Monthly Archive for September, 2014

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SEPTEMBER 2014 BAD FAITH CASES: CPA EXPERT PRECLUDED FROM TESTIFYING ABOUT INSURANCE LAWS AS IRRELEVANT AFTER PRIOR RULING ON BAD FAITH CLAIMS, BUT ALSO BECAUSE OF RISK OF JURY CONFUSION (Western District)

Published on September 18, 2014 in PA - Experts and PA - UIPA & UCSP. Closed

In United States Fire Ins. Co. v. Kelman Bottles, a case with a lengthy history concerning a number of bad faith claims the insured attempted to assert which were limited by the court, the court addressed numerous motions in limine prior to trial. This included efforts by the insurer to limit the testimony of one of the insured’s experts, a CPA. The court allowed testimony on accounting matters, but not matters related to insurance regulations and statutes, specifically, the Unfair Insurance Practices Act, 40 Pa. Stat. § 1171.1 (UIPA), and the Unfair Claims Settlement Practices regulations, 31 Pa. Code § 146.1 (UCSP).

Federal Rule of evidence 403 provides that a “court may exclude relevant evidence if its probative value is substantially outweighed by a danger of . . . unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” The insurer argued that an earlier decision broadly rejecting much of the insured’s bad faith claims mooted the testimony on these subjects. The insured argued that that “a violation of the UCSP and UIPA is not per se bad faith, and that no such sweeping prohibition for violations of the two exists in the Third Circuit.”

The insured attempted to distinguish a prior non-precedential Third Circuit 2002 case which held that “evidence of an insurer’s violation of the UIPA and UCSP was properly excluded under Rule 403 due to risk of prejudice.”

The court rejected the insured’s arguments “insofar as evidence of [the insurer’s] violation of the Pennsylvania insurance laws is not relevant to any of [the insured’s] remaining viable claims. Moreover, even if the evidence were probative, the risk of jury confusion is great. Absent relevance and in light of the risk of confusion of issues,” the motion to preclude this testimony was granted.

Date of Decision: August 8, 2014

United States Fire Ins. Co. v. Kelman Bottles LLC, 11cv0891, 2014 U.S. Dist. LEXIS 109982 (W.D. Pa. August 8, 2014) (Fisher, J. sitting by designation of U.S. Court of Appeals for the Third Circuit).

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.)

SEPTEMBER 2014 BAD FAITH CASES: WHERE POLICY CLEARLY EXCLUDES COVERAGE FOR WALL COLLAPSE, WITH NO APPLICABLE EXCEPTION FOR HIDDEN DECAY, THERE CAN BE NO BAD FAITH BECAUSE CARRIER HAD REASONABLE BASIS TO DENY CLAIM (Philadelphia Federal)

Published on September 16, 2014 in PA - No coverage duty, no bad faith. Closed

In White v. Metropolitan Direct Property & Casualty Insurance Co., the insureds suffered a wall collapse, which they originally claimed was “sudden and accidental” and the result of a heavy rain (which was later denied by them). Coverage was denied, and the insureds sued for breach of contract and bad faith.

First, the court found that the policy language of the “weather conditions exclusion” stated that sudden and accidental direct physical loss or damage to the property is not covered in the event of collapse where weather conditions contributed in any way to the collapse. The plaintiffs had originally claimed a weather source for the collapse, and the exclusion applied to a loss if that were the case.

The insureds further claimed that the wall collapse was the result of a structural defect, via use of the wrong type of brick. Such a claim was again subject to an express policy exclusion if defective, faulty, or unsound design, specifications, workmanship, or construction contributed to the collapse.

Lastly, the insureds also claimed decay and deterioration were a source of the collapse, through water infiltration in visibly deteriorated parts of the wall. Again, the policy was clear that only hidden decay would be covered, and because the decay was not hidden, the loss resulting from the collapse was not covered under the hidden decay exception.

