The carrier claims that, had the insured applied for insurance in good faith, it would have likely been denied.

The estate contested these claims, arguing that she never had a tumor, but a benign nodule that did not result in any treatments. The estate also alleged that her medical records reporting other health issues were incorrect. The court disagreed, finding that, even viewed in a light most favorable to the insured, the instant facts supported a grant of summary judgment to the carrier.

Accordingly, the court denied the claims brought by the insured’s estate and granted summary judgment to the carrier.

Date of Decision: November 21, 2011

Estate of Genovese v. AAA Life Insurance Company, NO. 3:11-CV-348, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 134254 (M.D. Pa. Nov. 21, 2011)(Conaboy, J.)

NOVEMBER 2011 BAD FAITH CASES
CARRIER’S CLAIMS MANUAL IS DISCOVERABLE AS IT IS PERTINENT TO INSURED’S BAD FAITH CLAIM (Philadelphia Federal)

Published on November 29, 2011 in Discovery and Evidence. Closed

In Platt v. Fireman’s Insurance Fund Company, the court was faced with an insured’s motion to overrule the carrier’s objection to discovery requests. Specifically, the insured sought to discover manuals that the carrier used to process its claims. The carrier objected on grounds that the discovery request was overly broad, burdensome, and irrelevant to the proceedings.

The original suit stemmed from a car accident during which the insured was struck by a car driven by an individual insured by the carrier. The injured party sought damages under Pennsylvania’s Motor Vehicle Financial Responsibility Law, 75 Pa. C.S. § 1701 and Pennsylvania’s Bad Faith Statute, 42 Pa. C.S. § 8371.

With respect to the parties’ discovery issues, the insured claims the “manuals and desk books” pertaining to her claims are discoverable. Her counsel also pledged to keep these materials confidential. However, the carrier objected, arguing that the discovery request contained nothing more than boilerplate language.

The district court examined several pertinent cases as precedent. First, under Garvey v. National Grange Mutual Insurance Company, 167 F.R.D. 391 (E.D. Pa. 1996), the district court previously held that claims manuals were not discoverable to prove that the carrier may have “strayed from its internal procedures” because this alone does not “establish bad faith on the part of the [carrier] in handling the [insured’s] loss.”

However, in other circumstances, the court has specifically acknowledged that claims manuals are pertinent to bad faith claims. In Kaufman v. Nationwide Mutual Insurance Company, 1997 WL 703175 (E.D. Pa. Nov. 12, 1997), the court recognized the rule in Garvey, but held that “there may be circumstances when such discovery would be relevant,” such as situations where “a claims manual…requires an adjustor to take certain investigative steps before adjusting a claim and [the insured] can show that these steps were deliberately omitted.” The court recognized that “this fact alone would not be enough to establish bad faith,” but it would be “probative evidence” for the insured to ultimately prove bad faith.

Since Garvey, the district court has specifically ruled that, “any material which pertains to instructions and procedures for adjusting claims and which was given to the adjusters who worked on plaintiffs’ claim may be relevant to the action and must be produced.”

The court in the instant case held that the insured’s request closely mirrored that in Kaufman and overruled the carrier’s objection to the insured’s discovery requests. Because the insurance claims manual might be relevant to the insured’s bad faith claim, the court permitted discovery, pending absolute confidentiality on behalf of the insured.

Date of Decision: November 16, 2011

Platt v. Fireman’s Insurance Fund Company, NO. 11-4067, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 132570 (E.D. Pa. Nov. 16, 2011) (Buckwalter, J.)

NOVEMBER 2011 BAD FAITH CASES
BREACH OF CONTRACT AND BAD FAITH DISMISSED BECAUSE CARRIER HAD ALREADY PAID POLICY LIMITS (Philadelphia Federal)

Published on November 22, 2011 in Coverage Issues. Closed

In Holy Ghost Church of the Eastern Rite of Phoenixville, PA v. Church Mutual Insurance Company, the court was faced with a set of facts stemming from an insured’s duty to defend a claim against its carrier. The carrier moved to dismiss the action and the district court granted the motion, holding that the carrier had already paid to the policy limits.

The federal suit arose after the insured engaged in state court litigation to determine the true directors of the church. In 1938, the St. Nicolas Brotherhood purchased a parcel of land to be used by the Holy Ghost Church as a place of worship. The Brotherhood rarely met, but existed to ensure the perpetual ownership of the property by the Church. As of 2008, no new directors of the Brotherhood had been elected, although one member of the Brotherhood was still alive. In 2008, the Church devised a plan to sell part of the land to developers as a means of raising money for the Church. The Church sought to quiet title and attain a decree that the Church could act on behalf of the Brotherhood. The claim was denied and the membership of the Brotherhood was still undecided.

Soon after, several members of the Church appointed themselves directors of the Brotherhood without the knowledge of the actual surviving member. The newly constituted Brotherhood executed an agreement of the sale of land and granted an easement to AT&T. Representatives of the original Brotherhood filed suit in state court. The Court of Common Pleas of Chester County ruled that all members of the Church were members of the Brotherhood. The judge also held that the officers and directors of the Brotherhood and the Church were identical. Therefore, the sale of land by the self-appointed directors of the Brotherhood was binding.

