Monthly Archive for September, 2021

BAD FAITH CLAIM PLAUSIBLY STATED FOR INSURER FORCING A CLAIM INTO LITIGATION WHEN IT ALLEGEDLY KNEW POLICY LIMITS WERE DUE AND REFUSED TO PAY THEM (Western District)

Plaintiff successfully stated a bad faith claim in this underinsured motorist case.

Plaintiff alleged serious injuries, lost earnings and earning capacity, and emotional injuries. The UIM policy limit was $50,000.  The insured submitted documented medical claims showing the severity of his injuries, and a life care plan indicating over $388,000 in future medical expenses.  More specifically, the insured “provided documentation and medical records for a period immediately following the accident through October 1, 2020 connecting cervical root compression and bilateral disc protrusion with surgical ablation to the motor vehicle accident on August 11, 2018, and reflecting that [the insured] will require $388,117 in future medical care and related expenses).”

In addition, the insured alleged the carrier “failed (and continues to fail) to investigate and process his claim given information showing the seriousness of his injuries and resulting economic loss stemming from the accident.  Moreover, [the insurer] allegedly is “[f]orcing the plaintiff … to proceed to litigate his claims to recover underinsured motorist benefits.”

The carrier refused to pay the $50,000 limit, and the insured brought claims for breach of contract and bad faith.  Magistrate Judge Kelly found the insured set out a plausible bad faith claim, based on these allegations over the severity of the injuries, the huge gap between the policy limit and the alleged medical damages, and the insurer’s forcing the insured to litigate the UIM claim instead of paying policy limits.

The court recited the usual bad faith standards, including the standards that statutory bad faith can exist in the absence of a benefit denial, solely for a variety of poor claims handling practices.  [As noted for the last 14 years on this Blog, poor claim handling in the absence of any duty to pay or provide a benefit, as opposed to delaying in paying a benefit owed, should very likely not be the basis of a bad faith claim under Toy v. Metropolitan.  One of our many posts on the subject can be found here.]

In addition, and of considerable interest, the court stated that:

As particularly relevant to the allegations here, “bad faith is actionable regardless of whether it occurs before, during or after litigation…. [Moreover], using litigation in a bad faith effort to evade a duty owed under a policy would be actionable under Section 8371.” Hart v. Progressive Preferred Ins. Co., No. 17-1158, 2017 WL 11485593, at *3 (W.D. Pa. Dec. 6, 2017) (quoting W.V. Realty, Inc. v. Northern Ins. Co., 334 F.3d 306, 313 (3d Cir. 2003)). The required inquiry is fact specific and “depend[s] on the conduct of the insurer vis à vis the insured.” Condio v. Erie Ins. Exch., 899 A.2d 1136, 1143 (Pa. Super. 2006).

A summary of Hart,  a Report and Recommendation issued by Western District Magistrate Judge Mitchell, can be found here. He has served in the capacity of a Magistrate Judge since 1972.  The 2017 Hart case was dismissed before the R&R was adopted, but as any seasoned Pennsylvania practitioner knows that even Magistrate Judge Mitchell’s Reports and Recommendations will be treated seriously.

Date of Decision:  September 8, 2021

Faith v. State Farm Mut. Auto. Ins. Co., U.S. District Court Western District of Pennsylvania No. 21-CV-0013, 2021 WL 4078658 (W.D. Pa. Sept. 8, 2021) (Kelly, M.J.)

UNDER NEW JERSEY LAW, NO COVERAGE DUE = NO BAD FAITH (Third Circuit) (New Jersey Law)

This Third Circuit decision addresses New Jersey bad faith law.  The appellant argued that the trial court “erred in ruling that it could not maintain bad faith claims against the insurers absent a finding of coverage.” The District Court’s decision, including case background, is summarized here.

The Third Circuit, however, disagreed and affirmed the District Court, stating:

Under New Jersey law, “a claimant who could not have established as a matter of law a right to summary judgment on the substantive [coverage] claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.” Likewise for bad faith claims premised on alleged processing delays, “the test appears to be essentially the same.” Such bad faith claims are viable when the substantive claim for coverage is “valid” and “uncontested.” Here, however, [the insured] could not establish a right to coverage. Additionally, [the insured’s] citation to the New Jersey Unfair Claim Settlement Practices Act is unavailing, because that statute does not create a private right of action. We conclude that the District Court did not err in granting summary judgment to the insurers on [the] bad faith claims.

