The excellent Tort Talk blog today posted a summary and link to a Philadelphia Court of Common Pleas’ decision, denying a motion to sever a bad faith claim from the insured’s UIM breach of contract claim.
Monthly Archive for June, 2015
In Militello v. Allstate Property and Casualty Insurance Company, the court granted the insured’s motion for leave to file a second amended complaint to add an additional claim for bad faith based upon: (1) an alleged refusal to conduct the appraisal process unless the pending bad faith claim was dropped; and (2) that bad faith conduct occurring during litigation can be actionable. The insured originally filed a complaint and amended complaint alleging breach of contract and bad faith, among other things.
The insured allegedly submitted a claim to its insurer after its horse barn sustained significant damage. After the insurer refused to pay the full amount demanded, the insured alleged a breach of the insurance contract by “failing to accurately assess and pay the loss,” and that the insurer acted in bad faith “by intentionally or recklessly making false representations for the purpose of denying the full value of the claim.”
The bad faith claim alleged that the parties agreed to use an appraisal process set forth in the underlying insurance policy to resolve the breach of contract claim, but not the bad faith claim.
The insured averred that the insurer “repeatedly attempted to pressure [the insured’s] counsel to drop the pending bad faith claim.” After the insured refused to do so, counsel for the insurer allegedly sent an email indicating that he could not “proceed to appraisal with the bad faith claim hanging over [his] head.” The insurer eventually withdrew from the appraisal process after “both parties identified their individual appraisers and selected a neutral appraiser, and [the insured’s] appraiser had submitted his appraisal report to [the insurer’s] appraiser.”
The insured sought a second amendment to the complaint based on the insurer’s withdrawal from appraisal process “to which it had contractually committed”. The insured further included allegations of bad faith relating to the insurer’s “withdrawal from the appraisal process due to [the insured’s] refusal to terminate his bad faith claim in federal court.”
The insurer opposed the motion on the basis that the facts would show it withdrew from the appraisal process because it concluded there was insurance fraud; and that it put the insured on notice it would be seeking to amend its answer to bring an insurance fraud counterclaim. The insurer thus claimed the amendment was essentially a litigation tactic, and that the amendment should be denied for undue delay and bad faith. The insurer also asserted the amendment was futile, chiefly based upon its factual arguments.
The court rejected all of the insurer’s positions. First, the court was not convinced that the insured sought to amend its motion based on bad faith rather than “the otherwise colorable claims asserted in his second amended motion.” The court concluded that if it “should be found later that [the insured] lacks a good faith belief in the new facts upon which he bases his proposed amendment, [the insurer] is not without a remedy.” The court found that the factual arguments the insurer asserted against permitting amendment raised disputes of fact which were matters to be addressed during the course of litigation. They were not accepted as true at this stage as a basis to deny an amended complaint.
As to the futility argument on the substance of the new bad faith allegations, the court first observed that bad faith conduct is actionable regardless of whether it “occurs before, during or after litigation.” Distinguishing discovery disputes, the court stated that “an insurer can be held liable for bad faith conduct occurring during the pendency of litigation that was intended to evade a duty owed under the policy.” The bad faith alleged in this matter is the insurer’s allegedly “threatening to withdraw from the appraisal process if Plaintiff did not terminate his bad faith claim and by ultimately withdrawing from the process after Plaintiff refused to do so.” This stated a bad faith claim.
Date of Decision: June 16, 2015
Militello v. Allstate Prop. & Cas. Ins. Co., Civ. No. 14-cv-0240, 2015 U.S. Dist. LEXIS 77481 (M.D. Pa. June 16, 2015) (Rambo, J.)
Go to this link for the summary of a prior decision in this case.
In 151 E. Leaming Ave Condo Ass’n v. QBE Specialty Ins. Co., the insured’s bad faith claim failed as a matter of law because the Court had already entered summary judgment in favor of the insurer as to the insured’s breach of contract claim.
The underlying suit arose after the insured’s property was damaged during Superstorm Sandy. The insured filed suit against its insurer, claiming breach of contract and breach of the implied covenant of good faith and fair dealing/bad faith. In support, the insured alleged that the insurer “failed to pay insurance benefits due and owed under its policy.” The commercial policy at issue contained water exclusion for property coverage. After investigating the insured’s claim, the insurer determined that the property loss was caused by a flood and denied the claim pursuant to the water exclusion.
