TWO SHORT EASTERN DISTRICT SUMMARIES: TAKING CONTRARY POSITIONS IN SUBROGATION AND UIM CLAIMS NOT BAD FAITH; ESTATE HAS STANDING TO PURSUE BAD FAITH CLAIM (Philadelphia Federal)

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Here are quick summaries of two recent Pennsylvania Eastern District bad faith cases.

TAKING CONTRARY POSITIONS IN SUBROGATION AND UNINSURED MOTORIST CASES ON INSURED’S CULPABILITY NOT BAD FAITH PER SE

The carrier denied the insured’s uninsured motorist claim on the basis that the insured was at fault.  However, the carrier brought a property damage subrogation action against the other driver, claiming the other driver was solely at fault.

The insured brought breach of contract and bad faith claims on the basis the carrier admitted or conceded via the subrogation action that the other driver was wholly at fault, and could not now argue its insured was at fault. The insured moved for summary judgment on this basis.  Eastern District Judge Younge denied the motion.

Judge Younge rejected the idea that either judicial estoppel or collateral estoppel applied to bind the carrier to its legal assertions in the subrogation action.  Absent their application, he found summary judgment inappropriate as the insured had not met the clear and convincing evidence standard of proof for bad faith.

Finally, Judge Younge rejected the argument that the carrier breached its contract or acted in bad faith by not making a partial payment. “Plaintiff also failed to establish that he is entitled to an advance of proceeds under policy provisions. Under Pennsylvania law, the Court is not aware of any duty on the part of an insurer to make a partial payment on a UIM claim in the absence of a contractual provision requiring a partial payment or an agreement between the parties as to the value of a UIM claim.”

Date of Decision:  June 29, 2021

Marrone v. Geico Insurance Company, U.S. District Court Eastern District of Pennsylvania No. 20-CV-4405-JMY, 2021 WL 2681388 (E.D. Pa. June 29, 2021) (Younge, J.)

ESTATE HAS STANDING TO PURSUE LIFE INSURANCE BAD FAITH CLAIM

In this life insurance bad faith case, Eastern District Judge Surrick held that the estate has standing to bring the bad faith claim, even though the decedent was not a beneficiary.

Date of Decision:  July 6, 2021

Hudson v. Columbia Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5252, 2021 WL 2823074 (E.D. Pa. July 6, 2021) (Surrick, J.)

NO COVID-19 LOSS COVERAGE DUE, NO COMMON LAW BAD FAITH POSSIBLE (Philadelphia Federal)

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The court found no coverage due for the insured’s business interruption losses resulting from the Covid-19 pandemic.  For those interested in the court’s reasoning on this hotly litigated issue, the opinion can be found here. Today, we limit ourselves to insurance bad faith law issues only.

The insured did not pursue a statutory bad faith claim, but only a common law claim for breach of the duty of good faith and fair dealing.  Having found no coverage due, Judge Gallagher, rejected the common law bad faith claim, stating:

‘[T]o recover under a claim of bad faith,’ the insured must show that the insurer ‘did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.’ ” Amica Mut. Ins. Co. v. Fogel, … (quoting Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994)); see also Treadways LLC v. Travelers Indem. Co., 467 F. App’x 143, 147 (3d Cir. 2012) (“Though we have held that bad faith may be found in circumstances other than an insured’s refusal to pay, ‘[a] reasonable basis is all that is required to defeat a claim of bad faith.’ ” (quoting J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004))).

“Pennsylvania courts have held that if the insurer properly denied a claim, the policyholder is unable to state a bad faith claim.” Kahn, … (citing Cresswell v. Pa. Nat’l Cas. Ins. Co., 820 A.2d 172, 179 (Pa. Super. Ct. 2003)). AGLIC properly denied Boscov’s insurance claims, so it did not act in bad faith. AGLIC’s alleged “failure to investigate” the matter also does not amount to bad faith. … Simply put, there was “nothing to investigate: coverage d[id] not exist on the face of [Boscov’s] claim[s].” Clear Hearing Sols., LLC v. Cont’l Cas. Co., … (rejecting bad faith claim premised on insurer’s denial of insurance coverage “without conducting any investigation”); Ultimate Hearing Sols. II, LLC v. Twin City Fire Ins. Co., … (same).

