Archive for the 'PA – Claims Handling (general)' Category

COURT PERMITS SOME UNDERWRITING DISCOVERY EVEN IN THE ABSENCE OF A STATUTORY BAD FAITH CLAIM (Middle District)

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The insurer denied coverage under a “regular use exclusion” in this UIM case. The complaint included a breach of contract claim, but no statutory bad faith claim. Plaintiff wanted to depose plaintiff’s corporate designee. The carrier argued the proposed deposition subjects were irrelevant to coverage, absent a bad faith claim, and moved for a protective order.

Middle District Magistrate Judge Saporito found that plaintiff could pursue certain limited discovery on underwriting, even absent a statutory bad faith claim. This was based primarily on the insurer raising the “regular use exclusion” as an affirmative defense, and the insureds alleging that the carrier owed “a fiduciary, contractual and statutory obligation to investigate, evaluate, and negotiate [her] UIM claim in good faith and to arrive at a prompt, fair, and equitable settlement.” [The reference to “statutory obligation” was not interpreted to mean plaintiffs were pleading a section 8371 statutory bad faith claim.]

Plaintiff had already deposed the carrier’s adjuster, but wanted a corporate designee to testify on the regular use exclusion and underwriting practices. This included the following subjects:

  1. The underwriting procedures in place … for the period January 1, 2017[,] through the current date;

  2. The underwriting regulations necessary to obtain the status of “preferred driver” under a … policy of insurance;

  3. The determinative factors and costs associated with UIM coverage …;

  4. The determinative factors and costs associated with UM coverage …;

  5. The determinative factors and costs associated with stacking of UIM coverage…;

  6. The determinative factors and costs associated with stacking of UM coverage …;

  7. The factors [the insurer] utilizes in determining whether a vehicle is available for the “regular use” of an insured;

  8. How the term “regular use” is defined in the applicable … policy and related documents;

  9. Whether the … regular use exclusion must be accompanied by a stacking waiver;

  10. All steps and measures [the insurer] takes to explain to its insureds the effect of the “regular use exclusion,” “household exclusion,” “family car exclusion,” and “unlisted driver exclusion”;

  11. How the regular use exclusion is discussed in the [insurer’s] Claims Manual; and

  12. Any facts supporting [the insurer’s] legal theories and defenses.

The court found that although the insureds did not allege statutory bad faith, they did plead breach of the contractual duty of good faith and fair dealing. Magistrate Judge Saporito found this sufficient to open the door to some greater discovery compared to a simple breach of contract case.  He relied on three cases permitting discovery on the carrier’s decisionmaking process, even in the absence of a statutory bad faith count. Rau v. Allstate, Swientisky v. American States, and Craker v. State Farm.

The court found the following areas of inquiry relevant and discoverable: factors used to determine “whether a vehicle is available for the ‘regular use’ of an insured”; “[h]ow the term ‘regular use’ is defined in the applicable … policy and related documents”; whether the “regular use exclusion must be accompanied by a stacking waiver”; “[h]ow the regular use exclusion is discussed in the [insurer’s] Claims Manual”; “[a]ny facts supporting [the insurer’s] legal theories and defenses”; and “[a]ll steps and measures [the insurer] takes to explain to its insureds the effect of the ‘regular use exclusion….”

On the other hand, discovery was not permitted on matters “irrelevant to the issue regarding the application of the ‘regular use exclusion,’ as they relate to underwriting procedures, underwriting regulations necessary to obtain the status of ‘preferred driver,’ and the determinative factors and costs associated with UIM and UM coverage as well as stacking for those coverages.” Discovery concerning other exclusions was also irrelevant.

Thus, discovery was specifically barred for “[t]he underwriting procedures in place … for the period January 1, 2017[,] through the current date”; underwriting regulations necessary to obtain preferred driver status;  “[t]he determinative factors and costs associated with UIM coverage”; “determinative factors and costs associated with UM coverage”; “determinative factors and costs associated with stacking of UIM coverage”; and “determinative factors and costs associated with stacking of UM coverage….”

