In Watson v. Nationwide Mut. Ins. Co. of N. Am., the court heard a carrier’s motion for summary judgment after its insured sued for breach of contract and bad faith. The insured originally filed suit in the Lancaster County Court of Common Pleas, but the carrier removed and filed a motion to dismiss, which the court denied. The case stemmed from the carrier’s denial of first-party medical and uninsured motorist (“UM”) benefits under the insured’s automobile insurance policy after the insured was injured in a car accident.
After the accident, the insured began to feel pain in her lower back. After filing a personal injury protection claim under her policy and engaging in negotiations with the carrier, the insured received benefits through mid-2009. In 2010, the insured re-initiated contact with the carrier. An adjuster for the carrier determined at that point that the insured’s future medical bills should be evaluated through the peer review process. A series of four peer reviews each held that the insured’s post-2009 tests and medical consultations were unreasonable and medically unnecessary, prompting the carrier to deny coverage.
The insured’s first claim was that the carrier acted in bad faith through the peer review process. The court recognized that under the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”), some bad faith claims related to peer reviews are preempted. For instance, where an insured claims that bad faith resulted from the insured’s denial of benefits on the basis of a peer review, the MVFRL preempts the insured’s claims. Yet, where an insurance company submits a claim for peer review in bad faith, such a claim may exist. (See also this blog).
Despite acknowledging the existence of such a claim, the court rejected the insured’s contention that the carrier acted in bad faith by referring all future medical bills to peer review. The court also found no evidence of partiality and rejected the insured’s claim that there was a conflict of interest between the carrier and one of its peer reviewers. A transactional relationship between the carrier and its peer reviewer did not raise an inference of bad faith, prompting the court to grant summary judgment for the carrier on these claims.
With respect to the insured’s claim that the carrier acted in bad faith while investigating her UM claim, the court granted summary judgment to the carrier. The record indicated that the carrier and the insured had engaged in significant negotiations that included many offers and counter-offers. As such, the insured’s claim was without any factual basis.
Lastly, the court held that the carrier did not act in bad faith during the ongoing litigation. Although the carrier hired several attorneys to deal with the case, there was no evidence that it had engaged in frivolous behavior as alleged by the insured. Finding no evidence of inappropriate conduct, the court granted summary judgment to the carrier on the insured’s bad faith claims, leaving only the breach of contract action for adjudication.
Date of Decision: June 13, 2012
Watson v. Nationwide Mut. Ins. Co. of N. Am., NO. 11-1762, 2012 U.S. Dist. LEXIS 83065, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 13, 2012) (Surrick, J.)
Monthly Archive for June, 2012
In Boyer v. First Am. Title Ins. Co., the insureds filed a motion for summary judgment against their title insurance carrier from which the insureds had purchased a policy to cover a Tioga County property. The suit stemmed from a 2008 natural gas lease through which the insureds permitted the exploration and extraction of natural gas near their property. After being advised that they did not have title to the subsurface land because of a reservation made by the former owners in a 1964 deed, the insureds filed a claim with the carrier.
The insureds sought damages arising from the reservation of subsurface rights, which was not excepted from coverage in their title insurance policy. While the carrier did not disagree with the insureds’ claim, it disputed the value of the claim. As such, the insureds filed suit for damages under their policy and for the carrier’s allegedly bad faith delay in investigating the claim.
The court stated the facts at hand, but refused to engage in a thorough legal analysis, citing the “undeniable presence of factual issues precluding the entry of summary judgment.” However, the court did state that it viewed the case as solely one of assessing claim value, as opposed to claim liability. It scheduled a settlement conference with a magistrate and denied the insureds’ motion.
Date of Decision: May 31, 2012
Boyer v. First Am. Title Ins. Co., No. 4:11-CV-550, 2012 U.S. Dist. LEXIS 75351, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. May 31, 2012) (Conner, J.)