Date of Decision:  June 30, 2021

Boscov’s Department Store, Inc. v. American Guarantee and Liability Insurance Co., No. 5:20-CV-03672-JMG, 2021 WL 2681591 (E.D. Pa. June 30, 2021) (Gallagher, J.)

ASSIGNEE LACKS STANDING IF NOT THE INJURED PARTY; BAD FAITH BASED ON LACK OF COMMUNICATION POSSIBLE; 9-10 MONTH DELAY ALONE CANNOT CREATE BAD FAITH (Philadelphia Federal)

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This first party fire loss case sets out some significant legal propositions:

  1. A plaintiff has no standing as a section 8371 assignee unless that plaintiff is both (a) a party injured by the insured and (b) a judgment creditor of the insured. In this case, the plaintiff lacked standing because he did not meet those two requirements.

  2. A bad faith claim can be based on the insurer’s failure to communicate with the insured. As we have repeatedly stated on this blog, see for example this January 2020 post and this August 2020 post, it is questionable whether a failure to communicate, or any other standalone claim handling failure, can be the basis for an independently cognizable bad faith claim; or whether poor claim handling is merely a matter of evidence that can be used to prove bad faith where a benefit actually has been denied.  This post from April 2021 has additional discussion on the issue of whether bad faith can exist if no coverage obligation is due, i.e., it addresses the idea that poor claims handling cannot create a statutory bad faith claim in the absence of any actual denial of benefits.

  1. Delay, standing alone, may not constitute bad faith. The court, as a matter of law, citing earlier case examples, found a 9-10 month claim handling delay in itself could not constitute bad faith. Thus, the court states: “Assuming arguendo that the entirety of this delay was attributable to [the insurer], a period of nine or ten months, without more, is insufficient to establish bad faith.”

Date of Decision:  June 29, 2021

Williams v. State Farm, No. 5:21-CV-00058, 2021 WL 2661615 (E.D. Pa. June 29, 2021) (Leeson, J.)

BAD FAITH CLAIMS STATED FOR (1) INVESTIGATION NOT WARRANTING COVERAGE DENIAL AND (2) REPORTING INSURED TO COUNTY PROSECUTORS UNDER INSURANCE FRAUD PREVENTION ACT (New Jersey Federal)

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The carrier denied long-term health benefits to the insured, based on its investigation that revealed two facts indicating the insured was not as incapacitated as claimed.  The carrier additionally pursued insurance fraud claims with county prosecutors, who presented those fraud claims to a grand jury.  The grand jury dismissed the bill the same day the claims were presented.  The insured sued for coverage, bad faith, and violation of the Consumer Fraud Act (CFA).

The carrier moved to dismiss all claims.

First, the court found a breach of contract claim pleaded. The court then addressed bad faith, and allowed those claims to proceed.

Plaintiff argued two bases for bad faith: (1) knowing or reckless coverage denial after an improper investigation; and (2) reporting the insured to the county prosecutor for alleged violation of New Jersey’s Insurance Fraud Prevention Act (IFPA).

As to the bad faith investigation claim, the court emphasized it was bound by the pleadings at the motion to dismiss stage. While conceptually possible to rule on bad faith at that stage, the “fairly debatable” standard for bad faith often precludes granting a motion to dismiss because it must be determined whether there are disputes of material facts making the coverage denial fairly debatable.  This is more suited to determination at the summary judgment stage.

Here, the court looked at the facts alleged, and found that the insurer relied on two facts in denying coverage.  These two facts, however, did not create a fairly debatable reason for denying coverage.  Rather, standing alone, the denial on these facts alone could support a finding of bad faith.  Moreover, that the county prosecutor decided to bring those facts to a grand jury in pursuing an insurance fraud criminal claim did not create a fairly debatable basis to deny coverage; especially when the grand jury rejected those charges the same day they were presented.

The court likewise found a bad faith claim stated for the act of bringing the alleged IFPA violation to the county prosecutors. Having already held that plaintiffs adequately alleged the insurer did not have a good faith basis to deny benefits, this necessarily lead to the conclusion that the insurer “similarly did not have a good faith basis to report Plaintiffs for insurance fraud based on that claim.”

