Monthly Archive for August, 2009

AUGUST 2009 BAD FAITH CASES
DENIAL LETTER SENT MORE THAN 2 YEARS BEFORE BAD FAITH CLAIM FILED AND SO CLAIM WAS TIME BARRED (Western District)

Published on August 22, 2009 in PA - Claims Handling (general) and PA - UIM/UM Cases. Closed

In Sikora v. State Farm Insurance Company, a person injured in a motor vehicle accident sought coverage for an underinsured motorist claim. A denial letter was sent to his counsel stating that, after review of the policy, he did not “qualify as an insured” and “we will not be extending any underinsured motor vehicle coverage settlement offers to him.” The letter asked for any other documentation that the counsel wanted to submit on the issue, something that never occurred. The plaintiff admits that this letter denied coverage; however, it claims that a second letter, sent 20 months later, stating that the carrier had previously advised there was no coverage and again asking for documentation was the “official denial” and thus the date of the bad faith’s claim accrual for statute of limitation purposes.

Under controlling law, a cause of action for statutory bad faith begins to accrue when the insurer first provides definite notice of a refusal to indemnify or defend. The Court found that no reasonable jury could find that the second letter was an official denial and that the earlier letter was not the first denial. It dismissed the claim as untimely. It rejected the long discredited idea that the second letter somehow made it a continuing denial or was a separate act of bad faith that started the clock anew.

Date of Decision: August 4, 2009

Sikora v. State Farm Ins. Co., CIVIL ACTION NO. 08-1366, UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, 2009 U.S. Dist. LEXIS 67621 (W.D. Pa. Aug. 4, 2009) (Conti, J.)

AUGUST 2009 BAD FAITH CASES
NO AWARD OF ATTORNEYS’ FEES FOR POST-TRIAL AND APPELLATE WORK BASED ON PROCEDURAL RULES; NO REDUCTION OF FEES BASED ON REDUCED PUNITIVES (Philadelphia Federal)

Published on August 18, 2009 in PA - Attorney's Fees. Closed

In Jurinko v. Medical Protective Company, the U. S. District Court for the Eastern District of Pennsylvania was faced with yet another issue in this case which has yielded significant address of bad faith issues, both in the trial court an on appeal. See below.

This Opinion, issued after a partial reversal by the Third Circuit on punitive damages, addressed attorneys’ fees. The plaintiffs sought over $100,000 in fees incurred on post-trial motions, on appeal and in preparing the instant motion for supplemental attorney’s fees. The Court went over the issue of whether it even had jurisdiction to hear the motion, where the case had not be clearly remanded by the Third Circuit. It did not answer this questions, denying the motion on other jurisdictional/procedural grounds.

First, as to fees for post-trial motions, under F.R.C.P. 54(d)(2), the plaintiffs did not meet the mandatory 14 day requirement from the entry of judgment to seek attorneys’ fees for work done to date, and so any post-trial, pre-appeal, fee claim was waived.

Second, under the Third Circuit’s Local Appellate Rules, attorney fee requests for work done on the appeal had to be made in the Third Circuit, not in the District Court.

Third, in light of the prior two rulings, it would be improper to award attorney’s fees for those two requests.

Finally, the Court rejected the Defendant’s motion to reduce the previously awarded attorney’s fees in an amount commensurate to the Third Circuit’s reduction of the punitive damage award (from 4:1 to 1:1). The Court rejected this effort because its earlier, affirmed, basis for the attorney’s fee award – the lodestar method under Pennsylvania Rule of Civil Procedure 1716— was not based on the amount of punitive damages.

Date of Decision: July 30, 2009

Jurinko v. Medical Protective Co., NO. 03-CV-4053, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2009 U.S. Dist. LEXIS 66324 (E.D.Pa. July 30, 2009) (Rufe, J.)

AUGUST 2009 BAD FAITH CASES
CASE PROCEEDS WHERE INVESTIGATOR MAY NOT HAVE FULLY INTERVIEWED INSUREDS, OVER-RELIANCE ON EXPERT AND MISSED POLICY LANGUAGE IN DENIAL LETTER (Middle District)

Published on August 17, 2009 in PA - Claims Handling (unreasonable), PA - Communication with insured, PA - Coverage Issues and PA - Experts. Closed

In Young Sook Pak v. Alea London Ltd., the case involved commercial property insurance and a wall collapse on the insured’s grocery store. There were actually two carriers writing half of the insurance each, their agent who bound the policies, an adjustor hired by their agent to investigate the case and an engineer hired by that adjustor to determine the source of the collapse.

