Monthly Archive for December, 2013


In Rudi v. State Farm Fire & Cas. Co., State Farm has issued flood dwelling insurance that was federally underwritten, in a Standard Flood Insurance Policy administered  by it pursuant to the National Flood Insurance Program (“NFIP”). Allstate argued that the insureds’ statutory bad faith claim was foreclosed because federal law preempts state law extra-contractual claims related to NFIP policies.  The insureds did not oppose Allstate’s summary judgment motion on this point.

Date of Decision: November 27, 2013

Rudi v. State Farm Fire & Cas. Co., No. 2:11-cv-04362-WY, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2013 U.S. Dist. LEXIS 168618 (E.D. Pa.  November 27, 2013) (Yohn, J.)


Defendant was an insured under a $1.5M Voluntary Accident Insurance Policy, providing coverage for, amongst other things, ‘permanent total disability.’ In 2005, defendant gave notice of a claim for permanent total disability benefits as a result of injuries suffered from a fall down an escalator at the Munich Airport in Munich, Germany. Plaintiff denied defendant’s claim. Defendant filed a demand for arbitration disputing the denial of her claim and asserting claims for breach of contract, equitable reformation, insurance bad faith, and violations of the New Jersey Consumer Fraud Act.

Plaintiff filed a counterclaim in the arbitration for common law fraud founded upon representations made by defendant during the claim investigation and the arbitration. The arbitration panel entered an award in plaintiff’s favor on all of the defendant’s claims and a partial award as to liability on plaintiff’s counterclaim for fraud. The panel chair concluded that defendant’s claimed disabilities and limitations were largely or entirely feigned for the purpose of financial gain, and that defendant had engaged in deliberate deception. Plaintiff was separately awarded fees and costs.

Plaintiff filed a motion to confirm the arbitration awards. Defendant opposed plaintiff’s motion to confirm, but failed to raise any viable arguments in support of her position, with her filings focusing primarily on the believed misconduct of her attorneys and unsubstantiated allegations of arbitrator partiality. Defendant also failed to move to vacate the arbitration award, thereby forfeiting the right to oppose confirmation of the award when sought by the opposing party.

Plaintiff also sought to dismiss defendant’s counterclaims and strike defendant’s answer for failing to comply with the Federal Rules of Civil Procedure. Due to the arbitration clause in the insurance contract, the court dismissed the counterclaim entirely, as it should have been raised in an arbitration setting. The court did, however, allow the answer to stand, given defendant’s pro se status, but deemed all allegations which defendant failed to deny admitted.

Date of Decision: November 26, 2013

Fed. Ins. Co. v. Von Windherburg-Cordiero, Civil Action No. 12-2491 (JAP), 2013 U.S. Dist. LEXIS 168482 (D.N.J. Nov. 27, 2013) (Pisano, J.).



Plaintiff, a landscaping company, brought suit against its insurer seeking a declaratory judgment establishing the insurer’s duty to defend plaintiff in an underlying tort action, as well as claims for breach of contract and bad faith as a result of the insurer’s denial of the claim. The underlying claim arose from an individual bringing suit against his condominium association after he slipped and fell on a patch of ice. The condominium association joined plaintiff as a third-party defendant, alleging plaintiff was under contract with the condominium association to perform snow and ice removal, and that plaintiff’s negligence in performing these duties caused the individual’s injuries.

Plaintiff sought coverage under its commercial general liability policy with the insurer, requesting a defense and indemnification if necessary. The insurer denied coverage, and plaintiffs filed suit in state court. The insurer removed the case to federal court based on diversity of citizenship. The insurer then filed a motion to dismiss all of plaintiff’s claims.

In its bad faith action, plaintiff alleged the insurer acted in bad faith by failing to effectuate a prompt, fair, and equitable settlement with plaintiff, failing to timely respond to plaintiff’s claim for benefits, failing to adequately investigate plaintiff’s claim for benefits, compelling insured to seek independent legal representation, and failing to timely provide a reasonable explanation of the basis for the denial of plaintiff’s claim for benefits. Defendant argued the claims were devoid of any factual allegations.

