In UPS Freight v. National Union Fire Insurance Co. and C.C. Eastern, Inc., the magistrate judge issued a report and recommendation (“R&R”) in a declaratory judgment action by an insured against its carrier. The action stemmed from an underlying negligence suit in state court.
Specifically, the insured sought a declaration against both defendant carriers that (1) they owed a duty to defend in the underlying negligence suit, (2) that the carrier is obligated to reimburse the insured for defense costs and (3) that the carriers must afford coverage to the insured for any liability imposed on it in the state court action.
This motion was originally filed in 2006 and was followed by a 2008 motion for summary judgment by the insured, to which the carriers responded by filing a cross-motion for summary judgment. In 2008, the magistrate issued an R&R recommending that the carriers’ cross-motions be denied and that the insured’s motion be granted with respect to the second carrier, but not the first. The district judge declined to adopt the R&R in full, but granted the second carrier’s motion. The insured then appealed to the Third Circuit.
The Third Circuit ruled that the first carrier owed the insured a duty to reimburse all defense costs incurred in the underlying state court action and affirmed the grant of summary judgment to the second carrier.
The case was remanded and the insured filed a motion for entry of judgment, requesting that judgment be entered against the remaining carrier for $184,754.81 incurred in the state court action and $52,003.41 incurred in the instant action. The carrier objected to this motion, arguing that it required more documentation of attorney’s fees and costs incurred by the insured. In response, the insured submitted detailed billing statements documenting legal services rendered on its behalf in both the state and federal court actions.
The magistrate recommended that the insured be entitled to the $184,754.81 that it incurred in the state court action. However, the magistrate refused to recommend that the insured be reimbursed for the $52,003.41 incurred in bringing the instant declaratory judgment action.
While the Pennsylvania Supreme Court has yet to rule on the issue, the magistrate followed Third Circuit precedent, which predicted that “an insured who is compelled to bring a declaratory judgment action to establish his insurer’s duty to defend…may recover his attorneys’ fees incurred…if the insurer has, in bad faith, refused to defend the action brought by the third party.” The magistrate recommended that, because the insured had not proved that the carrier acted in bad faith, the insured not be entitled to reimbursement for $52,003.41.
In conclusion, the R&R stated that judgment should be entered for the insured with respect to costs incurred during the state court action, but not for costs incurred during its declaratory judgment action against its carrier.
Date of Decision: February 14, 2012 (On February 16, 2012, Judge Sean McLaughlin adopted Magistrate Judge Baxter’s Report and Recommendation as an Order of the Court)
UPS Freight v. National Union Fire Insurance Co. and C.C. Eastern, Inc., No. 06-137, 2012 U.S. Dist. LEXIS 19505 (W.D. Pa. Feb. 14th, 2012) (Baxter, M.J.)
Monthly Archive for February, 2012
In Purcell v. State Farm Mutual Automobile Insurance Company, the court faced an insurance carrier’s motion to dismiss a complaint alleging bad faith and violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) brought by its insured. The claim stemmed from a car accident in which one of the insured claimants was injured as a passenger in another person’s vehicle. Both the negligent party and the driver of the vehicle in which the insured was injured were underinsured motorists (“UIM”). The negligent driver tendered his full liability policy benefits to the insured in the amount of $50,000. The same carrier insured all three parties in this case.
However, the insureds now claim that they should be awarded UIM benefits under their own two stacked automobile policies and the $100,000 policy held by the driver of the car in which one of the insureds rode on the day of the accident. The carrier offered and paid $17,500 of UIM benefits, but the insureds demanded the remainder of the UIM benefits available to them. After the insureds filed suit in Chester County, the carrier removed the case to federal court and filed a motion to dismiss.
First, the court addressed the insureds’ contention that the carrier’s motion to dismiss was untimely. They claimed that, under Federal Rule of Civil Procedure 12(a), the carrier had twenty-one days after the service of the complaint to file its motion to dismiss. However, the carrier took longer than the allotted time to file its motion. The court disagreed, citing Rule 81(c)(2) for the proposition that the carrier has until seven days after the notice of removal is filed to seek dismissal. As such, the court rejected the insureds’ timeliness argument.
