Once more, a court found that ERISA pre-empted statutory bad faith claims.
Date of Decision: November 17, 2016
Erica A. Shore, P.C. v. Independence Blue Cross, No. 16-5224, 2016 U.S. Dist. LEXIS 160022 (E.D. Pa. Nov. 17, 2016) (McHugh, J.)
Yearly Archive for 2016
The Court went over the Third Circuit’s case law history to explain why ERISA pre-empts section 8371 bad faith claims.
Date of Decision: August 1, 2016
Haase v. Metro. Life Ins. Co., No. 15-2864, 2016 U.S. Dist. LEXIS 100113 (E.D. Pa. Aug. 1, 2016) (Robreno, J.)
The appellate court affirmed a decision that an insurer could not have acted in bad faith when settling claims against the insured, because the insurer had the authority to settle by the clear terms of the insurance policy.
Date of Decision: November 17, 2016
Fandray v. Baum, No. 199 WDA 2016, 200 WDA 2016, 2016 Pa. Super. Unpub. LEXIS 4203 (Pa. Super. Ct. Nov. 17, 2016) (Elliot, Jenkins, Lazarus, JJ.) (not precedential)
The insurer sought to bifurcate the breach of contract and bad faith claims in this UIM case, and a stay of discovery on the bad faith claim. In its second bad faith opinion of the day, the court denied the motion as the factors concerning convenience to the parties, avoidance of prejudice, or efficiency did not warrant separation of the two claims or a stay on discovery. The details of the court’s decision are quoted, in part, below: “In commercial or property damage cases, there may be complexities that warrant bifurcation; however, this is a personal injury case arising out of a motor vehicle accident. The key issue in the breach of contract claim is damages and the principal basis of the bad faith claim is delay: neither is a complex issue.”
“[B]ifurcation is not warranted … because [the insurer] has not shown that the level of prejudice it will face from proceeding to one trial on both claims outweighs the detrimental effects of severance. First, we note that although … the issues in the two claims are distinct, they are not as dissimilar as [the insurer] contends.” In arguing that the contract claim focuses on determining damages and the bad faith claim on the insurer’s case evaluation, the insurer “fails to recognize that an evaluation of the reasonableness of an insurer’s investigation necessarily includes analysis of the documentation the insurer relied on in coming to its conclusion. Indeed, ‘[the insurer’s] investigation did not occur in a vacuum,’ and the facts regarding the underlying accident and its consequent damages are relevant to it.”
“There is considerable overlap in the evidentiary proof relevant to each claim. Analysis of both claims is likely to require testimony from [the insured], [his] treating physicians, and [the insurer’s] medical expert as well as documentation regarding the accident, [the insured’s] injuries and the damages he suffered. Although foreseeable additional witnesses for the bad faith claim are the [insured’s] personnel responsible for handling [the] claim, and counsel for either or both parties, it is likely that many witnesses, and much of their testimony, will be the same for both claims. It would be inconvenient and wasteful of judicial resources to require them to appear in two separate trials to testify on overlapping issues.”
The court distinguished two other cases because of the difference in the progress of discovery on the contract and bad faith claims; and because it was unclear in the present case if counsel would have to testify, because counsel’s role was not pivotal to the bad faith claims at issue.
Finally, the insurer contended “without citation to any authority, that separate trials and a stay on discovery in the bad faith claim is necessary in order to assuage the potential for prejudice to both parties in the discovery process.” It argued “that work product it generated in preparation for litigation of the contractual claim would be relevant and discoverable in the bad faith claim, forcing [it] to either forfeit its privilege or claim it and thereby hamper Plaintiff’s litigation of the bad faith claim.”
The court found this did not warrant staying the bad faith claim. “[T]he insurer’s privilege would ‘not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim.’” “Rather, the insurer would simply have to ‘prove its entitlement to work product protection, . . . [a fact] that does not justify the necessary expenditure of judicial resources and time’ that severance would occasion.”
Moreover, “the party most at risk of prejudice under the instant circumstances is [the insured], and he opposes [the insurer’s] motion. By opposing severance, [he] takes the risk that he may be vulnerable to not obtaining documents [the insurer] would otherwise be willing to produce. [He] has chosen this course rather than go through ‘the time and expense of having to participate in two separate rounds of discovery (and inevitable motion practice) accompanied by two separate jury trials.’” The insured’s stance therefore weakened the carrier’s position that severance was necessary to prevent prejudice in the course of discovery.
Date of Decision: November 21, 2016
Zinno v. Geico Gen. Ins. Co., No. 16-792, 2016 U.S. Dist. LEXIS 161250 (E.D. Pa. Nov. 21, 2016) (Baylson, J.)
In this case, the insured improperly sought compensatory and consequential damages as part of his section 8371 claim. Such damages cannot be recovered under section 8371, but may be available for breach of the common law contractual duty of good faith and fair dealing. Thus, while striking the statutory claim for compensatory damages, the court gave the insured leave to amend to plead such damages under the pending common law contract claim.
Date of Decision: November 21, 2016
Koepke v. Allstate Vehicle & Prop. Ins. Co., No. 16-4633, 2016 U.S. Dist. LEXIS 161112 (E.D. Pa. Nov. 21, 2016) (Baylson, J.)
