Archive for the 'PA - Claims Handling Procedures' Category

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OCTOBER 2013 BAD FAITH CASES: NO BAD FAITH WHERE CARRIER HELD COVERAGE DECISION IN ABEYANCE PENDING OUTCOME OF CRIMINAL PROCEEDINGS; NO RIGHT TO ATTORNEY'S FEES WHEN INSURED PROCEEDS PRO SE (Middle District)

Published on October 15, 2013 in PA - Claims Handling Procedures, PA - Lawyer's - Attorney's Fees and PA - Procedural Issues. Closed
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In Atwood v. State Farm Fire & Casualty Company, the plaintiff purchased a homeowner’s policy. The DEA had knocked down the door of plaintiff’s home, and left it unsecured. As the court described it, while plaintiff was “on the lam”, with the home still unsecured, the home was subject to various acts of vandalism. Defendant and other family members were ultimately arrested and the home was subjected to a forfeiture proceeding. The carrier had yet to make a decision about coverage, though the insured complied with the policy, but was unable to salvage any personal property or recover any stolen property.

The insured brought a bad faith claim, alleging three basic factual claims, but the court only considered the third item as potentially putting out the basis for a bad faith claim: “Plaintiff claims that Defendant acted in bad faith “when it waited nearly ten (10) months before first informing Plaintiff why his claim has not been finalized.”

First and foremost, the court found the flaw in plaintiff’s argument to be that the carrier had not denied the claim. The carrier adduced that there was a post-indictment restraining order that prohibited the carrier from paying out any proceeds on the policy in excess of the mortgage lien. The carrier promptly put the insured on notice it was withholding funds in accord with the restraining order, and the insured was further informed by the U.S Attorney’s office of a hold on the funds for potential forfeiture. Thus, there was no allegation of an absence of a reasonable basis to deny coverage as coverage had not been denied; the was no proper pleading that the carrier’s investigation was not done in good faith; nor any adequate claim of a failure to communicate. Moreover, the carrier apparently “had a reasonable basis to delay its final coverage decision in light of the pending criminal motion, and that this position was adequately communicated to Plaintiff.”

However, dismissal of the bad faith claim was without prejudice, permitting plaintiff, who was proceeding pro se, the future ability to amend his claim once the insurer make a final coverage decision. Similarly, the court dismissed the claim for attorney’s fees without prejudice, based on the fact that plaintiff had no attorney, in case he obtained counsel in the future and could make out the merits of a claim that would allow for attorney’s fees.

Date of Decision: August 27, 2013

Atwood v. State Farm Fire & Casualty Company, CIVIL NO. 1:13-CV-1000, 2013 U.S. Dist. LEXIS 121319 (M.D. Pa. Aug. 27, 2013) (Rambo, J.)

 

 

OCTOBER 2013 BAD FAITH CASES: NO SUMMARY JUDGMENT ON: (1) COVERAGE AS DISPUTE OF FACT OVER WHETHER DECAY WAS “HIDDEN” OR (2) BAD FAITH WHERE EVIDENCE CREATED ISSUE OF FACT ON INSURANCE ADJUSTER’S INTENT TO DENY CLAIM AND WHERE CONTRADICTIONS IN EXPERT REPORT AND TESTIMONY CREATED ISSUE OF FACT ABOUT INSURER’S REASONABLE RELIANCE THEREON (Western District)

Published on October 15, 2013 in PA - Claims Handling Procedures, PA - Coverage Issues and PA - Experts. Closed
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In PMW Real Estate Mgmt., LLC v. State Farm Fire & Casualty Co., the court was faced, on summary judgment, with the issue of whether a building collapse was caused by “hidden decay”, as provided for in a coverage extension to the policy. If the decay was hidden, then coverage would exist. As the phrase “hidden decay” was not defined in the policy the court did a plain language analysis of that phrase’s meaning and then compared it to the facts in the case. The court found the expert reports showed decay, within the meaning of that word. Even if the decay was caused by an excluded source under the policy, e.g., water infiltration, the policy extension overrode those exclusions. The court read the term “collapse” broadly, as required, in the insured’s favor.

As to whether the decay was “hidden” the court imposed an objectively reasonable standard vs. an actual awareness standard, observing willful blindness could not make the decay hidden. The court stated that if there were visible signs, then the decay was not hidden; however, the insured would not be expected to do invasive examinations. The parties’ experts differed on the presence of visible signs of decay, thus creating a dispute of fact that could not be answered on summary judgment.

