WHETHER DELAY AMOUNTED TO BAD FAITH MUST GO TO JURY (Middle District)

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Middle District Judge Robert Mariani denied the insurer’s summary judgment motion on this UIM bad faith claim.

The court went into a lengthy recitation of the relevant facts, as well as a lengthy summary of statutory bad faith case law in Pennsylvania (though not citing the Rancosky decision). For immediate purposes, we focus solely on the court’s conclusions about whether a delay could amount to reckless indifference.

There was an undisputed delay in opening a file and starting the claim handling process, which the insurer argued amounted to negligence at most. Negligence cannot be the basis for statutory bad faith in Pennsylvania. The insurer cited cases where an internal mix-up in opening a file caused some delay. The court found it could not make a factual determination at this point attributing the delay solely to this level of negligence.

The court cited to facts from which a jury could find recklessness by clear and convincing evidence. The insured’s counsel wrote to the insurer making a claim, but no file was opened and no response was sent to counsel. Counsel sent another letter making a demand and asking for documents. Again, counsel received no response and still no UIM claim file was opened. Only after the insured called directly and asked to speak to an adjuster was a file opened and an adjuster assigned. Between then and the time of suit, the claim log showed no activity concerning the UIM claim. This all occurred over a six month period.

The court found this lack of responsiveness and activity over a six-month period could amount to reckless indifference, and should go to a jury to determine negligence vs. recklessness.

As the bad faith claim was allowed to proceed, the court did not address other allegations concerning alleged bad faith claims handling once the file was being actively adjusted.

Date of Decision: March 11, 2020

Angeli v. Liberty Mutual Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:18-CV-703, 2020 U.S. Dist. LEXIS 43159 (M.D. Pa. Mar. 11, 2020) (Mariani, J.)

COURT UPHOLDS DISMISSAL OF DRAGONETTI ACTION AGAINST INSURED (Superior Court of Pennsylvania) (Non-Precedential)

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The insured’s representatives sued the insured’s carrier and its claims adjuster for bad faith. The complaint alleged bad faith in claims handling and in refusing to defend the insured.

The claims adjuster, though the carrier, brought a Dragonetti action against the insured’s representative and her counsel for bringing the bad faith claim against the adjuster. The court described it as a wrongful use of civil proceedings claim. The trial court dismissed the wrongful use claim on preliminary objections, and the matter was on appeal in the Superior Court.

First, the appellate court found that the insurer/adjuster waived all issues on appeal regarding dismissal of the Dragonetti action.

Next, even if not waived, the Superior Court ruled dismissal was proper.

The trial court found that because the allegations against the adjuster were based on the adjuster’s conduct as a claims handler, and not as a private citizen, the wrongful use claim should be dismissed. The Superior Court agreed under these circumstances that “it was not unreasonable … to name the insurance claims adjuster who denied [the] claims for coverage.”

[Note: The court apparently was not faced with the issue that a statutory bad faith claim against an adjuster must be dismissed in the first instance because the bad faith statute does not apply to adjusters, only insurers themselves. For example, see Judge Savage’s opinion in Reto, Judge Nealon’s opinion in Fertig, Judge Surrick’s opinion in Kofsky, and Judge Bartle’s decision in the 2013 Feingold case.]

Date of Decision: February 28, 2020

Philadelphia Contributionship Ins. Co. v. Kiely, Superior Court of Pennsylvania No. 3111 EDA 2018, 2020 Pa. Super. Unpub. LEXIS 725 (Pa. Super. Ct. Feb. 28, 2020) (Colins, Panella, Strassburger, JJ.)

Courts Use of Telephones and Videoconferencing to Reduce Risk from the Covid-19 Virus

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The Business Courts Blog has provided an updated list of Courts across the United States directing or encouraging the use of remote teleconferencing and videoconferencing in lieu of appearing in-person for conferences and hearings, to limit health risks.  You can find that post here.

TWO EASTERN DISTRICT CASES ON INADEQUATE PLEADINGS - (1) BARE-BONES CLAIM WITH NO FACTUAL SUPPORT DISMISSED EVEN THOUGH CONTRACT CLAIM PROCEEDS; (2) COMPLAINT DEVOID OF FACTUAL SPECIFICITY CANNOT STAND

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Case 1

In Park v. Evanston Insurance Company, the insureds successfully pleaded a breach of contract claim, but not a bad faith claim.

