Monthly Archive for June, 2017


This case involves the existence of a fiduciary duty between financial advisor and his clients. The facts include recommendations to buy certain life insurance policies, which the insureds later claimed were fraudulently represented to them. They brought various claims, including breach of fiduciary duty claims.

Those claims were rejected by the trial court, which found no fiduciary duty existed in the absence of the financial advisor having control over the insureds’ decisionmaking. The Superior Court reversed, finding the existence of a fiduciary duty based on the facts concerning the relationship between the advisor and his clients, rather than as a matter of law. The Supreme Court reversed that decision. It ruled, along the lines of the trial court, that in the absence of a traditional type of controlling and overmastering relationship, there is no fiduciary duty simply because the financial advisor has greater expertise where the clients made the ultimate investment decisions.

Among other things, the Supreme Court stated:

“While cases involving fiduciary relationships are necessarily fact specific, they usually involve some special vulnerability in one person that creates a unique opportunity for another person to take advantage to their benefit.”

“The Superior Court, in the case before us, erred in relying on our case law involving undue influence to support its conclusion that a fiduciary relationship can be established without evidence that decision-making power was effectively ceded to another. Its view misses the point that the exercise of undue influence, at its core, indicates that an individual so influenced has lost the ability to make an independent decision.”

“We conclude that the … summary judgment evidentiary record falls far short of establishing a fiduciary …. Fiduciary duties do not arise ‘merely because one party relies on and pays for the specialized skill of the other party.’ …. If this were the law in Pennsylvania, ‘a fiduciary relationship could arise whenever one party had any marginal greater level of skill and expertise in a particular area than another party.”

“The superior knowledge or expertise of a party does not impose a fiduciary duty on that party or otherwise convert an arm’s-length transaction into a confidential relationship. In this regard, the analysis is no different in a consumer transaction than in other fiduciary duty cases decided by this Court.”

“’[T]he critical question is whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on one side or ‘weakness, dependence, or trust, justifiably reposed’ on the other side,” which results in the effective ceding of control over decisionmaking by the party whose property is being taken.”

“A fiduciary duty may arise in the context of consumer transactions only if one party cedes decision-making control to the other party.” Thus, “’a business transaction may be the basis of a confidential relationship only if one party surrenders substantial control over some portion of his affairs to the other.’”

The case before the court did not fall into these categories. Rather, it presented “an arm’s-length consumer transaction in which the [clients/insureds] accepted [the financial advisor’s] advice with respect to the purchase of the … whole life insurance policy[, and they] made the decision to purchase this policy, but also decided to reject other proffered products and services.” The complicated nature of the premium structure did not change the character of the transaction between the parties. The clients “purchased an insurance product from a captive financial advisor with whom they had a business relationship for a little more than a year, initiated by a cold-call. [Their] lack of post-secondary high school educations is not indicative of a weakness, dependence, or trust, justifiably reposed, nor is [the advisor’s] advanced training sufficient to establish an overmastering influence.”

“The record here establishes that [they] made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that [they] may have become comfortable with the Appellants’ expertise before deciding to purchase the … whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It does not, however, establish a fiduciary relationship.”

“There is no evidence to establish that [they] were overpowered, dominated or unduly influenced in their judgment….” “[They] never ceded any decision-making authority….” Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that [they] did not purchase.”

It was of some significance to the Court that under appropriate circumstances, consumers “have various common law tort remedies (with burdens of proof less stringent than those required in fiduciary duty cases), as well as claims for common law fraud and the statutory relief provided by the current version of the UTPCPL, which provides a remedy for deceptive conduct. 73 P.S. § 201-2(4)(xxi).”

The majority “decline[d] to modify the law of fiduciary duty to encompass the particular pitfalls involved in the sale of insurance products by commissioned agents or financial advisors to less savvy customers. Moreover, we do not hold that a fiduciary duty cannot arise in a case with facts not present here, but absent evidence that a consumer of financial services and goods cedes control over the decision to purchase, either explicitly or implicitly because of over-mastering or undue influence, no fiduciary relationship arises.”

Date of Decision: June 20, 2017

Yenchi v. Ameriprise Financial, Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405 (Pa. June 20, 2017) (Pennsylvania Supreme Court)

The dissenting opinion can be found here.


This is “another UIM bad faith case,” the most common scenario for bad faith cases. That being said, it remains important for all counsel and parties addressing bad faith law to study any broader principles to be found in these cases, rather than being lulled into a sense the case is unimportant once it becomes apparent to the reader that it is just “another UIM bad faith case.”

