Yearly Archive for 2010
In Marlette v. State Farm Mutual Auto Insurance Company, the insured was injured in an automobile accident. He had stopped in traffic when another car hit his car, causing serious physical injuries as well as lost wages and impairment of his earning capacity. The driver at fault was not insured, and the insured was covered by the insurer under a policy that provided stacked uninsured motorist coverage of $250,000. The insured and his wife filed a suit against the uninsured driver and their insurer, and while the jury returned a verdict awarding the insureds $700,000 ($550,000 for the insured driver and $150,000 for his wife), the court molded the verdict to reflect the insureds’ uninsured motorist policy limits of $250,000.
The insureds’ then successfully appealed in an attempt to recover delay damages on the verdict. The court awarded delay damages in the amount of $28,223.76, which was calculated based on the molded verdict of $250,000. Both sides appealed this award: the insureds claimed that the award was not enough, as the court should have awarded damages based on the $700,000 verdict instead of the $250,000 molded verdict, and the insurer claimed that it should not have to pay any amount greater than the $250,000 it already was required to pay.
The court did acknowledge that under Pennsylvania law, an insurer cannot be held liable for damages in excess of its policy limits absent a finding of bad faith. However, the court noted that the policy imposed a limit on damages for bodily injury only. Pre-award interest or delay damages were “not specifically mentioned in the uninsured motorist context; however, the Policy provide[d] that they [we]re recoverable in the liability context.” Therefore, the court upheld the trial court’s awarding of delay damages to the insured.
In addition to upholding the validity of the delay damages, the court determined that, in the absence of bad faith, a determination of delay damages against an insurer should be calculated based upon the award of the jury before the amount is adjusted to the policy limits. The court therefore held that the amount of damages should be increased to reflect the jury’s award of $700,000 compensatory damages, even if the policy limits dictated that the insureds only actually recover $250,000.
Date of Decision: December 10, 2010
Marlette v. State Farm Mutual Auto. Ins. Co., No. 623 WDA 2009, No. 703 WDA 2009, Superior Court of Pennsylvania, 2010 PA Super 227; 2010 Pa. Super. LEXIS 4606, (Dec. 10, 2010) (Musmanno, J.)
In Hampton v. GEICO General Insurance Company, the insured was operating her automobile when it was rear-ended by another driver. She sustained personal injuries, and she sought medical attention immediately after the accident. She was initially diagnosed with a cervical and lumbar strain and sprain with pain noted in her left shoulder and arm. The pain did not subside quickly, however, and the insured proceeded to undergo many further tests and treatments to help manage her pain and injuries. She underwent multiple therapy programs and took many medications over the next year.
Under an automobile insurance policy, the insurer provided the insured first party medical benefit coverage of $100,000 and extraordinary medical benefits for up to $1,000,000 in available medical coverage for injuries sustained in an automobile accident. After the accident, the insurer paid for the insured’s medical expenses for approximately six months without questioning the reasonableness or medical necessity of the treatment. Upon eventually requesting a peer review of the medical treatment and receiving the results (which indicated that the insured should have achieved maximum medical improvement by the time of the report), the insured notified the insurer’s medical providers that it would not be considering payment of any of their medical bills for future services rendered. Despite receiving this notification, the insured continued to seek treatment and undergo physical therapy because her pain did not subside.
The insured filed a complaint against the insurer for breach of contract and bad faith in early 2009, two years after the insurer notified her that it would not be covering her medical expenses any longer. The court outlined the relevant portions of the policy, which included procedures for using peer review organizations (“PROs”) to determine the insured’s need for further medical treatment. It recognized that “clearly, the Policy requires [the insurer] to pay for all reasonable and necessary medical expenses, and by incorporation of the Motor Vehicle Financial Responsibility Law (“MVFRL”), such payment continues unless the medical treatment and rehabilitative services are determined to be unnecessary by a state approved PRO.”
