Archive for the 'PA – Sworn Statement/EUO' Category

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

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

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

Reserves discoverable in bad faith valuation dispute

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

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

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

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

ISO claim search report discoverable

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Date of Decision:  May 27, 2021

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

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

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

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

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

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

Judge Horan states:

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

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

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

Date of Decision: April 30, 2021

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

NO BAD FAITH FOR FAILURE TO LEARN ABOUT OTHER INSURANCE COVERAGE NOT DISCLOSED BY THE INSURED, OR IN ACTIVE CLAIM HANDLING THAT ONLY RESULTED IN A VALUATION DISPUTE (Western District)

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The injured plaintiff had UIM insurance stacked for four vehicles. With stacking, this UIM coverage amounted to $60,000. The insured agreed to settle his claim for $50,000.

After that settlement, the plaintiff brought to the carrier’s attention that his stepson also had an auto policy with the same carrier. Plaintiff took the position that he was an insured under the stepson’s policy as they resided in the same household. If true, this would considerably increase potential UIM coverage from $60,000 to $160,000.

The stepson’s policy, however, listed a different home address. The stepfather told this carrier this was not accurate and an investigation into the stepson’s address ensued.  The carrier ultimately agreed to the additional $100,000 in available UIM coverage, but did not find a factual basis to increase the $50,000 paid to settle the case.

The Insurer’s Claim Handling Concerning Valuation

The court accepted the carrier’s factual recitations from the record. The insured twice agreed with the carrier on the claim’s value, only later to change course and increase his demand.  Instead of arguing over these reversals, the carrier “re-opened, re-evaluated and continued to negotiate with Plaintiff in a prompt and reasonable manner.” Moreover, the carrier did so “despite [the plaintiff’s] repeated refusal for over a year to participate in an SUO [statement under oath], and resistance to providing authorizations for the release of medical records, both of which are investigative tools to which [the insurer] is contractually entitled.”

The court also agreed the insured only gave the carrier “unreasonably small windows of time to respond to his demands, and refused to grant any extensions. … Nevertheless, [the insurer] continued to work with Plaintiff and to explain to him what [the insurer] needed, why [the insurer] needed it, and the basis for [its] determinations regarding his claim.”

The insurer obtained an independent medical examination, years after the injury, from which it concluded there was no basis to increase the settlement sum.  This evaluation was done at a time when the insured repeatedly said he was going in for additional surgery, and this was a basis to increase the claim’s value. As of the time the record was created in the case, however, this surgery had not taken place.

Judge Cercone stated the insurer “reasonably valued Plaintiffs UIM claim … and reasonably took the position that, if Plaintiff did in fact undergo surgery, the claim could be again be re-evaluated at that time.”

Alleged Failure to Determine the Stepson’s Address

The bad faith claim focused on the insurer’s alleged failure to disclose the insured was also covered under the stepson’s policy, as well as his own policy. This in turn boiled down to where the stepson actually resided at the time of the accident at issue, and what information the insurer had about the stepson’s residence in underwriting the stepson’s auto policy.

The record shows the stepson used his biological’s father’s home address in applying for insurance, not his stepfather’s address. Further, there was nothing on the face of the stepson’s underwriting file to indicate the stepson resided with plaintiff and not his biological father. After considerable investigation, the insurer did agree plaintiff was an insured under the stepson’s policy, thus accepting that the stepson in fact resided with plaintiff and not his biological father.  As stated above, however, the insurer refused to increase its settlement sum pending any actual additional surgery and an evaluation thereof.

Bad Faith Analysis

The insured sued for breach of contract and bad faith. The bad faith claim was based on the notion that it was the carrier, not the stepfather, that had a duty to disclose the additional $100,000 in coverage under the stepson’s policy. Thus, the plaintiff alleged the carrier misled the stepfather-insured into thinking there was only $60,000 in coverage, and this created a basis for a statutory bad faith recovery.

The insurer successfully moved for summary judgment on this bad faith claim.

