Archive for the 'PA – Common Law Bad Faith (contractual or fiduciary basis)' Category

BAD FAITH CLAIM PROCEEDS EVEN AFTER CONTRACT CLAIM DISMISSED FOR UNTIMELY FILING (Western District)

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The insurer denied auto theft coverage based on an exclusion.  The insured sued for breach of contract and bad faith, and also alleged breach of a fiduciary duty. The carrier moved to dismiss the breach of contract and bad faith claims, and to strike the fiduciary duty language.

The court dismissed the breach of contract claim for failing to bring action within the time period required under the policy.

The court, however, allowed the insured’s bad faith claim to proceed.  The bad faith claim was based on an unreasonable investigation theory.  The court stated:

“On the existing record at this early stage of the litigation, [the insured] states a plausible claim for coverage and, while he will have to prove his bad faith claim by ‘clear and convincing evidence,’ … the allegations in the Complaint that [the insurer] failed to investigate his claim and knowingly set the date of loss outside the policy period “may … show bad faith.’ … Because [the] well-pleaded assertions of unreasonable claims processing and investigation adequately state a plausible bad faith claim under Section 8371, dismissal is not warranted and the Motion to Dismiss Count II of the Complaint is denied.”

The court did strike the allegation that the carrier’s breach of fiduciary duty constituted bad faith, observing:

In Keefe v. Prudential Prop. & Cas. Ins. Co., 203 F.3d 218, 227–28 (3d Cir. 2000), the United States Court of Appeals for the Third Circuit held that an insurer’s fiduciary obligations to an insured are limited to claims handling and resolution of third-party claims against an insured. “Under Pennsylvania law, a fiduciary duty higher than the duty of good faith and fair dealing does not arise out of an insurance contract until an insurer asserts a stated right under the policy to handle all claims asserted against the insured.” … Keefe has been applied to the cancellation of a life insurance policy and to policyholders’ uninsured and underinsured motorist claims where, like the present claim, the insurer has not asserted a right to resolve third-party claims against the insured. … Accordingly, given [the insured’s] failure to respond to the Motion to Strike, and the weight of precedential authority limiting an insurer’s fiduciary obligations to the resolution of third-party claims against an insured, the Motion to Strike is granted.

Date of Decision:  May 11, 2021

Peltz v. State Farm Mutual Automobile Insurance Company, U.S. District Court Western District of Pennsylvania No. 21-0005, 2021 WL 1893125 (W.D. Pa. May 11, 2021) (Kelly, M.J.)

WESTERN DISTRICT JUDGE WIEGAND ISSUES TWO BAD FAITH OPINIONS: (1) BAD FAITH CLAIM PLAUSIBLE WHERE COVERAGE ISSUES REMAIN OPEN (2) NO BAD FAITH FOR PRE-CONTRACT CONDUCT (Western District)

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On April 16 and 21, 2021, Western District Judge Wiegand issued bad faith opinions.  In the first case, she allowed the claim to proceed, denying a motion to dismiss. In the second, the conduct at issue did not involve any benefit denial, but only alleged pre-contract deception, which is not subject to Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.

CASE 1: BAD FAITH CLAIM STATED

In Maronda Homes, LLC v. Motorists Mutual Insurance Company, Judge Wiegand allowed an additional insured’s statutory bad faith claim to proceed, denying the insurer’s motion to dismiss.

The insurer rejected additional insured coverage, asserting (1) that the additional insured endorsement was not triggered through any alleged conduct of the named insured, and (2) that even if triggered, an exclusion applied. The additional insured raised claims for breach of contract, contractual bad faith, and statutory bad faith. The insurer moved to dismiss all claims.

Judge Wiegand first rejected the insurer’s argument that the complaint did not allege any wrongdoing by the named insured that could trigger coverage under the additional insured endorsement.  She also found factual issues remained open as to whether coverage was excluded because the work was (1) completed or (2) put to its intended use. This could not be decided at the motion to dismiss state.

Judge Wiegand did dismiss the breach of the implied covenant of good faith and fair dealing count. “[U]nder Pennsylvania law, a ‘claim for breach of the implied covenant of good faith and fair dealing is subsumed in a breach of contract claim.’” Thus, “a claim for breach of the implied covenant of good faith and fair dealing ‘separate and distinct from a breach of contract claim’ cannot be maintained because ‘the covenant does nothing more than imply certain obligations into the contract itself.’”