Magistrate Judge Saporito further found the permitted discovery proportional, stating “the amount in controversy represents two-thirds of the total available insurance; [the insurer], as the drafter of the policy, has ready access to all relevant information especially regarding the denial of the claim; the importance of the discovery may be determinative of the issue whether the plaintiffs are entitled to any UIM benefits under the policy; and the burden of producing one witness is outweighed by the benefit in answering the questions about the validity of [the insurer’s] affirmative defense of the regular use exclusion.”

Date of Decision: November 4, 2020

Evanina v. The First Liberty Insurance Corporation, U.S. District Court Middle District of Pennsylvania No. 3:20-cv-00751, 2020 WL 6494883 (M.D. Pa. Nov. 4, 2020) (Saporito, Jr., M.J.)

PLAUSIBLE BAD FAITH WHERE INSURER’S POSITION RESULTS IN ILLUSORY COVERAGE; NO BAD FAITH WHERE NO COVERAGE DUE (Western District)

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This case centers on a dispute between the insureds and their homeowners carrier over whether the carrier had agreed to policy limit increases based on a multi-million dollar renovation.  The court details a series of alleged telephone communications between the insureds and the carrier, which the insureds claim committed the carrier to the policy limit increases.  This all occurred before the fire loss at issue.

In addition, the policy included a provision for “Home Protection Coverage”. This provision provides for a 25% coverage extension on existing policy limits.  “Essentially, the Home Protector Coverage’s purpose is to provide extended coverage in the event a homeowner’s losses exceed the policy’s coverage limits.”  The insureds also they did everything necessary for the Home Protection Coverage to be in place at the time of their fire loss.

The carrier asserted to the contrary that there was both no evidence properly documenting an increase in policy limits, or that the insureds met the requirements needed to receive the Home Protection Coverage. The insurer rejected claims for the higher limits and the Home Protection Coverage, and the insureds sued for breach of contract, statutory bad faith, promissory estoppel, and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL).

Breach of Contract Claims Partially Survive

The court dismissed the breach of contract claim for extended policy limits, without prejudice. There was no plausible claim that a contract existed as such or through the reasonable expectations doctrine.

However, the court found the breach of contract claim for the “Home Protection Coverage” stated a plausible claim.  The court held that to find otherwise would make the relevant policy language illusory.

BAD FAITH

The court set forth various principles on statutory bad faith, though incorrectly stating that the insured must demonstrate some motive of self-interest or ill will.

Plausible Bad Faith Claim Stated for Pursuing Argument that would make Coverage Illusory

The court found the insureds stated a plausible bad faith claim as to the denial of Home Protection Coverage. The insureds alleged they paid their premiums, gave notice of renovations, and timely submitted their coverage claims. “Plaintiffs thus assert that Defendant ‘unreasonably denied the benefits’ and ‘had knowledge of their lack of reasonable basis for denying benefits.’”

More specifically, at the pleading stage, the Court had already “rejected carrier’s interpretation of the Home Protector Coverage … and thus cannot accept Defendant’s argument that its basis for denial of Home Protector Coverage was reasonable because Plaintiffs ‘could not show that their property was fully insured for replacement cost at policy inception.’ …. Such an interpretation would construct an illusory promise of coverage, which the Court has already determined it should not entertain.”

Failure to State Plausible Bad Faith Claim where no Coverage is Due

As to the bad faith claims concerning extending the policy limits, the Complaint did not set out a plausible claim.  As stated above, the court ruled the insureds failed to plead a plausible claim for breach of contract on extending policy limits through the various telephone communications or failing to reschedule an inspection. “As such, the Court agrees with Defendant that in ‘the absence of insurance coverage, there can be no bad faith by the insurer as a matter of law.’” As with the contract claim, dismissal was without prejudice.

Promissory Estoppel and UTPCPL

The court rejected that promissory estoppel could create or increase insurance coverage.  It allowed the claim to proceed, but solely as to amending allegations that could go to the breach of contract claims.

The court agreed that the UTPCPL could not create liability for claims handling. It was not clear to the court, however, whether the alleged deceptive conduct occurred at times other than during claims handling.

The court then carries out a fairly detailed analysis of significant UTPCPL concepts such as malfeasance vs. nonfeasance, pleading intent, pleading with particularity, and whether the gist of the action doctrine might apply.

