Archive for the 'PA – Estimates, Valuation or Appraisal' Category

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

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

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

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

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

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

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

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

Date of Decision:  June 7, 2021

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

BAD FAITH CLAIM PREMATURE IN LIGHT OF ONGOING APPRAISAL PROCESS; UTPCPL DOES NOT APPLY TO CLAIM HANDLING (Philadelphia Federal)

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This case involves a first party fire loss to the insured’s home.  The insured’s public adjuster estimated damages at over $300,000. The insurer’s adjuster issued a number of reports that consecutively lowered the damage estimate. The final report was less than a ¼ of the plaintiff’s estimate. These differences resulted in the carrier invoking the appraisal process, which was pending at the time this suit was filed.

The insured sued the insurer for breach of contract, bad faith, fraud, conspiracy to commit fraud and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL).  The last three claims also were made against the carrier’s independent adjuster.

The court dismissed the breach of contract claim because the matter was subject to the ongoing appraisal process.  Judge Padova observed that while there is some right of appeal from the completed appraisal process, the scope of appeal is limited.  Dismissal was without prejudice to pursue those limited appellate rights after the appraisal process ended.  Judge Padova rejected the insured’s argument that this was actually a coverage dispute, rather than a valuation dispute.

Next, Judge Padova stayed the bad faith claim as premature. Because the appraisal process was ongoing, the carrier had never actually denied the claim.  Judge Padova did appear to recognize, however, the insured had pleaded a potential bad faith claim. This was based on allegations concerning the insurer’s involvement in the various decreasing loss estimates, which it allegedly knew were incorrect.

The fraud and UTPCPL claims failed to allege justifiable reliance, and were dismissed.

In addition, as to the UTPCPL claims, Judge Padova states:

Moreover, we note that recent Pennsylvania caselaw has stated that “[t]he UTPCPL applies to consumer transactions, which are statutorily defined[, and] the handling of an insurance claim does not meet the statutory definition.” … Under this authority, “[t]he UTPCPL applies to the sale of an insurance policy, it does not apply to the handling of insurance claims,” and the bad faith statute, 42 Pa. Cons. Stat. § 8371, “provides the exclusive statutory remedy applicable to claims handling.” … Accordingly, for this reason as well, we conclude that Plaintiff’s UTPCPL claim, which is grounded on deceptive conduct in the handling of her insurance claim, cannot state a claim upon which relief can be granted.

Date of Decision:  June 1, 2021

Bussie v. American Security Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-3519, 2021 WL 2206282 (E.D. Pa. June 1, 2021) (Padova, J.)

OUR 1800TH POST: (1) RESERVES DISCOVERABLE; (2) COMMUNICATIONS RETAINING COUNSEL NOT DISCOVERABLE; (3) ISO CLAIM HISTORY REPORT DISCOVERABLE; (4) ASSET REPORT ON TORTFEASOR NOT DISCOVERABLE; (5) CLAIM EVALUATION REPORT ONLY HAS LIMITED WORK PRODUCT PROTECTION; (6) INTERNAL NOTES FULLY PROTECTED ON ATTORNEY COMMUNICATIONS, BUT LIMITED WORK PRODUCT PROTECTION; (7) DEPOSITIONS MAY INQUIRE INTO AREAS WITH ONLY LIMITED WORK PRODUCT PROTECTION (Philadelphia Federal)

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It has been nearly 15 years since our first bad faith blog post, summarizing an opinion by the late Judge Albert Sheppard.  Today’s summary is our 1,800th post

This Eastern District opinion addresses discovery issues in a UIM bad faith case, including document production and issues arising out of plaintiff seeking to depose the insurer’s claim adjuster and corporate designee.  Magistrate Judge Perkin had already addressed numerous discovery issues in this case in an earlier opinion, summarized here, and now addresses the remaining issues after conducting an in camera review of certain documents on the insurer’s privilege log.

Reserves discoverable in bad faith valuation dispute

Magistrate Judge Perkin observed, “District Courts within the Third Circuit are split on the question of whether reserves are discoverable in bad faith cases.”  He relied on Middle District Magistrate Judge Carlson’s Barnard decision, summarized here, holding that in bad faith cases, reserves are discoverable if the bad faith claim is based on a valuation dispute, rather than outright coverage denial.  As the present case involved a valuation dispute, reserves were discoverable.

