JULY 2017 BAD FAITH CASES: BAD FAITH CLAIM DISMISSED WHERE PLAINTIFF FAILED TO PROVIDE SPECIFIC FACTUAL ALLEGATIONS (Philadelphia Federal)

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In this UIM based action, the Plaintiff sued his alleged insurer after being injured in a Florida motorcycle accident. He incurred over $3,000,000 in medical expenses, but only recovered $12,000 from the tortfeasor’s carrier.

His parents reside in Pennsylvania, and are the named insureds on the policy at issue. Furthermore, the policy lists three cars as insured vehicles, but not their son’s motorcycle. The insurer denied the son’s UIM claim, and the son brought suit for breach of contract and bad faith.

On the breach of contract claim, the Court refused to grant the insurer’s motion to dismiss because certain factual questions remained as to whether coverage was due to the son. These questions included whether he resided with his parents, and whether he owned the motorcycle.

However, the Court granted the insurer’s motion to dismiss as to the bad faith claim. The Court found that the Plaintiff failed to state any plausible allegations of bad faith supported by specific facts. The Court reiterated the bad faith standard, stating that a bad faith plaintiff is required “to prove with clear and convincing evidence that ‘(1) the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.’” All this Plaintiff alleged was that the insurer acted unfairly, but he did not specify the unfair conduct. Because his bad faith claim consisted only of conclusory statements devoid of factual substance, the Court granted the insurer’s motion to dismiss as to the bad faith claim. Moreover, unlike many claims failing to meet the Twombly/Iqbal pleading standards, the Court did not give this Plaintiff an opportunity to re-plead by way of an amended complaint.

Date of Decision: July 6, 2017

Toner v. GEICO Ins. Co., No. 17-0458, 2017 U.S. Dist. LEXIS 104075 (E.D. Pa. July 6, 2017) (Slomsky, J.)

JULY 2017 BAD FAITH CASES: CLEAR POLICY LANGUAGE SUPPORTED PLAINTIFFS’ BAD FAITH CLAIM (Philadelphia Federal)

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After purchasing a new car, the insureds were involved in an accident with an uninsured motor vehicle. The insureds tendered a claim for UIM benefits to their automobile insurance provider who denied the claim. The basis for the denial was that the newly purchased car was not insured at the time of the accident. The insureds brought suit, alleging claims for breach of contract, statutory bad faith, and negligence for failure to procure insurance.

The Court issued two opinions concerning the insureds bad faith claims. In the first opinion, the District Court granted the insurers’ Motion to Dismiss, without prejudice, holding that the Complaint contained only conclusory legal recitations, and lacked factual recitations of any bad faith conduct. The Court found an absence of any “facts showing how [the insurer] lacked a reasonable basis for its decision to not pay UIM benefits,” or “facts specifically describing what was unfair about [the insurer’s] denial or refusal to pay UIM benefits.” Although the Court granted the insurer’s Motion, it gave the insureds leave to file an amended complaint.

The insureds filed an amended complaint, and the insurer again moved to dismiss. In its second opinion, the District Court came to a vastly difference conclusion. In the amended complaint, the insureds attached their automobile policy which expressly promised “to insure the plaintiffs as long as they request a car be added to the policy within 30 days of acquiring the car.” The amended complaint alleged that the insureds did just that. According to the court, the inclusion of this policy was, in and of itself, sufficient proof of bad faith. The Court explained that “an insurance company ignoring its costumer’s claim in the face of its own policy language clearly guaranteeing coverage for the very claim at issue certainly forms the basis for a bad faith claim.”

Dates of Decisions: April 10, 2017 & July 11, 2017

Riedi v. Geico Casualty Co., No. 16-6139, 2017 U.S. Dist. LEXIS 54952 (E.D. Pa. April 10, 2017) (Stengel, J.)

Riedi v. Geico Casualty Co., No. 16-6139, 2017 U.S. Dist. LEXIS 106678 (E.D. Pa. July 11, 2017) (Stengel, J.)

JULY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S DENIAL WAS BASED ON AN EXPLICIT AND CLEAR POLICY EXCLUSION, AND CONFUSION OVER NATURE OF CLAIM DID NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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In this case, the plaintiff leased office space to the insured for day-to-day use. In exchange for a rent reduction, the insured agreed to store corporate documents and other assets belonging to the plaintiff in a secured filing cabinet on the property. During a later cleaning and reorganizing project undertaken by the insured, the contents in the filing cabinet were mistakenly disposed of. Plaintiff’s accountant estimated the intrinsic value of the filing cabinet contents at $262,045.

