Yearly Archive for 2007
The Superior Court of Pennsylvania recently analyzed the elements necessary to sustain a bad faith claim in Greene v. United Services Automobile Association. In Greene, the plaintiffs sustained property damage to their home allegedly due to a roof leak and a tree which fell onto plaintiffs’ home. The Greenes submitted claims under their homeowner’s policy issued by United Services Automobile Association. The insurer concluded that most of the damages were not covered under the plaintiffs’ policy.
The Greenes subsequently filed a bad faith claim against their insurer due to its claims handling practices. Plaintiffs alleged that the insurer’s investigator failed to respond to correspondence, failed to return telephone calls and waited eight months to issue a reimbursement check. On appeal, Plaintiffs claimed that the trial court misinterpreted the law by requiring evidence of intentional misconduct as a prerequisite to sustaining a bad faith claim.
The Appellate Court began its analysis by stating that to constitute bad faith it is not necessary that an insurer’s conduct be fraudulent. Nevertheless, mere negligence or bad judgment is not sufficient to support a finding of bad faith. The Court stated that to support a bad faith claim, a plaintiff must prove, by clear and convincing evidence, that the insurer “(1) did not have a reasonable basis for denying benefits… and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”
The Court, however, also acknowledged that in previous opinions it had stated that to prove a bad faith claim a party “must show that the insurer breached its duty of good faith through some motive of self-interest or ill-will.” This in turn raised the question as to whether proof of ill-will was an additional element to the two-prong bad faith test.
The Court predicted that the Pennsylvania Supreme Court would rule “consistently with the holdings of the Pennsylvania Superior Court concerning the level of culpability that needs to be associated with a finding of bad faith.” The Court held that although the “motive of self-interest or ill will” level of culpability is not a third element required for a finding of bad faith, it is probative of the second element requiring evidence that the “insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.”
Ultimately, the Appellate Court concluded that United Services Automobile Association did not act with ill-will and affirmed the trial Court’s denial of plaintiffs’ bad faith claim.
Date of Decision: November 20, 2007
Greene v. United Services Auto Assoc., Superior Court of PA, No. 1815, 2007 Pa. Super. LEXIS 3875, 936 A.2d 1178 (Pa. Super. Nov. 20, 2007) (Colville, J.)
J.T.L.
The carrier removed the case on the basis that there was an ERISA based claim and/or diversity. Plaintiff brought a breach of contract and bad faith claim against the carriers based on a denial of disability benefits, and also joined the doctor hired by the carrier to perform an IME, on the basis of conspiracy and/or malpractice (the doctor apparently concluding in his IME that there was no disability – at least one not subject to benefits).
The court found that the matter was not covered by ERISA, and that diversity could only be destroyed if there were a fraudulent joinder of the non-diverse doctor defendant. The court found that “from a fair reading of the complaint, it appears that plaintiff has set forth, in good faith, reasonable bases in fact and colorable claims against [the doctor], and that [the doctor] has not been fraudulently joined in an effort to defeat diversity of citizenship. Thus, complete diversity jurisdiction does not exist.”
The case was remanded.
Date of Decision: November 28, 2007
Marsico v. Unum Group, No. 07-1482, 2007 U.S. Dist. LEXIS 87471 (W.D. Pa. November 28, 2007) (Schwab, J.)
L.A.
The insured claimed that some of its property was lost due to storm damage. A reservation of rights letter was issued promptly after the claim was submitted. The carrier investigated, via an adjusting firm and an independent roof specialist who concluded that the damage was not caused by the storm, but that rain water had gotten into the building because the roof had deteriorated.
On the issue of coverage, the court concluded that there was potentially coverage under the policy, but that the material facts remained in dispute over whether or not there would be coverage; thus, summary judgment was denied both parties on coverage.
The carrier’s motion on summary judgment on the bad faith claim was granted. The court cited to the facts that there was a timely reservation or rights letter; that there was an investigation that the carrier claimed was reasonable and formed the basis for a reasonable and good faith denial of coverage – an argument that was unrefuted; and that the denial was promptly communicated.
The court found that based on the affidavits of the adjustor and roofing specialist and correspondence supporting the foregoing, there was a reasonable basis to deny the claim, and certainly no clear and convincing evidence to the contrary.
Date of Decision: November 21, 2007
Easy Sportswear, Inc. v. American Economy Ins. Co., No. 05-1182, 2007 U.S. Dist. LEXIS 86114 (W.D. Pa. November 21, 2007) (Fischer, J.)
L.A.
The insured sought a declaratory judgment and asserted breach of contract and bad faith claims against two insurers. The insurers moved to dismiss based on a two year contractual statute of limitations. The court determined that it could not rule against the insured at the motion to dismiss stage, and distinguished a case arguing that the discovery rule could not apply because it was at the summary judgment stage.