By contrast, Judge Wiegand allowed the statutory bad faith claim to proceed. First, she observed that the policy exclusion at issue remained open and undecided, so the insurer could not argue the coverage denial was per se reasonable based on the policy exclusion language.  She then found the insured’s allegations that the insurer “failed to investigate Plaintiff’s tender of the claims, denied coverage despite cooperatively participating in attempts to settle the Underlying Actions, and rejected settlement offers … within the limits of the Policy … are sufficient at this stage to survive Defendant’s Motion.”

Date of Decision:  April 16, 2021

Maronda Homes, LLC v. Motorists Mutual Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-01526-CCW, 2021 WL 1518009 (W.D. Pa. Apr. 16, 2021) (Wiegand, J.)

CASE 2: NO STATUTORY BAD FAITH POSSIBLE FOR PRE-POLICY CONDUCT

The second case involved a first party property damage claim, where a swimming pool popped out of the ground due to subsurface water pressure. A policy exclusion clearly excluded coverage for subsurface water pressure causing damages, but the insureds still pursued the claim.  They alleged that prior to purchasing the policy, the insurer’s agent led them to believe the policy would cover them for damages to in-ground pools “from foreseeable types of harm,” which equated to a promise concerning subsurface water pressure damage being covered.

After the coverage denial, the insureds brought claims to reform the policy to cover “pool popping,” for statutory bad faith, and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer successfully moved to dismiss all claims.

First, Judge Wiegand found that the policy could not be reformed based on mutual mistake, unilateral mistake, or fraud.  She further found that this was not a case where the reasonable expectations doctrine would permit reformation of clear policy language.

Second, she dismissed the statutory bad faith claim.  As the Pennsylvania Supreme Court made clear in Toy v. Metropolitan Life, the bad faith statute only applies when the insurer had denied a policy benefit.  Deceptive practices used to induce an insured to enter an unfavorable insurance policy do not fall within the bad faith statute’s ambit.

Finally, because the insureds did not plead justifiable reliance, there could be no UTPCPL claim.

Date of Decision: April 21, 2021

Palek v. State Farm Fire & Casualty Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-00170-CCW, 2021 WL 1561507 (W.D. Pa. Apr. 21, 2021) (Wiegand, J.)

POLICY VOIDED FOR MATERIAL MISREPRESENTATIONS; INSURED VIOLATED INSURANCE FRAUD ACT; COMMON LAW FRAUD NOT ACTIONABLE ABSENT RELIANCE (Philadelphia Federal)

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The insured admittedly altered vendor invoices that inflated the replacement value of damaged items in this first party property damage claim, and submitted those false invoices to the insurer in making its claim for property damage losses.

The insurer brought a declaratory judgment action arguing there was no coverage due because of these misrepresentations, along with claims for “violations of Pennsylvania’s Insurance Fraud Act, common law fraud, and reverse bad faith.” The insured brought a statutory bad faith counterclaim, which the court earlier dismissed.

The parties cross-moved for summary judgment, and the insured asked Eastern District Judge Robreno to vacate his dismissal of its bad faith counterclaim.  Judge Robreno granted summary judgment to the insurer for declaratory relief and violation of the Insurance Fraud Act (IFA), and refused to vacate his dismissal of the bad faith counterclaim.

Fraud and concealment as a basis to void the policy and preclude recovery

The declaratory judgment count focused on the argument that the insured violated the Concealment, Misrepresentation or Fraud Condition in the policy.

Judge Robreno observed that:

  1.  “[T]o void an insurance policy under Pennsylvania law, an insurer must prove the following factors by clear and convincing evidence: “(1) the insured made a false representation; (2) the insured knew the representation was false when it was made or the insured made the representation in bad faith; and (3) the representation was material to the risk being insured.”

  2. “The clear and convincing evidence standard requires evidence that is ‘so clear, direct, weighty, and convincing as to enable the [trier of fact] to come to a clear conviction, without hesitancy, of the truth of the precise facts [in] issue.’”

  3. “Pennsylvania courts have long ruled that a violation of the fraud and concealment provision of an insurance policy … serves as a complete bar to the insured’s recovery under the policy.”

There was no question that the insured knowingly made misrepresentations to the insurer through the altered invoices.  The issue was whether these misrepresentations were material.

