Archive for the 'PA – Removal & Remand' Category

(1) BAD FAITH CLAIMS AGAINST INDIVIDUAL ADJUSTERS IMPERMISSIBLE; (2) BENEFIT DENIAL NOT BASIS FOR UTPCPL CLAIMS; (3) STATUTORY BAD FAITH CLAIM PROCEEDS BASED ON ALLEGEDLY EXCESSIVE PEER REVIEWS, AND BENEFIT DENIALS; (4) COMMON LAW BAD FAITH SUBSUMED IN CONTRACT CLAIMS (Philadelphia Federal)

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This case involves claims against a carrier for two distinct auto accidents, as well as against two of its individual claim adjusters.  The insured husband alleged serious injuries in the first incident that were exacerbated in the second.  He alleges he was underpaid on the first loss for medical benefits, and raised a UIM claim on the second loss, claiming the same insurer failed to pay benefits due.

The insureds brought breach of contract claims for UIM and first party medical benefits, common law and statutory bad faith claims on the UIM and first party benefits claims, breaches of the Motor Vehicle Financial Responsibility Law (MVFRL), and Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims.

Plaintiffs also brought UTPCPL claims against the two individuals, as well as common law and statutory bad faith claims, and a breach of contract claim against one of them.

The defendants moved to dismiss the bad faith and UTPCPL claims as to all of them, and all claims against the individual defendants.

ALL CLAIMS AGAINST THE INDIVIDUAL ADJUSTERS FAIL

As to the breach of contract claim against the one insurance adjuster, the court observed that “while insurance adjusters have a duty to their principals and should conduct investigations with propriety, this duty does not create a contractual obligation between the adjuster and the insured.” Thus, only the principal, i.e., the insurer, could have contractual liability.

As to the UTPCPL claims, there were no facts pleaded to support any sort of deceptive or fraudulent conduct. Moreover the failure to pay a benefit is not actionable under the UTPCPL.  Finally, statutory bad faith claims against insurance adjusters are impermissible because an adjuster is not party to the insurance contract. The same reasoning makes common law bad faith claims impermissible.

In sum, as to both adjusters, the court dismissed the claims against these individuals with prejudice. Judge Tucker states they both “worked as claims adjusters … and followed the company’s policies and practices. Plaintiffs fail to plead sufficient facts to allege personal misconduct that established reliance between themselves and the Individual Defendants, despite the lack of a contractual relationship between Plaintiffs and the Individual Defendants, and accordingly, those claims must fail.”

COURT FINDS FRAUDULENT JOINDER AND DENIES MOTION TO REMAND

As it was only the presence of one of the individual adjusters that prevented complete diversity, his dismissal from the case created complete diversity, and plaintiff’s motion to remand was denied. Although courts use the term “fraudulent joinder”, this does not mean what one would typically think of as fraudulent conduct.  Rather, “[j]oinder is fraudulent ‘where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendants or seek a joint judgment.’” In this case, the court simply held that there were no viable claims stated against the non-diverse party, i.e., no colorable ground supporting a claim.

STATUTORY BAD FAITH CLAIM STATED AGAINST INSURER

As to the substance of the statutory bad faith claims against the insurer, Judge Tucker found a plausible cause of action stated in the Complaint’s allegations. The Complaint alleges the insurer and one of the adjusters “conducted seven Peer Reviews with respect to … treatment in order to challenge causation and deny benefits … which is at odds with the intended use of the procedure and can factually support a claim of bad faith. Plaintiffs’ bad faith claims survive summary judgment because Defendants administratively closed Plaintiff’s first-collision-benefits-claim, despite acknowledging and having medical support that his initial injuries were exacerbated by the second collision, and then denied benefits under Plaintiffs’ second-collision-benefits-claim.” Thus, she denied the motion to dismiss.

COMMON LAW BAD FAITH CLAIMS DISMISSED

The common law bad faith claims were dismissed, as the court found them subsumed in the breach of contract claims.

Date of Decision:  September 27, 2021

Holohan v. Mid-Century Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5903, 2021 WL 4399659 (E.D. Pa. Sept. 27, 2021) (Tucker, J.)

