Monthly Archive for September, 2007
The Court was confronted with coverage issues stemming from a homeowner’s policy and the insureds’ requests for a defense and indemnification from third-party claims stemming from the sale of a residential home. The insureds, the owners of property insured by Prudential, constructed a house on the property and then sold the property. About a year after the sale, the buyers filed suit against the insureds for various construction defects related to house. The insureds demanded that Prudential defend and indemnify them from the buyers’ claims.
Prudential filed a declaratory judgment action seeking a determination that no coverage was warranted under the applicable homeowner’s policy. In response, the insured filed a counterclaim for breach of contract and bad faith.
After evaluating the third-party claims and the homeowner’s policy at issue, the Court held that there was no coverage under the policy and dismissed the insureds’ breach of contract claim. In so doing, the Court also dismissed the bad faith claim concluding that a bad faith claim cannot be sustained once it is determined that the insurer had good cause to refuse to defend.
Date of Decision: August 29, 2007
Prudential Property & Casualty Insurance Co. v. Boyle, United States District Court for the Eastern District of Pennsylvania, No. 06-506, 2007 U.S. Dist. LEXIS 63690 (E.D. Pa. Aug. 29, 2007) (Kelly, J.)
J.T.L.
Plaintiffs filed a claim under their homeowners insurance policy issued by State Farm for property damage to a concrete floor in their garage. After inspecting the property, a representative from State Farm concluded that the cracks in the concrete floor were due to settling of the earth below the floor and also by groundhog activity. Soon thereafter, State Farm denied plaintiffs’ property damage claim because their policy specifically excluded coverage for losses due to settling of the foundation or the activity of vermin.
Plaintiffs (pro se) filed a Complaint in state court against State Farm alleging, inter alia, that State Farm had acted in bad faith in denying their claim. State Farm removed the case to the United States District Court for the Eastern District of Pennsylvania on the basis of diversity.
As a procedural matter, even though plaintiffs’ Complaint only alleged $55,615 in compensatory damages the Court held that when computing the amount in controversy both actual and punitive damages may be considered and therefore found that the amount in controversy had been satisfied. Nevertheless, having ruled that it had jurisdiction over the matter, the Court found that plaintiffs’ claim was excluded under the exclusion for settling, cracking and the activity of vermin.
The Court also held that plaintiffs had presented no evidence in support of their bad faith claims and dismissed plaintiffs’ Complaint.
Date of decision: August 13, 2007
Hanna v. State Farm Fire and Casualty, United States District Court for the Eastern District of Pennsylvania, No. 06-3242, 2007 U.S. Dist. LEXIS 59650 (E.D.Pa. Aug. 13, 2007) (Baylson, J.)
J.T.L
The Court was confronted with the issue of simultaneous litigation in both state and federal courts involving the same parties and stemming from the same dispute. Plaintiffs initially sued John Wojnar Builder/Contractor in November 2002 in the Court of Common Pleas of Bucks County alleging that it had negligently constructed a house for the plaintiffs. On February 10, 2005 a judgment was entered against Wojnar for $96,258.02 in the state court proceeding. St. Paul subsequently denied coverage under the Wojnar policy and plaintiffs initiated garnishment proceedings against St. Paul.
In response to plaintiffs’ garnishment interrogatories St. Paul asserted that there was no coverage under the Wojnar policy because the alleged negligence occurred after the policy had lapsed.
On March 29, 2007, under an assignment of rights, plaintiffs filed a Complaint against St. Paul, in the United States District Court for the Eastern District of Pennsylvania, alleging bad faith. Specifically, plaintiffs allege that St. Paul acted in bad faith by refusing to make a settlement offer in the state court proceeding and subsequently denying coverage. St. Paul filed a motion to dismiss plaintiffs’ Complaint arguing that the Court should refrain from exercising jurisdiction over the matter since there already existed a state court proceeding which involved the same issues.
St. Paul argued that the issues in both cases involved the seminal question of whether Wojnar was covered under the policy issued by St. Paul. Conversely, plaintiffs argued that the issues in both cases were different since a bad faith cause of action is distinct from a garnishment proceeding and entitles plaintiff to remedies that are not available in a garnishment proceeding, including punitive damages and attorneys fees.
The Court held that although the state and federal cases were similar, the claims were distinct. The Court asserted that the central issue in the state court proceeding was whether St. Paul must provide Wojnar with coverage for the state court judgment while the key issue in the federal dispute was the manner in which St. Paul conducted itself during the litigation of the state court claim. Accordingly, the Court denied St. Paul’s motion to dismiss plaintiffs’ bad faith complaint.
Date of decision: July 26, 2007
Blum v. St. Paul Travelers Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 07-1268, 2007 U.S. Dist. LEXIS 55213 (E.D.Pa. July 26, 2007) (Padova, J.)