Magistrate Judge Perkin further rejected the argument that the reserves were protected work product.  Applying the Federal Rules of Civil Procedure, he found that the insurer did “not argue that its reserves were prepared in anticipation of litigation or other than in the normal course of business.”

Internal emails regarding receipt of this lawsuit and assignment to legal counsel not discoverable

The insurer “withheld internal emails regarding receipt of the lawsuit and assignment to its legal counsel. Defendant’s privilege log indicates that these documents were withheld on the grounds that the information is ‘work product, mental impression, confidential, and post litigation.’ After in camera review, this Court finds that the documents have been appropriately withheld. These documents, dated after the lawsuit was filed, are protected by both attorney-client privilege and the work-product doctrine as the communications were made with the purpose of seeking legal advice and discuss litigation strategy.”

ISO claim search report discoverable

“[T]he ISO Claims Search Database is a nationwide database utilized by insurance companies to track claims history and detect fraud. Defendant withheld the report on Plaintiff’s claims history on the basis that it is not relevant.” The court found the information “relevant to Plaintiff’s bad faith claim to the extent that it is a factor Defendant considered in evaluating Plaintiff’s Underinsured Motorist Claim.”

Asset report for consent to settle/waiver of UIM subrogation purposes not discoverable

Defendant withheld the asset search of the tortfeasor in the underlying motor vehicle accident action, on the basis of irrelevance and confidentiality. The court agreed it was irrelevant to the bad faith claim at issue

Insurer’s evaluation report for plaintiff’s UIM claim: no attorney-client privilege protection and limited work product protection

The insurer withheld its evaluation report on the UIM claim based on “work product, mental impression, attorney-client, confidential, and post litigation.” Magistrate Judge Perkin found “these documents consist of not only the final evaluation of Plaintiff’s claim prepared by claims personnel … but also a detailed history of all updates made by claims adjusters to the report beginning on … the date Plaintiff settled with the tortfeasor.”

First, the court found these documents were not subject to the attorney-client privilege. “[T]he privilege bars discovery of confidential communications made between attorneys and clients for the purpose of obtaining or providing legal assistance to the client. …  The privilege does not apply to the ‘disclosure of the underlying facts by those who communicated with the attorney.’” “The evaluation report contains no communications between Defendant and its counsel. Rather, the report contains a series of notations regarding the claim by the claims adjuster….”

Next, Magistrate Judge Perkin dove deep into an analysis of the work product doctrine, addressing the difficult question of when the normal duty to investigate a claim turned into a period where the insurer reasonably anticipated litigation.

Thus, to determine the work-product doctrine’s applicability:

  1. A court must “first establish when Defendant reasonably anticipated litigation.”

  2. “The party asserting work product protection must demonstrate that it subjectively anticipated litigation, and that the anticipation was objectively reasonable.”

  3. “While the court must initially focus on the state of mind of the party preparing, or ordering preparation, of the document, that person’s anticipation of litigation must be objectively reasonable for the work product protection to apply.”

  4. “A party’s anticipation of litigation is objectively reasonable if ‘there existed an identifiable specific claim or impending litigation when the materials were prepared.’”

Magistrate Judge Perkin looked for guidance in Judge Sanchez’s 2014 Borgia opinion, summarized here, and Judge Leeson’s 2016 Wagner decision, summarized here.

In the present case, plaintiff’s counsel first demanded policy limits on January 12, 2018, and the insurer engaged counsel to investigate and evaluate the claim on April 19, 2018.  After being retained, the insurer’s counsel conducted a statement under oath, subpoenaed medical records and assisted in obtaining an IME.

“On July 20, 2018, after the Statement Under Oath was completed, Plaintiff’s counsel again made a demand for policy limits, though she made no threat or mention of litigation. Reviewing the e-mails between counsel, it appears that, from July 20, 2018 through February 27, 2019, the communications involved only requests for authorization of medical records and scheduling of the independent medical examination. On August 26, 2019, the independent medical examination occurred. Shortly after, on September 3, 2019, Plaintiff filed this lawsuit.”

