Monthly Archive for July, 2009

JULY 2009 BAD FAITH CASES
INSURED’S MOTION TO REMAND BAD FAITH CLAIM DENIED – CITIZENSHIP OF FRAUDULENTLY JOINED PARTIES MUST BE DISREGARDED (Middle District)

Published on July 9, 2009 in PA - Removal & Remand. Closed

In Becker v. Farmington Casualty Company, Plaintiff filed a declaratory judgment action in state court to determine Defendant insurer’s duty to defend and indemnify, and also raised claims for breach of contract and bad faith. Defendant insurer removed the case to federal court based on diversity jurisdiction. Plaintiff filed a motion to remand contending that two other Defendants were non-diverse parties. Defendant insurer argued that the two Defendants were fraudulently joined and, therefore, their citizenship must be ignored when evaluating diversity jurisdiction.

The Court found that the two Defendants were fraudulently joined because there were no claims brought against them in the action; all the claims asserted in the Complaint were against Defendant insurer. The Court ruled that the two Defendants were fraudulently joined and their citizenship for purposes of diversity jurisdiction must be disregarded. Consequently, the Court denied Plaintiff’s motion to remand.

Date of Decision: June 25, 2009

Becker v. Farmington Cas. Co., U.S. District Court, Middle District of Pennsylvania, Civil Action No. 1:08-cv-2228, 2009 U.S. Dist. LEXIS 53967 (M.D.Pa. June 25, 2009) (Conner, J.)

JULY 2009 BAD FAITH CASES
DIVERSITY JURISDICTION – INTEREST, ATTORNEY'S FEES, AND PUNITIVE DAMAGES MAY BE CONSIDERED (Middle District)

Published on July 8, 2009 in PA - Attorney's Fees, PA - Punitive Damages, PA - Removal & Remand and PA - UIM/UM Cases. Closed

In Denicola v. Progressive Direct Ins. Co., Plaintiff insured was involved in a motor vehicle accident with an underinsured motorist. Plaintiff had an automobile insurance policy with Defendant insurer which provided $250,000 in underinsured motorist coverage. Plaintiff demanded arbitration, however, Defendant allegedly engaged in delay tactics. A hearing was finally scheduled for April 27, 2007, and at the hearing, Defendant allegedly “engaged in delay, cited fallacious excuses . . . and raised spurious defenses against [Plaintiff insured’s] lawful claim”. The arbitration panel awarded Plaintiff $500,000, but the award was molded to the $250,000 limit.

Plaintiff instituted an action in state court against Defendant for bad faith, which was removed to federal court based on diversity jurisdiction. Plaintiff filed a motion to remand to state court.

Pursuant to the diversity jurisdiction statute “district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $ 75,000, exclusive of interest and costs, and is between . . . citizens of different States[.]” 28 U.S.C. §1332. The parties do not dispute that they are citizens of different states, however, there is an issue as to whether the amount in controversy exceeds $ 75,000. The Court ruled that the amount in controversy exceeds $75,000 because Plaintiff can receive: (1) interest on the amount of the claim from the date that the claim was made by Plaintiff; (2) attorney’s fees; (3) an award for punitive damages. Since these three factors must be considered in determining the amount in controversy, the amount in controversy exceeds the $ 75,000 jurisdictional threshold and, therefore, Plaintiff’s motion to remand was denied.

Date of Decision: June 16, 2009

Denicola v. Progressive Direct Ins. Co., U.S. District Court, Middle District of Pennsylvania, Civil Action No. 3:09cv423, 2009 U.S. Dist. LEXIS 51372 (M.D.Pa. June 16, 2009) (Munley, J.)

JULY 2009 BAD FAITH CASES
BAD FAITH STATUTE ENCOMPASSES INSURER’S ACTIONS IN PERFORMING CONTRACTUAL OBLIGATIONS OF DEFENSE AND INDEMNIFICATION (Philadelphia Federal)

Published on July 7, 2009 in PA - Claims Handling (unreasonable) and PA - General Bad Faith and Litigation Issues. Closed

In Haines v. State Auto Property & Casualty Insurance Company, the insured sought coverage from the insurer under a homeowner’s insurance policy arising from a golf cart incident that injured a minor. The insurer denied coverage contending that it had no duty to defend or indemnify because the golf cart was not used “solely to service an ‘insured’s’ residence”. The policy contained a general “motor vehicle liability” exclusion barring coverage for occurrences involving motor vehicles, however, the exception to the exclusion provided coverage for motor vehicles “used to service an ‘insured’s residence”. The insureds contend that the golf car was “in the service” of their premises at the time of the incident.

