Monthly Archive for April, 2015

APRIL 2015 BAD FAITH CASES: COURT FINDS MERITORIOUS DEFENSE TO BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING WHERE INSURER ALLEGED IT PAID THE BENEFITS, AND OPENS DEFAULT AGAINST INSURER (New Jersey Federal)

Published on April 14, 2015 in NJ - Claims Handling Procedures and NJ - Procedural Issues. Closed

In Ryan v. Liberty Mutual Insurance Company, a Hurricane Sandy case, the insurer was attempting to open a default judgment. In looking at the meritorious defense component of the test for opening a default judgment, the court found that the insurer had asserted meritorious defenses to the insureds’ claims for breach of contract and the implied covenant of good faith and fair dealing.

The insurer alleged “that it performed appropriate investigation of the damages to Plaintiffs’ home ‘through two visits to the property,’ ‘recorded the condition of the property in more than one hundred photographs,’ properly adjusted Plaintiffs’ claim, corresponded with Plaintiffs, and paid Plaintiffs’ policy benefits.” The court found that: “If established at trial, [the insurer’s] satisfaction of its contractual obligations by paying appropriate policy benefits would defeat Plaintiffs’ breach of contract claim. It would also defeat Plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing. To establish a breach of the implied covenant under New Jersey law, a plaintiff must show that ‘the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.’” “If [the insurer] were to establish at trial that it properly investigated and paid Plaintiffs’ policy benefits, Plaintiffs could not establish that they were denied the benefit of their bargain.”

Date of Decision: April 1, 2015

Ryan v. Liberty Mut. Ins., Civ. No. 14-06308 (WHW) (CLW), UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY, 2015 U.S. Dist. LEXIS 42660 (D.N.J. April 1, 2015) (Walls, J.)

APRIL 2015 BAD FAITH CASES: SECTION 8371 DOES NOT PROVIDE FOR COMPENSATORY OR CONSEQUENTIAL DAMAGES; THERE IS NO PRIVATE UIPA ACTION; INDEPENDENT ADJUSTER OWED NO DUTY TO INSURED (Philadelphia Federal)

Published on April 14, 2015 in PA - General Bad Faith and Litigation Issues. Closed

In Tippett v. Ameriprise Insurance Company, the court observed that unlike claims for breach of the contractual duty of good faith and fair dealing, the remedy for statutory bad faith under section 8371 does not allow a plaintiff to recover compensatory or consequential damages.

These plaintiffs also brought a count for violation of the Unfair Insurance Practices Act (UIPA). They conceded that there is no private right of action under the UIPA, but argued the court could still “consider UIPA violations to determine whether an insurer acted in bad faith under Pennsylvania’s Bad Faith Statute….” The court dismissed the attempt to plead a private action, regardless of whether it could consider evidence of UIPA violations for a bad faith claim.

The court also dismissed claims against the insurer’s independent insurance adjuster, finding no duty owed to the insured by the insurer’s independent adjuster. “Pennsylvania courts permit insureds to sue their insurers for the actions of their insurers’ agents, including adjusters[, and] Pennsylvania courts also recognize that independent insurance adjusters ‘owe a duty of performance to their principals, the insurance companies.’” Thus, “[t]he Supreme Court of Pennsylvania is unlikely to impose a duty of care on adjusters to insureds.”

Date of Decision: March 25, 2015

Tippett v. Ameriprise Ins. Co., CIVIL ACTION No. 14-4710, 2015 U.S. Dist. LEXIS 37513 (E.D. Pa. March 25, 2015) (Sanchez, J.)

 

CAN SECTION 8371 BAD FAITH EXIST WHERE THERE IS NO DENIAL OF A BENEFIT

Published on April 14, 2015 in PA - General Bad Faith and Litigation Issues. Closed

We posted a case summary yesterday, where the opinion, like many others, indicated that section 8371 bad faith can exist even where no benefit is denied. There are times when the bad faith conduct at issue involves a delay in paying a benefit (or providing a defense), which many courts have equated with the denial of a benefit. However, where there is no denial of a benefit, including no undue delay in providing a benefit, does section 8371 still provide a remedy to the insured for an insurer’s allegedly poor conduct?

We added a Note to yesterday’s post with links to case summaries on the intertwined issue of whether a UIPA violation can be considered in the section 8371 context; whether it can be evidence of section 8371 bad faith, though not in itself bad faith per se; or whether it can be bad faith per se. We likewise observed the related issue of whether the absence of any duty to indemnify automatically eliminates bad faith claims because there is an objectively reasonable basis to deny coverage.