The insured alleged the nature of the loss, putative damages, and the policy covered the loss. The court agreed these allegations withstood the insurer’s motion to dismiss the breach of contract claim. Though not detailed in the opinion, the court obviously concluded that the facts as pleaded would fall within the policy’s coverage terms.

On the bad faith claim, however, no plausible claim was pleaded.  The court dismissed the claim without prejudice, giving leave to amend if possible.

The flawed complaint asserted that the insurer had no reasonable and sufficient basis to deny coverage, but did “not contain any factual allegations that relate to why Defendants’ alleged acts or omissions were unreasonable.” The court cited a number of decisions for the proposition that “bare-bones allegations of bad faith such as these, without more, are insufficient to survive a motion to dismiss.” These include the Third Circuit’s Smith decision, and the Eastern District decisions in McDonough and Atiyeh.

Date of Decision: March 4, 2020

Park v. Evanston Ins. Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-4753, 2020 U.S. Dist. LEXIS 37778 (E.D. Pa. Mar. 4, 2020) (Schiller, J.)

Case 2

In Shetayh v. State Farm Fire & Casualty Company, the insureds alleged the insurer fraudulently denied coverage, falsely alleging a property was used for business purposes. They sued for breach of contract and bad faith.

The insureds alleged that the insurer knew the business purpose allegation “was false, fraudulent and misleading and made solely for the purpose of denying coverage and preventing Plaintiffs from obtaining the benefits owed under their policy of insurance.” The insureds remaining bad faith averments were generic in nature, e.g., the insurer was unreasonable in withholding benefits, conducted an unfair investigation, failed to keep the insureds adequately advised, etc.

As the insurer stated in moving to dismiss the bad faith count, “these generic averments … could fit any category of insurance claim….” In response, the insureds simply repeated the allegation that the insurer’s agent knew his statement about business purposes was false, as adequately underpinning the entire bad faith claim.

The court agreed with the insurer.

Bad faith plaintiffs “must plead specific facts as evidence of bad faith and cannot rely on conclusory statements.” Judge Leeson cited the Third Circuit’s Smith decision, just as Judge Schiller did in Park. Judge Leeson found the complaint “devoid of factual specificity”, relying solely on conclusory allegations. Thus, the complaint could not survive a motion to dismiss.

As in Park, dismissal was without prejudice and with leave to amend. The court made clear, however, that “any amended complaint must specifically include facts to address who, what, where, when, and how the alleged bad faith conduct occurred.”

Among other cases, Judge Leeson relied on the following decisions in reaching his conclusion: MBMJ (which had virtually identical paragraphs in the bad faith count); Rosenberg; Fasano; and Alidjani.

Date of Decision: March 6, 2020

Shetayh v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania No. 5:20-cv-00693, 2020 U.S. Dist. LEXIS 39036 (E.D. Pa. Mar. 6, 2020) (Leeson, J.)

 

WHERE POLICY DOES NOT COVER CLAIM, INSURER HAS A REASONABLE BASIS TO DENY BENEFITS AS A MATTER OF LAW (Philadelphia Federal)

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The case involved a policy interpretation dispute, specifically focusing on an exception to an exclusion. The carrier denied coverage, and the insured sued for a declaratory judgment, breach of contract, and bad faith.

The exclusion at issue plainly applied to condominiums, but also included an exception for single-family dwellings that were not tract homes, condominiums, or townhouse projects. The insured argued that the exception encompassed three types of structures: single family homes that are not tract homes, and condominiums, and townhouse projects. The insurer argued that the exception only applied to single family dwellings that were not part of tract homes, condominiums or townhouse projects.

The court agreed with the insurer. It would be unreasonable to read the policy as excluding coverage for condominiums, and then excepting condominiums from the exclusion in the next breath. Otherwise, this would make the exclusion language surplussage.

After making this finding, the court determined that there was no breach of contract, and that the insurer should be granted a declaratory judgment in its favor.

The court then granted judgment to the insurer on the bad faith claim. “Given that the policy does not cover the … claim, [the insurer] did not, as a matter of law, lack a reasonable basis for denying benefits under the policy.”

Date of Decision: February 25, 2020

Elite Restoration, Inc. v. First Mercury Ins. Co., U.S. Dist. Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2215, 2020 U.S. Dist. LEXIS 31611 (E.D. Pa. Feb. 25, 2020) (Joyner, J.)