On the insured’s bad faith claim, the insured argued that the insurer “predisposed to deny its claim, and that [the insurer] failed to conduct a meaningful investigation of the claim.” As required under the summary judgment standard, taking the facts and all reasonable inferences in the non-movant (insured’s) favor, the court denied the insurer’s summary judgment motion seeking dismissal of the bad faith claim. The court cited the factual claim that the insurer’s adjuster told the insured that the claim would be denied before ever observing the collapsed area. The court also found contradictions in the insurer’s expert’s report and his deposition testimony, which could allow the jury to determine that the expert did not spend enough time at the site, and his reliance on his observations from the exterior of the building were not adequate to prepare a reliable, comprehensive report upon which the insurer could reasonably rely.

Date of Decision: August 5, 2013

PMW Real Estate Mgmt., LLC v. State Farm Fire & Casualty Co., No. 2:11cv1395, 2013 U.S. Dist. LEXIS 109989 (W.D. Pa. Aug. 5, 2013) (Cercone, J.)

SEPTEMBER 2013 BAD FAITH CASES: INSURER’S INVESTIGATION OF LOST EARNINGS AND LOSS OF EARNING CAPACITY NOT BAD FAITH (Philadelphia Federal)

Published on September 9, 2013 in PA - Claims Handling Procedures. Closed
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In Lublin v. Am. Fin. Group, Inc., plaintiff brought suit against his insurer for claims of bad faith in settling his underinsurd motorist claim. Plaintiff was driving in Philadelphia when he was forced to abruptly stop because another driver opened their door into the driving lane while parking their car. Plaintiff was then rear-ended. Plaintiff pursued a claim against the driver in the collision, whose insurer agreed to settle the claim for the $15,000 policy limit. Plaintiff then filed an underinsured motorist claim under his own policy that included a stacking option in addition to $100,000 per individual and $300,000 per accident limits. The carrier from whom plaintiff purchased the policy agreed to an arbitration of the claim with a neutral arbitrator. The arbitrator awarded plaintiff $232,000 with a $15,000 set off. Following the arbitration award, plaintiff filed suit in Montgomery County contending defendant engaged in multiple actions which constituted bad faith prior to the arbitration award.

First, plaintiff argued that the insurer’s failure to notify him his policy had been transferred to another insurer and that a new claims agent had been assigned to it constituted bad faith. Under Pennsylvania law, misrepresentations made by an insurer or its attorney can amount to bad faith. Plaintiff contended he submitted the claim in December 2002, but was not notified of the policy transfer until July 2005. He also contended the insurer’s attorney misled him as to which insurance company he represented. The court determined even if the alleged misrepresentations took place, such misrepresentation would not be sufficient to meet the bad faith standard, in particular because it was unclear how the alleged misrepresentations affected resolution of the underinsured motorist claim.

Next plaintiff alleged the insurer requested unnecessary documentation for the purpose of harassing plaintiff and delaying settlement. The insurer argued the requested documents were reasonable and necessary to fully assess the claim, and that plaintiff had not returned all necessary documentation, in particular, evidence of lost wages and earning capacity. Under Pennsylvania law, investigative efforts are permissible when a claim’s value is ambiguous. Specifically, determining a loss of income earning capacity is determined by whether there is a loss of earning power and of the ability to earn money. Plaintiff supplied the carrier with a letter from his employer indicating he earned $35,000 less between the time of the accident and the end of the calendar year, but the insurer presented evidence plaintiff’s billable hours had not actually decreased. The court found the delay in settlement was not sufficient to establish bad faith, and the rest of the evidence was not sufficient to reach the clear and convincing evidence standard required for bad faith given the ambiguities of the claim.

Plaintiff also argued the insurer’s settlement offer of $75,000 was improper, particularly because the insurer’s counsel initially suggested a settlement range of $150,000 to $175,000. The insurer argued the initial range was based on plaintiff’s demand, but a lower offer was made when plaintiff failed to produce evidence demonstrating a wage loss and loss of earning capacity. The court found the insurer’s valuation of plaintiff’s injuries and the eventual settlement offer were not prima facie evidence of bad faith given the ambiguities surrounding plaintiff’s lost wages and earning capacity calculations, and therefore fell short of the clear and convincing evidence standard.

Finally, plaintiff argued the insurer acted in bad faith by asserting a defense claiming plaintiff failed to protect the insurer’s subrogation interests. While there was some ambiguity in the policy’s language regarding the subrogation rights, merely asserting a subrogation defense is not clear and convincing evidence of bad faith, and furthermore, the insurer had not asserted any subrogation right as an affirmative defense in the action.

Based on these findings, the court granted the insurer’s motion for summary judgment and denied plaintiff’s request for sanctions.

Date of Decision: June 20, 2013

Lublin v. Am. Fin. Group, Inc., No. 07-3422, 2013 U.S. Dist. LEXIS 87218 (E.D. Pa. June 20, 2013) (Robreno, J.).

