Monthly Archive for June, 2013

JUNE 2013 BAD FAITH CASES: PLAINTIFF FAILS TO MEET 12(B)(6) STANDARDS BY PLEADING CONCLUSORY STATEMENTS (Middle District)

Published on June 29, 2013 in PA - Procedural Issues. Closed

In Calandrello v. Sentinel Ins. Co., plaintiffs’ home sustained damage in August of 2011 during Hurricane Irene. Plaintiffs’ homeowners’ insurance policy covered damage to plaintiffs’ dwelling, including structures attached to the dwelling. The policy included coverage for wind and hail damage. Following the storm, plaintiffs visited their property and observed water infiltration on the main level, in the living room, dining room, kitchen and loft kitchen; leakage around the skylight; badly bent chimney cap; and flashing on the roof.

A public adjuster assessed the storm-related value of the loss at approximately $55,401. The carrier hired a private adjuster to investigate the loss. The private investigator valued the storm-related loss at approximately $3,392. The carrier refused to pay the amount assessed by the public adjuster because it asserted some of the damages were actually the result of wear and tear, not the storm.

Based on this coverage denial, plaintiffs filed suit against the carrier alleging statutory bad faith. Plaintiffs alleged those claims were evidenced by “[the carrier’s] refusal to accept coverage on the claim when it knew or should have known that the claim was covered under the applicable policy; [the carrier’s] refusal to fully pay the claim; the carrier denying the claim; [the carrier] failing to promptly provide a reasonable explanation for the basis of the denial; [the carrier’s] pattern and practice of engaging in conduct benefitting the carrier to the detriment of plaintiffs; [the carrier] placing its interests over those of the insured; other misconduct which might be discovered during litigation.” The carrier then filed a motion to dismiss both counts, alleging plaintiffs’ complaint only made conclusory allegations, which do not suffice to establish a plausible claim of bad faith.

The court found plaintiffs’ allegations of statutory bad faith were not sufficient to demonstrate a “plausible claim for relief” as necessary to defeat a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Plaintiffs’ factual allegations fell short of raising “a right to relief above the speculative level on the assumption that all allegations in the complaint are true.” Although the court felt the carrier’s adjuster’s low-value assessment might implicate bad faith, the support cited by plaintiffs was not sufficient to show bad faith was the case.

Date of Decision: June 7, 2013

Calandrello v. Sentinel Ins. Co., Civil Action No. 3:13-CV-134, 2013 U.S. Dist. LEXIS 79967 (M.D. Pa. June 7, 2013) (Conaboy, J.).

JUNE 2013 BAD FAITH CASES: PENNSYLVANIA DISTRICT COURT FINDS SURETY OWES NO FIDUCIARY DUTY TO POLICYHOLDER; GIST OF THE ACTION DOCTRINE BARS BAD FAITH CLAIMS (Western District)

Published on June 29, 2013 in PA - General Bad Faith and Litigation Issues and PA - Procedural Issues. Closed

In Reginella Constr. Co., Ltd. v. Travelers Cas. and Sur. Co. of Am., the court was presented with a question of whether a surety is a fiduciary, as well as whether a breach of surety contract could result in a bad faith claim.

Plaintiff is a Pittsburgh-based construction company that primarily deals in large-scale public construction projects for school districts, state universities and agencies, municipalities, and other public entities. It is common practice in the construction industry for general contractors to purchase surety bonds when undertaking large-scale projects. A surety bond guarantees the general contractor’s performance of the work and its payments of subcontractors and suppliers, and act to reduce the risks inherent in logistically complicated projects. Typically, only the project owners, subcontractors, and suppliers are entitled to make claims and receive payment under the bond, although the general contractor obtains and pays the premium due on the bond.

This case arises out of three surety bonds provided to plaintiff by the carrier for two separate projects. The first two bonds were issued for plaintiff’s contract with a Pennsylvania school district (“the school district”) and the remaining bond was for plaintiff’s contract with the Ohio Turnpike Commission (“the OTC”) for re-construction of two service plazas along the turnpike.