The court concludes, “while Plaintiffs’ averments of deceptive conduct are not categorically barred by the UTPCPL to the extent set out above, Plaintiffs have not pled their claim with the level of particularity required by Pennsylvania law. Accordingly, the Court grants Defendant’s Motion to Dismiss … without prejudice and with leave to amend.”

Date of Decision: September 24, 2020

Luketich, v. USAA Casualty Insurance Company, U.S. District Court for the Western District of Pennsylvania No. 2:20-CV-00315, 2020 WL 5669017 (W.D. Pa. Sept. 24, 2020) (Hornak, J.)

THERE CANNOT BE A BAD FAITH CLAIM AGAINST AN INSURER IF THAT INSURER HAD NO DUTY TO DEFEND (Philadelphia Federal)

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A putative additional insured brought breach of contract and bad faith claims.  The insurer denied a defense and indemnification on the basis that the policy did not cover the additional insured. The court agreed, and then granted the carrier summary judgment on all claims.

As to the bad faith claim, the plaintiff’s“sole argument for its bad faith claim is based on the lapse in time between [the] request … for coverage in the [underlying] action on May 23, 2018 and [the] response denying coverage on October 22, 2018.” The court observed that while delay can be “’a relevant factor in determining whether bad faith has occurred … a long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.’” “’Rather, courts have looked to the degree to which a defendant insurer knew that it had no basis to deny the claimant; if delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’”

While these are significant points in measuring delay if a payment is due or defense owed, the court never had to reach the delay issue because the bad faith claim lacked merit once coverage was denied.  “There cannot be a bad faith claim against an insurer if that insurer had no duty to defend.” The court relied on 631 N. Broad St., LP v. Commonwealth Land Title Ins. Co. for this principle.

Thus, there was no evidence of bad faith under the circumstances. Rather, the undisputed evidence established that the insurer “correctly refused to defend and indemnify” the putative additional insured.

Date of Decision: September 15, 2020

Eastern, LLC v. Travelers Casualty Insurance Co. of America, U.S. District Court Eastern District of Pennsylvania No. CV 19-5283, 2020 WL 5534060 (E.D. Pa. Sept. 15, 2020) (Bartle, J.)

ARE THERE MANY KINDS OF STATUTORY BAD FAITH, EVEN WHEN NO COVERAGE IS DUE ? (Western District)

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This statutory bad faith opinion issued out of the Western District of Pennsylvania yesterday.

The court finds no coverage based on a one-year suit limitation provision and/or a policy exclusion. Thus, plaintiffs have no bad faith claim based on denial of coverage, as no coverage is due, and that claim is dismissed with prejudice.

The court expressly finds, however, that there are other forms of statutory bad faith cognizable under 42 Pa.C.S. § 8371, beyond coverage denials.  It identifies a commonly recognized exception that if the contract claim fails for a technical reason, like exceeding a limitation period, the bad faith claim can still proceed.  The court goes beyond this kind of technical exception to recognize further that poor claims handling may be actionable independently, e.g., knowing or recklessly inadequate investigation, even when no benefit is due under the policy.

On this distinct bad faith investigation claim, plaintiffs only plead (1) conclusory allegations, along with (2) a single fact that cannot constitute bad faith standing alone. Thus, the court dismisses the bad faith investigation claim, but without prejudice. Plaintiffs have leave to file an amended complaint on their investigation bad faith claim, even though no coverage is due under the policy.

[Note: As those following this blog know, we have addressed the scope of cognizable claims under section 8371, and raised the question as to whether cognizable claims under section 8371 are limited to cases where first party benefits due have been denied, or where a defense and/or indemnification due have been refused on third party claims.  Our analysis always begins with the 2007 Supreme Court decision in Toy v. Metropolitan Life Insurance Company.  See, e.g., this post, and this article. The present opinion relies, in part, on the Third Circuit’s unpublished decision in Gallatin Fuels. As discussed in the linked article, Gallatin Fuels does not address Toy. We are also attaching a portion of a brief recently filed in a Philadelphia federal court, from attorney Lee Applebaum, as part of a motion that has now become moot.]

Date of Decision:  August 26, 2020

Palek v. State Farm Fire and Casualty Co., U.S. District Court Western District of Pennsylvania No. 20-170 (W.D. Pa. Aug. 26, 2020) (Flowers Conti, J.)

