BAD FAITH NOT POSSIBLE WHERE THERE IS SPLIT IN LEGAL AUTHORITY ON INTERPRETING POLICY LANGUAGE (New Jersey Appellate Division)

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The central issue in this Superstorm Sandy case was whether coverage was due for a “collapse.” Collapse was a defined term, but the defining language itself opened the door to multiple disputes over the meaning of individual words and concepts. For example, the court had to determine possible meanings of “caving in” and whether “abrupt” meant a matter of seconds or some longer period.  The parties argued the fine details of both the policy language and the facts, including competing expert reports, and the court went through a step-by-step analysis addressing the meaning of each relevant sub-term.

While the insurer made some plausible arguments, the court ultimately had to follow the principle that where the policy language reasonably could be interpreted in more than one way, the interpretation that favors coverage must be applied. Thus, at the end of the day, the trial court and Appellate Division found coverage was due.

On the other hand, the insured’s bad faith claim failed on the same record.

The court observed generally that in first party property damage cases, “the insured must demonstrate that coverage was so clear it was not ‘fairly debatable.’”  If a claim is fairly debatable, there can be no bad faith. Thus, “a plaintiff must show the lack of a reasonable basis for denying the claim or unreasonably delaying its processing, and the insurer’s knowledge or reckless disregard that it was acting unreasonably.”

Relevant to this case, “[a]n insurer’s denial of coverage may be fairly debatable if the insurer was ‘not acting in derogation of well settled New Jersey law’ and there was a split among other jurisdictions on a legal question pertaining to coverage.” Here, there was no clear New Jersey law interpreting the multiple disputes over policy language the insurer raised in denying coverage. “On that basis, [the] decision to deny coverage was fairly debatable, as there was no binding New Jersey precedent interpreting [the insurer’s] policy form.”

Moreover, there was a split in the case law among other jurisdictions concerning the scope of coverage under this same policy language. The Appellate Division favored one line of case law interpreting the policy form at issue, resulting in coverage. This did not change the reality that there was a split of authority and other courts would find no coverage. This lack of clear consensus likewise precluded a finding of bad faith.

Date of Decision: November 19, 2020

Parko Properties, LLC v. Mercer Ins. Co. of New Jersey, Superior Court of New Jersey Appellate Division No. A-4137-17T2, 2020 WL 6799137 (N.J. Super. Ct. App. Div. Nov. 19, 2020) (Oster, Vernola, JJ.)

NO MATERIAL MISREPRESENTATION BY INSURED AS TO PLACE OF RESIDENCE WHEN THE MEANING OF “RESIDENCE” CAN ENCOMPASS MULTIPLE LOCATIONS AS A MATTER OF LAW (Middle District)

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The homeowner insured’s amended complaint asserted a breach of contract claim after the carrier denied coverage for a fire loss. The original complaint included a bad faith count that was dismissed without prejudice. The insured did not pursue that bad faith claim in his amended complaint. A summary of the earlier decision can be found here. The court had also rejected an earlier motion for judgment on the pleadings, a summary of which can be found here.

The insurer sought summary judgment on the amended breach of contract claim. Among other grounds for summary judgment, the insurer claimed there was “no duty to cover losses under the Policy” because the insured and his mother made misrepresentations of material facts relevant to coverage.

The policy only provided coverage if the insured resided at the property. The insurer asserted both that the plaintiff did not reside at the property, and made misrepresentations of material facts as to residence, ownership and the property’s condition. The insured took the position he did reside at the property and made no such misrepresentations.

Magistrate Judge Mehalchick conducted a thorough analysis of Pennsylvania case law on the meaning of “residence”, and applied that case law to the detailed facts in the case. She concluded, “[k]eeping in mind that the term ‘residence’ carries a more transitory meaning than the term ‘domicile,’ the record evidence is sufficient to allow a reasonable jury to conclude that Plaintiff resided at the Property at the time of the fire.” Thus, summary judgment was denied on the basic coverage issue.

Alternatively, the insurer sought summary judgment for material misrepresentation on the basis that the mother and son’s statements that he resided with the mother must have been false, if he in fact resided at the property.  Put another way, the carrier argued that there was no coverage because the insured did not reside at the premises. If he did reside at that premises, however, there would still be no coverage because the insured and his mother made false statements that he did not reside at the premises.