SEPTEMBER 2013 BAD FAITH CASES: INSURER CORRECTLY DENIED COVERAGE WHERE ATTORNEY FAILED TO PROVIDE TIMELY NOTICE UNDER CLAIMS MADE MALPRACTICE POLICY (Philadelphia Federal)

Published on September 9, 2013 in PA - Claims Handling Procedures and PA - Coverage Issues. Closed
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In Pelagatti v. Minn Lawyers Mut. Ins. Co., an attorney-insured brought suit against his legal malpractice insurer alleging breach of contract and bad faith for denying coverage under his claims-made policy where the insurer alleged the attorney failed to provide timely notice of the claim. In 2006, the insured undertook representation of a client in a wrongful death action after the client’s son drowned on an unsupervised beach in Ocean City, New Jersey. The insured failed to file the proper Notice of Claim under the New Jersey Tort Claims Act, and then failed to timely appeal the denial of his motion to file late notice. These failures precluded the client from pursing the wrongful death action, and the case was dismissed in late 2006. The client filed suit against the insured on February 3, 2010. The insured was served on February 23, 2010, and provided the insurer with notice of the suit one week later. The insurer denied coverage because the insured failed to give the insurer timely notice of the claim and the claim was not filed within the relevant claims period. The insurer specified the claim arose in 2006 when the client’s claim was dismissed and the insured became of aware of the failure to comply with the relevant statute of limitations. On June 7, 2011, the Superior Court granted summary judgment in favor of the client in her legal malpractice action.

On November 2, 2011, the insured filed suit seeking declaratory judgment and damages based on the insurer’s alleged breach of contract and bad faith denial of coverage. The court first considered whether the carrier had breached its contract with the insured. The policy stated a claim was to be made when “an INSURED first becomes aware of any act, error or omission by any INSURED which could reasonably support or lead to a demand for damages.” Under a claims-made policy, the insurer establishes a breach of the notice provision by demonstrating “(1) that Plaintiff was aware of a given set of facts; and (2) that a reasonable attorney in possession of those facts would have believed that those facts could support or lead to a demand for damages.”

In reference to the first prong, the court found the insured was aware: that his client’s initial suit and subsequent appeal were dismissed due to failure to comply with the statute of limitations and a failure to file a timely appeal; the insured was knowingly practicing law in New Jersey without a license; the insured did not report these circumstances to the insurer despite the policy requiring him to do so; and, the insured was aware of the existence of a potential claim at the time he reapplied for insurance. Under the second prong, the court relied on precedent which established a reasonable attorney would believe a failure to comply with a statute of limitations would expose the attorney to a possible legal malpractice suit. Furthermore, the court found the insured and his client had discussed the possibility of the client suing him. Having satisfied both prongs of the test, the insurer was justified in refusing to indemnify the insured.

The court further found on the bad faith claim that, not only was the insurer justified in denying coverage, the insurer had provided the insured with a letter specifically detailing its reasoning for denying coverage and the provisions of the policy it asserted the insured violated. The insured was not able to produce any evidence to rebut the insurer’s reasons for denying coverage, and therefore his bad faith claim failed as a matter of law.

Date of Decision: June 26, 2013

Pelagatti v. Minn. Lawyers Mut. Ins. Co., No. 11-7336, 2013 U.S. Dist. LEXIS 90041 (E.D. Pa. June 26, 2013) (Robreno, J.).

JULY 2013 BAD FAITH CASES: SUPERIOR COURT ISSUES OPINION CREATING NEW STANDARD FOR RESERVATION OF RIGHTS LETTERS (Superior Court)

Published on July 17, 2013 in PA - Claims Handling Procedures and PA - General Bad Faith and Litigation Issues. Closed
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In Babcock & Wilcox Co. v. Am. Nuclear Insurers & Mut. Atomic Energy Liab. Underwriters, the Pennsylvania Superior Court created new law by holding an insured may decline an insurer’s defense tendered under a reservation of rights and later seek to be indemnified for any settlement and defense costs deemed fair, reasonable, and non-collusive.

This case stems from over 300 underlying claims alleging personal injury and property damage from radioactive emissions at two nuclear fuel processing facilities owned by Babcock & Wilcox and its predecessor Atlantic Richfield Company (collectively “B&W”). Beginning in March 1958, American Nuclear Insurers and Mutual Atomic Energy Liability (collectively “ANI”) provided coverage to B&W, with limits beginning at $3 million and increasing to $160 million per facility as of February 1979.

In 1998, the district court tried eight “test cases,” with the jury returning verdicts in favor of all eight plaintiffs and an aggregate of over $36 million in damages. The trial court subsequently granted a motion for a new trial based on evidentiary errors made in the test case trials. While the new trials were pending, ANI filed a declaratory judgment action in the Court of Common Pleas in Allegheny County against B&W. Before the court ruled on the declaratory judgment action, B&W reached a settlement agreement with all 300-plus plaintiffs and provided the agreed upon $80 million in settlement funds. ANI opposed the settlement.