Second, the court addressed the motion to dismiss the insureds’ bad faith claims. The insureds argue that the carrier acted in bad faith during the overall handling of their UIM claim, but fail to make any specific allegations to support this claim. However, the insureds did include “boilerplate assertions cut and pasted directly from the “UIPA statute.
To gauge this claim, the court examined the conflict between Pennsylvania state and federal courts with respect to the applicability of the UIPA in bad faith claims. While Pennsylvania state courts have allowed for consideration of UIPA claims in evaluating bad faith claims, the Third Circuit has predicted that the Pennsylvania Supreme Court would not allow a suit to proceed under a theory that a UIPA violation is a per se violation of the bad faith statute (or the UTPCPL). Therefore, the court dismissed the insureds’ complaint without prejudice, allowing them time to amend the complaint.
As set forth in footnote 17 of the Pennsylvania Supreme Court’s Toy Opinion, and as discussed in the federal cases, the Superior Court considers UIPA violations as evidence of bad faith, not as bad faith per se; but this is still a position the federal courts reject.
Lastly, the court turned to the UTPCPL claims brought by the insureds. Specifically, the parties allege that the carrier engaged in deceptive acts and conducted itself improperly, creating confusion and misunderstanding. However, the court again ruled that such skeletal allegations would not support an actionable claim under the UTPCPL. The court also dismissed this portion of the complaint, but allowed time to amend the underlying complaint.
Date of Decision: February 10, 2012
Purcell v. State Farm Mutual Automobile Insurance Company, No. 11-7004, 2012 U.S. Dist. LEXIS 17110 (E.D. Pa. Feb 10, 2012) (Kelly, J.)
In Schlegel v. State Farm Mutual Automobile Insurance Company, the court ruled upon a carrier’s motion to dismiss a complaint that seeks to compel underinsured motorist (“UIM”) benefits pursuant to the insureds’ auto insurance contract. The complaint also alleged violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) and bad faith on behalf of the carrier.
The suit stemmed from an accident in which the insureds were struck by a reckless, underinsured driver. One of the insureds suffered serious injuries as a result of the accident. Since the negligent driver was underinsured, the insureds initiated UIM proceedings with their carrier. When the carrier refused to pay, the insureds filed this lawsuit in Susquehanna County. The carrier subsequently removed to federal court.
The court first addressed the insureds’ motion to remand the proceedings back to state court. The insured parties argued that the carrier had sufficient contacts with Pennsylvania, eviscerating the diversity necessary to confer jurisdiction. However, the court disagreed, reasoning that the carrier’s incorporation in Illinois rendered the parties diverse. The insureds also argued that the amount in controversy does not exceed $75,000 the requisite amount for removal to federal court. However, examining the pleadings, the court was unable to conclude that the amount in controversy would not reach $75,000, denying the insured’s motion to remand.
Second, the court addressed the carrier’s motion to dismiss, which contained three distinct claims. With respect to the first portion, seeking dismissal of the insureds’ motion for attorney fees, the court held that attorney fees are not recoverable in a breach of contract action. As such, the court granted this part of the carrier’s motion.
Next, the carrier moved to dismiss the insureds’ allegations under the Unfair Insurance Practices Act (“UIPA”). The insureds’ complaint primarily averred violations of the UTPCPL, but also included UIPA claims. The court dismissed the UIPA claims because only the State Insurance Commissioner has the power to enforce violations of the statute. However, the insureds argued that a “violation of any or all sections of the UIPA or other statutes can be held or used to show a violation of the UTPCPL.” The court agreed, but found that “a violation of the UIPA does not automatically trigger a violation of the UTPCPL and it is therefore irrelevant to such an analysis.”
