In Rutherford v. Progressive Northern Insurance Company, the court remanded the case to the Court of Common Pleas of Philadelphia County because the amount in controversy did not meet the requirement of being more than $75,000, despite there being no stipulation to that effect.

The insured originally filed claims in state court for breach of contract, bad faith, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1, et seq., the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. C.S.A. § 1731 et seq., and the Pennsylvania Unfair Insurance Practices Act, 40 P.S. 1171.1 et seq. after the insurer refused to pay the uninsured motorist benefits under the policy.

The insurer removed to federal court on the basis of diversity.  It argued, in response to the insured’s objection, that the complaint could reasonably be read to show claims exceeding $75,000 and that the insured did not execute a stipulation limiting the damages to $75,000 or less.

The court determined that, although the complaint sought punitive damages under the bad faith claim that could possibly cause the amount in controversy to exceed $75,000, the insured had limited the case to $50,000 or less on the cover sheet to the original civil complaint.  Under local rule in the Court of Common Pleas of Philadelphia County, this designation on the cover sheet results in the case being referred to compulsory arbitration.  The court did not find anything in the complaint to contradict that, and cited precedent for considering the effect of the compulsory arbitration designation as being supportive of limiting the amount in controversy.  Consequently, the lack of a stipulation limiting the amount was irrelevant.

The court remanded the case for lack of diversity jurisdiction based on the amount in controversy requirement not being met.

Date of Decision:  December 9, 2008

Rutherford v. Progressive N. Ins. Co., CIVIL ACTION No. 08-4850, , 2008 U.S. Dist. LEXIS 99350 (E.D. Pa. Dec. 9, 2008)(McLaughlin, J.)

In Selective Way Insurance Company v. RHJ Medical Center, Inc., the court found there was no coverage under the unambiguous terms of the insurance policy.  Thus, the insurer could not be in breach of its insurance agreement when there was no duty to indemnify or defend, and could not act in bad faith by refusing to indemnify or defend the insured because there was no coverage for the insured under the policy terms. 

This case is related to a pending wrongful death action in which damages are sought against RHJ Medical Center, Inc. and one of its physician employees, both insured under the same policies.  The wrongful death action alleges that the clinic patient who murdered the decedent did so due to the insured’s malpractice in treating him.  The insured’s CGL carrier obtained judgment in its favor because its policy did not cover any claims in the wrongful death action and because the policy excluded such coverage.

Subsequently, the insured sought benefits for the wrongful death action against a second carrier, under its medical professional liability insurance policy with Evanston Ins. Co. (“Insurer II”).  Upon that claim’s denial, the insured joined Insurer II, asserting breach of contract for refusal to defend or indemnify and bad faith for breach of duty of good faith and fair dealing and violating the Pennsylvania Unfair Insurance Practices Act.  Insurer II’s answer included a counterclaim seeking a declaratory judgment that it has no duty to defend, indemnify, or provide coverage for the wrongful death action and no obligation to reimburse legal fees or expenses incurred in that action.  Insurer II moved for summary judgment on its counterclaim and for dismissal of the insured’s complaint. 

The court found the policy language to be unambiguous, reading the contract as a whole and construing it according to its plain meaning, as required under Pennsylvania insurance contract law.  The court determined that the policy covered only claims for any injury to or death of a patient, not claims arising from injury to or death of a patient.  Although the wrongful death action alleges an injury to the patient (from the insured’s malpractice), it does not assert any claims on behalf of (for) the patient for such injury.  The wrongful death action, therefore, does not fall under the covered claims so the insured is not covered in the wrongful death action. 

The physician employee is not covered, additionally, because a clause in the policy specifically excludes claims against any insured physician arising out of rendering or failing to render professional services.  

In the absence of coverage, Insurer II has no duty to defend or indemnify either insured and its motion was granted.

Without a duty to defend, the insured’s bad faith claim can not stand.

Date of Decision: December 8, 2008

Selective Way Ins. Co. v. RHJ Med. Ctr., Inc., CIVIL ACTION No. 06-1211, 2008 U.S. Dist. LEXIS 98950 (W.D. Pa. Dec. 8, 2008)(Ambrose, C.J.)

In Bromily Inc., t/a Bankers v. State National Insurance Company, Inc., the insured filed a complaint asserting breach of contract and statutory bad faith against its insurer for wrongfully denying a claim for benefits under its insurance policy for property damage sustained.

After several procedural actions that transferred venue, the case finally resided in the United States District Court for the Middle District of Pennsylvania where the court granted a motion to withdraw by the insured’s counsel because the insured had failed to respond to counsel’s telephone calls and letters, failed to sign verification forms regarding outstanding responses to the insurer’s discovery requests as ordered by the court, and had never signed a fee agreement.  The insured’s sole owner also failed to attend the oral argument on the withdrawal motion, in violation of the court’s order.  As a Pennsylvania corporation, the insured must be represented in court by counsel and was given time to secure new counsel, but neither the insured, nor its sole owner, had any subsequent contact with the court. 

The insurer moved to dismiss the complaint under Fed. R. Civ. P. 41(b) and 37(b), with prejudice.  The insured did not timely respond, and, after a month, the court ordered the insured to file an opposition brief and gave it more time to obtain new counsel.  Again, the insured failed to comply with the court’s order. 

The court then made the required explicit findings as to each of the six factors from the balancing test in Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863, 867-68 (3d Cir. 1984) in addressing the insurer’s motion.  The court found the first five factors weighed against the insured: it was, through its owner, responsible for violating the rules; its conduct caused prejudice by failing to meet scheduling orders and respond to discovery; it had a history of dilatoriness; its conduct was willful and evidence of bad faith; and other sanctions, such as a monetary sanction, would be pointless because the owner willfully failed to comply with previous court orders.  As to the sixth factor, the meritoriousness of the claim, the court found in the insured’s favor: based upon the pleadings (including the insurer’s answer and affirmative defenses), the insured’s claim may have had merit.  Since, however, all six factors do not need to be met to dismiss a plaintiff’s complaint, the court dismissed the case with prejudice and ordered the case closed.

Date of Decision December 6, 2008

Bromily, Inc. v. State Nat’l Ins. Co., CIVIL ACTION No. 07-2039, 2008 U.S. Dist. LEXIS 98857 (M.D. Pa. Dec. 6, 2008)(Blewitt, J.)