Monthly Archive for March, 2015
In Davis v. Fidelity National Title Insurance Company, a non-precedential decision of the Superior Court, the insured brought breach of contract and bad faith claims against its title insurer. After a lengthy process from the time the claim was made to the time the insurer paid another party claiming an ownership interest to clear title, the insured alleged it suffered lost profits, and that the insured acted in bad faith by not addressing the claim promptly. It was almost 5 years between the date the claim was made to the carrier, and the date payment was made to the third party to clear title.
The trial court awarded $224,760 in compensatory damages (combining increased buildings costs on the project and lost profits), which the Superior Court affirmed, agreeing that the future damages were not so speculative as to preclude recovery. On the bad faith claim, the trial court further awarded $158,450 in attorney’s fees and $1,572,909.24 in punitive damages.
The insurer did not challenge the bad faith claim as such, but challenged the amount of the punitive damages award based upon (1) that it was excessive under U.S. Supreme Court standards as set forth in State Farm Mutual Automobile Insurance Company v. Campbell and its progeny; and (2) that the attorney’s fee award should not have been included in the compensatory damage base number on which to calculate punitive damages. The Superior Court rejected both arguments.
The court cited a number of cases that included attorney’s fees in the compensatory damage base upon which punitive damages could be determined, rejecting the insurer’s argument on that point. Further, including the attorney’s fees with the compensatory damages, the punitive damages award was a 4:1 ratio with the compensatory damages, well within Campbell’s constitutional parameters.
Moreover, the court reviewed the factors Campbell considered in determining punitive damages, focusing on the time delays as falling within the degree of reprehensibility factor (the most important factor to consider), and citing Pennsylvania’s Unfair Insurance Practices Act and Unfair Claims Settlement Practices Act regulatory standards in evaluating this factor.
The court stated that “it is difficult to find an area in which [the insurer] acted in conformance with accepted statutory, regulatory or internal standards.” It affirmed the bad faith award of punitive damages given by the trial court.
Date of Decision: March 18, 2015
Davis v. Fidelity National Title Insurance Company, Superior Court of Pennsylvania, No. 672 MDA 2014 (Pa. Super. Ct. March 18, 2015) (Ott, Bowes, Stabile, JJ).
The trial court decision is Davis v. Fid. Nat’l Ins. Co., 2010-CV-8868, COMMON PLEAS COURT OF LACKAWANNA COUNTY, PENNSYLVANIA, 2014 Pa. Dist. & Cnty. Dec. LEXIS 225 (C.C.P. Lacka. March 28, 2014) (Minora, J.)
In Wacker-Ciocco v. GEICO, the court addressed the applicability of its earlier decision in Procopio v. Government Employees Insurance Company, 433 N.J. Super. 377, 80 A.3d 749 (App. Div. 2013), on the issue of discovery and severance of bad faith claims. In the earlier case, the appellate court had ruled that where an uninsured motorist and bad faith claim are bifurcated for trial, it was an abuse of discretion for the trial court to order that discovery on both claims proceed simultaneously.
In Wacker-Ciocco, some bad faith materials had been produced prior to the motion to sever, and the trial court found the cat was therefore out of the bag, and the motion to sever was denied. The appellate court found that this was a misinterpretation of its prior case law on the severance of bad faith claims from the uninsured motorist claim, and the stay of bad faith discovery pending the outcome of the uninsured motorist claim.
In Procopio, the Court had stated: “[It] promotes judicial economy and efficiency by holding in abeyance expensive, time-consuming, and potentially wasteful discovery on a bad faith claim that may be rendered moot by a favorable ruling for the insurer in the UM or UIM litigation. This procedure also avoids the premature disclosure of arguably privileged materials to the prejudice of the insurer’s defense while, at the same time, preserving the insured’s pursuit of its bad faith claim.”
The court observed that an insured cannot reach the bad faith claim until it proves its entitlement to coverage, and the court further observed the higher standard placed on an insured in proving bad faith claims (and that the plaintiff’s complaint only pleaded bad faith in a conclusory manner, and failed to plead wrongful intent).
The judicial efficiency arguments set out in Procopio did not disappear “simply because some discovery relevant to the bad faith claim was produced,” and it was clear discovery on that issue was not complete. Thus, “the competing interests implicated by ordering simultaneous discovery on both the coverage and bad faith claims remained in play.”
The court reversed the trial court orders, and granted the motions “to sever and stay the bad faith claim and related discovery until the underlying UIM claim was decided.”