Judge Cercone found “[t]he matter presented to defendant and this court falls far short on the showing needed to permit the finder of fact to arrive at a finding of bad faith.” The stepfather did nothing more than insinuate the carrier: (1) should have been more astute in determining the stepson’s actual address, (2) questioned the stepson on his address, (3) discovered inconsistencies in his address, which (4) “would have and should have detected that [stepson] lived with plaintiffs,” and then (5) would have necessarily resulted in the carrier realizing that the stepson’s policy should have been added to the stepfather’s applicable policy limits.

The court rejected this speculative narrative as falling far short of the kind of reckless or intentional misconduct needed to prove bad faith. The putative failure to uncover the extra $100,000 in coverage was at most negligent, and “an insurer’s mere negligence or bad judgment is not bad faith.”

Moreover, the court clearly did not believe there was even negligence in this case. Judge Cercone described plaintiff’s effort to convert the stepson’s underwriting history “into an unfounded and unreasonable basis for failing to detect [stepson’s] actual residence [as] nothing more than an attempt to insinuate an evidentiary basis for a finding of bad faith.” The plaintiff failed to identify any procedure the carrier failed to follow in concluding the stepson’s address to be with his biological father, which was the address submitted by the stepson and his biological father when originally obtaining the policy, and the address used on the policy.

The court described the case as actually boiling down to a valuation dispute.

As described above, the insurer’s claims handling was reasonable. It considered multiple demands to reevaluate the claim, even after settlement. It also agreed to the additional $100,000 in coverage limits “without meaningful delay once [stepson’s] actual address … was made known … and it verified…”

Judge Cercone states, “[a]gainst this backdrop it is rank speculation to infer that the [insurer’s] principals involved here engaged in a course of conduct with the intent to promote [the insurer’s] financial interest over its fiduciary obligations to plaintiffs, or that they recklessly pursued a course of conduct that had the ability to do so. As noted above, plaintiffs’ attempts to establish the lack of good faith fall woefully short of the mark and are insufficient.” Nothing was identified in the insurer’s claim handling that “even remotely raises a specter of self-dealing.”

Judge Cercone found “no evidence whatsoever that defendant did not investigate, valuate and negotiate with plaintiffs in good faith or stopped doing so during the adjustment process.”

In summing up, Judge Cercone states:

In short, plaintiffs have failed to advance sufficient evidence to permit a finding in their favor on a bad faith insurance practices claim. Plaintiffs’ evidence pertaining to defendant’s failure to uncover [stepson’s] policy during a search for household policy holders in conjunction with [plaintiff’s] UIM claim cannot bear the weight plaintiffs seek to have it shoulder. [The insurer] straightforwardly requested plaintiffs to identify the automobiles owed by any family member residing in their household. They did not identify or even allude to [stepson] and his motor vehicle when so requested. The evidence reflecting the address used in issuing [stepson’s] policy has every appearance of being consistent with honoring the representations and billing requests of its insureds and does not in any event supply clear and convincing evidence that defendant engaged in self-dealing or other similar measures in order to thwart its good faith obligations in adjusting and negotiating [plaintiff’s] UIM claim.”

Date of Decision: November 30, 2020

Bogats v. State Farm Mutual Automobile Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:18CV708, 2020 WL 7027480 (W.D. Pa. Nov. 30, 2020) (Cercone, J.)

BOILERPLATE BAD FAITH COMPLAINT FAILS; NO COMMON LAW BAD FAITH CLAIM RECOGNIZED (Philadelphia Federal)

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This bad faith case involved a first party property damage dispute. The insured alleged he fully cooperated in the insurer’s investigation, but the insurer wrongly denied his claim. He brought a breach of contract, common law bad faith, and statutory bad faith action. The insurer moved to dismiss both bad faith claims. The court found the insured’s bare bones and conclusory allegations did not meet federal pleading standards, and dismissed the complaint.

On the statutory bad faith claim, the insured did “nothing more than set forth a threadbare recital of the elements of this cause of action, alleging [the] denial of his claim ‘was unreasonable, baseless, without foundation, made in bad faith, and made without any basis in fact whatsoever.’”