The court concluded plaintiff’s allegations, read in conjunction with the entire complaint, sufficiently stated a claim for bad faith on the basis of a frivolous or unfounded refusal to pay. Plaintiff alleged it submitted a claim, which was improperly denied, and that the insurer refused to pay any part of its defense costs despite repeated demands to be reimbursed. Accepting these allegations as true and construing them in a light most favorable to plaintiff, the claim states a claim for bad faith under Terletsky. Therefore, the motion to dismiss the bad faith claim was denied.

Date of Decision: November 6, 2013

Sabia Landscaping v. Merchs. Mut. Ins. Co., Civil Action No. 13-3820, 2013 U.S. Dist. LEXIS 162247 (E.D. Pa. Nov. 14, 2013) (DuBois, J.).


This case involves a coverage dispute between plaintiff, the primary insurer, the defendant-insured, and the excess and umbrella insurer.  Plaintiff filed a complaint alleging its policy did not provide coverage for the insured’s claim, and listing the excess insurer as a “nominal defendant,” although plaintiff and the excess insurer do not have adverse interests.

Both insurers sought a declaratory judgment holding insured’s claims were not covered by these policies. The insured then filed a counterclaim against plaintiff and cross claim against the excess insurer seeking coverage and alleging bad faith. Both insurers filed motions for summary judgment, which the court granted.

The insured and insurers both advanced arguments disputing coverage and applicability of exclusions in the policy. The insured also advanced an equitable argument, suggesting even if the court found the underlying claims were not covered by the policies, the insurers should still be barred from contesting coverage.

Considering the new case law handed down by the Superior Court in Babcock & Wilcox v. Am. Nuclear Insurers in July of 2013 (THE BABCOCK CASE WAS REVERSED BY THE PENNSYLVANIA SUPREME COURT ON JULY 21, 2015), the court found the insured’s argument without merit. Under Babcock, where an insured accepts a defense from the insurer, the insured is bound to its decision, granting the insurer sole authority to control the defense.

Although the insurer is still required to act in good faith in representing the insured’s interest and settling the case, if the insured has accepted the defense, its sole protection against any injuries arising from the insurer’s conduct of the defense is a claim for bad faith.

The court found the insured failed to present law or facts supporting a finding of waiver due to the plaintiff’s alleged failure to seek a timely intervention or to file a declaratory action while the underlying litigation advanced. Plaintiff had no obligation to intervene or file a declaratory action, nor did either party dispute that plaintiff effectively reserved its right to contest coverage. The insured also alleged plaintiff waived its coverage defense by initiating an interpleader action in state court (prior to the federal action).

The court stated that Charter had moved to deposit the policy limit plus post-judgment interest with the Court of Common Pleas in order to halt the accrual of post-judgment interest and demonstrate a good faith effort to settle.

However, existing case law demonstrates courts do not recognize the tender of funds for settlement purposes as a waiver of coverage contest where the insurer has properly reserved its right to do so.  Plaintiff paid the funds into the account to stop the accrual of post-judgment interest, and did not indicate in any way that it intended to reverse its previous reservation of its rights to contest coverage.

The insured also argued plaintiff should be estopped from asserting its coverage defense due to its unreasonable refusal to settle the underlying claims within the policy limits and its failure to provide the insured with independent counsel when a conflict of interest arose between plaintiff and the insured.

However, under Babcock, the insurer can simultaneously challenge whether a claim is covered under the policy while also assuming the duty to defend. Based on Babcock, plaintiff retained full control of the litigation when the insured accepted its defense, and plaintiff’s decisions with respect to settlement of the claim, or choice of counsel, did not affect its reservation of rights.

Therefore, the court found in the insurers’ favors, and granted the motion for summary judgment of non-coverage.