The court also dismissed the insureds’ UTPCPL claims because the allegations were conclusory and unsupported. UTPCPL violations require malfeasance in order to support a cause of action and the insureds’ complaint alleges only nonfeasance in protesting the carrier’s failure to provide UIM benefits.
Lastly, the court addressed the carrier’s motion to dismiss the insureds’ bad faith claim. Again, the court dismissed this claim because of the conclusory nature of the allegations listed in the complaint. In order to support a claim of bad faith, the court reasoned, an insured party must corroborate its allegations with supporting facts. The court therefore granted the carrier’s motion with respect to the insureds’ bad faith count.
However, the court allowed the insureds leave to amend its complaint, to the extent that they have failed to state a claim.
Date of Decision: February 10, 2012
Schlegel v. State Farm Mutual Automobile Insurance Company, No. 3:11-CV-2190, 2012 U.S. Dist. LEXIS 17088 (M.D. Pa. Feb. 10, 2012) (Caputo, J.)
In West v. Cuna Mutual Insurance Society, the court decided a carrier’s motion to dismiss its insured’s complaint that alleged breach of contract and bad faith and sought class certification for both counts.
The insured parties brought this action alleging wrongful denial and termination of credit disability benefits under policies held by the carrier. The insureds also bought suit for bad faith denial of their disability claims. The disputed provision at issue is the meaning of “unable to perform any of the duties of his occupation” as stated in the parties’ insurance policy issued by the carrier and required to receive disability benefits.
The same insurance policy was in issue during a prior class action suit adjudicated in 2011 against the same carrier. In that case, the court found the language of the policy was written as a disjunctive, meaning that an insured claimant could qualify for disability coverage if it met the “any occupation” standard alone. However, the district court denied class certification for the insured parties. The Third Circuit affirmed this ruling.In the instant case, the carrier argued that the insured’s putative class action breach of contract claim is barred by collateral estoppel as a result of the 2011 Third Circuit ruling. The insured parties disagreed, arguing that this action is about the phrase “any of the duties of his occupation,” not the disjunctive nature of the contractual terms.
The court agreed that the disputed contractual provision in this case is different, but nevertheless found that collateral estoppel precluded class certification because the remaining issues did not meet the requirements of Federal Rules of Civil Procedure 23(a) and 23(b)(3).
The insured disagreed, arguing that the carrier did not meet the “identical issue” prong of the test for collateral estoppel. However, the court reasoned, it would be impossible to interpret the meaning of “any of the duties of his occupation” without considering each potential class member’s occupation individually. The court ruled that each individual class member may pursue its own individual breach of contract claim and denied class certification.
The court next turned to the bad faith allegations, ruling that, without an underlying claim to enforce some right under an insurance policy, a bad faith claim was improper. Because the court had just dismissed the insured’s motion for class certification, there was no underlying insurance claim upon which to attach the bad faith action. However, the court again ruled that the insureds could pursue bad faith claims individually.
In conclusion, the court granted the carrier’s motion to dismiss the insureds’ class action certification, but denied the carrier’s motion to dismiss the insureds’ individual claims.
Date of Decision: February 16, 2012
West v. Cuna Mutual Insurance Society, No. 11-1259, 2012 U.S. Dist. LEXIS 19512 (W.D. Pa. Feb. 16, 2012) (Bissoon, J.)
In Smith v. State Farm Mutual Automobile Insurance Company, an insured driver sued her carrier for not adequately paying under her policy’s underinsured motorist provision (“UIM”). The suit alleged bad faith, violations of Pennsylvania’s consumer protection law and breach of contract. The carrier moved to dismiss all claims, except for the contract claim relating to amounts unpaid up to the policy’s coverage limit.
The action arose from a car accident that occurred in 2010, where an underinsured driver struck the insured while she was stopped at a red light. The driver was insured up to $15,000, but the insured’s losses exceeded that amount. The driver’s carrier tendered $15,000 to the insured, who subsequently requested UIM benefits, under her own insurance policy, in the amount of $26,474 to satisfy her policy’s $45,000 UIM limits.
