In Smith v. Life Investors Ins. Co. of Am., the plaintiff in a class action suit filed a motion to compel discovery pursuant to Fed. R. Civ. P. 37 and a motion to compel production of documents.  Plaintiff asserted a bad faith claim, although the case primarily involved the interpretation of the term “actual charges” in a supplemental cancer insurance policy.  In the motion, Plaintiff sought an order compelling the insurer: (1) to provide complete responses to certain interrogatories and document requests; (2) to produce in-house counsel for deposition; and (3) to perform an additional search for documents. 

The plaintiff sought the names and addresses of all insureds covered by particular policies on or after April 2006 and of all persons who had submitted “actual charges” claims to the insurer.  The court held that the insurer was required to provide the names and addresses of persons who filed claims.  However, the court concluded that the plaintiff failed to articulate a sufficient basis for discovery as to the broader category of policyholders who had not submitted claims.  The court stated that the burden of such discovery is greater and the likelihood that such policyholders would have relevant knowledge of the insurer’s treatment of “actual charges” claims is lower.

The plaintiff sought the identity of agents who sold the insurance policies in question within Pennsylvania.  Plaintiff contended that the agents had highly relevant information, particularly as to the bad faith claim.  Plaintiff’s daughter, Mary Pennington, was the insurance agent who sold the policy.  The court found that due to Ms. Pennington’s unique relationship to the case, her testimony may not be representative of that of an “independent” insurance agent.  Additionally, the court found that the knowledge of the insurer’s agents as to the “actual charges” policies and practices may be highly relevant.  In granting the plaintiff’s motion to compel the identity of the agents, the court stated that it would not impose any limitations upon plaintiff’s ability to contact the agents beyond the Federal Rules of Civil Procedure and Rules of Professional Conduct, but suggested that the parties cooperate to facilitate any such discovery.

The plaintiff sought information about the personal financial incentives which might have motivated the insurer’s decision-makers to revise the company’s interpretation of “actual charges.”  The court found that plaintiff had appropriately demonstrated a justifiable need for the sensitive employee compensation information for certain named employees to explore whether the insurer had a motive of financial self-interest.  However, the court found that the plaintiff had not met its heightened burden to undertake similar discovery as to other employees.

The court granted the plaintiff’s request to compel the insurer’s production of financial information and financial statements of the insurer and its corporate parent companies.  The plaintiff contended that such information was relevant in considering punitive damages.  The court found that plaintiff had set forth a prima facie case for punitive damages arising out of bad faith and that the protective order would adequately address the insurer’s concerns regarding the confidential and proprietary nature of the information.  The court further stated that a defendant’s wealth is a fact that may be considered in awarding punitive damages. 

Date of Decision: October 16, 2009

Smith v. Life Investors Ins. Co. of Am., 2:07-cv-681, United States District Court for the Western District of Pennsylvania, 2009 U.S. Dist. LEXIS 96310 (W.D. Pa. October 16, 2009) (McVerry, J.)

 

In NIA Learning Ctr., Inc. v. Empire Fire & Marine Ins. Cos., the insured was involved in a car accident with Kim Stewart.  As a result of the accident, Stewart’s vehicle was damaged and a pedestrian, Aaron Jones, was struck and injured.  The insured’s policy with Empire provided coverage in the amount of $100,000 for “all claims arising out of the same accident.”  Stewart’s car insurance company made a subrogation claim, which Empire settled for approximately $13,000. 

A “policy limits” demand was made on behalf of Jones for injuries he sustained in the accident.  The insurer paid $87,739.68 to Jones for his injuries and obtained a joint tortfeasor release.  Two years after the accident, Stewart sued the insured for personal injury damages from the accident.  The insurer sent a letter to the insured that it would not provide a defense to in the lawsuit.  The insured retained private counsel to defend the suit and Stewart was awarded $20,000 in arbitration.

The insured sued the carrier for bad faith pursuant to 42 Pa. Cons. Stat. § 8371, among other causes of actions.  The insured alleged that the insurer voluntarily exhausted the policy limit “despite the fact that it knew or should have known that there were other potential claims,” thereby “knowingly and intentionally exposing its insured to loss that would not be indemnified under the policy.”  The insurer argued that the insured’s entire claim should be dismissed because its duty to defend and indemnify was terminated when the insured’s policy limit was exhausted based on the explicit language in the insurance policy concerning the insurer’s duty.

The court stated that an insurer is under no obligation to wait to settle a claim until all possible claims have been filed.  The court held that the insured failed to make any showing of bad faith conduct on the part of the insurer. The court concluded that the claim files demonstrated that the insurer had conducted a reasonable and good faith investigation into the liability regarding the accident in question and that, based on the investigation’s results, the insurer had acted in good faith when entering into the settlements that exhausted the insured’s policy limits.

Date of Decision: October 1, 2009

NIA Learning Ctr., Inc. v. Empire Fire & Marine Ins. Cos., Civil Action No. 05-5178, United States District Court for the Eastern District of Pennsylvania, 2009 U.S. Dist. LEXIS 92991 (E.D. Pa. October 1, 2009) (Baylson, J.)

 

In Smith v. Continental Casualty Company, the assignees hired an agent of an insurance broker-dealer to perform financial planning services.  The agent allegedly recommended investments in trusts that in turn invested in an unregistered off-shore entity.  That entity later filed bankruptcy and was alleged to have been a Ponzi scheme.  The assignees sued the agent for breach of contract and bad faith. 

The carrier providing insurance for the broker-dealer’s agents denied coverage, and refused to provide a defense to the agent against the assignees’ claims.  The assignees and the agent settled, and the agent assigned its rights against the insurer to the assignees.  The court found that the assignees’ claim was excluded from coverage because the assignees’ investments did not involve approved products, and a policy exclusion precluded coverage for any claim “involving services or products not approved by” the broker-dealer.  The court held that the assignees’ bad faith claim failed because the insurer had a reasonable basis for the denial of coverage.  The court held that although the insurer should have spoken with the agent before denying coverage, a failure to follow best practices did not constitute bad faith.

Date of Decision: October 8, 2009

Smith v. Cont’l Cas. Co., No. 08-4140, U.S. Court of Appeals for the Third Circuit, 2009 U.S. App. LEXIS 22240, (3d Cir. October 8, 2009) (Barry, J.) (not precedential)