The bad faith claim was not before the Court, as the parties had submitted only the coverage issues.  The court observed that the insured’s protection for its contention that Charter Oak failed to appropriately settle the case within the policy limits or failed to appoint independent counsel – its sole protection – lies in its claim of bad faith.

Specifically, “Maglio asserts counterclaims against Charter Oak based on Charter Oak’s alleged bad faith in refusing to settle the underlying litigation within the policy limits and failing to appoint independent counsel to defend Maglio. The summary judgment motions presently before this Court do not address Maglio’s counterclaims, pursuant to the parties’ agreement to proceed with coverage issues first. The Court therefore makes no finding with respect to Maglio’s counterclaims at this time.”

Date of Decision: October 24, 2013

Charter Oak Ins. Co. v. Maglio Fresh Food, Civil Case No. 12-3967, 2013 U.S. Dist. LEXIS 152741 (E.D. Pa. Oct. 24, 2013) (Baylson, J.).


Plaintiff brought suit against its insurer for bad faith after a molded verdict of $906,000 was entered against him in excess of his $25,000 policy limit. The insurer filed an answer to the bad faith claim, and in paragraph 120, set forth allegations asserting that plaintiff’s counsel had orchestrated a “bad faith set-up” in the underlying suit to gain access to punitive damages, despite the limited value of the underlying case. Plaintiffs moved to strike the paragraph.

The District Court allowed most of the language in paragraph 120 to stand, as it believed, if proven, the allegations in the paragraph in question would assist in establishing an “avoidance” under the terms of Fed. R. Civ. Proc. 8(c). However, in a footnote, the court observed that “these allegations may not provide an affirmative defense because Defendant cites no Pennsylvania appellate case that confirms the existence of a ‘bad faith set-up’ defense.”  Further, subsections “g” and “h” of paragraph 120, alleging plaintiff’s counsel violated unspecified state and federal criminal statutes, were stricken.

Since the allegedly violated statutes were not listed, the subsections failed to provide “fair notice” of the claim and the grounds the claim rested upon.

Additionally, the court denied plaintiff’s motion to quash several subpoenas seeking employment and medical records. Plaintiff argued the records requests were duplicative given the underlying suit, and that the focus of a bad faith claim should be on the evidence provided to the insurer and what the insurer did with that evidence, making evidence not in the insurer’s possession in the underlying suit irrelevant.

Defendants argued if a reasonable basis for delaying resolution of the claim existed, regardless of the fact the insurer did not rely on that reason, a bad faith claim could not stand as a matter of law. The court found defendant’s argument inconsistent with the purpose of the bad faith statute, but did not quash the subpoenas given the liberal policies governing discovery in federal courts.

The court ordered plaintiff to provide those requested records that were not duplicative, and only the records available up to the date of the jury verdict in the underlying suit.

Date of Decision: November 20, 2013

Shannon v. New York Cent. Mut. Ins. Co., Case No. 3:13-CV-1432, 2013 U.S. Dist. LEXIS 165280 (M.D. Pa. Nov. 20, 2013) (Conaboy, J.).


In Indalex, Inc. v. National Union Fire Ins. Co., Pennsylvania’s Superior Court, following reasoning in a U.S. District Court case, National Fire Ins. Co. v. Robinson Fans, has limited the application of Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Ins. Co. in defining what constitutes an occurrence.  While identifying various rationales for its decision, the essential part of the Superior Court’s holding is that if a party manufactures a product prior to entering a contract to sell that product, tort law applies and there is a potential “occurrence” under a commercial general liability policy if that product fails and damages other property.  If that same party manufactures the same product under a contract, however, then Kvaerner may apply and there is no occurrence if that product fails and later causes foreseeable consequential property damage.

