Monthly Archive for July, 2014

JULY 2014 BAD FAITH CASES: INSUREDS FAILED TO PLEAD ANY FACTS TO SUPPORT A PLAUSIBLE BAD FAITH CLAIM IN UIM CASE, COURT GIVING EXAMPLES OF FAILURES IN PLEADING, BUT GIVES LEAVE TO AMEND; COURT STATES FIDUCIARY RELATIONSHIP ONLY EXISTS BETWEEN INSURED AND INSURER IN LIMITED CIRCUMSTANCES (Middle District)

Published on July 29, 2014 in PA - Procedural Issues. Closed

In Flynn v. Nationwide Insurance Company of America, the insured brought a UIM claim, alleging breach of contract, lost wages and bad faith, and included within his complaint allegations that the carrier breached its fiduciary duty. The carrier moved to dismiss the bad faith claim, and to strike references to its alleged fiduciary duty.

Although the insured alleged 15 kinds of bad faith the claim was dismissed, as the Court found all of these were only legal conclusions, and were not factual allegations sufficient to make out a plausible bad faith claim. Examples given by the court included “failing objectively and fairly to evaluate plaintiffs’ claim,” “failing to adopt and implement reasonable standards in evaluating plaintiffs’ claim,” “failing to promptly offer reasonably payments to the plaintiffs,” and “failing to make an honest, intelligent, and objective settlement offer.” Thus, e.g., “plaintiffs claim that [the insured] engaged in ‘abusive claims handling’ without explaining what the abusive behavior was. Plaintiffs also make the perfunctory allegation that [the insurer]’s payment offers weren’t reasonable, but does not disclose what those offers were, what his damages were, or how defendant’s offers were inadequate and unreasonable.”

The insureds argued that they established the carrier did not have a reasonable basis to deny coverage and recklessly disregarded evidence in the insured’s file; but they failed to explain what evidence was disregarded and how disregarding it was reckless. The court found that the insureds did “little more than state that they have a contract dispute, and assert that because the dispute has not yet ended in a manner favorable to them, that defendant has engaged in bad faith behavior.”

However, the Court did give the plaintiff leave to amend if it could plead a plausible bad faith claim with facts.

The Court then essentially granted the motion to strike references to fiduciary duty as the insureds did not oppose that motion; however, the Court did state that under Pennsylvania law, “a fiduciary relationship between an insurer and policyholder arises only in limited circumstances.”

Date of Decision: July 7, 2014

Flynn v. Nationwide Ins. Co. of Am., CIVIL ACTION NO. 3:13-2993, 2014 U.S. Dist. LEXIS 91431 (M.D. Pa. July 7, 2014) (Mannion, J.)

JULY 2014 BAD FAITH CASES: NO BAD FAITH CLAIM STATED WHERE COURT FOUND NO DUTY TO PAY BENEFITS; AND FURTHER FOUND THAT THE COMPLAINT DID NOT ALLEGE SUFFICIENT FACTS TO MAKE OUT A BAD FAITH CLAIM EVEN HAD IT RULED OTHERWISE ON COVERAGE (Western District)

Published on July 28, 2014 in PA - Coverage Issues and PA - Procedural Issues. Closed

In Hackbarth v. Nationwide Mutual Insurance Company, the insured fell while attempting to enter his car. The court found that ice caused the fall, and the vehicle was not an instrumentality of the injury. Thus, there was no coverage. Thus, it dismissed the insured’s breach of contract claim.

As to the insured’s bad faith claim, while the Court seemed on the verge of wrestling with the argument that there could be bad faith in the absence of any duty to provide benefits, the insured ultimately conceded that if there was no breach of contract, there could be no bad faith.

Moreover, even had the court ruled otherwise on the contract claim, it would still have dismissed the bad faith claim “because Plaintiff’s Complaint fails to aver sufficient facts which allow for drawing a reasonable inference that Defendant acted in bad faith when denying coverage under the Policy.” The court did not accept the argument that the pleadings were sufficient to allow further development via discovery. Rather, even accepting the alleged facts as true and disregarding legal conclusions, the insured did not allege sufficient facts to establish that the insurer lacked a reasonable basis for denying benefits and knew or recklessly disregarded its lack of reasonable basis.

Date of Decision: July 8, 2014

Hackbarth v. Nationwide Mut. Ins. Co., Civil No. 13-1596, 2014 U.S. Dist. LEXIS 92971 (W.D. Pa. July 8, 2014) (Cohill, J.)