Following the settlement, B&W sought reimbursement for the $80 million paid in settlement funds as well as counsel fees. ANI resisted, claiming it had no obligation to make any payment because B&W violated the consent to settlement clauses in the insurance policies. In trying to resolve this dispute, an issue regarding the appropriate standard to apply in determining ANI’s insurance coverage obligations arose. The trial court determined the Cowden standard should apply, requiring B&W to plead and prove the four-part test to be entitled to reimbursement.

The litigation progressed as expected until two years later when the trial court issued a new memorandum and order instructing the standard described in Alfiero v. Berks Mutual Leasing Co., 500 A.2d 169 (Pa. Super. 1985) be used in the pending trial. Despite previously being reserved for cases where a defendant sought indemnification for settlement funds following a bad faith action by the insurer, under the Alfiero standard, B&W would be entitled to reimbursement “if the settlement was fair, reasonable, and non-collusive.”

The Babcock trial court chose to break precedent and apply the Alfiero standard because it felt “there was no principled distinction between a case in which an insurer provides a defense subject to a reservation of rights… and a case where the insurer denies both defense and coverage.” The trial court further opined, “the insurance company should not be the sole decision maker where there is a possibility that only the insured’s interests will be affected by the outcome of the underlying litigation,” as is the circumstance when a defense is tendered under a reservation of rights. Id. Following this determination, the court directed the parties to trial to determine whether the $80 million settlement entered into by B&W was “fair and reasonable.” The jury determined that the settlement was fair, reasonable, and non-collusive, and the trial court entered an order reflecting the same.

ANI appealed the order, presenting a single issue to the Superior Court:

”Whether ANI had the right to deny coverage for B&W’s unauthorized $80 million payments to settle the [underlying] Action where: (1) the ANI Policy, which had combined limits of $320 million, unambiguously afforded ANI the right to control settlement and exclude coverage for unauthorized payments; (2) ANI was fully performing its policy obligations by funding B&W’s $40 million-plus defense in the underlying Action; and (3) ANI’s decision to continue defending the [underlying] Action comported with the Pennsylvania Supreme Court’s decision in Cowden.”

On appeal, ANI contended that by adopting Alfiero as the appropriate standard, the trial court had effectively adopted the standard articulated in United Services Auto. Ass’n v. Morris, 741 P.2d 246 (Az. 1987), and its progeny. In Morris, the Arizona Supreme Court held when an insurer tenders a defense under a reservation of rights it “[does] not breach any of its policy obligations” but “neither [does] it accept full responsibility for the insured’s liability exposure.” As such, it held “the cooperation clause prohibition against settling without the insurer’s consent forbids an insured from settling only claims for which the insurer unconditionally assumes liability under the policy… The insurer’s reservation of the privilege to deny the duty to pay relinquishes to the insured control of the litigation, almost as if the insured had objected to being defended under a reservation.” The Superior Court felt this mischaracterized the trial court’s ruling. Furthermore, such a ruling would be incongruous with Pennsylvania’s contract law because the Morris court found “the insurer’s defense with a reservation did not constitute a breach of contract,” yet still “relieved the insured of its own corresponding contractual duty.” Instead, the Superior Court chose to rely on Taylor v. Safeco Insurance Company, 361 So.2d 743 (Fla. Ct. App. 1978). In Taylor, the insurer tendered its defense under a reservation of rights, then withdrew its defense, only to retender the defense at trial, again under a reservation of rights. The insured rejected the defense, and, without counsel, consented to “a substantial judgment, assigning its right to seek reimbursement from its insurer to the plaintiff in exchange for a release from all personal liability for the judgment.” When the plaintiff sought reimbursement, the trial court granted the insurer summary judgment based on the insured’s failure to comply with the consent to settlement clause of the policy. The appeals court reversed that holding, finding “because the insured had rejected the insurer’s defense… if coverage were established, the insurer would be obligated to indemnify the insured for the amount of settlement up to the policy limit if the settlement was “reasonable” and was not entered into “in bad faith, fraudulently, collusively, or without any effort to minimize his liability.”

Following the Taylor line of case law, Pennsylvania’s Superior Court held:

“When an insurer tenders a defense subject to a reservation, the insured may choose either of two options. It may accept the defense, in which event it remains unqualifiedly bound to the terms of the consent to settlement provision of the underlying policy. Should the insured choose this option, the insurer retains full control of the litigation, consistently with the policy’s terms. In that event, the insured’s sole protection against any injuries arising from the insurer’s conduct of the defense lies in the bad faith standard articulated in Cowden.

Alternatively, the insured may decline the insurer’s tender of a qualified defense and furnish its own defense, either pro se or through independent counsel retained at the insured’s expense. In this event, the insured retains full control of its defense, including the option of settling the underlying claim under terms it believes best. Should the insured select this path, and should coverage be found, the insured may recover from the insurer and the insured’s defense costs and the costs of settlement, to the extent that these costs are deemed fair, reasonable, and non-collusive.”

