DECEMBER 2017 BAD FAITH CASES: MOTION TO DISMISS DENIED WHERE ALLEGATIONS CONCERNING LACK OF SETTELEMENT OFFERS ARE SPECIFIC ENOUGH AND SUFFICIENT TO SUPPORT BAD FAITH CLAIM (Western District)

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This is a report and recommendation written by the U.S. Magistrate Judge. Final determination on the issues is subject to future rulings by the District Court Judge.

The insured suffered numerous injuries after being hit head-on by a drunk and underinsured driver. The insured allegedly suffered facial scarring, facial lacerations, a cervical strain, head injuries, headaches, a broken finger, and ligament tears, among other injuries. The insured settled the underlying action with the tortfeasor’s insurer for the maximum policy limits of $15,000. Arguing that his damages exceeded that amount, the insured filed a UIM claim under his own policy, which contained UIM benefits up to $250,000. The complaint alleges that despite providing the insurer with reasonable proofs of damages, the insurer has failed to offer any amount and has failed to offer an explanation as to why it has not made an offer.

The action was then removed to federal court. The insurer filed a motion to dismiss the bad faith claim, arguing that there exists a genuine dispute as to the value of the insured’s UIM claim. The insured argued the motion to dismiss should be denied, because the insurer’s refusal to make any offer or provide an explanation constitutes bad faith.

In construing a motion to dismiss under Rule 12(b)(6), the Magistrate Judge stated that “when there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.” The magistrate recommended that the motion to dismiss be denied, because the insured’s allegations that “[the insurer] has failed to make any offers of payment on the UIM claim or any evaluations of it” are specific and sufficient to constitute bad faith at this stage of the litigation. Lastly, the magistrate judge wrote that whether the bad faith claim survives a motion for summary judgment is a completely separate matter, which would need to be decided with a more developed discovery record.

Date of Decision: December 6, 2017

Hart v. Progressive Preferred Ins. Co., Civil Action No. 17-1158, (W.D. Pa. Dec. 6, 2017) (Mitchell, M.J.)

DECEMBER 2017 BAD FAITH CASES: MEDIATION PRIVILEGE INAPPLICABLE TO MOST COMMUNICATIONS; REINSURANCE INFORMATION DISCOVERABLE EVEN IF NOT ULTIMATELY ADMISSIBLE (Western District)

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The insured was involved in a deadly motor vehicle accident. The insurer could have settled the case within the $11,000,000 policy limit, but declined to do so. The case was mediated before two different mediators and the judge held a settlement conference. The case went to trial and the jury awarded $32,000,000. The insured sued for breach of contract and bad faith.

During the bad faith litigation, the insured sought discovery concerning the mediations and reinsurance. The insurer asserted the mediation privilege and that the reinsurance documents were not relevant. The insured argued that the purpose of Pennsylvania’s mediation privilege is to enable the parties to be frank and honest with the mediator and/or opposing parties without fear of reprisal in a subsequent bad faith lawsuit for doing so.” The insurer had the burden in asserting this privilege.

MEDIATION PRIVILEGE

As a practice point, the court observed the insurer “did not specify on its privilege log whether its decision to redact or withhold a document was because a portion of a document was ‘a mediation communication’ or a ‘mediation document’ as those terms are defined. Instead, [the insurer] merely opted to cite the statute and then let this Court attempt to discern what [it] meant by the following entry on its privilege log: ‘Mediation and/or settlement conference privilege pursuant to 42 Pa.C.S. §5949, F.R.E. 408, and/or applicable law.’” The court then stated that the insurer had reciting the statutory definitions of mediation communication and mediation document and then argued that “‘[a]ll of the documents withheld and/or redacted … and submitted to the Court in camera qualify as mediation documents or mediation communications.’” The court went on to describe this as a lack of pointed argument.

Pertaining to documents redacted or withheld, the court found that “none of the redacted or withheld documents qualify as ‘a mediation document’ under the plain meaning of Pennsylvania’s mediation privilege statute except for” a single document. As to that document, it should only have been “redacted where the mediator … wrote an email ….” Under 42 Pa.C.S. 5949, “mediation document” is defined as: “Written material, including copies, prepared for the purpose of, in the course of or pursuant to mediation. The term includes, but is not limited to, memoranda, notes, files, records and work product of a mediator, mediation program or party.”