“For an insurance carrier to avoid coverage due to misrepresentation, the insurer must establish that the insured’s representation: (1) was false, (2) was made with the knowledge that the representation was false when made or was made in bad faith, and (3) was material to the risk being insured.” Moreover, “[t]he insurer must show that the insured made the misrepresentation with a deliberate intent to deceive.”

There were sworn and unsworn statements from the insured and his mother indicating that plaintiff resided with his mother at certain times, while also sleeping over at the property during other times.  The insurer attempted to construe these statements to mean the insured and his mother told the carrier that the insured did not reside at the property, which was false if he did in fact reside at the property, as pleaded in the amended complaint.

The court found the insurer failed to establish that the mother and son knowingly made false statements that he did not reside at the property, and failed to show such statements were made with a deliberate intent to deceive.

“Defining and determining the term ‘reside’ is a complicated endeavor. … [The insurer] identifies no record evidence that the [insured and his mother] knew the meaning of ‘reside.’ …  It is unknown if the [insured and his mother] even knew that an individual could simultaneously reside at two locations.”

Thus, statements that his mother’s home was the insured’s full time residence, rather than the property at issue, is not definitive because it is unclear that the insured or his mother knew that to be false. As such, there would also be no intent to deceive.

Moreover, as stated above, it remains for the jury to decide if the insured resided at the property. Thus, the insurer could not even establish at this point whether any alleged misrepresentation about the insured’s residence was false.

Therefore, summary judgment was denied on the issue of material misrepresentation.

Date of Decision: November 16, 2020

Bloxham v. Allstate Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:19-CV-00481, 2020 WL 6710427 (M.D. Pa. Nov. 16, 2020)

 

COURT PERMITS SOME UNDERWRITING DISCOVERY EVEN IN THE ABSENCE OF A STATUTORY BAD FAITH CLAIM (Middle District)

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The insurer denied coverage under a “regular use exclusion” in this UIM case. The complaint included a breach of contract claim, but no statutory bad faith claim. Plaintiff wanted to depose plaintiff’s corporate designee. The carrier argued the proposed deposition subjects were irrelevant to coverage, absent a bad faith claim, and moved for a protective order.

Middle District Magistrate Judge Saporito found that plaintiff could pursue certain limited discovery on underwriting, even absent a statutory bad faith claim. This was based primarily on the insurer raising the “regular use exclusion” as an affirmative defense, and the insureds alleging that the carrier owed “a fiduciary, contractual and statutory obligation to investigate, evaluate, and negotiate [her] UIM claim in good faith and to arrive at a prompt, fair, and equitable settlement.” [The reference to “statutory obligation” was not interpreted to mean plaintiffs were pleading a section 8371 statutory bad faith claim.]

Plaintiff had already deposed the carrier’s adjuster, but wanted a corporate designee to testify on the regular use exclusion and underwriting practices. This included the following subjects:

  1. The underwriting procedures in place … for the period January 1, 2017[,] through the current date;

  2. The underwriting regulations necessary to obtain the status of “preferred driver” under a … policy of insurance;

  3. The determinative factors and costs associated with UIM coverage …;

  4. The determinative factors and costs associated with UM coverage …;

  5. The determinative factors and costs associated with stacking of UIM coverage…;

  6. The determinative factors and costs associated with stacking of UM coverage …;

  7. The factors [the insurer] utilizes in determining whether a vehicle is available for the “regular use” of an insured;

  8. How the term “regular use” is defined in the applicable … policy and related documents;

  9. Whether the … regular use exclusion must be accompanied by a stacking waiver;

  10. All steps and measures [the insurer] takes to explain to its insureds the effect of the “regular use exclusion,” “household exclusion,” “family car exclusion,” and “unlisted driver exclusion”;

  11. How the regular use exclusion is discussed in the [insurer’s] Claims Manual; and

  12. Any facts supporting [the insurer’s] legal theories and defenses.

The court found that although the insureds did not allege statutory bad faith, they did plead breach of the contractual duty of good faith and fair dealing. Magistrate Judge Saporito found this sufficient to open the door to some greater discovery compared to a simple breach of contract case.  He relied on three cases permitting discovery on the carrier’s decisionmaking process, even in the absence of a statutory bad faith count. Rau v. Allstate, Swientisky v. American States, and Craker v. State Farm.