After making this ruling, the Superior Court held that the trial court erred in constraining the trial to the question of whether B&W’s settlement was “fair and reasonable.” Rather, the questions presented to the jury should have been, “(1) whether B&W in fact rejected ANI’s defense; and, if so, (2) whether ANI acted in bad faith in declining to settle, or, as alleged by B&W, to participate in settlement negotiations with the [underlying] plaintiffs.” Based on this finding, the court vacated the underlying jury verdict and judgment and remanded to allow the trial court to conduct a new trial in conformity with the new standard derived from Taylor.

Date of Decision: July 12, 2013

Babcock & Wilcox Co. v. Am. Nuclear Insurers & Mut. Atomic Energy Liab. Underwriters, 2013 Pa. Super. LEXIS 1633 (Pa. Super. Ct. 2012) (Wecht, J.)

July 2013 Bad Faith Cases: COURT FINDS INSURED’S DELAY IN PRODUCTION AND EFFECT ON INSURER’S CLAIM PROCESSING CREATE QUESTIONS OF FACT FOR JURY; NO FIDUCIARY RELATIONSHIP EXISTS BETWEEN THE INSURER AND INSURED IN UIM CLAIMS (Middle District)

Published on July 17, 2013 in PA - Claims Handling Procedures and PA - Discovery and Evidence. Closed
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Plaintiff and his wife were injured in an automobile accident on July 11, 2006. Plaintiff made a claim against the other driver, and settled at the limits of the other driver’s policy, $95,000. Plaintiff subsequently made a claim with his carrier (“the carrier”) under his underinsured motorist policy which carried limits of $300,000 per person and $600,000 per accident.

On June 1, 2007, the carrier informed plaintiff that based on the documentation produced so far, it did not value the claim at more than $100,000 and as such the other driver was not underinsured. At that time plaintiff had not produced authorizations to obtain his medical or employment records, prior medical providers, information about additional employment or prior tax returns. Despite these missing documents, the carrier continued to investigate the claim for the next 20 months, and on February 23, 2009, made a settlement offer of $35,000. Plaintiff rejected the offer and sought arbitration of the claim. At that time, plaintiff executed the medical release forms, submitted information regarding his additional employment, underwent a sworn examination, and submitted to an evaluation by the carrier’s vocational expert. After receiving this information, the carrier made a settlement offer of $120,000. Nine days later, the carrier increased its offer to $150,000. Five days after that, the case went in front of an arbitration panel and plaintiff was awarded $450,000 in damages. This award was reduced to $300,000 to reflect the applicable policy limit.

On August 31, 2011, plaintiff filed suit against the carrier alleging breach of contract and bad faith for delaying the payment of plaintiff’s full benefits. Plaintiff claimed the carrier’s bad faith was evidenced by the prolonged processing of his claim and unreasonably low settlement offers given the severity of his injuries. Defendant argued that plaintiff caused the delays by failing to produce the requested documents and information, the plaintiff’s claims were subjective and uncertain, and the settlement offers were reasonable based on the information available to the carrier when the offers were made.

In evaluating the motion for summary judgment, the court determined there were three remaining questions of fact which should be presented to a jury. Specifically, the court found issues of fact remained as to, “whether the plaintiff delayed in producing necessary documents,” and if so, “whether any delay effected the defendant’s basis for making settlement offers.” Finally, the “reasonableness of the defendant’s acts” was also a question of fact for the jury. The court also stated that, generally, “the level of complexity [of a claim] and what constitutes a reasonable period to investigate are questions of fact” which should be presented to the jury. Based on these findings, the court denied summary judgment.

Additionally, in the breach of contract claim, the court considered whether the carrier had breached a fiduciary duty to the plaintiff in the handling of his claim. However, based on precedent, the carrier has “no duty to act as a fiduciary when negotiating with its own insured,” and therefore “did not have a fiduciary duty to the plaintiff when resolving the UIM claims.” Rather, insurers only assume a fiduciary role in cases of third party claims where the insurer asserts a right under the policy to handle claims against the insured.

Date of Decision: June 19, 2013

Scott v. GEICO Gen. Ins. Co., Civil Action No. 3:11-1790, 2013 U.S. Dist. LEXIS 85701 (M.D. Pa. June 19, 2013) (Mannion, J.)

JULY 2013 BAD FAITH CASES: CARRIER’S LETTER INDICATING IT WOULD CONSIDER AMENDED CLAIMS DID NOT REQUIRE CARRIER TO APPROVE CLAIM; FOLLOWING FEAS EVIDENCE . (Philadelphia Federal)

Published on July 12, 2013 in PA - Claims Handling Procedures, PA - Coverage Issues and PA - Discovery and Evidence. Closed
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In Weinberg v. Nationwide Cas. & Ins. Co., plaintiffs brought suit claiming breach of contract and bad faith when the carrier denied coverage on an amended claim after providing plaintiffs with a payment and letter indicating future amendments to the claim would be considered.

