Monthly Archive for September, 2013


The insurer sought a declaratory judgment relieving it of its duty to provide a defense to the insured under a claims made policy, asserting that a $100,000 policy sublimit applied to the claims against the insured.  The insured filed counterclaims (1) seeking defense and indemnification beyond that limit; and (2) for bad faith.

The insured company administers class action settlement funds. One of the company’s employees embezzled several million dollars of settlement proceeds, and subsequently pled guilty to federal charges of mail and wire fraud.  After learning of the fraud, some members of a settlement class brought suit against the insured.  The insurer initially provided a defense, but then filed a declaratory judgment action seeking to eliminate any future duty to provide a defense; and to further recover costs and expenses which exceeded the $100,000 sub-limit provided in the policy.

The $100,000 sub-limit in the policy included language stating that the “maximum amount payable for each covered Claim arising from, related to or in connection with any Insured’s misappropriation, misuse, theft or embezzlement of funds shall be $100,000 in excess of the Per Claim Deductible.” This required the court to determine if the employee had engaged in the type of conduct described by the policy language; if the employee qualified as an insured since he stopped working for defendant four years before the policy was issued; and finally whether the employee was performing professional services.

First, the court determined that the term “misuse” should be interpreted in its ordinary sense, and that the employee had misused the funds. Furthermore, the employee had engaged in misappropriation, embezzlement, and theft of client funds as those terms are legally defined. Second, the court determined the acts at issue took place during a time covered by the policy’s retroactive period.   Finally, the court found that the employee was providing professional services as an employee at the time the illegal actions took place, and thus was an insured under the policy.

Therefore, the $100,000 policy sublimit applied. Based on this determination, the court granted summary judgment in the insurer’s favor on the bad faith count.

Date of Decision:  June 28, 2013

Camico Mut. Ins. Co. v. Heffler, Radetich & Saitta, LLP, No. 11-4753, 2013 U.S. Dist. LEXIS 91649 (E.D. Pa. June 28, 2013) (DuBois, J.)


Plaintiff’s Motion for Reconsideration of the Memorandum and Order dismissing her First Amended Class Action Complaint was denied. Plaintiff brought suit asserting claims of breach of contract, violation of the Unfair Trade practices and Consumer Protection Law, unjust enrichment, and statutory bad faith on behalf of herself and similarly situated individuals. Plaintiff’s allegations related to her claim that she purchased automobile insurance for her antique and classic vehicles from the insurer which were purported to provide stacked uninsured and underinsured coverage while the policies actually only provided unstacked coverage. The insurer filed a motion to dismiss, and the District Court judge granted the motion finding no breach of contract because the policy did not provide for stacking, no violations of the UTPCPL, and no unjust enrichment because the policy was valid. The bad faith claim was dismissed for failure to state a claim because it “was not related to Foremost’s performance of its contractual obligations of defense and indemnification or payment of a loss,” as required by the statute.

Plaintiff filed a Motion for Reconsideration seeking reconsideration of the case law the court applied, as well as the dismissal of her UTPCPL and statutory bad faith claims. The court quickly refused reconsideration of the UTPCPL and statutory bad faith claims as plaintiff merely restated her previous arguments, failing to meet the requirements for reconsideration.

The court denied the motion for reconsideration because granting plaintiff’s motion and its attempt to make a new argument, despite plaintiff’s previous opportunity to address the argument raised by the insurer via a response to the insurer on the initial motion, would have given plaintiff an improper “second bite at the apple.” The court further found even if it granted the motion for reconsideration, plaintiff had failed to demonstrate that relying on the disputed case law was a clear error of law.

Date of Decision:  July 1, 2013

Grudkowski v. Foremost Ins. Co., No. 3:CV-12-1847, 2013 U.S. Dist. LEXIS 91848 (M.D.Pa. July 1, 2013) (Caputo, J.).


The court granted the insurer’s Motion for Summary Judgment. Plaintiff brought suit alleging the insurer improperly denied coverage after an apartment building owned by plaintiff was destroyed by a fire and plaintiff provided proper and timely notice of the claim. The insurer denied coverage based on the insurance application, which stated the property was equipped with an automatic sprinkler system, when in reality, no such system existed.