Counsel’s communications indicated plaintiff sought full UIM limits but never threatened litigation. Further, “the communications between counsel from July 20, 2018 through February 7, 2019 concerned continued requests for medical records and authorizations to fully assess Plaintiff’s claim.”

Further, this was not a case where insurer’s claim valuation and the policy limit demand were so far apart that a reasonable insurer would believe litigation could arise, until the August 26, 2019 IME. Magistrate Judge Perkin found it was only at the time the IME concluded in August 2019 that it was “likely that Defendant had determined Plaintiff’s demand for payment in the amount of the policy limit exceeded its expected offer for settlement.” Thus, he held the insurer reasonably anticipated litigation no later than the date the IME concluded, and ordered production of unredacted claim handling entries on the evaluation reports prior to that date.

Internal file notes reflecting communications with counsel protected, but those based on work product are only partially protected

The insurer redacted all information in its internal file notes concerning communications with legal counsel, UIM strategy and evaluation, and claim handling on the basis of “work product, attorney-client, confidential, mental impression, not relevant, and post litigation.” The redactions “appear to be an account of all updates made on the handling of Plaintiff’s claim by the claims adjuster….” Based on the earlier work product analysis, “any entries made prior to August 26, 2019 redacted on the basis of the work-product doctrine are discoverable and must be produced.”

This included the adjuster’s summary of the insured’s statement under oath.

“Any redactions made due to the attorney-client privilege are appropriately redacted, and need not be produced, as they are summaries of communications between the claims adjuster, in-house counsel, and outside counsel.”

Scope of permissible subjects for inquiry at deposition of corporate designee and adjuster

As stated above, plaintiff could not direct questions to either deponent about attorney-client communications.  Plaintiff could ask about underlying facts, even if those facts were also communicated to counsel for counsel’s consideration in evaluating the matter, regarding what facts were considered in not offering policy limits.

As to work product, per the above reasoning, “Plaintiff’s counsel must limit any questions under this matter for examination to the time period before August 26, 2019.”

Date of Decision:  May 27, 2021

Sanchez v. State Farm Mutual Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 2156367 (E.D. Pa. May 27, 2021) (Perkin, M.J.)

NO BAD FAITH FOR: (1) VALUATION DISPUTE (2) DELAY (3) DECISION MADE BASED ON UNCERTAIN LAW (Middle District)

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Middle District Judge Conner dismissed this UIM bad faith claim on three grounds.

First, the complaint relied upon conclusory averments, and lacked sufficient factual allegations to set forth a plausible bad faith claim.

No bad faith for not paying sum demanded.

Second, the carrier’s decision not to meet the insureds demand did not constitute bad faith. The complaint merely averred that the insureds issued a demand letter, the carrier’s claim handler reviewed the letter and a PIP medical file, and did not offer fair value. The insureds did not plead their demand amount, but only that the insurer refused to pay their demand.

Judge Conner observed that valuation disputes alone cannot create bad faith, citing Judge Caputo’s 2019 Moran decision, summarized here. Judge Conner further relies upon the Third Circuit’s oft-cited 2012 Smith decision, summarized here, for the proposition that “an insurer does not act in bad faith ‘merely because [it] makes a low but reasonable estimate of an insured’s damages….’”

Judge Conner also makes clear that “insurers need not blindly accede to an insured’s demand when the value of the insured’s potential recovery is in dispute.” Supporting this proposition, Judge Conner again cites Smith and his own Castillo v. Progressive, and Yohn v. Nationwide decisions. Applying these principles in the present case, the carrier’s refusal to accede to the insureds’ payment demand alone is not bad faith.

Judge Conner further found the insureds failed to explain how the declination constituted bad faith. The insureds “do not allege: whether or when [the insurer] actually extended an offer; what that offer was; when and whether plaintiffs reviewed, rejected, or countered [the] offer; or why that offer was unreasonable under the circumstances.” “Plaintiffs’ disagreement with an offer made by [an insurer] or its decision not to extend an offer, without more, does not establish a plausible claim.”

No bad faith delay

Third, the insureds could not establish bad faith delay.

An insured alleging bad faith delay must establish that “the delay is attributable to the defendant, that the defendant had no reasonable basis for the actions it undertook which resulted in the delay, and that the defendant knew or recklessly disregarded the fact that it had no reasonable basis to deny payment.”  Judge Conner relies on Eastern District Judge Kelly’s 2011 Thomer v. Allstate decision for this principle.