Finally, the court did dismiss plaintiffs’ Consumer Fraud Act claim based upon denial of insurance coverage, as beyond the CFA’s scope.  However, the court did permit the CFA claim to proceed for the insurer’s making an insurance fraud claim to the county prosecutors.

Date of Decision:  June 21, 2021

Spina v. Metropolitan Life Insurance Company, U. S. District Court District of New Jersey No. 1:20CV14129NLHKMW, 2021 WL 2525713 (D.N.J. June 21, 2021) (Hillman, J.)

NEW JERSEY FEDERAL COURT SEVERS AND STAYS BAD FAITH CLAIM (New Jersey Federal)

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New Jersey Magistrate Judge Edward Kiehl recently severed and stay a bad faith claim, from the underlying coverage claim.

Quoting precedent, he applied the following principles:

  1. ““Given that the ‘fairly debatable’ standard necessitates a ruling on coverage prior to the adjudication of a bad faith claim, … it is ‘[n]o surprise, then, that severance and stay of bad faith claims has been called the ‘prevailing practice’ in both the state and federal courts of New Jersey.’”

  2. Whereas “‘breach of insurance contract claims concern policy coverage[,]’” claims for bad faith “‘concern the insurer’s general claims handling procedures, its claims conduct in the case at issue, and its knowledge and state of mind about the grounds for denial of coverage.’”

  3. “Because discovery on a bad faith claim would be rendered needless if the insurer prevails on the coverage claim, ‘proof [that] an insured is entitled to coverage as a matter of law is a necessary prerequisite to pursuing discovery regarding a bad faith claim.’”

  4. In other words, “the insured who alleges bad faith by the insurer must establish the merits of his or her claim for benefits.”

Magistrate Judge Kiehl’s detailed Rule 21 four-factor analysis, as applied to the facts, can be found in his opinion, linked here.

Date of Decision:  June 29, 2021

AIG Specialty Insurance Company v. Thermo Fisher Scientific, Inc., No. 20-CV-13046-CCC-ESK, 2021 WL 2680013 (D.N.J. June 29, 2021) (Kiehl, M.J.)

BAD FAITH NOT POSSIBLE WHERE NO COVERAGE DUE; INSURER CANNOT WAIVE POLICY EXCLUSION BY IMPLICATION (Western District)

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In this case, the court found no coverage due.  In addressing whether the insured could still pursue a statutory bad faith claim, Magistrate Judge Eddy states:

In Pennsylvania, the law is clear that a bad faith claim fails where a court concludes there is no potential coverage under the policy. See USX Corp. v. Liberty Mut. Ins. Co., 444 F.3d 192, 202 (3d Cir. 2006) (granting “summary judgment in favor of Liberty Mutual on [bad faith] claim because USX’s bad faith claim necessarily fails in light of [the court’s] determination that Liberty Mutual correctly concluded that there was no potential coverage under the policy”). Thus, because this Court concludes that there is no coverage for [the injured party’s] claim [against the insured] under any of the three policies at issue, the bad faith claims … fail.

The Court also rejected the notion that the carrier could be estopped from denying coverage because it did not issue a reservation of rights letter, and waived policy exclusion by not pleading them.  Magistrate Judge Eddy rejected this argument, observing:

As the Superior Court of Pennsylvania has noted, [t]he rule is well established that conditions going to the coverage or scope of a policy of insurance may not be waived by implication from the conduct or action of the insurer….

Of equal importance, the Superior Court has held that [t]he doctrine of implied waiver is not available to bring within the coverage of an insurance policy, risks that are expressly excluded therefrom. In Pennsylvania, the doctrine of waiver or estoppel cannot create coverage where none existed. Thus, the doctrine of estoppel may not be used to affirmatively expand coverage under the insurance policies where none existed.

Date of Decision:  June 15, 2021

Stevanna Towing, Inc. v. Atlantic Specialty Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:15-CV-01419-CRE, 2021 WL 2434589 (W.D. Pa. June 15, 2021) (Eddy, M.J.)

