BAD FAITH BLOG REACHES 1,600 POST MILESTONE

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It has been over thirteen years since we started the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog.  This week we uploaded our 1600th post.

We believe that persistence in posting summaries of current opinions as they are issued has been a useful addition to the Pennsylvania and New Jersey insurance coverage and bad faith universe.

Though we often see repeat issues in bad faith decisions forming clear patterns over time, there is occasionally that new twist, or application of law to a new set of facts, that keeps things fresh. And for those not regularly living in the bad faith universe, discovering patterns in a daunting sea of bad faith case law may be quite a relief when trying to navigate a wise course.

We have set out tens of categories on the left hand side of our home page to easily organize cases by topic with a single click. You can also use the search box under the calendar, in the upper left side of the home page, to collate your own set of case summaries by search terms of interest.  For example, we list each judge and court issuing an opinion. The search function can organize summaries by judge or court, as well as by substantive or procedural search terms.

We have not noticed any significant change in the number of bad faith opinions issued each year.  For example, we posted on 122 days between October 16, 2018 and October 16, 2019, with multiple posts on a few of those days.  From October 16, 2017 through October 16, 2018, we posted on 124 days, again with a few multiple postings on individual days. From October 16, 2016 through October 16, 2017 we posted on 134 days.

That being said, in recent years we have posted more summaries of Pennsylvania Superior Court non-precedential decisions.

If you have a bad faith opinion from Pennsylvania or New Jersey you think would fit with this Blog, please feel free to email a copy to lapplebaum@finemanlawfirm.com, and we will certainly give you credit for alerting us to the case.

 

LONG INVESTIGATION REASONABLY FOLLOWING UP ON “RED FLAGS” IS NOT BAD FAITH DELAY (Western District)

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Plaintiff’s house burned down. Before ultimately paying full benefits, the insurer conducted a lengthy, detailed, and wide-ranging arson investigation. The insured brought a breach of contract action for the delayed payment, and a bad faith action alleging there was no evidence to support the arson investigation. The court granted the insurer summary judgment on both claims.

First, “where the insurance company has paid the benefits under the policy, the insured cannot maintain an action for breach of contract.” Payment “negates any breach of contract action,” where the insurer has paid full policy limits, and there is no evidence of a failure to compensate. Even if there was a payment delay, there were no damages from that delay in this case.

On the bad faith claim, the court recognized an insurer can conduct investigations of questionable claims without acting in bad faith. “Where an insurer sees ‘red flags’ that cause concern of insurance fraud and prompt an investigation, the insurer has a reasonable basis for investigation, and is therefore not liable for claims of bad faith.” Red flags can include, e.g., (1) an insured’s financial motive in seeking the insurance proceeds, such as debts exceeding income; (2) a fire marshal’s investigating for arson; and (3) an insurer’s investigation revealing that the fire could not have started as the fire department initially believed.

In this case, there were red flags sufficient to warrant the insurer’s lengthy and multi-faceted investigation, and there was no actionable bad faith.

The court further observed that while payment delay can be the basis for bad faith, or a bad faith factor, such delay is only relevant to bad faith where the insurer “knew that it had no basis to deny the claimant.” In addition, “[w]hile delay in paying a claim is relevant to determining an insurer’s bad faith, it is not dispositive, and does not, on its own, ‘necessarily constitute bad faith.’” Moreover, “even if the insurer is solely responsible for the delay, as long as the delay is due to the insurer’s need to investigate further, or even to negligence, there is no bad faith.”

Here, the insured did not produce clear and convincing evidence to establish the insurer knew its payment delay was baseless. To the contrary, the record showed the insurer reasonably believed there were potential grounds to deny the insured’s claim warranting further investigation. The court found the insurer had a reasonable basis to conduct a lengthy investigation, and reasonably pursued all avenues of investigation as new information arose, until it decided to pay the claim after all of those road were finally traveled.

Date of Decision: October 21, 2019

Merrone v. Allstate Vehicle & Property Insurance Co., U. S. District Court Western District of Pennsylvania Case No. 3:18-cv-193, 2019 U.S. Dist. LEXIS 181450 (W. D. Pa. Oct. 21, 2019) (Gibson, J.)

THIRD PARTIES LACK STANDING TO BRING BAD FAITH CLAIMS (Monroe County Common Pleas)

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The excellent Tort Talk Blog posted a summary of a recent Monroe County decision dismissing statutory and common law bad faith claims because the plaintiffs had no contractual relationship with the insurer.  A link to this post can be found here.  The link to the opinion in Jones v. Ritchie can be found here.

