Monthly Archive for July, 2020
The insureds wanted coverage for a fire loss. The carrier’s investigator concluded the fire was set intentionally, but the insureds offered the fire marshal’s conclusion that the fire was of undetermined origin and still under investigation. The carrier denied the claim, and the insured sued. The suit included bad faith and Consumer Fraud Act (CFA) claims, among other causes of action. The insurer successfully moved for summary judgment on the bad faith and CFA claims.
Bad Faith Claim
The court observed generally, “Under New Jersey law, an insurer owes a duty of good faith to an insured when processing first-party claims under an insurance policy. … This good faith obligation is greater than that owed under a typical commercial contract because of the fiduciary obligation an insurer owes its insureds. … A plaintiff seeking to recover for the bad faith conduct of an insurer is not required to prove bad motive or intention. … However, a bad faith claim cannot succeed where the insurer’s conduct amounts to mere negligence.”
Further, “[t]o succeed on a claim against an insurer for the denial in bad faith of benefits under an insurance policy, the insured must demonstrate that no debatable reasons existed for the denial. … A plaintiff who cannot establish as a matter of law a right to summary judgment on the issue of coverage cannot succeed on a claim for bad faith denial.”
The court granted summary judgment on the bad faith claim. It reviewed the conflicting fire reports, and found that “[b]ased on conflicting evidence in the record, it is genuinely disputed whether [the insured] caused or did not cause the fire to plaintiffs’ home. A reasonable juror could find that he intentionally set the fire. It follows that plaintiffs could not prevail on a motion for summary judgment that coverage under the policy exists.”
CFA Claim
The Court then addressed the CFA claim. “To prevail on a CFA claim, a plaintiff must establish: (1) the defendant engaged in conduct which violates the CFA; (2) the plaintiff suffered an ascertainable loss; and (3) a causal relationship exists between the unlawful conduct and the loss.” The court also granted the insurer summary judgment on this claim.
“Fraudulently selling or inducing the sale of an insurance policy is a violation of the CFA. … However, ‘while the CFA encompasses the sale of insurance policies as goods and services that are marketed to consumers, it was not intended as a vehicle to recover damages for an insurance company’s refusal to pay benefits.’” Date of Decision: July 16, 2020
Watson v. Liberty Mutual Fire Ins. Co., U.S. District Court for the District of New Jersey CIVIL ACTION NO. 19-11994, 2020 U.S. Dist. LEXIS 125361 (D.N.J. July 16, 2020) (Bartle, J.)
Plaintiff asserted that the insurer breached a fiduciary duty. The insurer moved to dismiss, alleging plaintiff was not a named insured. Rather the policy was issued to his mother. The court rejected plaintiff’s argument that because he was a co-owner of the underlying asset he should be treated as an insured, and the claim was dismissed with prejudice.
The court observed that under Pennsylvania law:
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“[A]n insurer does not have a fiduciary duty to an insured, except in limited circumstances such as where the insurer asserts a right to defend claims against the insured.”
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“[T]he existence of a fiduciary duty . . . is predicated upon an existing contractual relationship between the insurer and the insured.”
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“To determine who is an insured under a given policy, the Court ‘must look to the terms of the [p]olicy.’”
Applying these principles, the plaintiff could not claim a breach of fiduciary duty when he was not a named insured. “Notwithstanding his alleged co-ownership of the underlying asset, plaintiff cannot claim that the defendants owed him a fiduciary duty or that he was entitled to recover under the terms of the policy.”
Date of Decision: July 13, 2020
Deckard v. Steven Emory, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-5182, CIVIL ACTION NO. 19-2001, 2020 U.S. Dist. LEXIS 122720 (E.D. Pa. July 13, 2020) (DuBois, J.)
This property damage bad faith case was removed to federal court, and plaintiff wanted a remand.
Judge Jones observed that once the amount in controversy is challenged, the removing defendant has the burden to prove by a preponderance of the evidence that the case value exceeds $75,000, the jurisdictional minimum. In a bad faith case, the court can consider punitive damages and potential attorney’s fees in making this calculation.