After finding no breach of contract, the court addressed the bad faith claim: “The current bad faith claim before the Court cannot get past the initial element—lack of a reasonable basis for denying benefits. As explained in detail above, Defendant’s denial of benefits was not only reasonable, but correct under the Policy language. Absent a showing of an unreasonable denial, Plaintiffs are not entitled to recover on their bad faith claim.”

Date of Decision: July 29, 2014

White v. Metro. Direct Prop. & Cas. Ins. Co., CIVIL ACTION NO. 13-434, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2014 U.S. Dist. LEXIS 102959, (E.D. Pa. July 29, 2014) (Buckwalter, J.)

SEPTEMBER 2014 BAD FAITH CASES: INSURER DID NOT PROVE INSURED ENTERED SETTLEMENT IN BAD FAITH OR UNREASONABLY; INSURED DID NOT HAVE TO PROVE BAD FAITH TO RECOVER ATTORNEYS’ FEES (New Jersey Federal)

Published on September 16, 2014 in NJ - Attorney's Fees, NJ - Declaratory Judgment and NJ - Settlement related issues. Closed

In The Travelers Property Casualty Co. of America v. USA Container Co., the insured was subject to suit over a spoiled overseas delivery of corn syrup to a European buyer. The carrier declined coverage, but during settlement negotiations between the insured and plaintiff, did make a limited offer to contribute to a settlement, subject to a right of reimbursement. The insured declined, and settled.

The insurer later claimed it should not have to reimburse the full settlement, in the context of its declaratory judgment action. The court found that the insurer failed to produce evidence that the settlement was entered in bad faith or was unreasonable, and thus it was liable for the full amount.

The court then analyzed the 7 factor test for determining whether the unsuccessful insurer in the declaratory judgment action was liable for attorneys’ fees under N.J. Ct. R. 4:42-9(a)(6), and observed that the insured need not establish bad faith to recover fees; rather, the presence of bad faith was only one factor to consider.

Date of Decision: July 21, 2014

Travelers Prop. Cas. Co. of Am. v. USA Container Co., Civil Action No. 09-1612 (JLL) (JAD), 2014 U.S. Dist. LEXIS 99635 (D.N.J. July 21, 2014) (Linares, J.)

In case you missed this Labor Day Weekend Post: WHERE POLICY EXCLUSION WAS CLEAR, AND INSUREDS OFFERED NO ACTUAL FACTS TO MEET THEIR HIGH BURDEN TO PROVE THAT INSURER’S POSITION LACKED A REASONABLE BASIS, SUMMARY JUDGMENT WAS GRANTED TO THE INSURER ON BAD FAITH CLAIM (Philadelphia Federal)

Published on September 4, 2014 in PA - Discovery and Evidence and PA - No coverage duty, no bad faith. Closed

In Leitner v. Allstate Insurance Company, the insureds alleged bad faith on the basis of improper denial of their claim and/or unreasonable delay in the investigation process. The court cited the bad faith statute and the standards imposed by case law, emphasizing the “high bar” an insurance bad faith plaintiff had to leap to make out a case.

At issue was whether a loss was sudden and accidental, which would be covered; or was the result of action occurring over time. The case involved flooding from a burst pipe.

The carrier had the loss inspected and followed up requesting further documentation. It denied the claim on the basis that there was “seepage or leakage over a period of weeks, months, or years, of water, steam or fuel….” The insured’s own plumber found the source of the problem two-fold: the pipe became disconnected due to bad workmanship, and allowed waste to pour into the floor beneath the kitchen; and/or (2) another pipe made of terra cotta running underground just outside the property broke due to age and caused water to accumulate on the basement floor of the property.

The plumber could not tell from the condition of the piping how long the problems had existed but he did state that, based mainly on the amount of accumulated waste and other debris, the piping underneath the kitchen had been leaking for “approximately more than a month” and that the outside piping had been leaking for “more than two weeks, definitely” and probably more than a month. Even altering the number of dwellers using water, his estimate remained that the problems existed for a number of weeks.

