Monthly Archive for February, 2008

FEBRUARY 2008 BAD FAITH CASES
INSURER GETS SUMMARY JUDGMENT ON BAD FAITH CLAIM WHERE ALLEGEDLY FORGED SIGNATURE ON UIM REJECTION FORM IN DISPUTE (Middle District)

Published on February 20, 2008 in PA - Claims Handling (reasonable) and PA - UIM/UM Cases. Closed

The Court  was confronted with cross motions for summary judgment stemming from Blaylock’s Complaint alleging bad faith claims handling.  Blaylock was injured in an automobile accident with an uninsured driver.  Blaylock submitted a claim to its insurer, Allstate, for uninsured motorist benefits.  Allstate denied the claim, citing to a form, allegedly executed by Blaylock, refusing coverage for uninsured motorist benefits (the “Rejection Form”).

Blaylock disputed the signature on the Rejection Form; asserted that it had been forged; and continued to request uninsured benefits.  The case was arbitrated and  Blaylock won a split decision awarding coverage.  Subsequently, Blaylock filed a Complaint for bad faith claims handling.

Blaylock filed a motion for summary judgment alleging that Allstate had acted in bad faith because it had arbitrated the uninsured motorist coverage issue with no reasonable basis for so doing.  In addition, Blaylock argued that she had presented evidence, including a sworn statement, that the signature on the UM Form was not hers and an opinion from a handwriting expert stating that the signature was not authentic.

Allstate filed a motion for summary judgment asserting that it had a reasonable basis for denying Blaylock’s uninsured motorist claim.  Allstate argued that its decision was reasonable because it had the Rejection Form signed by Blaylock and it produced an expert report asserting that the authenticity of the signature could not be verified one way or the other.

The Court opined that the question was not whether the signature on the Rejection Form was authentic, but whether Allstate had acted in bad faith in denying the claim.  The Court found that, under Pennsylvania law, to prevail on a bad faith claim Blaylock had to show that Allstate “did not have a reasonable basis for denying benefits under the policy” and that it “knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”  See Greene v. United Services Auto Ass’n, summarized in December 2007 archives on this blog.

After reviewing all the evidence, the Court denied Blaylock’s motion for summary judgment and granted summary judgment in favor of Allstate.  Significantly, the Court found, inter alia, that: (1) Blaylock’s claim had presented credibility questions; (2) Blaylock had a high burden of proof demonstrating that her signature was forged and;  (3) Allstate’s handwriting expert had negated some of Blaylock’s evidence.

As such, the Court dismissed Blaylock’s bad faith claim.

Blaylock v. Allstate Insurance Co., United States District Court for the Middle District of PA, No. 1:CV-06-1456, 2008 U.S. Dist. LEXIS 1098 (M.D. Pa. Jan. 7, 2008) (Caldwell, J.)

J.T.L.

 

FEBRUARY 2008 BAD FAITH CASES
PENNSYLVANIA’S BAD FAITH STATUTE DOES NOT APPLY TO PROVIDERS OF A SURETY BOND (Middle District)

Published on February 13, 2008 in PA - Sureties. Closed

The plaintiff filed a complaint alleging the defendant breached a contract between the two parties in which plaintiff would construct a water line under a river for the defendant.  The defendant filed a counterclaim alleging the plaintiff breached its contract.  The defendant also filed a third party complaint against Safeco Insurance Company of America (“Safeco”) who provided a performance bond on the contract on behalf of the plaintiff.  The third party complaint alleged that Safeco breached its contract under the performance bond and violated Pennsylvania’s bad faith insurance statute.

With regards to the bad faith count, the defendant alleged Safeco acted in bad faith in the manner that it investigated and denied the defendant’s coverage under the bond and acted in bad faith by withholding certain information from the defendant while encouraging it to reach an assignment agreement with a drilling contractor who placed a bid for completion of the outstanding work.

Safeco filed a partial motion to dismiss the count for bad faith because the statute does not apply to providers of surety bonds.

The court noted the differences between an insurance agreement and a surety bond.  An insurance agreement is an agreement by which one for a consideration agrees to pay money to another on the death, destruction, loss, or injury of someone or something while a contract for suretyship is one to answer for the debt, default or miscarriage of another.  The insurer and insured share a direct contractual relationship for the said payment while a surety does not have a direct contractual relationship with a party such as defendant and has simply agreed to answer for the debt of the plaintiff to the extent he fails to pay them.