In 3039 B St. Assocs. v. Lexington Ins. Co., the Third Circuit heard an appeal from the district court’s grant of summary judgment to the carrier in a dispute over the coverage of stolen property. The case arose from the theft of several radiators from the insured’s warehouse. After the carrier denied coverage on the basis of a policy exclusion barring coverage for goods lost through the activity of an entrusted individual, the insured sued the carrier.
The district court granted summary judgment and refused to reconsider the motion.
The theft occurred when the president of the insured corporation permitted a former employee to scavenge metal from the warehouse to “clean the place up.” The president of the insured company told the individual that he was permitted to take “the loose stuff” only. However, the former employee took 66 radiators, which had to be dismounted from the walls of the building. He claimed that he had been authorized to remove the radiators as well as other scrap metal.
After reporting the theft to its carrier, the insured’s claim was denied on the basis of an “entrustment exclusion” contained within the policy. This clause bars coverage over a loss that occurs when property is entrusted to another party. Because the warehouse had been entrusted to the former employee and alleged thief, the carrier declined coverage.
The insured claimed that the stolen radiators were parts of the warehouse structure, preventing them from become subject of a bailment entrusted to another person. The court disagreed, reasoning that the exclusion does not merely apply to personal property, but also real property such as the warehouse. The fixed nature of the radiators does not change the fact that it was still entrusted to another person. Moreover, the court reasoned, the term bailment does not appear in the policy. Because the insured entrusted the warehouse to a third party, any loss occurring as a result was excluded from the policy. The Third Circuit therefore affirmed the district court’s ruling and held that the carrier was properly awarded summary judgment.
Date of Decision: May 18, 2012
3039 B St. Assocs. v. Lexington Ins. Co., No. 11-2999, 2012 U.S. App. LEXIS 10267, U.S. Court of Appeals for the Third Circuit (3d Cir. Pa. May 22, 2012) (Stearns, J.).
In Platt v. Fireman’s Fund Ins. Co., the carrier filed a motion for summary judgment seeking to resolve allegations of bad faith and breach of contract in its handling of a claim against its named insured. The suit stemmed from a car accident in which the carrier’s named insured struck a woman with his car, causing her to sustain numerous injuries and miss significant time at work.
The insured’s policy contained a Personal Injury Protection (“PIP”) Endorsement, which provides third-party coverage for medical expenses and wage loss. A third-party may be covered under this policy if the named insured was not occupying his covered vehicle at the time of loss or injury. Third-party coverage is also contingent upon the victim’s lack of a separate source of insurance. Therefore, a third party accident victim may be qualified as “an insured” for the purposes of receiving first-party PIP benefits if she did not possess any other form of liability or medical coverage.
The carrier deemed the accident victim an insured for the purposes of first-party benefits under its PIP policy and paid out $53,521.73 to cover her medical expenses. However, the carrier initially refused to tender wage loss benefits and the victim filed a complaint in the Philadelphia Court of Common Pleas. The carrier removed the case to federal court. Later in 2011, the carrier paid the $177,500 policy limits when it received supplemental reports on the victim’s injury.
The victim’s first claim was that the carrier acted in bad faith by delaying investigation into her own source of first-party benefits. She alleged that the carrier had a duty to investigate whether she had her own source of first-party benefits, the absence of which triggered her entitlement to medical and wage loss benefits. The court denied summary judgment on this count because it found that an issue of fact existed with respect to the carrier’s failure to investigate. The court reasoned that the circumstantial evidence presented by the victim tended to at least demonstrate the carrier’s reckless disregard in examining the victim’s insurance coverage, which, under the PIP Endorsement, was a determining factor in the victim’s ability to recover.
Second, the victim alleged that the period of time the carrier took to pay wage loss benefits after receiving her medical records constituted a bad faith delay. The carrier tendered a wage loss check, but incorrectly deducted $3,716.66 in disability benefits. The court granted summary judgment on this claim because the carrier did subsequently pay the full amount of benefits, despite its initial mistake.