In 2006, Pennsylvania’s Supreme Court issued its Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., clarifying the meaning of “occurrence” in insurance policies, where the underlying nature of the relationship between the insured and the party seeking relief is contractual.  More specifically, the case addresses the general circumstances where an insured is engaged to perform some work or provide materials in connection with that work.  In short, if the workmanship is faulty and a damages claim is directed at the faulty workmanship, then no occurrence exists and there will be no coverage.

One year later, in Millers Capital Ins. Co. v. Gambone Brothers’ Development Co., the Superior Court addressed the issue of whether claims for damages that go beyond the workmanship or materials in themselves fall within Kvaerner’s “occurrence” analysis.  In Gambone there were alleged water leaks in newly constructed homes’ interiors based on purported construction and material defects in the homes’ exterior stucco.  Looking to Kvaerner, the Superior Court observed that “natural and foreseeable acts, such as rainfall, which tend to exacerbate the damage, effect, or consequences caused ab initio by faulty workmanship also cannot be considered sufficiently fortuitous to constitute an ‘occurrence’ or ‘accident’ for the purposes of an occurrence based CGL policy.”  This case has been followed on more than one occasion by the United States Court of Appeals for the Third Circuit.

In a thoroughgoing opinion written in 2012 by Judge Wettick, American Home Assurance Company v. National Union Fire Ins. Co., dealing with the case law on damages flowing from non-occurrence faulty workmanship claims, this leading jurist went through the post-Kvaerner Superior Court and U.S. Court of Appeals for the Third Circuit case law on the scope of an “occurrence.”  He concluded:

“We learn from Kvaerner that there is no coverage for property damage caused by faulty workmanship to the work product itself.”

“We learn from the remaining case law that a CGL policy does not cover property damage to the owner’s property caused by the insured’s faulty workmanship where the work was performed pursuant to a contractual relationship between the insured and the owner of the property.”

He went on to observe that the case law did not address claims where the damages flowed to a third party’s property on which the insured did not work, or situations where there was no underlying contract between the insured and the entity suffering property damage.  He then concluded:

“In every case which I have discussed, the Court has said that the definition of accident, required to [] establish an occurrence, cannot be satisfied by claims based on faulty workmanship. …. Furthermore, there is no language in any of the cases decided after Kvaerner  which suggests that the courts’ interpretation of a CGL policy–that injuries caused by faulty workmanship is not an accident–is flexible.”

The Superior Court now appears to have found some such flexibility, without following the same analytic methodology found in Judge Wettick’s analysis. In Indalex, Inc. v. National Union Fire Ins. Co., the Superior Court found that Kvaerner did not apply to a products liability type claim concerning materials used to construct homes.  Re-argument has been denied, though a petition for appeal to the Supreme Court may be forthcoming.

The case involved windows and doors alleged to be defectively designed or manufactured and installed into numerous homes nationally.  The products allegedly failed, resulting in water leakage that caused physical damage such as mold and cracked walls, in addition to personal injury. The insured was apparently not the builder, but sold these windows to developers, general contractors, or subcontractors.  Claimants included persons outside of Pennsylvania, with out-of-state claims based on strict liability, negligence, breach of warranty, and breach of contract. The trial judge, who also happened to be Judge Wettick, granted the insurer summary judgment based upon Kvaerner, finding no “occurrence” under the commercial umbrella policy at issue.  The Superior Court reversed on various grounds.

The Superior Court considered it significant that the Indalex policy defined “occurrence” differently than the definition found in the Kvaerner policy: “an accident, including continuous or repeated exposure to substantially the same or general harmful conditions” (Kvaerner) vs. “As respects Bodily Injury or Property Damage, an accident, including continuous or repeated exposure to conditions, which results in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the Insured. All such exposure to substantially the same general conditions shall be considered as arising out of one Occurrence.” (Indalex). The Court accepted the argument that this different language — “neither expected nor intended from the standpoint of the insured” —  “provides that it is the insured’s subjective viewpoint, and damages such as mold related health issues were arguably not expected.”  On this basis, Indalex may have limited applicability to policies defining occurrence in the same manner as Kvaerner and Gambone.