The following alleged facts failed to make out a statutory bad faith claim:

  1. The insured had a policy with the insurer;

  2. His car was stolen, stripped and destroyed;

  3. He submitted a proof of loss, other documentation, and sat for a lengthy statement under oath;

  4. He was truthful throughout the investigation and engaged in no fraudulent commissions or omissions;

  5. He demanded an actual cash value payment; and

  6. The insurer denied the claim.

These allegations, however, allowed for no plausible inference that (1) the insurer lacked a reasonable basis to deny benefits or (2) the insurer knew or recklessly disregarded its lack of a reasonable basis.

Next, the court observed that there is no common law bad faith cause of action in Pennsylvania for refusing to pay benefits or as to claims handling. The insured did not oppose the motion to dismiss on this basis, and the common law count was dismissed as well. [Note: There is no discussion of any distinction between a tort-based common law claim, as rejected in D’Ambrosio, and the type of contractual common law bad faith claims permitted in cases like Cowden or Birth Center.]

Date of Decision: February 21, 2020

Diaz v. Progressive Advanced Ins. Co., U. S. District Court Eastern District of Pennsylvania Case No. 5:19-cv-06052-JDW, 2020 U.S. Dist. LEXIS 29708 (E.D. Pa. Feb. 21, 2020) (Wolson, J.)

INSURER’S RELIANCE ON ADVICE OF COUNSEL, AMONG MANY OTHER FACTORS FAVORING THE INSURER, DEFEATS BAD FAITH CLAIM (Philadelphia Federal)

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This case involves a head-spinning array of factual discrepancies between the insured’s claims to the carrier and the results of the insurer’s investigation. These range from whether the insured actually owned the property to whether the structure at issue collapsed from a sudden event or collapsed because of (uncovered) faulty construction. We leave you to the court’s lengthy and detailed narrative concerning these discrepancies, and the various coverage issues invoked by their presence. Of particular interest here is that in addition to involving an adjuster, SIU adjuster, supervisor and engineering expert, the insurer also puts its outside counsel’s coverage opinion on the record.  

The insured brought a bad faith claim, and the insurer moved for summary judgment after making a detailed record.  The insurer asserted various bases for why it was entitled to summary judgment. In granting summary judgment, the court stated that, at a minimum, there was a reasonable basis to deny coverage:

“The record indicates that [the insurer] conducted a thorough investigation of the claim and ultimately decided that coverage should be denied. Indeed, [a] property adjuster and an SIU adjuster inspected Plaintiff’s loss; the claim was reviewed by [a] supervisor; [the insurer] took the recorded statement of Plaintiff and reviewed relevant property documentation from the City of Philadelphia; [the insurer] obtained the services of a structural engineer; and [the insurer] then sent the structural engineer’s report, which opined on the cause of the loss, to independent legal counsel for an opinion on the coverage. Finally, relying upon independent legal counsel’s conclusion that coverage did not exist for Plaintiff’s loss, [the insurer] denied Plaintiff’s insurance claim. It cannot be said that [the insurer]’s investigation and decision-making process was ‘frivolous or unfounded,’ as required under Pennsylvania law to succeed on a bad faith claim.”

The court added, “the factual record is devoid of any ‘clear, direct, weighty and convincing’ evidence that would allow a factfinder to find ‘without hesitation’ that [the insurer] acted in bad faith in investigating and ultimately denying Plaintiff’s insurance claim.”

Moreover, even if the insured could make a case for unreasonableness, “the record is devoid of any evidence that [the insurer] either knew it had an unreasonable basis for denying coverage or recklessly disregarded its lack of a reasonable basis in denying Plaintiff’s claim or in the manner in which it investigated Plaintiff’s claimed loss.” The record shows the contrary. The insurer not only engaged a structural engineer, but also independent legal counsel to analyze coverage. It then “relied on the independent findings of both the expert and legal counsel in its ultimate decision to deny” the claim.