The insureds did not offer evidence refuting this testimony or call it into question, which supported the carrier’s position that both the disconnected plastic pipe and the broken terra cotta pipe had been leaking for at least a number of weeks, and therefore the insured’s claim fell within the exclusion.

Thus, by the policy’s clear terms, the insurer’s determination did not lack a reasonable basis, and the bad faith claim was dismissed on summary judgment.

Date of Decision: July 9, 2014

Leitner v. Allstate Ins. Co., CIVIL ACTION NO. 11-7377, 2014 U.S. Dist. LEXIS 95071 (E.D. Pa. July 9, 2014) (Tucker, C.J.)

2014 SEPTEMBER BAD FAITH CASES: NATIONAL FLOOD INSURANCE ACT PREEMPTS STATE BAD FAITH LAW CLAIMS (New Jersey Federal)

Published on September 3, 2014 in NJ - Procedural Issues. Closed

In Damiano v. Harleysville Insurance Company, the court ruled that the National Flood Insurance Act preempted state bad faith law claims against an insurer.

Date of Decision: July 17, 2014

Damiano v. Harleysville Ins. Co., Civil Action No. 3:13-cv-07239-FLW-LHG, 2014 U.S. Dist. LEXIS 97988 (D.N.J. July 17, 2014) (Wolfson, J.)

2014 SEPTEMBER BAD FAITH CASES: COURT RULES THAT ATTORNEY CLIENT PRIVILEGE DOES NOT APPLY WHERE ATTORNEY ACTS AS A CLAIMS INVESTIGATOR; BUT REJECTS THE INSURED’S “THEORY OF WHOLESALE WAIVER” WHERE INSURER DENIES ACTING IN BAD FAITH IN ANSWER AND WHERE LEGAL OPINION AFFECTS ADJUSTER’S MIND, IN ABSENCE OF ADVICE OF COUNSEL DEFENSE; AND GENERAL ADMONITION THAT EACH REDACTED ITEM MUST BE ANALYZED INDIVIDUALLY BY COUNSEL (Philadelphia Federal)

Published on September 2, 2014 in PA - Attorney Client Privilege, PA - Claims Handling (general), PA - Discovery and Evidence, PA - Experts, PA - Manuals and PA - Sworn Statement/EUO. Closed

The insured brought bad faith and fraud claims against its insurers. There were two discovery issues: (1) whether certain communications in the case involving a lawyer were subject to the attorney client privilege or whether the lawyer was acting as a claims adjuster rather than a lawyer; and (2) whether there was a waiver of the attorney client privilege simply on the basis of a defense that the carrier’s personnel acted in good faith.

In requiring production of certain information on the basis that the attorney was not performing the functions of an attorney, the court certified the issue for an interlocutory appeal and stayed its proceedings.

The insurer had provided redacted copies of the logs relevant to the insured’s claims, and the insured sought unredacted versions of the logs, as well as policy and procedural manuals used in the decision-making process.

The court ordered the production of the policy and procedural manuals governing coverage decisions and the course of the investigation, subject to a confidentiality agreement. Further, the court conducted an in camera review and ordered partially unredacted versions of the logs produced, on the basis that those portions reflected that counsel performed the ordinary business of claims investigation and not as a lawyer.

While the court reduced the number of documents to be produced on reconsideration (the original decision is discussed here), the fundamental principle distinguishing counsel’s conduct as investigator vs. lawyer remained the applicable measure.

Generally, the log entries reflecting investigation, rather than legal work, include those containing direction to conduct routine investigation whether to be done by counsel or by a claims representative, scheduling examinations under oath, and memorializing efforts to pursue subrogation. Directives to counsel as to what to pursue at the examination would be privileged.

The court noted that direction to counsel to retain a cause and origin specialist to determine the cause of the fire, investigating subrogation possibilities, determining the cause of the fire, gathering background information on the claimants, and arranging for examinations under oath are ordinary business functions in claims investigation. “The fact that they were performed by an attorney at the behest of a claims adjuster does not change the character of the activity — basic claims investigation.”