The school district project began and continued without incident from August 2010 through April 2012. Then, in mid-April 2012, the school district approved a $554,702 invoice from plaintiff, but failed to issue payment. On April 26, Travelers sent a letter to the school district, demanding payment on the project for “the entire amount of the contract funds remaining in the custody of [the school district], including any and all estimates earned by [plaintiff] but unpaid at this time.” Six weeks later no payments had been made by the carrier or the school district, resulting in the subcontractors on the project not being paid. Plaintiff alleges at this time the carrier met with the subcontractors privately and informed them that the project was going to be terminated. This allegedly caused the subcontractors to slow down, stop working, and submit inflated and premature claims against plaintiff. This led to the shutdown of the school district project on June 11, 2012.

The surety bonds issued in connection with the school district project, a performance bond and a payment bond, had a combined value of $19,297,000, the full value of the school district contract. Under the performance bond, the carrier guaranteed plaintiff’s performance in the event that plaintiff defaulted in its obligation, but if the school district defaulted, the carrier was not obligated to guarantee plaintiff’s performance. The payment bond provided that the carrier would “have no obligation to [the subcontractors, suppliers, laborers, and other claimants]” until they “have given notice to [the carrier and the school district] stating a claim [for payment] is being made under this bond.” After receiving a properly submitted claim, the carrier is responsible for promptly paying or arranging for payment of any undisputed amounts at its own expense. In its complaint, plaintiff alleged the carrier breached its fiduciary duty to plaintiff as its surety on the school district project, and that the carrier acted in bad faith by refusing to pay plaintiff’s subcontractors as required under the terms of the bond agreements. The carrier claims it owed no fiduciary duty to plaintiff and Pennsylvania does not recognize a tort-based bad faith claim by a principal against a surety.

The second contract for the OTC project was also bonded by the carrier for the full contract price of $9,930,730. Six months into the project, plaintiff fired a subcontractor on the project. The subcontractor then filed a lien against the project, which under Ohio law allowed OTC to withhold payment from plaintiff until plaintiff obtained a lien-over bond to guarantee payment of the claim. At this point, plaintiff had terminated its bond relationship with the carrier, but the OTC project bond remained intact. The carrier, however, refused to issue the lien-over bond, alleging the contract bond did not require it to issue lien-over bonds, that plaintiff should seek the bond from its new surety, and that the contract bond required OTC to release payment. OTC continued to refuse payment on the project until plaintiff procured the lien-over bond, and the carrier refused to issue the lien-over bond until May 2012, at which point OTC terminated the contract.

Plaintiff’s contract bond for the OTC project guaranteed plaintiff’s performance of the work as well as plaintiff’s payment of “all lawful claims of subcontractors, material suppliers and laborers” in the event of plaintiff’s default. The bond stated its purpose was to “benefit any subcontractor, material supplier or laborer having a just claim, as well as for [the OTC].” Plaintiff claims the carrier breached its fiduciary duty as plaintiff’s surety, and acted in bad faith in refusing to issue the lien-over bonds as allegedly required by the contract bond.

In response to plaintiff’s complaint, the carrier filed a motion to dismiss. The court first faced the choice of law issue presented by the diversity of the parties. Applying Pennsylvania’s “most significant relationship” forum test, the court found Pennsylvania law applicable for the school district issues because both parties were Pennsylvania entities, the parties established minimum contacts with Pennsylvania, and no other state was involved. The court also applied Pennsylvania law to the OTC claims because there were no relevant differences between the substantive law of the two states. Neither Ohio nor Pennsylvania has specifically held whether a principal may bring a breach of fiduciary duty or common law bad faith claim against a surety, requiring the district court to predict how the state supreme courts would rule.

On the breach of fiduciary duty claim, the court predicted the Pennsylvania Supreme Court would not impose fiduciary duties on a surety. A fiduciary duty exists “whenever one person has reposed a special confidence in another to the extent that the parties do not deal with each other on equal terms.” This may be shown by demonstrating the existence of a relationship normally considered to be fiduciary in nature, such as attorney and client or principal and agent, or by establishing a “disparity in position between the parties.” Pennsylvania case law views surety bonds as “commercial guarantee instruments rather than policies of insurance,” stating specifically, “suretyship is not insurance.” Furthermore, imposing a fiduciary relationship between parties to a contact is the exception rather than the rule. Finally, the split loyalties the surety maintains in a surety bond contract between the principal and the owner of the project are not indicative of a fiduciary relationship. Thus, the court predicted the Pennsylvania High Court would hold that as a matter of law, a surety does not owe a fiduciary duty to its principal. Furthermore, the court found no “overmastering influence” on the part of the surety to establish a fiduciary relationship in this specific circumstance, and dismissed the breach of fiduciary duty claims.