PENNSYLVANIA AND NEW JERSEY BAD FAITH CASE LAW BLOG LISTED AMONG TOP INSURANCE LAW BLOGS

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In Feedspot’s recent list of “Top 50 Insurance Law Blogs, News Websites and Newsletters To Follow in 2019”, the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog was listed number 4.  This list included “the Best Insurance Law Blogs from thousands of Insurance Law blogs on the web using search and social metrics.”

COURT WILL NOT CONSIDER EVIDENTIARY DOCUMENTS ATTACHED TO AN ANSWER IN DECIDING A MOTION FOR JUDGMENT ON THE PLEADINGS (Middle District)

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This breach of contract and bad faith action outlines what a court may consider in addressing a motion for judgment on the pleadings. In this case, the documents attached to an answer were not “written instruments” that a court could consider in deciding a motion for judgment on the pleadings.

There was an undisputed fire loss, but there was an issue of whether at least one of the insureds resided in the home at the time of the loss. If neither insured resided at the property, there would be no coverage.

The complaint alleged facts supporting the position that one of the insureds did live in the home at the time of the loss. In answering the complaint, the insurer attached that insured’s statement under oath, the insurer’s investigative report, an EMT form, and an electric usage bill. The insurer relied on the facts in these documents to argue that both insureds did not reside at the home.

The court ruled these documents could not be used in support of a motion for judgment on the pleadings. The court found these were not the kind of “written instruments” that could be incorporated into a pleading, as contemplated by the Rules of Civil Procedure. Instead, they were “lengthy exhibits containing evidentiary matter [that] should not be attached to the pleadings.”

For example, the court observed “[e]xhibits solely containing evidentiary matter, such as depositions, are not considered ‘written instruments’ under Rule 10(c) and are typically excluded from consideration of the pleadings.”

Thus, “[b]ecause the Statements Under Oath consist of only evidentiary matters, they cannot be considered at this juncture.” The same principle applied to the investigative reports and electric bills.

Date of Decision: October 9, 2019

Bloxham v. Allstate Ins. Co., U. S. District Court Middle District of Pennsylvania NO. 3:19-CV-0481, 2019 U.S. Dist. LEXIS 175198 (M.D. Pa. Oct. 9, 2019) (Caputo, J.)

COURT EXCLUDES EXPERT REPORT BEFORE TRIAL, AND REINSTATES BAD FAITH CLAIM THAT HAD BEEN DISMISSED ON THE BASIS OF THAT EXPERT REPORT (Middle District)

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This is a breach of contract and bad faith disability benefits case. The court originally granted the insurer summary judgment on bad faith, based on a defense medical expert report that plaintiff could go back to work in his field (dentistry). Reliance of this report had established the insurer’s reasonableness in denying the claim.

On motions in limine and a Daubert hearing before trial, however, the court ruled the insurer’s same medical expert was not qualified to opine on the insured’s ability to continue working. It excluded this expert’s medical testimony. Soon after, the court reconsidered its earlier bad faith ruling, and reinstated the bad faith claim on plaintiff’s motion. The court stated: “Given that [the expert] can no longer give his expert opinion as an independent medical examiner that [the insured] was no longer disabled, the evidence in the record does not establish as a matter of law that Defendants ‘had a reasonable basis to deny [the insured’s] claim.’”

The insurer then moved for reconsideration, and the court denied that motion, allowing the bad faith claim to proceed.

Further opening the door on bad faith, the insured was now permitted to testify about his personal beliefs on the insured’s intentions during claims handling and the reasonableness of the insurer’s conduct, the insurer’s requiring certain testing on plaintiff, and the reasonableness of how the insurer’s expert conducted that testing. The insured’s credibility could be challenged at trial on these issues. The insured could not testify, however, about his own internet research into the insurer’s claim handling history, “given [the insurer’s] recent reforms to its claim handling procedures.”

For purposes of defending the bad faith claims, the insurer could still use evidence of certain excluded expert opinions, even though these experts were found unqualified for other purposes. These reports remained relevant to show what the insurer relied upon during the denial process, and in “considering [the insured’s] credibility in bringing his disability claim.”