Although the court has considered the timing of counsel’s entry “onto the claims scene” was a factor considered in determining counsel’s role, the log entries were the primary reason the court concluded counsel acted as a claims investigator.

In addition, the court generally observed that in the redacting documents on the basis of privilege, an insurer should not take the approach that every mention of the attorney’s name should be redacted, as some matters are clearly not privileged, e.g. that an attorney had been hired.

In the court’s words, the insurer should not redact by slashing with a sword where it should excise with a pen knife. The court also observed that redacting certain entries while not redacting entries of the same nature worked against protection, and that each entry needed to be analyzed specifically prior to redaction.

The court stated that a “failure to analyze the specific entries at issue undermines its claim of privilege — wherein it has the burden to show that each entry meets the elements of the attorney-client privilege.”

Next, the court rejected the idea that the insurer had entirely waived the privilege by purportedly placing the advice of counsel at issue. The insurer pled as a defense that its alleged withholding of any benefits at issue was made in good faith and was reasonable. The insured asserted that because the insurer’s decision-maker stated in her affidavit that counsel was hired to render legal and coverage decisions, this placed counsel’s advice in issue.

While a party may waive the attorney client privilege by asserting an advice of counsel defense, “advice is not placed in issue merely because it is relevant. . . . A waiver can be found only where a client has made the decision and taken an affirmative step in the litigation to place the advice of attorney in issue. . . . This occurs where the client attempts to prove a claim or defense by disclosing or describing an attorney client communication. . . . .”

Asserting an answer that the insurer did not act in bad faith, and stating that it acted in good faith do not create such a waiver. Nor does the assertion that an attorney was hired to render a legal opinion on coverage waive the privilege. Without actually asserting an advice of counsel defense, the mere idea that an attorney could have affected the adjuster’s mind does not create a waiver. The court rejected this “theory of wholesale waiver.”

Date of Decision: August 7, 2014

Henriquez-Disla v. Allstate Prop. & Cas. Ins. Co., CIVIL ACTION NO. 13-284, 2014 U.S. Dist. LEXIS 108820 (E.D. Pa. August 7, 2014) (Hey, U.S.M.J.)

SEPTEMBER 2014 BAD FAITH CASES: VICTORY ON COVERAGE ISSUES ON AMBIGUOUS BASIS, DID NOT PRECLUDE BAD FAITH AGAINST PRIMARY AND EXCESS INSURERS CONCERNING DUTY TO DEFEND OR SETTLE; CONDUCT OF DEFENSE COUNSEL IN DECIDING NOT TO REQUEST SPECIAL INTERROGATORIES REMAINED AN ISSUE; AND INSURED’S EXPERT TESTIMONY WAS EXCLUDED ON ISSUE OF ACTUAL CONFLICT IN APPOINTING DEFENSE COUNSEL, BUT ALL EXPERTS COULD OTHERWISE TESTIFY (Philadelphia Federal)

Published on September 1, 2014 in PA - Experts, PA - No coverage due, bad faith still possible, PA - Procedural Issues, PA - Reservation of Rights and PA - Settlement related issues. Closed

In Charter Oak Insurance Company v. Maglio Fresh Foods, a primary and excess carrier sought declaratory judgments that they owed the insured no coverage duty under their policies. The insured counterclaimed for bad faith. The parties agreed to let the court decided the coverage issues before ruling on the bad faith issue. The court found that neither insurer owed any coverage duty. However, this, in itself, did not end the bad faith inquiry.

Background

The insured subsequently amended its counterclaims for bad faith against each insurer. It alleged that the primary carrier acted in bad faith (1) by failing to acknowledge a conflict of interest between the insurer and insured; (2) by failing to advise the insured of its right to independent counsel as a result of that alleged conflict, and to provide that independent counsel; (3) by failing to intervene in the underlying litigation in a timely manner in order to submit jury interrogatories as means of clarifying whether the jury found against the insured based on a theory of liability that the insurance policies would cover or on an uncovered theory; and finally (4) by failing to consider settlement offers and attempt to settle the underlying lawsuit in good faith.

