Daily Archive for October 16th, 2013

OCTOBER 2013 BAD FAITH CASES: BAD FAITH CLAIM ADEQUATELY PLEADED WHERE, AMONG OTHER THINGS, INSURED ALLEGED THAT THE CARRIER UTILIZED AN IMPROPER EXPERT AND FAILED TO RETAIN LEGAL COUNSEL TO EVALUATE THE CLAIM, AS WELL AS DELAY IN SETTLEMENT. COURT ALSO PERMITTED CLAIM FOR NEGLIGENCE IN UNDERVALUING NECESSARY POLICY LIMITS TO PROCEED (Western District)

Published on October 16, 2013 in PA - Claims Handling Procedures, PA - Coverage Issues, PA - Experts and PA - Procedural Issues. Closed

In Allied Dental Group v. State Farm Fire & Casualty Co., the plaintiff purchase a business insurance policy that provided coverage for business personal property and improvements and betterments, and coverage for the actual loss of business income sustained during a period of restoration. A fire severely damaged the office building plaintiff leased and as a result plaintiff submitted a claim under the Policy. The carrier paid plaintiff the approximate limit under the first coverage, but its losses were over double that policy limit. Plaintiff’s lawsuit alleges that the carrier was negligent in its evaluation and recommendation of coverage under the Policy and, as a result, plaintiff was underinsured. In addition, Plaintiff alleges that Defendant breached the terms of the Policy and acted in bad faith during the investigation and settlement of the claim in a reasonable time frame.

The carrier argued that the claim should be dismissed because the plaintiff has failed to allege sufficient facts to state a plausible claim under Pennsylvania law. The court denied the insurer’s motion to dismiss the bad faith claim. It found at least a plausible claim for bad faith was stated based on the allegations concerning failure to investigate and delay in settling the claim. Plaintiff made specific factual averments including, but not limited to, that the carrier refused to meet with corporate accountants to discuss the insureds’ losses; unreasonably utilized an accountant who was not familiar with plaintiff’s billing process and later relied on that accountant’s opinions in determining coverage; failed to retain legal counsel regarding plaintiff’s claim; failed to meet with plaintiff regarding certain factual determinations necessary to determine its loss; and delayed payment for thirteen months. This not only met the criteria for pleading under Twombly, but set out the kind of conduct that, if proven, could constitute bad faith.

On the negligent recommendation claim, the court not only found a claim to be stated, but allowed the fleshing out of that claim in an amended complaint to relate back to the original complaint and thus survive the statute of limitations hurdle.
Date of Decision: September 27, 2013

Allied Dental Group, Ltd. v. State Farm Fire & Cas. Co., Civil Action No. 12-1637, 2013 U.S. Dist. LEXIS 138673 (W.D. Pa. September 27, 2013 (Bissoon, J.)

OCTOBER 2013 BAD FAITH CASES: INSURER’S CLAIM DENIAL BASED ON INDEPENDENT ADJUSTER’S AND ENGINEER’S EVALUATION SUFFICIENT AS BASIS TO DISMISS BAD FAITH CLAIM (Middle District)

Published on October 16, 2013 in PA - Claims Handling Procedures and PA - Experts. Closed

In Dunn v. Scottsdale Ins. Co., plaintiff brought suit alleging breach of contract, statutory bad faith, and unjust enrichment against its insurer for denying a claim for water damage to plaintiff’s property. Plaintiffs alleged the interior water damage to their property was caused by severe storm conditions, which would be covered under the policy, while the insurer contended the damage was caused by poor craftsmanship in sealing the roof, which was not covered by the policy. To evaluate the claim, the insurer hired an independent adjuster, determined the damage was caused by a poorly installed roof which had opened around the seams, allowing water into the interior of the building. Based on the independent adjuster’s analysis, the insurer denied the claim for damages. Plaintiffs then informed the insurer they intended to dispute the denial. At that time, the insurer hired an engineer who also inspected the property. The engineer also determined the poor condition of the roof allowed the water to enter the interior of the building. Plaintiffs produced an expert report which cited storm damage as the cause of the poor condition of the roof, creating a question of material fact as to the cause of the damage. As such, the court denied defendant’s motion for summary judgment as to the breach of contract and unjust enrichment claims. In response to the bad faith claim, however, the court found the insurer had based its denial first on the independent adjuster’s report, and then affirmed the denial based on the engineer’s report. Furthermore, plaintiff had not alleged either of the expert reports were unfounded or in some way unsound. Based on these findings, the court found plaintiffs could not establish the insurer lacked a reasonable basis for denying benefits, and granted the insurer’s motion for summary judgment with respect to the bad faith claim.