Misrepresentations are material “if a reasonable insurance company, in determining its course of action, would attach importance to the facts misrepresented.” Judge Robreno found the misrepresentations material. The false invoices were provided in direct response to the insurer’s requesting proof of the valuations the insured’s adjusters submitted. He accepted the insurer’s argument that the insured was aware the insurer “would use the invoices to determine and verify the amount of loss.”

Thus, Judge Robreno voided the policy, and found no coverage due.

Court grants insurer summary judgment under the Insurance Fraud Act

The insurer also sought relief under Pennsylvania’s Insurance Fraud Act, 18 Pa. Stat. and Cons. Stat. Ann § 4117(g). There are three elements to an IFA claim: “1) presenting false, incomplete, or misleading statements to [the insurer]; 2) that were material to the claim; and 3) which were knowingly made with an intent to defraud.” The courts are split on whether the burden of proof is clear and convincing evidence or preponderance of the evidence.

The court had just ruled, however, under the clear and convincing evidence standard, that the insured made material misrepresentations that voided the policy for fraud.  Thus, the only issue in obtaining civil relief under the IFA was whether the insurer court prove the insured’s actions were taken with an intent to defraud.  Judge Robreno adduced examples from the record demonstrating the insured’s conduct was intentional and knowing.  Thus, he granted the insurer summary judgment on this count as well.

Common law fraud not established without showing justifiable reliance

Unlike the other two fraud based counts, common law fraud requires proof of justifiable reliance on the misrepresentations.  The insurer did not provide evidence of record to meet that element, and summary judgment was denied.  Judge Robreno noted, that the insurer “could, of course, pursue this claim at a trial. However, it does not appear that [it] would be entitled to compensatory damages beyond the litigation and investigation costs it may seek to recover as a result of prevailing on [the Insurance Fraud Act claim], nor does it appear that punitive damages would be appropriate in this case.”

Finally, Judge Robreno denied the insured’s motion to vacate the order dismissing its bad faith claims against the insured.  Further, in light of its success on the first two counts, the reverse bad faith claim was dismissed without prejudice in light of the insurer’s position that it had no reason to proceed with that claim.

Date of Decision:  April 12, 2021

State Auto Property & Casualty Insurance Co. v. Sigismondi Foreign Car Specialists, Inc., U.S. District Court Eastern District of Pennsylvania No. CV 19-5578, 2021 WL 1343116 (E.D. Pa. Apr. 12, 2021) (Robreno, J.)

NO COMMON LAW BAD FAITH WHERE DENIAL OF COVERAGE FOR LATE NOTICE IS REASONABLE (Philadelphia Federal)

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In this breach of contract and common law bad faith action, on a lawyer’s professional liability policy, the court found a number of bases for denying coverage.  As such, the insurer had a reasonable basis to deny coverage and there could be no bad faith. Thus, the court granted the insurer’s summary judgment motion.

First, because this was a claims made policy, “Pennsylvania law does not require an insurer to demonstrate prejudice when the relevant notice provision is contained in a claims-made policy like the one before us.” The court found the insured did not give the required notice in a timely manner.

Next, to the extent no damages were sought, there was no coverage due under the policy.

In addition, there was no coverage due because some of the claims against the insured did not arise out of legal services, as required by the policy

Further, the court found a number of exclusions applicable, and no coverage was due on this additional basis.

Finally, as to bad faith, the court stated: “That leaves only [the insured’s claims] for breach of contract and breach of the duty of good faith and fair dealing (i.e., bad faith). However, because [the insurer] had a reasonable basis for denying coverage under the policy, we grant summary judgment in favor of [the insurer].” In support, the court cited a 2004 case for the proposition that the insurer should be successful where it “’reasonably believed that [the insured] had forfeited coverage under the Policy by failing to timely comply with the notice provision,’ and ‘[t]hus, the [insurance company’s] actions cannot be the basis for a bad faith claim[.]’”

Date of Decision: March 9, 2021

American Guarantee and Liability Insurance Company v. Law Offices of Richard C. Weisberg, U.S. District Court for the Eastern District of Pennsylvania No. 2:19-CV-05055-KSM, 2021 WL 915425 (E.D. Pa. Mar. 9, 2021) (Marston, J.)

