Archive for the 'PA – Procedural Issues' Category
Plaintiff sued his dental insurer in federal court for breach of contract, bad faith, and various other claims. He moved for permission to proceed in forma pauperis, and while the court granted that motion, it dismissed the claims for lack of subject matter jurisdiction. Specifically, the complaint could not make out a claim in excess of $75,000.
The actual damages alleged were $1,200. The court recognized the bad faith statute allowed for punitive damages, which could be considered toward establishing the $75,000 jurisdictional minimum amount in controversy. Judge Marston found this to mean the insured was seeking at least $73,800 in punitive damages on his $1,200 compensatory damages claim, an approximate 61:1 ratio.
“But, as the Supreme Court has explained, ‘in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.’” In this case, even allowing a punitive damages award nine times compensatory damages “is a mere $10,800—far below the jurisdictional amount.”
Relying on the Third Circuit’s unpublished opinion in Kalick v. Northwest Airlines, Judge Marston found there was no plausible claim that could reach $75,000, and dismissed for lack of subject matter jurisdiction.
Date of Decision: January 22, 2021
Berkery v. Metropolitan Life Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 21-26-KSM, 2021 WL 229320 (E.D. Pa. Jan. 22, 2021) (Marston, J.)
This case involves a discrepancy over whether an insured timely renewed his life insurance policy, two months before his death. There was a dispute of fact over the date when the premium payment was mailed and received.
The carrier insisted the premium check was not mailed and received before the date necessary to maintain the policy. It deposited the insured’s payment check, but later returned the payment sum and deemed the policy lapsed on the basis the payment was outside the policy’s grace period. The beneficiary children, through their mother, alleged the check in fact was mailed and received within the grace period for premium payments. They sued for breach of contract and bad faith.
The insurer moved for judgment on the pleadings as to both counts.
First, the court denied judgment on the pleadings regarding the breach of contract claim. There was a dispute of fact over the mailing and receipt dates that could not be resolved via a motion for judgment on the pleadings.
Judge Slomsky then rejected the motion to dismiss the bad faith claim.
The plaintiffs alleged the insurer denied their claims without a reasonable basis, knowing that it had in fact received the insured’s premium payment during the grace period for continuing the policy. Further, the plaintiffs adequately alleged the insurer “knew of or recklessly disregarded the lack of reasonable basis because it knew [payment was timely] when it received and deposited the July Payment [from the deceased insured].” Despite this knowledge, the insurer “refused to pay the Policy’s benefits and never issued a denial letter.”
In denying the motion, Judge Slomsky concluded that, “[a]t this stage, viewing the facts in the light most favorable to Plaintiffs, they are sufficient to raise an inference that [the insurer] refused to pay under the Policy in bad faith.”
Date of Decision: January 21, 2021
Mullin v. Reliastar Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1438, 2021 WL 210962 (E.D. Pa. Jan. 21, 2021) (Slomsky, J.)
The Montgomery County Court of Common Pleas granted partial summary judgment on declaratory judgment claims concerning coverage, and an appeal was taken. The Superior Court quashed the interlocutory appeal as other claims remained undecided. In supporting its decision, the Superior Court observed, among other things:
“This Court has repeatedly applied Bolmgren [v. State Farm Fire and Cas. Co., 758 A.2d 689 (Pa.Super. 2000)],when discussing the appealability of orders that resolve declaratory judgment claims but leave other claims outstanding. See, e.g., Bombar v. West American Ins. Co., 932 A.2d 78, 85-86 (Pa.Super. 2007) (holding that trial court’s initial January 19, 2005 order granting summary judgment on declaratory judgment count of complaint was not final and appealable, where that order did not determine amount of damages for remaining bad faith claim; appeal from later December 30, 2005 order resolving outstanding bad faith claim was proper); Cresswell v. Pennsylvania Nat. Mut. Cas. Ins. Co., 820 A.2d 172, 176 n.2 (Pa.Super. 2003) (determining trial court’s initial December 20, 2001 order granting partial summary judgment in favor of appellee on declaratory judgment claim was interlocutory and unappealable, where court’s order left unresolved additional bad faith claim; trial court’s later order of May 28, 2002, which disposed of sole remaining bad faith claim, was final and appealable)….”