Plaintiffs’ policy covered “direct loss caused by rain, snow, sleet, sand or dust driven through roof or wall openings made by direct action of wind, hail, or other insured peril.” The policy excluded losses resulting directly or indirectly from: (1) “wear and tear, marring and deterioration,” and (2) biological deterioration or damage, “even if another peril or event contributed concurrently or in any sequence to cause the loss.” The policy also excluded loss resulting from “a fault, weakness, defect or inadequacy in the… design, workmanship, construction, or materials” if another excluded peril also contributed to the loss.

On June 11, 2012, plaintiff reported to the carrier his house has suffered damage due to a wind or rainstorm which occurred on April 14, 2010. Plaintiffs reported water was seeping into the home and there was water damage in “the garage and family room, around the kitchen window, and on the window dressings” as well as “the walls of the residence and vinyl siding” and “to the stucco on the front exterior of the property.” When the carrier’s adjuster inspected the property, he was unsure whether coverage existed due to the possibility the water was seeping in for reasons besides the storm. Plaintiffs hired a separate contractor to evaluate the damages. When plaintiffs’ contractor spoke with the adjuster, he informed the adjuster of “a neighborhood class action suit” against the builder of the homes in plaintiffs’ neighborhoods for issues of “workmanship, including water seeping into the home through the stucco and windows.”

The carrier denied coverage for the damage to the interior of the property, but provided plaintiffs a check for the value of the exterior damage based on its adjuster’s estimate in the amount of $2,116.40. Furthermore, the carrier indicated it would be willing to review any estimates from plaintiffs’ contractor and possibly adjust the payment based on any such estimate. However, when plaintiffs’ contractor provided an estimate to the adjuster, the adjuster did not respond. Plaintiffs continued to contact the adjuster with little response. Ultimately, the adjuster reaffirmed the carrier’s denial of coverage, and attached a formal denial letter explaining the policy did not provide coverage for damage “caused by faulty or inadequate design, workmanship, or construction materials, as well as wear and tear, aging, or deterioration.” Based on the conversation with plaintiffs’ contractor regarding the pending neighborhood lawsuit, the carrier believed the water seepage was due to “improper installation, workmanship, and construction error, which occurred when the home was originally built.” Plaintiffs’ total cost of repair for the interior and exterior damage totaled $50,000.

Plaintiffs allege three actions constitute bad faith: (1) the carrier’s illusory promise that plaintiffs would be able to submit amended claims for their loss; (2) the carrier’s failure to properly investigate plaintiffs’ claims; and (3) the carrier’s actions violated the Uniform Insurance Practices Act. The court found plaintiffs’ claim the carrier broke its promise regarding the amended claims was not supported by the record and plaintiffs failed to demonstrate the carrier did not consider the additional claims. Rather, the carrier allowed plaintiff to submit additional claims, but did not promise those claims would be covered. The court also found plaintiffs failed to demonstrate the carrier did not conduct a full investigation of the claims. The carrier visited plaintiff’s home, provided plaintiffs with a payment, and when it was informed of additional damage, an adjuster investigated that claim but denied it. Furthermore, the carrier explained in its denial letter why the damage was not covered. Finally, the court stated the UIPA does not provide a private cause of action, and that violations of the UIPA cannot be considered evidence of bad faith. Therefore, plaintiffs’ reliance was inapposite to its statutory bad faith claim. Based on these findings, the court granted the carrier’s motion for summary judgment.

Date of Decision: June 10, 2013

Weinberg v. Nationwide Cas. Ins. Co., Civil Action No. 11-cv-5680, 2013 U.S. Dist. LEXIS 82217 (E.D. Pa. June 10, 2013) (Tucker, C.J.)

JULY 2013 BAD FAITH CASES: LARGE ARBITRATION AWARD IN EXCESS OF DE MINIMIS SETTLEMENT OFFER DOES NOT ESTABLISH BAD FAITH CONDUCT BY CARRIER WHERE OFFER BASED ON REASONABLE INVESTIGATION (Philadelphia Federal)

Published on July 2, 2013 in PA - Claims Handling Procedures. Closed
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In Richardson v. United Fin. Cas. Co., plaintiff brought suit for bad faith following an arbitration award in extreme excess of the carrier’s settlement offers for plaintiff’s UIM claim. Plaintiff was in a low-impact crash on October of 2006. Following the crash, plaintiff required back treatments including therapy, injections, and ultimately surgery. Plaintiff’s medical bills exceeded $57,000, and a worker’s compensation lien accrued in excess of $114,000. Plaintiff’s expected future medical costs totaled $680,000. The at-fault driver’s policy had a $50,000 policy limit, which was tendered based on the value of the worker’s compensation lien. Plaintiff then brought an underinsured motorist claim under her own policy, which carried a $1,000,000 limit.