It determined that because the insurer had clearly acted in compliance with the policy and the MVFRL, and the undisputed facts showed that the insurer had covered all payments to medical providers until receiving the results of the PRO, the insurer did not, as a matter of law, breach its duty to pay first party benefits to the insured.
The court then discussed the bad faith claim at length. The insured had alleged that the insurer acted in bad faith by repeatedly selecting a specific organization that was biased in its favor to conduct the PROs. It also argued that the insurer denied the insured payment of first party medical benefits without any reasonable basis.
The court first concluded that the insured’s statutory bad faith claim was neither precluded by the court’s grant of summary judgment on the breach of contract claim nor preempted by the MVFRL. However, it still ruled in favor of the insurer. It held that the insured’s bad faith allegation based on the denial of first party benefits without any reasonable basis was foreclosed by the court’s ruling that the insurer did not breach its contract with the insured.
Concerning the claims that the insurer repeatedly chose the same organization to conduct the PROs, the court first determined that these allegations fell under Pennsylvania’s Bad Faith statute, 42 Pa. Cons. Stat. §8371, and were not preempted by any provisions of the MVFRL.
It then held, however, that the insurer’s actions did not constitute bad faith as a matter of law. The insured presented no evidence to support its allegations that the PRO had a financial incentive to provide a biased determination, that it continuously provided reports to the insurer, and that the insurer and the PRO were too closely associated for the PRO to conduct an objective evaluation.
Because the insured’s allegations lacked any supporting evidence, the court granted the insurer summary judgment on the bad faith claims against it in addition to the breach of contract claim.
Date of Decision: November 26, 2010 (Report and Recommendation), adopted December 13, 2010
Hampton v. GEICO Gen. Ins. Co., Civil Action No. 09-327, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 131450, 759 F. Supp. 2d 632 (Nov. 26, 2010) (Lenihan, J.),
In Amitie One Condominium Association v. Nationwide Property & Casualty Insurance Company, the insured was a non-profit homeowner’s association for a condominium complex that suffered damage from subsidence of the underlying land.
One of the properties in the complex began to suffer damages in 1992. Between then and 1994, portions of the building suffered from vast structural damage, including a large vertical crack in a wall, movement of the building due to the foundation of the land below changing, and other structural damages. A dispute existed over whether the structural problems persisted between 1994 and 2006, but in 2005-2006, the same problems existed that first arose more than a decade earlier. The damages to the building present in 2006 led to the lawsuit.
In 2006, the insured hired a geotechnical and structural engineering consultant to evaluate the property. It discovered sinkhole activity, and it concluded that the sinkhole caused the damages to the property. It determined that it would be necessary to “stabilize the condition to prevent further damage” and recommended that the insured stabilize the rear foundation and the soil upon which it bears.”
The insurer covered the insured under a Business Provider Insurance Policy, which provided insurance against the risks of direct physical loss and losses or damages caused by collapse of a building or any part of a building in the complex. There was an explicit exclusion in the policy for any damage caused by “earth movement.” The insured filed a claim for coverage under the insurance policy to pay for the necessary and recommended repairs to the property, but the insurer denied the claim after investigating and determining that this situation fell within the policy’s “earth movement” exclusion.
In late 2006, the insured filed a complaint against the insurer that included claims for breach of contract and bad faith denial of coverage. The main issue was whether the damages caused by the sinkhole actually fell within the policy’s exclusion. The United States Magistrate Judge first addressed the issues in a report and recommendation in 2007.
In this R&R, the magistrate judge concluded that the policy at issue was not an “all risks” policy, which meant that it did not cover all damages to the property unless specifically excluded, but instead only covered the specific damages mentioned in the policy. The magistrate judge also determined that the ongoing and gradual increase in damages resulting from sinkholes fell within the policy’s exclusion for damages caused by “earth movement,” and therefore recommended that the insurer’s motion for summary judgment be granted on all counts.
