Archive for the 'PA – Coverage Issues' Category

BAD FAITH CLAIM PROCEEDS BASED ON ORIGINAL COMPLAINT, EVEN IF AMENDED COMPLAINTS DID NOT PLEAD COVERED CONDUCT; COURT ADDRESSES LAW OF FAULTY WORKMANSHIP AND COVERAGE (Philadelphia Federal)

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This is case involves bad faith claims and Kvaerner coverage issues, based on damages resulting from the installation of a fuel system.  The insured brought breach of contract and bad faith claims, and the insurer moved for judgment on the pleadings.

Judge Surrick sets out the law on faulty workmanship, faulty products, and what constitutes a covered occurrence

Eastern District Judge Surrick does an analysis of the case law on whether faulty workmanship can constitute an occurrence, whether damages solely resulting from faulty products can be an occurrence, and whether the reasonably foreseeable results of faulty workmanship can be an occurrence when the results of that faulty workmanship are damage to other property.

He observes there is no question that faulty workmanship in itself is not an occurrence under Kvaener and its progeny. He also accepts the Indalex principle that damages solely flowing from a faulty product are the result of an occurrence.  Based on clear precedent, however, he rejects the notion that reasonably foreseeable damages to a third party’s property resulting from faulty workmanship constitutes an occurrence.

In the present case, it was unclear whether the damages resulted from a faulty product or faulty workmanship, so the coverage issue could not be determined at the judgment on the pleadings stage.

Bad faith claim allowed to proceed

Judge Surrick likewise found the bad faith claim could not be resolved via a judgment on the pleadings.

The insurer initially denied a defense and coverage, but later issued a reservation of right letter, provided a defense, and brought a declaratory judgment action.  The insurer argued the amended and second amended complaints against the insured provided no basis for coverage, and even if they did, it was still reasonable to deny coverage.

The insured focused on the original complaint, observing that the insurer denied a defense based on the original complaint, before the amended complaints were ever filed.  After the insured protested, the carrier did rescind the original denial and defended under a reservation or rights.  The insured used these facts to support a bad faith claim that the original position was unreasonable.  The insured also asserted the insurer’s investigation “was rushed, incomplete, half-hearted, and faulty, which also supports its claim for bad faith.”

Judge Surrick accepted the insured sufficiently pleaded a bad faith claim based on the insurer’s conduct surrounding the original complaint, and its initial refusal to defend based on the original complaint’s allegations.

 “The Original Complaint, unlike the First or Second Amended Complaints, included various counts and allegations of negligence and gross negligence…. When the complaint asserts an injury which may be within the policy, the insurer is required to defend. … Therefore, where a claim is potentially within the scope of an insurance policy, the insurer who refuses to defend at the outset does so at its peril.”

Date of Decision:  September 30, 2021

Harleysville Worcester Insurance Company v. Gateway Petroleum Technology Inc., U.S. District Court Eastern District of Pennsylvania No. CV 20-4863, 2021 WL 4477149 (E.D. Pa. Sept. 30, 2021) (Surrick, J.)

DURATION OF INVESTIGATION ALONE CANNOT ESTABLISH BAD FAITH; BAD FAITH CLAIM POSSIBLE EVEN WHERE COVERAGE IS EXCLUDED UNDER THE POLICY (Western District)

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The carrier denied the insured homeowners’ property damage claim.  They sued for breach of contract and bad faith, and the carrier moved to dismiss.

First, the court found the insureds failed to plead their losses were covered under the policy at issue, and dismissed the breach of contract claim because no coverage was due under the policy.

Moving to the bad faith claim, Western District Judge Hardy found there are two general kinds of statutory bad faith in Pennsylvania:  (i) coverage denial bad faith and (ii) poor claim handling bad faith beyond coverage denial.  The court states:  “However, if bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.”

[As stated on this Blog again and again over the years, this second point is questionable.  The Supreme Court’s 2007 decision in Toy v. Metropolitan Life indicates that cognizable statutory bad faith claims require denial of a benefit, i.e., denial of coverage in a first party claim or refusal to defend and cover in a third party claim are the sine qua non for section 8371 clams. Under this theory, complaints about poor claim handling practices, where no coverage is due or benefit denied, go to the insurance commissioner.  Examples of such Blog posts can be found on January 28, 2020, March 25, 2020, July 16, 2020, August 10, 2020, August 27, 2020, September 24, 2020, January 19, 2021, March 25, 2021,   and this article detailing our reasoning.]