The court also granted summary judgment on the breach of contract claim because the carrier paid the full limits of the policy in accordance with the language of the PIP endorsement. However, the court denied summary judgment with respect to the payment of attorney’s fees.
This case was previously addressed in this blog last year.
Date of Decision: May 22, 2012
Platt v. Fireman’s Fund Ins. Co., No. 11-4067, 2012 U.S. Dist. LEXIS 71000, U.S. (E.D. Pa. May 22, 2012) (Buckwalter, J.)
In Fabrikant v. State Farm Fire & Casualty Co., the court ruled for a carrier that had filed a motion for summary judgment in opposition to the insured’s breach of contract, bad faith, and Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claims. The insured originally filed his complaint in the Lackawanna County Court of Common Pleas, prompting the carrier to remove to federal court and file a motion to dismiss. The court denied the motion and the case moved to discovery.
The case arose from a fire at the insured’s residence that destroyed his home on Thanksgiving Day, 2009. Initial police reports stated that the cause of the fire was a space heater. One day later, the carrier’s claims manager learned that the insured was having severe financial difficulties, had recently been divorced, and owned a failing business. Because he could not pay his gas bills, the insured had been heating his home exclusively with space heaters. The next day, the carrier’s representatives examined the property and smelled flammable liquids, determining that the cause of the fire was “incendiary.”
Given the insured’s financial situation and the evidence of flammable substances, the carrier then referred the case to its Special Investigative Unit (“SIU”). In his preliminary report, the SIU investigator determined that the fire was set with gasoline. During the entire investigative process, the carrier continued to reserve its rights on the insured’s claims. An SIU report later concluded that the solvent used in the space heater did not show up in the lab samples and was unlikely to have been the ignition source.
Throughout the investigation, the insured was uncooperative, failing to provide information requested by the carrier, despite his contractual obligation to comply. As a result, the carrier refused to waive the one-year suit limitation provision in the insured’s policy. In response, the insured filed a Praecipe for Writ of Summons in Lackawanna County in late 2010. A month later, the carrier filed a Praecipe requesting that the court issue a Rule on Plaintiff to file a Complaint within twenty days. In response to the carrier’s Rule to File Complaint, the insured filed a complaint alleging breach of contract and bad faith on behalf of the carrier.
Regardless of the difficulties in adjusting the insured’s claim, the carrier paid $154,422.75 for the dwelling claim, $109,975.00 for the personal property claim, and a final $2,500 representing the insured’s jewelry/fur policy limit in early 2011.
The court first examined the insured’s breach of contract allegation, which the carrier defended as moot since it had paid the limits of the insured’s policy. The court agreed, granting summary judgment to the carrier on this count.
It also found that the insured had not proven the carrier’s investigation to be untimely or unreasonable, especially given the circumstances surrounding the claim. Moreover, the insured was uncooperative, delaying the investigation.
The insured also alleged that the carrier was in breach because it forced him to file a Writ of Summons prior to the one-year suit limitation. Had the carrier waived the time limit, the insured claimed, he would not have been forced to file the Writ. However, the court disagreed, ruling that the carrier did not force the insured to litigate by filing a Rule to File Complaint in response to the Writ. The court reasoned that this procedural maneuvering was wholly in accordance with Pa. R. Civ. P. 1037, which provides that “the Prothonotary, upon praecipe of the defendant, shall enter a rule upon plaintiff to file a complaint.” Therefore, the carrier acted in accordance with Pennsylvania law by filing the Rule in response to the insured’s Writ. Nothing in the policy’s suit provision prohibited the carrier from exercising this right, despite the fact it chose not to waive the one-year limitation.
With respect to the insured’s bad faith claims, the court also granted summary judgment to the carrier. The insured’s argument relied upon the carrier’s allegedly “unreasonable handling” of his claim. The court disagreed, citing the numerous “red flags” that warranted an extended investigation. The court also rejected the insured’s claim that the carrier acted in bad faith by adhering to the one-year suit limitation clause. The carrier acted properly in refusing to waive the provision in light of the insured’s uncooperative behavior.