JULY 2014 BAD FAITH CASES: INSURED ADEQUATELY ALLEGED BAD FAITH CLAIMS BY PLEADING SPECIFIC FACTS CONCERNING DELAYS IN THE CLAIMS HANDLING PROCESS, A LACK OF COMMUNICATION, AND DISCREPANCY BETWEEN THE ALLEGED INJURY AND SETTLEMENT SUM OFFERED (Philadelphia Federal)

Published on July 23, 2014 in PA - Claims Handling Procedures. Closed

In Padilla v. State Farm Mutual Automobile Insurance Company, the plaintiff brought a breach of contract and bad faith claim based on UIM coverage. The insurer took an examination under oath, had a medical examination done, and referred the case to counsel. The plaintiff alleged that the defendant acted in bad faith by delaying investigation of the plaintiff’s claim, offering a settlement that was unreasonable in light of the facts of the investigation, and failing to provide an evaluation of her claim, despite multiple requests for such information.

The plaintiff alleged serious injuries, that the same insurer insured both parties to the underlying accident which should presumably have expedited the process, that she made demands for settlement offers to her insurer with delays in getting any response, that her demands were made with requests for more information or ignored, that the settlement offer once made was unreasonably low based on the insurer’s own doctor’s report.

The insurer moved to dismiss the complaint. The court found that plaintiff pleaded unreasonable delays, lack of a reasonable basis for partial denial of benefits, and that the insurer acted out of its own self-interest. The court found that unreasonable delays and failure to communicate can go to an insurer’s bad faith. Further the court distinguished the insurer’s case law on the grounds that those cases either had thread bare allegations of wrongdoing, unlike the details in this case; and that the alleged delay in one other case once only a one-time event.

Thus, the motion to dismiss the complaint was denied.

Date of Decision: July 8, 2014

Padilla v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION No. 14-cv-2102, 2014 U.S. Dist. LEXIS 92230 (E.D. Pa. July 8, 2014) (Stengel, J.)

JULY 2014 BAD FAITH CASES: APPELLATE DIVISION UPHOLDS TRIAL COURT DECISION NOT TO AWARD ATTORNEYS FEES UNDER RULE 4:42-9(a)(6) FROM ONE INSURER TO ANOTHER IN DECLARATORY JUDGMENT ACTION, PARTICULARLY WHERE LOSING INSURER’S ARGUMENT WAS MADE IN GOOD FAITH (New Jersey Appellate Division)

Published on July 21, 2014 in NJ - Lawyer's-Attorney's Fees. Closed

In Strunk v. M&A Trucking, the court refused to award attorney’s fees under Rule 4:42-9(a)(6) in a declaratory judgment action between two insurers arguing coverage issues, where one insurer had defended and indemnified the insured in the underlying action; particularly where the trial court determined the issues were worthy of consideration.

Date of Decision: June 19, 2014

Strunk v. M&A Trucking & Edson L. Silva, DOCKET NO. A-2344-12T4 A-3195-12T4 , SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 1460 (App. Div. June 19, 2014) (Alvarez, Ostrer and Carroll, JJ.)

JULY 2014 BAD FAITH CASES: COURT FINDS THAT VIOLATION OF UIPA CAN NOT BE BASIS FOR BAD FAITH CLAIM; AND FINDS THAT INSURED COULD NOT MEET CLEAR AND CONVINCING EVIDENCE STANDARD ON REASONABLENESS PRONG OF BAD FAITH TEST (Western District)

Published on July 20, 2014 in PA - Claims Handling Procedures and PA - Coverage Issues. Closed

In United States Fire Insurance Company v. Kelman Bottles, LLC, property damage occurred for the insured from an event concerning an industrial glass making furnace. The insured’s all risk carrier brought a declaratory judgment action against the insured. The insured also had a Boiler and Machinery insurance policy, and it joined that carrier by way of third party complaint, raising breach of contract and bad faith claims.

There was preliminary contact between the Boiler and Machinery insurer and the insured, prior to a formal written denial of coverage. There was also an inspection and a report from an expert for the insurer, on which the insurer ultimately based its denial of coverage, concerning the cause of the incident. The insurer argued that the cause did not fall within the policy definition of covered occurrences. The insured asserted that the insurer’s stated reasons set forth in its declination letter were at a minimum unclear, and at worst, were intentionally vague in violation of Pennsylvania insurance law; and that within a month of the breakdown, the insurer’s adjuster, retained engineering expert, risk control specialist, and a subrogation specialist all concluded that the “breakdown” was “sudden and accidental”, which was a term of art which should have triggered coverage, not a denial of coverage. The insurer moved for summary judgment.