The insured filed this action seeking declaratory relief and asserting bad faith. The insured alleged, among other things, that the insurer materially amended coverage to the detriment of the insured, that the insurer did not provide notification of the amendment, and that the amendment was contrary to the insured’s reasonable expectations. Thereafter the insured sought to amend the complaint to include an claim for violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, which the insurer opposed.

The insurer contended that the insured failed to state a claim for statutory bad faith because the statute “applies only to conduct in connection with the handling of claims brought under an insurance policy”. The insurer argued that a failure to provide notification of a change in the policy language itself does not constitute bad faith.

The Court found that the insurer was narrowly interpreting the statute. The Court noted that the statute also protects the manner by which an insurer discharged its obligations of defense and indemnification. In other words, the statute encompasses those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification.

The Court stated that the insured’s proposed amended complaint did not rely exclusively on the insurer’s alleged failure to provide notice of policy changes. Rather, the insured’s theory of bad faith included the insurer’s alleged improper notification of an amendment to the policy, and the insurer’s frivolous or unfounded refusal to provide coverage for the incident. The Court ruled that, therefore, there was sufficient allegation of a bad faith claim.

Date of Decision: June 22, 2009

Haines v. State Auto Prop. & Cas. Ins. Co., U. S. District Court, Eastern District of Pennsylvania, Civil Action No. 08-cv-5715, 2009 U.S. Dist. LEXIS 52325 (E.D.Pa. June 22, 2009) (Golden, J.)

PENNSYLVANIA SENATE BILL 746 PROPOSES STATUTORY CHANGE TO PERMIT JURIES TO HEAR BAD FAITH CASES

Published on July 6, 2009 in PA - General Bad Faith and Litigation Issues. Closed

Under current Pennsylvania Supreme Court interpretation of Pennsylvania’s Bad Faith Statute, 42 Pa.C.S. § 8371, only a judge can hear a statutory bad faith claim. This stands in contrast to Pennsylvania’s federal courts, where juries can hear statutory bad faith cases because of federal constitutional requirements. Pennsylvania Senate Bill 746, now pending, would alter the language of the statute so that judges or juries could here bad faith claims in state courts. The change involves substituting the phrase “trier of fact” for “court” in the statute. There is a vigorous debate between the plaintiffs and defense bars on the proposed change.

THE NEW LAW OF PLEADING BAD FAITH IN FEDERAL COURT

Published on July 6, 2009 in NJ - Federal Pleading Adequate, NJ - Federal Pleading Inadequate, PA - Federal Pleading Adequate and PA - Federal Pleading Inadequate. Closed

In 2007, the U.S. Supreme Court reinterpreted the standards for pleading under Rule 8(a), making it harder for a plaintiff to survive a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted.

In deciding a motion to dismiss under Federal Rule of Civil Procedure12(b)(6), trial courts are still required to accept as true all of the factual allegations in the complaint. Federal Rule of Civil Procedure 8(a)(2) further requires, however, that a plaintiff proffer “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Co. v. Twombly, 127 S. Ct. 1955, 1974 (2007) (emphasis added). “Factual allegations must be enough to raise a right to relief above the speculative level.” As interpreted by the United States Court of Appeals for the Third Circuit: “That is to say, there must be some showing sufficient to justify moving the case beyond the pleadings to the next stage of litigation.” Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008).

Further, a plaintiff is required to do more that assert “labels and conclusions”; and “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 127 S. Ct. at 1964-65. In light of Twombly, “it is no longer sufficient to allege mere elements of a cause of action; instead ‘a complaint must allege facts suggestive of [the proscribed] conduct.’” Phillips, 515 F.3d at 233 (quoting Twombly, 127 S. Ct at 1969 n. 8).

In Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), the Supreme Court appears to have taken this test further, making it harder to plead a complaint that will withstand a motion to dismiss. As with Twombly, there must be allegations of sufficient facts to meet the now stricter standards of Rule 8(a). Ashcroft makes clear that “[t]he plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. … Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of “entitlement to relief.”’”

Further, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Thus, consistent with Twombly, fill-in-the-blank boilerplate statements of the elements of a cause of action will not work in making out a complaint.

The Supreme Court is directing trial judges to accept the truth of well-pleaded facts, though not legal conclusions; but then there is another step to follow: whether these facts taken as true can show there is an actionable wrong. Then comes something new from the Court. Determining whether there is a plausible claim is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” This appears to leave open the very real possibility that different judges might find the very same claims in a complaint plausible — vs. merely possible — depending on their different experiences and the thinking arising therefrom. Paying careful attention to the judge in a case, and his/her history, becomes even more important.

Though the Court does not say it, when it refers to the concept of “showing” in Rule 8(a), it appears to be telling the trial court judge to determine in his/her own judgment when, taking the complaint’s factual allegations as true, these allegations can then meet the burden of proof of the claim asserted — or whether they cannot get over the barrier of a 50/50 guess. If this reading is correct, then a “possible” claim in the Court’s new nomenclature means 50% or less likelihood — and dismissal; while “plausible” means more than 50% — and the case may proceed to the discovery stage.