Judge Conner was “mindful that the process for resolving an insurance claim can be ‘slow and frustrating,’ … but a long claims-processing period does not constitute bad faith by itself….” “Furthermore, delay caused by a reasonable investigation or mere negligence in causing a delay does not amount to bad faith.”

Judge Conner observed that even long delays do not constitute bad faith where an investigation was necessary, citing Thomer (42 months) and Williams v. Hartford (15 months).  In the present case, the UIM claim was submitted only 9 months before suit was filed and a formal demand was only made 5 months before suit was filed.  Moreover, Judge Conner found the insureds themselves concede liability was not clear, and that more investigation was needed to determine the value of their claim. Further, the pleadings suggest “that the parties were engaged in a deliberative process—during which they both reviewed relevant documents, retained counsel, and participated in a negotiation process—shortly before this action was filed.” Some delay was also attributable to the insureds.

Finally, the insureds asserted it was bad faith to review the injured insured’s PIP file without his permission, as this violated “some rule of law.”   Judge Conner disagreed, stating, “an insurer’s reasonable legal conclusion in an uncertain area of law does not constitute bad faith. … Neither party has pointed the court to cases discussing whether or not an insurer’s unauthorized review of an insured’s PIP file is unlawful. Based on the court’s review, it appears that insureds can request to review PIP files, but it is unclear whether permission is required. … Given the apparent dearth of case law on this matter, we cannot conclude at this juncture that [the insurer’s] decision to review [the insured’s] PIP file was per se unreasonable or sufficient to state a plausible claim of bad faith.”

While doubting the pleading deficiencies could be cured, Judge Conner did give leave to file an amended bad faith claim.

Date of Decision: May 17, 2021

Green v. State Farm Mutual Automobile Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1534, 2021 WL 1964608 (M.D. Pa. May 17, 2021) (Conner, J.)

“EXPECTING AN INSURER TO BOTH INVESTIGATE CLAIMS PLACED AT ISSUE BY THE INSURED AND TO DO SO ONLY IN A MANNER THAT IS ACCEPTABLE TO THE INSURED, IS UNTENABLE” (Western District)

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Western District Judge Horan previously dismissed breach of contract and bad faith claims in this case, with leave to amend.  A copy of our earlier summary can be found here.  The insured cured the defects in its contract claim, but once again failed to set out a plausible bad faith claim.  This time, however, Judge Horan dismissed the bad faith claim with prejudice, as any future attempt to amend would be futile.

The claim centered on a dispute over actual cash value losses for damaged equipment, and documents the insurer requested as part of an examination under oath (EUO). The insured failed to produce those documents, deeming them irrelevant, and the insurer would not proceed without those documents.

The complaint pleads that the carrier’s actual cash value calculation was fundamentally flawed, and that the carrier sought documents for the EUO that had nothing to do with coverage.

Judge Horan carefully reviewed the second amended complaint, finding plaintiff still failed to state a statutory bad faith claim for the same reasons set forth in her original March 4, 2021 opinion. Rather than overcoming the bad faith claim’s flaws, the new allegations in the second amended complaint “regarding Defendants’ pre-litigation investigation and document requests further buttress[ed] the Court’s prior decision.”

Judge Horan states:

“Defendants undertook an investigation upon the initial loss of the [damaged equipment] and made an offer. [The insured] rejected that offer and made its own claim of value for payment. … In response, Defendants continued the investigation by seeking documents and an examination under oath, as permitted by the Policy. Such conduct is not bad faith.”

Further, in once again rejecting the insured’s complaint over the document requests’ relevance, Judge Horan reiterates that “[e]xpecting an insurer to both investigate claims placed at issue by the insured and to do so only in a manner that is acceptable to the insured, is untenable.”

“Finally, as to the remaining allegations, they speak to a general disagreement over Defendants’ estimate of … damages. The Second Amended Complaint continues to support that an offer was made and that further effort at investigation was attempted by Defendants. These allegations of valuation and investigation disagreements do not support that Defendants engaged in bad faith.”