Date of Decision: October 4, 2019

Brugler v. Unum Group, U. S. District Court Middle District of Pennsylvania No. 4:15-CV-01031, 2019 U.S. Dist. LEXIS 172587, 2019 WL 4917922 (M.D. Pa. Oct. 4, 2019) (Brann, J.)

CONCLUSORY PLEADINGS INSUFFICIENT TO STATE BAD FAITH CLAIM; MERE REFUSAL TO PAY SUM DEMANDED IS NOT BAD FAITH PER SE (Philadelphia Federal)

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In this UIM case, the tortfeasor’s insurer settled for $15,000, and the injured insured demanded the $300,000 UIM policy limits from his own carrier. The insurer did not accede to that demand, and the husband and wife insureds sued for breach of contract and bad faith. Judge Schiller dismissed the bad faith claim with leave to amend, if a plausible claim could be pleaded.

Plaintiff failed to allege sufficient facts to state a plausible claim. The insureds’ conclusory allegations included “failing to evaluate Plaintiff’s claim objectively and fairly; failing to complete a prompt and thorough investigation of Plaintiff’s claim… [and] unreasonably withholding policy benefits[.]” There are, however, no specific facts pleaded supporting these conclusions. “Courts consistently hold that bare-bones allegations of bad faith such as these, without more, are insufficient to survive a motion to dismiss. Indeed, conclusory allegations that an insurer ‘unreasonably withheld the payment of [UIM] benefits under the policy…failed to engage in good faith negotiations… [and] failed to perform an adequate investigation’ are insufficient to state a claim for bad faith.”

Similarly, the complaint alleges the insurer “failed to conduct a fair and reasonable investigation into his claim but does not plead any facts related to that investigation.” The court further found the insured could not state a claim on the basis that the insurer “did not pay [the insured’s] claims even when he provided the same information that led [the tortfeasor’s insurer] to tender the limits of its policy.” The court observes that “the failure to immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.” [Though the court does not so state, there appears to be no explanation in the complaint why providing information leading to a $15,000 payment automatically requires an additional $300,000 payment.]

The court provided the insureds “may file an amended complaint to add a bad faith claim, but only if they can plausibly do so.” (Emphasis in original)

Date of Decision: October 4, 2019

Doyle v. Liberty Mutual Ins., U. S. District Court Eastern District of Pennsylvania No. 19-3460, 2019 U.S. Dist. LEXIS 172581, 2019 WL 4917123 (E.D. Pa. Oct. 4, 2019) (Schiller, J.)

SANCTIONS AGAINST INSURED REVERSED WHERE INSURER DID NOT SHOW INSURED’S BAD FAITH IN BRINGING FAILED LITIGATION AGAINST INSURER (New Jersey Appellate Division) (Unpublished)

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In this case, New Jersey’s Appellate Division affirmed the dismissal and grant of summary judgment to the insurer on all claims, but reversed the trial court’s award of frivolous litigation sanctions against the insured because there was no finding the insured acted in bad faith in bringing the claims.

Factual Background

The insurer provided the eighth layer of excess insurance in this Superstorm Sandy case. The primary and lower layers provided $75 Million, and the eighth layer provided another $50 Million above that.

In 2012, the insured hired a contractor to do repair and restoration work. The contractor allocated $950,000 to specific building repair and restoration work. The excess carriers all determined repair and restoration work was not covered. In 2014, the insured reached a global settlement with all insurers for $93.5 Million. The eighth layer insurance contributed $16 Million. The insured executed a release for any and all claims and demands for Superstorm Sandy property damage and business income losses, discharging the eighth layer insurer.

In 2015, however, the insured asked the eighth layer insurer to reconsider paying the contractor’s repair and restoration costs, after another anticipated source for this loss did not pan out. The eighth layer carrier refused. The insured brought suit in 2015.

The Litigation

The insured alleged it relied on the advice of the excess insurers’ adjuster and experts in how the repair and restoration costs were allocated, which resulted in it obtaining no sum to settle that out-of-pocket payment. The insured alleges that it only agreed to the 2014 settlement based on this bad advice, and would otherwise have included these repair and replacement costs in its negotiations and settlement with the insured, beyond the sum actually paid.

The insured brought various claims against the adjusters and experts, and claimed the eighth layer insurance was liable for their acts and omissions on an agency theory. The insured also claimed the eighth layer insurer was liable for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and bad faith in denying the claim for the repair and restoration costs. Defendants moved to dismiss all claims, which the trial court granted in part, including the unjust enrichment claim and some of the agency theory claims. The remaining claims were later dismissed on summary judgment.