Our thanks to Attorney Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

PLEADING A DISPUTE OVER VALUE AND SUBMITTING MEDICAL RECORDS TO SUPPORT ONE VALUE DOES NOT MAKE OUT A BAD FAITH CLAIM (Western District)

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This Western District UM bad faith decision aligns with recent Eastern and Middle District cases in finding that the insureds failed to plead a plausible bad faith claim.

Pleading Standards, General

Among other things, the court observed:

  1. Although a complaint does not need to allege detailed factual allegations to survive a Rule 12(b)(6) motion, a complaint must provide more than labels and conclusions.

  2. A “formulaic recitation of the elements of a cause of action will not do.”

  3. “Factual allegations must be enough to raise a right to relief above the speculative level” and be “sufficient to state a claim for relief that is plausible on its face.”

  4. Facial plausibility exists “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

  5. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. [ ] Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.’”

Pleading Principles in Bad Faith Cases

The court also looked at prior case law in adducing pleading principles applied in insurance bad faith cases:

  1. In the bad faith context, district courts have required more than “conclusory” or “bare-bones” allegations that an insurance company acted in bad faith by listing a number of generalized accusations without sufficient factual support.

  2. Thus, the assessment of the sufficiency of a particular complaint often turns on the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss.

  3. Where a complaint’s § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was “unreasonable” or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims.

  4. A motion to dismiss will be granted where the “[p]laintiff’s generic invocation of statutory language is insufficient to satisfy his federal pleading burden.”

  5. There is no plausible claim stated in a statutory bad faith case where the complaint is devoid of “any facts that describe who, what, where, when, and how the alleged bad faith conduct occurred.”

Application of Law to Facts Pleaded Leads to Dismissal with Leave to Amend

The complaint alleges plaintiffs were injured by an uninsured motorist and sought UM coverage from the carrier. The policy had $100,000/$300,000 limits. Plaintiffs submitted a demand package, including relevant medical records.  The carrier offered a total of $23,000 to both plaintiffs. One plaintiff later submitted a lost wages claim of $18,000. The insurer increased the offer by another $3,000, but made clear it would not evaluate the lost wage claim.

Plaintiffs’ bad faith count relied on these factual allegations, which the court described as “breach of contract allegations,” and then added “a laundry list of generic allegations that may amount to bad faith….” This was not enough.

First, the court pointed out that plaintiffs failed to attach any exhibits to the complaint. Further, they did not plead “any facts to explain how or why the offer made by [the insurer] is nothing more than a legitimate dispute over the value of the claim.” The court made clear that disputes over value do “not necessarily give rise to bad faith; rather, a plaintiff must allege ‘factual content indicating that [the insurance company] lacked a reasonable basis for its tendered offer or that it knew or recklessly disregarded a lack of reasonable basis for the offer.”

The court dismissed the bad faith claim, with leave to amend.

Date of Decision: August 4, 2020

TAYLOR v. GEICO CHOICE INSURANCE COMPANY, No. 2:20-CV-00729-CRE, 2020 WL 4474926 (W.D. Pa. Aug. 4, 2020) (Reed Eddy, M.J.)

Our thanks to Attorney Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

“DEEMS EXPEDIENT” CLAUSE UNDERMINES BAD FAITH SETTLEMENT CLAIM; 4 YEAR STATUTE OF LIMITATIONS APPLIES TO CONTRACT BASED BAD FAITH CLAIMS (Philadelphia Federal)

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The essence of the insured’s case is the insurer settled claims against the insured without the insured’s knowledge or permission, and without adequate investigation.  The insurer paid $995,000 out of a $1 Million policy to the person injured in the insured’s ambulance. The insured asserts the carrier overpaid to settle, resulting in $200,000 in damages from increased premiums.

The complaint did not include any reference to statutory bad faith, 42 Pa.C.S. § 8371. Thus, the court found that the sole “bad faith” claim at issue was a breach of the contractual duty of good faith and fair dealing.

The insurer moved to dismiss based on section 8371’s two-year statute of limitations. Since this is a contract based bad faith claim, however, the statute of limitations is four years, and that argument was rejected.

As to the merits, the carrier asserts the policy language expressly provides it can settle any claim or suit as it considers appropriate. Thus, it has complete authority to settle within policy limits at any amount.  The insured argues this is “absurd,” but offers no authority to support its position.