The property damage claim was in excess of $65,200, and it would appear that with punitive damages and attorney’s fees the bad faith claim would easily exceed the $75,000 minimum. However, plaintiff apparently pleaded in his ad damnum clause that the damages exceeded $50,000 (avoiding arbitration), but were not in excess of $75,000 (attempting to avoid removal). Judge Jones found this language in the ad damnum clause did not prevent removal.
Specifically, after discussing prior case law and pleading standards under Pennsylvania’s Rules of Civil Procedure, Judge Jones (who sat for many years as a Court of Common Pleas judge) found that the insured’s “attempt to artificially cap the amount in controversy ‘as less than $75,000.00’ through an ad damnum clause is inconsistent with Pennsylvania’s pleading rules.” The opinion cites numerous cases where the punitive damage and attorney fees claims pushed an actual damage claim otherwise below the $75,000 minimum over the jurisdictional threshold.
Judge Jones next addressed the insurer’s motion to dismiss the bad faith claim. The insurer argued that the bad faith count failed to set forth a single fact, relying solely on boilerplate generic allegations. The court agreed, observing “[t]he allegations in Plaintiff’s Complaint purporting to state a claim for bad faith are in fact identical to the allegations from a prior complaint filed by Plaintiff’s counsel in another case, which this Court found to be insufficient to state a claim in … Clapps v. State Farm Ins. Cos….” The court did grant leave to file an amended complaint.
Date of Decision: July 10, 2020
Thach v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5050, 2020 U.S. Dist. LEXIS 121758 (E.D. Pa. July 10, 2020) (Jones II, J.)
Anyone following this blog has been made aware, ad naseum, that courts are divided on whether statutory bad faith can exist where no benefit is denied. In this context, denial of a benefit includes a bad faith delay in providing a benefit owed. Thus, the issue is not whether a belated payment or defense can constitute bad faith. Rather, the issue is whether a statutory bad faith claim is cognizable if an insurer owes no duty to indemnify in a first party case, or to defend or indemnify against a third party claim.
We have pointed out that the 2007 Pennsylvania Supreme Court decision in Toy v. Metropolitan Life strongly appears to have answered this question: There is no statutory bad faith possible if no benefit is denied. Thus, if no benefit is due, it would appear section 8371 is not the remedy for poor claims handling practices, standing alone.
Last week, Eastern District Judge McHugh ruled in a case that no coverage was due under the policy at issue. After so ruling, he then addressed the bad faith claim in one sentence. “Because I have concluded that [the insurer] acted in accordance with the terms of the policy, it cannot be deemed to have acted in bad faith.” Hemphill v. Landmark Insurance Company. Another example of this principle is found in Judge DuBois’ 2019 Buck decision, which specifically cites Toy.
One day earlier, Lackawanna County Common Pleas Judge Nealon concluded that statutory bad faith did not require denial of a benefit. In fact, a carrier could win summary judgment that no coverage was due under an insurance policy, but still be subject to a statutory bad faith claim. Farber v. Erie Insurance Exchange.
Judge Nealon states that the success of a statutory bad faith claim does not depend on the success of the underlying contract claim. Citing a 1999 Superior Court opinion, he adds that “because ‘[a] bad faith action under Section 8371 is neither related to nor dependent on the underlying contract claim against the insurer,’ [the insured] is ‘not required to await a judicial determination of the coverage issue’ before pursuing a bad faith claim….”
There are numerous cases out of Pennsylvania’s Superior Court and Federal Courts finding there is a subset of statutory bad faith claims that do not require the denial of a benefit. Despite Toy’s importance on this issue, these cases typically do not cite Toy. Of course, some of the cases were decided before Toy, but many are not. Rather, these post-Toy cases cite case authority that ultimately relies on pre-Toy precedent.
The Farber opinion cites Superior Court case law relying on authority from the 1990s, as well as Middle District Judge Rambo’s 2019 Ferguson opinion. In Ferguson, Judge Rambo addressed the issue head on, and concluded that there are cognizable statutory bad faith claims that do not require denial of a benefit. Unfortunately, Ferguson does not consider the Toy opinion in reaching this conclusion.
Dates of Decision: July 8, 2020 and July 9, 2020
Farber v. Erie Insurance Exchange, Court of Common Pleas of Lackawanna County, No. 19 CV 2302 (July 8, 2020) (Nealon, J.)
