COMPLAINT ALLEGES SUFFICIENTLY DETAILED CHRONOLOGY OF FACTS TO SUPPORT PLAUSIBLE BAD FAITH CLAIM (Middle District)

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The UIM plaintiff brought breach of contract and statutory bad faith claims. The insurer moved to dismiss the bad faith claim.

The complaint sets out 28 paragraphs with factual allegations.  In his decision, Magistrate Judge Carlson recites 15 of those paragraphs verbatim, along with one lengthy paragraph including a litany of conclusory bad faith allegations.

In addressing the motion on the merits, Magistrate Judge Carlson describes the means to measure the adequacy of a complaint’s factual allegations in determining whether a plaintiff makes out a plausible claim:

In practice, consideration of the legal sufficiency of a complaint entails a three-step analysis: “First, the court must ‘tak[e] note of the elements a plaintiff must plead to state a claim.’ … Second, the court should identify allegations that, ‘because they are no more than conclusions, are not entitled to the assumption of truth.’ … Finally, ‘where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.’”

Assessing the complaint requires examining “the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss.” “Where a complaint’s § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was ‘unreasonable’ or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims.” On the other hand, “when a complaint couples general allegations of bad faith with well-pleaded assertions of unreasonable delay, unreasonable claims processing, and failures to communicate, a complaint adequately states a claim under § 8371 and is not subject to dismissal on the pleadings alone.”

In this “somewhat close case,” while one paragraph simply included a litany of conclusory bad faith allegations, “the complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute.” It provides a chronology detailing the insurer’s alleged “failure to honor this underinsured motorist claim….”

“First, the plaintiff alleges that: “On countless occasions since Plaintiff[’]s underinsured motorist claim has been established, Plaintiff provided … medical records and reports concerning her injuries, condition, treatment, prognosis and recommended treatment plan.” “According to [the insured], this ‘documentation provided to [the insurer] clearly establishes Plaintiff continues to suffer from severe injuries, including but not limited to, complex regional pain syndrome.’”

The insured describes “months of indifference, delay, and failure to investigate … stating that: On June 27, 2019, a formal written demand for available policy limit was mailed to [the insurer]. On July 18, 2019, a [carrier] representative … confirmed via telephone he had received the aforementioned demand package. On September 6, 2019, [that representative] admitted he had not reviewed the demand package, but would make a formal settlement offer by September 17, 2019. On November 5, 2019, [plaintiff’s counsel] provided [that representative] with notice of our arbitrator (as is customary with automobile insurance policies in the Commonwealth of Pennsylvania) and requested [the insurer] provide notice of their arbitrator. [Plaintiff’s counsel] followed-up via certified letter dated November 12, 2019 which was received by [the insurer] on November 18, 2019.”

The insured adds “this course of conduct continued for many months, until February of 2020 when [the insurer] made an offer which … ‘does not fairly compensate Plaintiff for the injuries she has sustained’ and ‘has forced her to file litigation pursuant to the policy, in an effort to further delay payment of underinsured motorist benefits under the policy to which Plaintiff is rightly owed.’”

Magistrate Judge Carlson concludes, “these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim.” “Moreover, fairly construed, the complaint alleges failures … to communicate and timely investigate this claim, coupled with allegations of unreasonable delay in claims processing and payment…. Such allegations as a matter of law are sufficient to state a bad faith claim under Pennsylvania law.”

Dates of Decision: July 27, 2020 (Report and Recommendation) and September 11, 2020 (Order adopting Report and Recommendation)

Yohn v. Selective Insurance Co. of America, U.S. District Court Middle District of Pennsylvania Civil No. 3:20-CV-565, 2020 U.S. Dist. LEXIS 133635 (M.D. Pa. July 27, 2020) (Carlson, M.J.) (Report and Recommendation), and District Court Order adopting Report and Recommendation (Sept. 11, 2020) (Mariani, J.)

NEW JERSEY BAD FAITH CLAIM FAILS AS TO BOTH DENIAL AND CLAIM HANDLING DELAY (New Jersey Federal)

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The insured successfully defeated a summary judgment motion on the issue of coverage, but lost on bad faith.