Date of Decision: March 16, 2015
Wacker-Ciocco v. GEICO, DOCKET NO. A-2547-13T4, 2015 N.J. Super. LEXIS 38 (App. Div. March 16, 2015) (Espinosa, Lihotz, St. John, JJ.)
In Allen v. State Farm Mutual Automobile Insurance Company, the insured brought breach of contract and bad faith claims arising out of an uninsured motorist case. The insured had promptly filed an uninsured motorist claim after the accident, and alleged that she and the insurer “’failed to agree on the amount of uninsured motorist benefits’ that she is entitled to recover[, that the insurer], has not requested a defense medical examination … and has failed to ‘negotiate’ regarding the claim.”
The court dismissed the insured’s bad faith claim without prejudice. It applied the Third Circuit rule in Fowler to evaluate the motion to dismiss that claim, using a two-step approach that separates out the facts and legal theories: (1) look at the well-pleaded facts as true; and (2) then rule whether these facts set out a plausible claim for relief. A plaintiff needs to pleads facts that show an entitlement to relief, a plausible claim, vs. a possible claim.
After stripping out the legal conclusions and recitation of the bad faith claims elements, the court found there the facts pleaded did not set a plausible claim. There were no facts pleaded shedding light of the insurer’s reasonableness in not negotiating or conducting a medical examination, and there were no facts pleaded that it “knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”
Plaintiff was given leave to amend to meet the pleading standards in an amended complaint, if she could.
Date of Decision: March 12, 2015
Allen v. State Farm Mutual Automobile Insurance Company, CIVIL ACTION NO. 14-7367, 2015 U.S. Dist. LEXIS 30339 (E.D. Pa. March 12, 2015) (Baylson, J.)
In Henriquez-Disla v. Allstate Property & Casualty Insurance Company, the court addressed a battle of bad faith claims, the insured alleging breach of contract and bad faith for claim denials; and the insurer alleging insurance fraud in seeking dismissal of the insureds’ claims, and in pursuing affirmative relief under the insurance fraud statute, 18 Pa. C.S.A. § 4117(a)(2). The insured and his wife made certain misstatements in applying for insurance and in seeking coverage for losses from a fire and earlier theft. The insured disputed the materiality of these misstatements and raised issues as to intent, focusing on either a language barrier issue or that the misstatements were explicable, or de minimis in nature.
The court went through each alleged misrepresentation in detail, and concluded that the insurer’s motion for summary judgment would be granted on the bad faith claim, but that the breach of contract claim could proceed. On the other end, the court denied the plaintiffs’ summary judgment on the insurance fraud claim, and allowed that claim to proceed as well.
As to the bad faith claim, this was “premised on the denial of benefits, the investigatory methods utilized, and [the carrier’s] alleged use of [the insured’s] language barrier as a pretext to deny coverage.” The insurer countered that the insureds did not produce any evidence that the carrier acted unreasonably or in bad faith. The insureds attempted to counter this, by arguing that the carrier had admitted the insureds were not responsible for the theft or fire for which they were making claims.
Observing that an insurer’s investigation need not be flawless, and that negligence is not enough to show bad faith, the court agreed that the plaintiff failed to meet the burden of showing that the insurer lacked a reasonable basis for denying the claims. The court focused on the inconsistencies in the insureds’ statements, and that “there were sufficient contradictions in the testimony to justify [the insurer’s] decision.
The court cited the principle that: “An insurer ‘may defeat a bad faith claim “by showing that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”’”
As to the contract claim, the insurer sought summary judgment on the basis that the policy should be found void for material misrepresentation. The court, however, refused to find the record so clear on material misrepresentation that this count could be dismissed. The court found “that it would be inappropriate on the current record to find as a matter of law that the inconsistencies … are material misrepresentations. As previously stated, innocent mistakes are insufficient to warrant summary judgment. …. As explained, many of the inconsistencies may be the product of miscommunication, misunderstanding, or a language barrier.”
However, this same lack of clarity also preserved the insurer’s fraud claim against the insured. To make out a claim under section 4117, the alleged false claimant must “knowingly or with the intent to defraud the insurer present false, incomplete or misleading information regarding a material fact.”
The court had ruled earlier a jury could find that the “inconsistencies in Plaintiffs’ statements may be the product of miscommunication, misunderstanding, a language barrier, or an attempt to mislead the insurer.” Thus, summary judgment was inappropriate.
The court did go on to make some significant observations on the insurance fraud statute. The court found the fact that the insureds themselves had no connection to the theft or fire for which they sought coverage insufficient to escape the fraud statute’s scope. Rather, the statute does not require them to be responsible for the loss itself.