Date of Decision: January 11, 2021
Schmitt v. State Farm Mut. Auto. Ins. Co., Superior Court of Pennsylvania No. 1767 EDA 2019, 2021 WL 79808 (Jan. 11, 2021) (King, Stabile, Stevens, JJ.)
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.)
Eastern District Judge Pappert previously dismissed the insured’s UIM bad faith claim. A summary of that decision can be found here.
Presently, Judge Pappert denied the insured’s motion for reconsideration. He cited case law making clear that motions for reconsideration are not second bites at the apple, but must show either: “(1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court granted the motion … or (3) the need to correct a clear error of law or fact or to prevent manifest injustice.”
None of these factors existed. Thus, while the insured “may disagree with the Court’s determination, nothing in her motion shows that her bad faith claim was dismissed because of a clear error of law or that its dismissal amounts to manifest injustice.”
In his earlier decision, Judge Pappert also dismissed plaintiff’s claims for treble damages under the Motor Vehicle Financial Responsibility Law (MVFRL), on the basis the insured did not allege wanton conduct against the insurer. That dismissal, however, was without prejudice. The insured raised the same claim in its second amended complaint, but Judge Pappert found this amendment “still lacks sufficient allegations of wanton conduct, as she has not alleged ‘any new facts at all.’”
Rather than dismissing the claim under Rule 12(b)(6), consistent with the insurer’s motion Judge Pappert struck the treble damages claim per Rule 12(f).
Date of Decision: December 18, 2020
Canfield v. Amica Mut. Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2794, 2020 WL 7479615 (E.D. Pa. Dec. 18, 2020) (Pappert, J.)
The court dismissed this bad faith case for lack of diversity. Still, Judge Hornak opined on whether the plaintiff successfully alleged an amount in controversy above $75,000. The court found that, had there been complete diversity, it would have exercised jurisdiction.
“Courts ‘accept a party’s good faith allegation of the amount in controversy;’ however, when a defendant then challenges a plaintiff’s allegations of the amount in controversy, the plaintiff must provide ‘sufficient evidence’ to demonstrate the amount in controversy exceeds $75,000.” Courts “will only dismiss the case for failure to sufficiently allege the amount in controversy requirement if ‘it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed.’”
In this case, the insured sought breach of contract damages and damages for statutory bad faith and violation of the UTPCPL. Judge Hornak believed the claims were asserted in good faith. Under these circumstances, the court could “not conclude ‘to a legal certainty’ that Plaintiffs cannot recover an amount that exceeds the seventy five thousand dollar ($75,000.00) requirement.”
Date of Decision: December 8, 2020
Amato v. AAA Interinsurance Exchange of the Automobile Club, U. S. District Court Western District of Pennsylvania No. 2:20-CV-00684, 2020 WL 7222769 (W.D. Pa. Dec. 8, 2020) (Hornak, J.)
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.)
This case involved the arbitrability of statutory bad faith claims. The Superior Court relied upon its 23-year old decision in Nealy v. State Farm Mutual Auto Insurance Co., 695 A.2d 79 (Pa. Super. Ct. 1997) to resolve the issue, rather than looking at the usual principles regarding arbitrability.
The court states, “we need not address [the insurer’s] contention the bad faith claim fell within the scope of the arbitration agreement. The record does not demonstrate that the trial court found the claim to be outside the scope of the agreement; rather, it found Nealy to be binding.”
In Nealy, the Superior Court stated, “bad faith claims pursuant to Section 8371, ‘are distinct from the underlying contractual insurance claims from which the dispute arose.’” Thus, “section 8371 ‘provide[s] an independent cause of action to an insured that is not [dependent] upon success on the merits, or trial at all, of the contract claim.’”
The Nealy court then held, “Both this Court and our sister federal courts have decided a myriad of cases that impinge in some respect upon the workings of § 8371. No court, however, has squarely decided the question of whether an arbitration panel is vested with the jurisdiction to entertain such a claim. After careful consideration, we conclude that original jurisdiction to decide issues of § 8371 bad faith is vested in our trial courts.”
The court then rejected the insurer’s arguments against Nealy’s application. First, it found Nealy was not limited to UM/UIM cases. Next, the court found the complaint clearly pleaded bad faith bad on post-breach conduct, “and thus is temporally and factually distinct from its breach of contract claim.” Finally, the court ruled Nealy remained good law.