The district judge’s subsequent opinion differed in some aspects, but eventually reached the same result. The court held that the policy was in fact an “all risks” policy, determining that the language of the policy suggested that it covered all losses to the property unless the contract explicitly limited or excluded them. The district judge did not sway from the magistrate judge’s overall recommendation, however, concluding that the “earth movement” exception to the coverage clearly applied to this dispute.
The court thus granted the insurer’s motion for summary judgment, determining that the insurer did not breach its insurance contact with the insured and therefore could not have acted in bad faith.
Date of Decisions: December 7, 2010 (District Judge opinion) and August 31, 2010 (U.S.M.J. report and recommendation)
Amitie One Condo. Ass’n v. Nationwide Prop. & Cas. Ins. Co., Civil Action No. 1:07-CV-1756, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 129103, (Dec. 7, 2010) (Conner, J.)
Amitie One Condo. Ass’n v. Nationwide Prop. & Cas. Ins. Co., Civil Action No. 1:07-CV-1756, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 129077, (Aug. 31, 2010) (Prince, U.S.M.J.)
In Western World Insurance Company v. Delta Property Management, the insured owned and managed apartment buildings. One of the tenants at one of the insured’s properties stabbed another tenant to death. The insured promptly notified its general liability insurer. The insurer responded with a letter to the insured, highlighting an exclusion in the policy for assault and battery that prevented the insurer from having to defend or indemnify the insured in any claim arising out of an assault and/or battery or any act or failure to act to prevent an assault and/or battery. This initial letter informed the insured that there was a strong possibility that no coverage would be provided should any claim arise against the insured.
Some time after the incident occurred, the estate of the stabbing victim filed a wrongful death and survivor action against the insured, and the insured promptly notified the insurer of the lawsuit. The insurer initially provided a defense and agreed to select its own counsel, but a few months later the insurer sent another letter to the insured, this time notifying the insured that it was declining coverage for all claims in the wrongful death suit, although it would continue to provide a defense until the Court ruled on a complaint for a declaratory judgment that it intended to file.
The insured responded with a claim against the insurer, asserting that because the insurer sent an initial letter stating its intention to represent the insured after the lawsuit originated, it waived its right to assert the exclusion for assault and battery at a later date. It also alleged that the insurer acted in bad faith in denying coverage and a defense.
Concerning the assault and battery exclusion, the Court determined that because the insurer’s initial letter right after the incident “explicitly and unambiguously reserved its rights” under the exclusion, it did not waive its right at a later date to deny coverage based on that exclusion. The actions and words of the insurer between this initial letter and the denial of coverage may have indicated that it intended to provide some form of coverage.
The court stated, however, that at best, those words and actions only “suppl[ied] some meager support for an implied waiver” of the policy. By no stretch of the imagination could a jury ever rule that the insurer actually waived its rights to deny coverage. Because the insurer never breached any agreement in denying coverage and therefore properly handled the claim, the Court also ruled that the insurer could not have acted in bad faith. Therefore, the insurer was granted summary judgment on its declaratory judgment action, and it was relieved from any obligation to further defend the insured.
Date of Decision: November 29, 2010
Western World Ins. Co. v. Delta Prop. Mgmt., No. 10cv0279, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 125296 (W.D. Pa. Nov. 29, 2010) (Schwab, J.)
In Bybel v. Metro Life Insurance Company, the insured was an obstetrician/gynecologist at a hospital until she suffered a shoulder injury while delivering a baby when an obese patient pushed her. She tried receiving treatment without surgery, but that was unsuccessful, so the insured eventually had surgery, which was also ineffective. At the time of the court’s decision, the insured still suffered from constant shoulder pain and weakness.
The insured returned to work after her surgery, but she could only work part-time and could not perform major surgeries and other important procedures. She eventually was terminated from her position. The insured then filed an unsuccessful claim for wrongful termination, as the board ruled that she was properly terminated because she was physically unable to work.