The court found the following areas of inquiry relevant and discoverable: factors used to determine “whether a vehicle is available for the ‘regular use’ of an insured”; “[h]ow the term ‘regular use’ is defined in the applicable … policy and related documents”; whether the “regular use exclusion must be accompanied by a stacking waiver”; “[h]ow the regular use exclusion is discussed in the [insurer’s] Claims Manual”; “[a]ny facts supporting [the insurer’s] legal theories and defenses”; and “[a]ll steps and measures [the insurer] takes to explain to its insureds the effect of the ‘regular use exclusion….”

On the other hand, discovery was not permitted on matters “irrelevant to the issue regarding the application of the ‘regular use exclusion,’ as they relate to underwriting procedures, underwriting regulations necessary to obtain the status of ‘preferred driver,’ and the determinative factors and costs associated with UIM and UM coverage as well as stacking for those coverages.” Discovery concerning other exclusions was also irrelevant.

Thus, discovery was specifically barred for “[t]he underwriting procedures in place … for the period January 1, 2017[,] through the current date”; underwriting regulations necessary to obtain preferred driver status;  “[t]he determinative factors and costs associated with UIM coverage”; “determinative factors and costs associated with UM coverage”; “determinative factors and costs associated with stacking of UIM coverage”; and “determinative factors and costs associated with stacking of UM coverage….”

Magistrate Judge Saporito further found the permitted discovery proportional, stating “the amount in controversy represents two-thirds of the total available insurance; [the insurer], as the drafter of the policy, has ready access to all relevant information especially regarding the denial of the claim; the importance of the discovery may be determinative of the issue whether the plaintiffs are entitled to any UIM benefits under the policy; and the burden of producing one witness is outweighed by the benefit in answering the questions about the validity of [the insurer’s] affirmative defense of the regular use exclusion.”

Date of Decision: November 4, 2020

Evanina v. The First Liberty Insurance Corporation, U.S. District Court Middle District of Pennsylvania No. 3:20-cv-00751, 2020 WL 6494883 (M.D. Pa. Nov. 4, 2020) (Saporito, Jr., M.J.)

THIRD PARTY LACKS STANDING TO BRING BAD FAITH CLAIM ABSENT ASSIGNMENT (New Jersey Appellate Division)

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Plaintiff’s godfather died in a hospital, of what plaintiff claimed was medical malpractice. Plaintiff attempted to sue the hospital’s insurer for bad faith. He alleged the insurer failed to negotiate a good faith settlement of the godson’s malpractice claim against the insured hospital. The trial court found plaintiff had no standing to bring such a claim.

The Appellate Division agreed that, absent an assignment by the insured hospital, a third party like plaintiff had no standing to bring a direct bad faith claim against an insurer. Quoting from the Law Division’s opinion, the court observed, e.g., “public policy does not mandate that the injured party in an accident should be deemed the intended beneficiary of an insurer’s contractual duty to its insured to act in good faith regarding settlement.” The Appellate Division reiterated that even if plaintiff were a beneficiary under this godfather’s will, “plaintiff is precluded from filing a direct claim against defendant absent an assignment of rights.”

The court also made clear it disagreed with plaintiff’s “assertion on appeal that he is an implied or expressed third-party beneficiary who can pursue his claims under a common law theory of tort liability.” The record demonstrated “the essential prerequisites for a finding of common law tort liability are entirely absent. There was nothing demonstrating the insurer breached any duty to the third party/godson.

In summing up, the Appellate Division found “no basis, including public policy considerations, on which to conclude that plaintiff is a third-party beneficiary, who was owed a duty by defendant.”

Date of Decision: October 28, 2020

Yew v. Penn National Insurance, Superior Court of New Jersey Appellate Division No. A-1526-19T4, 2020 WL 6301366 (N.J. Super. Ct. App. Div. Oct. 28, 2020) (Firko, Rose, JJ.)

INSURERS NOT ESTOPPED FROM DENYING COVERAGE, AND COVERAGE HAD TO BE PROVED (New Jersey Appellate Division)

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This long ongoing litigation involved a dispute over whether a subcontractor’s poor workmanship could be a covered “occurrence”. During the pendency of this litigation, the matter went up to New Jersey’s Supreme Court in separate lengthy litigation. The Supreme Court ultimately established law in plaintiff’s favor. In the interim before that decision, however, faced with the uncertainly of coverage, the present insured itself settled with a number of plaintiffs who sued for faulty workmanship.