Date of Decision: September 29, 2020
KEB Hana Bank USA v. Fidelity National Title Insurance Company, Superior Court of Pennsylvania No. 207 EDA 2020, 2020 WL 5796159 (Pa. Super. Ct. Sept. 29, 2020) (Colins, McLaughlin, Panella, JJ.)
Published on
September 24, 2020 in
PA - Bifurcate/Sever & Stays, PA - Claims Handling (unreasonable), PA - Communication with insured, PA - Coverage Issues, PA - Delay (Investigation/Claims handling), PA - Delay (Payment), PA - Discovery and Evidence, PA - Federal Pleading Adequate, PA - No coverage due, bad faith still possible, PA - Procedural Issues, PA - Settlement related issues, PA - UIM/UM Cases and PA - Work Product.
In this underinsured motorist bad faith case, Eastern District Judge DuBois denied both a motion to dismiss on ripeness grounds, and an alternative motion to server or bifurcate.
The complaint alleges the tortfeasor had $50,000 in coverage and the plaintiff/insured had $500,000 in UIM coverage. The tortfeasor agreed to settle at $47,000 and the UIM carrier consented. Plaintiffs alleged severe and permanent injuries and pursued a UIM claim.
Specifically, the insureds allege they complied with all policy terms and conditions; the insurer did not tender any UIM benefits or make any settlement offers; the insurer did not conduct any investigation into the claims; and the insurer played “cat and mouse” games by “continuously and systematically failing to communicate any offer of settlement or denial of benefits,” misleading plaintiffs as to potential settlement on at least nine occasions, and “purposefully ignoring [plaintiffs’] demand for underinsured motorist benefits.”
BAD FAITH CLAIM CAN PROCEED
First, Judge DuBois rejected the argument that the bad faith claim was not ripe until the breach of contract claim was actually decided. Among other things, the court stated: “Success on a statutory claim for bad faith does not necessarily depend on the success of the underlying breach of contract claim.” Relying on a 1996 Eastern District decision, the court quotes: “A claim for bad faith brought pursuant to § 8371 is a separate and distinct cause of action and is not contingent on the resolution of the underlying contract claim. A plaintiff may succeed on its bad faith claim even if it fails on the underlying breach of contract claim. Additionally, courts interpreting § 8371 have consistently entertained multi-count complaints containing both unresolved insurance contract disputes and bad faith claims.”
The court further relies on the unpublished Third Circuit decision, Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., in reasoning that “’[a] finding that the insured did not ultimately have a duty to cover the plaintiff’s claim does not per se make the insured’s actions reasonable’ in hindsight.” Judge DuBois concludes: “Therefore, so long as the underlying contract claim is ripe, the bad faith claim is also ripe.”
After finding the claim ripe, the court finds plaintiffs can proceed on their bad faith claim. “Plaintiffs allege defendant acted in bad faith by failing to properly investigate their insurance claim, engage in settlement discussions, and communicate with them. This is ‘a separate and distinct’ cause of action from plaintiff’s claim that defendant breached the terms of the policy in failing to pay UIM benefits. … As such, a finding that defendant does not owe plaintiffs UIM benefits would not mandate a finding that defendant did not act in bad faith in handling the insurance claim.”
[Note: This opinion does not address the impact of the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company in determining to what extend a statutory bad faith claim can proceed, if at all, when there is no duty to pay any benefits under the policy. Moreover, we have previously observed that Gallatin Fuels never addressed Toy. These issues have been discussed many times on the Blog, most recently here.
Of special note is Judge DuBois’ 2019 decision in Buck v. GEICO, which appears to emphasize, and confirm, the denial of a benefit as a predicate to statutory bad faith claims. Among other things, the Buck opinion looks to Toy as a leading authority, and not Gallatin Fuels. The Buck opinion includes language, in quotes below, stating:
“Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. ‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.’”
“Courts in Pennsylvania and the Third Circuit have consistently held that ‘[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.’”
The Buck plaintiff could not state a claim because “[n]one of the ‘benefits’ that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he ‘does not allege bad faith for refusal to pay benefits.’”