The insured argued that the property damage was caused by wind, not water, and obtained an expert report to support this conclusion. The insurer filed for summary judgment. It took the position that the expert report should be stricken based on impermissible “net opinions.” Additionally, the insurer argued that the insured’s expert had no experience with regard to evaluating wind or flood damage, and that his observations as a lay witness did not create a genuine issue of material fact. The Court agreed and ordered the expert report to be stricken.
The Court then considered additional evidence and arguments submitted by plaintiff, but found these too did not create genuine issues of material fact, and granted the insurer summary judgment on the breach of contract claim. The Court found that the insured presented “no competent evidence to permit a rational factfinder to conclude that wind and not water caused plaintiff’s damage.” Thus, the water exclusion applied and summary judgment was granted.
The Court then considered the insured’s bad faith claim, and noted that “in order to establish a bad faith claim, an insured must have been granted summary judgment in their favor on the issue of coverage.” Because the insurer was granted summary judgment as to the insured’s breach of contract claim, the Court found that the insured’s bad faith claim failed as a matter of law.
Date of Decision: June 18, 2015
151 E. Leaming Ave. Condo Association v. Qbe Specialty Ins. Co., Civil No. 14-175 (JS), 2015 U.S. Dist. LEXIS 79002 (D.N.J. June 18, 2015) (Schneider, U.S.M.J.)
In Clemens v. New York Central Mutual Fire Insurance Company, the court addressed numerous motions in limine, in a supplemental underinsured motorist action. The motions directly addressing the bad faith claim are summarized below.
Reserves
The court rejected the insurer’s argument that evidence of reserves be barred from evidence. The court cited case law going both ways on the subject: (1) “that the relationship between the amount an insurance company reserves for a claim and the amount it ultimately offers to resolve that claim is so tenuous as to make the size of the reserve irrelevant for purposes of determining a bad faith claim” vs. (2) “that the amount set aside in reserve necessarily reflects a company’s assessment of the potential worth of the claim and, to the extent the reserve is dissimilar from the amount offered in settlement, is germane to an analysis of whether the company acted in bad faith in pretrial settlement negotiations”. The court adopted the second position accepting the evidence, but expressly made clear that the insurer would not be precluded “from producing testimony explaining the difference between its reserve and its settlement offer in this case.”
Time Period of Bad Faith Claim
The insurer took the position that the time period in which to consider the bad faith claim began when the insured’s attorney advised the carrier that the tortfeasor’s carrier had agreed to pay its policy limits; and ended the date suit was filed. The insured took the position that the relevant time frame should begin on the date that their counsel advised the insurer of a potential underinsured motorist claim, and never ended because the misconduct of an insurer, even after suit is filed, may constitute bad faith.
The court found that bad faith may not be predicated on the insurers “actions or lack of action before being notified of a claim”, and in this case counsel’s allusion to a potential claim did not trigger any duty. Further, while case law does allow “for the introduction of evidence of an insurer’s bad faith even during the pendency of a lawsuit …. such evidence of bad faith cannot be provided simply by an insurer’s action of mounting an aggressive legal defense.” The court ruled that resolution of the underinsured motorist claim ended any bad faith cause of action after that date, and no evidence of the insurer’s alleged bad faith occurring after that date would be permitted.
The cutoff date, i.e., the date the underinsured motorist claim was resolved, was June 20, 2014. The insured’s suit was removed to federal court in September of 2013. Thus, the time period in which bad faith conduct could be considered encompassed part of the time period during the pendency of the bad faith litigation itself.
Other Cases
The court granted the motion in limine barring evidence of other insureds’ claims against the carrier. The court found in particular that the U.S. Supreme Court had ruled that evidence of what happened to other insureds, not parties to the case at hand, could not be used to enhance punitive damages for the party actually in the case.
Expert Testimony on Bad Faith Claim Regarding Industry Standards & Claims Handling
The court observed its own broad discretion on evidentiary matters, and the Federal Rules favoring the admission of evidence to assist the trier of fact. It concluded that the insured’s expert testimony could be helpful to the jurors in their inquiry as to whether the insurer acted in bad faith. Thus, the court allowed the insured’s expert to testify regarding industry standards and claims handling practices.