Plaintiff alleged this denial was improper because the final Commercial Insurance Application was prepared and submitted without being reviewed by plaintiff’s president, and that the Protective Safeguards Endorsement (PSE) contained in the policy, requiring plaintiff to “maintain” an automatic sprinkler system, was ambiguous because no such system existed.

Plaintiff obtained its insurance policy through Cohen-Seltzer, a professional insurance agency, with effective dates of August 8, 2008 to August 8, 2009. The policy was then renewed for 2009-2010. The insurance application was completed by plaintiff’s employee and submitted to Cohen-Seltzer. Plaintiff’s employee was authorized to sign documents such as a commercial insurance application form, and was aware that she had the authority to do so.

In the 2009-2010 application, the employee stated the property was “100% sprinklered.” The 2008-2009 insurance application also indicated the property was 100% sprinklered. Cohen-Seltzer used these documents to create and submit a Commercial Insurance Application to the insurer to obtain the requested policy.

The insurer issued the policy based on the fact the property was 100% sprinklered, and also reduced the policy premium by approximately 40% because of this representation. During its investigation of the fire, the insurer learned the building did not have a sprinkler system, and denied coverage based on the plain words of the PSE.

Because the PSE “clearly and unambiguously” made “maintenance” of an automatic sprinkler system a condition of the insurance, the condition was breached by the absence of a sprinkler system.

Furthermore, any damage caused by the fire was not covered due to an exclusion of any loss or damage caused by a fire if the insured failed to maintain the sprinkler system in operative condition. Because the absence of a sprinkler system was a clear violation of the policy, the court found in favor of the insurer, finding no genuine issues of material fact remained.

Finally, because the insurer properly denied coverage, the bad faith claim was dismissed as well.

Date of Decision:  June 17, 2013

Yera, Inc. v. Travelers Cas. Ins. Co. of Am., Sept. Term 2011, No. 2141, 2013 Phila. Ct. Cm. Pl. LEXIS 191 (C.C.P. Phila. June 17, 2013) (Snite, J.)


The court was asked to determine whether the defendants “all risk” insurance policy covered claims for property damage and remediation arising from fluids released by a decomposing human body. The insurer asserted that the policy excluded coverage for the property damage and remediation, denied the claim, and brought suit seeking declaratory judgment.

The defendant-policyholders filed cross-claims for compensatory damages, bad faith, and Pennsylvania Unfair Insurance Practices Act violations. Typically in determining coverage under an “all risk” policy, the insured bears the burden of demonstrating a covered loss has occurred, after which the burden shifts to the insurer to demonstrate the loss falls within a policy exclusion.

In this case, however, neither party disputed that the occurrence was covered; rather, the insurer argued it fell within three exclusions: (1) the microorganism exclusion, (2) the seepage exclusion, and (3) the pollutants exclusion.

The insurer first argued bacteria was present in the bodily fluids that caused the damage to the property, excluding the damages because a “microorganism” caused them. Although no testing was done on the fluids, the insurer presented expert testimony that the decomposition indicated signs of bacteria, corroborated by defendant’s own testimony as to the scene of the apartment where the body was discovered, to support its contention bacteria was present in the fluids. Defendant argued the evidence was insufficient because no direct testing had been done on the fluids.

The court disagreed, holding bacteria was present in the fluids and had caused the property damage, causing the occurrence to fall within the microorganism exclusion.

Next the court considered the seepage exclusion, which required showing (1) “seepage” had occurred, defined by an “element of movement” under Pennsylvania case law, and (2) that the fluids themselves were regulated as a hazardous material. The carrier presented evidence the bodily fluids had purged from the deceased body and spread across the decedent’s apartment and into the apartment below.

Furthermore, the Occupational Safety and Health Administration defines bodily fluids as “potentially infectious materials.” The defendants argued there was no evidence the bodily fluids posed a danger to human health. The court found the deceased body’s expulsion of the bodily fluids constituted seepage because there had been “movement” as required by Pennsylvania case law, and that the bodily fluids were a “regulated pollutant” under OSHA regulations. Thus, the court found in favor of the insurer, holding the seepage exclusion applied.

Finally, the court considered the pollutants exclusion, but elected not to rule on whether or not biological material constituted a pollutant as jurisdictions are split on the issue and coverage had already been precluded by the two previous exclusions. Finding there was no coverage available, the court ruled in the insurer’s favor on the defendant’s counterclaim alleging bad faith.