As the issue of section 8371’s remedial scope has come up regularly since the statute’s inception, and as the Supreme Court appeared to address the nature and scope of section 8371 in its 2007 Toy decision, we have just added a link to an article on the subject.

APRIL 2015 BAD FAITH CASES: BAD FAITH CLAIM PREEMPTED BY ERISA AS TO INSURER (Middle District)

Published on April 13, 2015 in PA - Procedural Issues. Closed

In the court’s first decision in Hayes v. Reliance Standard Life Insurance Company, the insured’s bad faith claim against the insurer was preempted by ERISA. Six days later, the same argument failed, as to a claim against an insurance broker, as insufficiently related to the plan at issue.

Date of Decision: March 17, 2015 and March 23, 2015

Hayes v. Reliance Std. Life Ins. Co., CIVIL ACTION NO. 3:14-0714, 2015 U.S. Dist. LEXIS 32543 (M.D. Pa. March 17, 2015) (Mannion, J.)

Hayes v. Reliance Std. Life Ins. Co., CIVIL ACTION NO. 3:14-0714, 2015 U.S. Dist. LEXIS 35682 (M.D. Pa. March 17, 2015) (Mannion, J.)

 

APRIL 2015 BAD FAITH CASES: COURT DOES HISTORICAL REVIEW OF CASES APPLYING TWOMBLY/IQBAL TO DISMISS BAD FAITH CLAIMS FOR BAREBONES PLEADINGS (Philadelphia Federal)

Published on April 13, 2015 in PA - Procedural Issues. Closed

In Schor v. State Farm Fire & Casualty Insurance Company, the court conducted an historical review of cases applying the Twombly/Iqbal standards to bad faith pleadings, where those cases were dismissed for only setting out bare bones allegations. It then found the case before it no different, and dismissed the complaint with leave to amend. Thus, the following allegations, alone, could not set forth a plausible bad faith claim:

“Defendant has engaged in Bad Faith conduct toward Plaintiff and has treated Plaintiff unreasonably and unfairly with respect to its adjustment of Plaintiff’s covered loss, in violation of 42 Pa.C.S.A. § 8371.” “In furtherance of its bad faith and wrongful denial and refusal to pay benefits for Plaintiff’s covered loss, Defendant, acting by and through its duly authorized agents, servants, workmen or employees, has engaged in the following conduct:

(a) in forwarding correspondence to Plaintiff and/or Plaintiff’s representative, representing to Plaintiff and/or Plaintiff’s representatives that Plaintiff’s claim was not, in fact, covered under Defendant’s policy of insurance when Defendant knew or should have known that such representation was false and misleading.” (b) in failing to effectuate a prompt, fair and equitable settlement of Plaintiff’s claim when its liability under the policy became reasonably clear; (c) in misrepresenting pertinent facts or policy or contract provisions relating to the coverages at issue; (d) in treating the Plaintiff with reckless indifference and disregard under the circumstances; (e) in not having a reasonable basis or denying Plaintiff’s benefits under the policy and in knowingly or recklessly disregarding its lack of reasonable basis when it denied Plaintiff’s claim; (f) in interpreting ambiguous terms, provisions and/or conditions of the aforementioned policy in its favor and against Plaintiff.”

“Solely as a result of Defendant’s bad faith misconduct as aforesaid, Plaintiff has been required to obtain counsel to commence the present action to recover benefits due and owing under the policy of insurance issued by Defendant for Plaintiff’s covered loss, and has incurred costs and other expenses in connection with said claim.”

The court found that such “allegations assert, in cursory fashion only, that Defendant lacked a reasonable basis for denying Plaintiff’s claim for benefits, without providing any factual allegations from which the Court could make a plausible inference that Defendant knew or recklessly disregarded its lack of a reasonable basis for denying benefits.” Further, “[a]lthough such assertions perhaps suggest that a bad faith claim is possible, they do not allow for any non-speculative inference that a finding of bad faith is plausible.” (Emphasis by Court).

Date of Decision: March 18, 2015

Schor v. State Farm Fire & Cas. Ins. Co., CIVIL ACTION NO. 15-610, 2015 U.S. Dist. LEXIS 33266 (E.D. Pa. March 18, 2015) (Buckwalter, J.)

