Archive for the 'PA - Declaratory Judgment' Category
This exhaustive opinion on discovery of extrinsic evidence sets forth a working standard for determining permissible discovery in declaratory judgment insurance coverage contract actions. After a detailed overview of pertinent case law and the 2015 rule amendments focusing on proportionality, the court held that “litigants who wish to discover extrinsic evidence in a contract interpretation case must (1) point to specific language in the agreement itself that is genuinely ambiguous or that extrinsic evidence is likely to render genuinely ambiguous; and (2) show that the requested extrinsic evidence is also likely to resolve the ambiguity without imposing unreasonable expense.”
In this case, the discovery sought did not fall within those aims and a motion to compel was denied.
To provide context by contrast, the court included an analysis of discovery in bad faith cases within its overall discussion. In instances where a plaintiff seeks underwriting files and claims manuals, the presence of a bad faith claim makes their “discoverability more likely, yet it by no means guarantees it.” In that context, “[t]he issue in a bad faith case is whether the insurer acted recklessly or with ill will towards the plaintiff in a particular case, not whether the defendants’ business practices were generally reasonable.”
By contrast, under Pennsylvania law, declaratory judgment actions for coverage are contract-based claims controlled by the express language in the contract, and the language of such integrated contracts will “often will suffice to dictate the proper outcome without reference to any external sources.”
To provide further contrast, the court looked at district court case law in the Third Circuit on stays, and severance of bad faith claims from coverage actions, where courts bifurcated the two claims and the different discovery related to them. These cases observe the differences between discovery and proof in bad faith cases and coverage cases, and that the coverage/contract claims can require less discovery in reaching resolution. [The court in this case had previously dismissed plaintiff’s bad faith claim].
Date of Decision: May 12, 2017
Westfield Insurance Company v. Icon Legacy Custom Modular Homes, No. 15-539, 2017 U.S. Dist. LEXIS 72624 (M.D. Pa. May 12, 2017) (Brann, J.)
The district court refused to remand a declaratory judgment coverage action, principally because there was also a bad faith claim in the case. The court did look at some of the other Reifer factors before rendering its conclusion.
Having maintained jurisdiction, the court refused to dismiss the bad faith claim at the pleading stage. The insured had pleaded that a disclaimer letter prospectively denying a duty to defend was sent five months before any suit was filed. Further, this letter lacked an explanation of the carrier’s reasoning, and a later letter had the same failings in explaining the carrier’s position. The insured also alleged that the insurer failed to respond to the insured’s correspondence in another instance, and the insurer only conducted a cursory investigation into the claim. The insured further alleged that the insurer failed to provide a defense after the insured provided additional information and trial was approaching.
The court noted that the duty to defend is broader than the duty to indemnify, and it was not comfortable deciding the merits of potential coverage issues on a motion to dismiss, on the facts as pleaded. Rather, the court was persuaded that discovery was appropriate and the record should be further developed. The insurer could raise its defense later in the case, via summary judgment.
Date of Decision: January 30, 2017
Chester v. Utica First Ins. Co., No. 16-1671, 2017 U.S. Dist. LEXIS 12096 (W.D. Pa. Jan. 30, 2017) (Barry Fischer, J.)
This non-precedential Third Circuit opinion affirmed the trial court’s opinion granting summary judgment to the insurer on a statutory bad faith claim. (We will not repeat the facts, but instead link to our previous summary of the trial court opinion).
In reciting the elements of bad faith, among other things, the appellate panel stated that because the carrier “ultimately paid the full policy limit, Appellants’ bad faith claim is based on the company’s investigation of [the] claim.” The court cited the Superior Court’s decision Rancosky v. Wash. National Ins. Co., for the proposition that “Bad faith conduct includes lack of good faith investigation into the facts.” The court does not address the issue of whether poor claims handling alone, without the denial of a benefit, can be bad faith. The trial court had noted that a long enough delay in handling the claim can be treated as the equivalent of a denial of a benefit, but the Third Circuit did not address this nuance.
In Rancosky, Pennsylvania’s Supreme Court defined the elements of what constitutes a statutory bad faith claim, which do not require proof of motive of self-interest or ill will.)
In addressing the merits, the appellate court first looked at plaintiff’s assertions that there was a “predisposition toward denial” and that the insurer “focused upon exclusion and accepted no facts contrary to its initial conclusion” (theories that harken bank to the 2003 Luzerne County Corch decision). However, the Third Circuit agreed that “the claims file showed that [the insurer] evaluated [the]claim, consulted with legal counsel, and tried to determine” the key issue of employment status.
