Monthly Archive for March, 2011
The insured was a health care company that managed a personal care home. In an underlying law suit, the plaintiff alleged that the insured breached its duty of care to her deceased husband by leaving him unsupervised and allowing him to leave the facility undetected. The husband was eventually found with severe injuries, and the plaintiff claimed that his weakened physical condition contributed to his death less than two years later. The plaintiff asserted that the insured was negligent in failing to provide a safe residential environment, failing to allow the decedent to access his living quarters (which led to him leaving the facility), and failing to maintain sufficient staffing to supervise the premises.
The insured was covered by the insurer under a business liability insurance policy. The insurer brought the current action seeking a declaration that it has no duty to defend or indemnify the insured in the underlying negligence suit.
The policy stated that the insurer would compensate the insured for damages due to bodily injury, property damage, or personal and advertising injury. It specifically excluded, however, claims “arising out of the rendering of or failure to render any professional service.” The insurer alleged that the claims against the insured were for professional negligence, which would fall under the exclusion.
The court therefore had to determine whether the law dictated that the insurer had to defend the insurer under the language of the policy. The insured felt that the allegations in the underlying action did not involve professional services, but the insurer believed they did. The court recognized that the duty to defend is broader than the duty to indemnify, noting that “all doubts as to coverage [are] resolved in favor of the insured.”
It decided that because the exclusion for professional services included only a non-exhaustive list of examples, it was ambiguous, and therefore had to be construed against the insurer. In one section of the Complaint in the underlying suit, the plaintiff alleged that the insured deviated from acceptable professional standards when treating the decedent. These claims did fall under the professional services exclusion, and the court held that the insurer had no duty to defend and indemnify the insured for those claims. The remainder of the original Complaint, however, contained several allegations that did not arise from rendering professional services. For example, monitoring the premises (including patient rooms) and knowing where the residents were did not require special professional training. These non-professional services led the court to conclude that the exclusion did not apply to the rest of the Complaint.
Finally, the insurer argued that the insured falsely represented the nature of its business when applying for the policy, but the court did not believe that based on the evidence presented about the policy application and related testimony about the subject. The court therefore ruled that the insurer was not relieved of its duty to defend and indemnify the insured, and it denied the insurer’s Motion for Summary Judgment.
Date of Decision: March 16, 2011
Hartford Cas. Ins. Co. v. New Hope Healthcare, Civil Action No. 09-5056, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 26987, (Mar. 16, 2011) (Savage, J.)
The insured suffered losses to her house in a bad storm, and she had a homeowner’s insurance policy with the insurer. The insurer’s representative inspected the house shortly after the storm and initially estimated the cost of repairs to be around $3,000, the insured hired a public adjuster who estimated that repairs would cost almost $40,000.
The insurer’s representative had concluded that the storm was not the cause of many claimed areas of damage around the house, while the insured’s public adjuster attributed nearly all of the damage in the house to the storm. After a second inspection, the insurer’s representative adjusted his estimate to about $10,000, and the insurer paid that amount, but it was still significantly less than the insured sought.
The insured then filed suit in state court, alleging breach of contract and bad faith. After the case was removed to federal court on diversity jurisdiction, the insurer filed a motion for summary judgment to dismiss both counts. The court first refused to dismiss the breach of contract count, as there was a “fundamental dispute over whether the claimed damage in certain areas . . . [could] be attributed to the storm or to other causes,” and the public adjuster submitted an affidavit stating that he made no material misrepresentations. It was therefore the fact-finder’s job to determine whether a breach of contract occurred, as the judge could not rule on the issue as a matter of law.
While the breach of contract claim survived summary judgment, the bad faith claim did not. The insurer’s representative inspected the house twice and revised his estimate after the second inspection. Additionally, he kept open lines of communication with the public adjuster and responded to all letters and phone calls. The court therefore could not find any clear and convincing evidence that the insurer acted in bad faith when it denied coverage, and it granted summary judgment to the insurer on the bad faith count.
Date of Decision: March 3, 2011
Kling v. State Farm Fire & Cas., Civil Action No. 10-101, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 21835, (Mar. 3, 2011) (Fullam, J.)
The insureds owned a property in Darby, Pennsylvania that suffered severe damage when a wall on the neighboring property collapsed. At the time of the incident, the insureds had a property insurance policy with the insurer, and they submitted a claim for coverage under the policy shortly after the damage occurred. An independent adjuster inspected the property, and the insurer rejected the insureds’ claim only days after they submitted it.