Defendant insurer issued an insurance policy to the insured that covered the office space property. The plaintiff took various informal attempts to settle the loss directly with the insurer. The insurer offered to process plaintiff’s claim as a first-party claim, and required plaintiff to submit certain documentation substantiating the loss. Furthermore, the insurer advised plaintiff that the policy limit for a first-party claim was only $100,000.00, well below plaintiff’s $262,045 claim.

Plaintiff advised the insurer that it would be pursuing a third-party claim, upon learning of the $100,000 first-party claim limit. The insurer, however, had already investigated and analyzed coverage for the loss as a third-party claim, and concluded that the insurance policy excluded coverage for property in the care, custody, and control of the insured. Based on this analysis, the insurer had previously issued the insured a denial letter to the insured on the third-party claim.

The plaintiff brought suit against the insured in the Court of Common Pleas. The insurer denied any duty to defend and indemnify, per the above reasoning. The insured later assigned plaintiff its contract and bad faith rights against the insurer. Plaintiff, as assignee, alleged breach of contract and bad faith.

Specifically, plaintiff alleged the insurer refused to cover the third-party claim, and continually treated plaintiff as a first-party claimant. The court granted the defendant insurer’s motion for summary judgment on the contract claim. The court found that an explicit policy exclusion precluded coverage for the third-party claim because the contents of the filing cabinet were in the care, custody, and control of the insured.

As to the bad faith claim, the court stated that statutory bad faith “is not restricted to an insurer’s bad faith in denying a claim, but rather may extend to a variety of actions such as the insurer’s investigative practices or failure to communicate with the insured.” Still, as the court had ruled the insurer “correctly determined that plaintiff’s claim fell within a policy exclusion … [that] conclusion compels the finding that defendant’s denial of coverage does not constitute bad faith.”

Further, to “the extent that plaintiff alleges that defendant willfully misinterpreted plaintiff’s claim to be requesting first-party property coverage rather than third-party liability coverage, the undisputed evidence of record does not support a reasonable inference that defendant acted in bad faith.” The court concluded: “Plaintiff produced no evidence that defendant lacked reasonable basis for its initial understanding or persisted in this position despite clarification to the contrary. To the contrary, the evidence of record clearly establishes that defendant’s initial confusion was nothing more than mere error. Indeed, defendant’s mistaken characterization of the claim as seeking first-party coverage actually subjected it to more liability exposure—up to $100,000—than it would have under the third-party liability provisions. Given the complete absence of bad faith evidence, I find that this claim fails on summary judgment review.”

Date of Decision: June 27, 2017

Wugnet Publications, Inc. v. Peerless Indemnity Insurance Company, No. 16-4044, 2017 U.S. Dist. LEXIS 98948 (E.D. Pa. June 27, 2017) (O’Neill, Jr., J.)

JULY 2017 BAD FAITH CASES: SUMMARY JUDGMENT ON CONTRACT CLAIM MEANT INSURER’S DENIAL WAS REASONABLE, AND MANDATED SUMMARY JUDGMENT ON BAD FAITH CLAIMS (Western District)

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In this case, the court previously had denied a motion to dismiss the statutory bad faith claim. The matter was now before the court on summary judgment.

The court concluded that insurer did not withhold payments due, but rather was correct in not making the claimed payments at issue. Thus, there was no breach of the insurance contract. The insured conceded these actions in not making payment were reasonable.

Moreover, the insured had already conceded that if the insurer “was entitled to summary judgment on the breach of contract claim because it paid … the entire amount that was due under the Policies, then this claim for insurance bad faith necessarily fails.” Thus, the court granted summary judgment on both the contract and bad faith claims.

Date of Decision: July 6, 2017

First National Bank of Pennsylvania v. Transamerica Life Insurance Company, No. 14-1007, 2017 U.S. Dist. LEXIS 104082 (W.D. Pa. July 6, 2017) (Reed Eddy, M.J.)

JULY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S DENIAL WAS BASED ON A REASONABLE INVESTIGATION (Middle District)

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The insured and insurer were in a dispute over what caused damage to the insured’s home. The insurer sent out an independent engineer for two inspections, with a third being cancelled due to disagreement over videotaping the inspection. This inspector’s analysis, which involved an invasive inspection by cutting holes, identified long standing structural problems as the cause of loss, rather than a specific weather event. There was no coverage for the former, but coverage for the later.

The insured brought breach of contract and bad faith claims. The court granted partial summary judgment on the bad faith claim.