COVERAGE DUE, BUT NO BAD FAITH WHERE (1) REASONABLE INVESTIGATION AND (2) REASONABLY DEBATABLE BASIS TO DECLINE COVERAGE (Philadelphia Federal)

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The case centered on a dispute over whether the plaintiff had an insurable interest in its tenant’s property improvements.  The carrier denied coverage for damage to those improvements, asserting the policy did not cover tenant improvements.  The insured sued for breach of contract and bad faith.

The court found the policy did provide coverage, and ruled for the insured on its breach of contract claim.

On bad faith, the insured alleged the insurer both failed to investigate and that it unreasonably denied coverage.  Magistrate Judge Rice disagreed, finding the insured “lacks clear and convincing evidence that [the insurer] investigated and handled the claim in bad faith or denied coverage without a reasonable basis.”

First, a seven-month delay in the claim handling process was reasonable in light of the insurer’s very detailed and active investigation into the claim.

Second, even though the insurer incorrectly denied coverage, “[b]ecause Pennsylvania courts have held that insurable interest is generally decided by the jury … and there was testimony … contradicting [the insured’] expectation of benefit from the improvements, [the insurer] had sufficient reasonable basis to support its coverage decision.” The court’s own “analysis demonstrates … the existence of an insurable interest as a matter of law is a close question subject to reasonable debate.”

Date of Decision:  June 11, 2021

Greentree Properties Corp. v. Aspen Specialty Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-4646, 2021 WL 2400727 (E.D. Pa. June 11, 2021) (Rice, M.J.)

BAD FAITH BLOG CELEBRATES 15TH ANNIVERSARY

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It has been 15 years since we started this blog, focusing on insurance bad faith law in Pennsylvania and New Jersey.  Our simple goal has been to report on court opinions as we locate them, and report on all the cases we find.

We rarely editorialize, with the notable exception concerning whether Pennsylvania permits a statutory bad faith claim to proceed where no benefit has been denied.

I have been the chief author of this blog since its inception, but wanted to give a special thanks to Jay Barry Harris for inspiring me to create the blog and pursue the effort for all these years.  As many of you know, Jay was a superb lawyer, and even better human being, who tragically passed away in 2016.  Rest in peace my friend.

Lee Applebaum,

Fineman, Krekstein & Harris, P.C.

“SPARSE” FACTUAL ALLEGATIONS ENOUGH TO “NUDGE” CLAIM “ACROSS THE LINE FROM CONCEIVABLE TO PLAUSIBLE” (Middle District)

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For the second time in a week, Middle District Judge Mariani denied an insurer’s motion to dismiss a bad faith claim.  Judge Mariani’s June 3, 2021 decision in Signature Building Systems v. Motorist Mutual is summarized here.

This is a breach of contract and bad faith underinsured motorist action.  The complaint alleged the following.

The insured suffered significant injuries requiring ongoing treatment.  The tortfeasor had $15,000 in coverage, but the insured’s UIM limit on her own policy was $250,000.  The insured pursued underinsured motorist coverage against her carrier.

The insured “fully complied with all terms, conditions, and duties imposed upon her by her Auto Policy.” She “’continually’ provided medical records and reports to Defendant, ‘outlining her injuries, special damages, medical expenses, as well as evidencing her physical pain and suffering’ and has cooperated with Defendant ‘in every way throughout the life of her claims.’”

The insured made the following bad faith allegations:

  1. Failing to properly investigate [the] claim upon notification of same;

  2. Refusing to pay [the] claims without conducting a reasonable investigation based upon all available information;

  3. Failing to promptly and objectively evaluate [the] claims;

  4. Unreasonably delaying the objective and fair evaluation of [the] claim;

  5. Causing unreasonably [sic] delay in all aspects of the handling of [the] claim;

  6. Dilatory and abusive claims handling;

  7. Conducting an unfair, unreasonable and dilatory investigation of [the] claims;

  8. Failing to act in good faith to effectuate prompt, fair, and equitable settlement of [the] claim;

  9. Ignoring competent and overwhelming medical evidence substantiating [the insured’s] injuries and resulting disability;

  10. Ignoring competent and overwhelming medical evidence that injuries the [insured] sustained in the subject motor vehicle have not resolved.

