Archive for the 'PA – Attorney’s Fees' Category
Middle District Judge Mannion denied the insurer’s motion to remand this UIM bad faith case. The plaintiff had $15,000 in UIM coverage, which was eventually paid in full, but continued to pursue a bad faith claim for a sum in excess of $50,000, including attorney’s fees and punitive damages. The insured refused to stipulate that the claim was worth no more than $74,999.
Judge Mannion found that the punitive damages and attorney’s fees pursued under the bad faith statute could exceed the jurisdictional minimum, $75,000. He looked to cases that had awarded punitive damages in 4:1 and 5:1 ratios, and a case upholding a 10:1 ratio. Moreover, “[s]ubstantial attorney’s fees awards, too, have been granted for insurance bad faith claims.”
Judge Mannion then states:
Because Plaintiff does not specifically limit his amended complaint to $75,000, and because no factual dispute is raised by the parties, the court proceeds to the legal certainty test. In light of the reasonable possibility that punitive damages and attorney’s fees may exceed $75,000, and considering Plaintiff’s refusal to cap damages at $75,000, the court finds that it does not appear to a legal certainty that Plaintiff’s claim is for less than the jurisdictional minimum. Therefore, Plaintiff’s Motion to Remand will be denied.
Date of Decision: July 19, 2021
Barbato v. Progressive Specialty Insurance Company, U.S. District Court Middle District of Pennsylvania No. CV 3:21-0732, 2021 WL 3033863 (M.D. Pa. July 19, 2021) (Mannion, J.)
In this case, the Third Circuit addresses the elements of equitable subrogation between insurers, a useful opinion for coverage counsel dealing with insurer vs. insurer disputes. Here, we only mention the role bad faith played in the court’s analysis.
This case involves the tragic Salvation Army building collapse in Philadelphia, where six people died and thirteen others were injured. The neighboring property owner had hired a contractor to do construction work on its property. The improperly carried out work ultimately caused the building to collapse onto the neighboring Salvation Army building.
The property owner had a commercial general liability (CGL) policy on which it was a named insured. The contractor also had its own insurance policy. This policy appeared to provide coverage to the property owner as an additional insured.
Over time, the CGL carrier, through counsel, repeatedly demanded that the contractor’s insurer provide a defense to the property owner as an additional insured. The CGL carrier stated in one communication that a defense was due to the property owner as an additional insured, and that failure to provide such a defense was bad faith.
The contractor’s carrier eventually agreed to provide a defense to the property owner as an additional insured, under a reservation of rights. Eventually, the additional insured carrier withdrew its defense, and obtained a judgment rescinding its policy based on material misrepresentations the contractor made in the insurance application.
A court eventually found the contractor’s policy void ab initio. The contractor’s carrier, however, already had paid over $667,000 in defense costs for the property owner as an additional insured. The additional insurer brought the present claims for equitable subrogation and unjust enrichment against the property owner’s CGL carrier.
The district court rule in favor of the additional insurer, and had awarded almost all of the damages sought. The Third Circuit affirmed.
On the bad faith related issues, the Third Circuit found the following.
First, an insurer seeking equitable subrogation against another insurer has to show that in providing a defense and coverage, it acted to protect its own interest, and that it did not act as a volunteer. In this case, while the contractor’s insurer might have believed the policy should have been rescinded, it did not have any judgment to that effect. Moreover, it had been threatened with a bad faith claim by the CGL carrier’s counsel. The Third Circuit found this sufficient to establish that the contractor’s carrier acted in its own interest, and not as a volunteer, in providing a defense.
Second, the CGL carrier argued that the contractor’s carrier had unclean hands, and therefore could not obtain equitable relief. The Third Circuit rejected this argument. The panel observed that the unclean hands doctrine requires proof of fraud, unconscionable conduct, or bad faith affecting the balance of equities. The court could not find that the carrier’s conduct was unconscionable or affected the balance of equities between the two carriers.
Date of Decision: April 27, 2021
Berkley Assurance Co. v. Colony Insurance Co., U.S. Court of Appeals for the Third Circuit No. 20-2673, 2021 WL 1625521 (3d Cir. Apr. 27, 2021) (Ambro, Rendell, Restrepo, JJ.)
This case involves a dispute between a defendant’s own insurer and another carrier obligated to provide coverage to defendant as an additional insured. The issues involved which insurer has the primary coverage/defense obligations, and which was excess.
There were several tenders to the additional insurance provider to assume the defense, which were either ignored or denied. The defendant’s insurer brought a declaratory judgment action seeking to have the additional insurance provider assume the defense, and to reimburse the defendant’s insurer for attorney’s fees and costs, as well as for the attorney’s fees and costs associated with bringing the declaratory judgment action.
It is also clear from the court’s opinion that a statutory bad faith claim under 42 Pa.C.S. § 8371 was at issue.
There was a motion to dismiss all claims.
