In Punzak v. Allstate Insurance Company, the U.S. District Court for the Eastern District of Pennsylvania was presented with the common scenario of a carrier’s removing a case from the Philadelphia Court of Common Pleas’ Compulsory Arbitration Program, which has a maximum jurisdictional limit of $50,000, even though federal jurisdiction requires an amount-in-controversy of at least $75,000.  The insureds moved to remand the case to state court.  They argued that removal was improper because the case did not meet the minimum amount-in-controversy.  The insurer countered that the insureds could conceivably recover in excess of $75,000 if they succeeded on their contract claim, their bad faith claim (which sough punitive damages), and for attorneys fees. 

Judges in the Eastern District have come to different conclusion in remanding or retaining jurisdiction.  Some have remanded these cases, reasoning that the insured effectively limited their recovery by agreeing to try their case in the arbitration program. (see, e.g., Valley v. State Farm; McFadden v. State Farm)  Other Judges have refused to remand the cases because the insured could recover in excess of $50,000.00 if awarded punitive damages and attorneys’ fees  (see, e.g., Howard v. Allstate, October 2006 archive on this site; Brownstein v. Allstate).  In this case, the Judge ruled that the case should be remanded because the damages clause of the Plaintiff’s Complaint sought damages “not in excess of $50,000.00.” 

Date of Decision: April 16, 2007

Punzak, et al. v. Allstate Insurance Company, United States District Court for the Eastern District of Pennsylvania, No. 07-1052, 2007 U.S. Dist. LEXIS 28574 (E.D. Pa. April 12, 2007) (McLaughlin, J.)

On the same date, the same Judge reached an identical result in Espinoza v. Allstate Insurance Company, United States District Court for the Eastern District of Pennsylvania, No. 07-0746, 2007 U.S. Dist. LEXIS 28957 (E.D. Pa. 2007) (McLaughlin, J.)

See also the discussion of Dennis Bruce Landscape Management Services, Inc. v. Merchant's Mutual in the January 2007 archive on this site, listing cases addressing the issue of removal and jurisdictional amount.

In McMahon v. State Farm Fire and Casualty Company, the Plaintiffs were insured under a homeowner’s policy they purchased from the Defendant.  The policy insured against “accidental direct physical loss” to their home.  Plaintiffs made a claim for damages under the policy after learning they needed to replace a drain pipe in their bathroom.  Since the Plaintiff’s home was built on a concrete slab and the drain pipe was contained within the concrete slab, the plumbers Plaintiffs hired to replace the pipe were forced to rip up the carpeting, break up the concrete slab and expose the pipe.  Defendants denied coverage for the water damage stating that the insurance policy did not extend to plumbing that was being replaced due to wear, tear or deterioration.  As a result, Plaintiffs filed an action alleging that defendants acted in bad faith and breached the insurance contract.  Both Plaintiff and Defendant filed motions for summary judgment. 

In reviewing these motions, the Court held that Plaintiffs failed to present evidence that Defendants breached the insurance contract.  The Court found that the insurance contract was intended to insure Plaintiffs against unexpected physical damage to their house and personal property.  The Plaintiffs losses, however, were due to normal wear and tear and were not unexpected.  The fact that the pipe was difficult to get to was a result of the construction of the property and therefore the costs of the repairs are not covered under the policy. 

The Court also held that Plaintiffs failed to present evidence showing that Defendant acted in bad faith.  The Court found that Defendant conducted an adequate investigation and denied the claim based on a reasonable interpretation of the policy language.   Defendants sent an adjuster to Plaintiffs’ home nine days after the claim was made and spoke to the plumbers who did the repair work.  The Defendant then sent Plaintiffs a letter outlining the reasons for the denial and citing the applicable policy provisions.  Because Plaintiffs failed to show that Defendant lacked a reasonable basis for denying their claim and failed to establish claim for bad faith, the Court granted judgment in favor of Defendant. 

Date of Decision:  May 8, 2007

McMahon v. State Farm Mutual Automobile Insurance Company, United State District Court for the Eastern District of Pennsylvania, CV-06-34137, 2007 U.S. Dist. LEXIS 34137 (E.D. Pa. May 8, 2007)(Kelly, J.)

 

In Prime Medica Associates v. Valley Forge Insurance Company, the Philadelphia Court of Common Pleas, Commerce Court, issued a written opinion relative to the cross appeals of plaintiff and defendant of the court’s order denying plaintiff’s post trial motions for pre-judgment interest, punitive damages and attorneys fees.  The court had previously granted defendant’s motion for remittitur and ordered plaintiff’s damages reduced from $4 million to $2,049,000.  Plaintiff also appealed that order.

The case arises from plaintiff’s ownership of an office building, which defendant insured.  Plaintiff leased the building to Medic.  Medic made structural changes to  the building to accommodate a CT scanner and MRI unit.  Plaintiff also spent $1.4 million to renovate the building to accommodate this equipment.  Upon termination of the lease, Medic was required to either leave the equipment in working order, replace it with like kind or restore the building to its original conditions.  In November 1998, Tenant took over Medic’s lease with Plaintiff.  In November 2000, Tenant notified Plaintiff it planned to terminate the lease on March 30, 2001.  When a principal of the Plaintiff visited the building on March 15, 2001, Tenant had abandoned the property but did not remove the MRI unit and CT scanner.  Tenant had left the property in a shambles and the building was then vandalized and the equipment stolen.  Tenant ceased paying rent on April 1, 2001.  Plaintiff attempted to re-let the building, but was unsuccessful. 

Plaintiff filed suit against Tenant for damages, but before it was able to recover from this suit, the property was foreclosed upon.  At sheriff’s sale, the building sold for $1.8 million.  On May 30, 2003 the jury awarded damages to the Plaintiff, but the amount awarded was well short of  the amount necessary to cover Plaintiff’s losses.  Plaintiff, therefore submitted a claim to Defendant insurance carrier.  Defendant denied coverage and Plaintiff instituted a claim for bad faith and damages.  A jury awarded Plaintiff $4 million dollars in damages.  A bench trial was held regarding Plaintiff’s bad faith claims and the court held that although it felt the Defendant had not acted appropriately, it denied Plaintiff’s bad faith claim. 

In post trial motions, the court found that Defendant was not entitled to a new trial based on Plaintiff’s expert’s testimony regarding Defendant’s alleged bad faith.  In addition, the court held that Defendant was not entitled to a new trial based on the jury’s award of $4 million in damages although Plaintiff only asked for $3.3 million.  The court found that in a first-party insurance claim, the insured Plaintiff is not denied the right to obtain consequential damages.  The court relied on the fact that the defendant was so close to acting in bad faith that Plaintiff was entitled to consequential damages. 

In addition, the court held that Plaintiff’s claim was not barred for failure to promptly notify Defendant of the loss.  Although the Plaintiff waited over a year to notify Defendant of the loss, the court found that the late notice did not prejudice Defendant. The court also found that Plaintiff’s claims were not barred for failure to institute suit within the two year time limit specified by the policy as Plaintiff was induced to forbear bringing a lawsuit within the two year period because Defendant was still investigating the claim.  Finally the court found that Plaintiff was not entitled to pre-judgment interest, punitive damages or attorneys fees because the damages were not specific enough to warrant an award of pre-judgment interest and because the court did not make a finding of bad faith. 

Date of Decision:  April 26, 2007

Prime Medica Associates v. Valley Forge Insurance Company, November Term 2004, No. 621, No. 0621, 2007 Phila Ct. Com. P. LEXIS 122  (C.C.P. Philadelphia April 26, 2007)(Sheppard, J.) (Commerce Program)