Archive for the 'PA – Removal & Remand' Category

BAD FAITH CLAIM DISMISSED FOR CONCLUSORY PLEADINGS; COURT REFUSES TO ALLOW AMENDMENT TO JOIN PARTIES THAT WOULD HAVE DESTROYED DIVERSITY (Western District)

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This UIM case was removed to federal court, and the insured moved to remand this procedurally complex matter.  The carrier opposed remand and moved to dismiss the insureds’ bad faith claims.

Court rejects amended complaint adding new parties that would destroy diversity

The plaintiffs’ initial UIM suit was against non-diverse defendants and the case was removed to federal court. After removal, the plaintiffs filed an Amended Complaint adding non-diverse parties from a separate auto accident. They moved to remand for lack of jurisdiction.  The court refused to allow the joinder and retained jurisdiction, per 28 U.S.C. sec. 1447(e).

The court observed there was no Third Circuit precedent on section 1447(e), and like other district courts in this Circuit, the court followed the Fifth Circuit in applying a four-factor test to scrutinize remand motions under these circumstances. This balance of equities test adds heightened standards for allowing amendment that would destroy diversity. (The factors to be considered include “[1] the extent to which the purpose of the amendment is to defeat federal jurisdiction, [2] whether plaintiff has been dilatory in asking for amendment, [3] whether plaintiff will be significantly injured if amendment is not allowed, and [4] any other factors bearing on the equities.”).

Bad faith claims dismissed for pleading conclusory allegations

Having retained jurisdiction, the court then addressed the insured’s breach of contract and bad faith claims.

The insureds never allege “the amount of liability insurance available to the tortfeasors for the accident, the status of her claim against the insured, and they do not aver whether the liability limits of the tortfeasor’s coverage has been exhausted.” Thus, the insurer argued the UIM claim was not ripe. The insurer also argued the insureds never set out “the nature of [the] injuries, damages, or specific conduct in support of the statutory bad faith claim.”

The court found both the breach of contract and bad faith claims consisted “only of conclusory and boilerplate statements … and therefore, the motion to dismiss these claims will be granted.” It was significant to the court that plaintiffs did not attach the policy. Plaintiffs claimed they could not locate the policy, and as the court allowed amendment it encouraged the parties to work together expeditiously to get plaintiffs a copy of the policy.

More significantly, the plaintiffs did not plead any specific facts about the carrier’s conduct. The “merely alleged legal conclusions, and because the legal conclusions pled in the [amended complaint] are not facts, they are not assumed to be true and do not meet the Twombly/Iqbal standard.”

Date of Decision: October 9, 2020

Pierchalski v. Pryor, U.S. District Court Western District of Pennsylvania No. 2:19-CV-01352-RJC, 2020 WL 5994981 (W.D. Pa. Oct. 9, 2020) (Colville, J.)

If you want to get an overview on the law of removal and remand in bad faith cases, this is the case for you.

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Eastern District Judge Marston reviews three lines of U.S. Supreme Court and Third Circuit precedent in determining when, and whether, the burden of proof in establishing the jurisdictional minimum for removal purposes is “legal certainty” versus “preponderance of the evidence.”  She concludes that in cases where the insured specifically pleads compensatory damages are less than $50,000, a “legal certainty” test still applies until the Third Circuit says otherwise. This is so even if the plaintiff additionally demands punitive damages, attorney’s fees and super-interest under the bad faith statute.

In this context, a removing defendant’s allegation that punitive damages and attorneys’ fees could result in overall damages exceeding $75,000, fails to meet the legal certainty test.

[Comment: The upshot appears to be that if a plaintiff specifically alleges compensatory damages will not exceed $75,000 (typically not to exceed $50,000 in Pennsylvania state pleadings), even while additionally seeking statutory punitive damages and attorney’s fees, removal is not going to be possible.  Under Rule 11, the removing party would have difficulty averring to a certainty that punitive damages and attorney’s fees will be awarded to a legal certainty, and will use qualifying language such as “court be awarded” or “if awarded”.  Moreover, it is unlikely a defendant insurer will want to establish legal certainty by making a detailed argument against itself as to why it should be encumbered with punitive damages for its own reckless or intentional conduct.

Among the questions that arise: Why is a bad faith claim for punitive damages any less a legal certainty than a contested claim for compensatory damages? Put another way, doesn’t a contested claim for punitive damages or attorney’s fees have as much reality as a contested claim for compensatory damages?