The policy excluded coverage for burst radiator pipes unless the insured took reasonable steps to maintain heat at the property to avoid the problem. Here, the 76-year old insured temporarily moved from his home so family could take care of him after double knee surgery. The record showed a detailed history of the insured’s considerable efforts to maintain heating in his absence, and a somewhat unpredictable set of circumstances leading to the local utility turning off his heat for a short time, which unfortunately led to burst pipes and flood damage in the home.

The record showed a jury could find the insured had taken reasonable steps to maintain the heat, and denied the insurer’s summary judgment motion seeking a ruling that no coverage was due.  Thus, the breach of contract claim proceeded.

However, the court did grant the insurer’s motion on bad faith under the fairly debatable standard.

The court first observed New Jersey recognizes two forms of bad faith, either in denying or processing claims. As to the latter, processing focuses on delay in claim handling.

These two types of bad faith claims are subject to “’essentially the same’ test under New Jersey law, namely, the ‘fairly debatable’ standard.” “A bad faith denial claim succeeds when ‘no debatable reasons existed for denial of the benefits.’” “For a processing claim, bad faith is established when there is ‘no valid reason to delay and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.’” Merely mishandling a claim, however, is insufficient; rather there must be “knowledge that no reason [for denying the claim] existed’”.

In this case, the insured first argued bad faith denial. The court rejected that claim, observing:

“The policy at issue specifically precludes coverage for damage resulting from frozen pipes unless the insured maintained heat or shut off the water. Plaintiff admits to not shutting off the water. Moreover, the interruption of gas service to the house did result in heat not being maintained. Plaintiff left his house unattended for over a year, with no one checking in on the property, and the gas bills did show no gas usage, even though the bills also charged Plaintiff every month. Thus, while the question of reasonable care will be submitted to the jury, a reasonable factfinder could only find on this record that coverage was, indeed, fairly debatable.”

On the delay in processing theory, “Plaintiff claims that Defendants impermissibly focused on ‘the result’ rather than the ‘reasonable care’ exercised to ensure the house was heated. … However, bad faith process claims are typically grounded in an excessive delay, not the nature of the process itself … and it is undisputed that Defendants promptly responded to and investigated the claim. Indeed, the record shows that an investigation took place within days of the loss, and a final determination was issued exactly one month after the discovery of the loss.”

Date of Decision: September 2, 2020

Titley v. Hanover Insurance Company, U.S. District Court District of New Jersey No. 1:18-CV-13388 (RMB), 2020 WL 5229387 (D.N.J. Sept. 2, 2020) (Bumb, J.)

NEW JERSEY COURT DISMISSES BREACH OF CONTRACT, BAD FAITH, FRAUD, AND UNFAIR CLAIM SETTLEMENT PRACTICES ACT COUNTS WITHOUT PREJUDICE, AND GIVES AN OPPORTUNITY TO AMEND (New Jersey Federal)

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A pro se plaintiff brought a barrage of claims against its commercial general liability insurer, among others. He alleges water damage to the insured’s work on a retaining wall the insured was engaged to build. However, there was no third party claim for damages against the insured relating to water damaged wall. The insurer denied the claim, i.e., a claim for damages to a wall built for a third party on which the third party asserted no claim.

First, the court found there was no breach of contract, and dismissed a number of counts on those grounds. However, dismissal was without prejudice and plaintiff could amend if it he could plead specific facts showing a breach.

Next, the court dismissed counts alleging violations of New Jersey’s Unfair Claim Settlement Practices Act (UCSPA). The court stated the “UCSPA does not apply to general liability and property insurance.” Thus, “[b]ecause the Policy is a general liability policy … and not a life or health insurance policy or annuity, the UCSPA Counts … are dismissed without prejudice.” The court specifically declined to address the argument that there is no UCSPA private right of action, saying the law was unclear on that point. The court gave leave to amend, but the plaintiff “must provide additional factual allegations detailing how the Policy falls under the UCSPA.”