Benecard Services, Inc. v. Allied World Specialty Ins. Co., U.S. Court of Appeals for the Third Circuit No. 20-2359, 2021 WL 4077047 (3d Cir. Sept. 8, 2021) (Fisher, Matey, Smith, JJ.) (New Jersey Law)

 

 

TWO BAD FAITH OPINIONS BY NEW JERSEY DISTRICT JUDGE HILLMAN: (CASE 1) CLAIM ADEQUATELY PLEADED, MOTION TO SEVER AND STAY DENIED (CASE 2) NO COVID-19 COVERAGE DUE = NO BAD FAITH (New Jersey Federal)

This post summarizes two bad faith opinions issued by New Jersey District Judge Hillman in September.

CASE 1 – FIRST PARTY PROPERTY BAD FAITH CLAIM CAN PROCEED

In this first party property damage case, the insurer offered one-ninth of what the insured claim was due.  The insured brought breach of contract, breach of the implied covenant of good faith and fair dealing, and bad faith claims.  The insurer moved to dismiss the latter two claims, and if unsuccessful, moved to sever and stay the bad faith claim.

Breach of implied contractual covenant good faith and fair dealing subsumed in bad faith claim

Judge Hillman first found that the bad faith claim and breach of the implied covenant of good faith and fair dealing claim were redundant.  “[T] requirement to act in ‘good faith’ in processing a claim under an insurance contract is simply the flip-side of the requirement that an insurer may not act in ‘bad faith; in processing that claim. As such, Plaintiff’s claim for the breach of the implied covenant of good faith and fair dealing contained in both of Plaintiff’s counts is redundant of, and subsumed by, Plaintiff’s bad faith claim and must be dismissed as a stand-alone claim, if Plaintiff had intended it to be as such.”

Bad faith claim adequately pleaded

Judge Hillman then found the insured adequately pleaded its bad faith claim.  “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence. In the case of denial of benefits, bad faith is established by showing that no debatable reasons existed for denial of the benefits.”

To meet this standard:

  1. “[A] plaintiff must show the absence of a reasonable basis for denying benefits of the policy.”

  2. “If a plaintiff demonstrates the absence of a reasonable basis, he must then prove that the defendant knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”

  3. In other words, an insurance company does not act in bad faith if a plaintiff’s insurance claim was “reasonably debatable.”

  4. A claim is “reasonably debatable” if a plaintiff cannot establish as a matter of law a right to summary judgment on the underlying breach of contract claim.

The court agreed some of the plaintiff’s complaint made conclusory allegations, but sufficient facts were pleaded to make out a plausible bad faith claim.  These include factual allegations that the insurer:

  • made misrepresentations concerning the lack of documentation for “abatement and appraisal,”

  • failed to indicate what ongoing investigation was being pursued in violation of the New Jersey Unfair Claims Settlement Practices,

  • determined that Plaintiff was improperly claiming damage for a pre-existing loss of 2013 in the absence of any evidence that there was pre-existing damage in the building from a loss in 2013,

  • made false statements concerning the extent of damage to [building] units 403, 407, 300 and 301,

  • threatened [the insured] with prosecution for “concealment, misrepresentation or fraud” when it knew that the only misrepresentation and fraud committed in connection with this claim had been committed by Great American, and

  • did all these things with the intentional purpose to deny its $267,429.73 claim, which is supported by the estimate of an actual building contractor, and not by a company … that provides services as “independent adjusters” for numerous insurance companies including Great American, and instead pay a fraction of that claim.

Motion to Sever and Stay Denied Without Prejudice

The court applied the four factor test for apply Federal Rule of Civil Procedure 21.  These four factors include:

“(1) whether the issues sought to be tried separately are significantly different from one another,

(2) whether the separable issues require the testimony of different witnesses and different documentary proof,

(3) whether the party opposing the severance will be prejudiced if it is granted, and (4) whether the party requesting severance will be prejudiced if it is not granted.”

Judge Hillman observed the tension at issue: “As a general principle it makes sense to hold off discovery on an insurer’s alleged bad faith when such claim is premised on the insured’s success in proving its breach of contract claim. If it is determined that the insurance company did not breach the parties’ contract, then it cannot be found that it acted in bad faith, and, thus, discovery on a claim that may never be considered would tend to be a wasteful expenditure of the parties’ and the Court’s resources. At the same time, however … if an insured is successful on its breach of contract claim and discovery on the insured’s bad faith had been stayed, parties and witnesses may need to be re-deposed and documents re-scanned for relevancy, privilege and other concerns, which would also tend to be wasteful.”