Date of Decision: April 30, 2021

Integral Scrap & Recycling, Inc. v. Conifer Holdings, Inc., U.S. District Court Western District of Pennsylvania No. 2:20-CV-00871-MJH, 2021 WL 1720713 (W.D. Pa. Apr. 30, 2021) (Horan, J.)

NO BAD FAITH CLAIM STATED WHERE ONLY ALLEGATION IS THAT INSURER FAILED TO EXPLAIN ITS VALUATION IN OFFERING CLAIM PAYMENT BELOW POLICY LIMITS (Western District)

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The insureds valued their UIM claim at $215,000, and settled with the tortfeasor’s insurer for $15,000.  They demanded $200,000 policy limits from the UIM carrier, and transmitted a police report and medical records in support of their demand.  The insurer offered $15,000 in response, and the insureds sued for breach of contract and bad faith.

The insurer successfully moved to dismiss the bad faith claim, but the insured was given leave to amend.

Western District Judge Horan found the insureds’ complaint failed to “provide any factual support regarding their bad faith claim, other than their allegations that [the] offer of $15,000 failed to cite any reasons for such offer. The [insureds] did not cite any other facts to support their allegation that [the insurer] acted in bad faith. These bare factual assertions, without more, do not state a plausible claim for which relief can be granted.”

Date of Decision: April 20, 2021

Long v. USAA Casualty Insurance Company, U.S. District Court Western District of Pennsylvania No. CV 20-2017, 2021 WL 1550094 (W.D. Pa. Apr. 20, 2021) (Horan, 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.)

BAD FAITH CLAIM BARELY STATED BASED ON ALLEGED FAILURES TO INVESTIGATE, DELAY, AND LOW VALUATION, TAKEN IN THEIR TOTALITY (Middle District)

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This is a breach of contract and bad faith first party property damage claim.  The court denied the insurer’s motion to dismiss the bad faith claim.

The insured suffered a furnace malfunction that she claimed led to $35,000-$40,000 in damages. She later suffered a second malfunction leading to a roughly equal amount of additional damages.

The insurer valued the first claim at $15,000, paid that sum less the deductible, and refused to pay any sum for the second claim.  This full denial was based on the insured’s alleged failure to clean after the first incident, and that the only odor in the house was from cigarettes, not soot from the furnace discharge.

Middle District Judge Mariani found that while the complaint included some conclusory allegations, and the facts alleged on bad faith were “sparse”, the complaint’s allegations were “enough to barely ‘nudge[ ] [the] claim[ ] across the line from conceivable to plausible….’”

Delay related bad faith

The relevant facts pleaded were that the insurer waited one month until after the first loss to send out an adjuster to investigate.  Further, the insurer did not pay anything for the first loss for seven months. The court observed that “’bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant.’”  Further, “[a]lthough delay ‘on its own [does not] necessarily constitute bad faith’, the delay between a demand for benefits and an insurer’s determination of whether to pay a claim is a relevant factor in determining whether an insurer has acted in bad faith.”

Applying these principles to the factual allegations, Judge Mariani found enough delay pleaded in both sending out an investigator, and in paying on the first claim, to survive dismissal.

Valuation related bad faith

The court next addressed whether the valuation differences could amount to bad faith.  As stated, the insured provided estimates ranging from $35,000 to $40,000 and the carrier’s expert valuation was $15,000.  After taking out the deductible, the payment was $10,400.

Judge Mariani observed that “[a]lthough bad faith ‘is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages,’ the disparity between the defendant insurer’s payment and the plaintiff’s estimates is a relevant consideration in bad faith claims.” He relied on Middle District Judge Mannion’s Meiser v. State Farm opinion for the proposition that an “extreme disparity” in the parties’ damage estimates can lend support to a bad faith claim, especially where exhibits are attached showing the extent of the damages. A link to our Meiser summary can be found here.

Judge Mariani found the $25,000 disparity, accompanied by exhibits explaining the damages, to be sufficient to support a bad faith claim. The opinion’s language indicates that the valuation allegations were read along with the delay allegations in evaluating the bad faith claim, and that it was the totality of these three factors (delayed investigation, delayed payment, and valuation disparity) that together made out a plausible bad faith claim.

[For a few examples of valuation disputes insufficient to state a bad faith claim, see this post.]

