In Capriotti v. Allstate Prop. & Cas. Ins. Co., the court heard a motion for summary judgment filed by a carrier against its insureds’ claims for breach of contract and bad faith. The insureds possessed a homeowner’s policy with the carrier that covered “sudden and accidental direct physical loss to property.” However, the policy excluded coverage for “seepage” and “wear and tear, aging, marring” and “deterioration.”
In September of 2011, the insureds noticed that their basement carpeting was covered in water. They contacted a basement waterproofing company a few days later and apprised the carrier of the damage. A plumber who conducted an inspection on the home discovered a “break” in a pipe under the insureds’ home. Soon after, the carrier had a claims adjuster inspect the insureds’ home.
The adjuster concluded that a sewer line under the insureds’ home was broken for some time, causing continuous damage to the basement. He also concluded that the basement showed damage from long term deterioration, such as rot in the basement walls and discoloration on the carpet tack slips. On the basis of these conclusions, the carrier denied coverage, citing policy exclusions for “seepage” and “rust or other corrosion.”
The insureds disagreed, arguing that the damage was caused by a “sudden break in the pipe.” They filed a claim for breach of contract and bad faith on these grounds. The carrier moved for summary judgment on both counts.
With respect to the breach of contract claim, the carrier argued that the rot and discoloration show that the insureds’ loss was gradual, not “sudden.” Yet, the insureds claimed to have used the basement daily, meaning that the discovery of the loss could in fact have been “sudden.” Additionally, the insureds argue, the carrier’s adjuster did not notice the discoloration until a month after the flooding was first discovered. The court therefore denied the carrier’s motion on the insureds’ breach of contract count because of factual discrepancies existing in the record.
However, the court granted the carrier’s motion for summary judgment on the bad faith claim. The court was brief in its analysis, but reasoned that the carrier only denied coverage after visiting the insureds’ home. Such an inspection is a reasonable basis for denying coverage.
Date of Decision: September 6, 2012
Capriotti v. Allstate Prop. & Cas. Ins. Co., No. 11-7779, 2012 U.S. Dist. LEXIS 126540, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Sept. 6, 2012) (O’Neill, J.)
Monthly Archive for September, 2012
In Coates v. Nationwide Ins. Co., the court heard a motion to remand in an action for bad faith and breach of contract brought by an insured party that was severely injured in a car accident. The insured’s policy provided only $100,000 in coverage, which her expenses exceeded. She therefore requested UIM benefits under her policy, but was denied. As a result, the insured filed this action in state court, where the case was designated for compulsory arbitration, which caps damages at $50,000. The carrier thereafter removed to federal court.
The court initially expressed confusion as to the amount in controversy, but the insured filed an amended complaint stating that all damages and fees would not exceed $50,000. The carrier argued that this figure was incorrect because the insured’s sought-after damages and fees would exceed the $75,000 jurisdictional amount. However, the court disagreed and remanded the case because the carrier could not prove this figure with legal certainty.
Date of Decision: September 14, 2012
Coates v. Nationwide Ins. Co., No. 12-4031, 2012 U.S. Dist. LEXIS 132305, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Sept. 14, 2012) (Baylson, J.)
In Katzenmoyer v. Allstate Ins. Co., the court heard cross-motions for summary judgment stemming from an insurance dispute. A person was injured while driving with the insured in his ATV. Suit was brought and a jury verdict was entered against the insured. The insured eventually assigned his claims against his homeowners insurance carrier to the injured passenger, after a long period of litigation. The assignee brought a breach of contract/common law bad faith claim against the insurer, as assignee, for failure to settle at a policy limits demand. The insurer had taken the position that the accident occurred in a woods near the home, not on the premises of the home, and so there was no coverage.
The case history is over a decade long, and it was almost that long before the assignment actually occurred.
The injury occurred in 2001. The injured party requested the $100,000 policy limit of the insured homeowner’s insurance policy with the carrier, and subsequently filed a personal injury action in 2002 against the insured party, who unsuccessfully asked the carrier to settle the claim. In 2003, the carrier filed a declaratory judgment action in District Court, and the Court ruled on summary judgment that the carrier had no duty to defend or indemnify the insured in the underlying personal injury action. An appeal was taken to the Third Circuit.
In 2004, while that appeal was pending, the Pennsylvania Superior Court heard a case with similar facts and ruled against the carrier. Using this case as leverage, the assignee unsuccessfully sought to settle and against made a policy limits demand for a full release, which was rejected on various bases, including an alleged material difference in the facts and that a petition for allocator was pending on the Superior Court decision.