The policy covered wall collapses if the collapse was caused by “decay that is hidden from view”, however, if “the presence of such decay is known to the insured prior to collapse” there would be no coverage.

The court went through the adjustor’s investigation at length, as well as other investigation into the collapse, including plaintiff’s expert and an engineer sent out by the City of York prior to the parties even sending their own experts. The focus was on the causes and visibility of any deterioration in the wall that could be associated with the collapse.

The experts varied in their theories on the collapse and/or the visibility of the problems associated with the collapse. The building’s history showed that the insured’s had done maintenance in the past when face with a water leak in their roof, being as much to the point of how they would have reacted if they did have knowledge as to any sort of causation.

The insureds did not speak English well and the investigator did not get an interpreter. The insurers’ engineer said she spoke to the insureds about their knowledge of the wall’s history, but they denied such a conversation. Based solely on this engineer’s report as to cause and these communications, coverage was denied. The denial letter cited various policy exclusions, and stated that the collapse was not a covered peril.

This last point was clearly incorrect as there was additional coverage in the policy for a collapse, as stated above. In bringing a summary judgment motion, the carriers evidently conceded that this part of the policy governed, rather than the exclusions.

The Court denied summary judgment on the insured’s breach of contract claim. Although the insureds had the burden to show that the exception to coverage did not apply, the Court found that it could not grant summary judgment as the issue of the insured’s knowledge of the wall’s decay could not be determined conclusively on the record before the Court. The insureds would be held to an objective test of whether a “reasonable insured under such circumstances would have seen or otherwise been aware of the decay.”

As to the Bad Faith claim, the Court likewise declined to grant summary judgment. The focus of the bad faith claim was on the investigation.

The Court stated that “bad faith can exist when an insurance company fails to conduct a meaningful investigation of a claim, or where the insurer’s evaluation is less than honest, intelligent and objective.” The insureds arguments on investigation boiled down to: “(1) Defendants conducted an investigation without consideration of the coverage of the insurance policy; (2) they failed to conduct a meaningful investigation regarding whether decay was visible to Plaintiffs; (3) they made no effort to meaningfully communicate with Plaintiffs; and (4) Defendants blindly relied on a single expert witness.”

The Court concluded that “a reasonable jury could decide, on the basis of clear and convincing evidence, that Defendants acted in bad faith by (1) applying the wrong sections of the insurance contract, and (2) failing to conduct a meaningful investigation regarding whether the decay of the collapsed wall was visible to the Paks prior to the collapse.”

This did not mean the insureds would prevail; just that they would have their day in court to adduce evidence that could meet their burden.

Date of Decision: July 30, 2009

Young Sook Pak v. Alea London Ltd., CIVIL NO. 1:08-CV-0824, UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, 2009 U.S. Dist. LEXIS 65640 (M.D. Pa. July 30, 2009) (Rambo, J.)

AUGUST 2009 BAD FAITH CASES
ERISA PREEMPTS BAD FAITH CLAIM (Philadelphia Federal)

Published on August 16, 2009 in PA - ERISA Preemption. Closed

In, Spillane v. AXA Financial, Inc., the court found that the insured’s disability claims, including his bad faith claims, which had been removed from state court to federal court, were preempted by ERISA.

Date of Decision: July 23, 2009

Spillane v. AXA Fin., Inc., CIVIL ACTION No. 08-2151, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2009 U.S. Dist. LEXIS 63739 (E.D.Pa. July 23, 2009) (Schiller, J.)

AUGUST 2009 BAD FAITH CASES
INSURER DID NOT ACT IN BAD FAITH WHEN INSURED DELAYED IN PRODUCING REQUESTED DOCUMENTS (Philadelphia Federal)

Published on August 10, 2009 in PA - Cooperation with insurer, PA - Delay (Insured) and PA - Delay (Investigation/Claims handling). Closed

The parties disputed insurance coverage from a rainstorm that caused severe water damage to the insured’s warehouse and inventory. The insured alleged that the insurer acted in bad faith by failing to promptly investigate and offer payment on the claim. The insurer contended that the insured’s failure to cooperate contributed to delay the process.

Specifically, the insurer argued that it has made numerous requests to the insured for information in support of its claimed loss and that it failed to provide all of the requested documents. In response, the insured argued that the insurer repeatedly ignored its inquiries regarding the status of its claim and its requested advance.

The Court found that the undisputed facts show that the insured failed to respond to numerous requests for documents regarding damage to the building, equipment, fixtures and business loss income. The Court held that given the extent of the alleged loss, which required a thorough investigation by the insurer, and the delayed response by the insured, the insured has failed to provide clear and convincing evidence that the insurer acted in bad faith.