However, this reading becomes subject to more scrutiny in a bad faith case, where the plaintiff has to show bad faith by clear and convincing evidence, an even higher standard of proof. The bad faith plaintiff must show that there is no reasonable basis to deny benefits, and that the insurer consciously or recklessly disregarded the absence of a reasonable basis. If facts are pleaded that can be interpreted just as easily for a reasonable basis as against, the issue will become whether a bad faith claim even survive a 12(b)(6) motion.

The Ashcroft Court states that the Twombly Court found that the conduct pleaded in that case, which may have been reflective of an illicit conspiracy by the defendants, failed to set out a claim “because [the conduct pleaded] was not only compatible with, but indeed was more likely explained by, lawful, unchoreographed free-market behavior.” In Ashcroft itself, the court found that “respondent’s complaint has not ‘nudged [his] claims’ of invidious discrimination ‘across the line from conceivable to plausible.’”

In deciding the motion to dismiss, the Ashcroft Court had first identified all of the boilerplate legal allegations that it did not have to accept as true under Twombly. The facts of the case are so unusual that they do not necessarily provide a good example of the second prong of possible vs. plausible.

Of specific interest in that case, however, is the reading that Rule 8(a) controls Rule 9. Rule 9 allows intent to be pleaded generally. Thus, there now apparently have to be facts pleaded that give a context to support a knowing or reckless intent; and a defendant’s knowledge can no longer be baldly pleaded or accepted without such a factual context. The import for pleading a bad faith claim’s second element is clear. There must be some factual context pleaded as a basis for asserting the insurer’s knowing or reckless disregard of the reasonable course of conduct that the insurer should have taken.

As to what will happen if a trial court dismisses a case on a Twombly/Ashcroft motion, the Third Circuit has issued a strong directive to a trial judge who properly dismissed the claims under Twombly, but did not give the plaintiff leave to amend: “Nonetheless, the District Judge erred when he dismissed the complaint without offering Phillips the opportunity to amend her complaint. It does not matter whether or not a plaintiff seeks leave to amend. We have instructed that if a complaint is vulnerable to 12(b)(6) dismissal, a district court must permit a curative amendment, unless an amendment would be inequitable or futile.” Phillips v. County of Allegheny, 515 F.3d at 236. This is the likely course that will be followed by federal trial courts in Pennsylvania, at least on a first dismissal.

JULY 2009 BAD FAITH CASES
INSURER DENIED SUMMARY JUDGMENT AGAIN ON RECONSIDERATON AS PLAINTIFF HAD PLEADED DENIAL OF BENEFIT ON EARLIER LOSS (Philadelphia Federal)

Published on July 5, 2009 in PA - Claims Handling (general). Closed

In Cher-D, Incorporated, t/a Pine Knob Inn v. Great American Alliance Insurance Company, the court had denied summary judgment to the insurer on the statutory bad faith count against it because there was sufficient evidence for a reasonable jury to find bad faith in how it settled the insured’s claim. The insurer sought reconsideration. As there was no newly discovered evidence, change in the law or manifest injustice the motion was improper. However, the court considered the arguments anyway, before denying the motion again.

In looking at the factual allegations, the court found while there may be some ambiguity in the complaint, a close reading would allow for the complaint to allege that the failure to pay benefits on a fire in 2004, led to another fire in 2005; thus setting out a claim on the original fire, which was within the policy period. Plaintiff apparently pursued this claim during the case and discovery could be taken thereon. Thus, the court found no merit in the argument that there was no bad faith claim in connection with the original loss.

The court also rejected the effort to submit affidavits after the summary judgment ruling, to put additional deposition testimony before the court.

The insurer also raised the argument that compensatory damages were not available under the bad faith case. As that issue had not been previously briefed or argued, the court would not address it; but rejected the notion that the issue was black and white.

The court also took a view of pleading standards under Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) emphasizing that “the simplified notice pleading standard of the Federal Rules relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims”. The U.S. Supreme Court has recently amplified on its Twombly analysis of Rules 8(a) and 12(b)(6) in a closely divided decision, Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), a case that some may consider a dramatic reinterpretation of Rule 8(a)’s pleading requirements, imposing considerably more formidable standards that a plaintiff must overcome to survive a Rule 12(b)(6) motion than were required during the 50 year period preceding Twombly.

Date of Decision: June 15, 2009

Cher-D, Inc. v. Great Am. Alliance Ins. Co., No. 05-5936, 2009 U.S. Dist. LEXIS 51553 (E.D. Pa. June 15, 2009)(Surrick, J.)