BAD FAITH CLAIMS TIME-BARRED WHEN RAISED 12 YEARS AFTER INSUREDS ON NOTICE OF ALLEGED BAD FAITH (Philadelphia Federal)

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The insureds allege they wanted a joint annuity policy, rather than an individual annuity policy.  The carrier was fully aware of the insureds’ intent and request, but only issued them an individual annuity policy. They first received the annuity policy in 2008, but allege they only learned for the first time in 2020 that it was an individual annuity policy.

The carrier refused to treat the policy as a joint annuity, and the insured brought claims for breach of contract and bad faith, among others. The insurer successfully moved to dismiss the complaint on statute of limitations grounds.

The court found the breach of contract claim time-barred, as well beyond the four-year statute of limitations. The claim could not be salvaged by the discovery rule as the insureds did not act with reasonable diligence in discovering and pursuing their claims.  The information alerting them to the alleged breach had been in front of them for 12 years, but they did not act.

Similarly, the bad faith claims were time-barred.  The statutory bad faith claim has a two-year limitations period, which had long run. Further, any contract based bad faith claim was time-barred for the same reasons as the breach of contract claim.  The court only assumed for the sake of argument that the discovery rule could even apply to bad faith claims, which again failed for lack of reasonable diligence.

The court also observed that the insureds failed to allege bad faith in accord with federal pleading standards, averring nothing more than a breach of contract accompanied by conclusory allegations of bad faith.

Date of Decision: January 7, 2021

Smith v. Pruco Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-04098, 2021 WL 63266 (E.D. Pa. Jan. 7, 2021) (McHugh, J.)

SIMPLE VALUATION DISPUTE CANNOT CREATE BAD FAITH; NO ACTIONABLE BAD FAITH AGAINST CLAIM HANDLER; MIXED RESULT UNDER UTPCPL (Philadelphia Federal)

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The insured brought suit over a $500 valuation dispute.  The carrier valued the insured’s car at $2,500 ($3,000 less at $500 deductible), and repairs were estimated in excess of $3,000. The car being a total loss, the insurer offered $2,500, but the insured wanted $3,000.  This led to a 10 count complaint against the insurer and its claim handler. We only address the two bad faith counts against the insurer and/or the claim handler, and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims against the insurer.

No statutory bad faith.

The court dismissed the statutory bad faith claim.  There were simply no allegations of fact that could support a plausible bad faith claim. The complaint itself showed the carrier appropriately investigated the claim, and gave a prompt damage assessment.  Plaintiff did not allege the repair cost estimate was incorrect, or the inspection faulty. There was no allegation that the insurer’s valuation was unreasonable. There was no claim denial, just a dispute over the sum due.

The court found this simply a “normal dispute” that did not amount to bad faith. “An insurer’s failure to honor its insured’s subjective value of his claim does not—without more—give rise to a bad faith claim.” The court, however, did allow leave to amend.

No common law bad faith against the insurer or the claim handler.

The insured brought common law bad faith claims against the insurer and claim handler. The court observed there is no tort common law bad faith cause of action; rather, in Pennsylvania common law bad faith is subsumed in the breach of contract claim. Thus, the common law claim against the insurer was dismissed with prejudice.

As to claim handler, Pennsylvania law (1) does not support a statutory bad faith claim against claim handlers; nor (2) does it recognize a bad faith claim in contract against adjusters (who are clearly not party to any contract). These claims were dismissed with prejudice.

A mixed result under the UTPCPL.

The court also dismissed one UTPCPL claim on the basis that it alleged poor claim handling, not deceptive inducement to enter the insurance contract.  However, the insured also alleged the carrier’s representative originally made false representations causing him to purchase the insurance in the first place.  This was sufficient to state a UTPCPL claim under its catch-all provision.

Date of Decision: December 14, 2020

Ke v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1591, 2020 WL 7353892 (E.D. Pa. Dec. 14, 2020) (Pratter, J.)

INSURER CAN GO BEYOND FOUR CORNERS OF COMPLAINT TO DETERMINE IF A PERSON IS AN INSURED IN THE FIRST INSTANCE, WHEN DEFENDING BAD FAITH CASE (Third Circuit, Pennsylvania Law)

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The Third Circuit addressed the central issue of whether the defendant was an insured, and how to analyze that factual issue in ruling on coverage and bad faith claims.

The named insured went with his girlfriend to a picnic, where they met up with the mother of the named insured’s child.  The girlfriend was also a named insured, but the mother was a stranger to the insurance contract. The mother decided to move the named insureds’ car, and struck plaintiff while driving the car. The injured plaintiff sued the two named insureds and the mother.