BOILERPLATE BAD FAITH COMPLAINT FAILS; NO COMMON LAW BAD FAITH CLAIM RECOGNIZED (Philadelphia Federal)

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This bad faith case involved a first party property damage dispute. The insured alleged he fully cooperated in the insurer’s investigation, but the insurer wrongly denied his claim. He brought a breach of contract, common law bad faith, and statutory bad faith action. The insurer moved to dismiss both bad faith claims. The court found the insured’s bare bones and conclusory allegations did not meet federal pleading standards, and dismissed the complaint.

On the statutory bad faith claim, the insured did “nothing more than set forth a threadbare recital of the elements of this cause of action, alleging [the] denial of his claim ‘was unreasonable, baseless, without foundation, made in bad faith, and made without any basis in fact whatsoever.’”

The following alleged facts failed to make out a statutory bad faith claim:

  1. The insured had a policy with the insurer;

  2. His car was stolen, stripped and destroyed;

  3. He submitted a proof of loss, other documentation, and sat for a lengthy statement under oath;

  4. He was truthful throughout the investigation and engaged in no fraudulent commissions or omissions;

  5. He demanded an actual cash value payment; and

  6. The insurer denied the claim.

These allegations, however, allowed for no plausible inference that (1) the insurer lacked a reasonable basis to deny benefits or (2) the insurer knew or recklessly disregarded its lack of a reasonable basis.

Next, the court observed that there is no common law bad faith cause of action in Pennsylvania for refusing to pay benefits or as to claims handling. The insured did not oppose the motion to dismiss on this basis, and the common law count was dismissed as well. [Note: There is no discussion of any distinction between a tort-based common law claim, as rejected in D’Ambrosio, and the type of contractual common law bad faith claims permitted in cases like Cowden or Birth Center.]

Date of Decision: February 21, 2020

Diaz v. Progressive Advanced Ins. Co., U. S. District Court Eastern District of Pennsylvania Case No. 5:19-cv-06052-JDW, 2020 U.S. Dist. LEXIS 29708 (E.D. Pa. Feb. 21, 2020) (Wolson, J.)

NO BAD FAITH: (1) LOW BUT REASONABLE SETTLEMENT OFFER; (2) FAILURE TO PAY FULL RESERVES NOT BAD FAITH; (3) ADDITIONAL INVESTIGATION WOULD NOT HAVE CHANGED RESULT; (4) INSURED DELAYED CLAIMS HANDLING (Western District)

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In this UIM bad faith case, the court set out a detailed claims handling history. It shows an active claims handler, conflicting expert reports, and what appears to be a genuine dispute over the scope of the insured’s injury. The central discrepancy is between permanent disability vs. no medical record of serious injury.

The court granted summary judgment on bad faith, finding the insured could not meet the clear and convincing evidence standard. It specifically addressed four issues in reaching this conclusion.

  1. Was the Settlement Offer Unreasonably Low?

The insured claimed losses in excess of $2,000,000. The UIM insurer offered $25,000. As the tortfeasor’s carrier paid $100,000, this meant the UIM carrier valued the claim at $125,000.

The court set out the relevant law. Low but reasonable offers are not bad faith, but “low-ball offers which bear no reasonable relationship to an insured’s actual losses can constitute bad faith….” A carrier can reasonably rely on expert opinion when investigating claims. In this context, insurers “can rely on IMEs of qualified health professionals who examine claimants in a usual and customary manner.”

First, the court found the claims handler’s well documented file showed an IME was warranted. Next, the court examined the claims handler’s review of the insured’s economic expert’s report of over a $2,000,000. The court found that multiple medical reports provided the claims handler with a reasonable basis to question the economic expert’s critical assumption of permanent disabled. “Thus, with no other evidence to establish [the insured’s] economic losses other than [the economic expert’s] report that assumes total disability, no reasonable juror could find bad faith by clear and convincing evidence from [the] $25,000 settlement offer to [the insured].”

  1. Reserves

Reserves were set at $55,000. The insured asserted the insurer should have offered the $55,000, rather than $25,000. The court stated that an insurance company must set reserves aside when placed on notice of a possible loss arising under its policy. “However, the failure of a carrier to offer its full settlement authority does not constitute bad faith.” In the present case, “because the Court finds no sufficient evidence of bad faith as to the $25,000 settlement offer, there is likewise no bad faith in [the insurer’s] reserve for this UIM claim.”