In this case, the insured alleged he sought the $15,000 policy limit and the insurer would not agree to pay that sum. The complaint included assertions that the insurer failed to “(1) act with reasonable promptness in evaluating and responding to his claim and reasonable fairness in paying the claim, (2) negotiate his claim, (3) properly investigate and evaluate his claim and (4) request a defense medical examination of him.” Without pleading facts regarding the insurer’s actual investigation, responses or offers, the insured still claimed “that the insurer lacked a reasonable basis for its conduct in handling his claim since there ‘is no dispute in this case that the accident was the fault of the underinsured driver and that [he] was entitled to underinsured motorist coverage under [his] policy.’”

The court observed the general principle that to “recover on a bad faith claim, a claimant is required to show by clear and convincing evidence that: (1) the defendant insurer did not have a reasonable basis for denying the policy benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis when it denied the claim.” It stated that “[v]arious other actions by an insurer can also rise to the level of bad faith, such as ‘lack of investigation into the facts[ ] or a failure to communicate with the insured.” The court noted “[b]ad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’” The court added, “[a]lthough an insurer’s conduct need not be fraudulent for an insured to recover pursuant to a ‘bad faith’ claim, mere negligence or bad judgment will not suffice.”

Finally, in its general statements concerning bad faith law, the court stated “[a] claimant must show that the insurer acted in bad faith based on some motive of self-interest or ill will.” This is an example of how a UIM case may reveal some point of broader interest. [In Rancosky v. Washington National Insurance Company, the Pennsylvania Supreme Court later decided that a “motive of self-interest or ill will” is not an element of statutory bad faith, but is only evidence relevant to proving the elements of reasonable basis and knowledge or reckless disregard.]

In this case, the court dismissed the bad faith claim, with leave to amend the complaint. The insured only alleged that he and the insurer failed to agree on the UIM sum to be paid, to which he claimed he was entitled. However, the law provides that an insurer’s decision not to immediately pay a policy limits demand, without more, does not constitute bad faith. Without more facts concerning the insured’s claim and the insurer’s investigations, negotiations, offers and communications, the court could not simply infer the presence of an actionable bad faith claim.

Date of Decision: June 19, 2017

Jones v. Allstate Insurance Company, No. 17-648, 2017 U.S. Dist. LEXIS 93673 (E.D. Pa. June 19, 2017) (Pappert, J.)


In this case, the plaintiff attempted to bring various claims against an insurer, including a bad faith claim. Pennsylvania is not a direct action state. The pleadings revealed that the insurer defendant did not insure the plaintiff. The plaintiff thus had no claims against the insurer, and all claims against the insurer were dismissed.

Date of Decision: June 20, 2017

ABC Capital Invs., LLC v. CNA Financial Corporation, No. 16-CV-4943 2017 U.S. Dist. LEXIS 95433 (E.D. Pa. June 20, 2017) (Joyner, J.)



The UIM insured brought breach of contract, common law contractual bad faith, and statutory bad faith claims. The court recognized that the scope of common law bad faith damages described by the Supreme Court’s Birth Center decision in the third party context, also applies in the first party context. Thus, while payment of full UIM benefits might moot the contract claim, it does not automatically address a potential common law bad faith claim for consequential damages.

In this case, policy limits were tendered after litigation began, so the court looked at the claim for additional damages in evaluating the common law bad faith claim. The insured asserted that an award in excess of the policy limits would fall within the kind of consequential damages allowed for in a common law bad faith claim. However, looking at Birth Center and Cowden, the court concluded that an excess verdict on a first party claim does not fall within the category of consequential damages permitted in common law bad faith claims. Thus, the contract claim and common law bad faith claim were dismissed.

The court also made clear that compensatory and consequential damages cannot be recovered for statutory bad faith.

Date of Decision: June 14, 2017

Koerner v. GEICO Casualty Co., NO. 3:17-cv-455, 2017 U.S. Dist. LEXIS 91836 (M.D. Pa. June 14, 2017) (Conaboy, J.)

The court had previously refused a motion to remand this action.



This suit was brought by an insurer against its insured’s attorneys and an expert retained by its insured’s attorneys in a Washington State class action against the insurer. The following are excerpts from the court’s strongly worded opinion. The court dismissed the case as a sanction, under its inherent authority.