There was a duty to defend the additional insured
Among other things, Eastern District Judge Robreno found the underlying complaint adequately alleged facts invoking the additional insurance provider’s duty of defend, when compared to the additional insured endorsement language. Thus, the additional insurance provider was in error in failing to accept the tenders and assume the defense.
There was standing to bring a statutory bad faith claim as an assignee
The additional insurance provider challenged plaintiff’s standing to bring a section 8371 bad faith claim because it was not the named insured. Judge Robreno disagreed, citing the Third Circuit’s 2015 Wolfe decision making clear that assignees can bring statutory bad faith claims.
[Note: Earlier in Wolfe, the Third Circuit certified to Pennsylvania’s Supreme Court the fundamental issue of whether bad faith claims can ever be assigned. In the Supreme Court’s own Wolfe decision, assignments were recognized as permissible, but only within limited parameters. A summary of that case can be found here. The assignment in the present case falls within those acceptable parameters.]
The assignee-insurer pleaded a plausible bad faith claim
Next, Judge Robreno rejected the insurer’s arguments that the complaint was devoid of facts setting out a plausible bad faith claim.
To the contrary, Judge Robreno found the following sufficient:
-
The complaint alleged the additional insurance provider failed to acknowledge its primary duty to defend, without a reasonable basis, breaching the duty of good faith and fair dealing.
-
The complaint specifically set out numerous instances where that insurer denied or ignored tender letters.
-
“Accepting as true all of the allegations in the Complaint and all reasonable inferences that can be drawn therefrom, and based on this record, [the plaintiff] has sufficiently pled that based on the correspondence submitted to [the insurer], [the additional insurance provider] did not adequately investigate, respond, or explain their refusal to defend and potentially indemnify [the insured] in the underlying action.”
The motion to dismiss was denied.
Date of Decision: March 10, 2021
Published on
February 17, 2021 in
PA - Attorney's Fees, PA - Claims Handling (unreasonable), PA - Damages, PA - Declaratory Judgment, PA - Delay (Investigation/Claims handling), PA - Delay (Payment), PA - Discovery and Evidence, PA - Estimates, Valuation or Appraisal, PA - Experts, PA - Punitive Damages and PA - UIM/UM Cases.
After a non-jury trial, the Blair County Court of Common Pleas found the insurer violated the bad faith statute, and awarded statutory damages in the form of attorneys’ fees and super-interest. It declined, however, to award punitive damages under the statute. The insurer appealed the bad faith verdict, and the insured appealed the decision not to award punitive damages. The Superior Court rejected both appeals and affirmed the lower court.
Facts
This is another UIM bad faith case.
The accident occurred in 2000, and the driver’s carrier agreed with the insured that the other driver was 100% liable, and paid its full $100,000 UIM limits to the insured. The tortfeasor’s carrier paid $50,000.
Over two years later, the insured sought UIM coverage from her mother’s carrier, the defendant insurer in this action. The defendant was affiliated with the driver’s own insurer, and had access to its investigation files. Its UIM limit was $600,000. It valued the claim at $200,000 and offered $50,000 to settle the claim ($150,000 already having been paid by the tortfeasor’s carrier and the first UIM insurer).
The insured rejected the offer, and initiated a bad faith action in 2003, which it held in abeyance while the UIM case was pending. The insurer paid the undisputed $50,000.
Later in 2003, the insured received a PTSD diagnosis and send additional medical records to the insurer. The insurer received the medical records, but denied having received them. The defendant insurer took the position that the diagnosis was unrelated to the 2000 accident, and its $200,000 remain unchanged, having failed to receive any medical records (which it in fact had received, however). It then initiated the UIM arbitration process in 2004.
The defendant carrier informed its arbitration defense counsel the other driver was 100% at fault. Months later the carrier’s counsel said he had spoken to the other driver, based on that interview the accident could have been the insured’s fault, and the arbitrator might rule for the carrier on the UIM claim. The attorney’s opinion was based solely on the other driver’s rendition of the facts, and not any expert report or investigation other than interviewing the other driver. The carrier itself did not obtain a reconstruction expert report on the accident.
The carrier, however, was sufficiently persuaded. It took the position in late 2004 that the insured might have comparative negligence up to 50%, but not more. By early 2005, however, the carrier took the position that the accident was 100% the insured’s fault.
The carrier delayed the arbitration by filing a declaratory judgment action seeking to limit the range of damages the arbitrator could award. This case was dismissed on preliminary objections. The carrier further delayed the arbitration by seeking evidence of the insured’s post-accident motor vehicle record, fall-downs, alcoholism and depression.
Eight years later, in 2013, the case finally went to arbitration, i.e., over 13 years after the accident and 8-9 years after the UIM arbitration process began. The arbitrator valued the insured’s injuries at $599,000, and awarded her $399,000. The arbitrator found no comparative negligence. [This was the same position the carrier had taken before late 2004.]
Arguments at trial
The bad faith case went to a non-jury trial in 2018, with a claim handler and the insurer’s UIM arbitration counsel as the sole witnesses.