The court stated that the Pennsylvania legislature did not intend to include surety bonds within the purview of the Pennsylvania bad faith statue, and if they have, they would have stated explicitly.  As a result, the court granted Safeco’s partial motion to dismiss the bad faith count of defendant’s third party complaint.

Date of decision:  January 28, 2008

Intercon Construction, Inc. v. The Williamsport Municipal Water Authority, United States District Court for the Middle District of Pennsylvania, Civil Action No. 4:07-CV-1360, 2008 U.S. Dist. LEXIS 6022, (M.D. Pa. 2008) (McClure, J.).

R.E.M.

FEBURARY 2008 BAD FAITH CASES
INSURER NOT LIABLE TO PAY LOSSES FOR PERIOD OF RESTORATION UNTIL ACTUAL LOSS IS SUSTAINED BY INSURED (Philadelphia Federal)

Published on February 12, 2008 in PA - Claims Handling (reasonable) and PA - Estimates, Valuation or Appraisal. Closed

The Plaintiff submitted a claim to its insurer for damage that occurred at the Plaintiff’s property as a result of a fire.  The fire damaged Plaintiff’s property, as well as leasehold improvements owned by the tenant.  Plaintiff alleges that after the fire, it submitted  benefit claims under the policy; however, the insurer failed and refused to pay.  The insurer claimed that it issued advanced payments to Plaintiff immediately after the fire.

However, pursuant to an appraisal provision in the policy, Plaintiff demanded an appraisal and an appraisal award was entered.

The appraisal award included costs associated with rebuilding the property, as well as payment for losses sustained by the Plaintiff during the “period of restoration”, which is defined by the policy as the time the business would need to close to allow for the repairs.  Defendant paid the balance owed for the property loss pursuant to the appraisal award, but did not pay the monies awarded to Plaintiff for the period of restoration.

The insurer argued that the Plaintiff’s losses for the period of restoration were not yet actually sustained pursuant to the policy language, since no repairs had been made. Therefore, Defendant refused to pay the period of restoration loss until the actual loss is sustained.  Based on this refusal, Plaintiff filed claims for bad faith and breach of contract.  In support of it’s bad faith claims, Plaintiff argued that Defendant failed to make payments in a timely manner.

In considering both Plaintiff and Defendant’s cross motions for summary judgment, the court held that although the appraisal award is binding upon both parties and conclusively establishes the amount of loss, Defendant is not liable for payment to Plaintiff until the actual loss is sustained.  Therefore, once the repairs are made, Defendant will be liable for payment, but is not liable until such repairs are made.

The court also held that Plaintiff’s claim that Defendant acted in bad faith by making bald allegation of untimely payments were not enough to sustain it’s claim for bad faith and therefore Defendants’ motion for summary judgment was granted.

Date of decision:  February 1, 2008

Celebrations Caterers, Inc., et. al. v. The Netherlands Insurance Co., et. al., United States District Court for the Eastern District of Pennsylvania, Case No. 06-1341, 2008 U.S. Dist. LEXIS 7477, (E.D. Pa. 2008) (Tucker, J.).

C.L.C.

FEBRUARY 2008 BAD FAITH CASES
NO BAD FAITH WHEN REASONABLE CLAIMS' HANDLING IN DISPUTE BETWEEN BENEFICIARIES AS TO TIME OF INVESTIGATON & REQUIRING RELEASE PRIOR TO ANY PAYMENT (Middle District)

Published on February 11, 2008 in PA - Claims Handling (reasonable), PA - Common Law Bad Faith (contractual or fiduciary basis), PA - Delay (Payment), PA - Settlement related issues and PA - UIPA & UCSP. Closed

The case concerned a dispute over the insured’s handling of life insurance policy claim.  The facts are set forth more fully in the following case summary addressing application of the UIPA and UCSP regulations in the same case.  In pertinent part, the plaintiff filed a complaint pleading the following causes of action:  1) statutory bad faith; 2) breach of contract; 3) breach of the covenant of good faith and fair dealing; 4) breach of fiduciary duty; 5) negligence; and 6) negligent infliction of emotional distress.  The subject of the court’s opinion was the insured’s motion for summary judgment as to all plaintiff’s counts.  The court first addressed the plaintiff’s claim for statutory bad faith claim.  The court applied Terletsky test.