Date of Decision: February 14, 2020

Nguyen v. Allstate Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-5019, 2020 U.S. Dist. LEXIS 25789 (E.D. Pa. Feb. 14, 2020) (Kenney, J.)

 

COMMON PLEAS JUDGE FINDS BAD FAITH FOR (1) RELYING ON UNWARRANTED RED FLAGS; (2) REACHING COVERAGE CONCLUSIONS UNSUPPORTED BY ACTUAL FACTS; (3) UNREASONABLE INTERPRETATION OF POLICY’S COVERAGE LANGUAGE; (4) DRAWING UNWARRANTED CONCLUSIONS FROM EXPERT REPORT; (5) FAILING TO INVESTIGATE FULLY; (6) VIOLATING UIPA (Common Pleas Lehigh)

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Today’s post summarizes Lehigh County Judge Melissa Pavlack’s Findings of Fact and Conclusions of Law in this breach of contract and bad faith case.

The Court’s Factual Findings

The insureds’ car was stolen. It was recovered, but with considerable damage. The insureds’ license plate was replaced with a stolen plate. The court found that the thieves never intended to return the vehicle. The insureds sought coverage based on the theft and vandalism, relying on policy language covering theft, larceny, vandalism, and malicious mischief.

The court found the insureds were not involved in any way with the theft or vandalism, nor was there any fraud on their part. The car was deemed a total loss, and valued at around $13,000. There were additional costs for hauling and storage, bringing the total claim to approximately $17,000.

The insurer denied the claim, citing insufficient evidence the car had been stolen. It refused to consider a separate vandalism claim because the damages arose out of an alleged theft. Thus, the insurer did not investigate the vandalism claim, and the denial letter never addressed the vandalism claim’s merits. The insurer never cited any policy exclusions applying to the vandalism claims. There was also no denial based on fraud.

The insurer’s investigation included a claim’s adjuster and supervisor, a fraud investigator, an appraiser, an appraisal report, an investigator and three investigator reports, an examination under oath over the telephone and in person, document requests, and a site visit to the loss location. At trial, the adjuster could not recall which of the insured’s statements under oath led to the claim denial.

The investigator reported to the carrier that one of the insureds was uncooperative because she did not bring unredacted tax returns and cell phone records to her examination under oath. Relying on this alleged lack of cooperation, the claims supervisor wrote to the insured that she had failed to cooperate by not bringing these tax returns and records, and failed to cooperate with the insurer’s investigation. However, the investigator was not aware that another of the insurer’s representatives had actually instructed the insured to bring redacted copies of the tax returns to the examination under oath, which she did.

As to other document issues allegedly evidencing a failure to cooperate, it was made clear during the examination under oath that the insured was a medical professional. She could not simply produce her phone records without violating HIPAA. She attempted to cooperate during the examination under oath by showing some messages in her phone from the days in question; but the adjuster was also concerned about HIPAA, and was hesitant to proceed with looking at her phone. Further, the court found the insured could not respond to the insurer’s request for the car purchase documents because these had been stolen from the glove compartment.

Moreover, in contrast to assertions that the insureds failed to cooperate, the court found that the insurer’s fraud investigator conceded the insureds had cooperated, and had provided documents requested in the manner requested.

As to the allegation there was insufficient evidence of theft, the insurer relied upon its expert report. The expert opined there was no forced entry, and that the car only could have been moved using a key. The court found (1) the insurance policy did not require forced entry as a condition precedent to establish theft, and (2) the car could be moved without a key. Further, the insurer’s fraud investigator testified that cars can be stolen without noticeable signs of forced entry, and there was other testimony to the same effect. The court also found that the fraud investigator never communicated with the claim adjuster that forced entry was not required to steal a car.

In sum, the court found these conclusions (forced entry and use of a key) were not reasonable bases to deny the very existence of a theft.