The carrier’s agent requested a series of records from the insured, who complied. The agent then offered $21,000 to settle the UIM claim, which the insured rejected because of $28,000 in outstanding medical bills. The agent claimed he was willing to negotiate, but that his authority to settle was capped at $21,000. After a series of additional medical exams and continued denials from her carrier to tender the limits of her policy, she sued in the Philadelphia County Court of Common Pleas. The carrier removed to federal court and moved to dismiss the complaint.
First, the court addressed the insured’s bad faith claim, dismissing the allegation as unsupported by factual averments. The record clearly showed that the carrier actively solicited negotiations, sought the insured’s medical records, and offered a settlement of nearly three quarters of the policy limit. The court reasoned that the insured’s claim that the carrier engaged in an “intentional strategy of making low-ball offers” was conclusory and unsupported.
Second, the court dismissed the insured’s consumer protection claim, reasoning that the insured had failed to show that she justifiably relied upon wrongful conduct by the carrier. The insured was unable to even identify any misrepresentations upon which she could have relied, warranting dismissal of the claim.
The insured also alleged that the carrier engaged in fraudulent and deceptive conduct, refusing to pay the full amount of her UIM claim. However, the court reasoned that this was a mere conclusory allegation, unsupported by facts in the insured’s complaint. Relying on Third Circuit precedent, the court noted that there is a difference between “nonfeasance” and “malfeasance,” which is the improper performance of a contract and not actionable. As such, the court dismissed the insured’s claim of fraudulent conduct.
Third, the insured argued that the carrier was unjustly enriched at her expense. However, the court reasoned, unjust enrichment is not actionable where a contract exists between the parties. The court dismissed this portion of the insured’s complaint as well.
Lastly, the court addressed the insured’s claim for compensatory, incidental, consequential, and punitive damages for breach of contract. The court reasoned that the only available remedy is expectation damages in the amount of $24,000, which is insufficient to confer jurisdiction. As such, the court withheld judgment and remanded the case back to state court.
Date of Decision: February 16, 2012
Smith v. State Farm. Mutual Automobile Insurance Company, NO. 11-7589, 2012 U.S. Dist. LEXIS 19373 (E.D. Pa. Feb 16, 2012) (McLaughlin, J.)
In Kile v. Progressive Insurance Corporation, an insured brought suit against her carrier for breach of contract and bad faith in its handling of the insured’s underinsured motorist claim. However, the insured did not allege the court’s basis for jurisdiction over her claims. Additionally, the complaint did not allege claims pursuant to federal law that would independently confer jurisdiction, so the court found her to be in violation of Federal Rule of Civil Procedure 8, which requires a statement of the court’s subject matter jurisdiction.
First, the court addressed the insured’s domicile. To be domiciled in a state, a person must reside there and intend to remain indefinitely. However, the complaint only alleged that the insured “resides” in Wyoming, Pennsylvania, failing to address any evidence of domicile. As such, the court held that the insured’s citizenship was improperly pled for the purposes of diversity jurisdiction.
Second, the court addressed the carrier’s state of citizenship. The insured only alleged the location of the carrier’s headquarters, which is irrelevant to diversity jurisdiction. Plaintiff did not plead the carrier’s place of incorporation or its principal place of business (“nerve cener”). The court held that the insured also failed to sufficiently plead the citizenship of the carrier for the purposes of diversity jurisdiction.
However, pursuant to 28 U.S.C. § 1653, the court provided the insured twenty-one days to amend her complaint, or face dismissal.
Date of Decision: February 10, 2012
Kile v. Progressive Insurance Corporation, No. 3:12-cv-218, 2012 U.S. Dist. LEXIS 17054 (M.D. Pa. Feb. 10, 2012) (Caputo, J.)