Moreover, the insurer did not deny the claim, but filed a declaratory judgment action to determine this key issue and how it affected coverage. The insurer’s ultimately paying the policy’s liability limit demonstrated its willingness to consider new evidence and adjust its position. The court added that: “In any event, [the insurer] had the right to investigate [the]claim and determine whether it was covered under the policy, regardless of whether [the insurer] initially sought to exclude the claim. Citing its own prior precedent: “[A]n insurer does not act in bad faith by investigating and litigating legitimate issues of coverage.”
The appellate court agreed that there was no bad faith under Pennsylvania law in filing a declaratory judgment action to seek a coverage determination, to resolve legal ambiguities after it had investigated the facts of the claim. The court observed that the insurer had consulted with in-house counsel before the decision to file the declaratory judgment action, showing that the insurer was still considering the insured’s claim.
The court affirmed the grant of summary judgment on the bad faith claim.
Date of decision: October 4, 2016
Bodnar v. Nationwide Mut. Ins. Co., No. 15-3485, 2016 U.S. App. LEXIS 17903 (3d Cir. Oct. 4, 2016) (Hardiman, McKee, Rendell, JJ.)
In Westport Insurance Corp. v. Hippo, the insured defendant was subject to a professional malpractice action in state court. The insurer brought a declaratory judgment action in federal court, seeking a ruling of no duty to defend or indemnify the state court action. The insured then brought its own declaratory judgment and bad faith action against the insurer in state court. The insured further asked the federal court to decline jurisdiction over the insurer’s declaratory judgment action. The court applied the 8 part Reifer test and decided to exercise jurisdiction over the insurer’s declaratory judgment action. [Note: Reifer had seemed to indicate additional factors, beyond the Third Circuit’s seminal Summy decision, favoring the exercise of jurisdiction over declaratory judgment actions, though it was a matter clearly to be weighed carefully on either side].
Other 2016 post-Reifer decisions show most district courts declining jurisdiction over insurance declaratory judgment actions, at least in opinions available on Lexis. See, e.g., Kline v. Travelers Personal Security Ins. Co. (Middle District), Rachel II, Inc. v. State National Ins. Co. (Eastern District), Liberty Insurance Corp. v. Higgenbotham, No. 2:16-cv-38 (Western District March 24, 2016), Firemen’s Insurance Co. v. B. R. Kreider & Son, Inc. (Eastern District), Steadfast Insurance Co. v. Environmental Barrier Co. (Western District), Easterday v. Federated Mutual Ins. Co. (Eastern District), State Farm Mutual Automobile Ins. Co. v. Biddle (Western District).
In one other Western District case, the court did retain jurisdiction, Rafferty v. Metropolitan Life Ins. Co.
Date of Decision: April 28, 2016
Westport Ins. Corp. v. Hippo, 2016 U.S. Dist. LEXIS 56573 (W.D. Pa. April 28, 2016) (Gibson, J.)
Easterday v. Federated Mutual Insurance Company involved a class action claim for a declaratory judgment concerning underinsured motorist, coverage, breach of contract and bad faith. Applying the Third Circuit’s analysis in Reifer on when a district court should entertain a declaratory judgment action, the federal district court remanded the case to state court. It found the heart of the case would be decided in the declaratory judgment action, and the results of the contract and bad faith claims were entirely dependent on that decision.
The court found that the plaintiffs were seeking a declaration that they are entitled to underinsured motorist benefits under the business insurance policy at issue. Thus, “[t]he outcome of the bad faith and breach of contract claims depends on the resolution of the declaratory judgment claims. This action neither presents a federal question nor does it promote a federal interest. The dispute over the scope of coverage of the insurance contract is purely a matter of state law and there are no federal interests at stake. In fact, this action involves novel issues involving purely state law. As this action is inherently one for declaratory judgment, coupled with claims for breach of contract and bad faith, I will exercise my discretion to decline jurisdiction and grant the motion to remand this matter to state court.”
Date of Decision: February 8, 2016
Easterday v. Federated Mut. Ins. Co., 2016 U.S. Dist. LEXIS 15440 (E.D. Pa. Feb. 8, 2016) (Stengel, J.)
In Bodnar v. Amco Insurance Company, the insured sought reconsideration of the court’s decision granting the insurer summary judgment on bad faith. The insured repeated a litany of facts in arguing that the court made credibility determinations, which were inappropriate on summary judgment.
The court rejected, this argument, pointing out that the insured misconstrued the prior decision. It was not that the court made creditability determinations on disputed issues, but that the very existence of so many disputed issues established that the insurer’s decisions were not unreasonable, and therefore the first element of any bad faith case – that there was no reasonable basis to deny coverage — could not be met. “It was precisely because so many pieces of contradictory evidence existed that we concluded that it could not.”
