JUNE 2015 BAD FAITH CASES: COURT (1) FINDS RESERVES CAN BE ADMITTED INTO EVIDENCE; (2) SETS THE TIME PERIOD TO CONSIDER EVIDENCE OF BAD FAITH FROM ACTUAL NOTICE OF THE CLAIM UNTIL THE CLAIM WAS RESOLVED; (3) FINDS EVIDENCE OF OTHER CASES NOT ADMISSIBLE; AND (4) FINDS EXPERT TESTIMONY ON CLAIMS HANDLING ADMISSIBLE ON BAD FAITH (Middle District)

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In Clemens v. New York Central Mutual Fire Insurance Company, the court addressed numerous motions in limine, in a supplemental underinsured motorist action.  The motions directly addressing the bad faith claim are summarized below.

Reserves

The court rejected the insurer’s argument that evidence of reserves be barred from evidence.  The court cited case law going both ways on the subject: (1) “that the relationship between the amount an insurance company reserves for a claim and the amount it ultimately offers to resolve that claim is so tenuous as to make the size of the reserve irrelevant for purposes of determining a bad faith claim” vs. (2) “that the amount set aside in reserve necessarily reflects a company’s assessment of the potential worth of the claim and, to the extent the reserve is dissimilar from the amount offered in settlement, is germane to an analysis of whether the company acted in bad faith in pretrial settlement negotiations”.

The court adopted the second position accepting the evidence, but expressly made clear that the insurer would not be precluded “from producing testimony explaining the difference between its reserve and its settlement offer in this case.”

Time Period of Bad Faith Claim

The insurer took the position that the time period in which to consider the bad faith claim began when the insured’s attorney advised the carrier that the tortfeasor’s carrier had agreed to pay its policy limits; and ended the date suit was filed. The insured took the position that the relevant time frame should begin on the date that their counsel advised the insurer of a potential underinsured motorist claim, and never ended because the misconduct of an insurer, even after suit is filed, may constitute bad faith.

The court found that bad faith may not be predicated on the insurers “actions or lack of action before being notified of a claim”, and in this case counsel’s allusion to a potential claim did not trigger any duty.  Further, while case law does allow “for the introduction of evidence of an insurer’s bad faith even during the pendency of a lawsuit …. such evidence of bad faith cannot be provided simply by an insurer’s action of mounting an aggressive legal defense.”  The court ruled that resolution of the underinsured motorist claim ended any bad faith cause of action after that date, and no evidence of the insurer’s alleged bad faith occurring after that date would be permitted.

The cutoff date, i.e., the date the underinsured motorist claim was resolved, was June 20, 2014.  The insured’s suit was removed to federal court in September of 2013. Thus, the time period in which bad faith conduct could be considered encompassed part of the time period during the pendency of the bad faith litigation itself.

Other Cases

The court granted the motion in limine barring evidence of other insureds’ claims against the carrier.  The court found in particular that the U.S. Supreme Court had ruled that evidence of what happened to other insureds, not parties to the case at hand, could not be used to enhance punitive damages for the party actually in the case.

Expert Testimony on Bad Faith Claim Regarding Industry Standards & Claims Handling

The court observed its own broad discretion on evidentiary matters, and the Federal Rules favoring the admission of evidence to assist the trier of fact. It concluded that the insured’s expert testimony could be helpful to the jurors in their inquiry as to whether the insurer acted in bad faith. Thus, the court allowed the insured’s expert to testify regarding industry standards and claims handling practices.

Date of Decision:  June 15, 2015

Clemens v. New York Cent. Mut. Fire Ins. Co., Case No. 3:13-CV-2447, 2015 U.S. Dist. LEXIS 77180 (M.D. Pa. June 15, 2015) (Conaboy, J.)

This is the fourth opinion in this matter.  Here are links to the first three (1, 2, and 3).

 

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