Most significantly, the expert only opined the car was not stolen by means of forced entry, and that a key had to have been used. Whether or not these conclusions were correct was irrelevant in the court’s view, because the expert never opined the car was not stolen. Thus, it was an error to make the leap that the car was not stolen, as it could have been stolen by some means other than forced entry, or could have been moved without a key.

There was Coverage for Theft, Vandalism, and Malicious Mischief

In addressing the breach of contract claim, the court looked at the policy’s plain language. The policy expressly covered theft, larceny, vandalism, and malicious mischief. There were no applicable exclusions in this case, so the court only had to interpret the coverage language.

The court looked at the dictionary definition of these terms, rather than any criminal statutes or case law defining vandalism, theft, etc. It concluded the facts of the case fell within these coverage terms, and the insureds claims were covered. As to bad faith, it was unreasonable to conclude the facts at hand did not fall within the policy’s plain and unambiguous language. Further, the court found the insurer’s conduct unreasonable in failing to consider coverage for vandalism and malicious mischief when denying the claims.

Court uses Unfair Insurance Practices Act and Unfair Claim Settlement Practices Regulations as Standards

The court cited (1) Unfair Claim Settlement Practice regulations (UCSP), 31 Pa. Code § 146.4, on obligations to fully disclose coverages and benefits; and (2) the Unfair Insurance Practices Act (UIPA), 40 Pa.S.A. § 1171.5(a)(10)(iv), on failing to reasonably explain a claim denial.

The court cited these UCSP and UIPA provisions in the context of the first bad faith prong, lack of a reasonable basis to deny benefits. The court then observed the insurer had completely failed to consider the vandalism and malicious mischief claims covered under the policy. This supported the existence of bad faith, though it is not wholly clear whether the UCSP and UIPA violations were evidence of bad faith conduct, or were bad faith per se.

[We have previously posted on how courts treat alleged violations of UCSP regulations and the UIPA in bad faith cases, ranging from (1) their being completely outside the scope of consideration in determining bad faith, (2) as constituting potential evidence of bad faith, or (3) as amounting to statutory bad faith. It is not quite clear in the present case which of the latter two standards applied. Even without citing the UCSP or UIPA, however, it would seem the court’s finding that the insurer gave no regard to plainly covered vandalism claims was a basis for bad faith, regardless of any UCSP or UIPA violations.]

Erroneous Red Flags

The insurer justified its conduct by identifying certain “red flags” that caused legitimate doubt in the insureds veracity. When scrutinized, however, the court found these red flags were based on factual errors or erroneous assumptions.

  1. The insured was deemed uncooperative for failing to attend a unilaterally scheduled examination under oath. In fact, however, the court found the insured gave sufficient notice she could not attend on that date, and cooperated in rescheduling the examination under oath on another date, at which she appeared. She also had agreed to, and participated in, an examination over the phone.

As to the original date for the in-person examination, the court observed that the insurer knew in advance the insured was not going to appear on the first scheduled date, but still had its representatives appear to make a record against the insured for failing to appear.

  1. The insurer also asserted the insured was uncooperative because she provided redacted tax returns. As stated above, the insurer’s own representative had informed the insured in writing that certain redactions could be made. Further, when the insurer later requested an unredacted return, the insureds provided it.

  2. As to the alleged lack of cooperation on cell phone records, this was fully addressed during the examination under oath. As stated above, the insured was a medical professional and there were certain items on her phone records that could not be produced under HIPAA. That being said, she still offered to let the insurer’s representative look at her cell phone during the examination under oath, regarding non-HIPAA messages from the date the car was stolen. The adjuster was concerned about violating HIPAA, and was hesitant to do so.

  3. The insurer also deemed it a red flag that the loss came shortly after the policy’s purchase. This turned out to be an error. The court found the policy was purchased at least six months earlier. Another suspicion surrounded alleged excessive mileage on the car, which the court found was likewise not factually the case.

Failure to Fully Investigate the Red Flags

The court observed that while the insurer took the insured’s examination under oath, and conducted various investigations based on these alleged red flags, it failed to contact the police. Nor did the insurer follow up on evidence that drugs reportedly were found in the glove compartment. Though not expressly stated in the conclusions of law, this implies that the presence of drugs, under all the facts, favored the idea that strangers had stolen the car for nefarious purposes.