The court first rejected the insured’s argument that the allegedly unclear letter violated Pennsylvania’s Unfair Claims Practices Act or Unfair Insurance Practices Act (“UIPA”), stating that there is no private right of action under the UIPA, and thus this claim failed as a matter of law. (This decision adds to the split in federal district courts about whether the UIPA can be used to argue a statutory bad faith claim in Pennsylvania.) The court then analyzed the letter, and concluded it could not provide the insured with clear and convincing evidence that the carrier was either intentionally vague or unclear as to its reasons for a denial, and found no genuine issue of material fact suggesting that this letter was intentionally vague or unclear.

The court also concluded that the carrier’s position that the event was not sudden accidental was reasonable. The carrier’s own adjuster included in his notes that the expert said the event was sudden and accidental, which was not the expert’s conclusion or analysis in his report. Thus, the court granted summary judgment, even though the contradictions existed within the insurer’s own records. The court explained that while it was technically correct that the claim note contradicted the carrier’s position, the putative contradiction was “of no moment” because the claim note was the adjuster’s interpretation/characterization of what the expert told him orally during a telephone conversation, the expert’s testimony that he would not have used the terms “sudden and accidental” during that conversation with the adjuster, and the statements and conclusions set forth in the expert’s written report clearly contradict a “sudden and accidental” finding. Thus, the court concluded that the singular claim note did not provide clear and convincing evidence that the insurer engaged in bad faith.

The insured also asserted bad faith in the claims handling process, which argument ultimately was not based on UIPA violations. Rather, it asserted that the adjuster misrepresented the policy language; that letters from the carrier suggested it was investigating the claim when it was not; and that the carrier refused to provide any further explanation and factual support for its denial of coverage.

On the first point, the court found there was no evidence that the statement at issue was anything more than a simple mistake, and there was no evidence offered of ill will or intent, and therefore the insured could not meet its burden of showing bad faith on this point.

Next, as to the letters, the court found no bad faith.The insurer’s prior oral notification that a denial of coverage was imminent, but delay in issuing its written denial of coverage while monitoring the investigation of another insurance company, did not constitute bad faith. The court found that the insured did not offer evidence as to how the delay between the oral and written denials illustrated breach of the duty of good faith and fair dealing through a motive of self-interest or ill will. Finally, the court ruled that the alleged refusal to supply additional information following the issuance of the denial letter was not bad faith. The court found that the carrier did not ignore the request for additional information. Rather, it directed the insured back to its denial letter for the answers. Furthermore, there was no evidence of a dishonest purpose in the alleged refusal to provide additional information outside of what was contained in the denial letter. Rather, the court viewed this aspect of the dispute as a disagreement on coverage, which was to be resolved via the breach of contract claim.

A motion for reconsideration, heard by Judge Fischer of the Third Circuit sitting as a trial judge by designation, was denied. The Third Circuit has previously addressed a coverage issue in the case, but the court found that this ruling was not applicable in analyzing the bad faith claim.

Date of Original Decision: May 23, 2014

United States Fire Ins. Co. v. Kelman Bottles LLC, 11cv0891, 2014 U.S. Dist. LEXIS 71220 (W. D. Pa. May 23, 2014) (Schwab, J.)

Date of Decision on Reconsideration: June 27, 2014

United States Fire Ins. Co. v. Kelman Bottles LLC, 11cv0891, 2014 U.S. Dist. LEXIS 88256 (W.D. Pa. June 27, 2014) (Fisher, J.)

JULY 2014 BAD FAITH CASES: NO SEPARATE TORT CAUSE OF ACTION FOR BREACH OF DUTY OF GOOD FAITH; STATUTORY BAD FAITH CLAIM PLEADED MERE POSSIBILITY OF BAD FAITH, NOT A PLAUSIBLE BAD FAITH CLAIM, AND WAS DISMISSED WITH LEAVE TO AMEND (Western District)

Published on July 19, 2014 in PA - Claims Handling Procedures, PA - General Bad Faith and Litigation Issues and PA - Procedural Issues. Closed

In Plummer v. State Firm Fire & Casualty Insurance Company, the insureds made a first party damage claim, involving storm damage to its roof. The insureds claimed that the insurer failed to pay anything toward the roof damage, while paying a claim for roof damage to their neighbor for damage to the neighbor’s roof from the same storm. There was a finding in arbitration in state court, solely on a breach of contract claim, that the carrier owed damage payments for the roof to the insureds.