The Superior Court also considered it significant that prior precedent had, in its review, not given full consideration to the presence of tort claims because those cases focused on contract or warranty claims. A court reviewing coverage had to address an such tort claims if they existed in the underlying complaint, and could not itself eliminate them through use of the gist of the action doctrine. Rather, that doctrine’s application would solely be up to the insured as defendant to raise in the underlying action, and solely up to the judge in the underlying action to decide (distinguishing a prior Superior Court case which had done the contrary).  Thus the persistence of tort claims in the underlying action created a material difference in this case than prior case law, per the Indalex Court, in finding Kvaerner inapplicable.

One issue that this raises is whether this “presence of a tort claim” argument is actually a downstream, second level, issue from the source question of whether there is an occurrence.  If so, then the “presence of a tort claim” analysis still must address the longstanding Pennsylvania body of coverage case law that the cause of action chosen by the underlying plaintiff, in and of itself, cannot determine the coverage issue. Rather, this is determined by the nature of the allegations in the complaint, not the legal theories a plaintiff puts on them. A label might say anything, but courts must look at what’s actually inside the pleading box, i.e., the factual allegations in the pleadings and not merely the names placed on them.  It seems unlikely that  Indalex stands for the proposition that if a plaintiff chooses to label a breach of contract claim a negligence claim, or pleads one count in breach of contract and a second as negligent performance of a contract, then Kvaerner doesn’t apply.  If it does, then it would be in conflict with existing case law.  Rather, the more subtle question it addresses must be whether the pleaded facts allege tort or contract claims in determining coverage; and if they allege an “accident,” then the negligence label may be apt; though the more interesting question appears to be whether these facts allege non-contractual strict products liability claims.

Thus, the most essential point to Indalex is likely the Superior Court’s finding a dispositive distinction between a product liability/strict liability claim and a contract claim for purposes of a Kvaerner analysis. The Superior Court emphasized the difference between the other cases where developers using another’s products were the defendants, and this case where the defendant was an upstream manufacturer whose products were purchased “off-the-shelf”.  Thus, the other cases were about faulty workmanship and this case was about bad product.  The Court must have recognized, at least implicitly, that the windows were sold under a contract at some point, e.g., from the manufacturer to the general contractor, or a wholesaler to the general contractor or developer, using them to build new homes.  However, it did not focus on that relationship or chain of relationships; rather, it focused on the concept that the injured parties’ claims, or joinder complaints by defendants or third party defendants, include strict products liability theories or negligent design or manufacture theories, which, it found, (a) are tort claims distinct from contract claims and/or (b) can co-exist in a complaint with contract claims depending on the specifics of a contract.

Relying on the distinction between an upstream manufacturer mass producing a product and a downstream builder-user of that product, the Indalex opinion foregoes the kind of detailed case-by-case analysis encompassing a consequential damages as occurrence review as found in Judge Wettick’s American Home Assurance opinion. Thus, e.g., the Indalex panel distinguishes Gambone because it did not involve a claim against the seller of the product, but against the builder using the product, and/or because “the panel in Gambone focused on the allegations of faulty workmanship in what they had characterized as the product itself, the home.”

In looking directly at the Gambone opinion, that panel did not clearly state as such that it considered the damaged floor inside the home and the exterior stucco of the same home as part of a single product. Gambone does find that the defective stucco constituted the faulty workmanship/material; and it appears to find that the interior floor, which had no flaw in itself, was damaged through faulty materials elsewhere in the structure as a consequence of that faulty workmanship/material.  In that regard, Gambone unquestionably includes an analysis of what consequential damages do not constitute an occurrence under Kvaerner. This would appear to be have been included in the opinion because the panel distinguished the faulty work and product (the stucco) from damage to another part of the work that had no faults (the interior floor). Judge Wettick’s analysis in American Home Assurance follows this line, interpreting subsequent Superior Court and Third Circuit case law to hold that damage flowing from the faulty workmanship/materials are likewise not an “occurrence” because they did not originate in an accident. The Indalex Panel does not clearly address the issue from this perspective.