The Insurer Relied on its Expert Report for the Wrong Conclusion

For the court, the coverage issue concerning the insurer’s expert was simple: Was the car stolen? The issue was not: How was the car stolen?

The expert opined on two means by which the car was not stolen. The court found the expert never opined, however, that the car was not stolen. Moreover, the insurer never argued that the insureds faked a theft or lied about it.

The court pointed out that other means could have been used to steal the car, including non-intrusive and non-mechanical means. For example, after the car was recovered it was towed twice. The court found this demonstrated the car could be moved without forced entry and/or without a key.

Thus, the insurer’s reliance on the expert report to deny the fundamental existence of theft was unreasonable. The court found relying on the expert report to reach a conclusion (no theft) on which the report did not render an opinion, amounted to a knowing or reckless unreasonable denial of benefits, i.e. bad faith.

After finding bad faith on all the foregoing grounds, the court stated it would schedule a hearing on attorney’s fees, interest, and punitive damages.

Date of Decision: December 27, 2019

Unterberg v. Mercury Insurance Company of Florida, Court of Common Pleas of Lehigh County Case No. 2016-C-806 (Dec. 27, 2019) (Pavlack, J.)

Thanks to Daniel Cummins of the excellent and extremely useful Tort Talk Blog for bringing this case to our attention.

OCTOBER 2018 BAD FAITH CASES: ALLEGED FAILURE TO MEET CONDITION PRECEDENT UNDER POLICY CANNOT BE BASIS TO DISMISS A BAD FAITH CLAIM AT THE PLEADING STAGE (Western District)

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The insured’s home was burglarized, and he sought coverage for his losses. The insurer conducted an investigation. It asked for an examination under oath on a specific date, and for certain additional information. After this request, the insured filed its breach of contract and bad faith action. The insured told the insurer he would sit for an examination under oath or a deposition in the context of a bad faith litigation, but not both. The examination never occurred and litigation proceeded, with the insurer stating its investigation was ongoing.

The insurer moved to dismiss the complaint on the basis that the insured “failed to comply with the conditions of the Policy when he objected to [Defendant’s] requests that he produce evidence about his potential motive and opportunity to commit insurance fraud during the course of [Defendant’s] investigation of his claim.” The court found the argument inapposite. The existence of policy terms precluding a claim, or conditions precedent requiring satisfaction before recovery, “are matters yet to be determined,” and not issues to be decided on a motion to dismiss.

Thus, the motion was denied without prejudice.

Date of Decision: October 2, 2018

Fontana v. Pacific Indemnity Co., U. S. District Court Western District of Pennsylvania Civil Action No. 18-516, 2018 U.S. Dist. LEXIS 169694 (W.D. Pa. Oct. 2, 2018) (Kelly, J.)

 

SEPTEMBER 2018 BAD FAITH CASES: INSURED’S FRAUD ON SMALL FRACTION OF TOTAL CLAIM RESULTS IN FORFEITURE OF ALL SUMS PAID, UNDER BOTH PENNSYLVANIA COMMON LAW AND NEW JERSEY STATUTORY LAW (Philadelphia Federal)

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The insurer sought damages and rescission under Pennsylvania common law and New Jersey’s Insurance Fraud Prevention Act. There was a fire at the insured’s New Jersey shore home, and allegedly subsequent theft of personal property from the home. The insured made a claim for lost personal property and submitted photographs of the lost items.

After investigation, the insurer concluded that the photographs were taken after the fire loss at issue, at a different home owned by the insured in Philadelphia. Thus, contrary to the insured’s sworn statement, these items were not lost or stolen from her shore home.

The policy provided there was no coverage “if, whether before or after a loss, an ‘insured’ has: 1. intentionally concealed or misrepresented any material fact or circumstance; 2. engaged in fraudulent conduct; or 3. made false statements relating to this insurance.”