Bad faith claims only allow for three types of damages: super-interest, punitive damages, and attorney’s fees.  There is no statutory bad faith claim for compensatory or incidental damages. Thus, to even plead a bad faith claim meeting Rule 11 standards, the plaintiff must believe that punitive damages, attorney’s fees, or super-interest are warranted, as this is the only possible form of relief provided under section 8371.

Just as a plaintiff believes and pleads it is entitled to $49,312.25 in compensatory damages — and this number is treated as an undisputed fact for jurisdictional purposes even if a defendant insurer completely rejects that sum — so too must the plaintiff believe that it is entitled to punitive damages, attorney’s fees and/or super-interest in bringing the bad faith claim.  Yet this distinct damage claim, under a separate legal theory, may come to be treated as a nullity for purposes of calculating the jurisdictional minimum.

One possibility here could be the potential damages available under section 8371 are discretionary and not mandatory. Thus, it might be that the trier of fact may not award any of these damages at the end of the day, or may make a minimal award.  It also might be the case, however, that the trier of fact will find at the end of the day that the same plaintiff’s compensatory damage claim is meritless or only a fraction of the sum requested. Yet, that number as pleaded is treated as truth.]

The Facts of the Case

Plaintiffs brought breach of contract and bad faith claims in this water damage case.  Their contract claim’s ad damnum clause sought “judgment against Defendant in an amount not in excess of $50,000 together with interest and court costs.” In the bad faith count’s ad damnum clause, Plaintiffs requested “statutory damages including interest…, court costs, attorneys’ fees, punitive damages, and such other compensatory and/or consequential damages as are permitted by law.”

The carrier removed the case from Philadelphia’s Court of Common Pleas to federal court, and Plaintiffs moved to remand.  The District Court remanded.

The court observed “’[i]t is now settled in this Court that the party asserting federal jurisdiction in a removal case bears the burden of showing, at all stages of the litigation, that the case is properly before the federal court.’”  As set out above, the issue was whether the court should set the burden at “legal certainty” or “preponderance of the evidence.”  After doing a lengthy and detailed historical analysis of each strand of case law, the court concluded that, in a case such as this where the insured specifically pleaded the compensatory damage claims were less than $50,000, the “legal certainty” test applied.

The court observed it could aggregate the demands against a single defendant in determining jurisdiction. Further, punitive damages could be considered, so long as the estimates were realistic, with all doubts construed in favor of remand.  Such an analysis must be objective and not “pie-in-the-sky”.

The compensatory damages were a little over $24,000. The insurer argued that it was “not unreasonable to expect that a punitive damage award three or four times the amount in controversy, or beyond, could be rendered by the trier of fact.” It suggested, however, that the court should apply a 2-1 ratio ($48,000) and a measure of attorney’s fees at $30,000, as that “would not be unreasonable to expect that [fee sum] over the course of an approximate ten-month litigation…” This would place the claim at over $100,000, sufficient for jurisdiction.  The court rejected the argument.

The court looked at earlier case law finding such arguments failed to reach the level of “legal certainty.” In those cases, the qualifying language presented the fatal flaw, e.g., “claims for punitive damages and attorney fees, amongst other relief…could exceed $75,000.”; “it is ‘certainly possible for the damages to meet or exceed the jurisdictional limit of $75,000.’” A “suggestion of possible future events,” however, is not enough.

In one case relied upon to support remand, the compensatory damages were $11,000 and the punitive damages needed to be six times that amount to obtain jurisdiction. The court remanded for two reasons: (1) there was no certainty the plaintiff would “recover punitive damages at all, as she has not alleged any particular facts suggesting bad faith on the part of [the insurance company], other than her assertion that she was entitled to benefits but has not received them.”; (2) the carrier “supplied no basis for the Court to find that [the plaintiff] will recover the necessary amount of punitive damages.”

[Comment: This analysis implies a number of considerations, akin to the comment above. In determining remand, the court is looking to the merits of the plaintiff’s case in evaluating whether defendant met its burden.  The court basically determined on a motion to remand that the plaintiff’s bad faith claim, as pleaded, could not withstand a federal motion to dismiss.  The court then put the burden on the defendant to make the case against itself as to why punitive damages should be awarded against it.]

