In Fogarty v. USA Truck, Inc. a ten count complaint was brought by Fogarty, including a bad faith claim arising out of a vehicular accident in which Fogarty was involved.  Fogarty was employed as an interstate driver and his employer was self insured and provided insurance coverage to him.  Fogarty was scheduled to make a delivery on a morning when there were dangerous road conditions. Fogarty advised the dispatcher that given the situation, he did not want to leave until conditions had improved.  Fogarty’s employer, through the risk manager and dispatcher, informed him if he did not leave he would be fired. Fogarty went on the delivery and was involved in a vehicular accident. In the accident report Fogarty told police at the scene that his employer had wrongfully caused him to drive in unsafe conditions by threatening to fire him. The employer was not happy about this statement and the risk manager made a statement that Fogarty would be lucky if they did anything for him.  Fogarty was subsequently fired for failure to return to work even though he had presented excuses from two doctors stating that he had not yet recovered from injuries received in the accident. Another driver involved in the accident filed suit against Fogarty and his employer and an attorney named Levin was provided to represent both parties.  However, Fogarty claims that his employer would not let the attorney do anything to defend him without first getting permission.  Fogarty then hired another attorney and Levin withdrew his representation due to conflict of interest which Fogarty alleged was a breach of fiduciary duty. Fogarty’s employer then hired a third attorney, McKenna, to represent Fogarty but again would not let him fully defend him without prior approval. Therefore Fogarty fired him.

Fogarty filed a ten count complaint including a bad faith claim against his employer and his employer’s risk manager individually.  The employer and risk manager individually filed motions to dismiss.  The lower court dismissed the insured’s claims. The appellate court affirmed the district court’s dismissal of the bad faith insurance claim because, even if one were to assume a duty on the part of the employer to provide the insured with legal representation, the record showed that the employer had initially provided such service to Fogarty.  Therefore the court found that claim preclusion directly barred Fogarty’s bad faith claim against his employer/insurer. In addition since the claims against the employer had been dismissed , no claim could proceed against the corporation’s employee who was acting within the scope of his employment.  The  court found that since the claims against the employer had been precluded, the claims against the risk manger individually were also barred. Therefore the motions to dismiss were granted. 

Date of decision: June 30, 2008

Fogarty v. USA Truck, Inc.,2008 U.S. Dist. LEXIS 50270 (W.D. Pa. June 30, 2008)(Standish, J.)

J.M.A.

In Rohm and Haas Company v. Utica Mutual Insurance Company, the insureds commenced an action seeking a declaratory judgment that the insurer had a duty to defend and indemnify insureds in connection with a lawsuit brought against insureds for alleged exposure to contaminated air and groundwater from insureds’ manufacturing facility.  Insureds also asserted breach of contract and a bad faith claim arising from insurer’s handling and investigation of the underlying claim.  Insurer moved to bifurcate discovery and trial relating to the bad faith claim pending the outcome of the duty to defend claims because the insurer argued that a ruling in its favor on the duty to defend claims would dispose of the bad faith claim.  The court acknowledged that claims may be bifurcated for convenience, to avoid prejudice, or to expedite and economize.  Addressing the insurer’s argument, the court noted that, while bad faith claims generally require a predicate contractual claim, such as breach of a duty to defend, bad faith claims may also proceed based on other grounds, such as the handling and investigation of the underlying claim in bad faith.  Therefore, the duty to defend claims were not necessarily dispositive of the bad faith claim.  The court also noted that that the insurer failed to demonstrate that bifurcation would promote expedition or economy.  As a result, the insurer’s motion to bifurcate was denied. 

Date of decision:  June 20, 2008

Rohm and Haas Company v. Utica Mutual Insurance Company, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 07-584 (E.D. Pa. June 20, 2008) (Pratter, J.)

In Miller v. First Liberty Ins. Corp., the Eastern District of Pennsylvania was presented with a motion for summary judgment after Plaintiff filed a complaint alleging breach of contract and bad faith against the insurer for failing to pay a purported “collapse” claim made under a homeowners policy.  On April 11, 2006, Plaintiff, while adding a second floor on top of an existing addition, discovered that termites had caused structural damage to the walls of the addition.  The addition had experienced termite infestation in 1996 for which Plaintiff had retained an exterminator.  However, the structural damage to the walls to the addition caused by the termites remained hidden until April 2006, when Plaintiff’s contractor were preparing to put on the second floor.  As a result of the damage to the addition, it would not support a second floor.  Consequently, Plaintiff’s contractors were required to remove the damaged addition.  Thereafter, Plaintiff submitted a claim for the damage caused to the addition by termites.  Defendant conducted an investigation by taking Plaintiff’s recorded statement.  Based on the investigation and a determination that the damage to Plaintiff’s house was caused by termite infestation, Defendant denied coverage.  Specifically, Defendant’s policy included an exclusion for “for loss … [c]aused by … [b]irds, vermin, rodents, or insects” 

Plaintiff contended that the policy provided coverage for loss caused by a “collapse”.  Specifically, the policy stated that there is coverage for “direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following: . . . c. Hidden insect or vermin damage. . . ."  Collapse is defined in the insurance policy as, inter alia, “sudden and entire falling down or caving in of a building or any part of a building . . .”  Further, the policy stated that “collapse” does not include “a building or any part of a building that is in danger of falling down or caving”.

The court concluded that Defendant did not act in bad faith in denying Plaintiff’s claims for multiple reasons.  First, the court found that Defendant reasonably determined that the loss occurred in 1996.  Since Plaintiff was required to give prompt notice of a loss and the loss occurred in 1996, Defendant did not act in bad faith in denying coverage. 

Second, there was no basis for coverage when Defendant learned from Plaintiff that Plaintiff’s contractor had voluntarily removed the walls as a result of the termite damage. 

The court relied on 401 Fourth Street, Inc. v. Investors Insurance Group, 879 A.2d 166 (Pa. 2005), in which the Pennsylvania Supreme Court noted that "[h]istorically, our Court has considered the policy term 'collapse' to require the sudden falling together of a structure."  The Court reasoned that the “collapse” provision required the falling of a building, and that substantial impairment of structural integrity was not sufficient.  The Court warned that such an interpretation "would possibly convert the policy into a maintenance agreement by permitting recovery for damage which, while substantial, does not threaten collapse of the structure."
Based on the reasoning in 401 Fourth Street and the fact that Plaintiff voluntarily removed the walls to the addition after finding structural damage, the court concluded that the insurance policy did not cover either the structural damage caused to the walls or the removal of the walls due to the structural damage.   

Lastly, the court stated that to the extent that Defendant neglected the possibility of collapse, Defendant was, at most, negligent or demonstrated bad judgment.  Mere negligence or bad judgment does not constitute bad faith.  Consequently, the court granted Defendant’s motion for summary judgment.

Date of decision:  June 17, 2008

Miller v. First Liberty Insurance Corporation, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 07-1338 (E.D. Pa. June 17, 2008).

(O’Neill, J.)