The court ruled for the insurer, observing: “Pennsylvania law disfavors bad faith claims where a policy grants the insurer discretion to settle and where such settlement is within policy limits. However, ‘in limited circumstances,’ ‘a claim for bad faith may … be asserted against the insurance company notwithstanding a ‘deems expedient’ provision … if such settlement was contrary to the intent and expectation of the parties.’” Here, the court found the “settle when appropriate” language to be the equivalent of a deems expedient provision.

The court cited two precedents where a deems expedient provision undermined the possibility of a bad faith claim. In the first, there was no evidence the parties did not freely negotiate policy terms. As to the second, the Third Circuit interpreted “’deems expedient’ clauses broadly—so broadly as to allow insurers to settle claims subject to such clauses ‘for nuisance value of the claim’ or even where a ‘suit … presents no valid claim against the defendants.’”

In the present case, the insured does not contend the deems expedient clause was not freely negotiated. Moreover, even if the insurer could have done more to investigate the underlying claim, “the ‘deems expedient’ clause in its policy afforded [the insurer] the option of settling … simply because it preferred settlement over further investigation of his claim.”

Thus, the bad faith claim was dismissed with prejudice.

Date of Decision: July 22, 2020

Healthfleet Ambulance, Inc. v. Markel Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-2250, 2020 U.S. Dist. LEXIS 129185 (E.D. Pa. July 22, 2020) (Beetlestone, J.)

SIMPLY DENYING CLAIM OR REFUSING TO PRODUCE UNDERWRITING FILE NOT BAD FAITH; UIPA VIOLATIONS MUST BE A REGULAR BUSINESS PRACTICE TO BE CONSIDERED AS EVIDENCE (Philadelphia Federal)

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This UIM bad faith opinion includes instructive points on factual allegations that only create possible, but not plausible, claims and on the use of alleged Unfair Insurance Practices Act (UIPA) violations as evidence. The opinion also includes the more common observations admonishing against conclusory pleading.

The bad faith claims in this case concern alleged misrepresentations of UIM coverage in connection with stacking, a refusal to provide the underwriting file, and a claim that the insurer forced the insured to file suit just to obtain documents. The court dismissed the bad faith claims, but with leave to amend.

ADEQUATE PLEADING STANDARDS

As with many other cases issuing out of the Eastern District this year, the court made clear that conclusory allegations are given no regard in supporting a bad faith pleading. Like many of those courts, Judge Baylson cited the Third Circuit’s Smith opinion on this point, as well as his own opinions in Eley and Robbins.

There were three factual allegations that went beyond mere conclusory pleading, though still not adequate to state a claim because they only made bad faith possible, not plausible.

Refusal to Pay Not Enough

  1. “Defendant denied Plaintiff’s claim for UIM stacking of benefits for five vehicles….” As to this allegation, Judge Baylson found that “a plaintiff cannot base a bad faith claim on the defendant’s refusal to pay. A disagreement over the amount of a UIM claim is not unusual, and the existence of such disagreement cannot by itself state a viable bad faith claim.” He relied on Johnson v. Progressive Ins. Co., for the proposition that “[t]he underlying facts involve nothing more than a normal dispute between an insured and insurer over the value of an UIM claim. The scenario under consideration occurs routinely in the processing of an insurance claim.”

Refusal to Turn Over Underwriting File

  1. “Defendant refused to provide the underwriting file upon request….” Judge Baylson found the insurer’s alleged “refusal to provide the underwriting document is comparable to the allegation of parallel conduct in Twombly, which ‘gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of entitlement to relief.’” He added that “[i]n insurance coverage disputes, underwriting files often contain an insurer’s evaluation of the risks presented on an insurance application, along with other confidential business information. Although a showing of Defendant’s refusal to disclose the underwriting file may be consistent with bad faith, it is also as much in line with ‘a wide swath of rational and competitive business strategy.’”

Don’t Make the Court Speculate that an Alleged Fact Might Possibly be Bad Faith

       3. “Defendant required Plaintiff to file a lawsuit in order to obtain the documents that will confirm the coverage.” Although not addressed separately, this allegation fell under the general concept the court will not infer bad faith because a possibility of bad faith exists. Rather, the factual allegations must stand by themselves as a plausible basis for a bad faith claim. Plausibility means the court does not have to speculate on what the allegation might imply.