The court readily found no bad faith claim based on a benefit denial, since the court ruled that no coverage was due under the policy.  The bad faith analysis does not stop there, per the position that poor conduct, even where no benefit is or can be due, might constitute section 8371 bad faith.

Even under that standard, however, these plaintiffs’ claim failed for failing to plead a plausible claim. Thus, the court states, “to the extent that Plaintiffs’ bad faith claim is based on [the  insurer’s] alleged failure to conduct an adequate investigation, Plaintiffs simply do not assert sufficient factual allegations in their Amended Complaint to support such a cognizable bad faith claim.”

The court recites the plaintiffs’ conclusory bad faith pleading, that simply recite elements of the cause of action, rather than facts, as examples of inadequate pleading.  The factual allegation that the insurer’s inspection lasted only ten minutes, and did not include testing or measurement taking, still did not cut the mustard. “Although the duration of an adjuster’s inspection might be relevant to a claim of bad faith, it does not itself demonstrate bad faith.”  Judge Hardy relied upon Western District Judge Wiegand’s 2020 Palek decision, summarized here, and Eastern District Judge McLaughlin’s 2012 Gold decision, summarized here, for the principle that the duration of an investigation or review, by itself, cannot establish a plausible bad faith claim.

Judge Hardy also observed, “since Plaintiffs allege that the damage at issue was visible to the naked eye from the interior of the basement and was not obstructed or concealed from view,” it is not clear that [the] visual inspection of the wall was unreasonable under the circumstances that Plaintiffs describe.”

In sum, “even accepting the cited allegations as true, Plaintiffs have not pled sufficient facts in their Amended Complaint to support a cognizable claim of bad faith for … failure to conduct an adequate investigation.”

Date of Decision:  September 30, 2021

Levine v. State Farm Fire and Casualty Company, U.S. District Court Western District of Pennsylvania No. CV 20-1108, 2021 WL 4480168 (W.D. Pa. Sept. 30, 2021) (Hardy, J.)

TWO BAD FAITH OPINIONS BY PHILADELPHIA FEDERAL JUDGE DARNELL JONES: (1) BARE BONES UIM BAD FAITH CLAIM DISMISSED WITH LEAVE TO AMEND (2) NO DUTY TO DEFEND = NO BAD FAITH (Philadelphia Federal)

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Eastern District Judge Darnell Jones recently rendered two bad faith decisions just a few days apart.

CASE 1  – Underinsured Motorist Bad Faith Claim Dismissed Without Prejudice

In the first case, Judge Jones dismissed an underinsured motorist bad faith claim, with leave to amend.

The court focused on the recent Western District decision in Faith, summarized here, to emphasize bad faith can “include a lack of investigation, unnecessary or unfounded investigation, failure to communicate with the insured, or failure to promptly acknowledge or act on claims. Bad faith can also include poor claims-handling, the insurer’s failure to act with diligence or respond to the insured, scattershot investigation, and similar conduct.”

That being said, a UIM bad faith plaintiff “’cannot merely say that an insurer acted unfairly, but instead must describe with specificity what was unfair.’”  Judge Jones relies upon Philadelphia Federal Judge Baylson’s recent O’Brien decision, summarized here, which in turn relied upon Western District Judge Colville’s 2020 Pierchalski decision, summarized here, for this proposition.

Rather, “a Complaint alleging bad faith ‘must specifically include facts to address who, what, where, when, and how the alleged bad faith conduct occurred.’” Bare bones bad faith pleadings in Pennsylvania’s District Courts are routinely dismissed. As examples, Judge Jones cites Eastern District Judge Leeson’s 2020 Shetayh v. State Farm opinion, summarized here, the oft-cited 2012 Third Circuit opinion in Smith v. State Farm, summarized here, Eastern District Magistrate Judge Heffley’s decision in Camp v. NJM, summarized here, Eastern District Judge Slomsky’s 2017 decision in Toner v. GEICO, summarized here, and the Western District decision in Rosenberg v. Amica Mutual, summarized here.