The court also reiterated the bases for portions of its prior decision. The court observed that an insurer has a duty to determine whether coverage exists. It makes no difference whether this duty is framed positively as searching for coverage or negatively as searching for the application of exclusion. The only issue is whether the investigation into coverage is done in good faith. “In other words, even if [insurer] ‘searched for an exclusion,’ this would not necessarily be in bad faith if the exclusion actually applied … and did in fact bar … coverage.”
The court also addressed the argument that its prior decision was based upon the insurer’s relying on advice of counsel. There was no advice of counsel put at issue by the insurer, and the court expressly did not rely upon materials that were redacted in reaching its decision. In this vein, the court stated that whatever the lawyer’s advice had been, it only led to a determination to file a declaratory judgment action, not to deny coverage. “[A] decision to seek a judicial determination on whether coverage existed is not indicative of bad faith or breach of contract, especially when, as here, the implications of the background facts at issue are legally ambiguous.”
Date of Decision: December 3, 2015
Bodnar v. Amco Insurance Co., No. 3:12-CV-01337, 2015 U.S. Dist. LEXIS 162169, December 3, 2015 (M.D. Pa. December 3, 2015) (Mariani, J.)
In Rarick v. Federated Service Insurance Company, the court declined to exercise its discretionary DJA [Declaratory Judgment Act] jurisdiction over a suit filed by an insured against an insurer after applying the “heart of the matter” test to the insured’s claims for declaratory relief, breach of contract, and bad faith, and ultimately found that the novelty of the state law issues outweighed the rebuttable presumption in favor of jurisdiction.
The insured originally sought relief after sustaining injuries in a car accident he was involved in while driving a vehicle covered under a policy issued to the insured’s employer, the owner of the vehicle. The insurer denied the insured’s claim for recovery of uninsured motorist benefits on the basis that the insured did not fall under any of the categories of persons covered under the policy, and the insured filed the instant action.
The Judge issued an Order to Show Cause concerning the Court’s jurisdiction, and noted that the case involved claims for declaratory and coercive relief. Before reaching the merits of the case, the Judge observed that “federal courts must resolve questions of jurisdiction and justiciability.”
In determining whether jurisdiction was appropriate in this mixed claim action, the Court applied the “heart of the matter” approach. In doing so, the Court determined that because the essence of the claim was a declaratory judgment dispute, a rebuttable presumption in favor of jurisdiction existed to allow the Court to hear the insured’s bad faith and breach of contract claims, which depended on the resolution of the declaratory judgment claims.
The Court next determined whether good reasons existed for overriding the presumption in favor of jurisdiction. After considering eight factors enumerated the Third Circuit’s Reifer decision, the Court gave significant weight to one in particular, “the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy.”
The Court ultimately found that this factor weighed against retaining jurisdiction, “in light of the fact that [the insured] has raised additional claims beyond his request for declaratory relief.” Thus, because of the “nature and novelty of the state law issues” raised by the insured, specifically violations of the Pennsylvania Bad Faith Statute and whether the insurer’s failure to produce a valid Rejection of Uninsured Motorist Coverage as required by the Pennsylvania Motor Vehicle Financial Responsibility Law entitled the insured to coverage, the Court declined jurisdiction and remanded the case to the Court of Common Pleas of Philadelphia County.
Date of Decision: September 28, 2015
Rarick v. Federated Serv. Ins. Co., CIVIL ACTION NO. 2:13-cv-03286, 2015 U.S. Dist. LEXIS 129860 (E.D. Pa. September 28, 2015) (Leeson, J.)
In Selective Way Insurance Company v. Hospitality Group Services, Inc., an en banc Superior Court panel set forth the law as to when the 4 year statute of limitations on insurance declaratory judgment actions begins to run. The basic principle is that “the statute of limitations for a declaratory judgment action brought by an insurance company regarding its duty to defend and indemnify begins to run when a cause of action for a declaratory judgment accrues.”
The Court then specified: “This requires a determination of when the insurance company had a sufficient factual basis to present the averments in its complaint for declaratory judgment that the insurance policy at issue does not provide coverage for the claims made in the third party’s action. It is possible for the insurance company to possess sufficient information at the time it receives a complaint [against the insured] to cause the statute of limitations to begin to run; or that may not occur until the case develops and the claim is winnowed down to a recovery the insurance company believes is not covered by the policy of insurance. This requires the trial court to determine when the insurance company had a sufficient factual basis to support its contentions (as set forth in its complaint for declaratory judgment) that it has no duty to defend or indemnify the insured.” [Emphasis added].
Date of Decision: July 7, 2015
Selective Way Insurance Company v. Hospitality Group Services, Inc., No. 1430 WDA 2015, Superior Court of Pennsylvania, 2015 Pa. Super. LEXIS 398 (Pa. Super. Ct. July 7, 2015) (en banc) (Donohue, J.)