In Allied World Assurance Company v. Lincoln General Insurance Company, the court addressed a subpoena requesting documents relating to a bad faith case proceeding in the Middle District of Florida. The underlying bad faith action was brought by the guardian of an accident victim, who was hit by a driver during the scope of the driver’s employment. For the purposes of litigation, the insured-employer also assigned its rights to the victim’s guardian. Following the accident, the victim filed a personal injury claim against the driver and employer. The employer’s primary insurer investigated the claim and defended the insured-employer. The primary insurer also hired an adjuster to investigate the facts and an attorney to represent the insured driver and employer.
In May, 2008, the insurers offered a combined $2 million of coverage to the accident victim. The victim rejected the offer and on March, 20, 2009, a jury returned a $65 million verdict against the negligent driver and employer. After the judgment was returned, a series of mediations took place that involved all of the parties to the litigation. As a result, the judgment was satisfied as to the driver and partially satisfied as to the employer, whose primary insurer paid more than its $1 million policy limit. Thereafter, the guardian-assignee commenced the underlying bad faith action, seeking to recover the balance of the judgment from the excess insurer.
The insured-employer’s excess insurer issued the subpoena in question out of the Middle District of Pennsylvania, serving the employer’s primary carrier — a non-party in the bad faith action. The subpoena requested twenty-one documents relating to the bad faith lawsuit, including settlement reserve authority requests, the underwriting file held by the primary insurer, and the personnel file of the insurance adjuster hired by the primary insurer. The primary insurer objected and the court issued an opinion, grouping the objections into several categories.
First, the court addressed technical objections to the subpoena. The primary insurer argued that Federal Rule of Civil Procedure 45(a)(3) required the excess carrier’s attorney to be admitted to the district court where the subpoena was to be served. The court rejected this argument because the attorney that issued the subpoena was admitted in Florida, where the bad faith litigation was pending. The court also rejected an argument that the service of process itself was flawed because the person upon whom service was made is an agent of the primary insurer. Moreover, Rule 4(h) allows a corporation to be served in the same manner as a person.
Second, the primary insurer objected on the grounds of work-product, arguing that the excess insurer did not make a showing of “substantial need” or “undue hardship” as required by Rule 26(b)(3). The court ruled that, under Florida law, “work product material generated in the adjustment of an underlying claim . . . is discoverable in a third-party bad faith case.” Moreover, in the previous litigation, the primary insurer owed a fiduciary duty to the insured parties and the excess insurer seeking the documents. Accordingly, the court found that the work-product doctrine was inapplicable.
Third, the primary insurer argued that the attorney-client privilege rendered documents undiscoverable because the interests of the two parties are not aligned. However, the court reasoned that, during the previous personal injury suit, their interests were aligned in defense of the insured driver and employer. Because the parties’ interests were essentially the same in the prior dispute, the court held that “any correspondence between the insurer and the insurer’s retained counsel concerning the insured’s cases was not privileged and must be produced by the insurance company.” The parties shared a common interest in defending against the personal injury claim in the underlying litigation, rendering the privilege inapplicable.
Fourth, the primary insurer objected under Florida’s Mediation and Privilege Act, which states that “[a] mediation participant shall not disclose a mediation communication to a person other than another mediation participant or participant’s counsel.” The court reasoned that the privilege is inapplicable in this case because both insurers “were mediation participants and there has been no effort to disclose the communications to persons other than mediation participants.” The court also rejected the primary insurer’s objection to disclosing communications that occurred outside the mediation process.
Fifth, the excess insurer sought the employment file of the primary insurer’s adjuster who handled the personal injury claim. The court disagreed with the excess insurer that this request was overly broad. The court repeated its rationale that the primary insurer “was a party to, and assumed the responsibility of defending against claims made in the underlying litigation which led to the bad faith claim,” rendering the privilege inapplicable.
Sixth, the excess insurer observed that some of the documents produced by the primary insurer were redacted, seeking a privilege log from its opposition. The primary insurer defended that that no privilege log was necessary because of a prior comment by the excess insurer that it would not seek privileged information. The court again found for the excess insurer. It reasoned that Rule 45(d)(2)(A) allows a party to assess a claim of privilege through examining a general description of the sought after documents.