The insured argued the carrier acted in bad faith when changing its position on the drivers’ comparative negligence, based solely on defense counsel’s interview of the other driver. The insured asserted that the carrier should have known the other driver was not credible, and should not have relied on his rendition of the facts to change its position because the other driver contradicted his own earlier statements to the investigators as to the accident’s cause. In response, the carrier appears to have asserted an advice of counsel defense.
The insured also argued bad faith in the carrier’s blanket refusal to consider subsequent psychological treatments, failure to conduct a full investigation by interviewing the investigating police officer before the UIM arbitration, failing to hire an accident reconstruction expert, and prolonging the proceedings for years in order to selectively reevaluate the claim after it learned the insured had various substance abuse issues, and a history of fall-downs, after the date of the underlying accident.
The trial court’s verdict
The trial court “found [the insurer] had acted recklessly and without a reasonable basis in continually valuing [the] claim at $200,000.” Further, the insurer “had improperly failed to reevaluate the claim to consider [the insured’s] psychological damages.” It was significant to the court that the insurer refused to consider the psychological claims based on the insured’s failure to transmit PTSD related documents, but “admitted at trial that it had received the medical records.”
The court also ruled against the carrier based on its changing positions as to the insured’s responsibility, rejecting the advice of counsel defense because the other driver’s 2004 rendition of the facts to defense counsel should not have been deemed credible based on that driver’s initial statements after the accident.
For nearly four years, after its own investigation and earlier interviewing the other driver, the insurer took the position that the insured bore no responsibility for the accident. The defendant insurer only began altering its liability position after defense counsel interviewed the underlying tortfeasor, who had changed his story. Then, over a period of months, the insurer went from no comparative negligence, to maybe 50% comparative negligence at most, to a 100% negligence on the insured, solely based on the other driver’s interview with defense counsel.
The trial court observed the arbitrator ruled the other driver was not credible. Further, “[t]he trial court stated that although the arbitrator’s decision did not bind it, it recognized that the arbitrator was a ‘neutral, detached fact-finder’ and had not found [the insured] comparatively negligent at all.” The arbitrator also found substantial injuries. Thus, the “change of position on liability ‘represents a significant failure by [the insurer] in their ongoing responsibility to investigate and reconsider [its] position during [its] entire management of the claim.’”
The trial court further found the refusal to go above its $200,000 valuation for over a decade “was done with a purpose motivated by self-interest.” For example, the carrier failed to consider the psychological medical records admittedly in its possession. It also failed to carry out a proper investigation and follow-up by not contacting the investigating police officer until the arbitration hearing, or hiring a reconstruction expert. Finally, the trial court found the carrier prolonged the proceedings in filing the declaratory judgment action based on the insured’s substance abuse and fall-downs after the 2000 accident.
Damages
The trial court awarded $24,650 in attorneys’ fees for the bad faith litigation, $125,000 in attorneys’ fees in connection with the UIM claim, and $125,000 in interest. It refused to award punitive damages.
Bad faith legal standards where insurer delays in paying benefits due
The Superior Court observed the following legal principles in rendering its verdict:
-
“Ultimately, ‘[w]hen an insured obtains a bad faith verdict in a bench trial, appellate courts should only reverse in the most egregious of cases when the trial court has committed reversible error.’”
-
“’The analysis of an insurance bad faith claim ‘is dependent on the conduct of the insurer, not its insured.’”
-
“Because ‘bad faith’ in this context stems from the duty of good faith and fair dealing implied in every insurance contract, the plaintiff need not prove the insurer acted with self-interest or ill-will.”
-
“In order to prevail under the bad faith statute, 42 Pa.C.S.A. § 8371, ‘the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.’”
-
“An action for bad faith is not restricted to the outright denial of a claim, but rather encompasses ‘all instances of bad faith conduct by an insurer.’”
[Note: The Court cited the Superior Court’s decision Rancosky v. Washington National Insurance Co., and not the Supreme Court’s Rancosky decision, to support this point. As discussed many times on this Blog, there is a real issue as to whether section 8371 encompasses claims that do not involve the denial of a benefit actually due, i.e., is there any cognizable statutory bad faith cause of action when the insurer does not actually owe the insured any duty to pay first party benefits, or to defend or indemnify third party claims. See, e.g., this post.]
-
The Superior court then added examples of bad faith, where a claim was not outright denied: “This includes a lack of good faith investigation, as well as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.’”
[Note: In this case, there is no dispute that some benefit was due from the insurer, just a dispute of how much was due and when. In effect, the insured is arguing that there was a decade plus delay in paying a benefit actually due; and the court’s bad faith verdict is made in light of the insurer actually owing a benefit substantially greater than what the insurer offered to pay.]
-
“An insurer must make a timely investigation in response to the claim, and not just for arbitration.”
-
“Indeed, an insurer must reevaluate a claim when presented with new information.”
-
“An insurer’s mere negligence does not constitute bad faith, and an insurer may make a low estimate of an insured’s claim, so long as it has a reasonable basis.”