Date of Decision: June 15, 2015
Clemens v. New York Cent. Mut. Fire Ins. Co., Case No. 3:13-CV-2447, 2015 U.S. Dist. LEXIS 77180 (M.D. Pa. June 15, 2015) (Conaboy, J.)
This is the fourth opinion in this matter. Here are links to the first three (1, 2, and 3).
In Baker v. State Farm Mutual Automobile Insurance Company, the Court denied the insurer’s motion to dismiss an insured’s bad faith claim based on the delay in handling an underinsured motorist claim. The insured was involved in a motor vehicle accident caused by the other driver, and allegedly suffered serious injuries. The insured’s husband was covered under an auto insurance policy with liability limits of $50,000. The insured was covered for three automobiles under a separate insurance policy issued by the defendant insurer, which had underinsured motorist coverage limits of $300,000.
The insured retained counsel, who informed the defendant insurer that the husband’s policy limits were only $50,000. The insured sent her insurer various medical records and provided information about her treatment, which detailed “the failure of a pain control device implemented in [the insured] and upcoming surgeries to correct that problem.” As funds were running low for the insured and her husband, she requested a “without prejudice advance” of $10,000 for treatment. The insurer responded that it would not issue any payment until it had completed its claims evaluation, and further requested an independent medical evaluation (“IME”) from the insured.
The insurer originally scheduled the IME at an office over 100 miles from the insured’s home. The insured asked for the IME to be rescheduled, and the insurer scheduled it at a physician’s office over 200 miles from the insured’s home.
The insured filed suit, asserting a claim for UIM benefits in the full amount of $300,000, and a statutory bad faith claim.
The insurer sought to dismiss the bad faith claim, arguing that “there are no facts in the amended complaint to suggest that it acted without a reasonable basis, or with the knowledge that it lacked a reasonable basis in handling Plaintiffs’ UIM claim.” The insurer further claimed that it used “ordinary, reasonable, good-faith” claims-handling, and the complaint showed nothing more. The insured responded that the bad faith claim focused on the delays in the claims handling process.
The Court found the facts were sufficiently pleaded to state a claim for bad faith. Specifically, the insureds alleged “that they notified Defendant on November 1, 2012, that [the husband’s carrier] had tendered its [$50,000] policy limits,” and forwarded all medical records to the insurer’s claims adjuster in August 2013. The insurer allegedly failed to inform the insured of the status of her claim, and waited approximately 15 months after receiving the insured’s medical records to schedule an IME. The Court found this delay, if proven, could be so unreasonable as to amount to bad faith, and refused to dismiss the bad faith claim at this stage of the litigation.
Date of Decision: June 11, 2015
Baker v. State Farm Mut. Auto. Ins. Co., No. 4:14-CV-2295, 2015 U.S. Dist. LEXIS 75529 (M.D. Pa. June 11, 2015) (Brann, J.)
In Smith v. Progressive Specialty Insurance Company, the insured’s motion to remand breach of contract and bad faith UIM claims was denied. The motion focused on the policy’s forum selection clause.
The policy stated that coverage claims must be brought in the state court county of residence or in the U.S. District Court serving that county. The insured asserted this language waived the insurer’s right of removal from a Court of Common Pleas, once chosen by the insured as the litigation venue. The court rejected this argument, relying upon a body of prior case law concluding that the insurance policy language at issue was neither an agreement to “submit” to either jurisdiction subject to the insured’s choice, nor a consent to submit to the jurisdiction of “any court” on the insured’s request. Rather it provided that any one of two courts was amenable to litigating disputes between the parties, as reflected in the policy’s use of the word disjunctive “or” when listing the courts in the alternative.
Date of Decision: May 29, 2015
Smith v. Progressive Specialty Ins. Co., 2:15-cv-528, 2015 U.S. Dist. LEXIS 69717 (W.D. Pa. May 29, 2015) (McVerry, J.)
In Gold v. State Farm Mutual Insurance Company the court struck the insured’s bad faith claims for emotional distress, stating that insurance bad faith causes of action do not encompass emotional distress.