The eighth layer insurer filed a motion against the insured for frivolous litigation sanctions. The trial court granted that motion, and ruled the insurer was entitled to the attorney’s fees and costs.

The insured appealed the grant of summary judgment and the sanctions.

The Appellate Division Affirms for the Insurer on the Merits

First, the Appellate Division found no support in the record that the release was only executed as the result of fraud. The insured was well aware it was settling all Superstorm Sandy related claims, that the repair and restoration costs were not part of the settlement, and that the release would bar Superstorm Sandy related claims against all insurers. The insured was also aware that the repair and restoration costs were subject to recovery regarding another entity and its insurers, and that the settling excess insurance companies would not agree to make their settlement contingent on the outcome of that separate matter.

Next, the Appellate Division affirmed the trial court’s findings that there was no common law fraud or negligent misrepresentation by the agent or the insurer. It likewise affirmed judgment on the negligence claim on the basis that no expert testimony was proffered regarding the conduct of the independent insurance adjuster (which plaintiff was trying to bootstrap into a claim against the insurer as well).

The Appellate Division Reverses Sanctions Because there was no Finding of Bad Faith

The Appellate Division addressed the sanction award against the insured for frivolous litigation. [There were no sanctions against counsel.] The insurer’s attorneys had sent the insured’s counsel a letter stating the “complaint was frivolous because the release precluded … asserting any causes of action against [the eighth layer insurer].” The letter “also stated that [the] fraud claims were unsustainable because [the insured’s] representatives had acknowledged the [repair and restoration costs at issue] were not recoverable….” Despite this letter, the insured’s “counsel did not withdraw the complaint.”

A motion for attorneys’ fees and costs ensued. The insured and its counsel both asserted that they believed the claims had merit.

The trial judge found the claims frivolous on the basis that the insured’s claims had no reasonable basis in the law or equity, and there was no good faith argument for the extension, modification or reversal of existing law. Further, the trial judge found the insured knew that the repair and restoration costs would have to come from another source, and that the excess insurers would not make their settlement contingent on recovery of those costs from another source.

The Appellate Division reversed the frivolous litigation sanctions, finding the trial court relied upon the wrong standards. The frivolous litigation statute, N.J.S.A. 2A:15-59.1, which applies only to represented parties, requires a finding of bad faith on the plaintiff’s part. Here, there was no such finding. Thus, the claim failed.

The Appellate Division laid out these bad faith standards:

Where ‘a prevailing defendant’s allegation is based on the absence of a ‘reasonable basis in law or equity’ for the plaintiff’s claim and the plaintiff is represented by an attorney, an award cannot be sustained if the ‘plaintiff did not act in bad faith in asserting’ or pursuing the claim.” …. A finding of bad faith is essential because “clients generally rely on their attorneys ‘to evaluate the basis in law or equity of a claim or defenses,’ and ‘a client who relies in good faith on the advice of counsel cannot be found to have known that his or her claim or defense was baseless.’” …. Furthermore, under the FLS, the party seeking the imposition of sanctions “bears the burden of proving that the non-prevailing party acted in bad faith.” …. We have held that “a grant of a motion for summary judgment in favor of a [prevailing party], without more, does not support a finding that the [non-prevailing party] filed or pursued the claim in bad faith.”

The trial court did reference Rule 1:48, which only applies to attorneys and pro se parties, and thus had no application in this matter.

Date of Decision: October 4, 2019

Fedway Assocs. v. Engle Martin & Assocs., Superior Court of New Jersey Appellate Division DOCKET NO. A-0297-18T4, 2019 N.J. Super. Unpub. LEXIS 2048 (N.J. App. Div. Oct. 4, 2019) (Currier, Hoffman, Yannotti, JJ.) (Unpublished)

ASSAULT OR BATTERY EXCLUSION ENCOMPASSES ALLEGATIONS AGAINST INSURED FOR ALLEGEDLY CREATING CONDITIONS THAT ALLOWED THE ASSAULT OR BATTERY (Philadelphia Federal)

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In this case, an insurer won declaratory judgment on coverage based on an assault or battery exclusion. Fineman Krekstein & Harris partner Diane B. Sher and associate Matthew E. Selmasska were successful counsel for the declaratory judgment plaintiff in this action.