Failure to investigate related bad faith

As to totally denying the second claim, the complaint alleged denial was based on the insured’s alleged failure to clean the premises after the first loss. However, the insured allegedly informed the carrier that she and her daughter made a significant cleanup effort after the first malfunction and before the second, and the insurer knew this before denying the claim.  Thus, plaintiff alleged the carrier ignored the fact that she did clean, and then ignored her damage estimate transmitted to the carrier because of this putative failure to clean. The insured also alleged the carrier did not pay heed to her public adjuster “pointing out that the home was a forced, hot air system and that [the insurer] had agreed to clean the ducts on the second floor, but not the rooms that were contaminated with the soot/smoke….”

Judge Mariani found the totality of these factual allegations, taken in the light most favorable to plaintiff,  made out a bad faith claim for failure to conduct an adequate investigation, which in turn resulted in an unfounded claim denial. He added that, “[a]lthough discovery in this case may later reveal that Defendant did in fact have a reasonable basis to deny Plaintiff’s second claim, the Complaint states the minimum amount of facts necessary to allow Plaintiff’s bad faith claim to survive the motion to dismiss.”

After surveying the totality of the facts on both claims, Judge Mariani summarized as follows: “Though none of these factual allegations alone may be sufficient to state a claim under § 8371, taken together, Plaintiff has successfully, though barely, stated a plausible claim of bad faith.”

Date of Decision:  March 19, 2021

Chuplis v. State Farm Fire and Casualty Co., U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1757, 2021 WL 1080932 (M.D. Pa. Mar. 19, 2021) (Mariani, J.)

CLAIM HANDLING REASONABLE + NO CLEAR AND CONVINCING EVIDENCE ON INTENT = NO BAD FAITH (Middle District)

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Middle District Judge Conner closely examined the claims handling history before granting the insurer summary judgment on plaintiff’s bad faith uninsured motorist claim.

The record’s details show the claims handler actively investigating the claim and injuries, communicating with the insured’s counsel, and discussing the case with two other involved insurers as to their valuation before making a settlement offer.  The settlement offer was a small fraction of the policy limit demand, but that could not create bad faith under the circumstances.

As the court stated,

At bottom, the record establishes nothing more than a legitimate disagreement over causation of [plaintiff’s] injuries and valuation of her claim. It is well settled that genuinely disputing causation and value is not tantamount to bad faith. That [the insurer] did not “immediately accede to” [a] demand for policy limits also is not, by itself, evidence of bad faith. … Nor does [the insured’s] belief that the preliminary offer was too low, without more, establish that [the insurer] acted unreasonably. … “[O]ur Courts have not recognized bad faith where the insurer makes a low but reasonable estimate of the insured’s losses.” … This is particularly true given that [the insurer] articulated legitimate reasons for doubting causation; reasonably concluded the claim would not pierce the limited-tort threshold; had not been advised of any wage-loss claim by [plaintiff’s] legal team; and, perhaps most importantly, made clear that its offer was not final.”

Judge Conner concluded that the insured “failed to identify any evidence—much less clear and convincing evidence—from which a reasonable juror could find that [the insurer] lacked a reasonable basis for its preliminary settlement offer.” Thus, the insured could not establish that the insurer’s conduct was unreasonable.  Summary judgment was warranted for failing to meet this first element of statutory bad faith.

Judge Connor also addressed the knowing or reckless disregard element as well.  The insured offered no clear and convincing evidence on intent to take an unreasonable position.  The insured argued, in conclusory language, that “critical information” was withheld and “irrefutable proof” existed to prove intent; but there were no facts adduced from the record to support these assertions. The documents referenced that purportedly provided clear and convincing proof did not even exist at the time of the insurer’s purported bad faith settlement offer.

Thus, summary judgment also was warranted for this failure to make out the second bad faith element.

Date of Decision: March 15, 2021

Castillo v. Progressive Insurance, U.S. District Court Middle District of Pennsylvania No. 3:19-CV-1628, 2021 WL 963478 (M.D. Pa. Mar. 15, 2021) (Conner, J.)