Hemphill v. Landmark Insurance Company, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-5260, 2020 U.S. Dist. LEXIS 120447 (E.D. Pa. July 9, 2020) (McHugh, J.)
Our thanks to attorney Daniel Cummins of the excellent and valued Tort Talk Blog for bringing the Farber case to our attention.
The insured had an ongoing relationship with its carrier, obtaining multiple commercial general liability policies over the years. The insured alleges that the carrier used an undisclosed “inflation guard” program to raise its coverage and premiums over the years, contrary to the insurer’s own requirement that the premium guard program be disclosed to the insured.
Alleging that it was kept in the dark, and would not have agreed to the coverage and premium increased, the insured brought Consumer Fraud Act (CFA) and common law fraud claims against the carrier. The insured describe the carrier’s conduct as “an unconscionable practice of applying undisclosed or hidden automatic premium escalations to insurance contracts that do not appear to call for or disclose such escalations.” The court denied the carrier’s motion to dismiss the fraud and CFA claims.
As to the CFA claims, the court found the insured’s “allegations necessarily implicate an extracontractual fraud. Without disclosure of these charges, Plaintiff was deprived of the opportunity to negotiate them away or seek an alternative carrier. While it is true the product Plaintiff received increased his coverage limits to protect against inflation, non-disclosure of such procedures – and as Plaintiff alleges, intentional concealment of them – may be viewed as unlawful and fraudulent behavior. This type of allegedly unfair and undisclosed business practice is within the spirit and scope of the NJCFA.”
Date of Decision: June 24, 2020
Trocki v. Penn National Mutual Casualty Insurance Co., U.S. District Court District of New Jersey 1:19-cv-13638-NLH-KMW, 2020 U.S. Dist. LEXIS 111150 (D.N.J. June 24, 2020) (Hillman, J.)
Yesterday, we summarized another case brought by the instant plaintiff against his homeowner’s insurer.
In this opinion, rendered the same day, the same plaintiff brought bad faith, negligence, and unfair trade practice claims against a hospital’s third party administrator (TPA). The hospital’s alleged medical malpractice practice purportedly resulted in the death of plaintiff’s godfather. Plaintiff brought suit in his own name, and not, e.g., as executor.
Plaintiff alleged that the TPA failed to facilitate negotiations to settle the medical malpractice suit. The trial court dismissed the claim with prejudice and the Appellate Division affirmed.
Generally, insurers have an obligation to explore settlement possibilities. A third party administrator, however, is not an insurer. Thus, the claim failed.
Further, plaintiff was not an insured or an insured’s assignee. The court observed “[a]n insurer’s duty of good faith and fair dealing . . . has never been applied in New Jersey to recognize a bad-faith claim by an individual or entity that is not the insured or an assignee of the insured’s contract rights.”
The Appellate Division found the claims could not be salvaged, and affirmed dismissal with prejudice.
Date of Decision: June 22, 2020
Yew v. Inservco Insurance Services, Superior Court of New Jersey Appellate Division DOCKET NO. A-4604-18T2, 2020 N.J. Super. Unpub. LEXIS 1202, *1 (N.J. App. Div. June 22, 2020) (Messano, Ostrer, JJ.)
The insured’s home was damaged by a sump pump failure. The policy did not cover sump pump failures. Years before the loss, the carrier sent the insured notice that his policy did not cover sump pump failures and offered an endorsement for additional sump pump protection. The insured saw the notice, but took no action. The insurer did not send the same notice in the ensuing years.
The insured brought negligence and bad faith claims because the insurer did not send the notice for sump pump coverage every year.
The trial court granted summary judgment to the insurer, and the Appellate Division affirmed.
The Appellate Division observed that, absent a special relationship, “there is no common law duty of a carrier or its agents to advise an insured concerning the possible need for higher policy limits upon renewal of the policy.” Further, “to establish a special relationship creating a duty to advise about adequacy of insurance, ‘there must be a long-standing relationship between the parties, some type of interaction on the question of coverage, and reliance by the insured on representations of the insurance agent to the insured’s detriment….’”
In this case, the insured did not establish “a basis for finding a special relationship … that would give rise to a duty to inform him of the need to buy sump pump coverage, or to inform him annually of the option to do so.” Simply providing notice years earlier that there was no coverage and insureds needed to purchase an endorsement to obtain sump pump coverage did not create that relationship. Rather, the notice clearly told the insured that he had no coverage, and the policy itself unambiguously excluded coverage.