If an insured makes a false statement concerning a subject relevant and germane to the insurer’s investigation as it was proceeding, that could be a material misrepresentation under the statute, which could afford the insurer relief. Thus, in this case, “[s]tatements regarding the [insureds’] whereabouts at the time of the losses, how they learned of the losses, and resultant damages, among others, are clearly germane to the insurer’s investigation.”
Next, the court refused to grant the insureds summary judgment on the basis that the insurer failed to allege damages. The court recognized that the damages would not be known until after the trial had concluded, if the insurer were successful, and that such a damages determination “is routinely left for the court after a verdict has been returned in favor of the insurer. At that point, the counter-claimant presents the court with a request for expenses, costs and fees.”
Finally, the court observed that the parties disputed the insurer’s burden of proof under the fraud statute, i.e., preponderance of the evidence vs. clear and convincing evidence. The court stated the statute was silent on this issue, and courts were split on the issue. The court instructed the parties to do further briefing, as this would be an issue at trial.
The court specifically directed the parties to address a Pennsylvania Superior Court case applying the clear and convincing evidence standard when an insurer is seeking to void a policy ab initio for fraud, and a 1998 district court case which had applied the preponderance of the evidence standard to section 4117, observing “that the legislature could have adopted a clear and convincing standard but did not….”
Date of Decision: February 10, 2015
Henriquez-Disla v. Allstate Property & Casualty Insurance Company, CIVIL ACTION NO. 13-284, 2015 U.S. Dist. LEXIS 15699 (E.D. Pa. February 10, 2015) (Hey, U.S.M.J.)
In Cicon v. State Farm Mutual Automobile Insurance Company, the Court reiterated the long-standing proposition: “Pennsylvania law does not recognize a separate breach of the contractual duty of good faith and fair dealing where said claim is subsumed by a separately pled breach of contract claim.” The court then dismissed that separate claim.
Date of Decision: March 4, 2015
Cicon v. State Farm Mutual Automobile Insurance Company, Case No. 3:14-CV-2187, 2015 U.S. Dist. LEXIS 25780 (M.D. Pa. March 4, 2015) (Conaboy, J.)
In Bannon v. Allstate Insurance Company, a Hurricane Sandy case, the policy provided “that coverage for dwellings or other structures did not include loss caused by ‘flood, including, but not limited to, surface water, waves, tidal water or overflow of any body of water or spray from any of these things, whether or not driven by wind.’” The insurer denied coverage.
However, in the Complaint, the insured alleged that the insurer’s adjuster had conceded that the home was destroyed by wind. She further alleged “that other evidence, including statements from witnesses, photographic evidence, and professional opinions, support a finding that Plaintiff’s home was destroyed as a result of wind damage.” The insurer allegedly had called in an engineer to review the claim after the adjuster’s initial position.
The insured brought claims for breach of the implied duty of good faith and fair dealing, as well as breach of contract and under the Consumer Fraud Act (“CFA”). The insured asserted that the insurer, through its “agents, servants, and employees, improperly adjusted and denied her claims, failed to properly investigate the damage, and unjustifiably refused to perform its obligations.” The insurer moved to dismiss. The issue was whether the insurer’s position was “fairly debatable.”
The Court stated: “The question of whether the claim is ‘fairly debatable’ is, clearly, a fact-specific question. Moreover, it is not obvious from the face of the … Complaint, including the alleged facts that [the insurer’s] adjuster initially opined that the damage to Plaintiff’s home was cause by wind, and that [the insurer] sent an engineer to inspect the property after its denial of coverage, that the denial of coverage for alleged wind damages was ‘fairly debatable.’ While this claim may be subject to dismissal on a summary judgment motion, following discovery, the … Complaint states sufficient facts to permit the claim to go forward.”
The Court further followed “the Third Circuit’s lead by predicting that the New Jersey Supreme Court would find that the New Jersey CFA applies to the payment of insurance benefits.”
The Court did dismiss the punitive damages claim: “Even if Plaintiff can show that Defendant acted in bad faith, Plaintiff has not pleaded facts that rise to the level of egregiousness necessary for punitive damages in an insurance contract case. Certainly the facts as alleged do not show actual malice, or a wanton and willful disregard of persons who might be harmed.”
Finally, the court dismissed the attorneys’ fee claim, on the basis that Rule 4:42-9(a)(6) does not apply to first party claims, an issue that has been opened for review by New Jersey’s Supreme Court.
Date of Decision: February 24, 2015
Bannon v. Allstate Insurance Company, Civil Action No. 14-1229 (FLW)(LHG), 2015 U.S. Dist. LEXIS 21591 (D.N.J. February 24, 2015) (Wolfson, J.)