The insured had a disability insurance policy with the insurer, and she notified the insurer of her disability a little more than a year after her last full day of work. The insurer initially completely denied the insured’s claim for disability, but it later determined that the insured was actually residually disabled for a period of six months after her last day of work. The insurer paid the insured 50% of the total disability benefits for that period.
Despite receiving some benefits under her policy, the insured proceeded to sue the insurer for breach of contract and bad faith. She alleged that the insurer breached its duty under the policy to pay full disability benefits and exhibited bad faith by denying her claim for benefits without a reasonable basis and recklessly disregarded that lack of a reasonable basis.
Concerning the breach of contract claim, the court determined that because a genuine issue of material fact existed as to whether the insured was fully disabled under her policy with the insurer, it had to deny the insurer’s Motion to Dismiss the claim.
Regarding the bad faith claim, the insured had alleged that the hospital’s decision to terminate her ignored “the functional limitations that were repeatedly and consistently set in place in her treating physicians’ reports, her occupational evaluation, her functional capacity evaluations, and her two independent medical examinations.”
The insured was able to present evidence that the insurer “failed to consider all the evidence before it, failed to provide all available information it had to the consultants it retained to evaluate [the insured’s] claim, and misrepresented the evidence it had in describing [the insured’s] condition to its key consultant. The insurer, on the other hand, did not present any significant evidence to refute the insured’s claim, instead simply relying on its position that the insured was not entitled to total disability or residual disability benefits.
The court thus determined that there were genuine issues of material fact with respect to the insured’s bad faith claim, and it therefore denied the insurer’s Motion.
Date of Decision: November 18, 2010
Bybel v. Metro. Life Ins. Co., Civil Action No. 09-570, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 122367, (Nov. 18, 2010) (Stengel, J.)
In Pratt v. Victoria Insurance Company, the insured had brought a bad faith insurance claim against the insurer for the insurer’s failure to pay what he maintained was due to him for vandalism to his motor vehicle. The case was referred to an arbitration panel, which found in favor of the insurer.
The insured proceeded to demand a trial de novo, and the issue before the court was whether the action could be tried before a jury. The court noted that on his Entry of Appearance in the Court of Common Pleas, the insurer’s counsel wrote, “A jury of twelve (12) persons is demanded.” Rule 38 of the Federal Rules of Civil Procedure provides that when an issue is triable of right by a jury, a party may demand a jury trial by serving the other parties with a written demand.
In determining whether this case allowed for a jury trial based on the above information, the court first noted that “under Pennsylvania law, there is no right to a jury trial in the state courts” when the sole claim is a bad faith insurance claim brought under 42 Pa. Cons. Stat. § 8371. However, it then recognized that the Third Circuit had previously determined that “when a § 8371 claim is brought in federal court, the punitive damages remedy triggers the Seventh Amendment right to trial by jury.” It therefore held that the insured’s claim was in fact triable by jury in the Eastern District court because one of the parties had properly and effectively made a demand for a jury trial.
Date of Decision: November 12, 2010
Pratt v. Victoria Ins. Co., Civil Action No. 10-1629, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 120637, (Nov. 12, 2010) (Bartle III, J.)
In Scottsdale Insurance Company v. City of Hazleton, a prior lawsuit had resulted in the City of Hazleton being enjoined from enforcing ordinances regulating the employment and housing of aliens who lack lawful immigration status. In this case, the district court had granted the insurer summary judgment on various insurance coverage claims arising out of the original litigation.
The City of Hazleton had raised a bad faith issue in the original Complaint, and the District Court granted the insurer summary judgment. It again raised the bad faith argument on appeal. It alleged in the original Complaint that the insurer acted in bad faith when it failed to timely advise Hazleton of a conflict of interest, claiming that it failed to put the city on notice of the potential grounds for its denial of coverage. It also alleged that the insurer acted in bad faith when it delayed the issuing of its reservation of rights letter for three months.