Prior to the low-impact crash, plaintiff suffered from chronic back pain. Plaintiff was receiving various treatments, including therapy and injections, had been classified as a candidate for surgery, and was on ‘light duty’ at work due to her existing back problems. At the scene of the crash, plaintiff told the first responder she had suffered from chronic back pain since 2006. Based on this medical history and the low impact nature of the crash, the adjuster determined the crash was not the cause of the injuries, and the carrier was not responsible for the work lien because it pre-dated the crash and plaintiff’s work status did not change following the crash. Furthermore, based on plaintiff’s medical records and a report from an IME, the adjuster determined the surgery was necessary prior to the crash, and thus should be excluded from the medical expenses. Based on these findings, the carrier determined the at-fault driver was not underinsured, but made an offer to settle the case for $5,000.

Plaintiff refused to settle the case for that amount, and when the case went to arbitration, plaintiff was awarded $675,000 which was reduced to $625,000 to reflect the $50,000 received from the tortfeasor. Plaintiff then brought suit against the carrier alleging its $5,000 settlement offer “was unreasonable, made in bad faith, and showed a reckless disregard for the carrier’s contractual obligations and duties of good faith and fair dealing.”

The court denied plaintiff’s motion for summary judgment, finding the plaintiff failed to meet her burden of demonstrating the carrier’s actions were not reasonable. Specifically, it was reasonable for the carrier to conclude the crash was a “minor impact” accident based the police report which indicated no damage occurred to plaintiff’s vehicle. Furthermore, plaintiff testified the first responders did not want to take her to the emergency room because they felt the crash did not warrant such treatment. The court also found plaintiff’s argument that the carrier acted unreasonably by failing to schedule her IME for two years was without merit because plaintiff’s counsel partially caused the delay by failing to provide plaintiff’s medical records for over a year. Finally, plaintiff’s argument that the carrier failed to properly investigate the claim did not provide clear and convincing evidence of bad faith. The court found the carrier used all information available to it, evaluated the claim based on that evidence, and came to a reasonable conclusion. As such, the judge denied the motion because plaintiff failed to demonstrate that a jury could find by clear and convincing evidence the carrier’s denial of benefits was unreasonable.

Date of decision: May 30, 2013

Richardson v. United Fin. Cas. Co., Civil Case No. 11-7688, 2013 U.S. Dist. LEXIS 75713 (E.D. Pa. May 30, 2013) (O’Neill, J.).

JULY 2013 BAD FAITH CASES: INSURER’S MOTION TO DISMISS BAD FAITH CLAIM BASED ON FAILURE TO ISSUE RESERVATION OF RIGHTS DENIED (Western District)

Published on July 2, 2013 in PA - Claims Handling Procedures, PA - Coverage Issues and PA - Litigation Conduct Claims. Closed
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In Greenwich Ins. Co. v. BBU Servs., the court denied plaintiff’s motion to dismiss defendants’ counter claim for bad faith. Plaintiff-insurer initially brought suit against its insured. Defendant-insureds then filed a counter-claim against their insurer, alleging bad faith for plaintiff-insurer’s denial of coverage after agreeing to provide coverage and a legal defense without issuing a reservation of rights letter.

Plaintiff-insurer initially agreed in writing on May 12, 2011, to defend defendant-insureds without issuing a reservation of rights letter, then, 165 days later, reversed its position and issued a reservation of rights letter. Defendant-insureds were forced to hire private counsel to avoid inherent conflicts of interest and identified the insurer-retained counsel in the underlying action as a fact witness in the current case. Plaintiff-insurer’s actions also putatively threatened privileged attorney-client communications. Defendant-insureds claimed to have detrimentally relied on plaintiff’s initial assurance of coverage and to have been prejudiced by plaintiff-insurer’s reversal of position.

Relying on precedent from district courts in Ohio, Washington, Florida, and South Carolina, the Western District determined an insurer’s delay in issuing a reservation of rights letter could, under some circumstances, support a claim for bad faith or estoppel. On this basis, the court denied plaintiff-insurer’s motion to dismiss, determining the issue could not be appropriately resolved at that stage in the litigation. While the court acknowledged some of defendant-insureds’ claims of bad faith might be susceptible to dismissal at the 12(b)(6) stage, the claims regarding plaintiff-insurer’s change in position, detrimental reliance and prejudice were not. Consistent with that finding, the court granted defendant-insured’s request for leave to amend their counterclaim. The court declined to rule on which damages would potentially be available if the claims survived a motion to dismiss due to a complex choice-of-law issue that would need to be resolved.