In determining the tort bad faith claims, the court applied the gist of the action doctrine. The gist of the action doctrine prevents a plaintiff from bringing a contract claim under the guise of a tort claim to avoid a bar on certain claims. Under Pennsylvania law, “tort actions lie for breaches of duties imposed by law as a matter of social policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements between particular individuals.” Thus, the gist of the action doctrine bars tort claims “(1) arising solely from a contract between the parties; (2) where the duties allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract.”

The court found the gist of the action doctrine barred both claims of bad faith against the carrier arising out of the school district project and the OTC project. Pursuant to plaintiff’s complaint, the carrier’s conduct was allegedly tortious because of perceived rights and duties set forth in the bond agreements. Furthermore, there was a dispute as to whether or not plaintiff defaulted on the school district project and whether the bond for the OTC project required the carrier to issue lien-over bonds. Thus, the true question in plaintiff’s alleged tort claims is whether the carrier breached its contractual duties. Therefore, the court dismissed the plaintiff’s bad faith claims with prejudice.

Date of Decision: May 30, 2013

Reginella Constr. Co. v. Travelers Cas. & Sur. Co. of Am., Civil Action No. 12-1047, 2013 U.S. Dist. LEXIS 76353 (W.D. Pa. May 30, 2013) (Hornack, J.)

JUNE 2013 BAD FAITH CASES: DECLARATORY JUDGMENT ACTION DOES NOT CONSTITUTE BAD FAITH WHERE CARRIER WAS ALLEVIATED OF ANY DUTY; LENDER DOES NOT HAVE STANDING TO BRING BAD FAITH CLAIM WHERE MORTGAGE SERVICE COMPANY SUBMITTED INITIAL CLAIM TO INSURER (Philadelphia Federal)

Published on June 26, 2013 in PA - Claims Handling Procedures. Closed

In U.S. Bank, N.A. v. First Am. Title Ins. Co., Allied Mortgage Group (“bank one”) provided a mortgage to a client for a real property purchase. The bank also purchased a title insurance policy from First American Title Insurance Company (“the carrier”) in connection with the mortgage, securing bank one’s mortgage as a first lien on the client’s property. The carrier issued the policy, and then hired a settlement service to handle the duties of closing and recording the mortgage. The settlement service, however, failed to promptly follow through on its duties, and by the time it attempted to record the mortgage, two intervening mortgages had already been recorded on the property. When bank one’s mortgage service company learned of the error, it put the carrier on notice of the problem. The carrier assured the mortgage service company it would stand by its policy as issued and indemnify the insured should it suffer any losses.

Bank one subsequently bundled the mortgage and its policy, and sold the mortgage to a second bank (“bank two”). Bank two then sold the bundle to a third bank, plaintiff. Four months after selling the bundle to plaintiff, bank two merged with a larger bank (“the financial advisor”). When the client defaulted on his loans, one of the intervening mortgage providers obtained a foreclosure judgment against the property.

The property was sold at a sheriff’s sale, discharging plaintiff’s mortgage against the property. The mortgage service company filed a claim with the carrier on June 29, 2006, requesting the carrier take all necessary actions to remediate the situation resulting from the sheriff’s sale. The carrier responded on July 27, 2006, and informed the mortgage service company it would investigate the matter and contact the mortgage service company when the facts had been ascertained.

On March 23, 2007, the carrier then mistakenly brought a declaratory judgment action against the financial advisor, not realizing the mortgage in question was sold in the bundle prior to the merger. Three years after the commencement of the action, the mistake was discovered, and the financial advisor attempted to substitute plaintiff as defendant in the action, however that motion was denied. Summary judgment was found in favor of the carrier, finding it owed no responsibilities to the financial advisor.

Plaintiff then brought suit against the carrier for breach of contract and bad faith. Specifically, plaintiff alleged the carrier had acted in bad faith through (1) a lack of a good faith investigation into the facts of the case; (2) a failure to communicate with plaintiff; and (3) prolonging the litigation through the unnecessary declaratory judgment action against the financial advisor.