The District Dourt had ruled that because the insurer had retained counsel for the city’s defense within days of receiving notice of its claim and a three month delay was not unreasonable, the City of Hazleton had failed to demonstrate clear and convincing evidence of bad faith. Without further explanation, the Circuit Court panel agreed with the district court’s ruling that the insurer properly put Hazleton on notice of the grounds for its potential denial of coverage through a reservation of rights letter, and that the three-month delay in issuing the letter was not unreasonable as a matter of law. It therefore affirmed the District Court’s order granting summary judgment to the insurer.
Date of Decision: November 4, 2010
Scottsdale Ins. Co. v. City of Hazleton, No. 09-4176, United States Court of Appeals for the Third Circuit, 2010 U.S. App. LEXIS 23187, (Nov. 4, 2010) (Scirica, J., Rendell, J., and Roth, J.)
The District Court opinion is Scottsdale Ins. Co. v. City of Hazleton, 2009 U.S. Dist. LEXIS 44861 (M.D. Pa. May 28, 2009) (Caputo, J.)
In Morrisville Pharmacy, Inc. v. Hartford Casualty Insurance Company, the insured was a pharmacy operating under an “all risk” policy issued by the insurer. It initially filed a claim for insurance benefits in December 2008, claiming that the loss was caused by theft from the pharmacy earlier that year. The insured eventually changed its claim to allege that the property owner caused the loss by changing the pharmacy’s locks so that the pharmacy owner could not enter and remove the medications, documents, and equipment that belonged to the pharmacy.
The pharmacy owner had attempted to commit suicide in August 2008, and the pharmacy had closed down shortly thereafter. The property owner’s attorney wrote to the pharmacy owner asking for her to surrender the premises and return the keys, but she did not respond.
The pharmacy owner attempted to enter the premises almost two months after the pharmacy closed down, but she discovered that the property owner had changed the locks. The two sides communicated with each other, but they could not arrange for the pharmacy owner to recover the narcotics and other files left in the pharmacy. She filed a claim with the insurer, alleging direct physical loss of pharmacy property, which would be recoverable under her “all risk” policy.
She later admitted that her claim was simply that the property owner prevented her access to files and documents in the building, and that this prevented her from taking an offer for that sale of her pharmacy files.
The pharmacy owner filed a claim for breach of contract and bad faith after five months had passed without the insurer providing a determination on the claim. The main issue on the breach of contract claim was the legal question of whether the pharmacy owner suffered a direct physical loss of property, as defined by its insurance policy.
The court determined that because it was the pharmacy owner who was unable to effectively communicate with the property owner and her attorney, to the extent that there was a loss, it was due to her failure to take reasonable action to mitigate its loss, and even if there was a loss, “all risk” policies do not cover direct physical losses stemming from non-fortuitous events under Pennsylvania law. Therefore, there was no breach of contract that occurred.
Concerning the bad faith allegation, the court first noted that the insurer never even denied any benefits under the policy before the filing of the lawsuit. While the insurer had been evaluating the claim for five months before the suit was filed, the insured did not file proof-of-loss statements for the first two months after she submitted her claim. The court finally determined that the insurer adequately investigated the insured’s claim after the proof-of-loss statements and kept the insured notified of the investigation’s progress.
Therefore, the court determined that there was no issue of material fact as to whether bad faith was the reason for the delay, and it granted the insurer’s Motion to Dismiss both counts of the Complaint.
Date of Decision: November 3, 2010
Morrisville Pharm., Inc. v. Hartford Cas. Ins. Co., Civil No. 09-cv-02868, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 116607, (Oct. 28, 2010) (Rufe, J.)