Lastly, the court held that, under Rule 45(c)(1), the excess insurer has “a duty to take reasonable steps to avoid imposing an undue burden or expense” upon the primary insurer.
Date of Decision: February 2, 2012
Allied World Assur. Co. v. Lincoln Gen. Ins. Co., NO. 1:11-mc-00342, 280 F.R.D. 197, 2012 U.S. Dist. LEXIS 12883 (M.D. Pa. Feb. 2, 2012) (Rambo, J.)
In Jones v. South Williamsport School District, the court examined a carrier’s motion to dismiss. After a failed appeal for health insurance coverage under an employer-sponsored insurance policy, the insured party filed suit for misrepresentation and breach of fiduciary duty against the carrier, who moved to dismiss the action. The court ruled that dismissal was improper because it was premature to determine who exercised control over the insured’s employee health plan. Second, the court ruled that the insured pleaded facts sufficient to sustain a breach of fiduciary duty claim, which the Third Circuit has permitted in ERISA cases where fiduciaries “materially mislead those to whom the duties of loyalty and prudence are owed.” Although Pennsylvania common law does not permit such a claim in tort, pursuant to Cowden v. Aetna Cas. & Sur. Co., the court interpreted the insured’s allegations as a contractual breach of fiduciary duty claim. The court denied the motion to dismiss and permitted this portion of the complaint to proceed to discovery.
Date of Decision: January 25, 2012
Jones v. South Williamsport School District, No. 4:11-cv-1179, 2012 U.S. Dist. LEXIS 10099 (M.D. Pa. Jan 25, 2012) (Kane, J.).
In Blasetti v. Allstate Insurance Company, the court ruled upon a carrier’s motion for judgment on the pleadings in an action for breach of contract and bad faith. The suit stemmed from the carrier’s denial of insurance benefits under the insureds’ homeowner’s policy, after the insureds’ home sustained storm damages. Prior to alerting the carrier of their loss, the insureds had the damages repaired. Under their policy, the insureds were required to promptly give the carrier notice of their claim and provide the carrier with all relevant evidence of damages and repairs.
In March 2011, the insureds first apprised the carrier of their loss. In April, the carrier submitted a reservation of rights letter, requesting an opportunity to inspect the repairs. The insureds’ adjuster sent the carrier a letter shortly thereafter, explaining that it needed time for photographs. The insureds never submitted the photographs to the carrier. Instead, the insureds’ adjuster requested a settlement offer in May 2011. The carrier subsequently denied coverage.
The insureds filed suit in state court in October 2011 and the carrier removed to federal court in November, filing its motion for judgment on the pleadings.
First, the court examined the insureds’ breach of contract claim. The carrier argued that the claim should be dismissed because the insured never satisfied their obligations under the contract by failing to provide documentation of the loss, such as the requested photographs. However, the insureds claimed that such an argument assumes that the photographs were available but withheld. The court ruled that this argument was sufficient to defeat the carrier’s motion.
The carrier also claimed that the insureds failed to promptly report their loss within five months of the date of the occurrence. However, the policy did not state a specific timeframe within which the insureds were required to submit claims after a loss. As such, the court found that the insureds’ breach of contract claim should survive the carrier’s motion and proceed to discovery.
Second, the court ruled upon the insureds’ bad faith claims. The court dismissed the insureds’ claim, because the carrier did not possess the requisite wrongful state of mind to have acted in bad faith. The court reasoned that the insureds’ allegations were conclusory and improperly argued that the carrier’s denial of benefits alone constitutes bad faith. The court dismissed the claim without prejudice so that the insureds might amend their complaint if facts sufficient to allege bad faith arise during discovery.
Date of Decision: January 23, 2012
Blasetti v. Allstate Insurance Co., No. 11-69-20, 2012 U.S. Dist. LEXIS 7344 (E.D. Pa. Jan 12, 2012) (O’Neill, J.).