To recover for bad faith, plaintiff must demonstrate by clear and convincing evidence that the insurer (1) did not have a reasonable basis for denying benefits under the policy and (2) knew or recklessly disregarded its lack of reasonable basis in denying the claim. However, in this case, plaintiff made a claim itself, and defendant never denied it benefits until the lawsuit was filed. Thus, there was no genuine issue of material fact to create the basis for a claim of bad faith. Although an insurer may be found to have acted in bad faith for employing legal tactics to increase the cost of litigation, such a finding requires something to suggest that the conduct was intended to evade the insurer’s obligations under the insurance contract. In the instant case, the time lapse between the initial claim and denial of benefits was in part due to plaintiff’s mortgage servicer failing to pursue the claim, and in part due to defendant’s pursuit of a declaratory judgment against a separate party, which was ultimately decided in its favor, supporting the assertion it was not a mechanism for evading obligations under the policy. With no genuine issue of material fact in play, the court granted judgment in favor of defendant as to the bad faith claim.

Date of Decision: May 7, 2013

U.S. Bank, N.A. v. First Am. Title Ins. Co., Civil Action No. 10-cv-5201, 2013 U.S. Dist. LEXIS 65751 (E.D. Pa. May 7, 2013).

JUNE 2013 BAD FAITH CASES: COMPLAINT WAS LEGALLY SUFFICIENT TO SURVIVE MOTION TO DISMISS FOR DENIAL OF COVERAGE FOR CLAIMS ARISING FROM DEFAULTED MORTGAGE LOANS VIEWED AS POST-CLAIM UNDERWRITING; AND USE OF 5 EXEMPLARY INCIDENTS OUT OF NEARLY 250 DISTINCT EVENTS LEGALLY SUFFICIENT (Western District)

Published on June 26, 2013 in PA - Procedural Issues. Closed

In PNC Bank, N.A. v. Republic Mortg. Ins. Co., the court considered whether pleadings alleging bad faith conduct in the handling of claims arising from the mortgage crisis were legally sufficient. Plaintiff is a bank that provided home mortgage loans to individual consumers. These loans were insured by defendant (“the carrier”) through “flow” policies, intended to insure against the risk a borrower will default on a particular, individual loan, even if that loan is sold in the secondary market. The loans were also insured through a “pool” policy, which provides coverage to a group of loans, and is intended to protect the lender against the risk of exposure to investors in the event of adverse economic conditions or increased borrower defaults.

Plaintiff claimed to have paid all premiums and complied or substantially complied with all of its duties under the policies, entitling it to coverage for 248 defaulted loans. Therefore, the carrier’s rescission and/or cancellation of the policies constituted a breach of contract and bad faith conduct. In its complaint, plaintiff used five loans which were denied coverage as “example loans” to demonstrate the breach of contract and bad faith conduct of the carrier. Plaintiff sought declaratory judgment as to how the policies should be interpreted and applied to the various disputed loans; money damages for breach of contract; and compensatory and punitive damages for bad faith pursuant to Pennsylvania and Ohio law.

The carrier filed a motion to dismiss pursuant to Rule 12(b)(6), alleging plaintiff misrepresented material information, making the cancellation or rescission of its policies appropriate. The carrier also argued each loan should be considered separately, and that broad declaratory relief would be inappropriate. Furthermore, the complaint only made conclusory statements as to the 243 loans not used as “example loans” in the complaint. The carrier also argued the loans were governed by Minnesota and Indiana law pursuant to the choice of law provision in the insurance contracts, preventing a claim of bad faith.

The Third Circuit instructs district courts to apply a three step test in assessing the legal sufficiency of a complaint. First, the court must “take notes of the elements a plaintiff must plead to state a claim.” Second, the court should identify allegations that are not entitled to the assumption of truth because they are not more than conclusions. Finally, where there are well-pleaded factual allegations, a court should consider the veracity of the allegations and “whether they plausibly give rise to an entitlement for relief.” In performing the final step, the court must determine whether a complaint does more than just allege an entitlement to relief, requiring the court “to draw on its judicial experience and common sense.”