COURT PERMITS DISCOVERY OF DOCUMENTS AND EMAILS THAT WERE NOT ACTUALLY PRIVILEGED SIMPLY BECAUSE THEY MENTION LEGAL COUNSEL; LIMITS CLAIMS REP DISCOVERY TO MENTAL IMPRESSIONS NOT PREPARED IN ANTICIPATION OF LITIGATION; AND ALLOWS DISCOVERY OF RESERVES IN VALUATION BAD FAITH CASE (Middle District)

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This Pennsylvania federal opinion addresses bad faith discovery disputes.  The case involved first party fire damage losses. Plaintiffs sought various claims file documents, and the insurer produced a privilege log in connection with its objections and redactions. Magistrate Judge Saporito reviewed the documents in camera before ruling.

He identified four areas at issue: “(1) communications regarding expenses incurred and paid by the defendant; (2) communications with counsel; (3) mental impressions; and (4) other financial information.”

  1. Approvals of Legal Fees and Expenses Discoverable

“In general, the mere facts of legal consultation or employment, client identities, attorney’s fees and the scope and nature of employment are not privileged.” Further, “[a]ttorney billing records may be privileged if they reveal the nature of the services rendered.”

Here, documents reflecting only that legal fees and expenses were approved, without any reference to attorney-client communications or the nature of the work performed, are not privileged. Rather, they are administrative in nature, whether involving pre or post-litigation approvals.

  1. Emails strings at issue were not privileged

Under Pennsylvania law, a party seeking the protection of the attorney-client privilege must show there was “’(1) a communication (2) made between privileged persons (3) in confidence (4) for the purpose of obtaining or providing legal assistance for the client.’”

Here, the court had to review a number of email strings.  Judge Saporito observed that “’each version of an email string (i.e. a forward or reply of a previous email message) must be considered as a separate, unique document.’” Further, in preparing a privilege log, “’each message of the string which is privileged must be separately logged in order to claim privilege in that particular document.’” In practice, this “’simply requires that Defendants ensure that each withheld email within a string be logged in some fashion at least once.’”

The emails at issue all referenced legal counsel in some way, but were not themselves communications with counsel. Nor did they disclosure any attorney-client communications.  Thus, the attorney-client privilege did not apply.

  1. Claims representatives’ mental impressions prepared in anticipation of litigation were protected as work-product

“Mental impressions and opinions of a party and its agents are not generally protected by the work product doctrine unless they are prepared in anticipation of litigation.” “To that end, ‘work product prepared in the ordinary course of business is not immune from discovery.’”

Here, the insurer redacted documents in the claims file that included its claims representatives’ impressions, conclusions, and opinions. Judge Saporito had to make the fact-specific inquiry into when these representatives anticipated litigation.  He recognized that prudence requires parties to anticipate litigation, and to start preparing themselves for litigation at some time before the litigation is actually instituted.

Judge Saporito found a number of redactions warranted because the claims representatives anticipated litigation.  On the other hand, he ordered other redactions eliminated, and documents produced, where: (1) there wasn’t actually any work product, (2) the materials only involved an analysis of general business practices concerning “the investigation and evaluation of future, notional property claims involving suspicious circumstances,” and (3) the representative’s notations were made on an insurance application, which was clearly not done at a time when litigation would be anticipated.

  1. Reserves discoverable in bad faith action over valuation

Judge Saporito observed that courts in the Third Circuit are split over whether reserves are discoverable in bad faith cases. He followed Middle District Magistrate Judge Carlson’s Barnard decision, summarized here, for the proposition that the prevailing position favors discoverability if the bad faith claim at issue “relates to an insurer’s failure to settle or where there is a discrepancy regarding the value of the claim.” By contrast, if the bad faith claim does not involve valuation or liability estimates, reserve information is irrelevant.

The present case involved a valuation dispute, and Judge Saporito ordered production of reserve information.

Finally, Judge Saporito ordered production of certain information concerning the agent who sold plaintiffs the policy at issue.  He qualified this order by stating he was not ruling on whether this information could ultimately be admissible at trial.

Date of Decision:  March 5, 2021

Mazer v. Frederick Mutual Insurance Company, U.S. District Court Middle District of Pennsylvania No. 1:19-CV-01838, 2021 WL 850984 (M.D. Pa. Mar. 5, 2021) (Saporito, M.J.)