Date of Decision: August 1, 2013

Dunn v. Scottsdale Ins. Co., No. 3:11-0976, 2013 U.S. Dist. LEXIS 107984 (M.D. Pa. Aug. 1, 2013) (Mannion, J.).

OCTOBER 2013 BAD FAITH CASES: COURT REFUSES TO DISMISS BAD FAITH CLAIM WHERE PLAINTIFF ALLEGES THAT CARRIER FAILED TO INVESTIGATE AND ATTEMPTED TO HAVE EXCULPATORY WITNESS CHANGE HIS STORY (Middle District)

Published on October 16, 2013 in PA - Claims Handling Procedures. Closed

In Pauling v. State Farm Mutual Automobile Insurance Co., the insured alleged that he was the victim of a hit and run accident, leaving him seriously injured, and was covered under his parents’ automobile policy, which included UM coverage. The father contacted a witness in the police report who said that the hit-and-run driver, and not the son, had been responsible for the accident. However, after making a claim for UM benefits, the plaintiff alleged that the carrier pressured and intimidated that witness into providing a description of events which placed blame for the accident on the son and, in the insurer’s view, supported a denial of coverage. Plaintiff alleged that the carrier made no attempt to locate and interview that witness’s girlfriend, a known eyewitness to the accident, and did not have an agent visit or inspect the scene of the accident. Plaintiff alleged that because the witness, allegedly at the carrier’s “substantial urging,” reported that the son was at fault, the carrier denied his claim for UM benefits.

The court denied the carrier’s motion to dismiss the son’s statutory bad faith claim. The court found that the alleged facts do not set out merely potential negligence in claims handling or a difference over legal analysis as to whether the policy provides coverage; rather, the allegations, which the court was required to assume as true for a motion to dismiss, set out not only a failure to investigate but an active effort to affect a witness’s reporting of the incident, which, if true, would reflect the kind of self-interest and dishonest purposes the statute is aimed at.

Date of Decision: September 26, 2013

Pauling v. State Farm Mutual Automobile Insurance Co., CIVIL ACTION NO. 1:13-CV-01348, 2013 U.S. Dist. LEXIS 137950 (M.D. Pa. September 26, 2013) (Conner, J.)

OCTOBE R 2013 BAD FAITH CASES: COURT DETERMINES DAMAGES AND ATTORNEYS’ FEES AWARDER TO INSURER AND AGAINST INSURED AND ITS PRINCIPAL UNDER INSURANCE FRAUD ACT (Philadelphia Federal)

Published on October 16, 2013 in PA - Lawyer's - Attorney's Fees and PA - Reverse Bad Faith. Closed

In Zenith Insurance Company v. Glasbern, Inc., a jury found an insured and its principal liable under Pennsylvania’s insurance fraud act, 18 Pa.C.S. section 4117, in failure to make disclosures in connection with the issuance of a workers’ compensation policy. It was left to the court to determine damages and attorneys’ fees. In its initial decision, the court awarded over $1,000,000 in damages in connections with medical and other payments. In its second opinion, the court awarded legal fees and costs in excess of $580,000.

Dates of Decision: August 23, 2013 and September 10, 2013

Zenith Insurance Company v. Glasbern, Inc., CIVIL ACTION NO. 10-5433, 2013 U.S. Dist. LEXIS 120484 (E.D. Pa. Aug. 23, 2013) (Bartle, J.)

Zenith Insurance Company v. Glasbern, Inc., CIVIL ACTION NO. 10-5433, 2013 U.S. Dist. LEXIS 128557 (E.D. Pa. September 10, 2013) (Bartle, J.)

OCTOBER 2013 BAD FAITH CASES: INVESTIGATIONS BY THE CARRIER THAT MAY HAVE LEAD TO DIFFERENT RESULTS HAD CERTAIN EVENTS OCCURRED WHICH DID NOT IN FACT OCCUR WAS NOT THE BASIS FOR A BAD FAITH UI, CLAIM (Western District)

Published on October 16, 2013 in PA - Claims Handling Procedures. Closed

In Deibler v. Nationwide Mutual Insurance Company, the insured brought a statutory bad faith claim against his UIM insurer. The non-insured motorist had asserted the insured was at fault. The carrier investigated that claim by reviewing the police record and attempted to speak with the plaintiff, but was not successful; though the plaintiff’s reasons for not doing so may have been justified. Based on the policy reports, the investigator concluded that the insured was totally at fault, rather than the other driver (who was uninsured for the vehicle in use at the time).
The insured later raised a UIM claim which was investigated by a different person who reviewed the police report and an interview with the other driver, and he concluded the insured was more than 51% at fault. He later obtained examinations under oath for both the insured and the other driver, and determined there to be an issue of fact regarding fault and proposed binding arbitration. Prior to arbitration, the carrier re-evaluated the claims and tendered the policy limits ($50,000) to plaintiff.