Judge Marston found the instant case akin to these earlier cases. In the present case, the carrier only alleged “that it is not ‘unreasonable’ to find that punitive damages ‘could’ amount to three or four times the amount in controversy, and that it would ‘not be unreasonable’ to find that attorney’s fees ‘could’ approach $30,000.This did not “satisfy [the defendant’s] burden by pointing to the mere possibility that the [insureds] ‘could’ be awarded punitive damages and attorney’s fees above the amount in controversy threshold.” “Moreover … [the insureds] are ‘not certain to recover punitive damages at all,’ because the complaint does not allege ‘any particular facts suggesting bad faith on the part of [the insurance company], other than [the] assertion that [they were] entitled to benefits but ha[ve] not received them.’”

The court held: “Without more, we cannot find that [the insurer] has carried its burden of showing to a legal certainty that the amount in controversy exceeds $75,000, and we must remand the case. However, if on remand, [the insurer] uncovers new evidence which shows that the amount in controversy exceeds $75,000, it may again seek removal to this Court.”

Date of Decision:  August 4, 2020

Sciarrino v. State Farm Fire and Casualty Company, U.S. District Court Eastern District of Pennsylvania No. 2:20-CV-2930-KSM, 2020 WL 4470611 (E.D. Pa. Aug. 4, 2020) (Marston, J.)

COURT WOULD NOT REMAND BAD FAITH CASE EVEN THOUGH INSURED PLEADED CLAIM WAS WORTH LESS THAN $75,000; BAD FAITH CLAIM DISMISSED FOR MAKING BOILERPLATE ALLEGATIONS (Philadelphia Federal)

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This property damage bad faith case was removed to federal court, and plaintiff wanted a remand.

Judge Jones observed that once the amount in controversy is challenged, the removing defendant has the burden to prove by a preponderance of the evidence that the case value exceeds $75,000, the jurisdictional minimum.  In a bad faith case, the court can consider punitive damages and potential attorney’s fees in making this calculation.

The property damage claim was in excess of $65,200, and it would appear that with punitive damages and attorney’s fees the bad faith claim would easily exceed the $75,000 minimum.  However, plaintiff apparently pleaded in his ad damnum clause that the damages exceeded $50,000 (avoiding arbitration), but were not in excess of $75,000 (attempting to avoid removal).  Judge Jones found this language in the ad damnum clause did not prevent removal.

Specifically, after discussing prior case law and pleading standards under Pennsylvania’s Rules of Civil Procedure, Judge Jones (who sat for many years as a Court of Common Pleas judge) found that the insured’s “attempt to artificially cap the amount in controversy ‘as less than $75,000.00’ through an ad damnum clause is inconsistent with Pennsylvania’s pleading rules.”  The opinion cites numerous cases where the punitive damage and attorney fees claims pushed an actual damage claim otherwise below the $75,000 minimum over the jurisdictional threshold.

Judge Jones next addressed the insurer’s motion to dismiss the bad faith claim. The insurer argued that the bad faith count failed to set forth a single fact, relying solely on boilerplate generic allegations. The court agreed, observing “[t]he allegations in Plaintiff’s Complaint purporting to state a claim for bad faith are in fact identical to the allegations from a prior complaint filed by Plaintiff’s counsel in another case, which this Court found to be insufficient to state a claim in … Clapps v. State Farm Ins. Cos….” The court did grant leave to file an amended complaint.
Date of Decision: July 10, 2020

Thach v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5050, 2020 U.S. Dist. LEXIS 121758 (E.D. Pa. July 10, 2020) (Jones II, J.)

CASE REMANDED BECAUSE NO PROOF TO A LEGAL CERTAINTY THAT PUNITIVE DAMAGES CLAIM WOULD TAKE THE CASE ABOVE $75,000 (Philadelphia Federal)

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This UIM breach of contract and bad faith case was removed to federal court. The court sua sponte remanded the matter to state court. Significantly for this action, the tortfeasor driver was also named as a defendant.

The ad damnum clauses in the complaint’s various counts expressly state damages do not exceed $50,000. The bad faith count’s ad damnun clause specifically only seek an “’award of compensatory and punitive damages in an amount not in excess of Fifty Thousand Dollars ($50,000).’” The civil cover sheet states the damages were not in excess of $50,000. Pennsylvania’s Rules provide compulsory arbitration for cases at or below $50,000.