The court then went on to address mediation communications within the documents, which the statute defines as: “A communication, verbal or nonverbal, oral or written, made by, between or among a party, mediator, mediation program or any other person present to further the mediation process when the communication occurs during a mediation session or outside a session when made to or by the mediator or mediation program.” The court refused to apply the mediation privilege to statements made outside the mediation that did not in some way include the mediator.

The court did protect communication from the insured’s expert consultant relaying something the mediator said. However, it did not protect “redacted statements a mediator or a party may have said during the course of a mediation” in other circumstances. Specifically, it did not protect these communications where the documents including those statements “are nothing more than reports and/or claims notes. These redacted documents contain statements which were made by a person who may have been present at the mediation session to someone (not the mediator) outside the mediation session. Thus, they do not meet the plain meaning of the definition of ‘mediation communication’ and therefore, are not protected by Pennsylvania’s mediation privilege.” (Emphasis in original)

REINSURANCE DISCOVERY

On the reinsurance documents, the court observed that there “is no absolute exclusion of reinsurance information, as discovery of such information has been readily permitted,” citing at least one case on the issue of reserves being discoverable in bad faith litigation to support this position. The court also quoted case law that “the purpose of permitting discovery of the existence of and content of any insurance agreement is to equalize the knowledge of both parties and give the plaintiff ‘assurance that there can be recovery in the event of a favorable verdict to justify the time, effort and expense of preparing for trial.’ … Although the discovered information may not be admissible at trial, it would allow parties to fairly evaluate settlement offers and foster a just, speedy and inexpensive determination.”

Relying on these cases, the court concluded that: “Given the nature of this case, and the allegations brought by Golon, this Court finds that all of [insurer’s] documents which were either withheld or redacted because the document either referenced or discussed reinsurance should be produced in their entirety.  However, this does not guarantee that these documents will be admissible at the time of trial. The Court is ordering them produced so that [the insured] can evaluate what [the insurer] did or did not do, and when [the insurer] took action with its own reinsurer, in relation to the underlying claim.”

The Court subsequently denied two emergency motions for reconsideration.

Date of Decision: December 7, 2017/December 14, 2017

Golon, Inc. v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 201792 (W.D. Pa. Dec. 7, 2017) (Schwab, J.)

Golon, Inc. v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 213966 (W.D. Pa. Dec. 14, 2017) (Schwab, J.)

 

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE: INSURER CONTINUALLY INVESTIGATED CLAIM; MADE LOW BUT REASONABLE SETTLEMENT OFFERS; DELAY IN ISSUING EXPERT REPORT WAS BASED ON POTENTIALLY IMMINENT SETTLEMENT; DISCOUNTING OFFER FOR TORTFEASOR PAYMENT FELL WITHIN TOTAL LIABILITY VALUATION (Philadelphia Court of Common Pleas)

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This is a UIM bad faith action that went to verdict in Philadelphia’s Court of Common Pleas, with the Court ruling for the insurer.

The injured insured settled a lawsuit with the tortfeasor’s insurer for $50,000 in March of 2012, and then filed a UIM claim with his own insurer. The insurer continually investigated the claim, and ultimately valued the insured’s injuries between $50,000 and $75,000. The insurer discounted the previously paid $50,000 amount from the March 2012 settlement in its own settlement offers.

The insurer initially offered $7,500, but increased its offer six times in a span of 10 months through a course of ongoing negotiations, upon receiving new information during that time. The insured refused to settle for any amount less than the $100,000 UIM policy limits. When the insured ultimately produced documentation that his injuries were regressing, and that he may never live pain free again, the insurer offered $100,000, which the insured accepted.

The insured then sued for bad faith, arguing that (1) the insurer had no reasonable basis for its negotiating position at any time during the ten-month period; and (2) the insurer acted in bad faith for its consistent undervaluation of the claim. After a six-day bench trial, the Court found in favor of the insurer.

The Court found that a ten-month claim window is inherently unreasonable, and the evidence suggested that the claim continually had ongoing developments complicating the evaluation process. The Court further found that “[e]ach step of the way, [the insurer] acknowledged and credited new information and responded accordingly,” and low but reasonable settlement offers do not amount to bad faith.