The crux of the court’s holding, however, related to the carrier’s choosing to serve the insured with the Rule to File Complaint. While the court reasoned that forcing an insured to litigate in this manner might represent bad faith in some contexts, there was no evidence of “a dishonest purpose” here. The carrier merely exercised a procedural right, which, given the facts of this case, did not represent bad faith. The court recognized that it might have been better for the carrier to delay requiring the insured to file a complaint since the coverage decision was in its final stages. Yet, the court deemed this decision mere “bad judgment,” refusing to find the carrier’s actions constituted bad faith.
With respect to the insured’s UTPCPL claim, the court ruled that, because the carrier had been up front with the insured, reserving its rights through the process, there was no consumer protection violation.
The court therefore granted summary judgment to the carrier on all counts.
Date of Decision: May 14, 2012
Fabrikant v. State Farm Fire & Casualty Co., 2012 U.S. Dist. LEXIS 67017, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. May 14, 2012) (Conaboy, J.)
In Wiseman Oil Co. v. TIG Ins. Co., the insured brought suit against its carrier seeking a declaratory judgment as to the carrier’s duty to defend, alleging breach of contract claims and statutory bad faith. The carrier thereafter filed a motion for judgment on the pleadings. The original suit arose from the government’s 1997 claim for environmental damage against the insured, filed pursuant to CERCLA. When the insured sought coverage under its pollution policy with the carrier in 2004, the carrier was unable to provide coverage because it could not determine that the insured was a policy-holder. It notified the insured of its findings in 2005, reserving its rights under the terms of the missing policy.
The litigation was administratively closed until 2009, when the insured produced certificates of insurance issued by the carrier. However, in early 2010, the carrier indicated that it could not find copies of the insured’s policy and would not proceed further in handling the insurance claim. According to testimony of the carrier’s representatives, the company had “no central database” and would “stick stuff in boxes.” There were apparently 160,000 unopened boxes in storage at the time of his deposition, rendering it nearly impossible to figure out if the insured’s policy was in any of the boxes.
With respect to the insured’s bad faith claims, the point of contention between the carrier and the insured was the commencement of the statute of limitations. The carrier claimed that the two-year limitation commenced in 2005 when it advised the insured that is was “unable to locate evidence sufficient to establish the terms, conditions and/or provisions of the policy.” The 2005 letter also went on to “reserve all of the [insurer’s] rights and defenses . . . .” The carrier alleged that this letter began the two-year period and that the insured was unable to pursue its claim.
In the Report and Recommendation, the Magistrate Judge disagreed, reasoning that the letter bears more resemblance to a reservation of rights. To commence the statute of limitations under Pennsylvania’s bad faith law, the carrier is required to deny coverage. Since the 2005 letter does not explicitly deny coverage, the court reasoned, it is more functionally equivalent to a reservation of rights, which fails to commence the limitation period. As such, the statute did not begin to run until early 2010 when the carrier advised that it would “take no further action” with respect to the insured’s claim. The Magistrate Judge therefore recommended that the carrier’s motion for judgment on the pleadings be rejected.
The time period for objections remained open at the time of this posting.
Date of Decision: May 22, 2012
Wiseman Oil Co. v. TIG Ins. Co., 878 F. Supp. 2d 597, No. 011-1011, 2012 U.S. Dist. LEXIS 71138, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. May 22, 2012) (Lenihan, M.J.).
In Pellicano v. Blue Cross Blue Shield Ass’n, the insured, a retired federal employee, filed objections to the Magistrate’s Report and Recommendation (“R&R”), which granted a motion to dismiss to the insurer and the U.S. office of Personnel Management (“OPM”). The insured’s bad faith claim arose from the processing of his application for medical equipment and the OPM’s decision to affirm only partial benefits. The insured also filed a motion for default judgment against the OPM.