The insurer alleged various biases on the inspector’s part and that the conclusion was in error, apparently because of these biases. The standard for proving bad faith requires clear and convincing evidence of conduct that goes beyond negligence or bad judgment; but the first hurdle is that the insurer’s denial must have been unreasonable.

In this case, the summary judgment record reflected the insurer’s prompt action once the claims were made, retention of an independent contractor, that contractor’s conducting multiple investigations into the cause of loss, and the insurer’s reliance on the independent inspector’s report in concluding there was no coverage. The court found that “[t]hese actions constitute a reasonable basis for denying coverage, notwithstanding any findings on the accuracy of the reports and interpretations of the insurance contract.”

Thus, summary judgment was granted on the bad faith claim.

Date of Decision: July 5, 2017

Souder v. Travelers, No. 15-CV-02223, 2017 U.S. Dist. LEXIS 103332 (M.D. Pa. July 5, 2017) (Mehalchick, M.J.)

The parties had agreed to allow the Magistrate Judge to rule on the motion.

 

JULY 2017 BAD FAITH CASES: INSURER ONLY OWES FIDUCIARY DUTY IN LIMITED CIRCUMSTANCES, AND ORDINARY CONTRACT DISPUTE CANNOT CREATE THAT DUTY (New Jersey Federal)

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This case involved a detailed three-year history concerning a dispute over what coverage the insured paid for, wanted or had. There were no claims against the insured or losses involved. The insured brought numerous claims, including a breach of fiduciary duty claim.

In dismissing that claim, the court observed that there are circumstances in which an insurer owes a fiduciary duty, but these circumstances are limited. Thus, “an insurer acting as an agent to the insured when settling claims owes a fiduciary duty,” and “an insurance company owes a duty of good faith to its insured in processing a first-party claim.”

However, “absent ‘special circumstances’ a claim for fiduciary duty cannot survive.” The court cited case law for the proposition that: “[A]bsent a special relationship, parties operating in the normal contractual posture, not as principal and agent, are typically not in a fiduciary relationship.”

In this case, the insured did not “allege anything to suggest the relationship between Plaintiff and Defendants exceeds an ordinary contractual relationship. Plaintiff’s basis for finding a fiduciary relationship is essentially that he was insured by the Defendants.” There was no first party of third party claim. “Therefore, Plaintiff and Defendants never had the occasion to enter into a fiduciary relationship.”

This claim was dismissed without prejudice.

Date of Decision: June 22, 2017

Degennaro v. American Bankers Insurance Company of Florida, No. 3:16-cv-5274-BRM-DEA, 2017 U.S. Dist. LEXIS 96372 (D.N.J. June 22, 2017) (Martinotti, J.)

JULY 2017 BAD FAITH CASES: COURT DECLINES TO CONSIDER MERITS OF ASSIGNED BAD FAITH CLAIM BECAUSE STATUTE OF LIMITATIONS HAD RUN (Western District)

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In 2007, the insured was involved in a motor vehicle accident, injuring another driver. The injured party filed a negligence action against the insured. The insurer sent a 2007 letter declining to defend or indemnify the insured. In 2008, the insurer filed a declaratory judgment action, claiming that it did not have a duty to defend or indemnify the insured. The court entered a consent order that the insurer owed no duty to defend or indemnify.

Around the same time-period, the injured party separately filed her own declaratory judgment against the insurer, arguing that the insurer was obligated to defend and indemnify the insured. This second declaratory judgment action did not assert claims for breach of contract or bad faith, and there was no assignment of such claims by the insured to the injured plaintiff. In February 2009, the injured party was given leave to withdraw this second declaratory judgment action, without prejudice.

The insured passed away in 2015. In 2016, after trial, the court entered judgment in favor of the injured party in the original 2007 negligence action, for a sum in excess of $1 Million. The estate assigned the injured party any and all of its rights, claims, demands, and causes of action against the insurer, including claims for breach of contract and bad faith.

The injured party subsequently filed an action against the insurer. The claims included breach of contract and statutory bad faith claim, as well as a request for declaratory relief. The court granted summary judgment on the assigned breach of contract and bad faith claims, though not as to the injured party’s own declaratory judgment count.

An assignee stands in the assignor shoes. Any causes of action the insured had for breach of contract and bad faith accrued when the insurer conveyed a letter denying any duty to defend and indemnify the 2007 negligence action (or, at the latest, in 2008, when the court entered the consent order). The court stated that any bad faith claim had to be raised no later than 2009 (under the two year statute of limitations governing statutory bad faith claims) or by 2011 for the breach of contract claim.

