Monthly Archive for September, 2007

SEPTEMBER 2007 BAD FAITH CASES
THIRD PARTY HAS NO STANDING TO BRING A BAD FAITH CLAIM BY GARNISHMENT ACTION ABSENT AN ASSIGNMENT (Philadelphia Federal)

Published on September 27, 2007 in PA - Standing, Assignment or Outside Scope. Closed

The Court ruled that a third party/judgment creditor could not institute a garnishment action against an insurer based on the theory of bad faith without a formal assignment of the bad faith claim from the insured.  The Plaintiffs, manufacturers of refrigeration and air conditioning units, and RD&S, designer and installer of the refrigeration system at the subject premises, were sued when liquid ammonia escaped causing damage to the premises and the food stored therein.

Plaintiffs asserted that it was entitled to indemnification from RD&S.  RD&S, who was insured by Cincinnati Insurance Company, notified its insurer.  At a mediation where the insurer settled the underlying action, it reserved $200,000 to address the indemnification claim.  Plaintiffs moved for summary judgment against RD&S for indemnification, which was granted by the trial court.

Plaintiffs, thereafter, filed a declaratory judgment action alleging that the insurer’s creation of the $200,000 reserve fund and failure to negotiate the indemnification claim constituted bad faith.

The Court ruled that Plaintiffs had no standing to bring a garnishment action against an insurer based on bad faith without an assignment from the insured, RD&S.

Date of Decision:  September 5, 2007

York Int’l Group v. Cincinnati Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-4778, 2007 U.S. Dist. LEXIS 65798 (E.D. Pa. September 6, 2007)(Kauffman, J.)

H.P.M.

SEPTEMBER 2007 BAD FAITH CASES
NO BAD FAITH WHEN INSURER HAS NO DUTY TO DEFEND OR INDEMNIFY(Philadelphia Federal)

Published on September 19, 2007 in PA - No coverage duty, no bad faith. Closed

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.

SEPTEMBER 2007 BAD FAITH CASES
FIRST PARTY BENEFITS:INSURER’S REFUSAL TO MAKE A SETTLEMENT OFFER UNTIL AFTER THE START OF THE ARBITRATION MAY TRIGGER BAD FAITH CLAIM (Western District)

Published on September 12, 2007 in PA - Delay (Payment), PA - Reserves, PA - Settlement related issues and PA - UIM/UM Cases. Closed

The court addressed the issue of whether an insurer’s initial refusal to provide a settlement offer in response to the insureds’ demand for first-party benefits could be considered sufficient evidence of bad faith.  On July 20, 2001 plaintiffs husband and wife were involved in an automobile accident in which plaintiff husband sustained serious personal injuries.

Plaintiffs immediately placed their insurer on notice of the accident and advised that they would be pursuing a UIM claim.  By the end of 2002 the insurer had received medical information from plaintiffs’ counsel and set reserves at $600,000.  Throughout 2003 the insurer continued to receive medical and financial loss documentation from plaintiffs’ counsel and also independently investigated plaintiffs’ loss.

On November 30, 2003 plaintiffs’ counsel submitted a settlement demand for $1,200,000 which represented the policy limits.  The insurer did not make a settlement offer in response to this demand.  On August 30, 2004, the insurer’s claims attorney prepared an internal trial report which valued plaintiff husband’s pain and suffering between $500,000 and $600,000; his economic loss between $149,600 and $1,013,910; and his future medical benefits from $0 to $555,812.

On September 26, 2004 the insurer increased its reserve to $950,000.  The arbitration on the claims commenced on September 2, 2004; reconvened on October 19, 2004; and concluded on  December 15, 2004.  In early November 2004, after two days of testimony, the insurer made its first settlement offer of $815,000; plaintiffs rejected the offer.  On December 3, 2004, the insurer offered plaintiffs $933,000 and plaintiffs reduced their demand to $1,150,000.  The insurer did not respond to that demand.

Ultimately, the arbitration panel awarded plaintiffs $1,275,000.  The verdict was molded to match the policy limits and was paid by the insurer.

Plaintiffs subsequently filed a bad faith claim against the insurer.  The insurer filed a motion for summary judgment seeking dismissal of the bad faith claim arguing that it was entitled to conduct a reasonable investigation of plaintiffs UIM claim and that so long as there was a reasonable basis for its evaluation it could not have acted in bad faith.

Plaintiffs raised a myriad of issues with regard to the insurer’s handling of the their UIM claim, but the Court focused on the timing of the insurer’s first settlement offer.  The Court stated that it was undisputable that the insurer had conducted a thorough investigation of plaintiffs’ claims.  Nevertheless, the Court held that a reasonable fact finder could conclude that the insurer acted in bad faith because it failed to make a  settlement offer until after the UIM arbitration had commenced.

Specifically, the Court concluded that a jury could find that given the information which the insurer possessed between its early liability determination and its initial settlement offer in November 2004, the delay in issuing any settlement offer was done in bad faith.  Since the Court was compelled to view the facts in a light most favorable to the plaintiffs, the insurer’s motion for summary judgment was denied.

Date of Decision: July 17, 2007

Heinlein v. Progressive Northern Ins., Unites States District Court for the Western District of Pennsylvania, No.05-1769, 2007 U.S. Dist. LEXIS 51592 (W.D.Pa. July 17, 2007) (Ambrose, J.)

J.T.L.

 

SEPTEMBER 2007 BAD FAITH CASES
EXCERCISING REMOVAL JURISIDICTION FOR CLAIM BELOW $75,000 BECAUSE OF PUNITIVES CLAIM, COURT FINDS INSURER HAD REASONABLE BASIS TO DENY CLAIM (Philadelphia Federal)

Published on September 7, 2007 in PA - Removal & Remand. Closed

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

SEPTEMBER 2007 BAD FAITH CASES
FEDERAL COURT RETAINS JURISDICTION OVER BAD FAITH ACTION EVEN THOUGH PARALLEL GARNISHMENT PROCEEDING IS PURSUED IN STATE COURT (Philadelphia Federal)

Published on September 6, 2007 in PA - Bifurcate/Sever & Stays. Closed

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.

 

SEPTEMBER 2007 BAD FAITH CASES
INSURER NOT LIABLE IN BAD FAITH WHEN INSURED MADE MATERIAL MISPRESENTATIONS (Philadelphia Federal)

Published on September 5, 2007 in PA - Reverse Bad Faith. Closed

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.

 

SEPTEMBER 2007 BAD FAITH CASES
INSURER NOT LIABLE IN BAD FAITH WHEN INSURED MADE MATERIAL MISPRESENTATIONS (Philadelphia Federal)

Published on September 5, 2007 in PA - Claims Handling (reasonable) and PA - Reverse Bad Faith. Closed

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.

SEPTEMBER 2007 BAD FAITH CASES
LIABILIBY FOR BAD FAITH CONDUCT EVEN AFTER POLICY CANCELLED & PUNITIVE DAMAGES AWARD UPHELD BASED IN LARGE PART ON ATTORNEYS’ FEE AWARD (Third Circuit)

Published on September 5, 2007 in PA - No coverage due, bad faith still possible and PA - Punitive Damages. Closed

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.

 

SEPTEMBER 2007 BAD FAITH CASES
INSURER LIABLE FOR BAD FAITH EVEN AFTER POLICY WAS CANCELLED (Third Circuit)

Published on September 4, 2007 in PA - No coverage due, bad faith still possible. Closed

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.