The Complaint fell into the inadequate pleading column, as it was “devoid of facts necessary to infer a plausible bad faith claim.” Other than the accident date, the complaint has no “references to dates or time spans, yet claims several of Defendant’s alleged actions to be untimely.” Plaintiffs allege unreasonableness as to the insurer’s alleged lack of thorough claim assessment, “yet provide[s] no indication as to the manner in which these alleged deficiencies were unreasonable.”

The court cites Judge Baylson’s 2015 Allen v. State Farm case, summarized here, for the proposition that simply reciting that the insurer failed to properly investigate and evaluate a claim, and knew or recklessly disregarded its unreasonable conduct, are conclusory in nature, because all this language does is recite the elements of a bad faith claim, without pleading basic facts to support those elements.

Here, there are no facts pleaded from which the court could draw reasonable inferences supporting a plausible bad faith claim.  The “complaint alleges no factual content to suggest Defendant lacked a reasonable basis for denying the UIM coverage, or that Defendant knew or recklessly disregarded the lack of reasonable basis.”

Dismissal was without prejudice, however, because after the court’s “careful assessment of the allegations set forth in [the bad faith count] of Plaintiffs’ Complaint (as well as those incorporated by reference), this Court is unable to conclude that amendment would be futile.”

Date of Decision:  September 27, 2021

Kelly v. Progressive Advanced Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5661, 2021 WL 4399657 (E.D. Pa. Sept. 27, 2021) (Jones, II, J.)

CASE 2 – Bad Faith Not Possible Where No Duty to Defend

In the second case, Judge Jones found no duty to defend the insured, as the claims pleaded against the insured clearly fell within a policy exclusion. Once Judge Jones found coverage obligations absent, he stated the following in a footnote, addressing the bad faith claim:

“[B]ad faith claims cannot survive a determination that there was no duty to defend, because the court’s determination that there was no potential coverage means that the insurer had good cause to refuse to defend.” (internal quotations omitted)

Date of Decision:  October 1, 2021

Jeffers Farms, Inc. v. Liberty Insurance Underwriters, Inc., U.S. District Court Eastern District of Pennsylvania No. CV 20-5475, 2021 WL 4502785 (E.D. Pa. Oct. 1, 2021) (Jones, J.)

NO BAD FAITH POSSIBLE WHERE NO DEFENSE OR COVERAGE OBLIGATION OWED (Philadelphia Federal)

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The insurer refused to defend and indemnify a personal injury claim against its additional insured under a commercial general liability policy.  The insured and its own insurer brought declaratory judgment, breach of contract, statutory bad faith, and common law contractual/equitable bad faith claims.  The insured’s own carrier alleged its policy should have been excess to the additional insured carrier’s policy.

The additional insured CGL carrier moved to dismiss, on the basis that coverage was excluded, per an employer’s liability exclusion.

First, Philadelphia Federal Judge Padova held the additional insured carrier had no duty to defend or indemnify in light of the employer’s liability exclusion.

[There is a very interesting discussion of whether the employer’s liability exclusion could apply if there was no additional insured coverage due, based on an argument that the underlying plaintiffs’ injuries did not arise out of the named insured’s conduct.  Judge Padova delved into the concept that this analysis was two-fold: (1) Was the party an additional insured, and then (2) Was there coverage for that additional insured. He found that the party was an additional insured, and any as yet undetermined absence of coverage because the additional insured’s liability did not arise from the named insured’s conduct, was a second level inquiry. Thus, because the party was an additional insured, the employer’s liability exclusion was in effect, and coverage for injury to its employees was excluded as to all insureds.]

On the statutory bad faith claim, Judge Padova first reiterated the employer’s liability exclusion foreclosed coverage. Based upon that predicate fact, he was “thus unable to conclude either that [the insurer] lacked a reasonable basis for denying the claim or that [the insurer’s] refusal to provide coverage was ‘frivolous or unfounded.’”

He cited Judge Savage’s 2012 Neshaminy Constructors, Inc. v. Fed. Ins. Co. opinion, summarized here, for the proposition: “Because there is no coverage under the contract for [the] claim, there can be no bad faith….” Judge Padova adds, “in the absence of coverage, [the insurer] cannot have acted in bad faith insofar as it failed to investigate the uncovered claims.”

Judge Padova also quotes Judge Dalzell’s 2007 Wedemeyer v. U.S. Life Ins. Co., decision, summarized here:  “If a reasonable basis exists for an insurer’s decision, even if the insurer did not rely on that reason, there cannot be bad faith.”