Soon after, the Third Circuit vacated the declaratory judgment in favor of the carrier on the basis of the related Superior Court decision and remanded: and after that allocator was denied on the Superior Court’s decision. After the trial judge on remand indicated she was likely to rule against the carrier on the remand, the carrier thereafter offered the limits of the insured’s policy, i.e., $100,000, to the assignee, but the assignee declined the offer. In 2005, the trial judge ruled that the carrier had a duty to defend and indemnify, and the assignee demanded $750,000 to settle while an appeal to the Third Circuit was pending, which the carrier rejected. The Third Circuit affirmed, the insurer again offered the $100,000 and the assignee again demanded $750,000.
In 2009, a state court jury in the underlying personal injury case rendered a verdict against the insured party for $1,500,000. The carrier requested a release of all claims in exchange for the insured’s policy limits, but the parties again failed to settle. In 2010, the insured assigned all claims or rights to the claimant in this action. The carrier thereafter tendered the $100,000 policy limits to the assignee. However, the assignee bought a common-law bad faith claim against the carrier, prompting the parties to file competing summary judgment motions.
The carrier defended against the assignee’s bad faith claims on timeliness grounds, claiming that the four-year limitations period for common-law bad faith claims had expired. Specifically, the carrier argued that the claim was time-barred because the limitations period began when that party rejected the insured’s 2004 settlement offer. The assignee disagreed, arguing that the limitations period started after the 2009 jury verdict in the underlying personal injury suit.
The court ruled that the limitations period began when the jury rendered its verdict in the underlying state court action, not when the carrier declined the assignee’s settlement offer. The assignee could not have maintained a suit for common law contractual bad faith in 2004 because he had not yet suffered any damages. While the court acknowledged that Pennsylvania law is unclear on this issue, it nevertheless ruled that the limitations period could not have begun until 2009.
With respect to the common-law bad faith claim itself, however, the court ruled that the assignee failed to show that the carrier had acted in bad faith. In common law, Cowden, bad faith, a contract claim for bad faith requires evidence that an insurer acted negligently or unreasonably in handling the potential settlement of claims against its insured, and that . dven questionable conduct giving the appearance of bad faith is not sufficient to establish it so long as the insurer had a reasonable basis to deny coverage. An insured must prove its bad faith claim by clear and convincing evidence.
Essentially, the court reasoned, the carrier could not have acted unreasonably in denying the assignee’s settlement offers because it had no way of knowing that the Third Circuit would overturn its favorable district court ruling. The carrier was acting under a “bona fide belief” that it would win the suit and was justified in not settling the case. The court therefore granted the carrier’s motion for summary judgment. It also granted the assignee leave to amend, but stated that it would “not change the decision of the court.”
Date of Decision: August 30, 2012
Katzenmoyer v. Allstate Ins. Co., No. 11-3427, 2012 U.S. Dist. LEXIS 123483, U.S. District for the Eastern District of Pennsylvania (E.D. Pa. Aug. 30, 2012) (Shapiro, J.)
In Norco v. Allstate Ins. Co., the court heard a dispute over insurance coverage under an automobile policy provided by the carrier to an insured whose negligent driving caused the third-party insured in this action to sustain severe injuries. The third-party insured is the infant minor son of the allegedly negligent driver, who brought this claim through his guardians ad litem.
After notifying the carrier about the accident, the parties entered settlement negotiations. The carrier notified the guardians that, because they had selected a limited tort option, any recovery was limited. As such, the carrier told the guardians that if they did not accept an offer of settlement, they would receive nothing. In mid-2011, the carrier presented to the Orphans Court of Lawrence County a petition to approve settlement of the minor’s claim. The judge refused to approve the settlement and advised the guardians to have the agreement and release reviewed by independent counsel. They followed this advice.
The guardians thereafter brought nine causes of action against the carrier, including in relevant part: (1) a negligence claim against the driver; (2) a demand for the policy limits of the applicable policy; (3) a common law bad faith claim; (4) a statutory bad faith claim; and (5) a claim for the wrongful use of civil proceedings. After claims against the driver were settled, the carrier removed to federal court and filed this motion to dismiss.
With respect to the guardians’ coverage claim, the magistrate judge recommended dismissal because, at the time of this action, the carrier had already paid the full policy limits with respect to available first-party medical benefits.