The underlying plaintiff was shot in a parking lot, and brought an action against various parties other than the unknown assailant. The underlying complaint went out of its way to make clear that there was no assault and battery count, but only claims for negligence or recklessness against parties whose alleged failures to make the parking lot safe enabled the shooting.

One defendant in the underlying action had a commercial general liability policy with an “Assault or Battery Exclusion” excluding coverage for personal injury damages arising out of an assault, battery, or physical altercation. This exclusion had four subparagraphs defining its scope, which were broad and went well beyond the actual acts of assault, battery, or physical altercation, e.g., coverage was excluded “[w]hether or not [the personal injury from the assault, battery, or physical altercation was] caused by or arising out of an insured’s failure to properly supervise or keep an insured’s premises in a safe condition.…”

The CGL insurer filed a declaratory judgment action that there was no duty to defend or indemnify, nor any duty to defend or indemnify as to any cross-claims for indemnification or contribution against the insured in the underlying action.  It moved for judgment on the pleadings.

The court concluded that “the fact that the exclusion covers acts and omissions in connection with the prevention of an assault or battery means that [the insurer] is not obligated to defend its insured from allegations that the insured’s failure to take certain precautions resulted in [the insured’s] injuries.”

Thus, the court granted the insurer’s motion for judgment on the pleadings on all counts.

Date of Decision: October 2, 2019

Great Lakes Insurance SE v. Smithwick, U. S. District Court for the Eastern District of Pennsylvania No. 2:18-cv-04797, 2019 U.S. Dist. LEXIS 171622 (E.D. Pa. Oct. 2, 2019).

REASONABLENESS OF INVESTIGATION IS NOT SOLELY DETERMINED BY THE LENGTH OF TIME USED BY THE ADJUSTER TO REACH A CONCLUSION ON COVERAGE (Middle District)

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Through an unusual set of circumstances, the insureds’ electricity service at a vacation home was terminated by third parties, unbeknownst to the insureds. This led to the heating system’s not functioning, which in turn led to frozen pipes bursting, and significant water damage to their home. Their insurer denied coverage under a policy provision that required the insureds to take reasonable care in maintaining heat while the property was unoccupied, or in shutting down the water system.

The insureds brought claims for breach of contract, negligence, and bad faith. The negligence claim was dismissed under the gist of the action doctrine, as the claim was based on the breach of an insurance contract and any duties arose out of that contract. The breach of contract claim was dismissed as being initiated after the one-year contract period for bringing suit, expressly required in the insurance policy.

The court analyzed the bad faith came under both the common law and Pennsylvania’s Bad Faith Statute, 42 Pa.C.S. § 8371. One difference between the two claims is that common law bad faith permits recovery of compensatory and consequential damages, while statutory bad faith is limited to interest, punitive damages, legal fees and costs.

In this case, the common law bad faith claim was time barred, being subject to the same analysis as the breach of contract claim.

The statutory bad faith claim was based upon an allegedly unreasonable failure to investigate the facts as to the history of the termination of the insureds’ electric service as the cause of the loss. The insureds argued that the adjuster’s single day visit to “the property was insufficient to ascertain the information necessary to determine the cause of the damage, particularly in light of the adjuster’s failure to contact [other relevant parties] to determine what events led to the transfer and termination of electric service at the [insureds’] Pennsylvania vacation home.” The court, however, granted the insurer summary judgment on this issue.

While the “adjuster may not have pursued an investigation into the ultimate cause of the property damage to the extent the [insureds] desired, a single, one-day visit to the home was sufficient for the adjuster to ascertain that the property was vacant for an extended period of time, that electric service to the home had been shut off for a period of months resulting in a failure to maintain heat inside the home over an extended period of time, and that the cause of property damage was a freeze out. This information, together with that gathered by claims handlers—including, in particular, the [insureds’] failure to note over the course of several months that they were no longer being billed for electric service—was sufficient … to reasonably determine that the [insureds] had failed to use reasonable care to maintain heat in the home while it was vacant for several months of winter weather. Stated another way, we find that, based on the evidence adduced by the parties on summary judgment, viewed in the light most favorable to the plaintiffs, no reasonable jury could find that [the insurer’s] investigation was inadequate or that its denial of coverage was frivolous or unfounded.

Date of Decision: September 27, 2019

Pager v. Metro. Edison, U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:17-cv-00934, 2019 U.S. Dist. LEXIS 166052 (M.D. Pa. Sept. 27, 2019) (Saporito, M.J.)