The court also applied the economic loss doctrine to dismiss the insured’s Unfair Trade Practices and Consumer Protection Law claims.
Date of Decision June 4, 2015
Gold v. State Farm Mut. Ins. Co., CIVIL ACTION NO. 15-1975, 2015 U.S. Dist. LEXIS 72171 (E.D. Pa. June 4, 2015) (Beetlestone, J.)
In U.S. Sewer & Drain, Inc. v. Earle Asphalt Company, the Court dismissed a claim for bad faith breach of a surety bond after the Court found that no such cause of action is recognized in New Jersey. The case arose out of a public construction contract to widen and improve a section of public highway. As required by the New Jersey Bond Act, a payment bond to the New Jersey Turnpike Authority (“NJTA”) was required.
The contractor/defendant arranged for the plaintiff subcontractor to “provide materials and services for the installation of pipelining as part of the project.” However, the contractor refused to pay the subcontractor after a dispute arose about job performance. The subcontractor subsequently made a claim on the payment bond, which the surety refused to pay. The subcontractor brought claims against both the contractor and the surety, including a claim for bad faith breach of a surety bond. The surety sought to dismiss this claim because New Jersey does not recognize a cause of action for bad faith breach of a surety bond.
The contractor cited a case in which the Appellate Division rejected an argument that bail bond issuers were exempt from New Jersey’s Unfair Claims Settlement Practices Act (“USCPA”). The Court found this case to be irrelevant because the statutory provision at issue there did not create a private cause of action. Moreover, the ruling in that case concerning the applicability of the USCPA to sureties was superseded by N.J.A.C. 11:2-17.2.
The Court addressed the only other case finding a cause of action for bad faith breach of a surety bond, which “noted that the New Jersey Supreme Court had recognized the bad faith cause of action against insurers” in a case decided in 1993. However, neither the New Jersey Supreme Court nor any other state court in New Jersey has followed this holding, and two more recent decisions explicitly declined to follow the ruling. Therefore, the Court found that no cause of action for bad faith breach of a surety bond is recognized in New Jersey, and dismissed the bad faith claim.
Date of Decision: June 1, 2015
U.S. Sewer & Drain, Inc. v. Earle Asphalt Co., Civ No. 15-1461, 2015 U.S. Dist. LEXIS 70178 (D.N.J. June 1, 2015) (Thompson, J.)
In Rau v. Allstate Fire and Casualty Insurance Company, the Court found that the insured’s claim for breach of the common law duty of good faith and fair dealing was adequately pleaded within a breach of contract/UIM claim, and permitted the deposition of the insurer’s claims adjuster to proceed, within limits.
The insured wanted to depose the insurer’s claims handler in a UIM case where no statutory bad faith claim was yet asserted. The insurer objected to the deposition insofar as it related to the insurer’s “investigation of [the insured’s] claim, how [the insured’s] claim was evaluated and the specifics of [the insurer’s] claims handling procedures.” The insurer argued that because the complaint only alleged a claim for underinsured motorist coverage and not for bad faith, “the claims adjuster’s testimony as to how she handled this claim is irrelevant.”
The insured responded that it only intended to ask the adjuster about the elements of her investigation of the claim “to discover the factual details of the investigation and evaluation of” the claim. The insured conceded that she could not ask about the adjuster’s mental impressions, conclusions, or opinions with respect to the claim.
Defendant cited cases to support the proposition that discovery into the “method of investigating, evaluating and negotiating an underinsured motorist claim, is clearly outside the scope of relevant evidence in a pure underinsured motorist claim”, and is only relevant if a bad faith claim has been asserted. Even though no bad faith claim was pleaded in a separate count, the court found that the complaint’s allegations in support of its breach of contract claim sufficiently pleaded a common law breach of the duty of good faith and fair dealing.
The complaint included allegations that the insurer did not reasonably investigate the claim or it would have discovered the serious nature of the injuries, and that the insurer owed the insured “a fiduciary, contractual and statutory obligation to her to investigate, evaluate and negotiate her underinsured motorist claim in good faith and arrive at a prompt, fair and equitable settlement…” Thus, the court found these bad faith allegations were “part of the broader breach of contract action—and therefore make [the] proposed lines of deposition questioning appropriate and permissible.” The court cited case law for the proposition that creation of statutory bad faith did not supplant contractual bad faith claims.