Turning to the guardians’ common law bad faith claim, the court examined Pennsylvania Supreme Court precedent and recommended dismissing the claim. Specifically, the guardians’ claimed that Dercoli v. Nat’l Mut. Cas. Ins. Co. recognized a cause of action for common law bad faith where a carrier undertakes to act as a legal advisor to its insured, giving rise to a fiduciary-like relationship. In such a situation, a carrier voluntarily transforms itself into a legal advisor and owes a duty to the insured parties.
In this case, the guardians were initially discouraged from hiring independent counsel. However, they did not suffer any harm prior to their retention of independent counsel. Because they rejected the carrier’s settlement offer and did not lose or waive any rights under the insurance policy, the court reasoned, a common law bad faith claim was improper due to the lack of cognizable harm.
The court then examined the guardians’ statutory bad faith claim and recommended granting the carrier’s motion to dismiss. The court initially agreed with the guardians that there is no distinction between first-party and third-party claimants in the bad faith context. However, a statutory bad faith claim must “arise under an insurance policy,” meaning that, in the context of a third-party negligence claim, such a claim must arise from the carrier’s duty to defend and/or indemnify its insured. In this case, the guardians’ statutory bad faith claim could not be predicated upon the carrier’s duty to defend and/or indemnify the injured minor child because no such duty existed under the policy. The court also recommended the dismissal of a separate statutory bad faith claim brought by the guardians in their own capacity. The court recommended dismissal because the guardians lacked standing to bring such a claim as guardians ad litem.
While the court recommended dismissal of all counts, it recommended denial of the carrier’s motion to dismiss the guardians’ wrongful use of civil proceedings claim. The court reasoned that the carrier knew it did not have cause to initiate the Orphan’s Court settlement proceedings because the guardians had rejected all offers to settle.
The District Court for the Western District of Pennsylvania thereafter adopted the magistrate’s Report and Recommendation in full.
Date of Decision: July 17, 2012
Norco v. Allstate Ins. Co., No. 2:11-cv-1453, 2012 U.S. Dist. LEXIS 128343, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. July 17, 2012) (Lenihan, M.J.)
Date of Decision: September 10, 2012
Norco v. Allstate Ins. Co., No. 11-1453, 2012 U.S. Dist. LEXIS 128567, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Sept. 10, 2012) (Lancaster, C.J.)
In Lexington Ins. Co. v. Charter Oak Fire Ins. Co., the court heard a complex insurance coverage dispute stemming from an underlying personal injury action. In late 2005, the Philadelphia Water Department entered into a contract with the insured, who agreed to provide various engineering and design services for a construction project. The contract contained an indemnification provision that required the insured to defend and indemnify PWD against all liabilities.
The insured first procured a general liability policy and then purchased a professional service liability policy through the named plaintiff in this action. The general liability policy excluded coverage for injuries arising out of its professional services. The insured’s professional liability policy only covered sums in excess of a Self-Insured Retention of $250,000.
Later, a joint venture was formed to complete PWD’s engineering project. The named defendant-carrier in this action insured the joint venture. This policy excluded coverage for bodily injury arising out of professional engineering services. Moreover, the joint venture’s subcontractors obtained a policy that was to be primary over the aforementioned policy. Lastly, the joint venture also purchased an umbrella policy that excluded coverage for damage and injury arising from its professional services.
In 2007, the claimant in the underlying personal injury action was severely injured in a bicycle accident occurring within an area that the one of the subcontractors was performing work. The man died in 2008 from the injuries he sustained and his estate brought a personal injury suit, alleging joint and several liability against all of the parties. The subcontractors and PWD were defended and indemnified by the defendant-carrier in this action. This underlying tort action eventually settled.
However, the insured party (the engineers that entered into the main contract with PWD and later helped form the joint venture) sought coverage from its umbrella carrier. The carrier stated that it had no obligation to defend or indemnify the insured until the limits of its underlying insurance were exhausted. The carrier also denied coverage based on a professional services exclusion that was contained in the policy language.
The insured thereafter filed suit in state court, alleging that the carrier acted in bad faith by failing to tender a defense and indemnification pursuant to the umbrella policy. In 2011, the court granted the insured’s petition to substitute the named carrier-plaintiff in the instant action. The defendant-carrier then filed for summary judgment.
First, the court held that the defendant-carrier did not owe the insured a duty to defend because the limits of the underlying insurance had not been exhausted. As the policy issued by that carrier specifically conditioned its defense upon exhaustion by payment of all underlying insurance, it owed no duty to the insured. Moreover, the applicable policy contained a professional services exclusion that barred coverage for injuries arising out of the insured’s engineering services. As such, the court granted the defendant-carrier’s motion to dismiss, finding that it owed no duty of defense or indemnification.