The insurer denied the claims for the personal property in the photos on the basis that the insured “intentionally concealed and/or misrepresented material facts concerning [her] claim for personal property, and made false statements regarding the items that were allegedly lost due to the fire or theft.”

The insured brought breach of contract and bad faith claims, which were dismissed for lack of prosecution. The insurer’s fraud claims were raised as counterclaims. The insured did not file any opposition, and by the time the insurer moved for summary judgment, the insured was pro se.

On the Pennsylvania common law fraud claims, the court observed: “It follows, as the night follows the day, that [the insured] has suffered no personal property loss for the items photographed since she still had possession of those undamaged items after the fire and alleged theft.”

The court not only granted relief on the personal property damage claims for the allegedly lost items, but as to the entire loss, including the sum paid for the value of the home. The court stated:

“The record is clear that [the insurer] made payments … in reliance on what it believed at the time to be her truthful representations about her losses as a result of the fire and alleged theft. [The insurer paid] $351,767.17 in dwelling coverage and $10,000 in personal property coverage. As it turned out, there is no genuine dispute about the fact that [the insured] made materially false representations … in an effort to mislead it into paying her for personal property which she did not lose. … Under the terms of the insurance policy, no coverage is provided if the insured either before or after the loss intentionally concealed or misrepresented any material fact, engaged in fraudulent conduct, or made a false statement relating to their insurance. Clearly, [the insured] breached these provisions of the policy.”

Accordingly, we will enter summary judgment … against [the insured] on the counterclaim of common law fraud for $361,767.16, the amount …paid to her.”

The court also granted equitable rescission under Pennsylvania common law fraud principles, and granted relief under New Jersey’s Insurance Fraud Prevention Act. The court noted that the New Jersey statute includes recovery of reasonable investigation expenses, costs of suit and attorney’s fees. However, the court did not appear to award damages for investigation, costs or legal fees.

The Act itself provides for relief against an insured who “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy . . . knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or . . . (3) Conceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.] N.J.S.A. § 17:33A-4(a).(1, 3).”

The same facts supporting the common law fraud finding supported this statutory relief.

Finally, the court also awarded over $45,000 in prejudgment interest on the Pennsylvania claims.

Date of Decision: August 21, 2018

Pallante v. Certain Underwriters at Lloyd’s, London, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1142, 2018 U.S. Dist. LEXIS 141427 (E.D. Pa. Aug. 21, 2018) (Bartle, J.)

FEBRUARY 2018 BAD FAITH CASES: EXAMPLE OF ADEQUATELY PLEADING UIM BAD FAITH CASE (Philadelphia Federal)

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This is another UIM bad faith case. The court found the following allegations were sufficient to defeat a motion to dismiss the bad faith claim.

First, the court found the following allegations were adequate to meet the standard that the insurer lacked a reasonable basis to deny benefits:

  1. Defendant did not request a written statement from plaintiff;

  2. Defendant never requested a statement under oath;

  3. Defendant never requested a medical examination;

  4. Defendant did not request authorizations from plaintiff to secure any medical records;

  5. Defendant did not have a medical expert review plaintiff’s MRI;

  6. Defendant did not have Plaintiff’s medical records reviewed or evaluated;

  7. Defendant did not put its aforementioned offer in writing

  8. Defendant made no reference to any record or diagnostic firm review in making its offer;

  9. Defendant offered no explanation of its offer

  10. Defendant did not request current records of plaintiff’s treatment even though he was actively treating at the time of the oral offer; and

  11. Defendant assigned an inexperienced and/or inadequately experienced adjuster to plaintiff’s claim.

Second, the insured adequately pleaded knowing or reckless disregard of the alleged lack of a reasonable basis to deny coverage. Plaintiff alleged that the insurer’s “denial of full coverage for Plaintiff’s claim is unsupported by factual evidence; Defendant did not have Plaintiff’s medical records reviewed or evaluated; it made no request for current records of Plaintiff’s treatment; it did not reference any record or diagnostic firm review in making its offer; and it did not offer any explanation of its offer.”