The court put several limitations on how the deposition would proceed, making clear that it was only ordering the discovery of facts concerning the investigation, and would not permit discovery of any privileged materials or work product. The court cited its recent decision in Lane (involving an exhaustive analysis of numerous discovery issues) for the details of when such discovery might be sought. The court concluded: “While the Court believes that its Opinion is correct and clear, the parties should recognize that the Opinion speaks only in general terms and therefore does not eliminate the possibility that future disputes may arise during the deposition when Plaintiff’s questions are actually posed. Plaintiff’s counsel must understand that she treads a narrow path between asking the types of factual questions that are permitted by this Opinion and venturing into questions regarding work product, which are not.”
Date of Decision: May 29, 2015
Rau v. Allstate Fire and Casualty Ins. Co., Civil Action No. 3:14-CV-00479, 2015 U.S. Dist. LEXIS 69466 (M.D. Pa. May 29, 2015) (Mariani, J.)
In Wolfe v. Allstate Property & Casualty Insurance Company, the Third Circuit was presented with the question of “whether punitive damages awarded against an insured in a personal injury suit are recoverable in a later breach of contract or bad faith suit against the insurer.” The Court predicted that Pennsylvania’s Supreme Court would rule consistent with Pennsylvania public policy that “insurers cannot insure against punitive damages” either directly or indirectly through a later bad faith claim. However, the Court did give more leeway on pursuing bad faith claims, even in the absence of any damages for unpaid benefits in breach of the insurance contract.
The insured was highly intoxicated at the time he injured the plaintiff in a motor vehicle collision. The insured had $50,000 in insurance, and his insurer defended him against the injured plaintiff’s claims. There were settlement negotiations where the injured plaintiff demanded $25,000 and the insurer offered less than $1,500. Two judges valued the case at $7,500, but the injured plaintiff would not reduce his demand below $25,000, and the insurer would not increase its offer unless the demand was reduced.
During the litigation, the injured plaintiff added a claim for punitive damages in light of the insured’s level of intoxication at the time of the collision, and his prior driving history. Also during the course of the matter, the insurer gave notice to the insured that the insured could be liable personally for any verdict in excess of the $50,000 policy limit; and that there was no insurance coverage at all for punitive damages, which were not covered under the policy.
The jury awarded less than $50,000 in compensatory damages, which the carrier paid; and $50,000 in punitive damages, which the carrier refused to pay as these were not covered under the policy. The insured assigned his breach of contract and bad faith claims to the injured plaintiff. [This is the same litigation in which the Third Circuit certified to the Supreme Court the question of whether bad faith claims could be assigned, which the Supreme Court answered in the affirmative.]
The Court faced two general issues concerning punitive damages: (1) was it error to allow evidence of the punitive damages award from the underlying personal injury suit to establish damages in the bad faith case; and (2) did the insurer have any duty to consider the potential for punitive damages in evaluating settlement of the underlying personal injury suit, as part of how it valued the compensatory damage claim, where the compensatory damages award was paid in full.
The Court found that “in an action by an insured against his insurer for bad faith, the insured may not collect as compensatory damages the punitive damages awarded against it in the underlying lawsuit. Therefore, the punitive damages award was not relevant in the later suit and should not have been admitted.” In reaching this conclusion, the Court looked to both Pennsylvania principles against insuring punitive damages, and to how other states addressed the issue on potentially indemnifying an insured for punitive damages at this second stage of litigation. “California, Colorado, and New York have similar prohibitions on the indemnification of punitive damages, and those states’ highest courts have similarly held that an insured cannot shift to the insurance company its responsibility for the punitive damages in a later case alleging a bad faith failure to settle by the insurer.”
The Court specifically rejected the argument that if an insurer breached a common law contractual duty of good faith to settle within policy limits, and the case proceeded with a jury awarding punitive damages, then the punitive damages should be considered as consequential damages from the bad faith breach of an insurance contract. Rather, the Court ruled that punitive damages awarded in the underlying case are not properly considered compensable damages in the breach of contract claim against the insurer.
In sum, “an insurer has no duty to consider the potential for the jury to return a verdict for punitive damages when it is negotiating a settlement of the case. To impose that duty would be tantamount to making the insurer responsible for those damages, which … is against public policy.”
