In Tannenbaum v. Unum Life Insurance Company of America, Plaintiff alleged, among other things, that Defendant acted in bad faith in failing to pay disability benefits due him under designated insurance plans (the “Plans”), with premiums that had been reduced, through Plaintiff’s employer, as a part of a agreement with the insurer.  Plaintiff sought relief pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”) and under state law.  Defendant insurer sought dismissal of the state law claims on the basis that they were preempted by ERISA.  The United States District Court for the Eastern District of Pennsylvania granted Defendant’s request for dismissal of the state law claims. The Court determined that because the Plans were employee benefit programs that were established and/or maintained by an employer engaged in commerce, they qualified as ERISA plans.  Then, the Court examined the record further, to ascertain whether the Plans satisfied the four prongs of the “safe harbor” provisions of ERISA, and therefore fell outside of ERISA’s governance.  Based on decisions rendered by Courts in the Third Circuit which have concluded that a discount on an insurance policy premium through an employer constitutes an employer contribution,  the Court held that the Plans did not meet the first prong of the “safe harbor” provisions of ERISA. Therefore, ERISA applied and Plaintiff’s state claims, including those asserting bad faith, were preempted. 

Date of Decision:  September 15, 2006

Tannenbaum v. Unum Life Ins. Co. of Am., United States District Court for the Eastern District of Pennsylvania, No. 03-CV-1410, 2006 U.S. Dist. LEXIS 66623 (E.D. Pa. Sept. 15, 2006) (Surrick, J.)

 

In Totty v. Chubb Corp, plaintiff claimed her home was damaged by vibrations from heavy construction work.  The carrier engaged an engineer to investigate the damage, who concluded it had different origins. A portion of the claim was denied on a structural and earth movement exclusion, based upon the sources identified in the engineer’s report; the conclusions of which the insured disputed.  She hired her own expert and lawyer, who disputed the claim but would not produce the expert report contrary to the carrier’s engineer though repeatedly requested.  Only after suit was filed and three years after the damage arose, did plaintiff produce her own expert’s report that the damage was related to construction work vibrations affecting the soil.  The carrier retained two additional experts, both of whom disagreed with plaintiff’s expert on the origins of any damage to the home.

The court found the exclusions ambiguous and ruled in the insured’s favor, denying a summary judgment motion on the breach of contract claim.  The court also denied summary judgment on the issue of causation, as there were material disputes of fact.  However, the court granted summary judgment on the bad faith claim.

First, there was a reasonable basis to deny the claim as plaintiff did not produce her report – and her ultimate theory as to what caused the harm -- for years after the damage occurred, and until months after suit was initiated.  Second the carrier actively investigated the harm by engaging the engineer and repeatedly seeking plaintiff’s response thereto and her own expert study.  Plaintiff offered no challenge to this expert’s methods other than subjective speculation on how the expert should have carried out her work; and even if the expert was ultimately proven wrong, this would not make trust in her conclusions unreasonable. Once plaintiff’s expert report was finally received, the carrier obtained two additional reports; while plaintiff disagrees with the results, if these reports are correct, which a jury could find, then there would be no basis for coverage – again making the denial reasonable. 

The court observed that a jury could accept the causation theories advanced by the carrier, and rule the exclusions did apply.  Simply because the carrier argued the exclusions applied under plaintiff’s theory of the case, as it had to for summary judgment purposes, did not make it bad faith for the carrier to persist in its original opinion.  The court concluded:  “There simply is no evidence that Defendant advanced this argument to evade its obligations under the policy as opposed to defend itself in the lawsuit Plaintiff filed against it. See W.V. Realty Inc. v. Northern Ins. Co., 334 F.3d 306, 313-15 (3d Cir. 2003); O'Donnell v. Allstate Ins. Co., 1999 PA Super 161, 734 A.2d 901, 909 (Pa. Super. Ct. 1999); see also Jung v. Nationwide Mut. Fire Ins. Co., 949 F. Supp. 353, 360 (E.D. Pa. 1997) (aggressive defense of insurer's interests is not bad faith).”

Date of Decision:  August 28, 2006

Totty v. Chubb Corp., 455 F. Supp. 2d 376 (W.D. Pa. 2006) (Ambrose, J.).

Totty v. The Chubb Corp., United States District Court for the Western District of Pennsylvania,  No. 05-111, 2006 U.S. Dist. LEXIS 67026 (W.D. Pa. Sept. 19, 2006) (Ambrose, J.)

In MP III Holdings, Inc. v. The Hartford, Plaintiffs, an insured and its corporate officers, filed against Defendant insurer claims for breach of contract and bad faith refusal to defend in litigation in Pennsylvania, Delaware and Texas.  Defendant moved to dismiss Plaintiff’s bad faith claims under Federal Rule of Civil Procedure 12(b)(6).  The United States District Court for the Eastern District of Pennsylvania stated that to assert a viable bad faith claim, Plaintiff must allege two elements:  (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.  Because the Court looked to the allegations on the face of Plaintiff’s Complaint and found Plaintiff had alleged the requisite facts, Defendant’s motion to dismiss the bad faith counts was denied.  Plaintiffs had alleged that the carrier had refused to pay the underlying defense costs in two of three actions brought against the insureds; that it lacked a reasonable basis in law or fact for denying coverage in those cases; that it knew or should have known that it had a duty to defend as a matter of law; and that this constituted bad faith.  This was sufficient to withstand summary judgment, though the Court stated that the issue of reasonableness could be revisited on a summary judgment motion after the end of discovery.

Date of Decision:  September 14, 2006

MP III Holdings, Inc. v. The Hartford, United States District Court for the Eastern District of Pennsylvania, No. 05-1569, 2006 U.S. Dist. LEXIS 65667 (E. D. Pa. Sept. 14, 2006) (Shapiro, J.)