Finally, Judge Padova dismissed the other insurer’s bad faith claim, which purportedly arose out of its rights of equitable subrogation as an excess carrier against a primary carrier.  The insured’s own carrier argued its policy should have been excess to the defendant’s CGL policy, and the additional insured CGL carrier breached a duty of good faith to the excess carrier to save the excess carrier from providing a defense or paying claims the additional insured CGL carrier should have paid as primary insurer.

Judge Padova states

[T]he Third Circuit has held “that Pennsylvania recognizes no direct duty of good faith between a primary and an excess carrier.” … Rather, “‘an excess insurer who has discharged an insured’s liability stands in the shoes of the insured and as subrogee may maintain an action for breach of the primary carrier’s duty to act in good faith.’” … Thus, “[u]nder equitable subrogation the rights of the excess carrier may not rise above those of the insured.” … Because we have concluded that [the additional insured carrier] owed no duty to defend or indemnify [the insured] and [the excess carrier’s] rights may not rise above those of [its insured], which as we have previously concluded was not owed a defense or indemnity, we conclude that [the primary carrier] did not owe [the excess carrier] a duty to shield it from exposure as an excess carrier.

Date of Decision:  August 16, 2021

Westminster American Insurance Company v. Security National Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-2195, 2021 WL 3630464 (E.D. Pa. Aug. 16, 2021) (Padova, J.)

WITHOUT A COVERAGE OBLIGATION, IT IS IMPOSSIBLE TO SHOW THAT INSURER LACKED A REASONABLE BASIS FOR DENYING COVERAGE (Philadelphia Federal)

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The insured brought breach of contract and bad faith first party property damage claims.  These claims were based upon faulty workmanship, the consequences flowing from that faulty workmanship, and failed efforts at repairs.

Eastern District Judge McHugh granted summary judgment on coverage, based upon a faulty workmanship exclusion.  He then granted summary judgment on the bad faith claim, stating

To succeed on a bad faith claim, plaintiffs must show by clear and convincing evidence “that the defendant did not have a reasonable basis for denying benefits under the policy and that the defendant knew or recklessly disregarded its lack of reasonable basis for denying the claim.” … Here, the exclusion was properly invoked. “A reasonable basis is all that is required to defeat a claim of bad faith.” J.C. Penney Life Ins. Co., 393 F.3d at 367 (citing Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 307 (3d Cir. 1995)). See also Cresswell v. Pennsylvania Nat. Mut. Cas. Ins. Co., 820 A.2d 172, 179 (Pa. Super. Ct. 2003) (stating that where the court found that the insurer did not have a duty to provide coverage, “it is impossible” to show that the insurer lacked a reasonable basis for denying coverage).

Date of Decision:  August 4, 2021

Jones v. Allstate Property and Casualty Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-3052, 2021 WL 3418876 (E.D. Pa. Aug. 4, 2021) (McHugh, J.)

 

INSURER’S COVERAGE DENIAL OBJECTIVELY REASONABLE AND THUS NO BAD FAITH IS POSSIBLE (Western District)

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Western District Judge Hornak adopted Magistrate Judge Kelly’s Report and Recommendation to grant the insurer summary judgment, in this underinsured motorist coverage breach of contract and bad faith case.

First, the breach of contract claim hinged on whether the insurer’s underinsured motorist coverage rejection form comported with Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).  The insured signed a form rejecting UIM coverage, but argued the form he signed did not meet the MVFRL’s requirements, and therefore should be deemed void.

The court rejected this argument, and found no UIM coverage due.  The court also found that the failure to include a proper renewal notice regarding the rejection of UIM coverage was a violation of the MVFRL. Renewal notice MVFRL violations, however, have long been held not to provide a private remedy in the courts.  Rather, any failure in the renewal form was solely for administrative review by the insurance department.

Thus, the insurer obtained summary judgment on the coverage claim.

In light of this ruling, the bad faith claim necessarily failed because there was an objectively reasonable basis to deny UIM coverage, since the insured himself had rejected UIM coverage.  While there were some flaws in the claim adjuster’s manner of denying coverage, the fact is that the adjuster reached the correct conclusion that no coverage was due; and the carrier consistently took that position throughout, including an independent analysis by coverage counsel after the adjuster’s initial denial that no coverage was due.