Buck observes that cases have held “’section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.’” This means, however, that bad faith claims “’need not be limited to the literal act of denying a claim.’”
Rather, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” “Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”]
In the present case, there seems to be no question that UIM coverage is provided, but only whether the plaintiff’s damages reach into the UIM coverage level or stop below $50,000. The insurer does not appear to challenge whether a plausible bad faith claim has been pleaded with adequate factual allegations, but only that the bad faith claim should not be allowed to proceed because it is not ripe. The court concludes that the UIM bad faith claim is ripe and can proceed.
MOTION TO BIFURCATE OR SEVER DENIED
The Procedures and Standards Governing Contract and Bad Faith Claims do not Favor Bifurcation or Severance.
Judge Dubois first rejected the argument that the claims should be severed or bifurcated because they will be governed by different procedures and standards. First, the carrier incorrectly argued that the contract and loss of consortium claims go to a jury while bad faith is decided by the judge. While true in Pennsylvania state court actions, bad faith claims can go to the jury in federal court cases. Next the court rejected the notion that the jury would be confused in applying the preponderance of the evidence standard to the contract claim and clear and convincing evidence standard to the bad faith claim. Judge Dubois also rejected the argument that the facts at issue on the two claims were entirely distinct.
“For example, one of plaintiffs’ assertions in the bad faith claim is that defendant failed to conduct an adequate investigation into plaintiffs’ injuries. This requires inquiry into two facts (1) the extent of plaintiffs’ injuries, and (2) the extent of defendant’s investigation into those injuries. The breach of contract claim also requires inquiry into the extent of plaintiffs’ injuries. A separate trial on the bad faith claim would require plaintiffs to present much of the same evidence to the second jury, ‘duplicating in many respects the presentation to the first jury.’ … This would be expensive and time-consuming for all parties. Because of the factual overlap between the claims, it would be more convenient to have a single trial in this case. Accordingly, the convenience factor weighs against severance or bifurcation.”
There is no Prejudice Because the Work Product Doctrine Remains Functional.
As to prejudice, the insurer focused on protecting work product. Judge Dubois states: “On this factor, defendant contends that allowing discovery and trial for the claims to proceed simultaneously would prejudice defendant because discovery in the bad faith claim would require defendant to disclose the claim adjustor’s mental impressions, conclusions, and opinions as to the merits of the case, evidence that is not discoverable in the breach of contract case. … To the extent that the claim adjustor’s work product is protected, defendant’s argument is unconvincing.”
Judge Dubois joins the vast majority of opinions finding the attorney client privilege and work product doctrine do not fall by the wayside simply because an insured brings a bad faith claim: “The Federal Rules of Civil Procedure and longstanding judicial precedent protect work product from disclosure—protections that do not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim. Allowing the claims to proceed simultaneously simply means [defendant] will be called upon to prove its entitlement to work product protection….”
Judicial Economy Favors a Single Action
As to judicial economy:
“Defendant’s argument as to this factor is that, should plaintiffs fail on their breach of contract claim, the bad faith claim will be moot. As explained above, that is an incorrect statement of the law. Plaintiffs’ bad faith claim is based, in part, on defendant’s failure to investigate plaintiff’s insurance claims and communicate with plaintiffs regarding their claims. ‘A finding that the [insurer] did not ultimately have a duty to cover the plaintiff’s claim does not per se make the [insurer’s] actions reasonable’ in hindsight. Gallatin Fuels, Inc., 244 F. App’x at 434-35. Whether defendant ultimately owes plaintiff benefits under the policy is distinct from whether defendant appropriately handled the claims.” [See Note above re Toy v. Metropolitan and Buck v. GEICO.]
“To the contrary, a single trial promotes judicial economy because it avoids duplication of effort by the parties across multiple trials. Although the contractual and bad faith claims present distinct legal issues, the underlying facts overlap. Therefore, “[b]ifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pretrial motions, and a completely separate trial,” much of which would concern the same factual basis. … Accordingly, the judicial economy factor weighs against severance or bifurcation.”
Date of Decision: September 11, 2020
Dunleavy v. Encompass Home & Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1030, 2020 WL 5501200 (E.D. Pa. Sept. 11, 2020) (DuBois, J.)
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)