The carrier covered the named insureds, but took the position that the mother was not a permissive user and therefore was not an insured under the policy. The mother stipulated to a judgment and assigned her bad faith and breach of contract claims to the injured plaintiff, who sued the carrier.

The trial court granted summary judgment to the insurer, and the Third Circuit affirmed.

The Four Corners Rule does not Apply to Determining if a Party is an Insured for Duty to Defend Purposes

The Third Circuit first addressed the issue of whether the four corners rule encompasses determinations of whether a party is an insured in the first instance.

The issue has never been addressed by Pennsylvania’s Supreme Court.

The insurer argued it could not be bad faith to take the position the mother was not an insured, even if the complaint indicated otherwise, because the law on the issue is unsettled.  The carrier asserted it could use extrinsic evidence to show the mother was not an insured, and denied coverage on that basis. The Third Circuit agreed that “because Pennsylvania courts have not ruled on this issue, [the insurer] did not act in bad faith after it ‘reasonably determined that [mother] was not an insured under the Policy.’”

On the merits of coverage itself, the court concluded “that, when the insurer determines a claim is outside the scope of the insurance policy before a suit is filed, it has no duty to defend because it has effectively ‘confine[d] the claim to a recovery that the policy [does] not cover.’” Here, the insurer investigated the claim, and determined the mother was not an insured because she was not a permissive user.  “After that determination, the four corners rule no longer applied. [The insurer] did not have a duty to defend, and its actions do not show bad faith.”

Bad Faith Investigation

The court then went on to examine whether a bad faith claim could be stated solely on the basis that the insurer’s investigation was conducted in bad faith.  As repeated on this blog ad naseum, there is a genuine issue as to whether there is an independent bad faith claim for poor investigation practices when no coverage is otherwise due. For example see this post from January 2020, this post from August 2020, and this post from earlier in August 2020. A close examination in this case, however, shows the lack of investigation bad faith claim is actually intertwined with the coverage issue. Thus, this is not a case where a party is trying to prove bad faith even though no coverage is due.

Treating investigation based bad faith as a separate cause of action, rather than merely evidence of bad faith, the court observed “[g]ood faith in this context requires that an insurance determination be ‘made diligently and accurately, pursuant to a good faith investigation into the facts’ that is ‘sufficiently thorough to provide [the insurer] with a reasonable foundation for its actions.’” The mother argued the record showed she had “implied permission” to use the car, and the carrier acted in bad faith by unreasonably failing to recognize she had implied permission. The court disagreed, finding no adequate evidence to defeat summary judgment on the issue.

No Common Law Bad Faith Claim

“Finally, although the standard for common law bad faith diverges from statutory bad faith … the common law action for bad faith is a contract claim. Thus, because [the mother] was not an insured, she was not party to the contract, and she had no common law contract claim to assign….”

Date of Decision: December 8, 2020

Myers v. Geico Cas. Co., U. S. Court of Appeals for the Third Circuit No. 19-1108, 2020 WL 7230600 (3d Cir. Dec. 8, 2020) (Fisher, Restrepo, Roth, JJ.)

NO BAD FAITH WHERE NO DUTY TO DEFEND; COURT ADDRESSES RESERVATION OF RIGHTS LETTERS AND ESTOPPEL (Philadelphia Federal)

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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:

  1. 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.

  2. In determining detrimental reliance, courts will assess whether the insured suffered actual prejudice.

  3. “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.”

  4. “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.’”

  5. “[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.”

  6. “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.)

(1) NO WANTON CONDUCT UNDER MVFRL INVOKING TREBLE DAMAGES AND SUPER INTEREST; (2) NO STATUTORY BAD FAITH WHERE (i) MVFRL PREEMPTS BAD FAITH STATUTE; (ii) THERE IS ONLY A VALUATION DISPUTE; (iii) INVESTIGATION REASONABLE; (4) BIAS CLAIMS ARE MERELY SUBJECTIVE (Philadelphia Federal)

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Plaintiff was injured in an auto accident and made both PIP claims and underinsured motorist (UIM) claims. She found the carrier’s settlement offers and negotiations wholly inadequate, and brought statutory bad faith claims, and claims for damages under the Motor Vehicle Financial Responsibility Law (MVFRL) seeking treble damages and super interest for the insurer’s allegedly “wanton” conduct concerning her medical benefit claims.