J.T.L.
The Court found that there was clear and convincing evidence that the insured committed insurance fraud. The insured applied for a Deluxe Plus homeowner’s policy with the insurer. After the insurer’s underwriting department examined the application and found misrepresentations, the insurer advised that the policy would be cancelled within 60 days of the date of issuance. Two days before the homeowners insurance policy was to be cancelled, the residence was damaged by a fire.
The Court determined that in its application, the insured had knowingly and with the intent to defraud, misrepresented the age of the premises, the date of purchase, that the residence would be occupied within 30 days, and that the residence had prior insurance. The Court found that these misrepresentations were material because the insurer would not have otherwise issued the homeowner’s policy. Accordingly, the Court ruled that the insured had committed insurance fraud.
Date of Decision: August 7, 2007
Wezorek v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-1031, 2007 U.S. Dist. LEXIS 57321 (E.D. Pa. August 7, 2007)(Rice, M. J.)
H.P.M.
The court ruled that the insurer did not act in bad faith in denying coverage.
The insured applied for a Deluxe Plus homeowner’s policy with the insurer. In its application, the insured represented that the premises was less than 40 years old. When the insurance application was reviewed by Allstate’s underwriting department, it was determined that the premises was more than 40 years old and, as such, the premises did not qualify for a Deluxe Plus homeowner’s policy. Accordingly, Allstate forwarded a notice of cancellation to the insured, which provided that the policy would be cancelled within 60 days of the date of issuance.
Two days before the homeowners insurance policy was to be cancelled, the residence was damaged by a fire. After the insured filed a claim, Allstate conducted an investigation. Allstate found that the insured had misrepresented, inter alia, that the residence was less than 40 years old, the date of purchase, that the residence would be occupied within 30 days, and that the residence had prior insurance. Allstate, thereafter, forwarded a letter to the insured advising that Allstate voided the insurance policy ab initio.
The insurer filed the instant suit alleging breach of contract and bad faith. The Court found that Allstate had a reasonable basis for rescinding the policy based on the material misrepresentations in the application. The Court, therefore, concluded that because Allstate rescinded the insurance policy based on material misrepresentations that were known to the insured and Allstate performed a reasonable and proper investigation, it had not acted in bad faith.
Date of Decision: August 7, 2007
Wezorek v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-1031, 2007 U.S. Dist. LEXIS 57321 (E.D. Pa. August 7, 2007)(Rice, M. J.)
H.P.M.
In Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., the United States Court of Appeals for the Third Circuit affirmed the bad faith decision of the district court, even though reversing the breach of contract claim. The insurer argued that it denied the insured’s claim because the policy had been cancelled at the time of the incident and, in the alternative, even if it had not been cancelled, the insurer acted reasonably in handling the claim.
The Court found that even though there was no breach of the insurance policy because the policy had been cancelled before the loss, the insurer did not assert the cancellation of the policy as a reason for the denial for more than 6 months, misrepresented the terms of the policy, dragged its feet in the investigation of the claim, hid information from the insured and continued to shift its basis for denial of the claim.
The Court concluded that because the parties believed that a policy existed when the claim was filed and acted accordingly, even though the policy had been cancelled, the insurer, thereafter, acted in bad faith for denying the claim.
Further, the Court rejected the argument that there could be no punitive damage claim because there were no compensatory damages on the underlying contract. In part, the Court found that the $1.1 Million in attorneys fee that the trial court awarded under section 8371 could be included in the punitive damages ratio, relying on Willow Inn, Inc. v. Public Service Mutual Ins. Co.,
Date of Decision: August 9, 2007
Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States Court of Appeals for the Third Circuit, 2007 U.S. App. LEXIS 19069 (3d Cir. Aug. 9, 2007) (Fisher, J)
H.P.M./L.A.
In Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., the United States Court of Appeals for the Third Circuit affirmed the bad faith decision of the district court, even though reversing the breach of contract claim. The insurer argued that it denied the insured’s claim because the policy had been cancelled at the time of the incident and, in the alternative, even if it had not been cancelled, the insurer acted reasonably in handling the claim.
The Court found that even though there was no breach of the insurance policy because the policy had been cancelled before the loss, the insurer did not assert the cancellation of the policy as a reason for the denial for more than 6 months, misrepresented the terms of the policy, dragged its feet in the investigation of the claim, hid information from the insured and continued to shift its basis for denial of the claim. The Court concluded that because the parties believed that a policy existed when the claim was filed and acted accordingly, even though the policy had been cancelled, the insurer, thereafter, acted in bad faith for denying the claim.
Date of Decision: August 9, 2007
Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States Court of Appeals for the Third Circuit, 2007 U.S. App. LEXIS 19069 (3d Cir. Aug. 9, 2007) (Fisher, J.).
H.P.M.