After a somewhat complicated procedural history, the case was removed to federal court, and included breach of contract, breach of the duty of good faith and fair dealing, and statutory bad faith claims. As to the breach of the duty of good faith and fair dealing claim, the court treated this as a distinct tort claim and dismissed it under the gist of the action doctrine. Any such claim was subsumed in the breach of contract claim, and would have to be pursued as a breach of contract.

As to the statutory bad faith claim, the insureds/plaintiffs attached numerous documents to their response to the carrier’s motion to dismiss that claim. The court observed that it could not consider these documents to the extent they were outside the complaint. It found that although the insured listed 14 different kinds of bad faith in the complaint, these were conclusory allegations that did not meet the Twombly standard. The only specifically pleaded allegations addressing bad faith were that a claim was paid on the neighbor’s roof on the same storm, but not plaintiff. The court found that it was left to speculate as to why the neighbor’s circumstances were the same as the insured/plaintiff, and thus made the bad faith claim on this basis a mere possibility, and not a plausible claim under Twombly. However, the plaintiff was given leave to file an amended complaint if they could set out a plausible bad faith claim.

Date of Decision: June 27, 2014

Plummer v. State Farm Fire & Cas. Co., Civil Action No. 2:13-cv-01579, 2014 U.S. Dist. LEXIS 87570 (W.D. Pa. June 27, 2014) (Conti, J.)

JULY 2014 BAD FAITH CASES: CONTRACTUAL LIMITATIONS PERIOD DID NOT APPLY TO STATUTORY BAD FAITH CLAIMS; BUT CLAIM STILL DISMISSED FOR FAILING TO MEET TWOMBLY STANDARDS (Philadelphia Federal)

Published on July 19, 2014 in PA - Procedural Issues. Closed

In Mattia v. Allstate Insurance Company, the case involved a first party property damage claim. The policy had a contractual one year commencement of suit period. The court found that this contractual limitations period was permissible under Pennsylvania law, in altering the normal 4 year statute of limitations period. However, following the trend in the case law, it further found that the contractual limitations period did not apply to claims under 42 Pa.C.S. § 8371, because this represented a distinct cause of action. However, the bad faith claim in this case was still dismissed because it only included bare bones allegations that did not meet the Twombly pleading standards.

Date of Decision (June 24, 2014)

Mattia v. Allstate Ins. Co., CIVIL ACTION NO. 14-20992014 U.S. Dist. LEXIS 86258 (E.D.Pa. June 24, 2014) (Surrick, J.)

JULY 2014 BAD FAITH CASES: COURT FINDS THAT UIPA VIOLATIONS CAN SUPPORT STATUTORY BAD FAITH CLAIM; AND THAT INSURED PLEADED SUFFICIENT FACTS REGARDING ALLEGED UNDERVALUATION TO STATE A CLAIM FOR BAD FAITH (Middle District)

Published on July 15, 2014 in PA - Claims Handling Procedures. Closed

In Militello v. Allstate Property & Casualty Insurance Company, the insured owned a horse barn that suffered damage when one of the horses struck a support. The insured made a claim, and the carrier offered to pay approximately half the claim. The insured asserted that the barn was otherwise in good condition, and it was the horse that caused the problem. The insured alleged that the carrier asserted that there were a variety of structural problems independent of the horse’s actions, for which payment was not due under the policy. The insured alleged that the carrier’s assertion concerning these independent structural issues were false representations. The insured also asserted violations of the Unfair Insurance Practices Act (UIPA) as a basis for his claims. The carrier moved to strike the references to the UIPA and to dismiss the bad faith claim as merely embodying a dispute over value, and that mere failure to accede to the insured’s demands cannot be bad faith.