The Court found the complaint complied with the Federal Rules of Civil Procedure, and that interpretation of the rights and duties of the parties under an insurance contract is an appropriate scenario for declaratory relief to be provided. The court declined to dismiss any counts of the complaint, believing the declaratory relief issues would be better resolved on a more developed record. Furthermore, the bad faith claim was properly pled as it provided a “short and plain statement” as required by Fed. R. Civ. P. 8, and gave the carrier fair notice of the conduct which plaintiff alleged was in bad faith. Furthermore, to dismiss those claims based on the choice of law provision defense before those defenses were fully developed would be premature.

Date of Decision: May 23, 2013

PNC Bank, N.A. v. Republic Mortg. Ins. Co., Civil Case No. 2:12-cv-1470, 2013 U.S. Dist. LEXIS 72872 (May 23, 2013 W.D. Pa.) (McVerry, J.).

JUNE 2013 BAD FAITH CASES: SUMMARY JUDGMENT DENIED ON ISSUE OF BAD FAITH POLICY INTERPRETATION; INSURED’S CLAIM THAT POLICY IS AMBIGUOUS IN BREACH OF CONTRACT PART OF CASE IS NOT DISPOSITIVE FOR CARRIER ON BAD FAITH (Middle District)

Published on June 26, 2013 in PA - Coverage Issues. Closed

In Davis v. Peerless Indem. Ins. Co., plaintiffs, a law firm and the property owner of the firm’s office space, brought suit against the firm’s insurer (the “carrier”), when the carrier denied payments after a sump pump back-up at the firm’s office space.

The firm’s policy provided coverage for direct physical loss or damage plus debris removal up to the “Limit of Insurance applicable to the Covered Property that sustained loss or damage.” Subject to that allowance, the policy limited the amount it would pay for debris removal to “25% of the sum of the deductible plus the amount that we pay for direct physical loss or damage to the Covered Property.” In the next paragraph, the policy stated, “We will pay up to an additional $25,000 for debris removal expense… if one or both of the following circumstances apply: (a) The total of the actual debris removal expense plus the amount we pay for direct physical loss or damage exceeds the Limit of Insurance on the Covered Property… (b) The actual debris removal expense exceeds 25% of the sum of the deductible plus that amount that we pay for direct physical loss or damage to the Covered Property…” The policy specified that if either provision (a) or (b) applied, the total payment for direct physical loss and debris removal could reach, but never exceed, the limit of Insurance on the property, plus $25,000.

The firm also purchased two “Coverage Extensions.” The first, entitled “Personal Effects” provided, “You may extend the insurance that applies to business personal Property to apply to personal effects” with a limit of $2,500. The second, a “Commercial Protector Extension Plus Endorsement” revised the limits on certain coverage to a “$100,000 Blanket Limit.” This provision included two lists of “Coverages included in the blanket limit” and “Coverages not included in the Blanket Limit.” Included in the “Coverages included in the blanket limit” list were “Back-up of Sewers or Drains (including resultant Business loss or resultant Extra Expenses incurred.)” The language of the Extension Plus Endorsement specified the limits of insurance for those coverages included in the list were “deleted and replaced” with a limit of $100,000 “in any one occurrence.” Debris removal was not included on either list. Personal effects were not included in the blanket limit, but a revised limit increased the personal effects limit to $5,000.

After the pump failed, the carrier made an advance payment of $30,000. One month later, the carrier determined that the damage to the covered buildings and business personal property exceeded $100,000, and wrote a letter to the firm’s representative informing him an additional payment of $70,000 would be made, for a total of $100,000. In that letter, the carrier’s representative also wrote the $70,000 payment would end the carrier’s obligation under the policy, citing the blanket limit of $100,000 in the Extension Plus Endorsement. That same day, the firm’s representative responded, stating the debris removal provision expressly contemplated additional coverage beyond the $100,000 blanket limit, and also asserted coverage remained for damaged personal effects. Over the next six months, correspondence continued between the parties with the firm continuing to assert it was owed additional payments under the policy, and the carrier denying any coverage remained. Eventually, plaintiffs brought suit alleging breach of contract and bad faith for the carrier’s failure to pay the additional $25,000 for debris removal and $5,000 for personal effects. The adjuster testified at her deposition that she had discussed the policy extensively with other adjusters, they considered the firm’s stance, and ultimately decided the policy did not extend coverage beyond the blanket limit of $100,000.