Under the insured’s plan, several insurance companies provide coverage through the OPM. The named carrier in this case was the entity responsible for the insured’s claim. However, it rejected full benefits to the insured, approving only 65% of the cost of the equipment that he required as the result of his spinal cord injury.
The court first addressed the insured’s objection that the R&R improperly dismissed his claims as devoid of sufficient factual allegations. The court adopted the R&R on this issue because the insured never alleged more than mere conclusory statements. In fact, the objections contained the same insufficient factual allegations, warranting rejection by the court.
Second, the court examined the insured’s claim that FEHBA does not preempt state law bad faith claims. FEHBA establishes a comprehensive health program for federal employees, authorizing the OPM to contract with private healthcare carriers. However, most jurisdictions have held that the law preempts breach of contract, breach of fiduciary duty, tort, negligence, and fraud claims. Additionally, according to the text of the statute, the only relief that may be granted is an order directing the OPM to require the carrier to pay the amount of benefits in dispute. As such, the court wholly adopted the Magistrate’s R&R because the insured’s bad faith claim fell outside the scope of permissible suits under FEHBA.
Lastly, the court rejected the insured’s motion for an entry of default judgment against the OPM. The R&R concluded that the insured’s service of process did not comport with Federal Rule 4(i)(1), which requires a party to serve the government with a copy of the Summons and Complaint. As the insured did not follow this procedure, the government could not have been delinquent in responding to the allegations, warranting an entry of default judgment. The court therefore adopted the R&R in full.
Date of Decision: May 18, 2012
Pellicano v. Blue Cross Blue Shield Ass’n, No. 11-406, 2012 U.S. Dist. LEXIS 69747 (M.D. Pa. May 18, 2012) (Slomsky, J.)
In Seto v. State Farm Ins. Co., the court heard a carrier’s motion in limine to exclude evidence of its bad faith, including its claims-handling, investigations and handling of coverage. The suit arose after two fires destroyed the insureds’ home in 2009. After the insured parties sued the carrier, alleging bad faith and breach of contract, the court ruled for the carrier on summary judgment, finding that it had not acted in bad faith. (See this Blog post). Since the only remaining issue for trial was the insureds’ breach of contract claim, the carrier moved to exclude evidence relating to its alleged bad faith, pursuant to Fed. R. Evid. 401, 402, and 403.
First, the court ruled that all evidence of the carrier’s alleged bad faith should not be admissible because it was not relevant to determining whether the insureds were entitled to additional benefits under the terms of its policy. As such, all evidence related to the carrier’s investigation and claims-handling was not permitted.
Second, the court turned to the carrier’s motion to preclude evidence of the insureds’ request for additional living expenses (“ALE”) under its policy. After their home was destroyed, the insureds moved to Florida for a year. The only documentation they submitted regarding costs incurred during that period was part of an unsigned lease and deposit slips with no information identifying them as the payers of the deposited amounts. Because the issue of whether the insureds submitted sufficient documentation was not decided at summary judgment, the court denied the carrier’s motion with respect to this issue. However, the court excluded all documentary evidence relating to the ALE that had yet to be produced.
Third, the carrier moved to exclude evidence of replacement cost damages allegedly incurred by the insureds. As a part of their breach of contract claim, the insureds alleged that they are owed replacement cost damages under a part of the policy providing reimbursement for the replacement of a destroyed dwelling. The carrier had already paid $384,000.00 to the insureds, $190,980.00 of which was the estimated actual cash value (“ACV”) of the home. The carrier refused to pay more because the insureds had yet to replace or rebuild their home. The insureds argued that they could not replace the home without first receiving money to do so, the amount of which was in dispute.
The court reasoned that the carrier’s actions were proper because they had actually guaranteed conditional replacement benefits to the insured. To receive the benefits, however, the insureds needed to demonstrate that they had replaced or repaired the property. The policy stated that, until they replace their home, the insureds were limited to recovering the ACV only. Accordingly, the court found that the insureds were not entitled to replacement costs, precluding related evidence at trial.