UIPA Violations Must Show the Actions at Issue Occurred on a Regular Basis as a General Business Practice

The insured argued that he should be allowed to use UIPA violations as evidence of bad faith. The carrier countered that UIPA violations might only be evidence of bad faith “when the actions in question were a general business practice,” and the insured did not make any allegations to this effect. Judge Baylson found the complaint was devoid of specific factual allegations concerning putative UIPA violations.

Judge Baylson stated that “31 Pa. Code § 146.1 (1978) provides that such violations ‘will be deemed to constitute unfair claims settlement practices’ if they occur with “a frequency that indicates a general business practice.’” Judge Baylson relied on his 2017 Jack decision, to support his conclusion that the insured “pleaded no factual allegations showing that Defendant’s actions occur on a regular basis that constitutes a general business practice.”

Date of Decision: June 22, 2020

Dietz v. Liberty Mutual Insurance Co., U.S. District Court Eastern District of Pennsylvania No. 2:20-cv-1239-MMB, 2020 U.S. Dist. LEXIS 108559 (E.D. Pa. June 22, 2020) (Baylson, J.)

TWO BAD FAITH CLAIMS DISMISSED FOR EITHER MAKING CONCLUSORY ALLEGATIONS OR ALLEGING FACTS THAT DO NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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In these two Philadelphia federal opinions issued last week, bad faith claims were dismissed without prejudice. In one case, this was based on a set of pleadings that has been repeatedly held conclusory in nature. In the other, after stripping away the conclusory allegations, the court found that the remaining factual allegations simply did not make out a bad faith case.

There have been at least 10 prior opinions out of Pennsylvania’s Eastern District this year similarly dismissing bad faith claims for inadequate pleading.

  1. Lopez v. Selective Insurance Co. of South Carolina (Judge Schiller, Eastern District)

In Lopez v. Selective Insurance, Judge Schiller found the complaint set out only conclusory allegations, and that these allegations “did not logically follow from any facts alleged in the Complaint.” These included the following 13 separate allegations, all of which failed:

“[S]ending correspondence falsely representing that Plaintiff’s loss caused by a peril insured against under the Policy was not entitled to benefits due and owing under the policy . . . failing to complete a prompt and thorough investigation of Plaintiff’s claim before representing that such claim is not covered under the Policy . . . failing to pay Plaintiff’s covered loss in a prompt and timely manner . . . failing to objectively and fairly evaluate Plaintiff’s claim . . . conducting an unfair and unreasonable investigation of Plaintiff’s claim . . . asserting Policy defenses without a reasonable basis in fact . . . flatly misrepresenting pertinent facts or policy provisions relating to coverages at issue and placing unduly restrictive interpretations on the Policy and/or claim forms . . . failing to keep Plaintiff or their representatives fairly and adequately advised as to the status of the claim . . . unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiff or their representatives . . . failing to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claim . . . unreasonably withholding policy benefits . . . acting unreasonably and unfairly in response to Plaintiff’s claim . . . unnecessarily and unreasonably compelling Plaintiff to institute this lawsuit to obtain policy benefits for a covered loss, that Defendant should have paid promptly and without the necessity of litigation.”

In describing what the complaint lacked, Judge Schiller observed, “[t]he Complaint does not contain any factual allegations that relate to why or how Defendant’s basis for denying the claim was unreasonable. Indeed, the Complaint does not include any facts related to Defendant’s purported basis for denying the claim or Defendant’s actions or omissions in conducting an investigation. Plaintiff’s Complaint does not describe the cause or extent of the alleged loss, the provisions of the insurance policy at issue, the date on which Plaintiff made Defendant aware of the loss, or the date on which Defendant initially denied the claim. Plaintiff’s conclusory allegations are not supported by specific facts sufficient to state a plausible claim for relief. Courts consistently hold that bare-bones allegations of bad faith such as these, without more, are insufficient to survive a motion to dismiss.”

As with a number of other recent opinions, including his own opinion in Park v. Evanston, Judge Schiller relies on the Third Circuit’s Smith decision, as well as Judge Leeson’s McDonough decision, and Judge Gardner’s Atiyeh decision.