On a motion for summary judgment, the court ruled in plaintiffs’ favor on the issue of liability for breach of contract. The court found the policy’s failure to include debris removal in the “Coverage included in the Blanket Limit” list indicated the debris removal coverage was not amended by the Coverage Extension Plus provision. The court entered summary judgment in plaintiffs’ favor on the issue of Personal Effects. The court found the Extension Plus Endorsement specifically listed the Personal Effects coverage was not subject to the blanket limit, and therefore the coverage was not subject to it.

On the bad faith issue, the carrier advanced three defenses: (1) bad faith could not exist because the carrier properly denied the claims; (2) even if coverage existed, the carrier’s position there was no coverage was reasonable as evidenced by plaintiffs’ argument the policy language was ambiguous; and (3) the carrier engaged in a thorough investigation of the claims, and even re-opened the claim when plaintiffs requested it, thus negating a finding of bad faith. The court dismissed the first argument based on finding summary judgment in plaintiffs’ favor. The court also disregarded the third argument, finding that the question of bad faith was not one of a failure to investigate, rather it was a failure to properly interpret the policy. This left only the second defense for consideration. The court was “not convinced” the plaintiffs’ ambiguity argument was dispositive of a finding of bad faith, and believed it was only a rebuttal to defendant’s argument concerning coverage. As such, the court allowed the case to go to trial on the bad faith claim.

 

Date of Decision: May 16, 2013

Davis v. Peerless Indem. Ins. Co., CIVIL NO. 1:CV-12-1241, 2013 U.S. Dist. LEXIS 69812, (M.D. Pa. May 16, 2013) (Caldwell, J.)

 

JUNE 2013 BAD FAITH CASES: PLAINTIFF’S WELL-PLED CLAIM FOR BAD FAITH IN DENIAL OF COVERAGE ALLEGEDLY BASED ON CONCURRENT CAUSES MEETS F.R.C.P. 12 MOTION TO DISMISS STANDARD (Middle District)

Published on June 18, 2013 in PA - Claims Handling Procedures and PA - Coverage Issues. Closed

In Donahue v. Burns, plaintiff purchased a homeowner’s policy that provided coverage for the dwelling, personal property and loss of use of his home. The policy excluded water damage resulting from water or sewage overflow or back, and at defendant-carrier’s suggestion, plaintiff purchased a back-up sewer endorsement. On September 8, 2011, a back-up of sewage damaged plaintiff’s property, and plaintiff filed a claim with defendant-carrier. On October 11, 2011, defendant-carrier mailed a letter to plaintiff that denied coverage because the damage “was caused by flood waters, which is specifically excluded under the policy…”

Plaintiff filed suit alleging defendants (the insurance agent and insurance carrier) breached the insurance contract and acted in bad faith by denying coverage. Defendants filed a motion under F.R.C.P. 12 to dismiss the claim of bad faith. Prior to resolution of the Motion by the Corut, Plaintiff agreed to dismiss the agent, and to pursue claims solely against the carrier. Under as F.R.C.P. 12, a plaintiff must demonstrate (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis; both elements must be supported with clear and convincing evidence. The Third Circuit has also recognized that bad faith conduct extends to “a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured.” The Court found plaintiff had adequately pled a bad faith cause of action. Plaintiff alleged that defendants based their denial on concurrent causes, which are unenforceable under state law. Plaintiff’s allegations, read in conjunction with plaintiff’s factual averments, satisfied the elements of a cause of action for bad faith under § 8371, and thereby defendants’ Motion to Dismiss was denied.

Date of Decision: May 13, 2013

Donahue v. Burns, No. 3:13cv7, 2013 U.S. Dist. LEXIS 67498, (M.D. Pa. May 13, 2013) (Munley, J.)

JUNE 2013 BAD FAITH CASES: COURT DISMISSES STAND-ALONE COMMON LAW BAD FAITH CLAIM (Philadelphia Federal)

Published on June 17, 2013 in PA - Punitive Damages. Closed

In Tubman v. USAA Cas. Ins. Co., the plaintiff suffered severe injuries after a car crash in which she was ejected from the vehicle. The opposing driver had a policy with a limit of $15,000, which were tendered to the plaintiff. Plaintiff’s insurer (the “carrier”) approved the settlement, and the carrier agreed to allow plaintiff to file a claim for UIM coverage under her father’s policy with whom she was living at the time of the accident. Her father’s policy included $300,000 in stacked UIM coverage. The carrier made an offer to the plaintiff, who found the amount to be insufficient to cover her injuries. She then filed suit alleging breach of contract, statutory bad faith, breach of fiduciary duty, common law bad faith, and violation of the Unfair Trade Practices and Consumer Protection Law.