In sum, the court granted the carrier’s motion, except for evidence as to whether the insureds submitted sufficient documentation related to their request for ALE.
Date of Decision: May 21, 2012
Seto v. State Farm Ins. Co., No. 2:10-cv-005052012 U.S. Dist. LEXIS 70263 (W.D. Pa. May 21, 2012) (McVerry, J.)
In Simmons v. Trumbull Ins. Co., the court addressed an insured’s breach of contract and bad faith claims stemming from the denial of benefits under her automobile policy. The case arose from a car fire that caused substantial damage to the insured’s car. After promptly reporting her loss to the carriers, the insured’s claim was denied. The carriers’ employee sent a letter explaining that the claim was denied because the loss was caused by an electrical or mechanical failure, two occurrences excluded from the insured’s policy.
The insured thereafter filed this suit against the named insurer and a financial services company through whom plaintiff alleged the named insurer issued the policy. The insured’s claim was that the named carrier issued the automobile policy “acting by and through” the financial services company, which should also be amenable to breach of contract and bad faith liability. The defendants moved to dismiss both claims against the financial services company on the grounds that it was not a proper defendant.
With respect to the financial services company, the court held that it was an insurer for the purposes of the Pennsylvania bad faith statute. Using a two-part factor test, the court held that the company was (1) identified as an insurer on various policy documents and (2) acted as an insurer. For instance, the company’s logo appeared on the insured’s insurance card. The insured’s policy documents also used the company’s name repeatedly. Even the letter denying coverage under the policy contained the company’s logo. As such, the court ruled that both the named carrier and the financial services company were insurers for the purposes of bad faith liability.
The court also denied the carriers’ motion to dismiss the bad faith count because the denial letter stated that the insured’s car “had a short and melted the negative battery cable but there was no other damages [sic] to any other components.” Yet, the insured’s complaint alleged “substantial fire damage,” permitting the inference that the carrier did not reasonably investigate the insured’s claim. The court reasoned that this was enough to survive the carrier’s motion to dismiss.
Date of Decision: April 25, 2012
Simmons v. Trumbull Ins. Co., No. 11-6571, 2012 U.S. Dist. LEXIS 58425, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 25, 2012) (Padova, J.)
In Goshorn v. Westfield Ins. Co., the insured brought breach of contract and bad faith allegations against her automobile insurer for denying underinsured motorist (“UIM”) benefits. In 2009, the insured was involved in a car accident with a third party, sustaining injuries that required surgery to correct. The insured settled with the third party for $97,000, an amount sufficient to cover the policy limits, but insufficient to wholly cover the insured’s injuries. As a result, she filed a UIM claim with her carrier.
In early 2011, the insured began sending her medical and police records to the carrier. After a month, her attorney contacted the assigned claims adjuster, who said that the insured’s claim was “on the pile.” Throughout the summer of 2011, the insured’s attorney repeatedly left messages for the adjuster, but received no response. In September 2011, the adjuster called the insured’s counsel and said that he would be sending the medical records to an expert. In October, the carrier denied the insured’s UIM claim, stating that its medical expert determined that the insured had not suffered injuries related to the car accident. The carrier never responded to subsequent letters from the insured’s attorney.
The insured thereafter filed suit in the York County Court of Common Pleas and the carrier removed to federal court, filing a motion to dismiss. In a brief opinion, the court reasoned that the insured has properly pled a claim for bad faith, by alleging that the carrier frivolously and unfoundedly failed to pay proceeds under the policy on the basis of one medical expert’s opinion. While the court did express concern that the insured’s burden would be “quite high” going forward, noting that a claim for bad faith cannot be premised upon “negligence or bad judgment,” it nonetheless ruled that the suit should proceed.
Date of Decision May 4, 2012
Goshorn v. Westfield Ins. Co., No. 1:12-cv-0517, 2012 U.S. Dist. LEXIS 63191, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. May 4, 2012) (Rambo, J.)