Date of Decision: July 7, 2009

Somerset Industries, Inc. v. Lexington Insurance Company, U.S. District Court, Eastern District of Pennsylvania, Civil Action No. 07-1656, 2009 U.S. Dist. LEXIS 57809, 639 F. Supp. 2d 532 (E.D.Pa. July 7, 2009)(Goldberg, J.)

AUGUST 2009 BAD FAITH CASES
DOCUMENTS PREPARED BY INSURER’S ACTUARY ON INTERPRETING “ACTUAL DAMAGES” EFFECT ON PAYMENTS ARE DISCOVERABLE IN CONNECTION WITH BAD FAITH CLAIM(Western District)

Published on August 9, 2009 in PA - Attorney Client Privilege, PA - Discovery and Evidence and PA - Work Product. Closed

In Smith v. Life Investors Insurance Company of America, the insurer inadvertently produced documents to Plaintiff that included calculations prepared by its actuary. Those documents revealed that the actuary analyzed the financial impact of changing the insurer’s interpretation of “actual damages” ” in a supplemental cancer insurance policy. The actuary concluded that the carrier would reduce benefit payments by 23.2% if it changed the manner in which it interpreted “actual damages”.

Defendant contended that the documents, although inadvertently produced, was subject to the attorney-client privilege and/or work product protection because they were prepared at the request of outside legal counsel. Plaintiff, on the other hand, contended that the documents contained calculations made for business reasons and, in the alternative, that the privilege was waived when the documents were produced.

The Court found that the documents did not contain any attorney-client communication, and there was no indication on the document that the attorney-client privilege may be implicated. Rather, the documents represented a financial analysis prepared by a non-lawyer. Consequently, the Court ruled that the documents did not fall within the attorney-client privilege. Further, the Court ruled that the documents were not protected by the work product doctrine because no impressions, opinions or thoughts of an attorney are revealed, and the documents were produced to insurance departments in at least two states.

Plaintiff also contended that Defendant refused to produce communications between the actuary and the state insurance departments. Plaintiff contended that consideration of the financial benefits that would accrue from the changed treatment is relevant to her bad faith claim. Defendant again argued that the documents were subject to the attorney-client and/or work product privilege. The Court, for the reasons stated above, ruled that the documents were not privileged.

Date of Decision: July 9, 2009

Smith v. Life Investors Ins. Co. of Am., U.S. District Court, Western District of Pennsylvania, Civil Action No. 2:07-cv-681, 2009 U.S. Dist. LEXIS 58261 (W.D.Pa. July 9, 2009)(McVerry, J.)

AUGUST 2009 BAD FAITH CASES
FILING DECLARATORY JUDGMENT ACTION BEFORE A CLAIM BECOMES RIPE DOES NOT CONSTITUTE BAD FAITH, NO BENEFITS DENIED (Philadelphia Federal)

Published on August 7, 2009 in PA - Claims Handling (general), PA - Declaratory Judgment and PA - General Bad Faith and Litigation Issues. Closed

In Principal Life Insurance Company v. Minder, Plaintiff sued Defendant seeking to have a life insurance policy on the life of Defendant’s father, who is still living, declared void. Defendant, in his counterclaim asserted, inter alia, that Plaintiff acted in bad faith because it had no reasonable legal or factual basis for seeking a declaration that the policy was void or voidable. Specifically, Defendant stated that Plaintiff filed the suit in order to wrongfully avoid its obligations and duties under the policy, and that Plaintiff had no reasonable legal or factual basis for its requested relief. The Court carefully reviewed the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company, 928 A.2d 186 (Pa. 2007). (Toy has previously been discussed on this blog.)

The Court stated that Toy made clear that allegations of bad faith are strictly limited to those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss.

Since Defendant’s father is still alive, no claim for benefits has been made under the policy. It is, therefore, impossible for Defendant to state a claim for bad faith because there is no allegation that Plaintiff acted in bad faith in the handling a claim or in the denial of benefits.

Consequently, the Court ruled that filing a declaratory judgment action concerning the parties’ rights and obligations under an insurance policy prior to the time a claim becomes ripe is not tantamount to the denial or mishandling of a claim. As a result, Defendant’s counterclaim for bad faith was dismissed.

Date of Decision: July 1, 2009

Principal Life Ins. Co. v. Minder, U.S. District Court, Eastern District of Pennsylvania, Civil Action No. 08-5899, 2009 U.S. Dist. LEXIS 56568 (E.D.Pa. July 1, 2009)(Bartle III, J.)