The Court further found that defense counsel instructing its IME expert to delay writing his report was not done to unreasonably prolong negotiations, but to control litigation costs when counsel believed the case was on the eve of settlement. Lastly, the Court found that, when discounting the March 2012 settlement, all of the insurer’s offers fell within “the total valuation for UIM liability.”

Date of Decision: November 2, 2017

Camiolo v. Erie Insurance Exchange, July Term 2015 Case No. 1750, (C.C.P. Phila. Nov. 2, 2017) (Colins, J.)

Our thanks to Dan Cummins of the wonderful Tort Talk Blog for bringing this case to our attention.

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE PLAINTIFF FAILS TO PLEAD KNOWLEDGE OR RECKLESS DISREGARD OF LACK OF A REASONABLE BASIS TO DENY COVERAGE, EVEN THOUGH COVERAGE WAS DUE (Western District)

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This case arises out of a fatal automobile accident, involving the son-in-law of the named insureds. The named insureds are the parents of the deceased’s wife, who is listed as a “household driver”. Following the accident, the insurer refused to pay her stacked UIM benefits, arguing that she does not reside with the named insureds and is thus not a “relative” under the policy. The insureds then sued for breach of contract and bad faith, among other claims. The insurer moved to dismiss under Federal Rule of Civil Procedure 12(b)(6).

In making the coverage determination, the Court found that “relative” in the policy includes “child”, and while “child” was not defined in the policy, it could reasonably be interpreted to include the deceased’s wife. Thus, the Court denied the insurer’s motion to dismiss the breach of contract claim.

However, the Court granted the insurer’s motion to dismiss the bad faith claim, without prejudice, finding the insureds failed to provide any “allegation that [the insurer] knew or recklessly disregarded [a] lack of a reasonable basis when it denied [stacked] coverage.” For the same reasons, the Court also dismissed the insureds’ fraud claim. The Court further dismissed the insureds’ unjust enrichment claim with prejudice, ruling that such a claim is inappropriate where the relationship of the parties is governed by an express contract. The Court offered the insureds leave to file an amended complaint.

Date of Decision: December 1, 2017

Estate of Sippey v. Metro. Group Prop. & Cas. Ins. Co., CIVIL ACTION NO. 17-227, 2017 U.S. Dist. LEXIS 197533 (W.D. Pa. Dec. 1, 2017) (Bissoon, J.)

DECEMBER 2017 BAD FAITH CASES: APPLYING NEW YORK LAW OR PENNSYLVANIA LAW, MISTAKE DID NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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The tortfeasor struck the insured as he was riding his bicycle. USAA insured the tortfeasor under a policy containing a liability limit of $15,000. The insured held policies with Progressive (providing for $50,000 in UIM benefits) and State Farm (providing for $100,000 in UIM coverage). USAA tendered its policy limits to the insured in an attempt to settle the claim, which the insured accepted. The insured requested consent with Progressive to settle the claim, and while the insured’s attorney contacted State Farm to notify it of the claim, there was no mention made of the settlement offer. A second correspondence to State Farm also failed to notify it of the settlement.

The State Farm policy contained language denying coverage if the insured settles any lawsuit “without our written consent.” State Farm denied coverage because it believed that the USAA policy provided benefits “equal to or exceeding” the benefits provided under the State Farm policy. This mistake “occurred after [the insured] had extinguished State Farm’s right of subrogation, and nothing [the insured] did was the result of State Farm’s initial mistake.” State Farm acknowledged its claim handling mistake, but then denied UIM coverage because the insured “never [gave] notice and sought consent to accept USAA’s tender of liability limits available under the [tortfeasor’s] policy.”

The insured sued for bad faith, and State Farm moved for summary judgment. The court previously decided that New York law controls. The court ruled that the insureds failed to show that (1) the USAA settlement did not prejudice State Farm’s subrogation rights; and (2) State Farm did not waive the insured’s obligation to provide it with advance notice of settlement of the claim.

As to the bad faith claim, the Court held that “State Farm had a valid basis for denying benefits under New York law.” The Court reasoned that State Farm’s initial claims handling error does not rise to the level of bad faith, because the error was not only corrected, but it was “not causally related to the legitimate basis on which it denied the [UIM] claim.” The Court further held that even if Pennsylvania law controlled, nothing in this case would be sufficient to support a bad faith claim. The Court granted State Farm’s motion for summary judgment.