The court concluded: “In order to advance timely claims for breach of contract/bad faith, under the facts here, [the insured] would had to have filed suit and challenged that coverage denial in the 2008 ‘second’ declaratory judgment suit by seeking an assignment to include the breach of contract/bad faith claims at that time. Instead, [the insured] brought only a declaratory judgment action.”

As the bad faith claim was not filed within two years after the initial denial of coverage, the court found that the claim was time-barred.

Date of Decision: May 22, 2017

Falo v. Travelers Personal Insurance Co., No. 17cv0143, 2017 U.S. Dist. LEXIS 77425 (W.D. Pa. May 22, 2017) (Schwab, J.)

 

JUNE 2017 BAD FAITH CASES: FINANCIAL ADVISOR RECOMMENDING INSURANCE PRODUCTS HAS NO FIDUCIARY DUTY TO CLIENT/INSURED ABSENT INSURED HAVING ACTUALLY OR FUNCTIONALLY CEDED ALL CONTROL IN DECISIONMAKING TO ADVISOR (Pennsylvania Supreme Court)

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This case involves the existence of a fiduciary duty between financial advisor and his clients. The facts include recommendations to buy certain life insurance policies, which the insureds later claimed were fraudulently represented to them. They brought various claims, including breach of fiduciary duty claims.

Those claims were rejected by the trial court, which found no fiduciary duty existed in the absence of the financial advisor having control over the insureds’ decisionmaking. The Superior Court reversed, finding the existence of a fiduciary duty based on the facts concerning the relationship between the advisor and his clients, rather than as a matter of law. The Supreme Court reversed that decision. It ruled, along the lines of the trial court, that in the absence of a traditional type of controlling and overmastering relationship, there is no fiduciary duty simply because the financial advisor has greater expertise where the clients made the ultimate investment decisions.

Among other things, the Supreme Court stated:

“While cases involving fiduciary relationships are necessarily fact specific, they usually involve some special vulnerability in one person that creates a unique opportunity for another person to take advantage to their benefit.”

“The Superior Court, in the case before us, erred in relying on our case law involving undue influence to support its conclusion that a fiduciary relationship can be established without evidence that decision-making power was effectively ceded to another. Its view misses the point that the exercise of undue influence, at its core, indicates that an individual so influenced has lost the ability to make an independent decision.”

“We conclude that the … summary judgment evidentiary record falls far short of establishing a fiduciary …. Fiduciary duties do not arise ‘merely because one party relies on and pays for the specialized skill of the other party.’ …. If this were the law in Pennsylvania, ‘a fiduciary relationship could arise whenever one party had any marginal greater level of skill and expertise in a particular area than another party.”

“The superior knowledge or expertise of a party does not impose a fiduciary duty on that party or otherwise convert an arm’s-length transaction into a confidential relationship. In this regard, the analysis is no different in a consumer transaction than in other fiduciary duty cases decided by this Court.”

“’[T]he critical question is whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on one side or ‘weakness, dependence, or trust, justifiably reposed’ on the other side,” which results in the effective ceding of control over decisionmaking by the party whose property is being taken.”

“A fiduciary duty may arise in the context of consumer transactions only if one party cedes decision-making control to the other party.” Thus, “’a business transaction may be the basis of a confidential relationship only if one party surrenders substantial control over some portion of his affairs to the other.’”

The case before the court did not fall into these categories. Rather, it presented “an arm’s-length consumer transaction in which the [clients/insureds] accepted [the financial advisor’s] advice with respect to the purchase of the … whole life insurance policy[, and they] made the decision to purchase this policy, but also decided to reject other proffered products and services.” The complicated nature of the premium structure did not change the character of the transaction between the parties. The clients “purchased an insurance product from a captive financial advisor with whom they had a business relationship for a little more than a year, initiated by a cold-call. [Their] lack of post-secondary high school educations is not indicative of a weakness, dependence, or trust, justifiably reposed, nor is [the advisor’s] advanced training sufficient to establish an overmastering influence.”

“The record here establishes that [they] made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that [they] may have become comfortable with the Appellants’ expertise before deciding to purchase the … whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It does not, however, establish a fiduciary relationship.”

“There is no evidence to establish that [they] were overpowered, dominated or unduly influenced in their judgment….” “[They] never ceded any decision-making authority….” Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that [they] did not purchase.”

It was of some significance to the Court that under appropriate circumstances, consumers “have various common law tort remedies (with burdens of proof less stringent than those required in fiduciary duty cases), as well as claims for common law fraud and the statutory relief provided by the current version of the UTPCPL, which provides a remedy for deceptive conduct. 73 P.S. § 201-2(4)(xxi).”