The case involved multiple insurers and different policy periods.  The insured sought reimbursement in connection with the litigation and settlement sums paid.  The insured also asserted every policy was triggered by an “occurrence” during each policy period. The plaintiff moved for summary judgment on the bases that the insurers were estopped and that there were covered occurrences. The Law Division denied this motion in significant part.

The trial judge did find the policies were implicated and coverage was triggered. However, that judge also “concluded there were material factual disputes as to the reasonableness of the settlements, both as to the ‘various liabilities of the insurers[,]’ and whether defendants were ‘entitled to a diminution of’ their share of the settlements ‘based on covered claims as opposed to uncovered claims.’” Thus, the trial court denied plaintiff summary judgment.

Plaintiff and defendants then entered a “high-low” settlement. This involved a consent order for judgment, where plaintiff reserved the right to appeal the summary judgment denial, to address the insurers’ indemnification obligations. Per the consent judgment, if the Appellate Division affirmed the trial judge, the insurers would pay the low settlement sum; however, if the Appellate Division reversed the Law Division in its entirety, then the insurers would pay the high settlement sum.

On appeal, “plaintiff contended that because defendants ‘wrongfully refused coverage[,]’ causing plaintiff to defend itself against claims covered by the policy and ultimately settle those claims, defendants were liable for the entire settlement amounts if they were ‘reasonable and … made in good faith[.]’” Plaintiff relied on the seminal case of Griggs v. Bertram.

The Appellate Division framed the issue as, “having denied coverage, must defendants pay the full settlement amounts if reasonable and entered in good faith? Or, despite their denial of coverage under the policies, are defendants entitled to an allocation determination, both temporally and substantively, i.e., whether the homeowners’ claims were for ‘property damage’ covered under the policies?”

The court denied plaintiff relief, distinguishing Griggs. It then affirmed the trial court’s decision, thus resulting in the low settlement sum being due.

Unlike Griggs, in this case the defendant insurers had issued timely coverage denials. Their arguments proved successful during the very early stages of the litigation in the Law Division, and even the Appellate Division left the coverage issue open.

Thus, the court found “no basis to apply equitable principles of estoppel to bar defendants’ challenge to coverage, including a temporal and substantive allocation of covered and uncovered claims.” Rather, “a good-faith challenge to coverage is not a breach of an obligation to defend.” Further, the defendant insurers “were entitled ‘to dispute coverage based upon the language’ of the policies.”

Thus, there was no equitable basis, under Griggs, to prohibit the carriers from asserting contractual coverage defenses.  It then fell on plaintiff prove that coverage was due, and the insurers were wrong to deny coverage.  “[I]f there is a factual dispute that, once resolved, may indicate that an occurrence is not covered, and it is unlikely to be resolved at trial, an insurer may deny coverage and await judicial resolution.”  If the insured can ultimately make out its case, the carrier would have to reimburse “plaintiff for its costs and the settlement amounts, assuming they were reasonable and entered in good faith.”

The court again observed, however, “defendants were well within their rights to contest the coverage issues.” It found there were disputed issues of fact over “the nature, extent and timing of the damages” at issue. This could not be decided on summary judgment, and these factual issues “were properly left for a factfinder to conclusively resolve.”

Thus, “[r]esolution of those factual issues was necessary to determine coverage under the policies, and as a result, whether defendants’ denial of coverage was wrongful. Under controlling precedent and the facts of this case, only defendants’ wrongful denial of coverage would translate into a duty to reimburse plaintiff for reasonable settlements it entered into with the homeowners in good faith.” As there was no unequivocal reversal, plaintiff was left with the low settlement sum at the end of the day.

Date of Decision: October 5, 2020

Bob Meyer Communities, Inc. v. Ohio Casualty Insurance Company, New Jersey Superior Court Appellate Division No. A-4526-18T3, 2020 WL 5887025 (N.J. Super. Ct. App. Div. Oct. 5, 2020) (Messano, Smith, JJ.)