Date of Decision: November 30, 2017

Bennett v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 15-5170, 2017 U.S. Dist. LEXIS 197515 (E.D. Pa. Nov. 30, 2017) (McHugh, J.)

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE OWED, APPLYING EXCLUSION FOR ACTIONS AS OFFICER OF ANOTHER ENTITY (Philadelphia Federal)

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The plaintiff served in various official roles for the insured corporation. The insurer issued a DO&E policy to the corporate insured.

The plaintiff and another entity filed a conservatorship petition over property owned by the Underlying Plaintiffs. The Underlying Plaintiffs sued the plaintiff, that other entity, and the insured corporation for allegedly making false statements in the conservatorship petition as part of a “plan to run the [property owners] out of the neighborhood.” The court in the underlying action, however, dismissed all claims with prejudice against the insured corporation. The jury returned a verdict for the Underlying Plaintiffs, and against the plaintiff, among others.

The DO&E policy contained a coverage exclusion that stated, “The Insurer shall not pay Loss . . . (I) of an Insured Person based upon, arising from, or in any way related to such Insured Person’s service, at any time, as a director, officer, trustee, regent, governor, or equivalent executive or as an employee of any entity other than an Insured Entity . . . .” The insurer withdrew its defense of the plaintiff under this exclusion after the the insured corporation was dismissed with prejudice. The plaintiff then brought this action against the insurer for bad faith and breach of contract.

The court converted the insurer’s motion to dismiss into a summary judgment motion. The court stated, “it is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover.” When an underlying plaintiff drops an insured claim, this constitutes “absolutely clear” evidence that the action seeks relief that is not covered under the policy.

The court held that the insurer had no duty to defend the plaintiff once the underlying court dismissed the insured from that action. The court rejected the idea that insured corporation tacitly approved the plaintiff’s actions in filing the conservatorship petition because the insured was in no way involved in that petition. Furthermore, the plaintiff did not serve the insured corporation’s interest in any official capacity at the time the conservatorship petition was filed and “it is undisputed that [the plaintiff] . . . filed the conservatorship petition . . . in his capacity as President and owner of [another entity].”

The policy exclusion thus barred any coverage. Because the insurer did not owe a duty to defend or indemnify the plaintiff, his bad faith claim against the insurer necessarily failed.

Date of Decision: November 20, 2017

Palmer v. Twin City Fire Ins. Co., CIVIL ACTION NO. 17-826, 2017 U.S. Dist. LEXIS 190993 (E.D. Pa. Nov. 20, 2017) (Beetlestone, J.)

DECEMBER 2017 BAD FAITH CASES: BAD FAITH CAN EXIST WHERE INSURER NECESSARILY KNOWS POLICY LANGUAGE DOES NOT EXCLUDE COVERAGE AND DENIES CLAIM (Middle District)

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The insurer moved to dismiss a bad faith claim on the basis of boilerplate allegations, among other things. The court denied the motion.

The court not only found the facts adequately pleaded, it went on to rule that the insurer’s interpretation of the policy was unreasonable because there was no specific language excluding the homeowners’ loss at issue (the entire associated costs of reconstructing improperly conflated fresh water and sewer pipes).

Moreover, the court found that the second bad faith element was met on the face of the complaint, stating:

“Under Pennsylvania law we construe any ambiguities in the policy ‘in favor of the insured to further the contract’s prime purpose . . . and against the insurer, as the insurer drafts the policy, and controls coverage.’ …. In the case at bar, when viewed in the light most favorable to the non-moving party, we do not confront an ambiguity in the policy. Rather, defendant’s basis for refusing coverage is simply not present in the policy. It is axiomatic that insurance policy language — or the lack thereof — is imputed to the insurer, because the insurer is the scrivener of the policy. We conclude, therefore, that defendant knew or recklessly disregarded its lack of reasonable basis for denying coverage regarding the entire combined water supply pipe/sewer pipe loss including the ordinance and law coverage pursuant to the value added policy.”

Date of Decision: November 30, 2017

Foss v. Phoenix Insurance Co., No. 3:17cv1757, 2017 U.S. Dist. LEXIS 196665 (M.D. Pa. Nov. 30, 2017) (Munley, J.)