However, these rulings did not result in summary judgment on the contractual and statutory bad faith claims against the insurer.
The Court first looked at the contractual bad faith claim, citing to the leading Pennsylvania Supreme Court cases of Cowden and Birth Center. Looking to Cowden, the Court observed that an insurer “must consider in good faith the interest of the insured as a factor in deciding whether to settle a claim.” (Internal quotes omitted) Citing both cases, the Court further observed that only bad faith, not bad judgment, proven by clear and convincing evidence, can allow an insured to recover the “the known and/or foreseeable compensatory damages of its insured that reasonably flow from the bad faith conduct of the insurer.”
Even after eliminating punitive damages from this equation, the Court found that “if a plaintiff is able to prove a breach of contract but can show no damages flowing from the breach, the plaintiff is nonetheless entitled to recover nominal damages.” This makes summary judgment generally improper if sought solely on the basis that no damages can be proved. “Therefore, even without compensatory damages, an insurer can be liable for nominal damages for violating its contractual duty of good faith by failing to settle,” and summary judgment was properly denied on that ground as to the breach of contract claim.
On the statutory bad faith claim, the Third Circuit treaded onto the ground of whether bad faith claims can still exist when there is no contractual payment obligation remaining. [There are two general circumstances when this can occur. First, when the insurer eventually provides a benefit due, but has delayed in doing so in bad faith; second, when the insurer owes no benefit, e.g., because coverage is excluded, but has allegedly acted in bad faith in the manner it went about denying coverage. We have previously raised the issue of whether section 8371 was designed to provide a remedy in the second scenario. In this case the Third Circuit, as discussed below, appears to be focusing on the possibility that the insurer has unduly and in bad faith delayed in providing a benefit due, and that if there were no bad faith claim available in such circumstances, then a statutory goal of deterring intentional delays in providing reasonably known benefits due would fail.]
The Court cited the Superior Court’s Berg decision for the proposition that 42 Pa.C.S. § 8371 “sets forth no . . . requirement to be entitled to damages for the insurer’s bad faith,” and that “the focus in section 8371 claims cannot be on whether the insurer ultimately fulfilled its policy obligations, since if that were the case then insurers could act in bad faith throughout the entire pendency of the claim process, but avoid any liability under section 8371 by paying the claim at the end. . . . [T]he issue in connection with section 8371 claims is the manner in which insurers discharge their duties of good faith and fair dealing during the pendency of an insurance claim, not whether the claim is eventually paid.” (Emphasis in original)
Thus, “the policy behind section 8371—deterring insurance companies from engaging in bad faith practices—is furthered by allowing a statutory bad faith claim to proceed even where the insured has alleged no compensatory damages resulting from that conduct.” Under these principles, “removal of the … punitive damages award as damages in this suit has no bearing on the damages that can be awarded under the statutory bad faith claim.”
The Court then provided a footnote to further explain its position:
Recovery on [the] breach of contract claim and [the] statutory bad faith claim are entirely independent of one another. Section 8371 allows punitive damages awards even without any other successful claim. … (“[Because] claims under section 8371 are separate and distinct causes of action and as the language of section 8371 does not indicate that success on the contract claim is a prerequisite to success on the bad faith claim, . . . an insured’s claim for bad faith brought pursuant to section 8371 is independent of the resolution of the underlying contract claim.”)…. Furthermore, [the] claim under section 8371 does not affect [the insured’s] ability to obtain compensatory damages, if they exist, under a breach of contract claim. “The statute does not prohibit the award of compensatory damages. It merely provides an additional remedy and authorizes the award of additional damages. ….
The Court further observed that compensatory damages are not required to succeed on a statutory bad faith claim, which only permits recovery of punitive damages, interest, and costs.
In sum, the Court denied summary judgment on the statutory bad faith claim because the inability to collect punitive damages as compensatory damages, standing alone, does not preclude recovery on the bad faith claim.
Date of Decision: June 12, 2015
Wolfe v. Allstate Prop. & Cas. Ins. Co., No. 12-4450, 2015 U.S. App. LEXIS 9876 (3d Cir. June 12, 2015) (Rendell, Jordan, Lipez, JJ.)