Developments in Pennsylvania and Philadelphia Commerce Courts; Philadelphia Commerce Court Allows Covid-19 Business Interruption Coverage Claim to Proceed

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Yesterday, November 3, 2020, Governor Wolf signed a bill into law permitting the Superior Court and Courts of Common Pleas to create specialized Commerce Court dockets within their jurisdictions.  If the Superior Court creates a Commerce Court docket, it will be the first specialized appellate business court in the United States.

As many readers of this blog know, Philadelphia’s Commerce Court regularly hears commercial general liability coverage cases, including bad faith claims. Presumably, new Commerce Courts may include these types of disputes within their jurisdiction as well.

A summary of this significant development can be found on the Business Courts Blog, here.

We also note that Philadelphia Commerce Court Supervising Judge Gary S. Glazer recently addressed preliminary objections seeking to dismiss a restaurant’s claim for breach of contract and bad faith against its insurer.  The insured’s claims were based on the carrier’s denying business interruption losses resulting from Governor Wolf’s executive order closing non-essential businesses during the COVID-19 pandemic.

Judge Glazer overruled the preliminary objections, and allowed the case to proceed.  A summary of Taps & Bourbon on Terrace, LLC v. Certain Underwriters at Lloyd’s, London can be found on the Business Courts Blog, here.

COURT DENIES MOTIONS TO BIFURCATE UIM CONTRACT AND BAD FAITH CLAIMS, AND TO STAY BAD FAITH DISCOVERY (Middle District)

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The court recently permitted the UIM bad faith claim to proceed in this case. The defendant insurer then moved to bifurcate the breach of contract and bad faith claims, and to stay discovery on the bad faith claims. Middle District Magistrate Judge Carlson denied both motions.

Parties can move to sever under Federal Rule 21, and bifurcate under Federal Rule 42(b). Courts balance various factors in weighing bifurcation, and must be concerned whether “there is even a fair possibility that the stay would work damage on another party.” The four factors considered are: “(1) whether the issues are significantly different from each other; (2) whether they require separate witnesses and documents; (3) whether the non-moving party would be prejudiced by bifurcation; and (4) whether the non-moving party would be prejudiced if bifurcation is not granted.”

As to the first two factors, Magistrate Judge Carlson found “the factual allegations supporting [the] breach of contract claim and … bad faith claim significantly overlap.” The contract claim was premised on an alleged failure to fairly and objectively evaluate plaintiff’s UIM claim, and a failure to make prompt and reasonable settlement efforts. “Thus, the plaintiff’s breach of contract claim will focus on her injuries, as well as the defendant’s investigation of the claim and attempts to settle the claim.”

The court observed that the vast majority of the claim file would be common to both counts, and the bad faith case would “only require a few additional witnesses who will discuss evidence of the plaintiff’s damages that will likely be admitted in conjunction with the breach of contract claim.”

In supporting this conclusion, the court cited Dunleavy v. Encompass Home for the principle that a defendant’s good faith “must be determined by reference to the circumstances surrounding the automobile accident and the nature of” plaintiff’s injuries. The court also cited a number of cases refusing to bifurcate breach of contract and bad faith claims: Griffith v. Allstate, Newhouse v. GEICO, Craker v. State Farm, and Cooper v. MetLife.

Magistrate Judge Carlson also rejected the insurer’s work product prejudice argument. The court observed that a claim file “generally includes correspondence from plaintiff’s counsel, medical records, wage-loss records, logs indicating what material has been received, and notes from the claims adjuster regarding his or her impression of the claim’s value. … [and] only the claim adjustor’s notes or other impression may qualify as work product.” Relying on Dunleavy, Magistrate Judge Carlson found “the procedural safeguards [of asserting the work-product privilege] are sufficient to protect defendant’s interests from prejudice.”

In addition, the court found trying these matters together would not unfairly prejudice the insurer. The concern over plaintiff’s counsel having to testify was ameliorated because plaintiff changed counsel. In any event, citing Craker, “[t]he possibility that counsel will be called to testify is a ‘risk of litigation’ and does not require bifurcation.”

Further, bifurcation would not promote judicial economy. Instead, it would create “two discovery periods, additional potential dispositive motions, and a completely separate trial for each claim. Given that the underlying factual allegations and potential discovery will significantly overlap, we conclude that judicial economy would be better promoted by trying these claims together.”