Date of decision: June 4, 2013

Greenwich Ins. Co. v. BBU Servs., Civil Action No. 12-291, 2013 U.S. Dist. LEXIS 78070 (June 4, 2013 W.D. Pa.) (Bissoon, J.).

JULY 2013 BAD FAITH CASES: INSURER’S DELAY IN SETTLING THIRD PARTY CLAIM CONSTITUTES A DENIAL OF BENEFITS AND CAN CREATE A CAUSE OF ACTION FOR COMMON LAW AND STATUTORY BAD FAITH DESPITE PAYMENT OF POLICY LIMITS AND LACK OF EXCESS VERDICT (Middle District)

Published on July 1, 2013 in PA - Claims Handling Procedures, PA - Coverage Issues and PA - General Bad Faith and Litigation Issues. Closed
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In Bodnar v. Nationwide Mut. Ins. Co., plaintiff brought suit against his insurer (“the carrier”) claiming its failure to settle an underlying case against plaintiff in a more timely fashion constituted a bad faith under Pennsylvania’s bad faith statute. In the underlying case, the carrier initially denied the claims based on the policy’s employee exclusion, excluding coverage for injuries suffered by employees arising out of or in the course of their employment. Plaintiff informed the carrier the underlying plaintiff was not his employee at the time of the accident, but the carrier proceeded with two separate declaratory judgment actions in the case to have its obligations under the policy determined by the court. Ultimately the case was settled within approximately two and a half years, with the carrier tendering the full amount of the policy limits.

Included in the settlement was a hold-harmless clause, in which the underlying plaintiff agreed to indemnify the plaintiff in this case, and save him harmless for any and all further liability, loss, damage, claims or expenses arising out of the underlying plaintiff’s death, as well as any and all liability, loss, damage or claims arising out of the hold-harmless clause including satisfying any judgment on his behalf.

Two months prior to entering the settlement agreement, plaintiff filed this suit alleging statutory bad faith and common law breach of the contract bad faith for failure to indemnify.

Plaintiff alleges that the carrier’s refusal to settle the case more promptly was “callous, unjustified and unreasonable” and caused plaintiff to suffer emotional distress, anxiety, depression and psychological harm. Plaintiff also claimed damages for the effect the underlying lawsuit had on his business, and attorney fees he incurred in the defense of the underlying action. The carrier filed a Motion for Summary Judgment alleging that because it paid the policy limits prior to a finding of liability against plaintiff, there can be no common law bad faith claim because the possibility of an excess verdict was eliminated. The carrier further asserted there can be no claim for statutory bad faith without an excess verdict against the plaintiff, which did not occur here as the case settled prior to any finding of liability.

On the former point, the Court cited numerous cases, including the seminal Birth Center case, which makes abundantly clear that common law contractual bad faith cannot be precluded per say on the basis that the carrier ultimately paid the policy limits, in the context of a third party claim. Via this decision, Pennsylvania’s Supreme Court opened the door for an insured to seek compensatory damages other than pure failure to pay under the policy.

This later question has not been presented to the Pennsylvania Supreme Court, however similar issues have been handled in other Pennsylvania federal cases. In 2006, the Eastern District of Pennsylvania found in Fuss Builders-Contractors, Inc. v. Assurance Co. of North Am. that “there is no recognized cause of action against an insurer for delaying settlement of a third party claim” and refused to “create a cause of action not yet recognized by Pennsylvania law.” Two years later, the Western District of Pennsylvania issued its opinion in Gideon v. Nationwide Mutual Fire Ins. Co., disagreeing with the analysis in Fuss, and found an insurer’s declaratory judgment action against its insured could be interpreted as a denial of benefits and therefore the basis of a cause of action for bad faith. Following its ruling in Gideon, the Western District in Standard Steel, LLC v. Nautilus Ins. Co. refused to find an excess verdict was a condition precedent to a statutory bad faith claim failure to settle a third party claim because no Pennsylvania case law had imposed such a requirement. Ultimately, the court followed the Standard Steel ruling, finding the carrier could not avoid further inquiry into its conduct simply by asserting its payment of the policy limit as a complete defense entitling it to summary judgment as a matter of law. Furthermore, the court found “a delay in payment of a third party claim, if of inordinate and unreasonable length, effectively becomes a denial of the claim.” Such a denial of benefits creates the basis for a claim of bad faith against the insurer, even if the insurer pays the policy limits prior to the entry of a verdict. The carrier’s motion for summary judgment was denied.

Date of Decision: May 16, 2013

Bodnar v. Nationwide Mut. Ins. Co., Civil Action No. 3:12-CV-1337, 2013 U.S. Dist. LEXIS 70144 (M.D. Pa. May 16, 2013) (Mariani, J.).