Taking a further look at Gambone, the panel addressed two complaints in that consolidated case. These included defective product claims. One complaint alleged: “’construction defects and product failures’ in, inter alia, the homes’ vapor barriers, windows, roofs, and stucco exteriors.” In the second complaint, the damages are alleged to be from faulty workmanship, pleaded generally, but also to be from the use of “defective stucco” in the building exterior, which defective stucco resulted in “’delamination, peeling, disfigurement, compromise of structural integrity, infiltration by the elements, mold, cracking of the exterior cladding, and moisture penetration and entrapment in and through said system.’” Thus, Gambone was not limited in its ruling to pure faulty workmanship claims, but also faced claims of defective products directly causing harm, though in the context of the builder/developers use of those defective products.  Moreover, in one of the two complaints, a strict liability claim was still pending at the time of the Gambone panel’s decision (apparently based on the builder being in the chain of distribution). Thus, it would appear, prior to Indalex, there is precedent for the Superior Court applying Kvaerner to a strict liability claim against a downstream purchaser of the defective product.

Although not binding on Pennsylvania state courts, the U.S. Court of Appeals for the Third Circuit has predicted that Gambone would be applied in a products liability type setting to a commercial general liability policy. In Nationwide Mut. Ins. Co. v. CPB International, Inc., the insured was an importer and wholesaler of a nutritional supplement, which was then incorporated by other companies into a final product. The importer was sued for selling defective product to an end user under a breach of contract theory. That Court applied Kvaerner’s and Gambone’s foreseeability analysis in finding no occurrence. Later, in Specialty Surfaces International v. Continental Casualty Co., the insureds were a manufacturer of artificial turf and an installer of that turf. The underlying complaint alleged breaches of warranty as to the turf being defective itself and/or improperly installed. Following its own prior precedent, Kvaerner, and Gambone, the Third Circuit predicted that the Pennsylvania Supreme Court would follow Gambone’s analysis concerning consequential damages resulting from faulty workmanship not constituting an occurrence.

Indalex looks to a Federal District Court case that distinguishes Kvaerner, Gambone, and the Third Circuit opinions when applied to a product manufacturer in a design defect case. A few such District Court cases have stated that a party can negligently design or make a product subject to tort law, if that product is sold under a contract after the original manufacture, or if the contract for manufacture lacks specifications and the manufacturer is left to apply “industry standards”.  Thus, e.g., if a contract sets out that a product is to be built to certain standards or design specifications, and there was a failure to do so, Kvaerner applies.  However, if the contract did not specify standards, and the manufacturer failed to meet industry standards or designed the product improperly, then that could be negligence; or if the product was manufactured prior to a contract being entered, then its design and manufacture would be governed by “industry standards” and tort law, rather than contract law. These courts, and Indalex, also describe the difference between a Gambone type non-occurrence and Indalex occurrence as being that products built prior to a contract create liability when they later “actively malfunction” in use vs. “flawed product-related work done in performance of a contract….”

It would be useful if these courts would more clearly address the basic circumstances that: (a) the insured was contractually engaged to provide the product at some point, and would never have manufactured the products without the hard reality that someone or some entity was going to enter a contract to buy those products; (b) the injured party either contracted directly with the insured to buy the product at some point, or contracted with a party that contracted with the insured to buy the product; and (c) the product was very likely received by the injured party with some level of warranty. Thus, this is not the purely fortuitous situation where an innocent third part is hurt by a product purchased by another.  Put another way, the injured party is not random, but is an end user who is contracting for that product at some point, whether directly from the manufacturer, a wholesaler, or a contractor using that product to do the job.  Further, to the extent the courts are concerned that there will be no coverage available to manufacturers if the CGL policy provides no coverage, then these courts should consider whether these product manufacturers have, or could have obtained, product liability related insurance designed to protect them from the kind of negligent manufacture/design or strict product liability claims at issue.