Upon denying the motion to bifurcate, Magistrate Carlson states, “Because we are denying the motion to bifurcate, we further conclude that the defendant’s motion for a protective order, which seeks to prevent the plaintiff from obtaining discovery related to her bad faith claim, be denied.”

Date of Decision: October 29, 2020

Yohn v. Selective Insurance Company of America, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-565, 2020 WL 6343138 (M.D. Pa. Oct. 29, 2020) (Carlson, M.J.)

ADDITIONAL INSUREDS CAN PROCEED ON BAD FAITH CLAIM TO RECOVER THEIR SETTLEMENT PAYMENTS MADE WITHOUT THE CARRIER’S PERMISSION (New Jersey Federal)

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This case involved one named insured and two additional insureds under a single policy. All three were sued for negligence in a serious personal injury action, and the carrier provided a defense to all three in that action.

The policy limit was $1,000,000.  The underlying plaintiff sought $7,000,000 in the litigation, but agreed to settle for $650,000 for all three insureds. The carrier offered $250,000 to settle for all three of its insureds. Plaintiff did not respond to that offer.

The two additional insureds settled on their own, without the carrier, for $350,000.  The case proceeded against the named insured, which was still being defended by the carrier’s appointed defense counsel.  The named insured’s defense successfully focused on blaming the two “empty chair” defendants.

The settling additional insureds brought this action for bad faith breach of contract to recover the $350,000 settlement payment from the carrier. The carrier moved to dismiss the claim, and the court denied that motion.

General Bad Faith Standards

The court observed generally:

  1. Under New Jersey law, an insurer “has a positive fiduciary duty to take the initiative and attempt to negotiate a settlement within the policy coverage.”

  2. An insured has a cause of action against an insurer “whose bad faith in refusing to settle a personal injury action within its policy limits exposed its insured to a jury verdict substantially in excess of the policy limits.”

  3. “Good faith” requires an insurer consider both the insured’s and its own interests “in deciding whether or not to settle the case within the limits of the policy. The [insurer] must weigh the conflicting interests by making its decision to settle or go to trial as if it had full coverage for whatever verdict may be recovered, regardless of policy limits.”

  4. Where the insurer acts in bad faith in not settling, “an insured [is] permitted to [s]ettle the tort claims … and then recover from the insured the amount paid in settlement … up to the policy limits, provided that such sums were reasonable and were paid in good faith.”

Insureds Taking Settlement into Their Own Hands, and Bad Faith

Applying these principles, the court denied the insurer’s motion to dismiss.

The court first rejected the argument that the insured had breached the duty to cooperate by settling without the insurer’s permission. It observed, “where the insurer first violates its own contractual obligation to consider, in good faith, the insured’s interests in settlement, the insurer forfeits the right to control the settlement.” Under those circumstances, an insured “may ‘proceed to make a prudent good faith settlement,’ then ‘upon proof of the breach of the insurer’s obligation and the reasonableness and good faith of the settlement made … [the insured may] recover the amount [paid],’ up to the policy limit.”

Thus, the issue became whether the insured adequately pleaded the insurer’s bad faith failure to settle within policy limits.

Case does not have to be Tried to Verdict to Raise a Bad Faith Claim

The court rejected the argument that a case had to be tried to verdict before a bad faith claim could be pursued. Rather, the insured only has to plead it was exposed to a potential excess verdict. In this case, the insured adequately pleaded the potential liability exceeded the $1,000,000 policy limits.

The Factual Allegations are Adequate to State a Bad Faith Claim

The court also found plaintiff alleged sufficient facts “to raise a right to relief above the speculative level.” The complaint alleged a potential multi-million dollar exposure; that the $250,000 offer did “not reflect a good faith effort to consider the insureds’ interests, and instead was a self-interested calculation that trial was worth the risk, given its own exposure was limited to $1 million”; the insurer’s “refusal to appropriately consider settlement forced [the insureds] to independently settle, leaving [the named insured], represented by [the carrier]-paid and directed attorneys, the sole defendant at trial.”

As to this last averment, that the carrier controlled the defense of one insured while the additional insureds were effectively defenseless before the jury, “[t]his allegedly allowed [the insurer] to use the ultimately successful strategy at trial of placing total fault on the ‘empty chairs’….” The additional insureds alleged bad faith maneuvering in how defense counsel purportedly manipulated the jury verdict form to omit the additional insureds from allocation of fault. The additional insureds alleged that this conflicted with the carrier’s trial strategy of blaming the empty chairs, and reflected a post hoc effort to justify the insurer’s failure to engage in settlement.