The carrier filed a motion to dismiss, including a motion to dismiss a stand-alone count alleging common law bad faith; though the carrier did not seek to dismiss the statutory bad faith claim.

On the common law bad faith issue, the court noted an independent cause of action for breach of a duty of good faith and fair dealing is only available in very limited circumstances. In circumstances where a plaintiff brings a claim for a breach of contract, they are precluded from also bringing a claim for common law bad faith because “the actions forming the basis of the breach of contract claim are essentially the same actions forming the basis of the bad faith claim.” In plaintiff’s first count, she brought a breach of contract claim that also alleges a breach of common law duty of good faith and fair dealing; and her fourth count was a stand-alone common law bad faith claim. The court dismissed the common law bad faith claim, stating the plaintiff would be pursuing the same cause of action under the breach of contract claim.

Date of Opinion: April 30, 2013

Tubman v. USAA Cas. Ins. Co., CIVIL ACTION NO. 12-cv-7121, 2013 U.S. Dist. LEXIS 61022 (E.D.Pa. April 30, 2013) (Brody, J.)

JUNE 2013 BAD FAITH CASES: DELAYED RESPONSE AND LACK OF COMMUNICATION IN ADDRESSING CLAIM ALLOWS PLAINTIFF TO MOVE PAST SUMMARY JUDGMENT STAGE

Published on June 14, 2013 in PA - Claims Handling Procedures and PA - Procedural Issues. Closed

In Clark v. Allstate Ins. Co., the plaintiff suffered damage to her home on August 27, 2011 and provided notice to her insurance provider (the “carrier”) on August 31, 2011. On September 26, the carrier sent an adjuster to inspect the property and take pictures. During the inspection, the adjuster took photos, measurements, and notes, and observed the damage from the incident. After several inquiries into the status of her case, plaintiff received a letter from the carrier on October 12, stating the investigation was ongoing. On October 13, the carrier made a request for a second inspection of the property, but did not provide a reason for the second inspection or the delay in determination of coverage. Plaintiff placed several calls to the carrier, and was ultimately informed that the original inspector had failed to inspect the roof, and that failure was likely the cause for the second inspection.

The second inspector came to plaintiff’s home on October 20 to complete the inspection of the roof. On October 24, the second inspector provided a completed estimation of damages, estimating $632.47, but only included the damage to the roof and siding in his estimate. On October 25, plaintiff contacted the carrier and requested a copy of all work product produced by the various investigators and carrier personnel, but the carrier refused her request. Plaintiff provided proof of loss on October 27. On October 28, plaintiff was informed that her case was transferred to a different claims representative. Plaintiff again requested all documentation in reference to her claim, but was this time told the original inspector could not be contacted, and his work product could not be retrieved. On November 1, Plaintiff sent a final email requesting all materials relating to her claim. On November 11, plaintiff received two estimates, one from the original investigator who allegedly had been contacted, and one from the second investigator, who had changed, without explanation, his estimate to match that of the original investigator, $24,185.70. Defendant ultimately determined plaintiff had suffered a loss to the property, but plaintiff alleges the carrier failed and refused to indemnify her for the loss.

Plaintiff filed suit on August 14, 2012, alleging breach of contract, bad faith, and violation of the Unfair Trade Practices and Consumer Protection Law. On the bad faith claim, the court found that the facts pled, while they might all have reasonable explanations, could also be evidence of bad faith. In particular, the original investigator’s unexplained disappearance and reappearance, the discrepancies in whether or not he investigated the roof, the carrier’s shifting of plaintiff’s claim to at least eleven claims agents, and the carrier’s refusal to furnish the plaintiff with information about her claim were all suspect. Based on the allegations, the court found plaintiff had pled sufficient facts to raise the allegation of bad faith “above the “speculative” level and into that of “plausible.”” As such, the carrier’s Motion to Dismiss was denied.

Date of Opinion: May 7, 2013.