Any federal jurisdiction would have to be based on (1) diversity of citizenship, and (2) a jurisdictional minimum amount-in-controversy above $75,000. The removing party bears the burden of proving these two jurisdictional elements, and doubts concerning jurisdiction are resolved in favor of remand. Because subject matter jurisdiction is involved, the court always has the power to review diversity jurisdiction, and can raise the issue sua sponte.

The court first ruled there was no diversity. The plaintiff insureds and defendant tortfeasor driver were all Pennsylvania citizens. The court rejected the notion that because the non-diverse tortfeasor defendant had not been served, the diverse insurer defendant could remove the case. [This is not the situation where diversity otherwise exists, and a non-forum defendant can remove because the forum defendant has not been served, as in the Third Circuit’s 2018 Encompass case.]

Second, the $75,000 jurisdictional minimum amount-in-controversy was not established. A plaintiff is the master of its own claim and may limit a claim so it falls below the jurisdictional threshold. In those circumstances “’a defendant seeking removal must prove to a legal certainty that plaintiff[s] can recover the jurisdictional amount.’” Three principles guide a court under these circumstances:

“(1) The party wishing to establish subject matter jurisdiction has the burden to prove to a legal certainty that the amount in controversy exceeds the statutory threshold;

(2) A plaintiff, if permitted by state laws, may limit her monetary claims to avoid the amount in controversy threshold; and

(3) Even if a plaintiff states that her claims fall below the threshold, this Court must look to see if the plaintiff’s actual monetary demands in the aggregate exceed the threshold, irrespective of whether the plaintiff states that the demands do not.”

The insurer failed to makes its case here. First, the insureds limited their demand below $50,000, putting themselves within the state court’s compulsory arbitration threshold. Eastern District courts have found that a plaintiff expressly limiting damages to $50,000, so as to fall within the compulsory arbitration limit, does not meet the $75,000 federal jurisdiction minimum.

The court looked further into whether the facts pleaded could result in more than $75,000 in damages, to a legal certainty. Here the UIM $15,000 policy limit fell well below $75,000, but the insurer argued punitive damages could bring the case above that sum, implying a punitive damages multiplier of four times compensatory damages. The court rejected that argument (1) because the insurer provided no basis why a multiplier of four would be applied and (2) a multiplier of four would bring the case up to $75,000, but federal jurisdiction requires the damages exceed $75,000.

In sum, the insurer could not prove to a legal certainty the amount in controversy would exceed $75,000.

Date of Decision: November 5, 2019

Mordecai v. Progressive Casualty Insurance Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 19-4351, 2019 U.S. Dist. LEXIS 192331 (E.D. Pa. Nov. 5, 2019) (Younge, J.)

POTPOURRI OF ISSUES ADDRESSED IN RESPONSE TO 11 COUNT COMPLAINT: (1) REMAND (2) GIST OF THE ACTION/ECONOMIC LOSS (3) UIPA; (4) DUTY OF GOOD FAITH AND FAIR DEALING; (5) UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (6) DECLARATORY JUDGMENT ACTIONS BY BREACH OF CONTRACT PLAINTIFFS AND (7) ADEQUATELY PLEADING BAD FAITH (Philadelphia Federal)

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In this Opinion, Eastern District Judge Tucker addresses a wide range of fundamental legal issues in the context of ruling on a motion to dismiss the insured’s 11 count complaint. The complaint includes not only breach of contract and bad faith claims, but tort claims, UIPA claims, declaratory judgment claims, and injunctive relief claims, all arising out of the alleged failure to pay on an insurance claim. The court also addresses a motion to remand after removal.

We do not address all of the issues Judge Tucker discusses, but highlight a few of the key principles adduced in her opinion. Her full opinion can be found here.

  1. Motion to remand denied.  (i) In determining the jurisdictional minimum amount-in-controversy, the court may consider the possibility of punitive damages under the bad faith statute. (ii) Diversity of citizenship can be established by showing the defendant is not a citizen of plaintiff’s state, just as well as by affirmatively showing the state(s) in which defendant is a citizen.

  2. The gist of the action doctrine and/or the economic loss doctrine will typically bar tort claims based on violations of an insurance contract.

  3. Violating the Unfair Insurance Practices Act (UIPA) (i) does not create a private right of action, and (ii) some courts hold it may not be used to establish violation of statutory bad faith.