The carrier’s response went primarily to the facts, which functionally undermined its argument at the motion to dismiss stage. For example, the insurer argued its $250,000 offer was meaningful, and that there were significant liability questions on which the case could be defended. At the pleading stage, however, the court had to take the insured’s facts as true, and draw all reasonable inferences from the insured’s facts as pleaded, while discounting the insurer’s facts that included matters outside the complaint.

Date of Decision: October 15, 2020

Brightview Enterprise Solutions, LLC v. Farm Family Cas. Ins. Co., U.S. District Court District of New Jersey No. 20-CV-7915 SDW/LDW, 2020 WL 6074474 (D.N.J. Oct. 15, 2020)

BAD FAITH CLAIM DISMISSED FOR CONCLUSORY PLEADINGS; COURT REFUSES TO ALLOW AMENDMENT TO JOIN PARTIES THAT WOULD HAVE DESTROYED DIVERSITY (Western District)

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This UIM case was removed to federal court, and the insured moved to remand this procedurally complex matter.  The carrier opposed remand and moved to dismiss the insureds’ bad faith claims.

Court rejects amended complaint adding new parties that would destroy diversity

The plaintiffs’ initial UIM suit was against non-diverse defendants and the case was removed to federal court. After removal, the plaintiffs filed an Amended Complaint adding non-diverse parties from a separate auto accident. They moved to remand for lack of jurisdiction.  The court refused to allow the joinder and retained jurisdiction, per 28 U.S.C. sec. 1447(e).

The court observed there was no Third Circuit precedent on section 1447(e), and like other district courts in this Circuit, the court followed the Fifth Circuit in applying a four-factor test to scrutinize remand motions under these circumstances. This balance of equities test adds heightened standards for allowing amendment that would destroy diversity. (The factors to be considered include “[1] the extent to which the purpose of the amendment is to defeat federal jurisdiction, [2] whether plaintiff has been dilatory in asking for amendment, [3] whether plaintiff will be significantly injured if amendment is not allowed, and [4] any other factors bearing on the equities.”).

Bad faith claims dismissed for pleading conclusory allegations

Having retained jurisdiction, the court then addressed the insured’s breach of contract and bad faith claims.

The insureds never allege “the amount of liability insurance available to the tortfeasors for the accident, the status of her claim against the insured, and they do not aver whether the liability limits of the tortfeasor’s coverage has been exhausted.” Thus, the insurer argued the UIM claim was not ripe. The insurer also argued the insureds never set out “the nature of [the] injuries, damages, or specific conduct in support of the statutory bad faith claim.”

The court found both the breach of contract and bad faith claims consisted “only of conclusory and boilerplate statements … and therefore, the motion to dismiss these claims will be granted.” It was significant to the court that plaintiffs did not attach the policy. Plaintiffs claimed they could not locate the policy, and as the court allowed amendment it encouraged the parties to work together expeditiously to get plaintiffs a copy of the policy.

More significantly, the plaintiffs did not plead any specific facts about the carrier’s conduct. The “merely alleged legal conclusions, and because the legal conclusions pled in the [amended complaint] are not facts, they are not assumed to be true and do not meet the Twombly/Iqbal standard.”

Date of Decision: October 9, 2020

Pierchalski v. Pryor, U.S. District Court Western District of Pennsylvania No. 2:19-CV-01352-RJC, 2020 WL 5994981 (W.D. Pa. Oct. 9, 2020) (Colville, J.)

Over One Million Dollars Awarded in Bad Faith Damages (Lehigh Common Pleas)

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The excellent Tort Talk Blog posted today on Judge Melissa T. Pavlack’s bad faith ruling in Unterberg v. Mercury Insurance Company. Judge Pavlack awarded $900,000 in punitive damages and $186,879.50 in attorneys’ fees, interest of $7,427.39, and costs of $3,595.35.  The underlying damages for breach of contract were $21,220.48. Thus, the total compensatory damages were $219,122.72, and punitive damages were based on this figure.

Our thanks to Tort Talk’s Daniel Cummins, Esquire for posting a summary of this case, and attaching a copy of Judge Pavlack’s opinion with her detailed reasoning.