The self-appointed directors then filed suit against the carrier, seeking a declaration that the carrier had a duty to defend them in the initial state court action. The multi-peril policies held by the insured contained Director and Officer Coverage (“D&O Coverage”), which included the following language: “We will pay on your behalf those sums that any of your Directors, Officers or Trustees become legally obligated to pay for loss arising from any claim or claims because of injury arising out of a wrongful act to which this insurance applies…and we will have the right and duty to defend the insured against any suit seeking payment for loss and to pay for the defense expenses.”

However, the policy contained several exclusionary provisions and endorsements. For instance, coverage for disputes over “any claim involving title to the Named Insured’s property” were explicitly excluded under policy exclusion (f). In addition, the D&O coverage was modified by the “Affiliated Entity Dispute Legal Defense Coverage Endorsement Clause,” which limits defense coverage to $25,000 in suits brought against the directors and officers of the insured by affiliated entities.

First, the court sought to determine if the policy issued to the insured applied at all in this case. The court found that because the Brotherhood was the only named Plaintiff in the state court action, the insured was not entitled to defense coverage for the underlying lawsuit. Therefore, the court only needed to adjudicate coverage under the policy issued to the Church itself, not the Brotherhood.

Second, the court determined that exclusion (f) of the policy did not apply to the dispute because the state court action was not a “claim to settle questions of property ownership…but to settle questions of membership in and leadership of the Brotherhood.” The action, therefore, was not a “claim involving title” to the named insured’s property as required for exclusion under the policy.

Third, the court recognized that the state action was fundamentally a dispute about the appointment or election of directors, officers or trustees. Therefore the instant dispute “falls within the scope of the Affiliated Entity Endorsement,” which “modifies the right to benefits under the D&O provisions.” However, the insured was not entitled to additional benefits under the D&O policy, over and above the policy limits already tendered.

Lastly, the court interpreted the policy to mean that recovery under the “Legal Defense provision” is precluded where defense costs are covered by the “Affiliated Entity Endorsement” provision, as they are in this case. The court therefore concluded that, because “the Legal Defense coverage is limited to $5,000 per defensible incident, and [the carrier] has already paid $25,000,” it was not required to pay any additional monies to the insured.

In conclusion, the court held that the carrier had satisfied its duties under the insured’s policy and dismissed the insured’s declaratory judgment, breach of contract, and bad faith claims.

Date of Decision: November 14, 2011

Holy Ghost Carpatho-Russian Greek Catholic Church of the Eastern Rite of Phoenixville, PA v. Church Mutual insurance Company, NO. 11-1800, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 131449 (E.D. Pa. Nov. 14, 2011) (Rufe, J.)

NOVEMBER 2011 BAD FAITH CASES
3d CIRCUIT AFFIRMS DISMISSAL, FINDING THAT POLICY OCCURRENCE LIMITS ARE GOVERNED BY AGGREGATE MONETARY LIMITS WITHIN A GIVEN POLICY PERIOD (Third Circuit)

Published on November 21, 2011 in General Bad Faith and Litigation Issues. Closed

In Yellowbird Bus Company v. Lexington Insurance Company, the Third Circuit heard an appeal from the district court’s dismissal of an insured’s complaint. The insured is a transportation company whose bus collided with a tractor in July 2006. The numerous personal injury claims stemming from the incident have been resolved. This instant action involves a dispute over the insured’s coverage limits under a policy with its carrier.

Under the “coverage” provision of the policy, the insured had a $4,000,000 aggregate policy limit. The policy defined several pertinent terms, which the insured challenges on appeal. First, the “policy is subject to an aggregate limit of liability… which will be paid under this policy for all losses in excess of the underlying policy limits.” Second, the policy states, “Subject to the above provision respecting aggregate, the Limit of Liability stated in the Declarations as per occurrence is the total limit of our liability for ultimate net loss… as a result of any one (1) occurrence.” Third, the policy holds that “it shall cease to apply after the applicable limits of liability have been exhausted by payments of defense costs and/or judgments and/or settlements.”

Pursuant to these provisions, the carrier paid about $4,000,000 to the insured to effectuate the various settlements arising from the 2006 car accident. After paying however, the carrier informed the insured that it had reached its policy limits. The insured responded by filing suit in the Philadelphia Court of Common Pleas, seeking a declaration of its rights and damages for breach of contract and bad faith. The carrier removed to federal court, which the insured unsuccessfully moved to remand. The district court also dismissed the insured’s substantive claims. The insured filed two appeals to the Third Circuit.

First, the court examined its jurisdiction to decide the instant appeals. The court found that it possessed jurisdiction to hear the insured’s appeal from the dismissal of its case, but found that it lacked jurisdiction to hear the insured’s appeal from the rejected motion to remand.

