Archive for the 'PA – Standing, Assignment or Outside Scope' Category
Here are quick summaries of two recent Pennsylvania Eastern District bad faith cases.
TAKING CONTRARY POSITIONS IN SUBROGATION AND UNINSURED MOTORIST CASES ON INSURED’S CULPABILITY NOT BAD FAITH PER SE
The carrier denied the insured’s uninsured motorist claim on the basis that the insured was at fault. However, the carrier brought a property damage subrogation action against the other driver, claiming the other driver was solely at fault.
The insured brought breach of contract and bad faith claims on the basis the carrier admitted or conceded via the subrogation action that the other driver was wholly at fault, and could not now argue its insured was at fault. The insured moved for summary judgment on this basis. Eastern District Judge Younge denied the motion.
Judge Younge rejected the idea that either judicial estoppel or collateral estoppel applied to bind the carrier to its legal assertions in the subrogation action. Absent their application, he found summary judgment inappropriate as the insured had not met the clear and convincing evidence standard of proof for bad faith.
Finally, Judge Younge rejected the argument that the carrier breached its contract or acted in bad faith by not making a partial payment. “Plaintiff also failed to establish that he is entitled to an advance of proceeds under policy provisions. Under Pennsylvania law, the Court is not aware of any duty on the part of an insurer to make a partial payment on a UIM claim in the absence of a contractual provision requiring a partial payment or an agreement between the parties as to the value of a UIM claim.”
Date of Decision: June 29, 2021
Marrone v. Geico Insurance Company, U.S. District Court Eastern District of Pennsylvania No. 20-CV-4405-JMY, 2021 WL 2681388 (E.D. Pa. June 29, 2021) (Younge, J.)
ESTATE HAS STANDING TO PURSUE LIFE INSURANCE BAD FAITH CLAIM
In this life insurance bad faith case, Eastern District Judge Surrick held that the estate has standing to bring the bad faith claim, even though the decedent was not a beneficiary.
Date of Decision: July 6, 2021
Hudson v. Columbia Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5252, 2021 WL 2823074 (E.D. Pa. July 6, 2021) (Surrick, J.)
This first party fire loss case sets out some significant legal propositions:
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A plaintiff has no standing as a section 8371 assignee unless that plaintiff is both (a) a party injured by the insured and (b) a judgment creditor of the insured. In this case, the plaintiff lacked standing because he did not meet those two requirements.
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A bad faith claim can be based on the insurer’s failure to communicate with the insured. As we have repeatedly stated on this blog, see for example this January 2020 post and this August 2020 post, it is questionable whether a failure to communicate, or any other standalone claim handling failure, can be the basis for an independently cognizable bad faith claim; or whether poor claim handling is merely a matter of evidence that can be used to prove bad faith where a benefit actually has been denied. This post from April 2021 has additional discussion on the issue of whether bad faith can exist if no coverage obligation is due, i.e., it addresses the idea that poor claims handling cannot create a statutory bad faith claim in the absence of any actual denial of benefits.
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Delay, standing alone, may not constitute bad faith. The court, as a matter of law, citing earlier case examples, found a 9-10 month claim handling delay in itself could not constitute bad faith. Thus, the court states: “Assuming arguendo that the entirety of this delay was attributable to [the insurer], a period of nine or ten months, without more, is insufficient to establish bad faith.”
Date of Decision: June 29, 2021
Williams v. State Farm, No. 5:21-CV-00058, 2021 WL 2661615 (E.D. Pa. June 29, 2021) (Leeson, J.)
On April 16 and 21, 2021, Western District Judge Wiegand issued bad faith opinions. In the first case, she allowed the claim to proceed, denying a motion to dismiss. In the second, the conduct at issue did not involve any benefit denial, but only alleged pre-contract deception, which is not subject to Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.
CASE 1: BAD FAITH CLAIM STATED
In Maronda Homes, LLC v. Motorists Mutual Insurance Company, Judge Wiegand allowed an additional insured’s statutory bad faith claim to proceed, denying the insurer’s motion to dismiss.