MVFRL Claims

The court found the insured could proceed on her PIP claim under a breach of contract theory. However, the MVFRL claim for treble damages and 12% interest, under 75 Pa. C.S. § 1797(b)(4), was dismissed without prejudice. Judge Pappert held plaintiff had not pleaded “wanton” conduct, a predicate for gaining the extraordinary remedies under this statute.

The insurer also asserted the MVFRL count actually alleged a breach of the duty of good fair dealing, and moreover constituted an improper effort to get relief under the Bad Faith Statute. It asked the court to strike certain averments related to this putative backdoor bad faith claim.

The court rejected this argument: “Although Count II appears to assert a claim under the MVFRL … it also appears to assert a claim for … alleged breach of the implied contractual duty to act in good faith related to her PIP coverage. …  Because [the insured] may pursue a claim for breach of her policy’s PIP coverage obligations and because motions to strike are ‘not favored and usually will be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties,’ the Court will not strike her allegations regarding the duty of good faith and fair dealing in Count II.”

MVFRL Claims and the Bad Faith Statute

The court then addressed the statutory bad faith claim.

The court first observed that unless the insurer’s “conduct falls outside of the scope of § 1797 of the MVFRL, 75 Pa. C.S. § 1797, and involves a bad faith abuse of the process challenging more than just the insurer’s denial of first party benefits, the MVFRL preempts any statutory bad faith claim concerning … PIP benefits.” The court made clear, “To the extent that the gravamen of [the] bad faith claim is the denial of first party medical benefits and nothing more, [the insurer’s] alleged conduct is within the scope of § 1797 of the MVFRL and therefore [she] is precluded from bringing such a claim.”

However, “[s]ection 8371 bad faith claims remain cognizable when the basis of a benefits denial does not relate to the reasonableness and necessity of treatment, or when an insurer’s conduct is obviously not amenable to resolution by the procedures set forth in Section 1797(b).”

Dispute Over Valuation not Bad Faith

The insured alleged the insurer delayed her claim and denied its value. The court found these allegations did not equate to allegations that the insurer actually deny the UIM or PIP. Rather, there was a dispute over valuation.

Analyzing the matter as a valuation dispute, Judge Pappert found the insured did not allege “facts sufficient to show [the insurer’s] valuation is unreasonable.” The insured’s subjective beliefs as to her claim’s value “is not indicative of bad faith because … subjective belief as to the value of the claim may reasonably, and permissibly, differ.”

Rather, “[t]o state a bad faith claim, [an insured] must do more than call [the insurer’s] offers low-ball.” These kind of conclusory and subjective allegations “suggest nothing more than a normal dispute between an insured and insurer.”

Low but Reasonable Offers Not Bad Faith

Bad faith does not exist “merely because an insurer makes a low but reasonable estimate of an insured’s damages.” Nor does a refusal “to immediately accede to a demand for the policy limit … without more, amount to bad faith.”

Insurer had Reasonable Basis to Deny Claim/No Adequate Claim of Bias

Next, Judge Pappert rejected the argument that the insured adequately pleaded the insurer lacked a reasonable basis to deny the claim’s value.  The insurer requested medical records and had an IME performed. It assessed the insured’s injuries based on that information.

The court did not give weight to conclusory allegations the doctor performing the IME was “a biased IME doctor” and “well-known as [someone] who provides so-called Independent Medical Examinations exclusively for and apparently to the liking of insurance companies….”  Further, that the plaintiff’s own doctor said she needed surgery did not, by itself, support a bad faith claim. The insurer was not unreasonable in relying  on the IME doctor’s assessment that the symptoms requiring surgery were unrelated to the accident at issue.

“In the absence of any supporting facts from which it might be inferred that [the] investigation was biased or unreasonable, this type of disagreement in an insurance case is not unusual, and cannot, without more, amount to bad faith.”

The court, however, permitted plaintiff to amend the statutory bad faith claim “to the extent it is not preempted by the MVFRL and to the extent she is able to allege facts stating a plausible claim for relief.”

Date of Decision: October 2, 2020

Canfield v. Amica Mutual Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2794, 2020 WL 5878261 (E.D. Pa. Oct. 2, 2020) (Pappert, J.)

“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.)