Daily Archive for October 21st, 2013

OCTOBER 2013 BAD FAITH CASES: BAD FAITH CLAIMS ALLEGING DELAY IN INVESTIGATION, UNREASONABLE INTERPRETATION OF POLICY, AND LACK OF ALE PAYMENT CAN ADVANCE TO TRIAL, THOUGH SUMMARY JUDGMENT GRANTED ON CLAIM RELATING OT AGGREGATION AND DEPRECIATION ON PERSONAL PROPERTY (Philadelphia Federal)

Published on October 21, 2013 in PA - Claims Handling Procedures and PA - Coverage Issues. Closed

In Hudgins v. Travelers Home & Marine Ins. Co., plaintiff’s home was destroyed in a fire. An investigation of the cause of the fire took place, and plaintiff’s son was arrested and charged with arson. The insurer continued its investigation, but failed to make a decision as to coverage until nearly 10 months after the fire when the charges against plaintiff’s son were dropped and he submitted to an examination under oath. Following the deposition, the insurer accepted coverage and issued payment, but aggregated the total value of all items included in plaintiff’s personal property claim and depreciated the value. The insurer also ended additional living expense payments under suspicious circumstances. Multiple lawsuits were filed as a result of the claims settlement process, with the instant breach of contract and statutory bad faith action being filed in state court and removed to federal court by the insurer. The insurer then moved for summary judgment on the bad faith claims.

First, the court found that a bad faith claim can be pursued despite the insurer’s acceptance of coverage. A statutory bad faith claim extends to an insurer’s actions such as unfair investigation techniques or delayed payment of claims. Thus, plaintiff’s allegations that the insurer unreasonably delayed its investigation and coverage decision, as well as her challenge of the depreciation reduction on her personal property claim and the insurer’s refusal to reinstate her ALE payments, could all support a bad faith claim.

The court then turned to each allegation of bad faith to consider the insurer’s argument plaintiff lacked evidentiary support for her claims. First, the court considered whether the insurer’s delay in investigation was in bad faith. The only piece of evidence needed to make the coverage determination was plaintiff’s son’s sworn statement, and the insurer failed to take the deposition for nine months. The court found whether this presented an unreasonable delay in investigation was a question of fact for the jury and denied summary judgment.

Next, the court considered whether the insurer’s interpretation of the policy was unreasonable as to establish bad faith. Plaintiff alleged the insurer acted in bad faith when it asserted an “appraisal defense” in an underlying action. Although the defense was procedurally rendered moot and never reasserted, the court found if reliance on the defense, even temporarily, was a frivolous interpretation of the policy, such an action could constitute bad faith. Therefore, summary judgment was denied on that count.

Conversely, the court found no reasonable jury could find the insurer’s interpretation of the policy allowing it aggregate and depreciate the value of plaintiff’s personal property was unreasonable, and granted summary judgment.

The court found a material question of fact as to whether the insurer’s decision to stop making ALE payments was in bad faith. Plaintiff presented evidence suggesting the insurer stopped paying ALE because plaintiff sought sanctions in response to a motion filed by the insurer in an underlying litigation, as well as evidence its refusal to reinstate the payments broke with its usual practice. Therefore, summary judgment was denied.

Finally, plaintiff’s attempt to include an ‘abuse of process’ claim as a part of her allegations of bad faith failed due to plaintiff’s failure to produce enough evidence to enable a jury to find the insurer did not have a reasonable basis for its actions in the underlying action.

Date of Decision: July 31, 2013

Hudgins v. Travelers Home & Marine Ins. Co., Civil Action No. 11-882, 2013 U.S. Dist. LEXIS 107775 (E.D. Pa. July 31, 2013) (Yohn, J.)

OCTOBER 2013 BAD FAITH CASES: COVERAGE FOR QUI TAM ACTION DENIED UNDER “PRIOR OR PENDING LITIGATION” EXCLUSION; INSURED NEED NOT BE SERVED WITH COMPLAINT FOR EXCLUSION TO APPLY (Philadelphia Commerce Court)

Published on October 21, 2013 in PA - Coverage Issues. Closed

In AmerisourceBergen Corp. v. ACE Am. Ins. Comp., plaintiff brought suit against the insurer alleging the insurer denied plaintiff’s professional liability claim in bad faith. Plaintiff provides pharmaceutical manufacturers with drug distribution services, clinical education, marketing, and business resources for their clients. On May 1, 2007, the insurer issued plaintiff a claims-made professional liability policy, which was renewed on the same date the following two years, to provide plaintiff with coverage for its business endeavors in the pharmaceutical industry.

In December of 2009, plaintiff was served with a qui tam action alleging it provided kickbacks to doctors for prescribing certain drugs sold by plaintiff at inflated prices, allowing plaintiff to recover illegitimate amounts from Medicare. The qui tam action was filed and docketed on June 5, 2006. After being provided notice of the claim, the insurer issued a reservation of rights letter. On April 5, 2010, the insurer denied coverage due to lack of timely notification and exclusions for claims arising out of “prior or pending litigation,” “false, deceptive, or unfair business practices,” and an “inaccurate description of the price of goods.” Plaintiff then filed a bad faith suit against the insurer.

After establishing a claim had taken place during the policy period, triggering coverage, the court turned to the allegedly applicable exclusions. First, the court determined litigation only needed to be filed, not served, to be fall within the “prior or pending litigation” exclusion. Therefore, even though plaintiff wasn’t served with the qui tam action until 2009, the action was “pending” under the policy as of the date of filing in 2006. The application of this exclusion was sufficient to deny coverage in and of itself; however, the court went on to find the exclusion for claims arising from or alleging “false, deceptive or unfair business practices or any violation of consumer protection laws” also applied because the action was brought under the False Claims Act, intended to penalize false or deceptive practices leading to Medicare fraud. The “inaccurate description of the price of goods” exclusion, however, did not apply.

Since the insurer properly denied coverage under the policy, plaintiff was unable to demonstrate the insurer did not have a reasonable basis for denying benefits under the insurance policy, the claim failed as a matter of law and the insurer was granted summary judgment.

Date of Decision: July 16, 2013

AmerisourceBergen Corp. v. ACE Am. Ins. Comp., March Term 2011, No. 02679, 2013 Phila. Ct. Com. Pl. LEXIS 249 (C.C.P. Phila. Jul 16, 2013) (Snite, Jr., J.)