The insurer rejected additional insured coverage, asserting (1) that the additional insured endorsement was not triggered through any alleged conduct of the named insured, and (2) that even if triggered, an exclusion applied. The additional insured raised claims for breach of contract, contractual bad faith, and statutory bad faith. The insurer moved to dismiss all claims.
Judge Wiegand first rejected the insurer’s argument that the complaint did not allege any wrongdoing by the named insured that could trigger coverage under the additional insured endorsement. She also found factual issues remained open as to whether coverage was excluded because the work was (1) completed or (2) put to its intended use. This could not be decided at the motion to dismiss state.
Judge Wiegand did dismiss the breach of the implied covenant of good faith and fair dealing count. “[U]nder Pennsylvania law, a ‘claim for breach of the implied covenant of good faith and fair dealing is subsumed in a breach of contract claim.’” Thus, “a claim for breach of the implied covenant of good faith and fair dealing ‘separate and distinct from a breach of contract claim’ cannot be maintained because ‘the covenant does nothing more than imply certain obligations into the contract itself.’”
By contrast, Judge Wiegand allowed the statutory bad faith claim to proceed. First, she observed that the policy exclusion at issue remained open and undecided, so the insurer could not argue the coverage denial was per se reasonable based on the policy exclusion language. She then found the insured’s allegations that the insurer “failed to investigate Plaintiff’s tender of the claims, denied coverage despite cooperatively participating in attempts to settle the Underlying Actions, and rejected settlement offers … within the limits of the Policy … are sufficient at this stage to survive Defendant’s Motion.”
Date of Decision: April 16, 2021
Maronda Homes, LLC v. Motorists Mutual Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-01526-CCW, 2021 WL 1518009 (W.D. Pa. Apr. 16, 2021) (Wiegand, J.)
CASE 2: NO STATUTORY BAD FAITH POSSIBLE FOR PRE-POLICY CONDUCT
The second case involved a first party property damage claim, where a swimming pool popped out of the ground due to subsurface water pressure. A policy exclusion clearly excluded coverage for subsurface water pressure causing damages, but the insureds still pursued the claim. They alleged that prior to purchasing the policy, the insurer’s agent led them to believe the policy would cover them for damages to in-ground pools “from foreseeable types of harm,” which equated to a promise concerning subsurface water pressure damage being covered.
After the coverage denial, the insureds brought claims to reform the policy to cover “pool popping,” for statutory bad faith, and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer successfully moved to dismiss all claims.
First, Judge Wiegand found that the policy could not be reformed based on mutual mistake, unilateral mistake, or fraud. She further found that this was not a case where the reasonable expectations doctrine would permit reformation of clear policy language.
Second, she dismissed the statutory bad faith claim. As the Pennsylvania Supreme Court made clear in Toy v. Metropolitan Life, the bad faith statute only applies when the insurer had denied a policy benefit. Deceptive practices used to induce an insured to enter an unfavorable insurance policy do not fall within the bad faith statute’s ambit.
Finally, because the insureds did not plead justifiable reliance, there could be no UTPCPL claim.
Date of Decision: April 21, 2021
Palek v. State Farm Fire & Casualty Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-00170-CCW, 2021 WL 1561507 (W.D. Pa. Apr. 21, 2021) (Wiegand, J.)
This case involves a dispute between a defendant’s own insurer and another carrier obligated to provide coverage to defendant as an additional insured. The issues involved which insurer has the primary coverage/defense obligations, and which was excess.
There were several tenders to the additional insurance provider to assume the defense, which were either ignored or denied. The defendant’s insurer brought a declaratory judgment action seeking to have the additional insurance provider assume the defense, and to reimburse the defendant’s insurer for attorney’s fees and costs, as well as for the attorney’s fees and costs associated with bringing the declaratory judgment action.
It is also clear from the court’s opinion that a statutory bad faith claim under 42 Pa.C.S. § 8371 was at issue.
There was a motion to dismiss all claims.
There was a duty to defend the additional insured
Among other things, Eastern District Judge Robreno found the underlying complaint adequately alleged facts invoking the additional insurance provider’s duty of defend, when compared to the additional insured endorsement language. Thus, the additional insurance provider was in error in failing to accept the tenders and assume the defense.