Our thanks to attorney Susan J. French for bringing this case to our attention.

WESTERN DISTRICT JUDGE STICKMAN ISSUES TWO BAD FAITH OPINIONS: (1) DIFFERENCE IN VALUATION ALONE IS NOT BAD FAITH; (2) BAD FAITH CANNOT BE PURSUED AGAINST CARRIER’S CLAIM ADJUSTER (Western District)

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On July 19th, Judge Stickman held in Stegena v. Nationwide, that simply pleading the insured’s injuries are worth significantly more than the carrier’s valuation of the same injuries cannot, by itself, constitute bad faith.  One week later, Judge Stickman opined in the Alexander v. Mid-Century, that an insured could not bring breach of contract or bad faith claims against a carrier’s claim adjuster.

Valuation dispute alone cannot constitute bad faith

In this undersinsured motorist breach of contract and bad faith case, the insured’s “argument in support of her statutory bad faith claim consists almost entirely of nothing more than a bare recitation of the materials and evidence submitted in support of her claim, together with monetary valuations included in the opinions of experts procured after the initiation of this litigation….”

Judge Stickman found the complaint alleged a claim handling history that did not make out a plausible bad faith claim, with the insured trying to meet her clear and convincing evidence burden by simply emphasizing the amount of damages her experts found due to compensate her damages, which the carrier would not pay. Judge Stickman states: “The problem with [the insured’s] argument is that, although she provides sizeable dollar amounts, which her experts claim represent prospective lost wages and medical expenses, her argument fails to address the present issues before the Court—why there was an absence of a reasonable basis, or how [the insurer] knew or recklessly disregarded that absence.”

He recognizes that “under the right circumstances, an unsupported low-ball offer may support a claim for insurance bad faith … [but] it remains [the insured’s] burden to scrutinize the relationship between [the insurer’s] considerations and determinations.” Here, the insured’s failure to “identify, with any specificity, factual deficiencies illustrating the unreasonableness of [the insurer’s] conduct, demonstrates that her claim is more properly characterized as an inappropriate, generalized grievance over the monetary valuation of her claim.” Moreover, the record showed the carrier’s “investigation and determinations, and, more specifically, the process that he used to evaluate and value the claim … cannot be characterized as anything other than reasonable, as that term applies in the bad faith context.”

Judge Stickman cites Judge Caputo’s 2019 Moran decision in support, summarized here, where the Middle District court collected cases on valuation discrepancies and bad faith.

Finally, in reciting case law detailing Pennsylvania’s statutory bad faith standards, we observe that Judge Stickman quoted the long-standing principle that “an insurance company is not required to demonstrate its investigation yielded the correct conclusion or even that its conclusion more likely than not was accurate. The insurance company also is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion. Rather, an insurance company simply must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”

Date of Decision:  July 19, 2021

Stegena v. Nationwide Property & Casualty Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-428, 2021 WL 3038800 (W.D. Pa. July 19, 2021) (Stickman, J.)

No viable breach of contract or bad faith claim against individual adjuster

The insured brought  breach of contract and bad faith claims against both his insurer and its claim adjuster.  The defendants moved to dismiss, arguing there was no viable claim against the adjuster, and that the adjuster was joined to improperly destroy diversity jurisdiction and prevent removal to federal court.

Judge Stickman found Pennsylvania case law made clear that neither a breach of insurance contract or insurance bad faith claim could be pursued against an individual claim adjuster working for the insured’s carrier.  He cites the 2017 Pennsylvania Superior Court decision in Brown v. Everett, summarized here, holding that “a statutory action for bad faith can only be brought against the insurer,” and not an adjuster.

Judge Stickman rejected the argument that the adjuster could be sued under the “participation theory,” finding that theory inapposite to the context of an insurance adjuster handling a claim for an insurance company.  Thus, he dismissed the claims against the adjuster with prejudice, which further resulted in jurisdiction over the remaining claims against the insurer being proper in federal court.

Date of Decision:  July 26, 2021

Alexander v. Mid-Century Insurance Company, No. 2:21-CV-392, U.S. District Court Western District of Pennsylvania 2021 WL 3173621 (W.D. Pa. July 26, 2021) (Stickman, J.)