Third, plaintiff asserted bad faith claims based upon an inadequate investigation. The court recited New Jersey’s bad faith standards:

  1. “To state a claim for bad faith denial of insurance coverage, Plaintiff must show: (1) the insurer lacked a reasonable basis for its denying benefits, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”

  2. Bad faith claims should be “analyzed in light of a ‘fairly debatable’ standard, which posits that ‘[i]f a claim is “fairly debatable,” no liability in tort will arise.’”

  3. “[T]o establish a first-party bad faith claim for denial of benefits in New Jersey, a plaintiff must show ‘that no debatable reasons existed for denial of the benefits.’”

  4. “Thus, when the insured’s complaint presents issues of material fact as to the underlying claim, dismissal of a related bad faith claim is proper.”

The court found no bad faith claim stated because the plaintiff did not “allege that Defendants lacked a fairly debatable reason for its denial of coverage. Rather, the Policy illustrates that Defendants did possess a reasonable basis for its denying benefits.” Again, however, the bad faith claims were dismissed without prejudice, with leave to amend given, but only if the plaintiff can provide “additional factual allegations detailing how Defendants lacked a reasonable basis for denying Plaintiff’s insurance claim.”

Lastly, plaintiff alleged fraudulent misrepresentation in the policy’s sale to plaintiff, concerning the scope of coverage. Again, the court dismissed without prejudice, but would only consider amendment proper the plaintiff could plead actual facts supporting a fraud claim.

Date of Decision: August 31, 2020

Gage v. Preferred Contractors Ins. Co., U.S. District Court for the District of New Jersey No. 19-cv-20396 MAS ZNQ, 2020 WL 5107351 (D.N.J. Aug. 31, 2020) (Shipp, J.)

INSURED SUCCESSFULLY PLEADS BAD FAITH CLAIM AFTER ORIGINAL COMPLAINT DISMISSED WITHOUT PREJUDICE (Philadelphia Federal)

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In Lopez v. Selective Insurance Company of South Carolina, Eastern District Judge Schiller dismissed plaintiff’s bad faith claim, without prejudice, for only pleading conclusory allegations.  Our summary of this June 2020 decision can be found here.

Plaintiff took the opportunity to file an amended complaint, and the carrier again moved to dismiss the bad faith claim.  This time around, however, plaintiff defeated the motion to dismiss by alleging specific facts.

Judge Schiller relied on earlier case law for the principle that bad faith claims can stand if the “plaintiff’s factual allegations regarding the insurer’s intent, along with the chronology of events, support[] the inference that the defendant had no reasonable basis for denying the claim and knew or recklessly disregarded that lack of reasonable basis in denying the claim.”

In Lopez, plaintiff alleged the insured suffered a covered property loss and provided timely notice. The loss arose from a heating failure on the property.

Addressing the coverage issue, the complaint avers that under the controlling policy language, the insured only had to take reasonable steps to maintain heat on the property. The insured did so, but the heating system failed despite those reasonable steps.

The complaint further alleges the carrier initially took the position that it would cover a portion of the loss. Moreover, the carrier’s representative confirmed that the insured had taken reasonable steps to maintain heat at the property.  Once the carrier realized the size of the loss, however, the complaint alleges the insurer retreated from its original position that a portion of the loss was covered.

Judge Schiller found the specific facts pleaded “would suggest” the carrier both “lacked a reasonable basis for denying the claim; and … knew or recklessly disregarded its lack of a reasonable basis for denying the claim.”The complaint “contains specific factual allegations regarding … intent, and it identifies what actions [the insurer] took that were unreasonable.”

More specifically, “[t]he allegation that Defendant acted in bad faith ‘by unreasonably claiming that heat was not maintained when the policy does not require that heat be maintained, but simply that reasonable steps to maintain heat be taken, all with the intent to deceive Plaintiff about what the policy requires and deny coverage’ is not conclusory.” Likewise, the allegation that the insurer accepted coverage and agreed to pay a portion of the loss, only changing its position when discovering the loss’s magnitude, is not conclusory. It was also significant that the insurer’s representative allegedly conceded that the insured took reasonable steps to maintain the heat.