  1. Adequacy of Investigation

To prove bad faith investigation, the insured “must show that the outcome of the case would have been different if the insurer had done what the insured wanted done.” The putative investigative failures here would not have changed the result.

Thus, even if the claims handler had reviewed the economic loss reports with her own economic experts, sought medical authorizations, or spoken to treating physicians or the tortfeasor’s lawyer, this additional investigation would not have altered the IME opinions that there was no permanent injury, and that any injuries had resolved. These IMEs provided a reasonable basis to contest value. “Therefore, [the insured] cannot meet his burden to show that a reasonable juror could find by clear and convincing evidence that [the insurer] would have evaluated [the] claim differently had it conducted an earlier or different investigation as argued by plaintiff’s counsel.”

  1. Unnecessary Delay in Investigation

“In order for an insured to recover for bad faith from delay, an insured must demonstrate that ‘the delay is attributable to the defendant, that the defendant had no reasonable basis for the actions it undertook which resulted in the delay, and that the defendant knew or recklessly disregarded the fact that it had no reasonable basis to deny payment.’”

The court first observed that much of the delay in this matter was caused by the insured. There were delays in providing information and producing documents to the insurer. The insured also changed his damage theory during the claims handling process, which led to insurer to require additional evaluations. Thus, “no reasonable juror could conclude by clear and convincing evidence that [the insurer] acted in bad faith in the timeline of its investigation….”

Date of Decision: February 19, 2020

Stewart v. GEICO Insurance, U.S. District Court Western District of Pennsylvania 2:18-CV-00791-MJH, 2020 U.S. Dist. LEXIS 28459 (W.D. Pa. Feb. 19, 2020) (Horan, J.)

Our thanks to Attorney Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

 

BROKER AND POLICYHOLDER FACE POTENTIAL LIABILITY UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (New Jersey Federal)

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The insurer sued to void two life insurance policies on the basis they were obtained through fraudulent statements and omissions. It also sought relief under New Jersey’s Insurance Fraud Prevention Act (IFPA).

A Trust was both the policyholder and beneficiary. In its initial complaint, the carrier alleged the insured decedent made false statements and material omissions concerning serious medical conditions concealed from the insurer, including Hodgkin’s Lymphoma.

The carrier wanted to amend its complaint by adding claims against the Trustee and its insurance broker for their alleged knowing involvement in this fraudulent conduct. The Trustee and broker opposed the motion to amend. The court granted the motion.

The court rejected the argument that the IFPA only applied to misconduct during the course of an insurance claim. The court recognized the IFPA also applies to conduct in the application process.

In granting the motion, the court relied upon allegations that the broker “was untruthful when he filled out the agent’s statement….” The court found this could violate N.J. Stat. Ann. § 17:33A-4(a)(3), which addresses concealing or knowingly failing “to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled.”

The court also looked to the allegation that both the broker and Trustee “knew of and conspired to conceal” the decedent’s medical visit to a longevity center and the results of that visit which referenced prior medical history. The court added that if the broker and Trustee “knew the Decedent was untruthful on the applications and failed to disclose that…, or actively participated in the Decedent’s alleged misconduct, it could demonstrate a violation of N.J. Stat. Ann. § 17:33A-4(a)(4) or (b).”

Section 17:33A-4(a)(4) addresses a person who “[p]repares or makes any written or oral statement, intended to be presented to any insurance company or producer for the purpose of obtaining: … (b) an insurance policy, knowing that the statement contains any false or misleading information concerning any fact or thing material to an insurance application or contract….”

Section 17:33A(4)(b) encompasses a person who “knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act.”

Date of Decision: February 18, 2020

Symetra Life Ins. Co. v. Jjk 2016 Ins. Trust, U. S. District Court District of New Jersey Civil Action No. 18-12350 (MAS) (ZNQ), 2020 U.S. Dist. LEXIS 29291 (D.N.J. Feb. 18, 2020) (Quraishi, J.)

UIM JURY VERDICT NOT RELEVANT TO BAD FAITH CASE BECAUSE IT OCCURRED AFTER THE INSURER HAD COMPLETED ITS CLAIM EVALUATION (Philadelphia Federal)

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In this UIM bad faith case, the insureds demanded UIM policy limits which the insurer did not pay. The insureds took their case to trial, and the jury verdict far exceeded policy limits. The insureds pursued a claim for bad faith, arguing among other things that the jury verdict could be used as evidence of bad faith.