APRIL 2015 BAD FAITH CASES: COURT REFUSES TO SEVER CONTRACT AND BAD FAITH UIM CLAIMS, AND REFUSES TO STAY DISCOVERY; COURT RECOGNIZES PRIVILEGES REMAIN IN TACT ABSENT ADVISE OF COUNSEL DEFENSE, BUT ALLOWS DISCOVERY OF CLAIMS FILES AS TO EVALUATION PROCESS; COURT OBSERVES THAT IT IS NOT BOUND BY CONTRARY DECISIONS OF COURTS OF COMMON PLEAS, AND THAT INSURER TOOK THAT RISK WHEN IT REMOVED THE CASE TO FEDERAL COURT (Middle District)

Published on April 13, 2015 in PA - Discovery and Evidence and PA - Procedural Issues. Closed

In Griffith v. Allstate Insurance Company, the insurer brought a Rule 42 motion to sever the bad faith and contract claims in this UIM case, and to stay bad faith discovery. The court denied both motions.

The court first found that the issues were intertwined on both claims. The pivotal “point for both cases will be the plaintiff’s injuries, represented through relevant medical evidence and the defendant’s claim file. The jury will be able to properly evaluate the entire case including the accident, the plaintiff’s injuries, the defendant’s investigation, and, finally, the attempts to settle the matter.” This favored keeping the cases together.

Next, the insurer raised the argument that disclosure of documents may be subject to the work product doctrine in the bad faith case. The insurer argued that “the disclosure of the impressions of the claims adjuster will hinder the defendant’s ability to litigate the breach of contract claim.” The court observed that the claims file “generally includes correspondence from plaintiff’s counsel, medical records, wage-loss records, logs indicating what material has been received, and notes from the claims adjuster regarding his or her impression of the claim’s value[, and] [t]he vast majority of the evidence in the claim file will be presented in conjunction with the breach of contract claim.” Further, “only the claim adjustor’s notes or other impression may qualify as work product.” (Emphasis by Court).

The court also found that the “bad faith claim will also only require a few additional witnesses who will discuss evidence of the plaintiff’s damages that will likely be admitted in conjunction with the breach of contract claim. All of this boded against severance. The court then found against the insurer’s judicial efficiency argument. As to prejudice from disclosing the insurer’s subjective analysis of the claim, the insurer only relied upon “the prejudice caused by releasing the claims adjustor’s impressions regarding the plaintiff’s claims and does not contend releasing its claims evaluation process will somehow create a competitive hindrance.” The insurer had tried to support its position with citations to a series of Court of Common Pleas decisions. The federal court noted: “The defendant includes and cites to a bevy of cases out of various Pennsylvania Courts of Common Pleas in support of its position. The court notes it was the defendant who removed the case to this court and availed itself to the rules, procedures, and case law of the Federal District Court. The defendant made the strategic decision to have this case tried in this court and must now accept the consequences.” Further, the court observed that simply because the insured instituted a bad faith claim, this did not mean that the insurer will be deemed to have automatically waived the attorney client privilege or work product doctrine. In addition, “[c]ommunications between inhouse counsel and claims adjustor are generally privileged.” “Moreover, only when a defendant affirmatively pleads reliance on counsel’s advice is such a privilege waived as to the communications between the specific counsel and the client.” No such defense was pleaded here. Thus, there was little or no risk of actually losing this privilege.

The court then added the following regarding production of the claim file in a bad faith UIM case, where the insurer did not settle: “Further, the claim file is merely a collection of documents along with notes from the adjustor. As the defendant is well aware, Pennsylvania mandates an insurer act in good faith in negotiating with an injured party. The defendant has communicated offers of settlement, pegging what it believes is a fair value for the plaintiff’s injuries. It is unclear how disclosing the notes that led the defendant to make that determination would place it at any disadvantage if the claims adjustor acted in good faith as required under Pennsylvania law.” Finally, the court left evidentiary arguments to a future date. “At this point it is premature to determine whether specific pieces of evidence would be admissible wholly or on a limited basis. The best way to make that determination is to keep the matters joined, allow discovery to proceed, and bring both claims to trial as quickly as possible. Any discovery disputes or questions of privilege can be handled through the discovery dispute procedures employed by the court.”

Date of Decision: February 21, 2014

Griffith v. Allstate Ins. Co., CIVIL ACTION NO. 3:13-2674, 2014 U.S. Dist. LEXIS 182819 (M.D. Pa. February 21, 2014) (Mannion, J.)