The insurer had determined that the losses sustained fell under a provision in the policy that excludes “losses caused directly or indirectly from settling, shrinkage, bulging or expansions of foundations, walls, floors, roofs, or ceilings.” The insureds were not satisfied with the insurer’s decision, and they hired their own investigator to inspect the property. He asserted that the collapse of the bearing wall was “the direct result of additional retained soil places behind the retaining wall,” which would not trigger the exclusion mentioned above.
The insureds eventually sued the owner of the neighboring property, and they ended up recovering $140,000 in damages. After later selling their property, the insureds filed the instant suit against the insurer based on the information their investigator gave them, alleging breach of contract and bad faith. The insurer filed a motion for summary judgment, after which the insureds voluntarily withdrew the bad faith count without prejudice.
Because the parties did not dispute any key facts, the court simply had to interpret the insurance policy to determine whether the insurer breached its contract. It noted that if a provision in a policy is ambiguous, then it should be construed in favor of the insured, but a mere disagreement about an interpretation of a provision does not mean that the provision is ambiguous. In fact, the court here felt that the language of the policy exclusion mentioned above was clear and unambiguous. It had no choice but to give effect to the language of the exclusion and hold that the exclusion applied. The court therefore granted the insurer’s motion for summary judgment on the breach of contract after acknowledging again that the bad faith count was voluntarily dismissed without prejudice.
Date of Decision: March 4, 2011
Gillin v. Universal Underwriters Ins. Co., Civil Action No. 09-5855, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 22590, (Mar. 4, 2011) (Tucker, J.)
The insured family owned a golf cart which struck a child. The child’s family sued the insureds, and the insureds submitted a claim to their insurer for defense and indemnification from the lawsuit.
The homeowner’s insurance policy that the insureds had included a “Motor Vehicle Exclusion.” The policy excluded from coverage liability caused by recreational motor vehicles like golf carts, unless they were used “solely to service the residence premises.”
The insurer’s investigation led it to discover that the golf cart was not used solely to service the residence premises. Therefore, citing the policy exclusion, the insurer refused to indemnify or defend the insureds in the lawsuit against them.
The insured then sued the insurer, asserting claims for both breach of contract and bad faith. The district court granted summary judgment to the insurer, and the insured appealed to the Third Circuit. It argued on appeal that (1) the district court incorrectly ruled that the insurer had no duty to defend or indemnify the insured, and (2) it incorrectly allowed the insurer to rely on extrinsic evidence when it sought declaratory judgment.
The Third Circuit agreed with the district court on all issues. The insureds had admitted that the golf cart was a recreational vehicle, and the court held that the victim’s family’s complaint clearly fell within the Motor Vehicle Exclusion. Also, the court determined that the exception to the exclusion for using the vehicle solely to service the residence premises did not apply.
Finally, because the extrinsic evidence the insurer relied upon was used to show that the exception to the policy’s exclusion did not apply, the court ruled that the district court did not err in allowing the insurer to use that evidence. The Third Circuit therefore held that the district court properly granted summary judgment to the insurer and affirmed the ruling.
Date of Decision: March 9, 2011
Haines v. State Auto Prop. & Cas. Ins. Co., No. 10-1946, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 4684 (3d Cir. Mar. 9, 2011) (Aldisert, J.)
The insured was riding his motorcycle in Pennsylvania when the driver of a car crossed into the lane in which he was traveling and struck his motorcycle. The insured suffered severe injuries, and the insurer of the driver of the other car paid the policy limits of its liability coverage to the insured. State Farm (“the insurer”) covered the insured, and the insured notified the company of his intent to pursue a claim for underinsured motorist (“UIM”) benefits. His policy with the insurer consisted of $100,000 of UIM benefits for the vehicle in the accident, two other motorcycles, and one car, and he paid a premium to the insurer for stacking coverage, so the total amount of UIM benefits available was $400,000.
The insured provided medical records and reports to the insurer and made written demands for the full $400,000 available to him, but the insurer only paid $150,000 over the course of two payments. The insured eventually filed a Complaint for breach of contract, seeking the remaining $250,000 available under the policies. He alleged in the Complaint that the insurer did not objectively and fairly evaluate his claim and therefore violated its obligations under the policies, which amount to bad faith allegations. He did not, however, assert a claim for bad faith under Pennsylvania law, and the insurer filed a motion to strike the paragraphs in the Complaint that discussed potential bad faith violations.
The insured responded by agreeing to strike the word “fiduciary” from the Complaint, as he realized that the case did not involve the insurer’s handling of a third-party claim. On the other hand, the insured argued that while he did not assert a claim for statutory bad faith, the allegations in question were proper because the insurer owed him a duty of good faith and fair dealing with regard to his claim for the full amount of UIM coverage. The court agreed with the insured, citing prior Pennsylvania case law and holding that “an insurance company’s duty to its insured is one of good faith and fair dealing.” It therefore denied the insurer’s motion to strike the paragraphs of the complaint dealing with bad faith in their entirety.
