Archive for the 'PA – No coverage duty, no bad faith' Category

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

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

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

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

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

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

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

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

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

Judge Padova states

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

Date of Decision:  August 16, 2021

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

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

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

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

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

Date of Decision:  August 4, 2021

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Date of Decision:  June 30, 2021

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

BAD FAITH NOT POSSIBLE WHERE NO COVERAGE DUE; INSURER CANNOT WAIVE POLICY EXCLUSION BY IMPLICATION (Western District)

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In this case, the court found no coverage due.  In addressing whether the insured could still pursue a statutory bad faith claim, Magistrate Judge Eddy states:

In Pennsylvania, the law is clear that a bad faith claim fails where a court concludes there is no potential coverage under the policy. See USX Corp. v. Liberty Mut. Ins. Co., 444 F.3d 192, 202 (3d Cir. 2006) (granting “summary judgment in favor of Liberty Mutual on [bad faith] claim because USX’s bad faith claim necessarily fails in light of [the court’s] determination that Liberty Mutual correctly concluded that there was no potential coverage under the policy”). Thus, because this Court concludes that there is no coverage for [the injured party’s] claim [against the insured] under any of the three policies at issue, the bad faith claims … fail.

The Court also rejected the notion that the carrier could be estopped from denying coverage because it did not issue a reservation of rights letter, and waived policy exclusion by not pleading them.  Magistrate Judge Eddy rejected this argument, observing:

As the Superior Court of Pennsylvania has noted, [t]he rule is well established that conditions going to the coverage or scope of a policy of insurance may not be waived by implication from the conduct or action of the insurer….

Of equal importance, the Superior Court has held that [t]he doctrine of implied waiver is not available to bring within the coverage of an insurance policy, risks that are expressly excluded therefrom. In Pennsylvania, the doctrine of waiver or estoppel cannot create coverage where none existed. Thus, the doctrine of estoppel may not be used to affirmatively expand coverage under the insurance policies where none existed.

Date of Decision:  June 15, 2021

Stevanna Towing, Inc. v. Atlantic Specialty Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:15-CV-01419-CRE, 2021 WL 2434589 (W.D. Pa. June 15, 2021) (Eddy, M.J.)

NO BAD FAITH WHERE INSURER’S POSITION ON COVERAGE WAS CORRECT, AND OTHER ISSUES WERE BELATEDLY RAISED POST-TRIAL (Third Circuit)

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The Third Circuit’s precedential decision focused primarily on what constitutes a sufficient writing to request lower underinsured motorist limits under 75 Pa. C.S. § 1734. That statute only provides there must be a “request in writing”.  After close analysis, the panel determined that such a request can effectively be made in the insurance application itself, without the need for using a specialized form.

“The statute says little beyond that [there must be a request in writing]. But that silence speaks volumes. As we reiterate today, the statute means what it says: an insured can make that choice ‘in writing’ in any writing as long as the choice is clear.”

In this case, the insured requested lower than the maximum UIM limits in her written insurance application.  After suffering a serious injury, and despite the application asking for lower limits and the policy being issued with those lower limits, the insured demanded the maximum UIM limits allowed by statute.

She argued the application request was not binding because she had not filled out a separate form the insurer itself provided, which was designed for the insured to expressly acknowledge she was accepting these lower limits.  The insurer took the position that even without the insurer filling out the acknowledgment form, the written request in the application was sufficient to set lower limits for UIM coverage, and refused to pay full limits allowed by the statute.

The insured sued for breach of contract and bad faith.  The district court agreed with the insured on the policy limit issued, but dismissed the bad faith claim. The case proceeded to trial and jury awarded $1.75 million, which the trial judge molded to $750,000 to meet the UIM maximum, rather than the lower sum requested in the application.

A summary of the trial court’s decision can be found here.

For the reasons stated above, the Third Circuit reversed and found the lower limit requested in the application controlling. It ordered the trial court to mold the verdict to $300,000.

The Third Circuit did affirm the trial court’s dismissal of the insured’s bad faith claim.  The insured tried to attack the bad faith claim’s dismissal, post-verdict, via a motion for reconsideration.

  1. First, the appellate panel agreed with the trial court that the jury verdict was irrelevant to bad faith, and that the trial court should solely look “at the actions and omissions of [the insurer] to evaluate [the insured’s] claim when it was submitted and then processed. [Note:  We recently posted on a New Jersey federal decision similarly rejecting this type of “hindsight” bad faith analysis.]