He then observed: “These competing concerns are the reason why the four-factor test is employed to determine whether severance and stay is proper in the particular circumstances of an individual case. In this case, [the insurer] has failed to demonstrate how the general principles of severance and stay of a bad faith claim are specifically applicable here. Unlike [the situation] where the plaintiff had propounded extensive interrogatories relating to the production of voluminous documents not directly related to the plaintiff’s individual dispute, [the insurer] has not indicated that Plaintiff has demanded documents and other information separate from what Plaintiff would demand for its breach of contract claim. Thus, even accepting that the first factor has been met, at this time the Court cannot assess the second factor regarding “whether the separable issues require the testimony of different witnesses and different documentary proof,” and the subsequent third and fourth factors of the Rule 21 test.”

Thus, Judge Hillman denied the request to sever the insured’s bad faith claim and stay discovery on that claim, without prejudice. He added, however, that the insurer could “renew its motion, if appropriate, before the magistrate judge after discovery has commenced.”

Date of Decision:  September 1, 2021

801 Asbury Avenue, LLC v. Great American Insurance Company, U.S. District Court District of New Jersey No. 1:20CV16522NLHAMD, 2021 WL 3910147 (D.N.J. Sept. 1, 2021) (Hillman, J.)

CASE 2 – NO COVID-19 COVERAGE DUE = NO BAD FAITH

This Covid-19 business loss coverage case follows the logic in the Pennsylvania and New Jersey decisions summarized in yesterday’s (September 27, 2021) posts; and in an earlier August 2021 ruling by Judge Hillman.  Like those decisions, Judge Hillman first finds no coverage due for Covid-19 business closure losses. As to bad faith, he then states:

“Here, Plaintiff’s bad faith claim is based on Defendant’s denial of coverage, but as detailed above, that denial of coverage was proper as a matter of law. Accordingly, a bad faith claim based on these facts would not survive dismissal.”

Judge Hillman cited his own August 2021 Covid-19 decision in  Z Business Prototypes LLC v. Twin City Fire Insurance Co., summarized here, “dismissing with prejudice plaintiff’s bad faith claim based on denial of coverage where the virus exclusion applied and barred coverage….”

Date of Decision: September 21, 2021

ABC Children’s Dentistry, LLC v. The Hartford Insurance Company, U.S. District Court District of New Jersey No. CV 20-10044, 2021 WL 4272767 (D.N.J. Sept. 21, 2021) (Hillman, J.)

DENIAL CANNOT BE IN BAD FAITH WHEN THE INSURED’S COVID-19 COVERAGE CLAIM IS REJECTED (Philadelphia Federal and New Jersey Federal)

The following summaries of two recent Covid-19 coverage cases only address the bad faith issues in those cases. We quote the courts’ clear statement of the law on bad faith in Pennsylvania and New Jersey, made after finding no coverage due in these Covid-19 business loss cases.

First, is Judge Rufe’s recent decision in Infinity Real Estate v. Travelers:

But because Defendant had a reasonable basis for denying Plaintiff’s claims, the denial could not have been in bad faith. See Rancosky v. Wash. Nat’l Ins. Co., 170 A.3d 364, 373 (Pa. 2017) (citations and quotations omitted) (Finding bad faith requires that the insurer “did not have a reasonable basis for denying benefits under the policy.”).

Date of Decision:  September 13, 2021

Infinity Real Estate, LLC v. Travelers Excess and Surplus Lines Company, No. CV 20-6398, 2021 WL 4169417 (E.D. Pa. Sept. 13, 2021) (Rufe, J.)

A virtually identical approach is taken in New Jersey District Judge Martini’s  resolution of a bad faith claim, after finding no coverage for the insured’s Covid-19 business loss claims. Judge Martini states:

[U]nder New Jersey law, to state a claim for bad faith denial of insurance coverage, Plaintiffs were required to show that: “(1) [Defendant] lacked a reasonable basis for its denying benefits, and (2) [Defendant] knew or recklessly disregarded the lack of a reasonable basis for denying the claim.” …. A denial of coverage is, by definition, not made in bad faith where the claim itself is “fairly debatable.” …. Here, because the Court has already determined that Plaintiffs’ claim was not, as a matter of law, covered under the Policy, it stands to reason that Plaintiffs’ claim was “fairly debatable” and Defendant’s denial of coverage therefor was reasonable.

Date of Decision:  August 26, 2021

OTG Management PHL LLC v. Employers Insurance Co. of Wausau, U.S. District Court District of New Jersey, No. 2:21-CV-01240-WJM-MF, 2021 WL 3783261 (D.N.J. Aug. 26, 2021) (Martini, J.)