Dates of Decision:  July 12, 2021 (Report and Recommendation), August 2, 2021 (Order adopting Report and Recommendation)

Keeler v. Esurance Insurance Services, U.S. District Court Western District of Pennsylvania No. 20-271 (W.D.Pa. July 12, 2021) (Kelly, M.J.) (Report and Recommendation), adopted by Order of the District Court (Aug. 2, 2021) (Hornak, J.)

Our thanks to Attorney Daniel Cummins, author of the excellent TortTalk Blog, for bringing this case to our attention.

COURT ADDRESSES (1) COMMON LAW VS. STATUTORY BAD FAITH STANDARDS; (2) LACK OF CLARITY IN THE LAW AND BAD FAITH; (3) DELAYS IN CLAIM HANDLING AND SETTLEMENT OFFERS; (4) APPLYING THE UNFAIR INSURANCE PRACTICES ACT IN BAD FAITH CASES; (5) AGGRESSIVE DISCOVERY/CLAIM HANDLING DURING LITIGATION; and (6) LOW RANGE SETTLEMENT OFFERS (Philadelphia Federal)

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Eastern District Judge Tucker explains the similarities and differences between common law and statutory bad faith, in granting the insurer summary judgment on the statutory bad faith claim, but rejecting dismissal of the common law bad faith claims.  She observes both types of bad faith are subject to the clear and convincing evidence standard. However, common law bad faith only requires proof of negligent claim handling, while statutory bad faith requires a knowingly or recklessly unreasonable claim denial.

Judge Tucker cites Judge McLaughlin’s 2007 Dewalt case as authority on the negligence standard.  Judge Tucker does focus on the Cowden type of common law bad faith in discussing these standards, i.e., an insurer can avoid a common law bad faith claim for failure to settle within policy limits by showing “a bona fide belief … predicated on all the circumstances of the case, that it has a good possibility of winning the suit.”  This kind of third party insurance bad faith claim was not before the court.  Rather, the facts involved an underinsured motorist claim.

In an earlier decision, Judge Tucker entered judgment for the insurer on the basis the plaintiff did not qualify as an insured under the policy.  The Third Circuit reversed her decision.  While true the policy language did not provide the plaintiff UIM coverage, the Third Circuit found this limitation violated Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).

On remand, the insured argued that the policy was issued in bad faith because it included language violating the MVFRL.  Judge Tucker rejected the common law bad faith claim on this point.  There was no precedent or binding authority on point before the Third Circuit’s decision, and the carrier’s position, while ultimately incorrect, was not unreasonable. “This matters because an insurer making a reasonable judgment as to coverage in a situation where the law is not clear cannot be liable for bad faith.”

This did not end the common law bad faith inquiry. Once the Third Circuit ruled, making the law applied to the policy crystal clear, this changed the measure of the insurer’s behavior, i.e., at that point the carrier knew it had an obligation to provide UIM coverage. In determining the common law bad faith claim, Judge Tucker stated:

  1. Conduct that postdates the start of litigation can form the basis for a proper bad faith claim.

  2. After the Third Circuit ruled that the Nationwide policy violated the MVFRL, Nationwide did not extend a settlement offer for ten months after the decision.

  3. When Nationwide did present an offer … it was for just $500,000 of the UIM benefits—in exchange for releasing the bad faith and class action claims.

  4. This offer was doubled a week later to $1 million, but it was contingent on a broader release of all disputes related to coverage.

  5. A failure to “promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy” is considered an unfair insurance practice under Pennsylvania law. 40 Pa. Stat. Ann. § 1171.5(a)(10)(xiii).

  6. The [UIPA] also singles out a refusal to “effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear” as a similarly unfair insurance practice.

  7. While a violation of the Unfair Insurance Practice Act (UIPA) does not constitute a per se violation of the bad faith statute, it does point to a material fact that could support a common law bad faith claim. [Judge Tucker observes apparently contrasting case law on this point, quoting some cases to the effect that UIPA violations are not bad faith per se, and another that “the rules of statutory construction permit a trial court to consider … the alleged conduct constituting violations of the UIPA or the regulations in determining whether an insurer, like Nationwide, acted in ‘bad faith.”]

  8. Again citing Dewalt, Judge Tucker states: The fact that Nationwide offered a settlement is also not a safe harbor from a bad faith claim. “Although most Pennsylvania cases finding bad faith do so in situations where an insurer refuses to settle, no case suggests that such a refusal is a pre-requisite for a bad faith claim.”