There was standing to bring a statutory bad faith claim as an assignee
The additional insurance provider challenged plaintiff’s standing to bring a section 8371 bad faith claim because it was not the named insured. Judge Robreno disagreed, citing the Third Circuit’s 2015 Wolfe decision making clear that assignees can bring statutory bad faith claims.
[Note: Earlier in Wolfe, the Third Circuit certified to Pennsylvania’s Supreme Court the fundamental issue of whether bad faith claims can ever be assigned. In the Supreme Court’s own Wolfe decision, assignments were recognized as permissible, but only within limited parameters. A summary of that case can be found here. The assignment in the present case falls within those acceptable parameters.]
The assignee-insurer pleaded a plausible bad faith claim
Next, Judge Robreno rejected the insurer’s arguments that the complaint was devoid of facts setting out a plausible bad faith claim.
To the contrary, Judge Robreno found the following sufficient:
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The complaint alleged the additional insurance provider failed to acknowledge its primary duty to defend, without a reasonable basis, breaching the duty of good faith and fair dealing.
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The complaint specifically set out numerous instances where that insurer denied or ignored tender letters.
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“Accepting as true all of the allegations in the Complaint and all reasonable inferences that can be drawn therefrom, and based on this record, [the plaintiff] has sufficiently pled that based on the correspondence submitted to [the insurer], [the additional insurance provider] did not adequately investigate, respond, or explain their refusal to defend and potentially indemnify [the insured] in the underlying action.”
The motion to dismiss was denied.
Date of Decision: March 10, 2021
In this case, the Third Circuit upheld the principle that a statutory bad faith claim can only be assigned to the underlying plaintiff or a judgment creditor. As the bad faith plaintiff in this case was neither, the case was dismissed.
Date of Decision: December 24, 2020
Feingold v. Palmer & Barr, U.S. Court of Appeals for the Third Circuit No. 19-2621, 2020 WL 7663209 (3d Cir. Dec. 24, 2020) (Ambro, Matey, Roth, JJ.)
The insured brought suit over a $500 valuation dispute. The carrier valued the insured’s car at $2,500 ($3,000 less at $500 deductible), and repairs were estimated in excess of $3,000. The car being a total loss, the insurer offered $2,500, but the insured wanted $3,000. This led to a 10 count complaint against the insurer and its claim handler. We only address the two bad faith counts against the insurer and/or the claim handler, and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims against the insurer.
No statutory bad faith.
The court dismissed the statutory bad faith claim. There were simply no allegations of fact that could support a plausible bad faith claim. The complaint itself showed the carrier appropriately investigated the claim, and gave a prompt damage assessment. Plaintiff did not allege the repair cost estimate was incorrect, or the inspection faulty. There was no allegation that the insurer’s valuation was unreasonable. There was no claim denial, just a dispute over the sum due.
The court found this simply a “normal dispute” that did not amount to bad faith. “An insurer’s failure to honor its insured’s subjective value of his claim does not—without more—give rise to a bad faith claim.” The court, however, did allow leave to amend.
No common law bad faith against the insurer or the claim handler.
The insured brought common law bad faith claims against the insurer and claim handler. The court observed there is no tort common law bad faith cause of action; rather, in Pennsylvania common law bad faith is subsumed in the breach of contract claim. Thus, the common law claim against the insurer was dismissed with prejudice.
As to claim handler, Pennsylvania law (1) does not support a statutory bad faith claim against claim handlers; nor (2) does it recognize a bad faith claim in contract against adjusters (who are clearly not party to any contract). These claims were dismissed with prejudice.
A mixed result under the UTPCPL.
The court also dismissed one UTPCPL claim on the basis that it alleged poor claim handling, not deceptive inducement to enter the insurance contract. However, the insured also alleged the carrier’s representative originally made false representations causing him to purchase the insurance in the first place. This was sufficient to state a UTPCPL claim under its catch-all provision.
Date of Decision: December 14, 2020
Ke v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1591, 2020 WL 7353892 (E.D. Pa. Dec. 14, 2020) (Pratter, J.)