The evidence established that the insured acted reasonably in processing the claims.  When the ex-husband disputed the plaintiff’s entitlement to proceeds and the cause of the fire, the insurer acted appropriately by allowing a reasonable time for the ex-husband to investigate the claim.  The insurers’ delay in distributing the proceeds was reasonable in light of the facts.

As for the conduct after the action of plaintiff was instituted, the insurer attempted to pay out the proceeds upon the execution of the settlement agreement and release from both parties.  The court found that it is reasonable to get a release when there is a dispute as to the money owed.  It is also reasonable to request a settlement agreement when one beneficiary has disputed the beneficiary arrangement, and the other has sued the insurer over the proceeds of the policy.

The court concluded that the insurer had affirmatively demonstrated a reasonable basis for its delay in distributing the life insurance proceeds and summary judgment must be entered.

The court proceeded to consider the other causes of action raised by the plaintiff.  At the outset, the court noted that the other causes of action, while distinct, are essentially permutations of the bad faith claim in that they stem from plaintiff’s dissatisfaction with insurer’s delay in distributing the life insurance proceeds.

Addressing the breach of contract claim, the court noted that any delay which occurred in the payment of the proceeds resulted from plaintiff instituting litigation against the insurer.  The purpose of requiring the signing of the release was to settle the pending litigation, and the insurer eventually paid the proceeds even without requiring the signing of the release.

Addressing the negligence claim and the negligent infliction of emotional distress claim, the court noted that both of the claims were barred by the gist of the action doctrine because the claims arose from the contract between the two parties.

Addressing the breach of he covenant of good faith and fair dealing claim, the court stated that the claim is not barred by the gist of the action doctrine.  The duty of good faith and fair dealing is an implied covenant that arises in every contract and is tantamount to a breach of contract claim.

To succeed on a breach of good faith and fair dealing claim, it must be shown that the insurer did not accord the interest of the insured the same consideration that it accord itself.  The court found that the insurer did accord the plaintiff the same consideration as its own and, at all times, acted reasonably and efficiently in handling the claim and distributing the proceeds.

Addressing the fiduciary duty claim, the court noted that, as a general rule, a life insurance company has no fiduciary obligation to the beneficiary, and the relationship between the plaintiff and the insured did not fall under any exception to the general rule.

Date of decision:  December 21, 2007

Oehlmann v. Metropolitan Life Insurance Co., United States District Court for the Middle District of Pennsylvania, Case No. 3:06-CV-01075, 2007 U.S. Dist. LEXIS 93899, (M.D. Pa. 2007) (Kosik, J.).

R.E.M.

FEBRUARY 2008 BAD FAITH CASES
UNFAIR INSURANCE PRACTICE & UNFAIR CLAIMS SETTLEMENT PRACTICES REGULATIONS VIOLATIONS NOT BAD FAITH PER SE, BUT MAY BE EVIDENCE OF BAD FAITH (Middle District)

Published on February 11, 2008 in PA - Claims Handling (general) and PA - UIPA & UCSP. Closed

In Oehlmann v. Metropolitan Life Insurance Company, the insurer issued a life insurance policy to the plaintiff’s ex-husband on February 3, 1994 on the life of their daughter (“insured”) and listed as primary beneficiaries the ex-husband and plaintiff who were married at the time of the policy’s issuance.  Each beneficiary was to share fifty percent of the policy proceeds.  Ex-husband and plaintiff were subsequently divorced on January 8, 1999.  On April 26, 2005, the insured died in a house fire at the plaintiff’s house.

Plaintiff and ex-husband submitted claims to insurer in July 2005.  The claims were settled on July 25, 2005 and the insurer established money-market accounts for both plaintiff and ex-husband.  Five days after settlement of the claims, counsel for the ex-husband notified the insurer that the plaintiff’s right to proceeds was disputed and an investigation as to the cause of the fire was ongoing.

On August 4, 2005, the insurer notified plaintiff of ex-husband’s allegations and designated a time period during which the ex-husband’s counsel could investigate the allegations.  On the same day, and without knowledge of the insurer’s correspondence, plaintiff instituted litigation against the insurer in state court based on its refusal to distribute the proceeds.  On September 27, 2005, the insurer ruled the fire not suspicious but informed the plaintiff and ex-husband that they were rival claimants because the ex-husband believed he was the sole beneficiary.  As a result, the insurer informed the parties that it would distribute the accounts once each side had executed a settlement agreement and release.