  9. Judge Tucker concludes that: Given the resolution of the disputed terms in the Nationwide policy by the Third Circuit, Defendant’s refusal to provide an unconditioned settlement for a claim under those terms is enough evidence that a reasonable jury could find in favor of Plaintiff on the common law bad faith claim.

Thus, the common law bad faith was allowed to proceed. The statutory bad faith claim was not.

The pre-suit conduct, i.e., drafting the policy with a clause violating the MVFRL, certainly could not be bad faith under the higher statutory standards if it did not constitute negligence under the common law standard.  Plaintiff could not show by clear and convincing evidence that the policy language and the carrier’s conduct in following that language was objectively unreasonable at the time, much less in knowing or reckless disregard of some unreasonable conduct.

As to litigation conduct after the Third Circuit had ruled, the insurer pursued aggressive discovery.  [This discovery was essentially the insurer’s claim handling at this point.]  Judge Tucker laid out the details of the insurer’s discovery/claim handling and specific events over the course of discovery/claim handling.  This included the insurer’s making a number of reasonable requests for information and the insured’s creating delays.  The carrier’s zealous, and maybe at times questionable, defense tactics did not equate to bad faith.

Judge Tucker also observed that offers on the low end of a settlement range for subjective damages such as pain and suffering do not constitute clear and convincing evidence that the insurer’s action were unreasonable, knowing or reckless.  These sorts of claims require investigation, and the carrier’s discovery on these issues amounted to standard claim handling.

Judge Tucker next stated that the insurer’s 10 month delay in making a settlement offer, absent other aggravating factors, was “well under periods of time that have been deemed acceptable for statutory bad faith purposes.”

Judge Tucker also found it significant that the insurer “communicated with Plaintiff during discovery, sending multiple document requests and communicating with Plaintiff’s counsel, which is arguably more responsive than the amount of communication Defendant received in response. This too weighs against whether a reasonable jury could rule that Nationwide had knowing or reckless disregard for the deficiency of its position.”

Thus, summary judgment was denied on the statutory bad faith claim.

Date of Decision:  July 14, 2021

Slupski v. Nationwide Mutual Insurance Company, U. S. District Court Eastern District Pennsylvania No. CV 18-3999, 2021 WL 2948829 (E.D. Pa. July 14, 2021) (Tucker, J.)

NO COVID-19 LOSS COVERAGE DUE, NO COMMON LAW BAD FAITH POSSIBLE (Philadelphia Federal)

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The court found no coverage due for the insured’s business interruption losses resulting from the Covid-19 pandemic.  For those interested in the court’s reasoning on this hotly litigated issue, the opinion can be found here. Today, we limit ourselves to insurance bad faith law issues only.

The insured did not pursue a statutory bad faith claim, but only a common law claim for breach of the duty of good faith and fair dealing.  Having found no coverage due, Judge Gallagher, rejected the common law bad faith claim, stating:

‘[T]o recover under a claim of bad faith,’ the insured must show that the insurer ‘did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.’ ” Amica Mut. Ins. Co. v. Fogel, … (quoting Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994)); see also Treadways LLC v. Travelers Indem. Co., 467 F. App’x 143, 147 (3d Cir. 2012) (“Though we have held that bad faith may be found in circumstances other than an insured’s refusal to pay, ‘[a] reasonable basis is all that is required to defeat a claim of bad faith.’ ” (quoting J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004))).

“Pennsylvania courts have held that if the insurer properly denied a claim, the policyholder is unable to state a bad faith claim.” Kahn, … (citing Cresswell v. Pa. Nat’l Cas. Ins. Co., 820 A.2d 172, 179 (Pa. Super. Ct. 2003)). AGLIC properly denied Boscov’s insurance claims, so it did not act in bad faith. AGLIC’s alleged “failure to investigate” the matter also does not amount to bad faith. … Simply put, there was “nothing to investigate: coverage d[id] not exist on the face of [Boscov’s] claim[s].” Clear Hearing Sols., LLC v. Cont’l Cas. Co., … (rejecting bad faith claim premised on insurer’s denial of insurance coverage “without conducting any investigation”); Ultimate Hearing Sols. II, LLC v. Twin City Fire Ins. Co., … (same).