Date of Decision:  June 25, 2013

Certain Underwriters at Lloyd’s London Subscribing to Policy No. SMP3791 v. Creagh, No. 12-571, 2013 U.S. Dist. LEXIS 89346 (E.D. Pa. June 25, 2013) (DuBois, J.).

This decision was affirmed on April 14, 2014.



Plaintiff brought suit against his insurer for claims of bad faith in settling his underinsurd motorist claim. Plaintiff was driving in Philadelphia when he was forced to abruptly stop because another driver opened their door into the driving lane while parking their car. Plaintiff was then rear-ended. Plaintiff pursued a claim against the driver in the collision, whose insurer agreed to settle the claim for the $15,000 policy limit.

Plaintiff then filed an underinsured motorist claim under his own policy that included a stacking option in addition to $100,000 per individual and $300,000 per accident limits. The carrier from whom plaintiff purchased the policy agreed to an arbitration of the claim with a neutral arbitrator. The arbitrator awarded plaintiff $232,000 with a $15,000 set off. Following the arbitration award, plaintiff filed suit in Montgomery County contending defendant engaged in multiple actions which constituted bad faith prior to the arbitration award.

First, plaintiff argued that the insurer’s failure to notify him his policy had been transferred to another insurer and that a new claims agent had been assigned to it constituted bad faith. Under Pennsylvania law, misrepresentations made by an insurer or its attorney can amount to bad faith. Plaintiff contended he submitted the claim in December 2002, but was not notified of the policy transfer until July 2005.

He also contended the insurer’s attorney misled him as to which insurance company he represented. The court determined even if the alleged misrepresentations took place, such misrepresentation would not be sufficient to meet the bad faith standard, in particular because it was unclear how the alleged misrepresentations affected resolution of the underinsured motorist claim.

Next plaintiff alleged the insurer requested unnecessary documentation for the purpose of harassing plaintiff and delaying settlement. The insurer argued the requested documents were reasonable and necessary to fully assess the claim, and that plaintiff had not returned all necessary documentation, in particular, evidence of lost wages and earning capacity.

Under Pennsylvania law, investigative efforts are permissible when a claim’s value is ambiguous. Specifically, determining a loss of income earning capacity is determined by whether there is a loss of earning power and of the ability to earn money. Plaintiff supplied the carrier with a letter from his employer indicating he earned $35,000 less between the time of the accident and the end of the calendar year, but the insurer presented evidence plaintiff’s billable hours had not actually decreased.

The court found the delay in settlement was not sufficient to establish bad faith, and the rest of the evidence was not sufficient to reach the clear and convincing evidence standard required for bad faith given the ambiguities of the claim.

Plaintiff also argued the insurer’s settlement offer of $75,000 was improper, particularly because the insurer’s counsel initially suggested a settlement range of $150,000 to $175,000. The insurer argued the initial range was based on plaintiff’s demand, but a lower offer was made when plaintiff failed to produce evidence demonstrating a wage loss and loss of earning capacity.

The court found the insurer’s valuation of plaintiff’s injuries and the eventual settlement offer were not prima facie evidence of bad faith given the ambiguities surrounding plaintiff’s lost wages and earning capacity calculations, and therefore fell short of the clear and convincing evidence standard.

Finally, plaintiff argued the insurer acted in bad faith by asserting a defense claiming plaintiff failed to protect the insurer’s subrogation interests. While there was some ambiguity in the policy’s language regarding the subrogation rights, merely asserting a subrogation defense is not clear and convincing evidence of bad faith, and furthermore, the insurer had not asserted any subrogation right as an affirmative defense in the action.

Based on these findings, the court granted the insurer’s motion for summary judgment and denied plaintiff’s request for sanctions.

Date of Decision: June 20, 2013

Lublin v. Am. Fin. Group, Inc., No. 07-3422, 2013 U.S. Dist. LEXIS 87218 (E.D. Pa. June 20, 2013) (Robreno, J.).


The Court of Common Pleas of Philadelphia County transferred a bad faith case to the Court of Common Pleas of Dauphin County because the underlying suit was adjudicated in Dauphin County.