As the court states: “Plaintiff’s claim is also barred to the extent that it relies on an alleged violation of the Pennsylvania Unfair Insurance Practices Act (‘UIPA’) because the UIPA does not permit private recovery for a violation of its provisions. Plaintiff advances a claim for damages based, in part, on a theory that [the insurer] was negligent having breached duties imposed upon it by the UIPA, 40 Pa Const. Stat. Ann. § 1171.1, et seq. ‘Courts within the Third Circuit and the Commonwealth of Pennsylvania continue to recognize [, however,] that the UIPA does not provide plaintiffs with a private cause of action.’ Tippett, 2015 U.S. Dist. LEXIS 37513, 2015 WL 1345442 at *2 (quoting Weinberg v. Nationwide Cas. and Ins. Co., 949 F. Supp. 2d 588, 598 (E.D. Pa. 2013)) (internal quotation marks omitted). Indeed, in Tippett, the district court not only rejected a plaintiff’s attempt to state a separate claim under the UIPA, but also rejected the plaintiff’s arguments that proof of a UIPA violation might otherwise provide support for the plaintiff’s independent bad faith claim. Id. Plaintiff’s claim under the UIPA in this case is similarly barred.”

  1. Breach of the common law duty of good faith and fair dealing is subsumed in the breach of contract claim.

  2. The Unfair Trade Practices and Consumer Protection Law applies to the sale of insurance policies, not claims handling.

As the court states: “While Plaintiff rightly notes that the ‘UTPCPL creates a private right of action in persons upon whom unfair methods of competition and/or unfair or deceptive acts or practices are employed and who, as a result, sustain an ascertainable loss,’ … Plaintiff fails to note that ‘the UTPCPL applies to the sale of an insurance policy [but] does not apply to the handling of insurance claims.’” Thus, as the alleged “wrongful conduct under the UTPCPL relate[s] solely to [the insurer’s] actions after the execution of the homeowner’s insurance policy,” the UTPCPL claim was dismissed.

  1. Declaratory judgment count not permitted in light of breach of contract claim.

The court states: “Federal courts routinely dismiss actions seeking declaratory judgment that, if entered, would be duplicative of a judgment on an underlying breach of contract claim.” Judge Tucker cites case law for the propositions that “granting a defendant’s motion to dismiss a plaintiff’s independent cause of action for declaratory judgment because the claim for declaratory judgment was duplicative of an underlying breach of contract claim,” and “dismissing a plaintiff’s duplicative claim for declaratory judgment in the face of an underlying breach of insurance contract claim and observing that ‘pursuant to discretionary declaratory judgment authority, district courts have dismissed declaratory judgment claims at the motion to dismiss stage when they duplicate breach of contract claims within the same action.’”

  1. The insured pleads a plausible bad faith claim.

Judge Tucker highlighted the following allegations in ruling that the bad faith claim could proceed:

i the insurer “attempted to close her insurance claim despite never having sent an adjuster or inspector to evaluate the damage to the Property.”;

ii the insurer “engaged in intentional ‘telephone tag’ to delay and deny Plaintiff coverage under the homeowner’s insurance policy.”;

iii. the insurer never “scheduled an inspection of the Property or otherwise [took] any action to deny or grant coverage under the homeowner’s insurance policy.”

Thus, at the end of the day, after reviewing all of the claims and motion to remand, the insured was allowed to proceed on the breach of contract and bad faith claims.

Date of Decision: August 13, 2019

Neri v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-0355, 2019 U.S. Dist. LEXIS 136820 (E.D. Pa. Aug. 13, 2019) (Tucker, J.)

PUNITIVE DAMAGES CLAIM PREVENTS REMAND; BAD FAITH PLEADED WHERE CASE IS NOT MERELY A VALUATION DISPUTE (Middle District)

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On July 1, 2019, Judge Munley issued two opinions in this UIM bad faith case: (1) finding removal proper; and (2) finding the insured pleaded a plausible bad faith case.

Removal was proper where potential punitive damages could take the case above the $75,000 jurisdictional minimum

Judge Munley ruled that the case would remain in federal court, after removal from state court. The insured allegedly suffered severe personal injuries, and the carrier refused to pay the $25,000 UIM policy limits. The state court complaint sought damages in excess of $50,000, punitive damages, interest, counsel fees and costs.