In sum, the insured put on no evidence that he could rightly “assume his policy included coverage in subsequent years without purchasing the endorsement.”
Date of Decision: June 22, 2020
Yew v. FMI Insurance Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4947-18T3, 2020 N.J. Super. Unpub. LEXIS 1200 (N.J. App. Div. June 22, 2020) (Messano, Ostrer, JJ.)
This UIM bad faith opinion includes instructive points on factual allegations that only create possible, but not plausible, claims and on the use of alleged Unfair Insurance Practices Act (UIPA) violations as evidence. The opinion also includes the more common observations admonishing against conclusory pleading.
The bad faith claims in this case concern alleged misrepresentations of UIM coverage in connection with stacking, a refusal to provide the underwriting file, and a claim that the insurer forced the insured to file suit just to obtain documents. The court dismissed the bad faith claims, but with leave to amend.
ADEQUATE PLEADING STANDARDS
As with many other cases issuing out of the Eastern District this year, the court made clear that conclusory allegations are given no regard in supporting a bad faith pleading. Like many of those courts, Judge Baylson cited the Third Circuit’s Smith opinion on this point, as well as his own opinions in Eley and Robbins.
There were three factual allegations that went beyond mere conclusory pleading, though still not adequate to state a claim because they only made bad faith possible, not plausible.
Refusal to Pay Not Enough
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“Defendant denied Plaintiff’s claim for UIM stacking of benefits for five vehicles….” As to this allegation, Judge Baylson found that “a plaintiff cannot base a bad faith claim on the defendant’s refusal to pay. A disagreement over the amount of a UIM claim is not unusual, and the existence of such disagreement cannot by itself state a viable bad faith claim.” He relied on Johnson v. Progressive Ins. Co., for the proposition that “[t]he underlying facts involve nothing more than a normal dispute between an insured and insurer over the value of an UIM claim. The scenario under consideration occurs routinely in the processing of an insurance claim.”
Refusal to Turn Over Underwriting File
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“Defendant refused to provide the underwriting file upon request….” Judge Baylson found the insurer’s alleged “refusal to provide the underwriting document is comparable to the allegation of parallel conduct in Twombly, which ‘gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of entitlement to relief.’” He added that “[i]n insurance coverage disputes, underwriting files often contain an insurer’s evaluation of the risks presented on an insurance application, along with other confidential business information. Although a showing of Defendant’s refusal to disclose the underwriting file may be consistent with bad faith, it is also as much in line with ‘a wide swath of rational and competitive business strategy.’”
Don’t Make the Court Speculate that an Alleged Fact Might Possibly be Bad Faith
3. “Defendant required Plaintiff to file a lawsuit in order to obtain the documents that will confirm the coverage.” Although not addressed separately, this allegation fell under the general concept the court will not infer bad faith because a possibility of bad faith exists. Rather, the factual allegations must stand by themselves as a plausible basis for a bad faith claim. Plausibility means the court does not have to speculate on what the allegation might imply.
UIPA Violations Must Show the Actions at Issue Occurred on a Regular Basis as a General Business Practice
The insured argued that he should be allowed to use UIPA violations as evidence of bad faith. The carrier countered that UIPA violations might only be evidence of bad faith “when the actions in question were a general business practice,” and the insured did not make any allegations to this effect. Judge Baylson found the complaint was devoid of specific factual allegations concerning putative UIPA violations.
Judge Baylson stated that “31 Pa. Code § 146.1 (1978) provides that such violations ‘will be deemed to constitute unfair claims settlement practices’ if they occur with “a frequency that indicates a general business practice.’” Judge Baylson relied on his 2017 Jack decision, to support his conclusion that the insured “pleaded no factual allegations showing that Defendant’s actions occur on a regular basis that constitutes a general business practice.”
Date of Decision: June 22, 2020
Dietz v. Liberty Mutual Insurance Co., U.S. District Court Eastern District of Pennsylvania No. 2:20-cv-1239-MMB, 2020 U.S. Dist. LEXIS 108559 (E.D. Pa. June 22, 2020) (Baylson, J.)