The carrier moved to dismiss the bad faith claim, arguing the foregoing was mere boilerplate that did not meet federal plausible pleading standards.  Judge Mariani disagreed.

First he has no problem in finding the complaint sets out an underinsured motorist coverage claim, and the insured fully complied with the policy and her duties in cooperating with the insurer by “continually” providing medical records that laid out the details of her injuries.

Next, Judge Mariani finds the complaint alleges that despite the insured’s compliance, “Defendant failed to properly investigate her claim, refused to pay her but did not conduct a reasonable investigation, and failed to promptly and objectively evaluate her claim but instead delayed evaluating her claim. Plaintiff further alleges that Defendant’s investigation of her claim was ‘unfair, unreasonable and dilatory’ and that Defendant ignored the medical evidence substantiating her injuries and resulting disability.”

This was enough to state a plausible claim. Although the complaint was “sparse with respect to the bad faith claim, the Complaint contains sufficient well-pleaded factual allegations to ‘nudge[ ]’ Plaintiffs’ claim ‘across the line from conceivable to plausible….” [Note: Judge Mariani quotes this same language in his March 2021 Chuplis decision, summarized here.]

For anyone pleading a bad faith claim, or seeking to dismiss such a claim, it is worthwhile to compare this opinion with Judge Pratter’s Brown opinion, summarized yesterday, or the myriad other cases finding the pleading either lacked, or reached, plausibility.

Date of Decision:  June 10, 2021

Dougherty v. American States Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-2166, 2021 WL 2383229 (M.D. Pa. June 10, 2021) (Mariani, J.)

NO BAD FAITH BASED ON DELAY OR “LOW-BALL” OFFER; POLICY LIMIT IS NOT THE DE FACTO VALUE OF A CLAIM (Philadelphia Federal)

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Eastern District Judge Pratter provides a clear discussion on allegations of delay and valuation that do not make out a bad faith claim.

This underinsured motorist coverage breach of contract and bad faith case focused on a dispute over whether the insured was entitled to stacked benefits.  The insured had waived stacking, but asserted that the insurer’s failure to send new waiver forms when she added additional vehicles negated that waiver.  She pleaded serious personal injuries, and that the insurer only offered $4,500 on the claim.

First, Judge Pratter found the insured failed to plead a plausible claim for bad faith delay.  “Although this complaint alleges the accident took place in January 2020, it does not allege when [the insured] noticed her intent to seek UIM coverage or when [the insurer] transmitted its offer. So, the complaint fails to plead the length of the alleged delay, let alone whether it was unreasonable.”

There were no allegations the insured made a timely demand or that the insurer failed to investigate or conducted an unreasonable investigation. At best, the insured’s argument was that the insured offered $4,500, and when compared to her alleged injuries, this was facially unreasonable.  Judge Pratter did not accept this argument, observing that “the pleadings must provide sufficient allegations from which the Court can plausibly infer that [the insurer] knew or recklessly disregarded a lack of a reasonable basis to deny benefits.”

The complaint revealed “a “’normal dispute between an insured and insurer over the value of a UIM claim’ which is itself predicated on a dispute over [the insured’s] entitlement to stacked coverage limits.” Judge Pratter describes the coverage disagreement as a “live dispute that motivates both the declaratory judgment and breach of contract claims. An insurer’s refusal to pay the policy limit when it disputes that the insured is entitled to any such coverage at all is not evidence of unreasonable conduct that would support a bad faith claim.”

Finally, on bad faith, Judge Patter states that a “low-ball” offer by itself is not necessarily bad faith.  “The complaint contains no allegations that [the insured] submitted documentation of the extent of her injuries to support her position such that she is entitled to the policy limit. A policy limit is just that—the ultimate maximum that an insured could theoretically recover. It is not the de facto value of a claim.”

Judge Pratter did give leave to amend the bad faith claim, but only if the insured could plead within the parameters set out in the Court’s opinion.

Date of Decision:  June 7, 2021

Brown v. LM General Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 21-2134, 2021 WL 2333626 (E.D. Pa. June 7, 2021) (Pratter, J.)