  2. As the arguments were presented by motion for reconsideration, there had to be some new facts that did not exist or could not have been discovered at the time of the original decision. The Third Circuit agreed with the district court that the insured’s efforts in this regard failed, as the facts she wanted to adduce were not new.

  3. The insured failed to request certain documents in discovery, e.g., the insurer’s Best Practices Manual, and gave no justification. Further, the Rule 26(f) report revealed early on the insurer’s position about the lower limit in the application controlling the UIM policy limits.  Thus, there was no basis for reconsideration involving discovery activities.

  4. In bringing and pursuing her case, the insured did not argue the insurer acted in bad faith on the basis of misrepresenting the scope of coverage, even though she had information allegedly supporting such a claim before trial. Rather, she “chose instead to base [the] bad faith claim on an alleged failure … to investigate the [insured’s] claim.” The court would not allow the insured belatedly to bring up the misrepresentation based claim, finding there should be no second bite at the apple.

  5. The Third Circuit observed that an insurer can defeat a bad faith claim if there “is evidence of a reasonable basis for the insurer’s actions or inaction.” In this case, the insurer believed the application constituted a sufficient writing under section 1734 to reduce UIM coverage limits. The Third Circuit found the insurer’s belief, “not only reasonable but correct.” Thus, its “reliance on the lower UM/UIM coverage limits in informing its investigation and settlement offers was therefore not deceptive.”

Date of Decision:  April 8, 2021

Gibson v. State Farm Mutual Automobile Insurance Company, U.S. Court of Appeals for the Third Circuit No. 20-1589, 2021 WL 1310777 (3d Cir. Apr. 8, 2021) (Hardiman, Pratter, Roth, JJ.)

NO COVERAGE FOR COVID-19 LOSSES = NO BAD FAITH IN DENYING COVERAGE (Philadelphia Federal)

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On March 30, 2021, Eastern District Judges Beetlestone and Baylson independently issued opinions finding no insurance coverage due for business losses resulting from the Covid-19 pandemic.  In both cases, plaintiffs not only demanded coverage, but asserted bad faith claims against their insurers.

Motions to dismiss were granted in both cases, with prejudice, the courts finding no coverage due for the types of losses claimed. We leave you to read these cases in detail on the issues of physical loss or damage, direct loss or damage, governmental closures, business losses, and the other issues now regularly before the courts on Covid-19 business interruption and government closure claims.

Neither court gave any lengthy address to the bad faith claims, or even an express analysis for their dismissal. By comparison, the breach of contract and declaratory relief claims over coverage were addressed in detail.

The first element of any bad faith claim is that the claim denial is unreasonable.  In dismissing the bad faith claims, with prejudice, it seems fair to infer that because the coverage denial was correct under the policy language, these courts found no bad faith possible, i.e., where the coverage denial is correct under the relevant policy language, it is impossible to prove the carrier acted unreasonably, thus precluding a finding of bad faith.

Dates of Decision:  March 30, 2021

Tria WS LLC, v. American Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania, No. CV 20-4159, 2021 WL 1193370 (E.D. Pa. Mar. 30, 2021) (Beetlestone, J.) COVID

Chester Cty. Sports Arena v. The Cincinnati Specialty Underwriters Ins. Company, U.S. District Court Eastern District of Pennsylvania No. 20-2021, 2021 WL 1200444 (E.D. Pa. Mar. 30, 2021) (Baylson, J.) COVID

THIRD CIRCUIT AFFIRMS IN CASE WHERE DISTRICT COURT FOUND NO BAD FAITH WHERE NO COVERAGE DUE (Third Circuit)

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The Third Circuit affirmed a Western District decision finding no UIM coverage due because the insured rejected stacking.  While not discussed in the appellate opinion, the trial court observed there could be no bad faith case if no coverage was due.  This point is not expressly addressed by the Third Circuit, but it did affirm on all claims, including bad faith.

A summary of the lower court’s decision can be found here.

Dunleavy v. Mid-Century Ins. Co., U.S. Court of Appeals for the Third Circuit No. 20-2100, 2021 WL 1042981 (3d Cir. Mar. 18, 2021) (Matey, Schwartz, Traxler, JJ.)

NO BAD FAITH WHERE (1) NO COVERAGE DUE, (2) ALLEGED BAD FAITH COMMUNICATIONS WITH CLIENT WERE EITHER IMMATERIAL OR ACCURATE, AND (3) ANY OMISSIONS IN THOSE COMMUNICATIONS ONLY AMOUNTED TO NEGLIGENCE AT MOST, NOT BAD FAITH (Western District)

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The insured brings this breach of contract and bad faith case based on the insurer’s denying virtually all of her water damage claim, and its allegedly improper claim handling in communications to the insured.  Western District Magistrate Judge Dodge grants the insurer’s motion to dismiss, but with leave to file an amended complaint.