The Third Circuit approached the substantive issues by distinguishing between the controverted policy terms. It found that “aggregate limits” set the “maximum amount which will be paid under this policy for all losses… occurring during the policy period, while the occurrence limit is the total limit of the carrier’s liability for ultimate net loss.”

Next, the court addressed the insured’s claims. First, it found that the insured’s argument that the policy contained no occurrence limit was unreasonable. As indicated by its annual $9,000 premium, the insured could not be entitled to unlimited coverage. Second, the court found that the insured was attempting to unfairly twist the language of the “limits of liability” provision. The court ruled that the occurrence limit “is subject to… rather than completely subsumed by, as the insured contended the stated aggregate limit, or the maximum amount that” the insured would pay in any policy period.

Therefore, the court ruled, the insured may bring liability claims for an infinite number of occurrences per policy period, but the coverage for each occurrence is limited to $4,000,000, as the carrier argued.

Date of Decision: November 8, 2011

Yellowbird Bus Company v. Lexington Insurance Company, No. 10-3396, No. 10-3859, U.S. Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 22574 (3d Cir. Nov. 8, 2011) (Chagares, J.)

NOVEMBER 2011 BAD FAITH CASES
THIRD CIRCUIT REVERSE ON CHOICE OF LAW RULES, & APPLIES PENNSYLVANIA LAW PROVIDE INSURED BENEFIT OF STACKING UNDERINSURED MOTORIST BENEFITS (Third Circuit)

Published on November 7, 2011 in Procedural Issues. Closed

In Amica Mutual Insurance Company v. Fogel, the Third Circuit faced an insured’s appeal from the Middle District of Pennsylvania.  The district court had granted summary judgment to the carrier on a bad faith claim and choice of law dispute, applying New Jersey law to the insured’s policy. 

In 2007, the insured purchased a policy from the carrier in New Jersey, but moved to Pennsylvania in early 2008.  The insured apprised the carrier of its relocation and was told to get a Pennsylvania license and register its two cars in Pennsylvania before obtaining a rewritten policy. Before doing so, the insured was involved in a fatal traffic accident in Pennsylvania, caused by an underinsured motorist, that triggered the policy claim.

In 2009, the carrier sought declaratory relief in the Superior Court of New Jersey, believing that New Jersey law applied to the insured’s policy.  Under New Jersey law, an insured may not “stack” benefits on multiple vehicles, while in Pennsylvania an insured is permitted to “stack” benefits. The insured removed to the District of New Jersey, which sua sponte transferred the case to the Middle District of Pennsylvania. 

The choice of law and bad faith claims were submitted to a Magistrate (see this blog), who applied Pennsylvania’s choice of law rules and concluded that New Jersey law applied to the policy.  It also recommended denial of summary judgment on the bad faith claim.  The Middle District of Pennsylvania adopted the R&R (see this blog) and the insured appealed.

The Third Circuit first addressed the choice of law issue, applying the choice of law rules of New Jersey.  Then, it applied New Jersey law under State Farm v. Estate of Simmons, which instructs courts to use the “most significant relationship” standard in choice of law disputes.  This standard seeks to examine each state’s contacts, such as place of contracting, location of subject matter of the contract, domicile and residence, “according to relative importance.”

The court recognized that, with respect to the “stacking” issue, a conflict of laws existed between Pennsylvania and New Jersey.  Because an actual conflict existed, the Third Circuit looked to precedential case law detailing the Simmons approach.  The court focused on New Jersey Manufacturer’s Insurance Company v. MacVicar, which factually resembled the instant dispute.

That case also decided between applying New Jersey and Pennsylvania law in a dispute over an insured’s entitlement to the “stacking” of underinsured motorist benefits.  Though MacVicar was never removed to federal court, the trial court found for the carrier on the choice of law issue during the summary judgment phase.  In that case, the New Jersey Appellate Court later reversed the grant of summary judgment, applying Simmons and the “most significant relationship” test. 

The standard led that court to conclude that the “justified expectations of the parties shifted” when the insured moved to Pennsylvania.  Because the “location of the insured risk” moved with the insured party, Pennsylvania had the most “natural interest” in the application of its law.  Moreover, the MacVicar court held that Pennsylvania had the most significant governmental interest in the controversy, given the firm public policy of affording residents the benefit of “stacked” underinsured motorist policies.

The Third Circuit’s decision echoes this rationale; it ruled that the carrier no longer had a justified expectation that New Jersey remained the principal location of the insured risk. The court reversed the Middle District’s grant of summary judgment to the carrier on the choice of law issue and applied Pennsylvania law.  The case was remanded so that the insured could receive the benefit of “stacked” underinsured benefits.

Lastly, the court addressed the insured’s bad faith claim, which alleged that the carrier failed to adequately investigate its claim and improperly denied them “stacked” benefits under their policy.  The court upheld the Middle District’s grant of summary judgment to the carrier, finding that the carrier’s adjuster was reasonable to believe that New Jersey law would apply at the beginning of the dispute.

Date of Decision: September 8, 2011

Amica Mutual Insurance Company v. Fogel, 656 F.3d 167 (3d Cir. 2011) (Ambro, J.)