Over the next several months, the plaintiff continued the litigation because the insurer would not distribute the accounts without a release. On February 16, 2006 and March 14, 2006, the plaintiff and ex-husband notified the insurer that they agreed to split the proceeds but both failed to execute the releases.  Plaintiff retained new counsel that initiated this case in state court on May 8, 2006.

This case was subsequently removed to the federal court herein.  In this case, plaintiff pleaded the following causes of action:  1) statutory bad faith; 2) breach of contract; 3) breach of the covenant of good faith and fair dealing; 4) breach of fiduciary duty; 5) negligence; and 6) negligent infliction of emotional distress.

The previous case was discontinued by plaintiff on August 28, 2006.  Ex-husband executed the release on November 4, 2006.  Despite plaintiff never executing the release, the insurer sent plaintiff her account checkbook for the proceeds on November 14, 2006 and sent ex-husband his account checkbook sometime thereafter.

The subject of the court’s opinion was the insured’s motion for summary judgment as to all plaintiff’s counts.  The court first addressed the plaintiff’s statutory bad faith claim.  The court noted that, to succeed on a statutory bad faith claim, the court must satisfy the test laid out by the Supreme Court of Pennsylvania in Terletsky.  The test requires the insured to prove:  1) that the insurer did not have a reasonable basis for denying benefits under the policy; and 2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.

In support of its claim, the plaintiff argued that the court should consider alleged violations of the Pennsylvania Unfair Insurance Practices Act (“UIPA”) and/or the Act’s regulations, the Unfair Claims Settlement Practices regulations (“UCSP”), as bad faith per se.  The court noted that the Supreme Court of Pennsylvania had not decided the application of UIPA and UCSP to bad faith claims, but the Superior Court of Pennsylvania had ruled in the Romano case that a trial court may consider alleged violations of the UIPA or the UCSP to determine whether an insurer acted in bad faith.

The court stated that since the test for bad faith was explicitly set forth in Terletsky, the federal courts have abstained from applying the rule of construction announced in Romano.  The court stated that it is bound by the state’s highest court in interpreting statutes, and absent a decision, it was required to determine how the highest state court would resolve the issue.

The court noted that it is free to reach a contrary result from the lower state courts if other persuasive data exists to show that the highest state court would decide otherwise.  The court rejected the plaintiff’s argument that alleged violations of the UIPA and UCSP are bad faith per se.

First, the regulatory standards set forth in UIPA and UCSP are not relevant where the test for bad faith is explicitly set forth under Terletsky.

Second, the UIPA and UCSP are designed to be  implemented and enforced by the Insurance Commissioner of Pennsylvania, and the court does not have the power to usurp the Commissioner’s power in regulating the insurance industry.

Finally, the regulations are applicable to a frequency of conduct that indicates a general business practice and are inapposite to evaluating an individual episode of the alleged bad faith.  While not to be used to establish bad faith per se, the court stated that the standards laid out in the UIPA and the UCSP may be considered concerning the insured’s bad faith conduct in light of those standards.

Date of decision:  December 21, 2007

Oehlmann v. Metropolitan Life Insurance Co., United States District Court for the Middle District of Pennsylvania, Case No. 3:06-CV-01075, 2007 U.S. Dist. LEXIS 93899, (M.D. Pa. 2007) (Kosik, J.).

R.E.M.

FEBRUARY 2008 BAD FAITH CASES
3rd CIRCUIT UPHOLDS PARTIAL SUMMARY JUDGMENT ON BAD FAITH CLAIMS WHERE AMPLE EVIDENCE TO DENY BENEFITS (Third Circuit)

Published on February 8, 2008 in PA - Claims Handling (reasonable) and PA - Reverse Bad Faith. Closed

In Leach v. Northwestern Mutual Insurance Company, an insured filed an action against his insurer seeking payments under a disability insurance policy.  The insured had received benefits for total disability since suffering from a heart attack in 1991, and subsequently received benefits for a muscle condition and exhaustion.

After an investigation in 1998 uncovered that the insured had become the owner and operator of a marina, owned and operated a fishing boat, traveled to Russia to negotiate an oil contract, and performed consulting work for his former employer, the insurer denied benefits and sought restitution for over $200,000 in past benefits paid.  The insured sued, alleging breach of contract, bad faith and deceptive business practices, while the insurer filed a counterclaim for damages for breach of contract, unjust enrichment, misrepresentation and fraud.