The court recognized that actual damages were limited to $25,000, and the punitive damage and attorney’s fees claims would have to exceed $50,000 to meet the $75,000 jurisdictional minimum. Judge Munley found that “[a] punitive damages award which is double the amount of the policy limit is reasonable and possible in such a case.” As remand is only proper when it appears to “a legal certainty that the plaintiff cannot recover, or was never entitled to recover, the jurisdictional amount [$75,000],” he denied the motion to remand.

The insured pleads a plausible bad faith claim where delays and refusal to pay the sum demanded are not mere disagreements over valuation

Judge Munley observed the insured alleged a severe injury, with damages beyond the tortfeasor’s coverage limits. The insured’s UIM coverage was $25,000, which the defendant carrier refused to pay. Judge Munley concluded the case, as pleaded, was not merely a disagreement over claim valuation, but made out a plausible bad faith claim.

The following averments were sufficient to survive the insurer’s motion to dismiss:

  1. “The amended complaint avers that defendant failed to effectuate a prompt fair and equitable settlement of plaintiff’s claim and compelled her to seek legal redress and commence litigation to recover the benefits to which she was entitled.”

  2. “Further, defendant ignored and discounted the severity of plaintiff’s injuries.”

  3. “Also, defendant did not promptly evaluate the claim, but rather engaged in dilatory and abusive claims handling by delaying the valuation of plaintiff’s claim and failing to pay the claim.”

  4. “The amended complaint also suggests that defendant failed to timely investigate or to make a reasonable settlement offer.”

  5. “Defendant further delayed by asking for authorization to receive medical records which were already in its possession.”

The court also refused to dismiss an attorney’s fee demand under the breach of contract count, as such fees might prove permissible under the Motor Vehicle Financial Responsibility Act (MVFRL).

Dates of Decision: July 1, 2019

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109378 (M.D. Pa. July 1, 2019) (Munley, J.)

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109377 (M.D. Pa. July 1, 2019) (Munley, J.)

CASE REMANDED WHERE INSURED’S COUNSEL ADMITTED CASE WAS WORTH LESS THAN $75,000, EVEN THOUGH COUNSEL WOULD NOT SIGN A STIPULATION TO THAT EFFECT PREPARED BY OPPOSING COUNSEL (Philadelphia Federal)

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The insurer removed this bad faith action, and the insured sought to remand on the basis that the claims did not exceed $75,000. The court agreed, based chiefly on the fact there was no dispute that plaintiff’s counsel admitted “the damages clearly do not exceed $75,000.”

In addition, although the complaint alleged “substantial” losses and other boilerplate language concerning damages, there were “no allegations of specific events and losses, [and] any determination of same by this Court would constitute pure speculation.” Speculation about damages based on boilerplate allegations can not meet the insurer’s burden to establish a proper basis for removal.

Further, the insured’s refusal to stipulate its claim was worth less than $75,000 was not dispositive. Case law indicates such a stipulation may be considered as evidence, or as a factor, in weighing whether the jurisdictional amount is met.  The focus, however, must remain on a reasonable reading of the complaint. This is especially true when the stipulation is entered after the complaint was filed, which the court said “is of no legal significance.”

There was also some issue as to whether choosing not to sign a stipulation prepared by opposing counsel, is the equivalent of refusing to stipulate. The court observes that: “A party’s failure to sign a stipulation limiting damages—though worthy of some consideration—is not dispositive of the amount-in-controversy issue, given that both defendants and plaintiffs typically seek to use it as a tactical advantage in removing cases.”

Quoting an earlier opinion, the court states:

Defendants read too much into this unsigned stipulation. First, as best as this Court can tell, Plaintiffs’ lawyer has not signed the stipulation prepared by opposing counsel, which is different from Plaintiffs refusing to agree to cap their damages. Lawyers tend to be cautious. It is therefore unsurprising that Plaintiffs’ lawyer’s first reaction to a stipulation limiting his clients’ recovery was not to take out his pen and say, “where do I sign?” . . . But just as a complaint that limits damages to a figure below the jurisdictional threshold does not guarantee the case stays out of federal court, a lawyer’s refusal to limit his clients’ recovery by signing a stipulation should not end the inquiry[.]

Thus, the matter was remanded.

Date of Decision: June 5, 2019

Murphy Murphy & Murphy v. Nationwide Insurance Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 19-0712, 2019 U.S. Dist. LEXIS 94673 (E.D. Pa. June 5, 2019) (Jones, J.)