“A few years ago, two class actions were filed … in Washington state court. Not surprisingly, as in any litigation, a dispute arose about the use of documents in these Washington class actions. Rather than meet and confer with the plaintiffs’ lawyers (or file a motion in Washington court) about this dispute, [the insurer] sued them here in Philadelphia. That, however, was not enough to quench [the insurer]’s thirst for aggression. [It] also sued the plaintiffs’ lawyers’ expert witness and his company.”

“[The insurer] weaves some clever arguments in an attempt to justify its acts of obstruction. However, practicality, legal analysis, and common sense all make clear [the insurer] is attempting to stalemate the Washington class actions by suing the plaintiffs’ lawyers thousands of miles away from where those class actions are currently being litigated. The red herrings in this case are [the insurer]’s alleged ‘claims’ for trade secret misappropriation and unjust enrichment. Even if these ‘claims’ were anything more than red herrings—which they are not—they fail as a matter of law.”

“The defendants filed a motion to dismiss. In the alternative, defendants move to transfer this action to the U.S. District Court for the Western District of Washington. While transfer might be appropriate in this case, there is no need. I will not tolerate the attempted manipulation of our judicial process in this case. The case is dismissed.”

“In this case, while a close call, I cannot conclude that Rule 11 sanctions are proper because I do not find the [insurer]’s claims ‘patently unmeritorious or frivolous.’” “The claims are weak, to be sure, but they do possess a modicum of substance, thereby elevating them slightly above the level of ‘patently unmeritorious or frivolous.’” “Consequently, Rule 11 sanctions cannot be imposed.”

“However, I will impose sanctions, pursuant to my inherent power, for ‘conduct which abuses the judicial process.’” The insurer’s “conduct, in filing this lawsuit, was done in bad faith, vexatiously, and for oppressive reasons.” “This is the exact type of case where a response to ‘abusive litigation practices’ is warranted.”

The court dismissed the complaint “in its entirety, without prejudice. Whether [the insurer] will again be subject to sanctions under my inherent authority (or under Rule 11) will depend upon the renewed strength and plausibility of [the] claims in its amended complaint, should it decide to take this route and file one.”

Date of Decision: June 13, 2017

GEICO v. Nealey, No. 17-807, 2017 U.S. Dist. LEXIS 91219 (E.D. Pa. June 13, 2017) (Stengel, J.)



The case involved a fire loss. The insured brought claims seeking coverage, and the insurer filed insurance fraud counterclaims under Pennsylvania’s Insurance Fraud Statute. Before suit, the insurer took the insured’s examination under oath, and during that examination had asked the insured to preserve his cell phone data.

During litigation, the insurer requested cell phone data in discovery. The insured objected, and later reported that he had lost his cell phone. The insurer brought a motion for sanctions, asserting spoliation.

The court observed no material difference between the law governing spoliation under state or federal practice. “Spoliation occurs where ‘the evidence was in the party’s control; the evidence is relevant to the claims or defenses in the case; there has been actual suppression or withholding of evidence; and, the duty to preserve the evidence was reasonably foreseeable to the party.’”

“Failure to produce evidence can have the same practical effect as destroying it and so, ‘under certain circumstances, nonproduction of evidence is rightfully characterized as spoliation.’”

Sanctions rest within the court’s discretion. In federal court, the court’s authority comes for the Federal Rules of Civil Procedure and the court’s inherent power. Sanctions may include “dismissal of a claim or granting judgment in favor of the prejudiced party, suppression of evidence, an adverse inference, fines, and attorneys’ fees and costs.”

“In considering what sanctions to impose, the trial court should consider ‘(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.’”

The court readily found that three of the four spoliation elements met, e.g., the cell phone location history, text messages and search history were “hugely relevant to both parties’ claims.”

However, the question of actual suppression or withholding goes to intent, and is much harder to establish. The court examined the evidence closely, and found the insured lacked credibility, and that other evidence supported a finding of spoliation.

The court found that the insured’s degree of fault in the spoliation was unmitigated, and the spoliation was prejudicial, but chose not to impose the harshest sanction. The court retained the right to impose more severe sanctions, however, if it was later established that the spoliation was more prejudicial to the insurer than the court presently believed.

The court ruled that it would instruct the jury “they may infer that if Defendants were permitted to inspect [the] cell phone, any evidence would have been unfavorable to Plaintiff.” The court ordered the insured to pay all fees and costs association with the spoliation motion and all efforts to obtain records from the cell phone carrier.

Date of Decision: June 9, 2017

Brown v. Certain Underwriters at Lloyds, London, 2017 U.S. Dist. LEXIS 89527, *5 (E.D. Pa. June 9, 2017) (Joyner, J.)