Second, the court addressed the insured’s bad faith claim. It reasoned that the defendant-carrier’s representatives denied coverage to the insured based on the professional services exclusion in the policy. As such, it was impossible to find that the defendant-carrier lacked a reasonable basis to deny coverage and acted in bad faith. Therefore, the court granted summary judgment on this count as well, disposing of all claims.
Date of Decision: September 6, 2012
Lexington Ins. Co. v. Charter Oak Fire Ins. Co., No. 2142, 2012 Phila. Ct. Com. Pl. LEXIS 255, Common Pleas Court of Philadelphia County (C.C.P. Phila. 2012) (McInerney, J.)
In White v. Combined Ins. Co., the insured parties filed claims against their insurance carrier for breach of contract and bad faith. The insureds originally filed their suit in the Court of Common Pleas for Schuylkill County, but the carrier moved to remove the action to federal court.
However, the carrier failed to properly allege that the federal court possessed diversity jurisdiction over the suit. Specifically, the carrier alleged that the insureds are “residents” of Pennsylvania. However, residence is not the same as domicile, the quality that establishes citizenship for diversity jurisdiction purposes.
As such, the federal court granted the carrier twenty-one days leave to file an amended notice of removal.
Date of Decision: Sept. 13, 2012
White v. Combined Ins. Co., No. 3:CV-12-1787, 2012 U.S. Dist. LEXIS 130776, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Sept. 13, 2012) (Caputo, J.)
In Pennsylvania Manufacturers Association Ins. Co. v. Pennsylvania State University, the trial court issued an opinion in support of its order granting an insurer’s motion to coordinate (1) a coverage case the insurer had filed and (2) a bad faith claim filed by insured. The court agreed to transfer the coordinated cases to be litigated in Philadelphia as opposed to Centre County, Pennsylvania.
After the parties filed their respective actions, they agreed that coordination was appropriate. However, the insured argued that the coordinated cases should be kept in Centre County. Under Pa.R.C.P. No. 213.1(c), the court reasoned that the first action was filed in Philadelphia, the underlying personal injury action was in Philadelphia and that Philadelphia was a more convenient location for the insurer, all attorneys and many witnesses. Moreover, the court opined, the Commerce Court of Philadelphia is a specialized program established to handle these types of cases.
Therefore, the court found that Philadelphia had the ability “to provide a fair and efficient method of adjudicating the controversy.”
Date of Decision: August 7, 2012
Pennsylvania Manufacturers Association Ins. Co. v. Pennsylvania State Univ, No. 4126, 2012 Phila. Ct. Com. Pl. LEXIS 249, Philadelphia Court of Common Pleas (C.C.P. Aug. 7, 2012) (New, J.)
In Palmisano v. State Farm Fire & Cas. Co., the court heard a carrier’s motion to dismiss the insureds’ complaint alleging breach of contract and bad faith damages. The claim stemmed from the carrier’s refusal to cover damages sustained to the foundation of the insureds’ home.
In October of 2010, the insureds noticed damage to their home, including buckling and cracking of the floor in their kitchen. A contractor identified several problems with the foundation of the insureds’ home. The contractor also found that a sewer pipe in the basement floor had separated, spilling water that pooled in the back of the house. The insureds’ believed that this was the cause of their home’s foundation failure.
The insureds submitted their claim to the carrier for coverage under their homeowner’s policy. A representative of the insured instructed the insureds to immediately complete the repairs to avoid any further damage. After the work was completed, the carrier retained an architectural engineer to investigate the loss. The resultant report detailed the engineer’s walk-through and examination of photographs of the home prior to the renovations. The engineer concluded that a “distressed I-beam,” caused by wear and tear, was the root of the foundation damage. He added that he would reserve further opinion until viewing physical measurements taken before the renovations were complete. These measurements were never provided by the insureds. As such, he recommended the denial of insurance coverage.
After being denied coverage by the carrier, the insureds sued. Their first claim was that the carrier breached the policy by denying coverage for their claim. They allege that the accumulated sewer water was the true cause of the damage and is covered under the policy. However, the defendant argued that any such claim was barred by the policy’s one-year contractual limitations period. Finding that this clause was reasonable, the court agreed with the carrier, holding that the suit was barred as untimely. The court also ruled that the carrier was not precluded from asserting this defense because the insureds’ bad faith claims did not allege deception with respect to the contractual limitations period.