Clark v. Allstate Ins. Co., Civil Action No. 13-0271, 2013 U.S. Dist. LEXIS 65241 (E.D. Pa. May 7, 2013) (Buckwalter, J.)

JUNE 2013 BAD FAITH CASES: PLAINTIFF FAILS TO MEET TWOMBLY/IQBAL REQUIREMENTS BY PLEADING ONLY LEGAL CONCLUSIONS (Philadelphia Federal)

Published on June 13, 2013 in PA - Procedural Issues. Closed

In Clark v. Progressive Advanced Ins. Co., plaintiff was injured in a rear-end accident. The driver responsible for the crash had only the statutorily required $15,000 policy limit, the entirety of which was tendered, but insufficient to cover plaintiff’s injuries. Plaintiffs (the injured woman and her husband) filed a claim with their insurer (the “carrier”) for underinsured motorist benefits. The underinsured motorist policy had a limit of $300,000, and the carrier made an offer of $18,578. Following this offer, plaintiffs brought suit alleging bad faith.

Pursuant to the opinion, to successfully bring a claim for bad faith, a plaintiff must demonstrate (1) the carrier lacked a reasonable basis for denying benefits, and (2) the insurer knew or recklessly disregarded its lack of a reasonable basis. Plaintiffs alleged the carrier’s offer was “unreasonable under any circumstances,” the carrier “failed to make a good faith offer,” and that the carrier “arbitrarily and capriciously failed to act in good faith in settlement of the claim.” The court, however, found that these were legal conclusions, not facts, and thus had to be disregarded. Therefore, under the remaining facts pled in the complaint, the plaintiffs were insured by the carrier under an underinsured motorist policy, plaintiffs were injured as a result of a collision with an underinsured motorist, they complied with the terms of their policy in making an underinsured claim, and the insurer made an offer to cover plaintiffs’ losses which the plaintiffs did not consider acceptable. The court founds these facts insufficient to state a claim for relief under Pennsylvania’s bad faith statute, and the bad faith count of the complaint was dismissed; however, the dismissal was without prejudice, implying the possibility that the claim would be re-pleaded if the plaintiffs could set out sufficient facts to meet the Twombly/Iqbal pleading standards.

Date of Decision: April 26, 2013

Clark v. Progressive Advanced Ins. Co., Civil Action no. 12-6174, 2013 U.S. Dist. LEXIS 60221 (April 26, 2013, E.D. Pa.) (Ludwig, J.)

JUNE 2013 BAD FAITH CASES: COURT FINDS CARRIER’S FAILURE TO FOLLOW-UP ON POTENTIAL CAUSES OF DAMAGE ALLOWS CLAIM TO ADVANCE BEYOND MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (Western District)

Published on June 10, 2013 in PA - Claims Handling Procedures. Closed

In Robinson Eye Ctr. v. State Farm Fire & Cas. Co., the plaintiff limited liability company submitted a total of five claims for water damage caused by a leaky roof in the office the company leased. The first claim was for damage that occurred when soaked ceiling tiles fell onto plaintiff’s equipment and property. The second claim was for a second water intrusion on plaintiff’s property. The third claim was for water damage to electrical equipment. The fourth claim was for water damage to the ceiling tiles and carpet in the office, and the fifth and final claim was for damage caused by an unauthorized leak test conducted by the landlord. The defendant insurance carrier (the “carrier”) denied coverage on all five claims.

Plaintiff filed suit claiming breach of contract and statutory bad faith, leading the carrier to file a Motion to Dismiss. Plaintiffs claimed that the carrier relied on insufficient investigation to deny plaintiff’s claims, and that if the carrier’s consultant had followed-up after the first claim, the future damage could have been prevented. Plaintiff also asserted that the carrier had denied coverage for reasons “which it knew to “have no basis in law or fact,”” and thereby demonstrated that the carrier had no reasonable basis on which to deny the claims. The court agreed with plaintiff and denied the Motion to Dismiss.

The carrier later filed a Motion for Reconsideration or Clarification of Order on grounds unrelated to the bad faith issue, which was denied.

Date of Decision: April 25, 2013

Robinson Eye Ctr. v. State Farm Fire & Cas. Co., 13cv00383, 2013 U.S. Dist. LEXIS 59506, (W.D. Pa. April 25, 2013) (Schwab, J.)