DISTRICT JUDGE LEESON ISSUES TWO OPINIONS DEMONSTRATING THE DIFFERENCE BETWEEN WELL-PLEADED vs. CONCLUSORY BAD FAITH COMPLAINTS (Philadelphia Federal)

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In these two UIM cases, Eastern District Judge Joseph F. Leeson, Jr. addressed motions to dismiss bad faith claims. In Krantz v. Peerless, he dismissed the bad faith claim and remanded the action to state court, but in Perez-Garcia v. State Farm, the bad faith claim survived a motion to dismiss. The pleading differences in these two cases are described below.

Failure to plead to supporting facts results in dismissal of bad faith claim.

In Krantz, the UIM bad faith plaintiff argued that the insurer improperly interpreted the policy in refusing to pay full policy limits. The complaint alleged the insurer relied upon an invalid and unlawful setoff provision in withholding $37,500 out of the $100,000 policy limit. Judge Leeson found, however, the insured failed to plead facts showing the setoff provision was invalid, “or, more importantly, that [the insurer] knew or should have known that it was denying the full amount of benefits based on an invalid provision.”

In granting the motion to dismiss the bad faith claim, Judge Leeson also found the following allegations conclusory because the complaint lacked any other supporting factual allegations that could make these statement plausible:

(1) the insurer did not make any good faith offers to settle despite repeated demands;

(2) the insurer “failed to objectively and fairly evaluate his claim”;

(3) the insurer “failed to promptly tender payment of the fair value of the claim”; and

(4) the insurer failed to reasonably investigate the claim.

Judge Leeson gave examples of the kind of facts needed to support these sorts of conclusory allegations, but such facts were absent from the complaint. He concluded:  “’Essentially, Plaintiff’s cursory allegations assert that Defendant lacked a reasonable basis for denying Plaintiff’s claim for benefits, but do not provide any factual allegations from which the Court could make a plausible inference that Defendant knew or recklessly disregarded its lack of a reasonable basis for denying benefits.’”

The case had been removed from the Court of Common Pleas of Lancaster County. After dismissing the bad faith count, plaintiff’s damage claims no longer exceeded $75,000. Thus, Judge Leeson remanded the case.

Date of Decision: March 11, 2019

Krantz v. Peerless Indemnity Insurance Co., U. S. District Court Eastern District of Pennsylvania No. 18-cv-3450, 2019 U.S. Dist. LEXIS 38923, 2019 WL 1123150 (E.D. Pa. Mar. 11, 2019) (Leeson, Jr., J.)

Factual details support the bad faith claim, but UTPCPL claim dismissed.

In Perez-Garcia, the insured alleged he “incurred medical bills and wage loss following an automobile accident caused by an underinsured driver….” The complaint alleged the insured provided “medical documentation clearly setting forth injuries to [his] right knee and injuries to the left ankle caused by the motor vehicle accident….” [Emphasis added.]

To support his bad faith claims, plaintiff further alleged the insurer’s claim specialist “asserted, without medical support, that none of the injuries that Plaintiff sustained were the result of the motor vehicle accident” at issue. The complaint alleged the insurer refused to pay any benefits on the basis on this adjuster’s medical conclusions, despite medical reports to the contrary which had been provided to the adjuster.

The insurer unsuccessfully moved to dismiss the bad faith claim. Judge Leeson first rejected the notion that this was merely a bald claim that the insurer refused to pay UIM benefits after having paid first-party benefits. Rather, the complaint specifically alleged that the insurer had medical documentation in hand that supported the insured’s version of events, but rejected that evidence without any medical evidence to the contrary.

The complaint alleged the insurer did not conduct a proper investigation into the medical history. Rather, the insurer allowed its own claim adjuster — described as “a non-medical reviewer” — to substitute the adjuster’s medical judgment for the judgment of actual medical professionals. These facts were sufficient to state a bad faith claim.

Judge Leeson did dismiss plaintiff’s Unfair Trade Practices and Consumer Protection Law (UTPCPL) claim on two bases: (1) there were no allegations that plaintiff relied upon the conduct at issue in suffering any damages; and (2) the UTPCPL can only address claims surrounding formation of the insurance contract, not post-contract claim denial.

Date of Decision: March 15, 2019

Perez-Garcia v. State Farm Mutual Automobile Insurance Co., U. S. District Court Eastern District of Pennsylvania No. 5:18-cv-03783, 2019 U.S. Dist. LEXIS 42327 (E.D. Pa. Mar. 15, 2019) (Leeson, Jr., J.)