-
“[A]n insurer has committed bad faith where it ‘acted in a dilatory manner, and forced the insured into arbitration by presenting an arbitrary ‘low-ball’ offer which bore no reasonable relationship to the insured’s reasonable medical expenses,’ particularly where the ‘low-ball’ offer proved to be significantly lower than the arbitration award.”
Facts supporting the bad faith verdict
The Superior Court held the following facts supported the trial court’s finding of bad faith:
The insurer never changed its claim valuation over a ten year period from the claim’s submission through a UIM arbitration, “despite mounting evidence that [the insured’s] damages surpassed [that] $200,000 [valuation].” The trial court properly rejected the insurer’s argument that there was no valuation change over time because the insurer went from taking the position that the insured had no responsibility for her own injury, to being partially responsible, and finally to being deemed wholly at fault for her own injury. The Superior Court agreed that the evidence did not show the valuation claim ever hinged on the insured’s alleged comparative negligence.
Rather, the record demonstrated that as the insurer’s “position on liability evolved, its valuation of the claim did not change. Rather, it put a $200,000 value on [the] claim from the outset, failed to consider evidence of her psychological damages, refused to modify the valuation, and now cites subsequent developments to justify its failure to adjust the valuation in light of the information it disregarded. That it may not have failed to consider the evidence and adjust the valuation purposefully or because of ill will does not undermine the trial court’s conclusion, as [the insured] did not need to prove such states of mind.”
Other factors collectively favoring bad faith were the insurer did not change its comparative liability position until preparing for the UIM arbitration; the insurer did not interview the police officer on the scene; and that the insurer “was unable hire a reconstruction expert for arbitration because too much time had passed is further indicative that it did not make adequate inquiry into the accident in a timely manner.”
The facts did not require the trial court to award punitive damages
The Superior Court ruled: “Although the [trial] court found [the insurer] acted in bad faith, and awarded attorneys’ fees and interest accordingly, we cannot say that it abused its discretion in not awarding punitive damages. The evidence was not such that we conclude that the court’s decision was manifestly unreasonable or the result of partiality, prejudice, bias, or ill will.”
The Superior Court made the point that section 8371 does not compel the Courts of Common Pleas to award punitive damages simply because there is a bad faith verdict. Rather, punitive damages remain within the trial judge’s discretion. Ill-will, reckless indifference, or some other sign of malign action might provide evidence in proving statutory bad faith, but this level of intent is not a required element of a statutory bad faith claim.
Thus, just an insured can make out a bad faith claim without having to prove the level of evil intent or outrageous conduct that forms the basis for punitive damages, a finding of bad faith does not automatically encompass conduct that would mandate a finding of punitive damages. Here, the trial judge did not find the carrier’s intent was so outrageous that punitive damages were warranted, even though the court found the carrier knew or recklessly disregarded the fact that it was unreasonably denying the insured benefits due her.
No error in limiting discovery of “post-denial” conduct
Finally, the insurer appealed the trial court’s granting a protective order as to certain requests for admissions concerning “post-denial” conduct, covering a time period beginning with the April 2004 initiation of the UIM arbitration process. The trial court found this conduct irrelevant to the insurer’s bad faith in denying the claim. The Superior Court affirmed, finding no abuse of discretion.
The insurer had the burden to show how it was prejudiced by the trial court’s excluding this evidence, but it never “specified what evidence it sought under the admissions requests that it did not receive, and how that alleged evidence would have affected its case.”
Date of Decision: February 4, 2021
Sartain v. USAA, Superior Court of Pennsylvania No. 4 WDA 2020, 2021 WL 401954 (Pa. Super. Ct. Feb. 4, 2021) (Bender, McLaughlin, Musmanno, JJ.) (Non-precedential)
The excellent Tort Talk Blog posted today on Judge Melissa T. Pavlack’s bad faith ruling in Unterberg v. Mercury Insurance Company. Judge Pavlack awarded $900,000 in punitive damages and $186,879.50 in attorneys’ fees, interest of $7,427.39, and costs of $3,595.35. The underlying damages for breach of contract were $21,220.48. Thus, the total compensatory damages were $219,122.72, and punitive damages were based on this figure.
This case involves attorney malpractice insurance, and when a carrier is estopped from denying coverage for failing to issue a timely reservation of rights letter.
The underlying plaintiff brought two actions against the attorney arising out of the same underlying medical malpractice action: (1) a 2017 legal malpractice action and (2) a 2019 disgorgement action seeking return of a referral fee paid to the insured attorney.
As to the 2019 claim, the underlying plaintiff had demanded return of the referral fee even prior to the disgorgement action. The record indicates that at some point prior to the disgorgement action being filed, the carrier issued a reservation of rights letter, stating the attorney would not be covered for any disgorgement. Another reservation of rights letter was issued after the 2019 suit was filed. The carrier defended the disgorgement action, but refused to indemnify after judgment was entered against the attorney, who had to disgorge his referral fee and pay treble damages.
The carrier brought a declaratory judgment action seeking a ruling that it had no duty to indemnify either the 2017 or 2019 actions. The insured counterclaimed for coverage, based on estoppel, and bad faith. The underlying plaintiff, a party to the case, also asserted estoppel.