Date of Decision: February 28, 2011
Sartoris v. State Farm Mut. Auto. Ins. Co., Civil Action No. 11-119, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 19414, (Feb. 28, 2011) (Standish, J.)
A partnership (“Franklin Mills”) began developing the Franklin Mills Mall in 1988. Franklin Mills entered into a Master Declaration and Agreement that governed all stores in the mall, under which occupants could not use or permit the use of their property for anything detrimental to the operation of the mall (for example, uses which emitted obnoxious odors or noises, uses that physically damage any part of the mall property, or and creating a nightclub on the premises).
Around two months after the Master Declaration was signed, a company named PMI Associates purchased a parcel of the Mall from Franklin Mills. The parties signed a Declaration of Restrictions, which included an Operating Covenant that required the property to be operated as a general merchandise retail store/pharmacy for three years after opening the business on the property. After three years, the buyer could use the property for more general retail uses, as long as the use was permitted under the Master Declaration. Another provision in the Declaration of Restrictions gave Franklin Mills the option to repurchase the property if, after the three-year covenant expired, the buyer “desire[d] to cease conducting business to the public in its building.”
In 2001, PMI took out a $3.5 million loan from Nationwide Life Insurance Company (“Plaintiff”), using the property at the mall as security. In connection with the mortgage, Plaintiff purchased a title insurance policy from Commonwealth Land Title Insurance Company (“Defendant”). The policy covered Plaintiff against various losses and damages, but it contained an exception for damages caused by breaching the Master Declaration or Declaration of Restrictions.
PMI eventually defaulted on its loan, and in 2003, it conveyed the property to Plaintiff. Plaintiff then attempted to recoup its losses by selling the property to another entity for $3.8 million. The new buyer had planned to lease the property to a tenant that would open a technical school. Franklin Mills, however, did not consent to the sale of the property because the prospective buyer’s plans would violate the Declaration of Restrictions. After unsuccessfully attempting to sell the property to other buyers and attempts to sell the property back to Franklin Mills, Plaintiff submitted a claim to Defendant, alleging that Franklin Mills’ rights of refusal were covered restrictions that made the property unusable and unsalable.
After Defendant denied its claim, Plaintiff filed a lawsuit seeking declaratory judgment and damages. The District Court dismissed the litigation, holding that the policy expressly excepted any loss or damage arising from the Declaration of Restrictions. The Third Circuit reversed the decision, reinterpreting the policy to consider its purpose and industry custom/practice. Plaintiff then filed an Amended Complaint to the District Court, alleging claims for breach of contract and bad faith, and both parties filed motions for summary judgment.
The court’s lengthy opinion discussed many issues, but it ultimately reached to a few important conclusions. It determined that the policy issued to Plaintiff “covers- without exclusion- the loss suffered . . . as a result of its inability to sell the subject Property.” Therefore, it granted Plaintiff summary judgment on its breach of contract claim and entered a declaratory judgment in favor of Plaintiff. It was unable to precisely determine the amount of damages available at this stage, however, as there were still many issues of material fact.
With respect to the bad faith claim, Plaintiff had alleged that Defendant deviated from its standard practices when it denied Plaintiff’s claim based on its interpretation of the policy’s exceptions. Defendant responded by asserting that the Third Circuit only held that its interpretation of the policy was incorrect, and it did not mention that it was unreasonable.
The court first recognized the “clear and convincing standard” under Pennsylvania’s Bad Faith Statute, 42 Pa.C.S. § 8371. The statute requires an insured to show clear and convincing evidence that the insurer (1) lacked a reasonable basis for denying coverage, and (2) knew or recklessly disregarded its lack of a reasonable basis.
Applying the bad faith standard to this case, the court held that neither party could prevail as a matter of law at the present stage. The fact that the district court agreed with Defendant’s interpretation of the policy and the Third Circuit agreed with Plaintiff’s showed that this case presented a “novel issue of law,” and no party was unreasonable in its interpretation of the contract. Because it could not find any evidence of bad faith or any evidence of an absence of bad faith by Defendant, the court decided to forgo a summary judgment ruling with respect to the bad faith claim.
Date of Decision: February 17, 2011
Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co., Civil Action No. 05-281, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 16446, (Feb. 17, 2011) (Buckwalter, S.J.)
Judge Buckwalter denied a Motion for reconsideration on March 23, 2011 (2011 U.S. Dist. LEXIS 29692).