COURT OUTLINES PRINCIPLES FOR REMOVING BAD FAITH CLAIMS TO FEDERAL COURT (Philadelphia Federal)

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Federal Judge Mitchell S. Goldberg sets out useful examples and principles concerning removal of statutory bad faith claims to federal court. The issue in these cases is the degree of certainty needed to measure claims made against the $75,000 jurisdictional threshold.

  1. The sum at issue is determined at the time the petition to remove is filed.

  2. Courts do not look at the low end of an open-ended claim; rather, the measure is “a reasonable reading of the value of the rights being litigated.”

  3. Punitive damages and attorneys’ fees are considered in statutory bad faith cases.

  4. There is no recovery cap on the punitive damages and attorneys’ fees available under the bad faith statute.

[Note: Attorney’s fees must still be reasonable, and the U.S. Supreme Court has placed limits on punitive damages to conform to due process requirements.]

  1. In a bad faith case, the “amount in controversy exceeds the $75,000 threshold where a plaintiff is able to recover a specified amount of damages, plus punitive damages and attorney’s fees….”

  2. The court gave two case examples of pleading specified damages along with punitives: (1) a claim for $53,315 in contract damages accompanied by a bad faith claim “in excess of $50,000 together with interests and costs” was sufficient; and (2) a claim for $28,682.41 in unpaid benefits plus punitive damages was sufficient.

  3. Under this line of cases, the instant plaintiff’s claim for $24,711.11 plus punitive damages meets the $75,000 pleading threshold.

  4. By contrast, failure to plead a specific unpaid benefit amount works against removal.

  5. In two cases where the action was remanded, the plaintiffs pleaded lost benefits in “an amount not in excess of $50,000” and punitive damages “not in excess of $50,000”.

In this case, even though the $75,000 threshold was met, the court still remanded the action because removal was untimely. The insurer argued that any damage sum was uncertain as pleaded in the complaint. Therefore, any effort at removal lacked “legal certainty” and the insurer had to serve requests for admissions to get sufficient clarity before it could properly remove the action. This process took many months.

The court disagreed, finding the complaint itself was adequate to make the monetary threshold determination. Thus, the thirty-day removal period from service of the complaint had long passed, without the insurer taking action to remove the case, and the case was remanded.

Date of Decision: January 28, 2019

Hutchinson v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-cv-2588, 2019 U.S. Dist. LEXIS 13820 (E.D. Pa. Jan. 28, 2019) (Goldberg, J.)

AUGUST 2018 BAD FAITH CASES: PUNITIVE DAMAGES CONSIDERED IN DETERMINING REMAND, EVEN IF MOTION TO DISMISS BAD FAITH CLAIM WAS PENDING (Philadelphia Federal)

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The insured claimed “removal was improper because the amount in controversy [did] not exceed $75,000” on the face of the complaint. The insurer argued that the controversy exceeded $75,000 because the complaint sought attorneys’ fees, interest, costs, and punitive damages. The insured sought remand because the insurer “has not shown that punitive damages would lead to an award exceeding $75,000.”

On removal, the “defendant bears the burden of showing that federal jurisdiction is proper.” The insurer specifically argued the controversy exceeded the $75,000 jurisdictional minimum because the complaint asserted a claim for “compensatory damages consisting of collision coverage benefits ‘in a sum in excess of $14,500.00,’ punitive damages (which are available under Pennsylvania law if Defendant has acted in bad faith), attorneys’ fees, interest, and costs.” It cited authority “where jurisdiction was retained based on asserted compensatory damages of $14,000-$15,000 as well as the plaintiffs’ requests for attorney fees and punitive damages.”

The insured did not refute this authority, but instead argued the insurer moved to dismiss the bad faith claim, which was the source for punitive damages. The Court observed that a “motion to remand must be decided before the Court exercises jurisdiction over the case and Defendant’s motion to dismiss.” Thus, the Court considered the punitive damages claim and denied insured’s motion to remand.

Date of Decision: July 24, 2018

Winslow v. Progressive Specialty Ins. Co., U. S. District Court, Middle District of Pennsylvania, CIVIL ACTION NO. 3:18-CV-1094, 2018 U.S. Dist. LEXIS 123266, 2018 WL 3546560 (Conaboy, J.)