The court disagreed. Bad faith can only be determined based on the insurer’s conduct in evaluating the claim when it was submitted and on “the information available to the insurer during the claims processing”. The jury verdict was rendered after the insurer had done its claim evaluation. Thus, the jury verdict was not relevant to bad faith.

The central legal issue in the case was whether the insureds had executed some version of an enforceable UIM policy limit sign down, below their liability coverage. The court’s detailed analysis revealed that the insured’s application, which would otherwise have effected an enforceable sign down, was ineffective because it made that decision contingent on another required form that was only signed over one month later. The accident at issue occurred during the interim. The court found that there was no effective sign down, and the UIM limits defaulted to the liability limits, a difference between $300,000 and $750,000.

The insureds claimed that asking them to sign the second document constituted bad faith. The insurer consistently took the position that the second document was not necessary to succeed on the sign down argument; rather, the application controlled and the second document was basically redundant.

Magistrate Judge Rice disagreed with the carrier’s position on the application as stated above, but still found no bad faith:

“Nor does the failure to have [the insured] sign the UIM coverage selection form until [one month after the application] constitute bad faith. [The insurer] consistently maintained that the … application established the UIM policy limit, and the [insureds] had access to all relevant documents at all times. My post-trial disagreement with that determination fails to establish … bad faith.”

Date of Decision: February 18, 2020

Gibson v. State Farm Fire & Cas. Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-4919, 2020 U.S. Dist. LEXIS 27531 (E.D. Pa. Feb. 18, 2020) (Rice, M.J.)

INSURER’S RELIANCE ON ADVICE OF COUNSEL, AMONG MANY OTHER FACTORS FAVORING THE INSURER, DEFEATS BAD FAITH CLAIM (Philadelphia Federal)

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This case involves a head-spinning array of factual discrepancies between the insured’s claims to the carrier and the results of the insurer’s investigation. These range from whether the insured actually owned the property to whether the structure at issue collapsed from a sudden event or collapsed because of (uncovered) faulty construction. We leave you to the court’s lengthy and detailed narrative concerning these discrepancies, and the various coverage issues invoked by their presence. Of particular interest here is that in addition to involving an adjuster, SIU adjuster, supervisor and engineering expert, the insurer also puts its outside counsel’s coverage opinion on the record.  

The insured brought a bad faith claim, and the insurer moved for summary judgment after making a detailed record.  The insurer asserted various bases for why it was entitled to summary judgment. In granting summary judgment, the court stated that, at a minimum, there was a reasonable basis to deny coverage:

“The record indicates that [the insurer] conducted a thorough investigation of the claim and ultimately decided that coverage should be denied. Indeed, [a] property adjuster and an SIU adjuster inspected Plaintiff’s loss; the claim was reviewed by [a] supervisor; [the insurer] took the recorded statement of Plaintiff and reviewed relevant property documentation from the City of Philadelphia; [the insurer] obtained the services of a structural engineer; and [the insurer] then sent the structural engineer’s report, which opined on the cause of the loss, to independent legal counsel for an opinion on the coverage. Finally, relying upon independent legal counsel’s conclusion that coverage did not exist for Plaintiff’s loss, [the insurer] denied Plaintiff’s insurance claim. It cannot be said that [the insurer]’s investigation and decision-making process was ‘frivolous or unfounded,’ as required under Pennsylvania law to succeed on a bad faith claim.”

The court added, “the factual record is devoid of any ‘clear, direct, weighty and convincing’ evidence that would allow a factfinder to find ‘without hesitation’ that [the insurer] acted in bad faith in investigating and ultimately denying Plaintiff’s insurance claim.”

Moreover, even if the insured could make a case for unreasonableness, “the record is devoid of any evidence that [the insurer] either knew it had an unreasonable basis for denying coverage or recklessly disregarded its lack of a reasonable basis in denying Plaintiff’s claim or in the manner in which it investigated Plaintiff’s claimed loss.” The record shows the contrary. The insurer not only engaged a structural engineer, but also independent legal counsel to analyze coverage. It then “relied on the independent findings of both the expert and legal counsel in its ultimate decision to deny” the claim.

Date of Decision: February 14, 2020

Nguyen v. Allstate Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-5019, 2020 U.S. Dist. LEXIS 25789 (E.D. Pa. Feb. 14, 2020) (Kenney, J.)