First, the court dismissed the breach of contract claim.  Magistrate Judge Dodge found there was no coverage for the claims pleaded because the damages specifically alleged, when compared to the clear policy language, were not insured losses. There was, however, enough ambiguity in the plaintiff’s allegation that she suffered “resulting damages”, to allow the insured to amend if she could identify any other forms of damages that might be covered under the policy.

As to the bad faith claim, Magistrate Judge Dodge first observed that her contract ruling explained how the coverage denial was proper.  Further, “[t]he bad faith claim does not refer to any circumstances other than [plaintiff’s] contention that [the insurer] failed to communicate all of the policy language to her in one of its letters.” This was of no moment. The policy exclusion language omitted in the letter was irrelevant because the insurer did not rely on the omitted exclusion in denying coverage.

The insured alleged that the insurer also omitted a distinct important policy provision in correspondence to the insured. This was belied, however, by the correspondence itself. The purportedly omitted provision actually was included in the letter. Moreover, even if the omission occurred, this amounted at most to negligence, mistake, or poor judgment, none of which makes out an actionable bad faith claim.

Thus, the motion to dismiss the bad faith claim was granted, but without prejudice.

Date of Decision:  March 19, 2021

Blanton v. State Farm Fire & Casualty Co., U.S. District Court Western District of Pennsylvania Civil Action No. 20-1534, 2021 WL 1060661 (W.D. Pa. Mar. 19, 2021) (Dodge, M.J.)

Our thanks to the insurer’s counsel, Mark A. Martini, of Robb Leonard Mulvihill LLP, for bringing this case to our attention.

BAD FAITH CANNOT EXIST IN A VACUUM – NO BREACH OF CONTRACT = NO BAD FAITH (Middle District)

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The court dismissed the insured’s breach of contract claim because the damages were speculative. The court then dismissed the bad faith claim because there was no predicate cause of action on which the bad faith claim rested.  Both dismissals were without prejudice.

Middle District Judge Wilson ruled as follows:

A bad faith claim under section 8371 is distinct from the predicate claim. Nealy v. State Farm Mut. Auto. Ins. Co., 695 A.2d 790, 793 (Pa. Super. Ct. 1997) (ruling bad faith claims are distinct from underlying contract claims). As such, there must be a predicate contract claim in order for a section 8371 claim to proceed. Polselli v. Nationwide Mut. Fire. Ins. Co., 126 F.3d 524, 530 (3d Cir. 1997) (observing that “a section 8371 claim may not be the sole claim of an insured”). A breach of contract claim can serve as one such predicate action. See, e.g., Rancoscky, 170 A.3d at 161 (recognizing a section 8371 claim brought along with a breach of contract claim). While the predicate claim need not be tried together with the section 8371 claim, the predicate cause of action “must be ripe for a § 8371 claim to be recognized.” Polselli, 126 F.3d at 530. The Pennsylvania Supreme Court has also recognized this requirement. See Ash v Continental Ins. Co., 593 Pa. 523, 932 A.2d 877, 882 (Pa. 2007) (holding that section 8371 “applies only in limited circumstances—i.e., where the insured has first filed ‘an action arising under an insurance policy’ against his insurer”).

In this case, while Moses Taylor has alleged a breach of contract claim along with its section 8371 bad faith claim, the court’s dismissal of the breach of contract claim removes the predicate cause of action otherwise required to accompany the section 8371 claim. As another court within this circuit has articulated, a bad faith claim in a vacuum is not actionable. MP III Holdings, Inc. v. Hartford Cas. Ins. Co., No. 08-CV-4958, 2011 U.S. Dist. LEXIS 72370, at *83–88 (E.D. Pa. June 30, 2011). Thus, because there are no other actionable claims raised in this case that could serve as a predicate cause of action, Moses Taylor’s section 8371 claim for bad faith will be dismissed without prejudice to reinstatement if the breach of contract claim is replead. See Polselli, 126 F.3d at 530.

This Blog has long discussed the argument that there is no statutory bad faith claim possible absent the denial of a benefit, i.e., either a refusal to defend or indemnify third party claims, or to pay damages on first party claims.  See this post as one of many examples.

Date of Decision: March 17, 2021

Moses Taylor Foundation v. Coverys & Proselect Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:20-CV-00990, 2021 WL 1017371 (M.D. Pa. Mar. 17, 2021) (Wilson, J.)