Thus, “[t]hese specific allegations allow the Court to infer what [the insurer] did, why it was unreasonable, and how [the insurer] knew or should have known it was unreasonable.” [Judge Schiller’s emphases]  In sum, “[b]y accepting these allegations as true, the Court can reasonably infer that [the insurer] knew Plaintiff’s claim was covered under the policy, indicated the claim would be covered, and then, once all of the damage was assessed, denied the claim because it was too expensive. Thus, Plaintiff’s Amended Complaint is well pleaded and survives a motion to dismiss.”

Date of Decision:  August 31, 2020

Lopez v. Selective Insurance Co. of South Carolina, U.S. District Court Eastern District of Pennsylvania No. CV 20-1260, 2020 WL 5121281 (E.D. Pa. Aug. 31, 2020) (Schiller, J.)

How has Covid-19 affected the number of bad faith opinions issued?

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From April through August 2020, we’ve posted 51 times on the Bad Faith Blog. Subtracting four posts during that time focusing solely on covid-19 issues without mentioning bad faith, there are 47 posts over this five month period.  During the same five month time-period in 2019, we had 49 posts.  In 2018 it was 54 posts, and in 2017 it was 55 posts.  In short, as of yet, we have not seen a significant decline in opinion writing on bad faith insurance claims during the Covid-19 pandemic.

We also note that the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog reached 1,700 posts this month, since our first post in June 2006.

ARE THERE MANY KINDS OF STATUTORY BAD FAITH, EVEN WHEN NO COVERAGE IS DUE ? (Western District)

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This statutory bad faith opinion issued out of the Western District of Pennsylvania yesterday.

The court finds no coverage based on a one-year suit limitation provision and/or a policy exclusion. Thus, plaintiffs have no bad faith claim based on denial of coverage, as no coverage is due, and that claim is dismissed with prejudice.

The court expressly finds, however, that there are other forms of statutory bad faith cognizable under 42 Pa.C.S. § 8371, beyond coverage denials.  It identifies a commonly recognized exception that if the contract claim fails for a technical reason, like exceeding a limitation period, the bad faith claim can still proceed.  The court goes beyond this kind of technical exception to recognize further that poor claims handling may be actionable independently, e.g., knowing or recklessly inadequate investigation, even when no benefit is due under the policy.

On this distinct bad faith investigation claim, plaintiffs only plead (1) conclusory allegations, along with (2) a single fact that cannot constitute bad faith standing alone. Thus, the court dismisses the bad faith investigation claim, but without prejudice. Plaintiffs have leave to file an amended complaint on their investigation bad faith claim, even though no coverage is due under the policy.

[Note: As those following this blog know, we have addressed the scope of cognizable claims under section 8371, and raised the question as to whether cognizable claims under section 8371 are limited to cases where first party benefits due have been denied, or where a defense and/or indemnification due have been refused on third party claims.  Our analysis always begins with the 2007 Supreme Court decision in Toy v. Metropolitan Life Insurance Company.  See, e.g., this post, and this article. The present opinion relies, in part, on the Third Circuit’s unpublished decision in Gallatin Fuels. As discussed in the linked article, Gallatin Fuels does not address Toy. We are also attaching a portion of a brief recently filed in a Philadelphia federal court, from attorney Lee Applebaum, as part of a motion that has now become moot.]

Date of Decision:  August 26, 2020

Palek v. State Farm Fire and Casualty Co., U.S. District Court Western District of Pennsylvania No. 20-170 (W.D. Pa. Aug. 26, 2020) (Flowers Conti, J.)

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

THE BERG ODYSSEY HAS ENDED

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After 24 years, 22 in litigation, it appears Berg v. Nationwide finally reached an end yesterday when the Supreme Court, in a split decision, dismissed plaintiffs’ appeal.  To quote:

“PER CURIAM

AND NOW, this 25th day of August, 2020, the Court being divided in a fashion which prevents a majority disposition, the appeal is DISMISSED. The application to file a post-argument submission is DISMISSED as moot.

Justice Donohue did not participate in the consideration or decision of this matter.”

A copy of the Supreme Court’s Per Curiam Order can be found here.

Justice Wecht wrote a 60-page opinion in favor of reversal, a copy of which can be found here.  Justice Saylor wrote a 24-page opinion in favor of affirmance, a copy of which can be found here.