Date of Decision:  June 30, 2021

Boscov’s Department Store, Inc. v. American Guarantee and Liability Insurance Co., No. 5:20-CV-03672-JMG, 2021 WL 2681591 (E.D. Pa. June 30, 2021) (Gallagher, J.)

COVERAGE DUE, BUT NO BAD FAITH WHERE (1) REASONABLE INVESTIGATION AND (2) REASONABLY DEBATABLE BASIS TO DECLINE COVERAGE (Philadelphia Federal)

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The case centered on a dispute over whether the plaintiff had an insurable interest in its tenant’s property improvements.  The carrier denied coverage for damage to those improvements, asserting the policy did not cover tenant improvements.  The insured sued for breach of contract and bad faith.

The court found the policy did provide coverage, and ruled for the insured on its breach of contract claim.

On bad faith, the insured alleged the insurer both failed to investigate and that it unreasonably denied coverage.  Magistrate Judge Rice disagreed, finding the insured “lacks clear and convincing evidence that [the insurer] investigated and handled the claim in bad faith or denied coverage without a reasonable basis.”

First, a seven-month delay in the claim handling process was reasonable in light of the insurer’s very detailed and active investigation into the claim.

Second, even though the insurer incorrectly denied coverage, “[b]ecause Pennsylvania courts have held that insurable interest is generally decided by the jury … and there was testimony … contradicting [the insured’] expectation of benefit from the improvements, [the insurer] had sufficient reasonable basis to support its coverage decision.” The court’s own “analysis demonstrates … the existence of an insurable interest as a matter of law is a close question subject to reasonable debate.”

Date of Decision:  June 11, 2021

Greentree Properties Corp. v. Aspen Specialty Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-4646, 2021 WL 2400727 (E.D. Pa. June 11, 2021) (Rice, M.J.)

NO BAD FAITH BASED ON DELAY OR “LOW-BALL” OFFER; POLICY LIMIT IS NOT THE DE FACTO VALUE OF A CLAIM (Philadelphia Federal)

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Eastern District Judge Pratter provides a clear discussion on allegations of delay and valuation that do not make out a bad faith claim.

This underinsured motorist coverage breach of contract and bad faith case focused on a dispute over whether the insured was entitled to stacked benefits.  The insured had waived stacking, but asserted that the insurer’s failure to send new waiver forms when she added additional vehicles negated that waiver.  She pleaded serious personal injuries, and that the insurer only offered $4,500 on the claim.

First, Judge Pratter found the insured failed to plead a plausible claim for bad faith delay.  “Although this complaint alleges the accident took place in January 2020, it does not allege when [the insured] noticed her intent to seek UIM coverage or when [the insurer] transmitted its offer. So, the complaint fails to plead the length of the alleged delay, let alone whether it was unreasonable.”

There were no allegations the insured made a timely demand or that the insurer failed to investigate or conducted an unreasonable investigation. At best, the insured’s argument was that the insured offered $4,500, and when compared to her alleged injuries, this was facially unreasonable.  Judge Pratter did not accept this argument, observing that “the pleadings must provide sufficient allegations from which the Court can plausibly infer that [the insurer] knew or recklessly disregarded a lack of a reasonable basis to deny benefits.”

The complaint revealed “a “’normal dispute between an insured and insurer over the value of a UIM claim’ which is itself predicated on a dispute over [the insured’s] entitlement to stacked coverage limits.” Judge Pratter describes the coverage disagreement as a “live dispute that motivates both the declaratory judgment and breach of contract claims. An insurer’s refusal to pay the policy limit when it disputes that the insured is entitled to any such coverage at all is not evidence of unreasonable conduct that would support a bad faith claim.”

Finally, on bad faith, Judge Patter states that a “low-ball” offer by itself is not necessarily bad faith.  “The complaint contains no allegations that [the insured] submitted documentation of the extent of her injuries to support her position such that she is entitled to the policy limit. A policy limit is just that—the ultimate maximum that an insured could theoretically recover. It is not the de facto value of a claim.”

Judge Pratter did give leave to amend the bad faith claim, but only if the insured could plead within the parameters set out in the Court’s opinion.

Date of Decision:  June 7, 2021

Brown v. LM General Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 21-2134, 2021 WL 2333626 (E.D. Pa. June 7, 2021) (Pratter, J.)