The majority “decline[d] to modify the law of fiduciary duty to encompass the particular pitfalls involved in the sale of insurance products by commissioned agents or financial advisors to less savvy customers. Moreover, we do not hold that a fiduciary duty cannot arise in a case with facts not present here, but absent evidence that a consumer of financial services and goods cedes control over the decision to purchase, either explicitly or implicitly because of over-mastering or undue influence, no fiduciary relationship arises.”

Date of Decision: June 20, 2017

Yenchi v. Ameriprise Financial, Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405 (Pa. June 20, 2017) (Pennsylvania Supreme Court)

The dissenting opinion can be found here.

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JUNE 2017 BAD FAITH CASES: REFUSING A POLICY LIMITS DEMAND, STANDING ALONE, CANNOT BE BAD FAITH (Philadelphia Federal)

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This is “another UIM bad faith case,” the most common scenario for bad faith cases. That being said, it remains important for all counsel and parties addressing bad faith law to study any broader principles to be found in these cases, rather than being lulled into a sense the case is unimportant once it becomes apparent to the reader that it is just “another UIM bad faith case.”

In this case, the insured alleged he sought the $15,000 policy limit and the insurer would not agree to pay that sum. The complaint included assertions that the insurer failed to “(1) act with reasonable promptness in evaluating and responding to his claim and reasonable fairness in paying the claim, (2) negotiate his claim, (3) properly investigate and evaluate his claim and (4) request a defense medical examination of him.” Without pleading facts regarding the insurer’s actual investigation, responses or offers, the insured still claimed “that the insurer lacked a reasonable basis for its conduct in handling his claim since there ‘is no dispute in this case that the accident was the fault of the underinsured driver and that [he] was entitled to underinsured motorist coverage under [his] policy.’”

The court observed the general principle that to “recover on a bad faith claim, a claimant is required to show by clear and convincing evidence that: (1) the defendant insurer did not have a reasonable basis for denying the policy benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis when it denied the claim.” It stated that “[v]arious other actions by an insurer can also rise to the level of bad faith, such as ‘lack of investigation into the facts[ ] or a failure to communicate with the insured.” The court noted “[b]ad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’” The court added, “[a]lthough an insurer’s conduct need not be fraudulent for an insured to recover pursuant to a ‘bad faith’ claim, mere negligence or bad judgment will not suffice.”

Finally, in its general statements concerning bad faith law, the court stated “[a] claimant must show that the insurer acted in bad faith based on some motive of self-interest or ill will.” This is an example of how a UIM case may reveal some point of broader interest. In Rancosky v. Washington National Insurance Company, the Pennsylvania Supreme Court took up the issue of whether “some motive of self-interest or ill will” is an element of statutory bad faith, or merely evidence relevant to proving the elements of reasonable basis and knowledge or reckless disregard. The Superior Court of Pennsylvania has held for ten years that this is not an element of statutory bad faith; however, counsel or parties in federal court should be aware that until the Supreme Court rules otherwise, there might be federal courts that do find it to be an element. Argument in Rancosky occurred on April 4, 2017.

In this case, the court dismissed the bad faith claim, with leave to amend the complaint. The insured only alleged that he and the insurer failed to agree on the UIM sum to be paid, to which he claimed he was entitled. However, the law provides that an insurer’s decision not to immediately pay a policy limits demand, without more, does not constitute bad faith. Without more facts concerning the insured’s claim and the insurer’s investigations, negotiations, offers and communications, the court could not simply infer the presence of an actionable bad faith claim.

Date of Decision: June 19, 2017

Jones v. Allstate Insurance Company, No. 17-648, 2017 U.S. Dist. LEXIS 93673 (E.D. Pa. June 19, 2017) (Pappert, J.)

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JUNE 2017 BAD FAITH CASES: NO DIRECT ACTION FOR BAD FAITH WHERE PLAINTIFF WAS NOT INSURED BY DEFENDANT (Philadelphia Federal)

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In this case, the plaintiff attempted to bring various claims against an insurer, including a bad faith claim. Pennsylvania is not a direct action state. The pleadings revealed that the insurer defendant did not insure the plaintiff. The plaintiff thus had no claims against the insurer, and all claims against the insurer were dismissed.

Date of Decision: June 20, 2017

ABC Capital Invs., LLC v. CNA Financial Corporation, No. 16-CV-4943 2017 U.S. Dist. LEXIS 95433 (E.D. Pa. June 20, 2017) (Joyner, J.)

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