APRIL 2015 BAD FAITH CASES: INSURED DENIED SUMMARY JUDGMENT WHERE CLAIMS HANDLING ISSUES AND BAD FAITH TO BE RESOLVED BY JURY (Middle District)

Published on April 13, 2015 in PA - Claims Handling Procedures. Closed

In Scheirer v. Nationwide Insurance Company of America, the insured pleaded bad faith, among other claims, for an alleged inordinate delay in handling her claim. The claim involved alleged uninsured motorist (“UM”) benefits owed as a result of an injury the insured suffered in a bus accident. Both the insured and insurer brought motions for summary judgment.

The insured claimed the insurer acted in bad faith “by failing to properly and promptly evaluate and investigate her UM claim, by failing to timely respond to her demands, by failing to promptly resolve her claim within the policy limits, by failing to act promptly upon communication regarding her claim, by failing to have reasonable standards with respect to her claim, by failing to pay her claim when it had all of the necessary information, by failing to provide a fair and equitable settlement of her claim, by failing to negotiate with her counsel, by forcing her to commence litigation to recover her rightful amount due under her policy, and by offering her substantially less than the amounts due on her claim.”

The court cited to general bad faith principles in applying section 8371, and added, citing earlier cases, that “’Pennsylvania law does not limit bad faith claims to unreasonable denials of coverage[]’ and, ‘[a] bad faith can have various other bases, including an insurer’s lack of investigation, lack of adequate legal research concerning coverage, or failure to communicate with the insured.’” The cases cited stood for the proposition that “a bad faith claim includes ‘a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured.’”

In this case, the insured based “in large part, her bad faith claim on the above stated alternative grounds. As stated, bad faith is not limited to the insurance company’s bad faith in denying its insured’s claim and can include the company’s investigative practices.” The court found that “disputes exist as to whether defendant conducted a prompt investigation of plaintiff’s UM claim, as to whether defendant promptly evaluated and investigated plaintiff’s UM claim, as to whether defendant failed to timely respond to plaintiff’s demands, as to whether defendant failed to promptly resolve plaintiff’s claim within the $100,000 policy limits, as to whether defendant failed to act promptly upon communication regarding plaintiff’s claim, as to whether defendant failed to have reasonable standards with respect to plaintiff’s UM claim, and as to whether defendant failed to timely pay plaintiff’s UM claim when it had all of the necessary information.” The court held that “a reasonable trier of fact could find that the defendant failed to make a good faith and timely payment on plaintiff’s UM claim.” The open issues included the insurer’s position that it acted reasonably in light of not having all necessary information, or whether it had the necessary information; the timeliness of compensating the insured; the time between the incident and an IME; whether a deposition was unduly delayed; and the timing of responses to letters from the insured’s counsel and a monetary demand. The court stated: “In short, the record is not clear if defendant breached its duty of good faith regarding its handling of plaintiff’s UM claim and, if so, whether this breach was through a motive of self-interest or ill will as opposed to mere negligence.” Thus, both summary judgment motions were denied.

Date of Decision: March 9, 2015

Scheirer v. Nationwide Insurance Company of America, Civil Action No. 3:13-CV-1397, 2015 U.S. Dist. LEXIS 28286 (M.D. Pa. March 9, 2015) (Mannion, J.)

Note: As reported over the years throughout this Blog, there is some question whether bad conduct in claims handling, without a denial of any benefit, can be a basis for statutory bad faith. This is most notable in the context where it turns out no coverage was ever due under the policy, e.g., because of any exclusion.

Poor conduct that leads to delay in payment of a benefit (or provision of a defense in a third party case) can be seen as a denial of a benefit (“a delay in payment of a third party claim, if of inordinate and unreasonable length, effectively becomes a denial of the claim.”). However, to the extent that a benefit is neither denied nor delayed, whether there is a cause of action under section 8371 for, e.g., failures to communicate or poor investigation practices alone, remains open to challenge. By way of comparison some courts find that violations of the Unfair Insurance Practices Act, in and of themselves, cannot be the basis for a statutory bad faith claim or even be considered as evidence of bad faith, following D’Ambrosio; whereas some courts would allow this as evidence of bad faith, but not bad faith per se. Even here, however, there seem to be some decisions indicating UIPA violations can be the basis of a bad faith claim. In light of D’Ambrosio, this may simply be that the same conduct violating the UIPA simultaneously creates the basis for section 8371 bad faith, and it is not the UIPA violation as such that creates bad faith, but the conduct itself. Additionally, there is the issue of whether there can be bad faith if no coverage was ever due, because the reasonable basis prong of the bad faith test is objectively met.