The present posture involved cross-motions for summary judgment.
Carrier estopped from denying coverage for failing to issue timely reservation of rights letter
As to the 2017 case, the malpractice carrier defended the first action without timely issuing any reservation of rights letter. Thus, the court held the insurer was estopped from later denying coverage in the 2017 malpractice action.
In reaching this conclusion, Judge Kearney provides a detailed analysis of when an insurer may be estopped from denying coverage for failing to issue a reservation of rights letter, which is worth reading in detail for any attorney doing coverage work. Without reciting every detail, Judge Kearney outlines the basic issues as follows:
-
To estop an insurer from denying defense or coverage, the insured must show the insurer induced a belief in facts on which the insured relied to his detriment.
-
In determining detrimental reliance, courts will assess whether the insured suffered actual prejudice.
-
“Actual prejudice occurs when an insurer assumes the insured’s defense without timely issuing a reservation of rights letter asserting all possible bases for a potential denial of coverage.”
-
“When an insurer receives notice of a claim, it has a duty ‘immediately to investigate all the facts in connection with the supposed loss as well as any possible defense on the policy.’”
-
“[The insurer] cannot play fast and loose, taking a chance in the hope of winning, and, if the results are adverse, taking advantage of a defect in the policy.”
-
“The insured loses substantial rights when he surrenders, as he must, to the insurance carrier the conduct of the case.”
No estoppel in second action and no bad faith
Earlier in the case, the court dismissed the insured’s bad faith counterclaims on the 2017 action, but had allowed the bad faith counterclaims on the 2019 action to proceed.
As to the 2019 action, the insurer promptly issued a reservation of rights and denial of coverage when it learned of the potential disgorgement claim. Moreover, it had even informed the insured prior to the second action’s actual filing that there was no coverage for disgorgement claims.
The court found the carrier was not estopped from asserting it owed no duties in the second action. Judge Kearney especially focused on the absence of prejudice to the insured. Clearly, the court further agreed that the carrier had no indemnification duty toward the insured in the 2019 case, absent an effective estoppel argument.
As to bad faith, once the court found the insurer had reserved its rights and properly denied coverage in the second action, it rejected the bad faith claim.
Judge Kearney observed there is no common law bad faith claim in Pennsylvania, only statutory bad faith and the contractual breach of the implied duty of good faith and fair dealing. In this case, the insured did not raise statutory bad faith, so the court solely looked at the contractual duty of good faith and fair dealing claim.
“An insurer violates its implied contractual duty to act in good faith when it gives a ‘frivolous’ or ‘unfounded’ excuse not to pay insurance proceeds. As we find [the insurer] has no duty to defend or indemnify [the insured attorney], we cannot find its decision not to do so ‘unfounded’ or ‘frivolous.’”
Finally, the court found the underlying plaintiff had no standing to bring an estoppel counterclaim, even if she did have standing to argue for coverage.
Thus, the insured won summary judgment on coverage in the 2017 claim, but the insurer was successful on the 2019 claim.
Date of Decision: October 8, 2020
Westport Insurance Corporation v. McClellan, U.S. District Court Eastern District of Pennsylvania No. 20-1372, 2020 WL 5961047 (E.D. Pa. Oct. 8, 2020) (Kearney, J.)
This UIM case involved a claim for full policy limits, amounting to $45,000. The insured alleged serious permanent injuries.
Over two years passed from the time the insured gave notice until the time of suit, with the claim neither paid nor denied. The insured filed suit for declaratory judgment, breach of contract, and bad faith. The insurer moved to dismiss the bad faith claim and attorney’s fee claim, and the court denied the motion.
Bad Faith Claim Based on Delay Adequately Pleaded
The court recognized at least two sources of statutory bad faith: (1) failure to pay and (2) delay in making payment. As to the first, “[w]here a claim of bad faith is based on a refusal to pay benefits under a policy, ‘the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.’” As to the second, “[t]o sufficiently plead bad faith by way of delay, ‘a plaintiff must allege that a defendant had no reasonable basis for the delay in coverage, and that the defendant delayed coverage with knowing or reckless disregard for the unreasonableness of its action.’”
The court found bad faith delay pleaded, based on the following factual allegations:
-
The insurer “was put on notice of [the] underinsured motorist benefits claim in March 2017.”
-
“In January 2018, [the insurer] waived its subrogation rights and consented to … settlement with the third-party insurance carrier.”
-
“On March 30, 2018, [the insurer] advised [the insured] that her claim for underinsured motorist benefits was being evaluated.”
-
“From April to July 2018, the parties communicated regarding scheduling an EUO, which took place on July 9, 2018.” As pleaded, it was the insurer that sought an EUO in July, and the insured asked to move it up.
-
“On July 26, 2018, [the insurer] advised [the insured] that it would likely require her to undergo an IME, however, [the insurer] never moved forward with the IME.”