A summary of the Superior Court’s 2018 decision is posted here, and amendment thereto is posted here.  These are now the final rulings in this case.

A summary of Judge Sprecher’s 2014 trial court decision awarding $21,000,000, reversed by the Superior Court in its now final decision, can be found here.

Judge Sprecher’s ruling followed an earlier 2012 Superior Court decision in Berg (44 A.3d 1164), summarized here. This 2012 opinion has proven influential. A quick search shows it being cited over 70 times by courts, and tens of times in secondary materials.  The 2012 Berg opinion was authored by then Superior Court Judge Donohue, who, as Justice Donahue, did not participate in this Supreme Court decision dismissing the appeal.

ASSIGNMENT TO FORMER ATTORNEY NOT PERMITTED; STATE COURT COMPLAINT FAILS TO ALLEGE SUFFICIENT FACTS TO PLEAD BAD FAITH (Superior Court of Pennsylvania) (Not precedential)

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In this non-precedential decision, Pennsylvania’s Superior Court followed federal case law out of the Eastern District, Feingold v. Liberty Mutual, in holding that a client’s bad faith claim could not be assigned to her former attorney. [Note: In Allstate v. Wolfe, Pennsylvania’s Supreme Court did find it possible to assign bad faith claims within certain parameters. The holding in that case identified two proper classes of assignees: “We conclude that the entitlement to assert damages under Section 8371 may be assigned by an insured to an injured plaintiff and judgment creditor….”]

The court also found that “the complaint does not include sufficient factual averments regarding how [the insurer] acted unreasonably and in bad faith. …  the complaint contains ‘either simple reiterations of the standard of proving bad faith or bald allegations that the standard has been breached.’”

This last point is consistent with numerous federal cases finding that adequate pleading must include allegations of fact.

Date of Decision: August 14, 2020

Feingold v. McCormick & Priore PC, Superior Court of Pennsylvania No. 3273 EDA 2019, 2020 WL 4728111 (Pa. Super. Ct. Aug. 14, 2020) (King, Lazarus, Strassburger, JJ.) (Not precedential)

INSURER PUT ON UNREBUTTED EVIDENCE THAT ITS CLAIM DENIAL WAS REASONABLE (Philadelphia Federal)

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In this case, the insurer moved for summary judgment on bad faith, and the insured did not respond to the motion. After a review of the record and legal arguments, the Court granted the insurer’s motion.

The case involved a personal injury. The insurer had an independent medical review performed on the insured’s medical records. The carrier’s doctor concluded that the injuries the insured alleged were not the result of the accident at issue. Rather, those injuries were caused by a prior accident. The carrier argued this alone was sufficient to establish a reasonable basis to deny coverage.

As stated, the insured did not respond to the carrier’s motion, and thus put forward no evidence that the insurer acted in bad faith by failing to consider the relevant medical records. Judge Brody agreed:

“After reviewing [the] motion and evidence, I conclude that [the insurer] has satisfied its summary-judgment burden, shifting the burden to Plaintiff to demonstrate the existence of genuine disputes of material fact that preclude summary judgment. Plaintiff has failed to carry his burden. Despite several chances to do so, Plaintiff never filed any objection to [the] Motion for Partial Summary Judgment. He has not pointed to any evidence that [the insurer] behaved in bad faith, nor has he offered any evidence to refute the evidence [the insurer] offered in support of its motion.”

Date of Decision: August 13, 2020

Dwyer v. Nationwide Property and Casualty Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-2814, 2020 WL 4699047 (E.D. Pa. Aug. 13, 2020) (Brody, J.)

BAD FAITH STATUTE DOES NOT APPLY TO MORTGAGE LENDER

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A homeowner filed counterclaims against his lender in a foreclosure action. The counterclaims included an insurance bad faith claim. The Superior Court affirmed the trial court’s ruling that the bad faith statute only addresses the actions of insurance companies, and this was not such a case.

Date of Decision:  August 7, 2020

Wells Fargo Bank, v. Pilchesky, Superior Court of Pennsylvania No. 1199 MDA 2019, 2020 WL 4558801 (Pa. Super. Ct. Aug. 7, 2020) (McLaughlin, Panella, Stevens, JJ.)