Date of Decision: January 30, 2018

Irving v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 17-1124, 2018 U.S. Dist. LEXIS 14163 (E.D. Pa. Jan. 30, 2018) (Slomsky, J.)

MAY 2017 BAD FAITH CASES: DELAY ALONE IS NOT SYNONYMOUS WITH BAD FAITH; SWORN STATEMENT NOT PROHIBITED SIMPLY BECAUSE OF PRIOR DEPOSITION IN UNDERLYING CASE; TECHNICAL REGULATORY VIOLATIONS NOT BAD FAITH PER SE (Middle District)

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A UIM claimant alleged bad faith based upon: “misstatement of … coverage limits, alleged delay in claims processing, insistence upon a sworn statement under oath …, persistence in collecting medical records and failure to comply with insurances regulations regarding periodic status notices to insureds as evidence of bad faith.”

The insurer wanted summary judgment on the bad faith claim, which the court granted, stating: “that, while both parties indulged in occasional missteps in the process of reviewing and litigating this claim, the essentially uncontested evidence does not meet the demanding, precise and exacting legal standards prescribed under Pennsylvania law for a bad faith insurance processing claim.”

The court observed the “well-established” principle “that it is not bad faith for an insurance company to ‘conduct a thorough investigation into a questionable claim.’” Insurers can be successful in defending against bad faith claim by showing that there were “red flags” warranting further investigation.

Thus, delay alone does not equate to bad faith: “the mere passage of time does not define bad faith. Rather, an inference of bad faith only arises when time passes as part of a pattern of knowing or reckless delay in processing a meritorious insurance claim.”

The court observed that insurers in UIM cases need to deal with the claim against the underlying tortfeasor, which in this case went on for a number of years. Further, the insured did not place the insurer on notice of the UIM claim until nearly 5 years after the accident. Once the claim was made, the parties engaged in an ongoing process to attempt to resolve the dispute.

Further, though the carrier did originally misstate the scope of coverage, this was an understandable mistake and was corrected, resulting only in a brief delay.

In addition, there was nothing untoward in seeking a sworn statement in light of multiple circumstances, including, e.g., incomplete medical information. The court did not accept the argument that no sworn statement was needed because the insured had been deposed two years earlier in the underlying litigation. Further, as stated, each party engaged in some missteps in exchanging medical information, and the insurer was justified in seeking further medical information after having obtained some records.

Next, in evaluating the claim the underlying tortfeasor only settled years after the accident, and for a sum less than policy limits; a factor going to the UIM insurer’s ability to evaluate the claim. The insured had originally demanded over double the UIM policy limits to settle, and then policy limits.

The final argument involved alleged violations of Pennsylvania’s Unfair Claims Settlement Practices Act and the Unfair Insurance Practices Act, specifically concerning the regulatory requirement to provide 45 day updates on the status of insurance claims.

The court recognized that a “violation of these insurance rules can be considered when examining a bad faith claim under §8371.” The court then went on: “However, it is also clear beyond peradventure ‘that a violation of the UIPA or the UCSP is not a per se violation of the bad faith standard.’”

Applying these principles, the court concluded: “This case aptly illustrates why technical violations of these state insurance regulations cannot be equated with bad faith. The record before us amply reveals active, extensive and on-going communications …. Our review of the substance of these multiple communications … reveals that even when the communications are viewed in a light most favorable to [the insured], these communications do not support a claim of bad faith shown by clear and convincing evidence.”

The court then observed: “Given that the communications, in their substance, do not allow for a finding of bad faith here, it would be anomalous to conclude that the fact that the communications did not meet the technical frequency requirements mandated by insurance regulations, standing alone, established a bad faith claim in this case.”

Date of Decision: April 10, 2017

Ridolfi v. State Farm Mut. Auto. Ins. Co., No. 15-859, 2017 U.S. Dist. LEXIS 54267 (M.D. Pa. Apr. 10, 2017) (Carlson, M.J.)