-
“Between August 2018 and February 2019, [the insured] provided medical records to [the insurer], both unsolicited and at their request.”
-
“Between February and June 2019, [the insurer] did not notify [the insured] as to the status of her claim, and at the time of the filing of the instant Complaint in September 2019, [the insurer] had neither paid [the] claim, nor denied it.”
The court summarized how these factual allegations made out a bad faith claim. The insured repeatedly tried to have her claim evaluated. She complied with requests for information, provided unsolicited information, and inquired as to the claim status. However, “despite having over two years to conduct its investigation, [the insurer] has unreasonably and without justification failed to approve or deny her claim.” Based on these factual allegations, there appears no reasonable basis to delay the claim evaluation, which the court equated with a failure to evaluate. The knowing/reckless bad faith element was met because the insured had given notice to the insurer through her inquiries and providing information that the claim had not been paid or rejected.
The court cited the Ridolfi, Kelly, and Smerdon cases concerning a delay-based bad faith analysis.
Clear and Convincing Evidence Standard Held Irrelevant at Pleading Stage
The court rejected the argument that the factual pleadings had to be measured against the clear and convincing evidence standard at the motion to dismiss stage. The court stated this standard is relevant, e.g., to trial, but not at the pleading stage. Rather, pleadings are governed by the plausibility standard. Thus, the insured “need not ‘establish’ anything at this early point in the proceedings, let alone ‘by clear and convincing evidence.’” “Whether sufficient facts will be discovered for [the insured] to survive a motion for summary judgment is unknown and may be addressed at a later date.”
Attorney’s Fees Possible under Bad Faith Statute or MVFRL
Finally, the court refused to dismiss the attorney’s fee claim based on both the bad faith statute, and the possibility that attorney’s fees might be permitted under section 1716 of the Motor Vehicle Financial Responsibility Law.
Date of Decision: January 24, 2020
Solano-Sanchez v. State Farm Mutual Auto Insurance Co., U. S. District Court Eastern District of Pennsylvania No. No. 5:19-cv-04016, 2020 U.S. Dist. LEXIS 11784 (E.D. Pa. Jan. 24, 2020) (Leeson, Jr., J.)
Though not clearly pleaded, the court assumed the plaintiff was suing the carrier for insurance bad faith. The plaintiff, however, was not the insured. Rather, plaintiff had obtained a judgment against the insured for reimbursement of $276,000 in attorney’s fees and legal costs, per a contract between the plaintiff and the insured.
The court found the plaintiff had no standing to bring a claim against the insurer. It was not a third party beneficiary to the insurance contract, nor could it bring a direct action aginst the insurer. Thus, the court dismissed the complaint.
Date of Decision: January 23, 2020
Hensley v. CNA, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2837, 2020 U.S. Dist. LEXIS 11040 (E.D.Pa. Jan. 23, 2020) (Baylson, J.)
Today’s post summarizes Lehigh County Judge Melissa Pavlack’s Findings of Fact and Conclusions of Law in this breach of contract and bad faith case.
The Court’s Factual Findings
The insureds’ car was stolen. It was recovered, but with considerable damage. The insureds’ license plate was replaced with a stolen plate. The court found that the thieves never intended to return the vehicle. The insureds sought coverage based on the theft and vandalism, relying on policy language covering theft, larceny, vandalism, and malicious mischief.
The court found the insureds were not involved in any way with the theft or vandalism, nor was there any fraud on their part. The car was deemed a total loss, and valued at around $13,000. There were additional costs for hauling and storage, bringing the total claim to approximately $17,000.
The insurer denied the claim, citing insufficient evidence the car had been stolen. It refused to consider a separate vandalism claim because the damages arose out of an alleged theft. Thus, the insurer did not investigate the vandalism claim, and the denial letter never addressed the vandalism claim’s merits. The insurer never cited any policy exclusions applying to the vandalism claims. There was also no denial based on fraud.
The insurer’s investigation included a claim’s adjuster and supervisor, a fraud investigator, an appraiser, an appraisal report, an investigator and three investigator reports, an examination under oath over the telephone and in person, document requests, and a site visit to the loss location. At trial, the adjuster could not recall which of the insured’s statements under oath led to the claim denial.
The investigator reported to the carrier that one of the insureds was uncooperative because she did not bring unredacted tax returns and cell phone records to her examination under oath. Relying on this alleged lack of cooperation, the claims supervisor wrote to the insured that she had failed to cooperate by not bringing these tax returns and records, and failed to cooperate with the insurer’s investigation. However, the investigator was not aware that another of the insurer’s representatives had actually instructed the insured to bring redacted copies of the tax returns to the examination under oath, which she did.
As to other document issues allegedly evidencing a failure to cooperate, it was made clear during the examination under oath that the insured was a medical professional. She could not simply produce her phone records without violating HIPAA. She attempted to cooperate during the examination under oath by showing some messages in her phone from the days in question; but the adjuster was also concerned about HIPAA, and was hesitant to proceed with looking at her phone. Further, the court found the insured could not respond to the insurer’s request for the car purchase documents because these had been stolen from the glove compartment.