Citing prior Middle District precedent and the Pennsylvania Superior Court, the court found that UIPA violations could form the basis of a bad faith. Further, the court found that the complaint, on its face, involved allegations of more than a valuation dispute, and that the case involved more than a simple claim that the insurer failed to meet the insured’s demand. “Although the amended complaint would have ideally included additional facts suggesting that Defendant’s payment on the claim was purposely less than the full amount to which Plaintiff was entitled, the complaint does allege that Defendant made multiple representations to Plaintiff for purposes of undervaluing his property claim.” Thus, the court stated that: “In light of the parties’ burdens at the motion to dismiss stage, and viewing the facts as true and granting Plaintiff all reasonable inferences, the court concludes that dismissal of Plaintiff’s bad faith claim would be premature. While discovery may provide a reasonable explanation for Defendant’s conduct, Plaintiff’s allegations raise a plausible inference of bad faith. As such, Defendant’s motion to dismiss Plaintiff’s bad faith claim will be denied.”

Date of Decision: June 26, 2014

Militello v. Allstate Prop. & Cas. Ins. Co., Civ. No. 14-cv-00240 , 2014 U.S. Dist. LEXIS 86945, (M.D. Pa. June 26, 2014) (Rambo, J.)

JULY 2014 BAD FAITH CASES: COURT FINDS THAT FAILURE TO CURE TITLE DEFECTS COULD BE NEGLIGENCE, BUT DOES NOT ESTABLISH BAD FAITH UNDER NEW JERSEY LAW CONCERNING DELAY IN CLAIM PAYMENT (Third Circuit)

Published on July 10, 2014 in NJ - Claims Handling Procedures and NJ - General Bad Faith and Litigation Issues. Closed

In Granelli v. Chi. Title Ins. Co., plaintiffs brought claims for bad faith and negligence, inter alia, against defendant title insurer, alleging that the insurer failed to find and resolve several title defects which repeatedly prevented them from selling their home. Although the insurer cured all defects after the commencement of the litigation, the plaintiffs amended the complaint, alleging that the insurer’s failure to cure the defects in a timely matter amounted to bad faith. The lower court found that the insurer failed to cure the defects by filing quiet title actions due to a company-wide reorganization and a shut-down of the New York claims office. This reorganization occurred in the wake of the 2008 financial crisis while the insurer was handling a high volume of bankruptcy proceedings. Although the Court of Appeals vacated the District Court’s grant of summary judgment regarding Plaintiffs’ breach of contract and negligence claim, it affirmed summary judgment on the bad faith claims.

Addressing the plaintiffs’ bad faith claims, the Court stated that, under New Jersey law, in the case of a delay rather than an outright rejection, “[b]ad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reason ssupported the delay…” Judge Vanaskie compared the instant case to others from the New Jersey Supreme Court, reasoning that a delay due to restructuring was analogous to delays caused by a company-wide computer crash. The Court held that, although the delays may be found to constitute negligence, they were not sufficient to show any bad faith by the insurer. The Third Circuit vacated the District Court’s judgment that the insurer’s actions were not negligent, but affirmed the lower court’s decision regarding bad faith.

Date of Decision: June 17, 2014

Granelli v. Chicago Title Insurance Company, 2014 U.S. App. LEXIS 11235 No. 13-1024 (3d Cir. N.J. June 17, 2014) (Vanaskie, J.)

JULY 2014 BAD FAITH CASES: MERE REFUSAL TO PAY A CLAIM CAN NOT CREATE A BAD FAITH CAUSE OF ACTION UNDER THE UTPCPL (Philadelphia Federal)

Published on July 8, 2014 in PA - General Bad Faith and Litigation Issues. Closed

In Post v. Liberty Mutual Group addressing Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) in the context of a claim against an insurer by its insured, the court observed that the “UTPCPL does not provide a cause of action for bad faith conduct based solely upon an insurance company’s refusal to pay a claim,” and that the “only provision of the UTPCPL that deals specifically with contractual obligations is section 201-2(4)(xiv), which prohibits ‘[f]ailing to comply with the terms of any written guarantee or warranty given to the buyer at, prior to or after a contract for the purchase of goods or services is made.’” However, under Pennsylvania law, it is only malfeasance, the improper performance of a contractual obligation, which raises a UTPCPL. By contrast, an insurer’s mere refusal to pay a claim, which constitutes nonfeasance, is considered the failure to perform a contractual duty, and is not actionable.

Date of Decision: June 17, 2014

Post v. Liberty Mut. Group, CIVIL ACTION NO.: 2:14-CV-238-CDJ,2014 U.S. Dist. LEXIS 83373 (E.D. Pa. June 17, 2014) (Jones, II, J.)