Plaintiffs relied on the 1009 Clinton Properties opinion, but consistent with a number of other recent decisions, Judge Schiller found Clinton Properties to be an “outlier” and rejected the insureds’ argument. Clinton Properties has similarly been deemed an outlier by Judge Marston in her Cappuccio decision, Judge Darnell Jones in Clapps, and Judge Leeson in Shetayh. These cases rejected very similar allegations in each instance.

Date of Decision: June 17, 2020

Lopez v. Selective Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 20-1260, 2020 U.S. Dist. LEXIS 105733 (E.D. Pa. June 17, 2020) (Schiller, J.)

  1. Graves v. USAA General Indemnity Co. (Judge Gallagher, Eastern District)

The insureds brought UIM breach of contract and bad faith claims. The court dismissed for failing to plead anything other than conclusory allegations or facts that could not constitute bad faith.

After stripping away the conclusory allegations, the court found the following factual allegations, even assuming their truth, failed “to support a claim that Defendant adjusted the UIM claim in bad faith.”

“1) Plaintiff was operating a motor vehicle which was insured under a USAA insurance contract and which provided for UIM benefits; 2) the accident was caused by the third party; 3) Plaintiff suffered severe injuries as a result of the accident; 4) Plaintiff submitted a claim for UIM benefits; 5) Plaintiff complied with the policy’s requirement to obtain Defendant’s consent to settle her claim against the third party; 6) Plaintiff forwarded her medical documentation to Defendant; and 7) Defendant has not paid the UIM claim.”

Graves v. USAA General Indemnity Co., U.S. District Court Eastern District of Pennsylvania Civil No. 2:20-cv-00786-JMG, 2020 U.S. Dist. LEXIS 105123 (June 16, 2020) (Gallagher, J.)

BAD FAITH CLAIM CAN PROCEED EVEN THOUGHT CONTRACT CLAIM DISMISSED AS UNTIMELY; ADJUSTOR AND INVESTIGATOR NOT SUBJECT TO BAD FAITH STATUTE (Philadelphia Federal)

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This case involved breach of contract and bad faith claims against the insurer based on its decision not to cover the alleged theft of jewelry. The insurer engaged an investigation firm to look into the theft. The individual investigator assigned to the claim raised questions about either the ownership of the jewelry, or whether it was actually stolen in a burglary.

The insurer was granted judgment on the pleadings as to the breach of insurance contract claim. The policy had a one-year limitations period for brining suit, and the insured failed to file her action within one year.

Even though there was no coverage due because of the contractual limitations period, however, the court denied summary judgment on the bad faith claim. The insurer argued that the insured’s “deposition testimony shows that she cannot meet her burden of establishing bad faith.” The court found this argument premature.

The case had been removed to federal court and immediately placed in the arbitration track. There were no formal discovery requests from any party. The court found that the “litigation that has ensued does not preclude full and fair discovery on fact-driven claims that remain on the bad-faith count.” Thus, summary judgment was premature, and the motion was dismissed without prejudice. Judge Rufe added a requirement that the parties had to report jointly regarding to the court on what discovery was being pursued, if any, heading into the arbitration.

[Note: The insurer apparently did not attempt to argue that if the contract claim was dismissed, then the bad faith claim necessarily failed. There is some case law holding if the contract claim is dismissed on the basis of a contractual limitations period, the bad faith claim can still proceed. See, e.g., Doylestown Electrical Supply Co. v. Maryland Casualty Ins. Co., 942 F. Supp. 1018 (E.D. Pa. 1996) and March v. Paradise Mutual Ins. Co., 646 A.2d 1254 (Pa. Super. 1994), appeal denied, 540 Pa. 613, 656 A.2d 118 (1995).]

Finally, the insured attempted to amend the complaint to add claims against the insurer’s claim adjustor, the company it hired to investigate the claim and the individual investigator. The court found these claims meritless and would not allow amendment.

An individual adjustor working for an insurer is not an insurer. Thus, the individual adjustor was not subject to (i) a breach of contract claim because he was not a party to the contract; or (ii) the bad faith claim because Pennsylvania’s bad faith statute only applies to insurers. The same reasoning applied to the investigators.