COURT DENIES REMAND BASED ON POTENTIAL PUNITIVE DAMAGE AND ATTORNEY’S FEE AWARDS (Middle District)

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Middle District Judge Mannion denied the insurer’s motion to remand this UIM bad faith case.  The plaintiff had $15,000 in UIM coverage, which was eventually paid in full, but continued to pursue a bad faith claim for a sum in excess of $50,000, including attorney’s fees and punitive damages.  The insured refused to stipulate that the claim was worth no more than $74,999.

Judge Mannion found that the punitive damages and attorney’s fees pursued under the bad faith statute could exceed the jurisdictional minimum, $75,000.  He looked to cases that had awarded punitive damages in 4:1 and 5:1 ratios, and a case upholding a 10:1 ratio. Moreover, “[s]ubstantial attorney’s fees awards, too, have been granted for insurance bad faith claims.”

Judge Mannion then states:

Because Plaintiff does not specifically limit his amended complaint to $75,000, and because no factual dispute is raised by the parties, the court proceeds to the legal certainty test. In light of the reasonable possibility that punitive damages and attorney’s fees may exceed $75,000, and considering Plaintiff’s refusal to cap damages at $75,000, the court finds that it does not appear to a legal certainty that Plaintiff’s claim is for less than the jurisdictional minimum. Therefore, Plaintiff’s Motion to Remand will be denied.

Date of Decision: July 19, 2021

Barbato v. Progressive Specialty Insurance Company, U.S. District Court Middle District of Pennsylvania No. CV 3:21-0732, 2021 WL 3033863 (M.D. Pa. July 19, 2021) (Mannion, J.)

CASE REMANDED WHERE (1) INSURED CONCEDED VALUE WAS BELOW $75,000 AND (2) INSURER COULD NOT MEET LEGAL CERTAINTY BURDEN BY BRIDGING THE GAP WITH BALD ALLEGATIONS OF ATTORNEY’S FEES AND PUNITIVE DAMAGES (Western District)

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The insured moved to remand this bad faith case to the Court of Common Pleas of Allegheny County, on the basis her claim fell below the $75,000 jurisdictional minimum amount in controversy.

“In determining whether the amount in controversy exceeds $75,000, district courts must apply the ‘legal certainty’ test …. Under this standard, [t]he case will be dismissed only if from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed, or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount.” (internal quotation marks omitted) “While a post-removal stipulation that the case is worth less than the jurisdictional threshold is not dispositive, it remains Defendant’s burden to show by a preponderance of the evidence that the operative complaint filed against it seeks an amount in excess of $75,000.”

The court disagreed there was any post-removal stipulation to the amount in controversy. Judge Barry Fisher observed that the plaintiff’s counsel, “as an officer of the court, advises that Plaintiff intends to move the matter from the General Docket of the Court of Common Pleas to the Arbitration Division, which has a jurisdictional limit of $35,000.” This amounted to a concession that the case was “valued well below the jurisdictional threshold of $75,000 necessary to invoke the diversity jurisdiction in this Court.”

Further, the complaint’s sole allegation concerning damages was that her claim was worth in excess of $5,000 based on her losses. In addition, the underlying tort claim was brought as an arbitration matter in the Court of Common Pleas, the arbitrators ruled for the tortfeasor defendant, and the case then settled.

Moreover, the insurer did “not put forth any evidence to support its bare allegation of the jurisdictional amount beyond pointing out that Plaintiff seeks attorney’s fees and punitive damages on its bad faith count.”  Following earlier precedent, the court was unwilling to accept “bare allegations that plaintiffs’ bad faith claims bridged the gap between” the coverage limits provided under the policy and the $75,000 jurisdictional minimum.

In sum, the insurer “failed to meet its burden to show that this case was worth more than $75,000 when it removed the case … and it appears to a legal certainty that Plaintiff cannot recover the jurisdictional amount in this case.”

Date of Decision: December 18, 2020

Dendy v. Geico, Inc., U.S. District Court Western District of Pennsylvania No. CV 20-1945, 2020 WL 7424970 (W.D. Pa. Dec. 18, 2020) (Barry Fisher, J.)

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.)