In NIC Insurance Company v. PJP Consulting, LLC, the insurer represented a restaurant/bar that was the scene of an altercation in 2006. The victim was attacked by four intoxicated patrons at a Philadelphia bar. The patrons beat him, struck him in the head with a bottle, and slashed his face with a knife inside the bar. The bouncers then failed to contact the police and instead removed the attackers and the victim from the bar. The victim was then further beaten and stabbed in the chest outside the bar, suffering a collapsed lung among other injuries.
The victim proceeded to file a Complaint against the bar for negligence. The bar was insured by the insurer, who then filed a declaratory judgment action against the bar. The insurer’s Complaint alleged that the liability insurance policy contained not only a $1 million per-occurrence limitation on liability, but also an Assault and Battery Limits of Liability Endorsement that limits its liability to $50,000 for any injuries arising out of an assault and battery. Finally, the policy also contained a “defense within limits” “DWL” provision that reduced the amount of coverage that was available to indemnify the bar by the expenses the insurer incurred in defending the bar. It therefore alleged under this provision that once the bar’s legal fees and expenses exhausted the applicable limits of liability, it had no further obligation to defend or indemnify the bar.
The lone bad faith issue arose when the court discussed the legality of the DWL provision in the policy. The court noted in a footnote that “profligate spending by an insurer operating under a DWL provision could expose the insurer to a claim for bad faith.” It cited a law review article where the author provided an example where a bad faith claim may arise in this situation: “If settlement attempts by plaintiff’s counsel meet with rejection or an aggressive stance by the defense, plaintiff faces the prospect of fighting a battle that will reduce the limit below that necessary for settlement or satisfaction of verdict. In such a situation, plaintiff has every incentive to attempt to manipulate the insurer into a position of having made a bad faith decision by refusing to settle and engaging in expensive defense.”
The court eventually granted the victim’s Motion to Dismiss the insurer’s Complaint because the action presented unsettled issues under Pennsylvania law that could not be decided at the declaratory judgment stage. The parties did not raise the bad faith issue at this stage of litigation, and the court therefore did not discuss whether bad faith actually may have occurred in this case.
Date of Decision: October 22, 2010
NIC Ins. Co. v. PJP Consulting, LLC, Civil Action No. 09-0877, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 113207 (Oct. 22, 2010)
In Prusky v. Allstate Life Insurance Company, the insureds purchased annuity contracts from the insurer. The contracts permitted the value invested to be apportioned in various subaccounts at the direction of the insureds, and the insureds were allowed to transfer assets between and among the subaccounts to take advantage of market fluctuations.
However, soon after the contracts were formed, the insurer began to impose different restrictions on transfers between accounts. The insurer eventually notified the insureds that one of their subaccounts was closed to new premiums or transfers and that they would be restricted with new premium allocations and transfers into three other subaccounts to a maximum of $50,000 per day.
The insureds filed a Complaint, asserting that based on the contracts, the insurer was not permitted to impose transfer limitations on the annuity contracts. They claimed that they were induced to purchase the annuity contracts by representations of the insurer that transfers would be unrestricted, and that the insurer knew that they would not have purchased the contracts had they not had the ability to have unlimited daily transfers among subaccounts.
The Complaint contained counts for breach of contract, fraud, and bad faith among other things. The court determined that at the pleading stage, it was too early to dismiss the counts for breach of contract and fraud.
However, in addressing the bad faith claim, the court stated that Pennsylvania’s Bad Faith statute only provides remedies for an action arising under an insurance policy. In this case, the insureds alleged that the insurer breached contracts for annuities, not insurance. It held that “while annuities contracts are regulated by the Pennsylvania Insurance Commission, they are not insurance policies.” It would be impossible to grant relief to an insured for an insurer violating the bad faith statute of the policy is not an insurance policy.
Therefore, the court had no choice but to grant the insurer’s motion to dismiss the bad faith count of the Complaint.
Date of Decision: Sept. 30, 2010
Prusky v. Allstate Life Ins. Co., Civil Action No. 09-cv-05156, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 105864 (Sept. 30, 2010) (Ditter, Jr., J.)