Moreover, in contrast to assertions that the insureds failed to cooperate, the court found that the insurer’s fraud investigator conceded the insureds had cooperated, and had provided documents requested in the manner requested.
As to the allegation there was insufficient evidence of theft, the insurer relied upon its expert report. The expert opined there was no forced entry, and that the car only could have been moved using a key. The court found (1) the insurance policy did not require forced entry as a condition precedent to establish theft, and (2) the car could be moved without a key. Further, the insurer’s fraud investigator testified that cars can be stolen without noticeable signs of forced entry, and there was other testimony to the same effect. The court also found that the fraud investigator never communicated with the claim adjuster that forced entry was not required to steal a car.
In sum, the court found these conclusions (forced entry and use of a key) were not reasonable bases to deny the very existence of a theft.
Most significantly, the expert only opined the car was not stolen by means of forced entry, and that a key had to have been used. Whether or not these conclusions were correct was irrelevant in the court’s view, because the expert never opined the car was not stolen. Thus, it was an error to make the leap that the car was not stolen, as it could have been stolen by some means other than forced entry, or could have been moved without a key.
There was Coverage for Theft, Vandalism, and Malicious Mischief
In addressing the breach of contract claim, the court looked at the policy’s plain language. The policy expressly covered theft, larceny, vandalism, and malicious mischief. There were no applicable exclusions in this case, so the court only had to interpret the coverage language.
The court looked at the dictionary definition of these terms, rather than any criminal statutes or case law defining vandalism, theft, etc. It concluded the facts of the case fell within these coverage terms, and the insureds claims were covered. As to bad faith, it was unreasonable to conclude the facts at hand did not fall within the policy’s plain and unambiguous language. Further, the court found the insurer’s conduct unreasonable in failing to consider coverage for vandalism and malicious mischief when denying the claims.
Court uses Unfair Insurance Practices Act and Unfair Claim Settlement Practices Regulations as Standards
The court cited (1) Unfair Claim Settlement Practice regulations (UCSP), 31 Pa. Code § 146.4, on obligations to fully disclose coverages and benefits; and (2) the Unfair Insurance Practices Act (UIPA), 40 Pa.S.A. § 1171.5(a)(10)(iv), on failing to reasonably explain a claim denial.
The court cited these UCSP and UIPA provisions in the context of the first bad faith prong, lack of a reasonable basis to deny benefits. The court then observed the insurer had completely failed to consider the vandalism and malicious mischief claims covered under the policy. This supported the existence of bad faith, though it is not wholly clear whether the UCSP and UIPA violations were evidence of bad faith conduct, or were bad faith per se.
Erroneous Red Flags
The insurer justified its conduct by identifying certain “red flags” that caused legitimate doubt in the insureds veracity. When scrutinized, however, the court found these red flags were based on factual errors or erroneous assumptions.
-
The insured was deemed uncooperative for failing to attend a unilaterally scheduled examination under oath. In fact, however, the court found the insured gave sufficient notice she could not attend on that date, and cooperated in rescheduling the examination under oath on another date, at which she appeared. She also had agreed to, and participated in, an examination over the phone.
As to the original date for the in-person examination, the court observed that the insurer knew in advance the insured was not going to appear on the first scheduled date, but still had its representatives appear to make a record against the insured for failing to appear.
-
The insurer also asserted the insured was uncooperative because she provided redacted tax returns. As stated above, the insurer’s own representative had informed the insured in writing that certain redactions could be made. Further, when the insurer later requested an unredacted return, the insureds provided it.
-
As to the alleged lack of cooperation on cell phone records, this was fully addressed during the examination under oath. As stated above, the insured was a medical professional and there were certain items on her phone records that could not be produced under HIPAA. That being said, she still offered to let the insurer’s representative look at her cell phone during the examination under oath, regarding non-HIPAA messages from the date the car was stolen. The adjuster was concerned about violating HIPAA, and was hesitant to do so.
-
The insurer also deemed it a red flag that the loss came shortly after the policy’s purchase. This turned out to be an error. The court found the policy was purchased at least six months earlier. Another suspicion surrounded alleged excessive mileage on the car, which the court found was likewise not factually the case.
Failure to Fully Investigate the Red Flags
The court observed that while the insurer took the insured’s examination under oath, and conducted various investigations based on these alleged red flags, it failed to contact the police. Nor did the insurer follow up on evidence that drugs reportedly were found in the glove compartment. Though not expressly stated in the conclusions of law, this implies that the presence of drugs, under all the facts, favored the idea that strangers had stolen the car for nefarious purposes.
The Insurer Relied on its Expert Report for the Wrong Conclusion
For the court, the coverage issue concerning the insurer’s expert was simple: Was the car stolen? The issue was not: How was the car stolen?
The expert opined on two means by which the car was not stolen. The court found the expert never opined, however, that the car was not stolen. Moreover, the insurer never argued that the insureds faked a theft or lied about it.