The insured alleged that the excess carrier acted in bad faith by (1) failing to conduct a reasonable investigation before disclaiming coverage and (2) failing to provide a defense to the insured and refusing to post an appeal bond upon the exhaustion of the primary carrier’s policy limits.

Opinion 1. Winning coverage issue did no eliminate bad faith claims automatically and court found material issues of fact that would place these claims before a jury.

The carriers attempted to win the day on the argument that because they won on coverage, they must by necessity win on bad faith. In rejecting that argument, the court first observed that the duty to defend was broader than the duty to indemnify.

Next, the court observed that defending under a reservation of rights does not eliminate the possibility of bad faith. “As the Superior Court of Pennsylvania recently observed, ‘[t]his is not to say that, when an insured accepts the insurer’s defense, the insurer’s conduct of the litigation is subject to no further scrutiny.” Babcock & Wilcox Co. v. Am. Nuclear Insurers. “Rather, the insurer remains bound by its fiduciary obligation to represent the insured’s interests, and to settle the case when appropriate, in keeping with its obligation of good faith.’”

Then, on the issue of alleged bad faith by the primary insurer in not seeking to intervene in the litigation to request jury instructions that would determine whether the jury found against the insured on a covered or non-covered claim, the court appeared to place this in the context of a duty to settle. The argument appears to be that doing so may have been advantageous to the insured at a time when itfaced potential liability based on certain claims, some of which were not covered by the policy and some of which may have been.

That the court later determined there was no coverage was not the relevant question; rather, it looked to the point in time when the decision could have been made to do so, and at which time the issue of coverage was “by no means certain”. The court framed the issue: “In order to determine whether [the insurer] acted in bad faith, the factfinder must evaluate [its] conduct vis-a-vis the factual landscape that existed at the time of the conduct in question, not based on this Court’s later determinations.”

Addressing this last issue on the facts, the court stated that: “To the extent that a trial involved potentially covered theories of liability, [the insured] had an interest, and indeed a right, to have [the primary carrier] take appropriate steps so that the jury could be instructed on, and if the evidence warranted under the law, return a verdict of liability on the [the potentially covered] claim.” The facts showed that by the time to case got to the jury, potentially covered claims were still on the table.

That being said, the court came very close to ruling in the insurer’s favor on this issue. The insurer had retained coverage counsel as well as defense counsel at the time of trial, and coverage counsel had recommended submitting special interrogatories, which the insurer wanted to do. However, the final decision was left up to defense counsel who did not do so, but who was given full leeway on this issue without the carrier’s making the call.

Because there was some remaining question on why he so chose, the court allowed the matter to go to trial; and further, because it would not be granting the motion for summary judgment in full for the carrier in any event. Importantly, the court did find that there was no issue about defense counsel’s independence; and defense counsel’s decision not to submit the special interrogatories when the carrier wanted him to, evidenced his independence.

The court further found that there were issues concerning an alleged bad faith failure to settle. There were two products at issue in the underlying unfair competition case. One went to verdict in the original action, and the other was subject to a mistrial.

The first resulted in an excess verdict for the primary carrier, but there was no bad faith as the case had been consistently evaluated as worth less than policy limits.

As to the second, there were factual disputes about whether that case could then settle before retrial. It did not settle, and on retrial, the second verdict was for less than policy limits ($1 Million), but was still a substantial $660,000. The court found on the record various factual issues concerning whether the cases could have settled.

As to the excess carrier, the time period at issue was likewise that period between verdicts, and then even after the verdict. The court framed the issue as whether the excess carrier met “its potential defense obligations to [the insured]?” Because the primary carrier tendered policy limits during this period, potential defense issues arose for the excess carrier, even though the primary still provided a defense for a time before the post-verdict settlement. The insured argued that the excess carrier needed to reevaluate the case to meet its fiduciary responsibilities, and to pay towards defense and an appeal bond.