Date of Decision: November 9, 2007
Nelson v. Vigilant Ins. Co., United States District Court for the Western District of Pennsylvania, No. 07-1406, 2007 U.S. Dist. LEXIS 83394 (Schwab, J.)
L.A.
The Philadelphia Commerce Court “bifurcated the case, so that the issue of whether [the carrier] had a duty to defend … in the Underlying Action could be addressed first. Only if such a duty is found to exist will the issues of indemnification and bad faith subsequently need to be addressed.”
Date of Decision: May 10, 2007
Telecommunications Network Design, Inc. v. Brethren Mutual Ins. Co., 2007 Phila. Ct. Com. Pl. LEXIS 156 (C.C.P. Philadelphia May 10, 2007) (Abramson, J.),
L.A.
The Court granted Defendant’s motion for summary judgment and dismissed Plaintiffs’ bad faith claims. The court held that the Plaintiffs failed to provide clear and convincing evidence that the Defendant’s failure to pay Plaintiffs’ claim was unreasonable.
Plaintiffs owned and managed a commercial warehouse building, which was insured by Defendant. The policy excluded loss or damage caused by decay and collapse but an additional coverage provision of the policy extended coverage to collapse if caused by “hidden decay”, a term not defined by the contract. A wooden truss in the roof of Plaintiffs’ building broke as a result of severe wood rot and decay, and a portion of the roof covering the second floor of the building collapsed. Defendant denied coverage for the loss claiming that the loss was not caused by hidden decay.
Plaintiffs filed a complaint seeking coverage for the loss and asserting bad faith claims against the Defendant. Defendant filed a summary judgment action seeking dismissal of Plaintiff’s bad faith claim. The court granted Defendant’s motion and held that it was uncertain that the cause of the collapse was unknown decay as required by the policy.
Plaintiffs’ and Defendant’s experts disagreed as to the extent of the damage surrounding the wooden truss prior to the accident and whether that damage would have obvious to the Plaintiffs. Because there was a question as to whether Plaintiffs had actual or constructive knowledge of the defect, prior to the accident, the court held that a finding of bad faith was precluded and therefore summary judgment was granted.
Date of Decision: September 26, 2007
SRP Management Corporation and Nibur Westmoreland, Inc. v. Seneca Insurance Company, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 06-935, 2007 U.S. Dist. LEXIS 71824 (E.D. Pa. September 27, 2007) (Ditter, S.J.),
C.L.C.
NOVEMBER 2007 BAD FAITH CASES
NO BAD FAITH CLAIM CAN BE STATED WHERE NO DUTY TO COVER (Third Circuit)
The Third Circuit upheld the district court’s grant of summary judgment to the carrier on the basis that the claim was not covered under the business pursuits exclusion. The court stated that the bad faith “claim necessarily fails in the face of a determination that the insurer correctly concluded that there was no potential coverage under the policy.”
Date of Decision: November 7, 2007
Still v. Great Northern Insurance Company, No. 07-2425, 2007 U.S. App. LEXIS 26024 (3d Cir. November 7, 2007) (Garth, Jordan, Rendell, JJ.)
L.A.
In Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., the district court heard a motion under Rule 60(b) to reconsider its earlier award of attorneys’ fees, costs and prejudgment interest, in light of the Third Circuit’s decision in Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., that had reversed in part and affirmed in part.
Specifically, the Third Circuit had found there was no breach of contract, but did find bad faith. The district court upheld its award of attorneys’ fees under the bad faith statute, but reversed its award of prejudgment interest, which had been based on its now reversed decision on compensatory damages for breach of contract. The court additionally awarded attorney’s fees (though not costs) in connection with the carrier’s appeal of the bad faith and punitive damages awards only. Plaintiff could not recover fees associated with its own appeal, the reversed contract claim or those incurred in the instant motion.
Date of Decision: October 31, 2007
Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States District Court for the Western District of Pennsylvania, No. 02-2116, 2007 U.S. Dist. LEXIS 80538 (W. D. Pa. October 31, 2007) (Ambrose, C. J.)
L.A.
Four siblings tried to make breach of contract and bad faith claims against an insurer for a fire loss. The policy was issued only in their parents’ names, though they claimed the carrier knew that they were owners. The court found that absent a contractual obligation between these siblings and the carrier, there could be no breach of contract or bad faith claims by them against the insurer.
Date of Decision: October 10, 2007
Banos v. State Farm Ins. Co., No. 7-2783, 2007 U.S. Dist. LEXIS 75189 (E.D. Pa. October 10, 2007) (Sanchez, J.)
L.A.