Date of Decision: April 30, 2020

Holden v. Homesite Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2167, 2020 U.S. Dist. LEXIS 75904 (E.D. Pa. April 30, 2020) (Rufe, J.)

 

(1) NO BAD FAITH WHERE COVERAGE LAW UNCERTAIN (2) BAD FAITH POSSIBLE FOR DELAY AND DENIAL OF ALLEGEDLY UNADDRESSED CLAIM (Philadelphia Federal)

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This case involved a highly disputed factual issue on coverage, with no clear guidance in the case law. The court denied summary judgment on the insured’s breach of contract claim, and rendered a split decision on the two bad faith claims.

The Close Coverage Call

Coverage existed if a roof was damaged by wind, allowing water to enter a building. The issue was whether a tarp could be considered part of a roof. The insurer denied coverage on the basis the tarp at issue was a temporary stopgap when blown off during a windstorm. The insured argued the tarp was sufficiently stable and integrated to be part of a roof system when it was blown off.

The court looked at local and national case law on when a tarp might be part of a more permanent structure, and thus part of a roof. The court found the issue highly fact-driven under this case law, and inappropriate for summary judgment. A jury had to decide the issue after hearing the disputed evidence and expert opinions.

The Bad Faith Claims

On the bad faith claims, the court stated that both denial of a benefit and/or improper investigative practices could constitute bad faith.

[As we have written on this Blog ad naseum, the idea that statutory bad faith covers anything other than benefit denials arguably runs contrary to Pennsylvania Supreme Court case law. In the 2007 Toy v. Metropolitan Life decision, Pennsylvania’s Supreme Court strongly appears to state that only denial of a benefit creates a cognizable statutory bad faith action, whereas matters like poor claims handling would be evidence of bad faith. See this article.

A few months later, the Supreme Court seems to confirm this conclusion. In Ash v. Continental Insurance Company, citing Toy, the Supreme Court states, “The bad faith insurance statute, on the other hand, is concerned with ‘the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.’” (Emphasis added)

While it appears highly likely Pennsylvania’s Supreme Court made clear 13 years ago that section 8371 is limited to claims for denying benefits, numerous subsequent opinions conclude that there can be other bases for statutory bad faith. These cases typically do not address Toy or Ash in reaching this conclusion.]

In the present case, the insured allegedly made two separate claims, 19 days apart. The first had to do with wind damage to roof shingles, and the second addressed the issue concerning the tarp and interior water damage.

Bad Faith Possible for Undue Delay

On the first claim, the insured alleged it gave proper notice of loss, and the insurer failed to respond at all to the claim. The insurer alleged it had no notice, but in any event took the position that its denial letter addressed both the roof shingle and tarp claims.

The court found that there was an issue of whether the insurer had constructive notice of the first claim, even without formal notice. The adjuster was made fully aware of the event, but it is unclear if the insurer thought of this as a distinct event or just part of the continuum in a single claim. It was also unclear whether the denial letter actually addressed the shingle damage as such.

Thus, bad faith had to go to the jury. “If a jury were to conclude that Defendant was aware that Plaintiff had made a claim for the April damage, but ignored it, that could be seen as an objectively unreasonable, frivolous, intentional refusal to pay (or to otherwise resolve the claim in a timely fashion).”

[While there are certainly claims handling issues here regarding delay and responsiveness to an insured, this claim ultimately includes the denial of a benefit. Thus, the issue of whether there can be statutory bad faith without the denial of a benefit is not actually before the court.]

No Bad Faith where Governing Law is Uncertain

As to the second claim, the insurer won summary judgment. This gets back to the dispute over whether the tarp constitutes a roof. “An insurer who makes a reasonable legal conclusion based on an uncertain area of the law has not acted in bad faith.” Thus, “[w]ith no binding guidance from the Pennsylvania Supreme Court or the Third Circuit, and numerous fact-intensive cases on the subject, Defendant reasonably interpreted the membrane, and not the tarp, to be the roof. Even if that call is ultimately found to have been incorrect, Defendant did not act in bad faith by denying the claim.”

Date of Decision: March 18, 2020

Harrisburg v. Axis Surplus Ins. Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1213, 2020 U.S. Dist. LEXIS 48115 (E.D. Pa. Mar. 18, 2020) (Beetlestone, J.)