That the first investigator, of the other driver’s claim, did not obtain plaintiff’s statement during the course of her investigation, and did not inform plaintiff of his right to file an UIM claim did not amount to bad faith. That the UIM investigator made an initial decision to deny benefits based on information contained in plaintiff’s file (a file that did not, at the time, contain plaintiff’s statement), likewise did not amount to bad faith. Delays based on the need to obtain further information or even negligence do not constitute bad faith; rather, the delay must be a time when the carrier knew or recklessly disregarded the fact that there was no basis to deny the claim. Further, delays could be attributed to a variety of persons and circumstances and not simply the carrier.

Date of Decision: August 23, 2013

Deibler v. Nationwide Mutal Ins. Co., Civil Action No. 11-929, 2013 U.S. Dist. LEXIS 119723 (W.D. Pa. August 23, 2013) (Bissoon, J.)

OCTOBER 2013 BAD FAITH CASES: RULE 42 MOTION TO SEVER AND STAY BAD FAITH CLAIM IN UIM CASE DENIED BY FEDERAL DISTRICT COURT (Western District)

Published on October 16, 2013 in PA - Procedural Issues. Closed

In Cooper v. Metlife Auto & Home, the insured sought UIM coverage from his carrier, after the tortfeasor’s carrier paid its $50,000 limit. The UIM carrier refused to settle and the insured brought breach of contract and bad faith claims against the carrier in Mercer County, which was removed to federal court. The carrier brought a motion to sever and stay the bad faith claim until the contract claim was decided.

The Court looked at Federal Rule 42(b), which gives courts broad power to sever and stay proceedings. In exercising this discretion, the court is required to weigh the competing interests of the parties and attempt to maintain an even balance. It must consider whether “there is ‘even a fair possibility’ that the stay would work damage on another party.” The court must balance considerations including the convenience of the parties, the avoidance of prejudice to either party, and “promotion of the expeditious resolution of the litigation.” It must “consider: (1) whether the issues are significantly different from each other; (2) whether they require separate witnesses and documents; (3) whether the nonmoving party would be prejudiced by bifurcation; and (4) whether the nonmoving party would be prejudiced if bifurcation is not granted.” Further, the moving party bears the burden of demonstrating that bifurcation is appropriate.
First, the court addressed various prejudice arguments from the carrier, and a series of state court cases supporting the carrier’s position. The court observed that Judge Lancaster of that Bench had previously decided this issue in favor of plaintiffs’ position in Craker v. State Farm, reasoning that there was considerable overlap in the issues. Both the breach of contract and bad faith claims centrally involved the insurer’s valuation of injuries and losses; there was no question that the insurer’s UIM coverage had been triggered and that the plaintiffs were without fault in the accident; that the plaintiffs suffered serious injuries; and that the insurer refused to meet the insureds’ demand for payment of full UIM coverage. The same central issue of valuation went to the contract and bad faith claims. Thus, Judge Lancaster concluded, the potential prejudice presented by that situation did not outweigh the court’s obligation to promote the expeditious resolution of this matter, particularly given the substantial overlap in issues and evidence.

The court in the instant case found that the factual circumstances and legal standards in Craker mirror those in the instant case as the insureds’ breach of contract and bad faith claims both “centrally involve the insurer’s valuation of plaintiffs’ injuries and losses.” Thus, the issues are not “significantly different” and do not warrant bifurcation. The court cited case law from the Middle and Eastern Districts as well denying bifurcation.

Next, the court looked to the issue of separate witnesses and documents, and found nothing to suggest that such were going to be required in this case if the both claims were tried together. Rather many of the same witnesses and documents would be used and it would waste judicial resources and cause inconvenience to bifurcate.
Finally, the court rejected the arguments that there may be prejudice in proceeding with the bad faith contemporaneously with the contract count if the court refuses to order discovery with respect to the claims handler’s mental impressions until the resolution of contract claim; and that the plaintiffs would not be prejudiced by bifurcation because plaintiffs are “potentially entitled to interest at prime rate plus three percent and attorney’s fees if they successfully prove [d]efendant acted in bad faith. These “conjectural assertions” did not outweigh the court’s obligation to promote the expeditious resolution of this matter, particularly given the “substantial overlap in issues and evidence.”

Thus, the motion was denied.

Cooper v. Metlife Auto & Home, CIVIL ACTION NO. 13-687, 2013 U.S. Dist. LEXIS 110248 (W.D. Pa. August 6, 2013) (Conti, J.)