In this case, the record was uncontroverted that the insured stated in the application to his homeowner’s carrier that he did not use alternative heat sources. However, he later admitted to using kerosene heaters. The house burned down, and he made claims for coverage, which were denied. He brought suit for breach of contract.
The carrier counterclaims for breach of the duty of good faith and fair dealing, and insurance fraud under 18 Pa.C.S. § 4117. The Court granted summary judgment to the insurer on both the breach of the contractual duty of good faith and statutory insurance fraud based upon the uncontroverted evidence. It rejected an 11th hour argument that the insured was illiterate, based upon the record showing he was capable of reading.
Date of Decision: November 22, 2016
Payne v. Allstate Ins. Co., No. 11-2546, 2016 U.S. Dist. LEXIS 162376 (E.D. Pa. Nov. 22, 2016) (Schiller, J.)
In this Superstorm Sandy property damage case, the insured alleged bad faith, among other claims. The court found the insured could not overcome the “fairly debatable” standard, and make a case for an unreasonable denial that was reckless or intentional in nature.
The insured only provided invoices, an itemized bill for the repair work performed, and corresponding proofs of payment in support of its claim; but none of those documents provided evidence that the property damage at issue occurred as a result of water backup and sump overflow as opposed to flooding. Nor did these documents do anything to contradict the results of the insurer’s investigation and inspection to determine the cause of the reported damages. There was “nothing evidential to suggest that Defendant lacked a reasonable basis for denying Plaintiff’s claim or that Defendant had knowledge of or showed a reckless disregard of the lack of a reasonable basis for denying the claim.” Summary judgment was entered for the insurer.
In addition, the insured had alleged a violation of the Unfair Claims Settlement Practices Act, apparently claiming bad faith; however, there is no private cause of action under that statute. Thus, summary judgment was granted on that issue as well.
Date of Decision: November 15, 2016
Carevel, LLC v. Aspen Am. Ins. Co., No. 13-7581, 2016 U.S. Dist. LEXIS 157919 (D.N.J. Nov. 15, 2016) (Walls, J.)
In this ERISA health plan case, the insurer had offered to freeze premiums for a substantial period of time to settle an earlier dispute over payments under the plan; but then allegedly reneged. The insured brought suit under various state law theories, including bad faith. The action was removed to federal court and a partial motion to dismiss was filed, on the basis that ERISA pre-empted the claims over this alleged settlement agreement. The court found itself “constrained by the ‘extraordinary preemptive power’ of ERISA,” and it refused to remand the action. It dismissed the statutory bad faith claim, among others.
Date of Decision: November 17, 2016
Shore v. Independence Blue Cross & Independence Health Group, No. 16-5224, 2016 U.S. Dist. LEXIS 160022 (E.D. Pa. Nov. 17, 2016) (McHugh, J.)
In this homeowners’ case, the insured alleged breach of contract and bad faith. On the contract claim, the court focused on the contractual limitations period for bringing suit. The insured argued, among other things, that the insurer had a duty under the Unfair Claims Settlement Practices Regulations (UCSPR) to give notice of the suit limitation period, and failure to do so tolled that period. The court rejected this argument as a basis to toll the contract claim, as well as a basis for the bad faith claims.
As to the bad faith claim, the court further observed that a violation of the UCSPR standing alone does not establish clear and convincing evidence of bad faith. The court also rejected an argument concerning negotiations over a boiler’s repair or replacement as the basis for a bad faith claim.
Date of Decision: November 9, 2016
Pecko v. Allstate Ins. Co., No. 16-1988, 2016 U.S. Dist. LEXIS 155355 (E.D. Pa. Nov. 9, 2016) (Pratter, J.)
In a 2 to 1 unpublished decision, the Superior Court ruled that a choice of venue provision did not apply to the insured’s bad faith claims. This was a UIM case. The majority found that bad faith claims are distinct from breach of contract/UIM claims, and therefore the insurance contract’s venue provisions did not apply to these distinct claims. The minority (and trial court) would have ruled otherwise, in the belief that the bad faith claim rises and falls with the UIM claim, and thus is so closely related as to be bound by the contractual venue provision.
The majority cited the Superior Court’s 1999 Adamski decision, which held “that bad faith claims are ‘neither related to nor dependent on the underlying contract claim against the insurer[,]’ and an insured is “not required to wait until the merits of the contract claim [are] decided to file suit for bad faith.’” It also cited the earlier March v. Paradise Mut. Ins. Co., for the proposition “that bad faith ‘claims under section 8371 are separate and distinct causes of action and [] the language of section 8371 does not indicate that success on the contract claim is a prerequisite to success on the bad faith claim’”.
The majority and dissent bring out the ongoing issue of whether section 8371 bad faith can exist if there is no denial of a contractual benefit (see pages 5-7 of this 2005 article link for an older discussion of that issue); and the effect of the Supreme Court’s decision in Toy v. Metropolitan Life on Superior Court and federal decisions both before and after 2007.
Date of Decision: October 20, 2016
Cid v. Erie Ins. Grp., No. 3041 EDA 2015, 2016 Pa. Super. Unpub. LEXIS 3824 (Pa. Super. Ct. Oct. 20, 2016) (Dubow and Ford Elliott, JJ.) (not precedential)