JULY 2009 BAD FAITH CASES
NO BAD FAITH WHERE A REASONABLE BASIS TO DENY COVERAGE EXISTS EVEN WHERE COURT FOUND DUTY TO EXIST (Philadelphia Federal)

Published on July 4, 2009 in PA - Insurer wrong, but reasonable. Closed

In Post v. St. Paul Travelers Insurance Company, the court granted summary judgment to the insurer on a bad faith claim. This was the second of a series of three opinions issued in this case. In the final decision on a motion for reconsideration, the court stood by this and its earlier opinion.

(Case 3, 5/22/9); (Case 1, 1/7/9). The court observed that under Pennsylvania law, questionable conduct giving the appearance of bad faith is not sufficient to establish a bad faith refusal to provide coverage if the insurer had a reasonable basis for denying the claim. The insured’s allegations of misconduct could not amount to proof that the insured did not have a reasonable basis to deny coverage. So it could not meet the first prong of the bad faith test, i.e. the absence of a reasonable basis to deny coverage. In that case, even though the court had previously held that coverage was required, the insurer had a reasonable basis to deny coverage.

Date of Decision: March 31, 2009

Post v. St. Paul Travelers Ins. Co., No. 06-CV-4587, 2009 U.S. Dist. LEXIS 52167, 609 F.Supp.2d 382 (E.D.Pa. March 31, 2009) (Brody, J.)

JULY 2009 BAD FAITH CASES
NO BAD FAITH WHERE NO DUTY TO DEFEND OR INDEMNIFY WORKERS’ COMPENSATION CLAIMS (Philadelphia Commerce)

Published on July 3, 2009 in PA - No coverage duty, no bad faith and PA - Underwriting. Closed

In Letwin v. Rain & Hale, LLC, a Philadelphia Commerce Court case, the Court addressed whether a denial to defend and indemnify a workers’ compensation claim breached the insurance agreement and constituted bad faith. The policy included exclusions for workers’ compensation claims.

The court refused plaintiff’s request to look at the underwriting file, instead following Pennsylvania law and looking at the face of the complaint to determine defense and coverage issues. The court further declined to revisit the workers’ compensation judge’s employment status ruling, on collateral estoppel grounds. Since “the insurer did not breach the duty to defend, a claim for bad faith can not exist.” The Court cited T.A. v. Allen, 868 A.2d 594 (Pa. Super. 2005), Cresswell v. Nat’l Mut. Cas. Ins. Co., 820 A.2d 172 (Pa. Super. 2003), and Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999), .

Date of Decision: June 17, 2009

Letwin v. Rain & Hale, August Term 2007, No. 2316, 2009 Phila. Ct. Com. Pl. LEXIS 96 (C.C.P. Phila. June 17, 2009) (New J.) (Commerce Case Management Program)

SEARCHING DECISIONS BY COURT OR JUDGE ON PENNSYLVANIA INSURANCE BAD FAITH CASE BLOG

Published on July 2, 2009 in NJ - General Bad Faith and Litigation Issues and PA - General Bad Faith and Litigation Issues. Closed

Over the years we have revised this Blog. Originally, the Pennsylvania Insurance Bad Faith Case Law Blog, it is now the Pennsyvlania and New Jersey Insurance Bad Faith Case Law Blog. You can still find the Blog at pabadfaithlaw.com, but can also use pa-njbadfaithlaw.com.

We have evolved to provide greater identifying detail and levels of information useful to those with bad faith cases in Pennsylvania’s and New Jersey’s state and federal courts. We have included the names of the judges making the decisions summarized after the case cites; and we have also included the names of the courts in the summaries’ captions.

Federal Cases are listed as Third Circuit (U.S. Court of Appeals for the Third Circuit); Philadelphia Federal (U.S. District Court for the Eastern District of Pennsylvania); Middle District (U.S. District Court for the Middle District of Pennsylvania); Western District (U.S. District Court for the Western District of Pennsylvania); and New Jeresey Federal (U. S. District Court for the District of New Jersey).

Pennsylvania state court cases are captioned as Supreme Court (Supreme Court of Pennsylvania); Superior Court (Superior Court of Pennsylvania); Commonwealth Court (Commonwealth Court of Pennsylvania) and the name of the County for individual Courts of Common Pleas cases. Philadelphia Court of Common Pleas cases are listed as (Philadelphia or Philadelphia Common Pleas) in the caption, and if in the Commerce Case Management Program are listed as (Philadelphia Commerce or Philadelphia Commerce Court).

New Jersey cases are listed as New Jersey Supreme, New Jersey Appellate Division, New Jersey Law Division, or New Jersey Chancery Division. You can use the search function toward the bottom left of our home page to insert a judge’s name, or one of these descriptions in the caption, to locate a list of summaries with those terms.