Published on
December 17, 2020 in
PA - Claims Handling (reasonable), PA - Common Law Bad Faith (contractual or fiduciary basis), PA - Coverage Issues, PA - Discovery and Evidence, PA - Insurer wrong, but reasonable, PA - Law unsettled, PA - No coverage due, bad faith still possible, PA - No coverage duty, no bad faith and PA - Standing, Assignment or Outside Scope.
The Third Circuit addressed the central issue of whether the defendant was an insured, and how to analyze that factual issue in ruling on coverage and bad faith claims.
The named insured went with his girlfriend to a picnic, where they met up with the mother of the named insured’s child. The girlfriend was also a named insured, but the mother was a stranger to the insurance contract. The mother decided to move the named insureds’ car, and struck plaintiff while driving the car. The injured plaintiff sued the two named insureds and the mother.
The carrier covered the named insureds, but took the position that the mother was not a permissive user and therefore was not an insured under the policy. The mother stipulated to a judgment and assigned her bad faith and breach of contract claims to the injured plaintiff, who sued the carrier.
The trial court granted summary judgment to the insurer, and the Third Circuit affirmed.
The Four Corners Rule does not Apply to Determining if a Party is an Insured for Duty to Defend Purposes
The Third Circuit first addressed the issue of whether the four corners rule encompasses determinations of whether a party is an insured in the first instance.
The issue has never been addressed by Pennsylvania’s Supreme Court.
The insurer argued it could not be bad faith to take the position the mother was not an insured, even if the complaint indicated otherwise, because the law on the issue is unsettled. The carrier asserted it could use extrinsic evidence to show the mother was not an insured, and denied coverage on that basis. The Third Circuit agreed that “because Pennsylvania courts have not ruled on this issue, [the insurer] did not act in bad faith after it ‘reasonably determined that [mother] was not an insured under the Policy.’”
On the merits of coverage itself, the court concluded “that, when the insurer determines a claim is outside the scope of the insurance policy before a suit is filed, it has no duty to defend because it has effectively ‘confine[d] the claim to a recovery that the policy [does] not cover.’” Here, the insurer investigated the claim, and determined the mother was not an insured because she was not a permissive user. “After that determination, the four corners rule no longer applied. [The insurer] did not have a duty to defend, and its actions do not show bad faith.”
Bad Faith Investigation
The court then went on to examine whether a bad faith claim could be stated solely on the basis that the insurer’s investigation was conducted in bad faith. As repeated on this blog ad naseum, there is a genuine issue as to whether there is an independent bad faith claim for poor investigation practices when no coverage is otherwise due. For example see this post from January 2020, this post from August 2020, and this post from earlier in August 2020. A close examination in this case, however, shows the lack of investigation bad faith claim is actually intertwined with the coverage issue. Thus, this is not a case where a party is trying to prove bad faith even though no coverage is due.
Treating investigation based bad faith as a separate cause of action, rather than merely evidence of bad faith, the court observed “[g]ood faith in this context requires that an insurance determination be ‘made diligently and accurately, pursuant to a good faith investigation into the facts’ that is ‘sufficiently thorough to provide [the insurer] with a reasonable foundation for its actions.’” The mother argued the record showed she had “implied permission” to use the car, and the carrier acted in bad faith by unreasonably failing to recognize she had implied permission. The court disagreed, finding no adequate evidence to defeat summary judgment on the issue.
No Common Law Bad Faith Claim
“Finally, although the standard for common law bad faith diverges from statutory bad faith … the common law action for bad faith is a contract claim. Thus, because [the mother] was not an insured, she was not party to the contract, and she had no common law contract claim to assign….”
Date of Decision: December 8, 2020
Myers v. Geico Cas. Co., U. S. Court of Appeals for the Third Circuit No. 19-1108, 2020 WL 7230600 (3d Cir. Dec. 8, 2020) (Fisher, Restrepo, Roth, JJ.)
In this non-precedential decision, Pennsylvania’s Superior Court followed federal case law out of the Eastern District, Feingold v. Liberty Mutual, in holding that a client’s bad faith claim could not be assigned to her former attorney. [Note: In Allstate v. Wolfe, Pennsylvania’s Supreme Court did find it possible to assign bad faith claims within certain parameters. The holding in that case identified two proper classes of assignees: “We conclude that the entitlement to assert damages under Section 8371 may be assigned by an insured to an injured plaintiff and judgment creditor….”]