The court found issues remained open, and would not grant summary judgment.

Finally, the court rejected the argument that bad faith could not exist because there was no objective basis to find that the excess carrier’s position on coverage was unreasonable. However, the court again focused on the claim as relating to the duty to defend, adding that even though the court found there was no duty to indemnify, “it did so because the underlying trial record was not sufficiently clear such that [the insured] would be able to meet its burden to show that the jury awarded … damages based on a covered, as opposed to a non-covered, claim.” Thus, the question remained as to whether the excess carrier’s refusal to participate in the “defense was reasonable in light of (1) the principle that an insurer has a duty to defend the insured until it can confine the claim to a recovery excluded from the policy, and (2) the existence of a possible [covered] claim … in the [second] trial.”

After this decision, the insured and the primary carrier settled, but the case against the excess carrier went to trial 10 days after the decision. The court issued factual findings on August 8, which will be the basis for its ultimate decision, not rendered as of this date.

Opinion 2. Motions in limine on experts.

In between these two rulings, the court ruled on all three parties’ motions in limine concerning experts.

First, although finding that the insureds expert was qualified on insurance issues, the court had already found that the primary insurer “did not, as a matter of law, breach its duty to [the insured] or any provision of its insurance policy by appointing [defense counsel] to represent [the insured]….” Thus, there was no factual issue for a trial on this matter, and the expert would “not be allowed to give any opinion that [the primary carrier] breached its policy by not appointing counsel in addition, or as an alternative, to [the defense counsel it had appointed].”

Second, on the jury interrogatory issue, the insured’s expert report did not “adequately address this issue nor raise relevant facts with respect to it.” Instead, the analysis on this point was all premised on there being a failure to appoint different or additional counsel, which argument the court had already rejected. Moreover, “even assuming that, following [appointed defense] counsel’s offer of proof at the beginning of trial, as required in the Court’s opinion on summary judgment motions, the interrogatory issue remains for the jury’s consideration, [the insured’s expert’s] opinion does not ‘fit’ with the issues in this case, and therefore, he will not be allowed to testify on this issue.”

Third, on the settlement issue, the insured’s expert did address that issue in his report. Thus, subject to any rulings that the Court makes on interpreting the policy or concerning Pennsylvania law, [the expert] will be allowed to testify as to this issue.”

Next, the court addressed the insured’s motion to exclude the primary insurer’s expert. This motion was denied. This expert would be allowed to testify about the factors leading up to defense counsel’s decision not to submit jury interrogatories, if that were to be before the jury. He could also testify “as to the issue of whether [the primary insurer] acted in bad faith with respect to settlement of the underlying litigation, subject to any forthcoming rulings from the Court.”

Lastly, as to the insured’s motion to preclude the expert testimony of the excess carrier’s expert, this was also denied. He was qualified and his opinions related to the excess carrier’s duty to defend in the underlying litigation, which were relevant to key issues at trial and could potentially assist the jury in its consideration of those issues. Thus, his proposed testimony, subject to any rulings the Court makes in interpreting the contract or under Pennsylvania law, would be admitted.

Date of Decision: July 18, 2014 (on legal issues)

Date of Decision: July 21, 2014 (motions in limine)

Dated of Decision: August 8, 2014 (factual findings in insured v. excess carrier)

Charter Oak Ins. Co. v. Maglio Fresh Food, CIVIL CASE NO. 12-3967, 2014 U.S. Dist. LEXIS 97795 (E.D. Pa. July 18, 2014) (Baylson, J.)

Charter Oak Ins. Co. v. Maglio Fresh Food, CIVIL CASE NO. 12-3967, 2014 U.S. Dist. LEXIS 98445 (E.D.Pa. July 21, 2014) (Baylson, J.) (motions in limine)

Charter Oak Ins. Co. v. Maglio Fresh Food, CIVIL CASE NO. 12-3967, 2014 U.S. Dist. LEXIS 109576 (E.D. Pa. August 8, 2014) (Baylson, J.) (factual findings)