The court pointed out that other means could have been used to steal the car, including non-intrusive and non-mechanical means. For example, after the car was recovered it was towed twice. The court found this demonstrated the car could be moved without forced entry and/or without a key.
Thus, the insurer’s reliance on the expert report to deny the fundamental existence of theft was unreasonable. The court found relying on the expert report to reach a conclusion (no theft) on which the report did not render an opinion, amounted to a knowing or reckless unreasonable denial of benefits, i.e. bad faith.
After finding bad faith on all the foregoing grounds, the court stated it would schedule a hearing on attorney’s fees, interest, and punitive damages.
Date of Decision: December 27, 2019
Thanks to Daniel Cummins of the excellent and extremely useful Tort Talk Blog for bringing this case to our attention.
The court reiterates here that (1) bad faith claims must be pleaded with supporting factual allegations, (2) there is no private cause of action for UIPA or Unfair Claims Settlement Practices regulation violations, and (3) attorney’s fees are not recoverable under a breach of contract claim.
This is a UIM case for breach of contract and bad faith, as well as unfair claim settlement practices violations. The insurer moved to dismiss the bad faith claim as improperly pleaded. It moved to dismiss the unfair claim settlement count on the basis that the Unfair Insurance Practices Act (UIPA) and Unfair Claim Settlement Practices regulations do not provide for a private cause of action. Finally, the insurer moved to dismiss the attorney’s fee claims in the breach of contract count.
-
Bare-bones bad faith claims dismissed without prejudice
The court dismissed the bad faith claim, without prejudice, because the insureds only pleaded conclusory bare-bones allegations. The complaint did not include any factual allegations supporting the conclusory pleadings.
These inadequate bare-bones allegations were as follows:
Delay. Even after determining that Plaintiffs had a right to the insurance proceeds claimed, the Defendant has delayed paying Plaintiffs their policy proceeds for unknown reasons.
Forcing Insured to Seek Legal Redress. By delaying payment of Plaintiffs’ claim, Defendant Progressive Corporation, knowing that it had no legal justification for doing so, purposefully forced Plaintiffs to file this Complaint in order to obtain the insurance proceeds to which they are entitled. Defendant, Progressive Corporation, forced Plaintiffs to seek legal redress for unknown reasons.
Deception. Defendant realizing that it had no legal grounds for denying or delaying payment of Plaintiffs’ claim, and/or engaged [sic] in deceptive acts relating to Plaintiffs’ policy for the purposes of creating an apparent reason for denying the Plaintiffs’ claim where no such reason existed.
False Accusations. Defendant realizing that it had no legal grounds for denying or delaying payment of Plaintiffs’ claim, made false statements to the Plaintiffs’ representatives and/or other persons for the purposes of creating an apparent reason for denying the Plaintiffs’ claim where no such reason existed.
Oppressive Demands. In the course of adjusting Plaintiffs’ claim, Defendant made oppressive demands of the Plaintiffs for the purposes of delaying payment of Plaintiffs’ claim.
The court looked to the following decisions in supporting this result: Myers, Peters, Sowinski, Moran, and Grustas.
-
There is no private cause of action under the UIPA or under Pennsylvania’s Unfair Claim Settlement Practices Regulations
The insureds relied upon the Supreme Court’s 1981 D’Ambrosio decision in asserting causes of action for UIPA and Unfair Claim Settlement Practices violations. They contended the Supreme Court’s 2017 Rancosky decision superseded D’Ambrosio, and created these private causes of action. The court rejected this argument, observing that Rancosky simply observed that the 1989 bad faith statute superseded D’Ambrosio to the extent it created a new statutory bad faith cause of action years after D’Ambrosio was decided. Rancosky, however, still recognized D’Ambrosio’s holding there is no private UIPA cause of action.
The insurer “therefore did not err in relying on D’Ambrosio for the proposition that there is no private cause of action under UIPA. It remains the case that neither UIPA nor the regulations governing unfair claim settlement practices allow a plaintiff to bring a private cause of action.” The “unfair claim settlement practices claim will accordingly be dismissed with prejudice because there is no private cause of action for unfair claim settlement practices under Pennsylvania law.”
The court looked to the recent Excel and Neri cases in reaching this decision.
3. Attorney’s fees cannot be recovered under a breach of contract theory
Litigants are responsible for their own attorney’s fees and legal costs absent a statute authorizing fees, a contractual provision for fees, or some other recognized exception to the general rule. None of these circumstances applied to the insureds’ breach of contract claim. The court rejected the argument that fees were allowed because attorney’s fees may be permitted during the pendency of litigation for dilatory, obdurate, vexatious or bad faith conduct in the course of litigation. This was irrelevant as neither party filed a sanctions motion, and such behavior was not part of the actual case pleaded.
Date of Decision: December 17, 2019
Kline v. Progressive Corp., U.S. District Court Middle District of Pennsylvania Civil No. 1:19-CV-00676, 2019 U.S. Dist. LEXIS 216258 (M.D. Pa. Dec. 17, 2019) (Wilson, J.)