These, and the other issues raised in Indalex, will surely require more development and analysis, and we have likely not heard the last of them.

On September 18, 2014, the Supreme Court denied the Petition for Allowance of Appeal in Indalex, No. 612 WDA 2012.



The Appellate Division reversed an order from the Law Division bifurcating and staying plaintiff’s bad faith claim from his UIM claim for trial purposes, but allowing discovery to advance simultaneously on the two claims. Although the trial court judge allowed that any discovery requests implicating privileged materials would be subject to a motion for a protective order and that he would not permit discover into a privileged area, the insurer maintained the trial court abused its discretion by compelling discovery on the bad faith claim prior to resolution of the UIM claim.

Based on New Jersey case law, the Appellate Division found an insured cannot obtain complete discovery of an insurance company’s claim file simply by bringing simultaneous breach of contract and bad faith claims, but rather must wait until the insured establishes an entitlement on the underlying contract claim.

Essentially, a plaintiff must first show that he or she is entitled to recover on the contract before he or she can prove the insurer dealt with him or her in bad faith. Furthermore, in instances such as plaintiff’s, the appropriate practice is to sever the bad faith claim, and stay the claim, including discovery, pending resolution of the underlying contract claim to protect against prejudices such as the discovery issue presented by the Law Division’s order.

Thus, the Appellate Division reversed and remanded, finding whatever benefits might be gained by simultaneous discovery were substantially outweighed by the adverse impacts on the parties, making the order an erroneous exercise of discretion by the Law Division.

Date of Decision: November 21, 2013

Procopio v. Gov’t Emples. Ins. Co., Civil Action No. A-2313-12T2, 2013 N.J. Super. LEXIS 167 (NJ Sup. Ct. App. Div. Nov. 21, 2013) (Parrillo, Harris, Guadagno, JJ.).


The plaintiffs were injured in an auto crash, and pursued a claim against the third party tortfeasor. Upon settlement of the third party claim, plaintiffs filed a UIM claim with its insurer. The insurer did not settle that claim, and the claim was forced to go to arbitration. Following the arbitration, the Common Pleas and Superior courts affirmed the arbitration award. Plaintiffs then filed suit alleging breach of contract and bad faith for the carrier’s handling of the UIM claim and allegedly frivolous legal positions and motion practice surrounding the arbitration of plaintiffs’ claim.

Plaintiffs alleged unreasonable delays began immediately following their filing of the UIM claim, while the insurer contended it was unable to move forward with the claim due to incomplete medical records provided by plaintiffs. Multiple disputes arose between parties in selecting the location of the arbitration, as well as in selecting a neutral arbitrator. More significantly, prior to the arbitration, the insurer did not set a reserve on the claim, and argued against explicit controlling case law that plaintiffs’ release of the third party tortfeasor also released the UIM insurer.

The insurer’s in-house counsel admitted to insisting upon advancing this legal position despite advice from the insurer’s independent counsel. The in-house counsel also insisted upon asserting the position that only a court could decide the legal effect of the subject release, and that the impending arbitration needed to be stayed. Following the arbitration award, the insurer appealed the common law arbitration on jurisdictional grounds, despite independent counsel’s advice that such an appeal would be without legal merit.

The court agreed with plaintiffs that a jury could reasonably conclude the insurer’s frivolous legal challenges of the release and jurisdiction, along with the timing thereof, unreasonably delayed the resolution of the UIM claim. Furthermore, a jury could reasonably conclude the insurer’s position was raised and maintained by and through a motive of self-interest or ill will. Finding genuine issues of material fact, the court denied the insurer’s request for summary judgment and allowed the case to proceed.