NON-INSURED ASSIGNEE STANDING REQUIRES BOTH STATUS AS AN INJURED PARTY AND AS A JUDGMENT CREDITOR (Philadelphia Federal)

Keeping with today’s theme, Eastern District Judge Leeson, like Judge Pratter, dismissed an amended bad faith claim with prejudice, after the insured did not correct pleading deficiencies to set out a plausible claim.  The nature of the bad faith claim here presents a different twist, however, as it involves assignments and standing.  Judge Leeson’s first decision is summarized here.

Aside from an insured, the only parties with standing to bring a statutory bad faith claim are injured parties receiving assignments who are also judgment creditors.  Judge Leeson cites Wolfe v. Allstate Prop. & Cas. Ins. Co., 790 F.3d 487, 491 (3d Cir. 2015) and Feingold v. Palmer & Barr, 831 Fed. App’x 608, 609 n.5 (3d Cir. 2020) to support this dual requirement. These cases in turn rely upon the Pennsylvania Supreme Court’s Allstate v. Wolfe decision, summarized here.

Judge Leeson found the plaintiff in this case is an assignee, but not an injured person.  “[T]he assignment of proceeds, in and of itself, was insufficient to confer standing to bring a bad faith claim. Accordingly, [plaintiff’s] argument that the assignment itself confers standing upon him is unavailing.”

“Moreover, assuming arguendo that [the plaintiff] sufficiently alleges that he is an injured plaintiff, [he] fails to plausibly allege that he is a creditor to any judgment related to the fire. The effort to plead assignment alone creates standing is “unavailing, as the Court in Wolfe did not treat Wolfe’s assignment as sufficient to render him a ‘judgment creditor.’ … [The plaintiff] fails to allege any judicial judgment related to the fire to which he is a creditor. Since [the plaintiff] does not allege that he is both an injured plaintiff and judgment creditor, he lacks standing to bring a bad faith claim ….” [Emphasis added]

Date of Decision:  September 9, 2021

Williams v. State Farm, U.S. District Court Eastern District of Pennsylvania No. 5:21-CV-00058, 2021 WL 4099534  (E.D. Pa. Sept. 9, 2021) (Leeson, J.)

NO BAD FAITH PLEADED: (1) 38 BAD FAITH ALLEGATIONS ALL CONCLUSORY; (2) ONLY A VALUATION DISPUTE; (3) INSURER DID NOT “CONSTRUCTIVELY IGNORE” RECORDS SUPPORTING CLAIM; (4) NO DILATORY CONDUCT SPECIFICALLY PLEADED; (5) “LOW BALL” OFFER ALLEGATION ISN’T SUFFICIENT IN ITSELF TO STATE A BAD FAITH CLAIM (Philadelphia Federal)

“If at first you don’t succeed, try and try again.”  That didn’t work in this case, where a bad faith claim was dismissed with prejudice after Eastern District Judge Pratter had already given the plaintiff leave to replead. A summary of Judge Pratter’s original decision in this uninsured motorist bad faith case can be found here.

In her second decision, Judge Pratter finds, among other things:

  1. “All told, the Amended Complaint contains a list of 38 ways in which Liberty Mutual allegedly acted in bad faith. But this list is a list of conclusions—not facts.”

  2. “[T]here are no details that would describe what was supposedly unfair about the process, other than that [the insured] disputes the value of the settlement offer.”

  3. There is no plausible for “constructively ignoring” medical records because the reviewer was not “medically educated”. “[T]here is nothing pled that the claims adjusters are somehow ill-equipped to perform their job—which entails reviewing medical records in connection with a claim.”

  4. The Court’s first opinion signaled the insured needed to plead more specific facts to support an allegation of bad faith dilatory conduct, “i.e., the number of months between demand and settlement offer.” However, “[t]he Amended Complaint does not describe the course of the parties’ dealings, let alone whether Liberty Mutual delayed its offer of settlement.”

  5. “In the final analysis, the Amended Complaint reflects a disagreement over the amount of settlement of [the insured’s] claim. To state a bad faith claim, an insured must do more than call [the insurer’s] offers ‘low-ball.’” As the Court explained at length in its prior opinion, this appears to be a familiar dispute between parties over the entitlement to UM coverage as an initial matter as well as the value of a claim to UM benefits. Moreover, accepting the well-pleaded allegations as true that [the insured] is indeed entitled to UM benefits, it does not necessarily follow that she is entitled to the limit of that coverage. A policy limit—as its name suggests—is the theoretical maximum that an insured could recover. ‘It is not the de facto value of a claim.’”

Date of Decision:  August 26, 2021

Brown v. LM Gen. Ins. Co.,  U.S. District Court Eastern District of Pennsylvania 2021 No. CV 21-2134, WL 3809075 (E.D. Pa. Aug. 26, 2021) (Pratter, J.)