DECEMBER 2017 BAD FAITH CASES: BAD FAITH CASE REINSTATED WHERE COVERAGE FOR SECONDARY LIABILITY ON PUNITIVE DAMAGES WAS POSSIBLE (Superior Court of Pennsylvania)

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A jury awarded punitive damages against the insured, and the trial court ruled there would be no coverage as a matter of public policy, and dismissed breach of contract and bad faith claims, even absent a punitive damages exclusion in the policy. The Superior Court reversed. Public policy only prohibits coverage for punitives damages against insureds for their direct conduct. Public policy does not prohibit coverage where the insured’s liability for punitive damages is derivative from the acts of another. Because the carrier had not proven the punitive damages were solely from the insured’s own acts the judgment was reversed and the case was remanded to proceed on the issues of coverage and bad faith.

Date of Decision: November 30, 2017

Bensalem Racing Association v. Ace Property & Casualty Insurance Co., No. 530 EDA 2017, 2017 Pa. Super. Unpub. LEXIS 4395 (Pa. Super. Ct. Nov. 30, 2017) (Dubow, Panella, Ranson, JJ.)

IF YOU HAVE A BAD FAITH CASE IN FEDERAL COURT, READ THIS COURT’S OPENING PARAGRAPH ON BAD FAITH CLAIMS AND PLEADING (Philadelphia Federal)

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We let the Court’s opening paragraph speak for itself in describing the law and result of failure to plead plausible bad faith claims:

“Pennsylvanians suing their automobile insurer for failing to pay their insurance claim may allege breach of the insurance policy and bad faith under a Pennsylvania statute. They are not the same claim. Alleging bad faith requires facts showing how the insurer acted unreasonably both in denying the policy benefits and later ignoring its unreasonable denial. When, as today, the insured pleads facts from over two years ago which detail the insurer’s responsive steps but then fail to allege a single fact thereafter to describe why the claim is not paid other than concluding the claim is not paid, we are left without a basis to understand if the insurer acted in bad faith. Failure to pay a claim may be a breach of contract but is not bad faith without pleading specific facts as to the insurer’s responses to the claim. The insured also cannot allege a breach of an implied covenant of good faith in the insurance policy when suing for breach of the same undisputed policy. Nor can the insured obtain attorney’s fees for the remaining breach of contract claim. In the accompanying Order, we grant the insurer’s motion to dismiss without prejudice to allow the insured to possibly plead facts supporting a bad faith claim under Fed.R.Civ.P. 11.”

Date of Decision: November 17, 2017

Sherman v. State Farm Ins. Co., CIVIL ACTION NO. 17-4822, 2017 U.S. Dist. LEXIS 190363 (E.D. Pa. Nov. 17, 2017) (Kearney, J.)

NOVEMBER 2017 BAD FAITH CASES: NO EVIDENCE OF BAD FAITH OR SUPPORT IN POLICY LANGUAGE THAT INSURER ACTED IN BAD FAITH (Philadelphia Federal)

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This case involved coverage based upon a flood during home renovations. The insureds brought breach of contract and bad faith claims, based upon the alleged failures “(1) to pay to replace the entire marble kitchen floor; (2) to pay for a two-bedroom suite; (3) to pay for additional costs for food; and, (4) to pay for depreciation.” The insurer sought summary judgment on the bad faith claims, which the court granted.

The court generally found the coverage and claims handling causes of action lacked factual support, and so could not support a bad faith claim. Its only detailed bad faith analysis went to a claim for providing adequate living accommodations when the insureds had to vacate their home for repairs.

“Plaintiffs claim that [the insurer] refused in bad faith to provide Plaintiffs a two-bedroom suite and now acts in bad faith by not paying the difference. Plaintiffs cite no record evidence suggesting [the insurer] unreasonably refused to provide them a two-bedroom suite. To the contrary, [the insurer] points to evidence that it did attempt to do so — after Plaintiffs requested to move from a two-bedroom suite already being provided by [the insurer] — but there were no two-bedroom suites available in the location Plaintiffs requested. Plaintiffs also do not identify a provision in the insurance contract obligating [the insurer] to pay the difference.”

Date of Decision: November 15, 2017

Barnwell v. Liberty Mutual Insurance Co., CIVIL ACTION NO. 16-4739, 2017 U.S. Dist. LEXIS 188427 (E.D. Pa. Nov. 15, 2017) (Beetlestone, J.)