Date of Decision: November 13, 2013

Kearney v. Travelers Ins. Co. and the St. Paul Fire and Marine Ins. Co., Civil Action No. 2010-CV-8801 (C.P. Lacka. Co. Nov. 13, 2013) (Mazzoni, J.).



Plaintiff brought suit against its insurer alleging breach of contract and bad faith for the insurer’s denial of a defense against claims in an underlying suit. Plaintiff was the driver at a race at Mercer Raceway Park. While plaintiff was participating in the race, the throttle of his car stuck, causing Plaintiff’s car to strike the catch fence along the race track. Two individuals were standing on the opposite side of the catch fence at the time of the crash. One individual suffered serious injuries, and the other died as a result of the accident. The injured individual and decedent’s estate brought suit against plaintiff. Plaintiff contacted the insurer, requesting the insurer provide plaintiff with a defense to the claims. The insurer declined coverage for plaintiff.

The insurer alleged the two individuals hit by plaintiff’s race car were “participants” at the time of the accident, and the insurance contract excluded coverage for bodily injury to any participant against another participant. The policy defined participant as including all persons “bearing duly and officially signed credentials and/or guest pit passes for the program.” Through its investigation of the facts, the insurer learned the two injured individuals purchased pit passes, signed releases forms, and wore arm bands designating their right to access the pit area of the Raceway. Based on these facts, it applied the exclusion and denied the claim.

The court found this was a reasonable determination, and that plaintiff was not entitled to a defense or coverage under the existing policy issued to the Raceway. The record demonstrated defendant investigated the facts underlying plaintiff’s claims prior to the commencement of the personal injury actions and reasonably concluded there was no coverage for the claims. Therefore, defendant did not breach the contract, nor act in bad faith by refusing to defend plaintiff. The court granted defendant’s motion for summary judgment.

Date of Decision: March 28, 2013.

Lanigan v. T.H.E. Ins. Co., Civil Action No. 11250 of 2010, 2013 Pa. Dist. & Cnty. Dec. LEXIS 168 (Pa. County Ct. March 28, 2013) (Piccione, J.).


The court was faced with three motions in limine prior to trial.

The first concerned the individual plaintiff hired to act as his bad faith expert. Plaintiff selected the individual based on his experience as a former attorney who had handled more than 10,000 insurance claims as an independent adjuster, and who had authored a book on insurance claims and disputes. He prepared a report discussing what information the defendant had at various points in the claims process, and compared that information to the defendant’s settlement offers. In the report, he also interpreted the defendant’s claim policy, and made several conclusions about whether or not the insurer’s conduct constituted bad faith.

Defense counsel sought to have the expert excluded under Rule 702 of the Federal Rules of Evidence asserting whether the defendant acted in bad faith was readily understandable by a lay person, making the expert’s opinion inadmissible. Plaintiff argued the testimony would aid the jurors in making a determination as to whether the defendant acted in bad faith.

The court determined plaintiff’s expert would be offering opinions about whether various offers to settle were reasonable by presenting and analyzing evidence admissible through other witnesses. He would then draw conclusions about whether the defendant’s conduct constituted bad faith. He did not intend to present industry standards, nor was he analyzing any matters that were scientific in nature.

The court held plaintiff failed to demonstrate how the expert was in any better position than the jury to compare defendant’s offer with the information provided to the defendant at various times. These types of experts have previously been excluded in both Federal and State court, and therefore the court followed precedent in excluding plaintiff’s expert.

Next, the court denied defendant’s motion to exclude testimony by plaintiff and his treating physicians on relevancy and prejudice grounds.

Finally, the court granted defendant’s motion to exclude the value of the arbitration award as prejudicial.

Date of Decision: November 15, 2013.

Scott v. Geico Gen. Ins. Co., Civil Action No. 3:11-1790, 2013 U.S. Dist. LEXIS 16264 (M.D. Pa. Nov. 15, 2013) (Mannion, J.).