The court also found that “the complaint does not include sufficient factual averments regarding how [the insurer] acted unreasonably and in bad faith. … the complaint contains ‘either simple reiterations of the standard of proving bad faith or bald allegations that the standard has been breached.’”
Date of Decision: August 14, 2020
Feingold v. McCormick & Priore PC, Superior Court of Pennsylvania No. 3273 EDA 2019, 2020 WL 4728111 (Pa. Super. Ct. Aug. 14, 2020) (King, Lazarus, Strassburger, JJ.) (Not precedential)
Plaintiff asserted that the insurer breached a fiduciary duty. The insurer moved to dismiss, alleging plaintiff was not a named insured. Rather the policy was issued to his mother. The court rejected plaintiff’s argument that because he was a co-owner of the underlying asset he should be treated as an insured, and the claim was dismissed with prejudice.
The court observed that under Pennsylvania law:
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“[A]n insurer does not have a fiduciary duty to an insured, except in limited circumstances such as where the insurer asserts a right to defend claims against the insured.”
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“[T]he existence of a fiduciary duty . . . is predicated upon an existing contractual relationship between the insurer and the insured.”
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“To determine who is an insured under a given policy, the Court ‘must look to the terms of the [p]olicy.’”
Applying these principles, the plaintiff could not claim a breach of fiduciary duty when he was not a named insured. “Notwithstanding his alleged co-ownership of the underlying asset, plaintiff cannot claim that the defendants owed him a fiduciary duty or that he was entitled to recover under the terms of the policy.”
Date of Decision: July 13, 2020
Deckard v. Steven Emory, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-5182, CIVIL ACTION NO. 19-2001, 2020 U.S. Dist. LEXIS 122720 (E.D. Pa. July 13, 2020) (DuBois, J.)
This case involved breach of contract and bad faith claims against the insurer based on its decision not to cover the alleged theft of jewelry. The insurer engaged an investigation firm to look into the theft. The individual investigator assigned to the claim raised questions about either the ownership of the jewelry, or whether it was actually stolen in a burglary.
The insurer was granted judgment on the pleadings as to the breach of insurance contract claim. The policy had a one-year limitations period for brining suit, and the insured failed to file her action within one year.
Even though there was no coverage due because of the contractual limitations period, however, the court denied summary judgment on the bad faith claim. The insurer argued that the insured’s “deposition testimony shows that she cannot meet her burden of establishing bad faith.” The court found this argument premature.
The case had been removed to federal court and immediately placed in the arbitration track. There were no formal discovery requests from any party. The court found that the “litigation that has ensued does not preclude full and fair discovery on fact-driven claims that remain on the bad-faith count.” Thus, summary judgment was premature, and the motion was dismissed without prejudice. Judge Rufe added a requirement that the parties had to report jointly regarding to the court on what discovery was being pursued, if any, heading into the arbitration.
[Note: The insurer apparently did not attempt to argue that if the contract claim was dismissed, then the bad faith claim necessarily failed. There is some case law holding if the contract claim is dismissed on the basis of a contractual limitations period, the bad faith claim can still proceed. See, e.g., Doylestown Electrical Supply Co. v. Maryland Casualty Ins. Co., 942 F. Supp. 1018 (E.D. Pa. 1996) and March v. Paradise Mutual Ins. Co., 646 A.2d 1254 (Pa. Super. 1994), appeal denied, 540 Pa. 613, 656 A.2d 118 (1995).]
Finally, the insured attempted to amend the complaint to add claims against the insurer’s claim adjustor, the company it hired to investigate the claim and the individual investigator. The court found these claims meritless and would not allow amendment.
An individual adjustor working for an insurer is not an insurer. Thus, the individual adjustor was not subject to (i) a breach of contract claim because he was not a party to the contract; or (ii) the bad faith claim because Pennsylvania’s bad faith statute only applies to insurers. The same reasoning applied to the investigators.
Date of Decision: April 30, 2020
Holden v. Homesite Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2167, 2020 U.S. Dist. LEXIS 75904 (E.D. Pa. April 30, 2020) (Rufe, J.)