With respect to the insureds’ bad faith claim, the court began by noting that the insureds were not precluded from recovery solely because the contractual limitations period has been enforced. However, the court characterized the insureds’ claim as a “laundry list” of generalized accusations that did not amount to an actionable bad faith suit. Specifically, they alleged that the carrier’s engineer was a litigation specialist, hired for the purpose of denying coverage.
The court disagreed with this claim, finding that the engineer’s firm advertises a variety of services worldwide. The court also held that the carrier’s reliance on the engineer’s report was wholly proper. Therefore, the court ruled that, the plaintiff’s claim is “reduced to a dispute about the conclusions reached” by the engineer’s report (specifically regarding the I-beam) and not an actionable suit for bad faith.
Lastly, the court denied the insureds’ request for leave to amend their complaint because the breach of contract claim was time-barred and the bad faith claim was insufficiently pled. As such, the court granted the carrier’s motion and dismissed the claim with prejudice.
Date of Decision: August 20, 2012
Palmisano v. State Farm Fire & Cas. Co., No. 12-886, 2012 U.S. Dist. LEXIS 116938, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Aug. 20, 2012) (Fischer, J.)
In Egan v. USI Mid-Atlantic, Inc., the court heard post-trial motions filed by parties to an ongoing insurance fraud suit. With respect to the bad faith issue, the carrier, a holding company and insurer, argued that the Court erred by denying a directed verdict on the insured’s claim for delay in receiving stacked benefits and its summary judgment motion on the statutory bad faith claim. However, the court disagreed, finding that the issue was “thoroughly argued and determined.”
Date of Decision: February 23, 2012
Egan v. USI Mid-Atlantic, Inc., No. 3444, 2012 Phila. Ct. Com. Pl. LEXIS 240, Philadelphia Court of Common Pleas (C.C.P. Phila. 2012) (Smith, J.)
In Olender v. Nat’l Cas. Co., the court heard cross-motions for summary judgment stemming from the carrier’s denial of benefits under the insured’s under insured motorist (“UIM”) policy. The insured was the owner of an automotive garage and purchased a UIM policy through his company. However, when originally selecting his desired UIM coverage on the policy selection form, he initialed in two places, appearing to choose both $100,000 and $35,000 liability limits.
In 2008, the insured’s wife was driving an automobile owned by her husband’s company and was struck by a negligent driver. The driver was only insured for $15,000, an amount insufficient to cover the injuries she sustained. As such, she filed a UIM claim with the carrier. In mid-2009, the carrier tendered to the insureds a check in the amount of $35,000. The check was accompanied by a general release discharging the carrier from any further liability. The insureds refused to sign the release and returned the check, reasoning that they were entitled to the full $100,000 in coverage. The insureds later sent a demand letter to the carrier demanding that they be awarded the undisputed $35,000 amount, but the carrier refused.
Prior to the date of the demand letter, the insureds had filed an action for declaratory judgment, breach of contract and bad faith against the carrier, seeking a judgment that they were entitled to the full $100,000. The carrier removed the case to federal court and the parties filed cross-motions for summary judgment.
The insureds contended that they did not reduce their UIM policy limits to $35,000 and that the carrier’s refusal to tender the full $100,000 was a breach of their contract. The carrier claimed that the insureds had chosen the $35,000 limits because they signed next to that option on the policy selection form. The court agreed with the insureds that an examination of the policy selection form as a whole manifests a desire to obtain coverage for $100,000. A reading of the policy shows that the insured properly signed and initialed next to that amount.
The court reasoned that the carrier ignored the fact that the insured selected both options – he sought $100,000 in UIM limits, an amount equal to his bodily injury coverage. However, he also appeared to choose $35,000 in UIM limits. Under basic contract principles, the policy should be construed in favor of the insured. The court therefore ruled that the carrier was required to tender the $100,000 in UIM coverage.
As for the bad faith claim, the insured contended that the carrier’s refusal to initially tender the $35,000 sum without signing a general release constituted bad faith. However, the court reasoned that, due to the ambiguities contained in the insured’s selection form, the carrier’s decision was made in good faith on the basis of the designations of the selection form. The court did not address the issue of whether requesting the release of any bad faith claim was in itself bad faith.
The court therefore granted the insured’s motion on the breach of contract claim, but found for the carrier on the bad faith count.
Date of Decision: August 21, 2012
Olender v. Nat’l Cas. Co., 11-4098, 2012 U.S. Dist. LEXIS 117731, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Aug. 21, 2012) (Tucker, J.)