Daily Archive for September 17th, 2014

SEPTEMBER 2014 BAD FAITH CASES: NO BAD FAITH UNDER PENNSYLVANIA LAW WHERE INSURED FAILED TO DISCLOSE FACTS TO DISABILITY INSURER; NO BREACH OF FIDUCIARY DUTY UNDER NEW JERSEY LAW FOR SAME REASON (Philadelphia Federal)

Published on September 17, 2014 in NJ - Claims Handling (reasonable), NJ - Reverse Bad Faith, PA - Choice/Conflict of Law, PA - Claims Handling (reasonable) and PA - Reverse Bad Faith. Closed

In Hayes v. American International Group, a case involving a disability insurance claim, the Magistrate Judge concluded in her Report and Recommendation that there could be no statutory bad faith under Pennsylvania law where the carrier paid total disability benefits for over four years until it learned that the insured had been working over the entire period.

Further, a subsequent investigation of the insured, his work-related activities and his earned income, as well as his failure to provide relevant financial information, led to the insurer’s decision to terminate benefits.

The insured did not present sufficient evidence to support that the insurer lacked a reasonable basis for denying total or residual disability benefits, or that the insurer disregarded a lack of a reasonable basis for doing so.

The insured also brought a claim for breach of fiduciary duty. The court observed that there was a difference in Pennsylvania and New Jersey law, with Pennsylvania law recognizing only a very limited fiduciary duty in insurers, and New Jersey law recognizing a broader fiduciary duty from insurers to insureds in the processing of first party claims.

The court did a conflict of laws analysis, setting out, however, that both parties to the insurance contract owe a fiduciary duty to the other under New Jersey law. In light of that, New Jersey law was not contrary to Pennsylvania’s governmental interests, the conflict was false, and New Jersey law applied.

For the reasons set out above, there could be no breach of fiduciary duty. The insured had repeatedly and consistently reported his lack of income and inability to perform anything but sedentary activities to the insurer. Thus, the court stated that “it cannot be said that [the insurer] exercised bad faith in discontinuing benefits when confronted by evidence that Plaintiff was earning more from his private practice than he was earning before he allegedly became disabled.”

Date of Decision: July 29, 2014

Hayes v. Am. Int’l Group, CIVIL ACTION NO. 09-2874, 2014 U.S. Dist. LEXIS 103564 (E.D.Pa. July 29, 2014) (Hey, U.S.M.J.) (Report and Recommendation)

Adopted by District Court on September 11, 2014.

Other Bad Faith Decisions of Interest from Pennsylvania State Trial Courts

Published on September 17, 2014 in PA - Bifurcate/Sever & Stays, PA - No coverage duty, no bad faith and PA - UIM/UM Cases. Closed

Following on today’s post concerning bad faith decisions by state trial judges, we note recent postings in the Tort Talk Blog with bad faith decisions emanating from state courts.

The first is a Monroe County decision, discussed here, granting a motion to sever and stay a bad faith claim in a UIM case.

The second is actually a non-precedential Superior court opinion, discussed here, which affirmed a trial court’s ruling that there could be no bad faith where it was determined that there could be no coverage.

As always, our thanks to Tort Talk for finding and discussing opinions on the subject.

SEPTEMBER 2014 BAD FAITH CASES: STATE TRIAL COURT, FOLLOWING SUPERIOR COURT, HOLDS THAT BAD FAITH CAN GO BEYOND A PURE DENIAL, AND CAN INCLUDE BAD FAITH IN INVESTIGATING AND COMMUNICATING WITH INSURED; THEN FINDING THAT SOME OF THESE CLAIMS WERE TIME BARRED, BUT OTHERS MUST BE DETERMINED BY THE TRIERS OF FACT, IN ONLY GRANTING PARTIAL SUMMARY JUDGMENT TO EXCESS CARRIER (Centre County Common Pleas)

Published on September 17, 2014 in PA - Claims Handling (general), PA - Communication with insured, PA - Cooperation with insurer, PA - Limitations Period, PA - No coverage due, bad faith still possible and PA - UIPA & UCSP. Closed

In Mountainside Holdings, LLC v. American Dynasty Surplus Lines Ins. Co., the defendant insurers were excess directors and officers liability insurance carriers at the tertiary level, with primary coverage and the first layer of excess coverage providing $10,000,000 in coverage. The dispute arose out of underlying claims against the insureds in a qui tam action. They raised bad faith and breach of contract claims against the insurers.

The court observed that bad faith claims can include more than the pure denial of the claim. “An action for bad faith may extend to the insurer’s investigative practices. Bad faith conduct also includes lack of good faith investigation into facts, and failure to communicate with the claimant.” The court then cited an online dictionary definition: “To investigate is ‘to observe or study by dose examination and systematic inquiry.’”

Further, bad faith plaintiffs can attempt to prove bad faith by demonstrating that the insurer violated provisions of Pennsylvania’s insurance statutes or regulations, “even if those provisions do not provide for private rights of action.”

The first legal issue was whether the bad faith claims were time barred, and what acts caused the statute of limitations to begin running. Plaintiffs attempted to argue that the statute couldn’t begin to run until the $10,000,000 had been paid by the first two lawyers of coverage, and the carrier refused to pay on the third layer, i.e., denied that benefit. The court looked to the wider definition of bad faith cited above, and the plaintiffs’ own complaint which alleged various failures to investigate, a failure to communicate, interference with plaintiffs’ defense in the qui tam action, as well as a denial. The court found that these acts triggered the statute of limitations, and these claims were time barred.

As to the remaining bad faith claims which were not time-barred, the court applied the same reasoning, i.e., that pure denial is not the sole source of bad faith, to reject the insurers’ summary judgment motion as to some of the bad faith claims.

First the court agreed that plaintiffs’ claims of interference with the defense in the qui tam case and interference with the other two layers of insurance carriers were attempts to circumvent the court’s prior ruling dismissing their tortious interference claims. However, on the claims of an “alleged failure to promptly acknowledge and investigate” and alleged wrongful denial of coverage on the basis of a failure to cooperate, issues of fact remained. Going back to the dictionary definition cited that investigate means “to observe or study by close examination and systematic inquiry,” the court found that: “It remains unanswered whether Defendants’ request for more information was a systematic inquiry, or if more was required.”

Date of Decision: June 30, 2014

Mountainside Holdings, LLC v. Am. Dynasty Surplus Lines Ins. Co., No. 2003-127, COMMON PLEAS COURT OF CENTRE COUNTY, 2014 Pa. Dist. & Cnty. Dec. LEXIS 73 (C.C.P. Centre County June 30, 2014) (Grine, J.)