This summary judgment opinion involved a bad faith dispute based on alleged delay in claims handling in the course of an appraisal process valuing property loss. The court had earlier dismissed the insureds’ breach of contract claim, but had allowed the bad faith claim to proceed.

The court first observed that in its earlier decision, the dispute over the claim value was not the basis for a breach of contract claim, where the insureds could not show the actual breach of a contractual duty.

In allowing the bad faith claim to proceed, the court had “expressly found that the amended complaint limited the bad faith claim to the delay in the appraisal process,” not value. Thus, it rejected the insureds’ current effort to assert bad faith for undervaluing of the claim, which the court found “irrelevant.”

The court summarized the law concerning delay and bad faith. “[A] bad faith insurance practice can include an unreasonable delay in handling or paying claims.” “Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.”

It is “[t]he plaintiff [who] bears the burden of establishing delay by clear and convincing evidence.” “A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.” Further, “’[i]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’”

The court closely analyzed the history of the parties’ conduct of the appraisal process. The court found the first alleged delay of 5 weeks in acknowledging the appraisal demand was de minimis, and could not lead a reasonable jury to find bad faith.

Moreover, after acknowledging the demand, the insurer’s appraiser reached out to the insureds’ appraiser, but the insureds’ appraiser stated he could not begin work until he had a signed agreement with the insureds. Once he had that signed agreement, the two appraisers then executed a joint declaration and began their inspections. This could not be the basis for a bad faith claim.

The court also rejected the argument for bad faith during a subsequent 5-month period during the appraisal process. Both appraisers carried out investigations during the first three months of this period. The insurer’s appraiser also had lab tests done regarding asbestos remediation, investigated the HVAC system, and conducted extensive research in response to the insureds’ claim for engineering and architectural fees, which involved multiple interviews with the plaintiffs’ engineer and architect.

Part of a month-long time lapse thereafter included deference by the insurer to the insureds’ appraiser traveling to Florida for his mother’s funeral. Once he returned, both appraisers spoke again, and submitted the claim to an umpire.

In sum, plaintiffs could not meet their burden to establish that the putative “delay was unreasonable, that it was solely attributable to [the insurer] or that [the insurer] had no reasonable basis for causing any such delay.” Any alleged delays were “an ordinary part of legal and insurance work.”

The eight months at issue from the time of demand to the time of the umpire’s meeting was “relatively minimal,” and during “that period, both parties’ appraisers were actively conducting investigations, with much of the actual delay attributable to plaintiffs’ own adjuster.”

The court granted summary judgment for the insurer.

Date of Decision: June 8, 2017

Dagit v. Allstate Property & Casualty Insurance Company, No. 16-3843, 2017 U.S. Dist. LEXIS 87971 (E.D. Pa. June 8, 2017) (O’Neill, Jr., J.)


This case centered on plaintiff’s allegations that the defendant insurers simply refused to pay claims under an applicable policy.  The insured pleaded the policy was in effect at the time of the injuries at issue. The insurers argued that the policy had been cancelled. The court could not resolve this fundamental issue at the pleading stage, and so denied the motion to dismiss the insured’s bad faith claim.

Date of Decision: June 9, 2017

TNT Services Corp., LLC v. Houston International Insurance Group, No. 3:16cv1505, 2017 U.S. Dist. LEXIS 89119 (M.D. Pa. June 9, 2017) (Munley, J.)




The excellent Tort Talk Blog has updated its reporting on post-Koken UIM case law on motions to bifurcate, this most recent case being a denial of such motion.



This property loss case provides a good summary of basic bad faith law leading into its analysis of the facts, and then some strong language on bringing a bad faith claim where the insured’s own conduct led to the delays at issue.

Quoting the Court:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that “the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. “The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith.'” J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004).”

In this case, the insurer paid “no less than $347,000” for real and personal property loss from fire, with a remaining dispute over $17,000 for landscaping issues. That contract dispute could not be resolved on summary judgment. However, the bad faith claim was resolved on summary judgment, where the court found it “unthinkable” on the facts that a jury could find bad faith.

The bad faith claim centered on the timing of making payments for personal property loss (which had been ultimately paid to the policy limits). The court observed that the analytic framework for measuring claims of delay in making such payments began with the terms of the insurance policy itself. Unambiguous policy language placed most responsibility for the timing and amount of payments on actions required of the insureds. In this case, the insureds did not provide required documentation for over a year.

The court analyzed the history and concluded: “In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Date of Decision: May 30, 2017

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)