In the underlying case, plaintiffs brought suit against their landlords for personal injuries caused by mold in their rented apartment. The landlords’ insurer refused to indemnify two of the three landlords, but filed preliminary objections on behalf of one landlord, which were sustained resulting in the landlord being dismissed. Prior to any verdict or judgment, the two remaining landlords reached a settlement with the plaintiffs, under which the plaintiffs agreed to indemnify and hold harmless the landlords from any liability which they might have to plaintiffs or their insurers. Following an assessment of damages, a total judgment of $6,690,257.00 was entered in favor of plaintiffs.

Two years later, the insurers filed a petition to intervene in the underlying action seeking to strike the judgment. The judge granted the intervention and struck the judgment despite the delay. The insurers then sought to have the case transferred to Dauphin County where the underlying case had taken place.

The Common Pleas court found the matter was “intricately intertwined with the Court of Common Pleas in Dauphin County” and that “transfer was appropriate given the matter’s extensive procedural history” in the jurisdiction.

The court further described the “the structure of the underlying settlement,” which was entered into prior to the entry of a judgment or verdict as “extremely suspicious” and likely created with “an eye towards manufacturing a breach of contract and bad faith type claim” against the insurers. Based on these assertions, the court found “Philadelphia [was] simply not the best or most logical forum available,” because the bad faith action would require determinations regarding the insurers’ actions in the underlying Dauphin County case.

Date of Decision:  June 14, 2013

Schriner v. Peerless Ins. Co., August Term 2011, No. 01294, 2013 Phila. Ct. Com. Pl. LEXIS 188 (C.C.P. Phila.  June 14, 2013) (Younge, J.)


An attorney-insured brought suit against his legal malpractice insurer alleging breach of contract and bad faith for denying coverage under his claims-made policy where the insurer alleged the attorney failed to provide timely notice of the claim. In 2006, the insured undertook representation of a client in a wrongful death action after the client’s son drowned on an unsupervised beach in Ocean City, New Jersey. The insured failed to file the proper Notice of Claim under the New Jersey Tort Claims Act, and then failed to timely appeal the denial of his motion to file late notice.

These failures precluded the client from pursing the wrongful death action, and the case was dismissed in late 2006. The client filed suit against the insured on February 3, 2010. The insured was served on February 23, 2010, and provided the insurer with notice of the suit one week later.

The insurer denied coverage because the insured failed to give the insurer timely notice of the claim and the claim was not filed within the relevant claims period. The insurer specified the claim arose in 2006 when the client’s claim was dismissed and the insured became of aware of the failure to comply with the relevant statute of limitations.

On June 7, 2011, the Superior Court granted summary judgment in favor of the client in her legal malpractice action.

On November 2, 2011, the insured filed suit seeking declaratory judgment and damages based on the insurer’s alleged breach of contract and bad faith denial of coverage.

The court first considered whether the carrier had breached its contract with the insured. The policy stated a claim was to be made when “an INSURED first becomes aware of any act, error or omission by any INSURED which could reasonably support or lead to a demand for damages.”

Under a claims-made policy, the insurer establishes a breach of the notice provision by demonstrating “(1) that Plaintiff was aware of a given set of facts; and (2) that a reasonable attorney in possession of those facts would have believed that those facts could support or lead to a demand for damages.”

In reference to the first prong, the court found the insured was aware: that his client’s initial suit and subsequent appeal were dismissed due to failure to comply with the statute of limitations and a failure to file a timely appeal; the insured was knowingly practicing law in New Jersey without a license; the insured did not report these circumstances to the insurer despite the policy requiring him to do so; and, the insured was aware of the existence of a potential claim at the time he reapplied for insurance.

Under the second prong, the court relied on precedent which established a reasonable attorney would believe a failure to comply with a statute of limitations would expose the attorney to a possible legal malpractice suit. Furthermore, the court found the insured and his client had discussed the possibility of the client suing him. Having satisfied both prongs of the test, the insurer was justified in refusing to indemnify the insured.

The court further found on the bad faith claim that, not only was the insurer justified in denying coverage, the insurer had provided the insured with a letter specifically detailing its reasoning for denying coverage and the provisions of the policy it asserted the insured violated. The insured was not able to produce any evidence to rebut the insurer’s reasons for denying coverage, and therefore his bad faith claim failed as a matter of law.

Date of Decision:  June 26, 2013

Pelagatti v. Minn. Lawyers Mut. Ins. Co., No. 11-7336, 2013 U.S. Dist. LEXIS 90041 (E.D. Pa. June 26, 2013) (Robreno, J.).