The trial court entered partial summary in favor of the insurer on the basis that the insured could not meet his burden of proving by clear and convincing evidence that, (a) the insurer lacked a reasonable basis to deny benefits, and, (b) the insurer knew or recklessly disregarded its lack of a reasonable basis.  After a jury found in favor of the insurer on all remaining claims and counterclaims, the insured appealed to the United States Court of Appeals for the Third Circuit.

Upon appellate review, the Court affirmed the verdict of the trial court, finding that there was ample evidence supporting the denial of benefits.  For a summary of the lower court’s ruling awarding attorney’s fees to the insurer, see this blog.

Decided: January 29, 2008

Leach v. Northwestern Mutual Insurance Company, United States Court of Appeals for the Third Circuit, No. 06-4786/5081, 2008 U.S. App. LEXIS 1990 (3rd Cir. 2008)(Jordan, J.)(unpublished).

J.H.

FEBRUARY 2008 BAD FAITH CASES: COURT FINDS THAT FAILURE TO INFORM INSURED ABOUT DEFAULT JUDGMENT ENTERED IN DECLARATORY JUDGMENT COULD BE BAD FAITH (Philadelphia Federal)

Published on February 7, 2008 in PA - Claims Handling (unreasonable), PA - Communication with insured, PA - Declaratory Judgment and PA - Litigation Conduct Claims. Closed

In Hanover Insurance Company v. Ryan, the insurer brought an action seeking a declaration that it had no obligation to defend its insured in an underlying personal injury matter.  The underlying matter stemmed from a car accident in which the insured had a blood-alcohol level well above the legal limit.  The insured counterclaimed in the declaratory judgment action for breach of contract, misrepresentation and bad faith.

The insurer then moved to dismiss the insured’s counterclaims.  The insured argued that there was bad faith because the insurer entered a default judgment in the declaratory action without notifying the insured’s counsel (from the underlying matter), and refused the court’s offer to open or strike the judgment.  The insured further alleged bad faith because the insurer failed to properly investigate the factual and legal basis for its denial of coverage.

The Court declined to dismiss the insured’s counterclaim for bad faith.  It ruled that the actions of the insurer could constitute bad faith, “especially given [its] failure to communicate with its insured regarding the entry of default judgment.”

Date of decision:  December 17, 2007

Hanover Insurance Company v. Ryan, United States District Court for the Eastern District of Pennsylvania, CV-06-2650, 619 F. Supp. 2d 127  (E.D. Pa. 2007) (Stengel, J.)

J.H.

 

FEBRUARY 2008 BAD FAITH CASES: NO BAD FAITH IN DENYING DEATH BENEFITS UNDER LAPSED POLICY WHERE CLAIMS REPRESENTATIVE INITIALLY INDICATED THAT CLAIM WOULD BE PAID (Middle District)

Published on February 6, 2008 in PA - Claims Handling (general) and PA - No coverage duty, no bad faith. Closed

The Plaintiff filed breach of contract and bad faith claims against Defendant based on Defendant’s denial of Plaintiff’s demand for the death benefit of her husband under his Prudential term life insurance policy.  Defendant denied Plaintiff’s demand for the death benefits and asserted that the policy had lapsed.  Plaintiff admitted that the policy had lapsed, but argued that she was entitled to the benefits because Defendant agreed to pay the claim and therefore the Court should enforce the agreement despite the fact that the policy had lapsed.

The insured argued that the carrier breached the insurance contract and acted in bad faith when it denied the payment of death benefits after first stating that the claim would be paid.  The court held that there was no breach of the insurance contract and no bad faith in denying the claim since the policy had clearly lapsed because of failure to make timely premium payments.

The court held that the policy language clearly and unambiguously did not permit an oral modification of the contract by a claims representative. Therefore, the claims representatives’ statement that the claim would be paid did not create a new agreement. Since the policy had lapsed and was not reinstated prior to the insured’s death, the company properly denied the death benefit claim.

Therefore, the court granted summary judgment.

Date of decision:  January 18, 2008

Kidd v. Prudential Insurance Company of America, United States District Court for the Middle District of Pennsylvania, Case No. 3:CV-05-1177, 2008 U.S. Dist. LEXIS 2934, (M.D. Pa. 2008) (Blewitt, U.S. M.J.).