Archive for the 'PA - Estimates, Valuation or Appraisal' Category
In this UIM bad faith case, the insured received $15,000 from the tortfeasor, and was offered $10,000 by his own insurer, on a $200,000 policy. The insurer had already paid $5,000 in medical bills on the claim. The insured brought breach of contract and bad faith claims. The insurer successfully moved for summary judgment on the bad faith claim.
The insured claimed $180,000 to $230,000 in lost income. On medical bills, the court found that the actual costs to date were less than $15,000 and the insurer had already paid $5,000 of that sum, though the insured’s expert said he might need future surgery. Thus, $20,000 was paid to date, with another $10,000 on the table for plaintiff.
The key issue on bad faith was causation. Both the insured’s and insurer’s medical experts found that the insured’s pre-existing medical condition contributed to his ailments. Thus, while the insurer’s $10,000 offer did not satisfy the insured’s six figure demand, the insurer “was not prohibited from considering the doctors’ opinions regarding alternate causation.” Thus, the court ruled: “On balance, while minds may differ as to the true sum of the … loss, it cannot be said that [the insurer’s] estimate was ‘frivolous or unfounded.’”
Date of Decision: October 12, 2018
Newhouse v. Geico Casualty Company, U.S. District Court Middle District of Pennsylvania No. 17-cv-477, 2018 U.S. Dist. LEXIS 175785 (M.D. Pa. Oct. 12, 2018) (Brann, J.)
Our thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.
The court previously denied a motion to sever and stay the bad faith claim.
Negligent driving resulted in a truck crashing into the insured’s home. Her carrier evaluated the damage at less than $2,500, which came to less than $600 after deductibles. The tortfeasor’s carrier evaluated the damages at $60,000 based on a finding of structural damage, and the plaintiff’s public adjuster and another entity came in at $40,000. The insurer did not revise its estimate, and the insured brought suit for breach of contract and bad faith. The insurer unsuccessfully moved to dismiss the bad faith claim.
The case provides an overview of: the elements of statutory bad faith; that negligence does not constitute bad faith; the demanding heights of the clear and convincing evidence standard; and some types of conduct that may constitute bad faith, e.g., “a frivolous or unfounded refusal to pay, failure to investigate the facts, failure to communicate with the insured, failure to engage in settlement negotiations, and unreasonable delay.”
The carrier had a representative and engineer inspect the house, and argued that its number was the result of these inspections. It argued that it was willing to pay the claim, and that simply because the insured disagrees with the number offered this does not constitute bad faith. The insurer relied on the principle that low but reasonable offers cannot constitute bad faith. The insurer also argued that the complaint contained only conclusory allegations of bad faith, and should be dismissed on those grounds as well.
The court disagreed, finding the facts pleaded sufficient to state a claim. Further, the court did not characterize the pleadings as supporting the conclusion the insurer’s estimate was low but reasonable. Rather, plaintiff alleged that the extreme disparity between the insurer’s estimate and the other estimates “suggests much more than mere negligence.” The insured also attached exhibits “to show the extent of her damages and the total amount of her damages based on her estimates.”
The court also recognized that other allegations require discovery to determine if they can be substantiated, e.g., her allegation that the insurer “initially misrepresented pertinent facts of her policy provisions regarding coverage and that [the insurer] mislead her.” The issue of whether the house suffered structural damage, as stated in the $60,000 estimate, also requires discovery, as such evidence “would support plaintiff’s bad faith allegation that [the insurer] was unreasonable in failing to reinvestigate and reevaluate her damages.”
Date of Decision: September 28, 2018
Meiser v. State Farm Fire & Cas. Co., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:17-2366, 2018 U.S. Dist. LEXIS 167991 (M.D. Pa. Sept. 28, 2018) (Mannion, J.)
After a fire damaged insured’s property, six inspections of the property occurred due to the adjusters’ differing opinions on demolition and construction costs. Time also passed to address the tenant insurance carrier’s payment responsibilities. The insured sued for breach of contract and bad faith, alleging that the insurer improperly delayed in claims handling and payment, and refused to pay “sufficient insurance benefits” under the policy.
Under Pennsylvania law, a bad faith claim can be asserted if the insurer lacks a reasonable basis for denying coverage or in causing improper delay of payment. The insured alleged “that [the insurer] acted without a reasonable basis by (1) only releasing funds far below the amount due and owed under the policy, and (2) purposely delaying payment.” At the core of a delay bad faith claim, “[t]he plaintiff bears the burden of establishing delay by clear and convincing evidence.”
BAD FAITH DENIAL OF FUNDS
The insured argued that the insurer lacked a reasonable basis for the sum it chose to pay because the insurer waivered from its initial damage estimate, questioned the insured’s damage estimates, inspected the property six times, and relied on the tenant’s insurance carrier to determine final damage estimates.
The court ruled the insured’s evidence “fails, as a matter of Pennsylvania law, to reach the clear and convincing standard required for bad faith claims.” The evidence was not clear and convincing because it did not reflect a “frivolous or unfounded refusal to pay proceeds of the policy,” and because the evidence was “likely immaterial to whether [the insurer] lacked a reasonable basis for the eventual insurance payment.”
BAD FAITH DELAY OF PAYMENT
The court further ruled that the insurer did not exhibit bad faith in delaying payment, because the insured failed “as a matter of law to reach the clear and convincing standard.” The insured relied on the evidence referenced above, and “the undisputed fact that the time between the initial claim and the filing of the lawsuit was more than eleven months.”
First, the court concluded that the insurer provided the final payment four months after the initial claim. Next, the court determined that “continuous questioning” concerning the claim was not clear and convincing evidence of delay because the insured’s “submissions to [the insurer] always received a timely response, and the ‘questioning’ was consistent throughout.”
The court then concluded that when “delay is attributable to the need to investigate further . . . no bad faith has occurred.” The court found that “[e]ach of the six inspections had a reasonable basis,” as represented in “[e]xtensive, contemporaneous documentation, attached to [insurer’s] undisputed statement of facts.” The court ruled that the statement of facts reflected the necessity of the six inspections. Finally, the court concluded the insured did not provide sufficient evidence to prove “that [insurer’s] ‘obligations [to pay insured] are not contingent on the policy of insurance between [the tenant] and [tenant’s insurer] or payments made thereunder.’”
Summary judgment was granted for the insurer.
Date of Decision: June 29, 2018
LMT Associates, LLC v. Ohio Casualty Insurance Co., U. S. District Court, Eastern District of Pennsylvania NO. 17-3565, 2018 U.S. Dist. LEXIS 109643 (E.D. Pa. June 29, 2018) (Baylson, J.)
In this case, the court permitted the bad faith claim to proceed, however it struck all references to the Unfair Insurance Practices Act (UIPA) as “irrelevant” in determining violations of Pennsylvania’s Bad Faith Statute.
BAD FAITH PLAUSIBLY PLEADED
The insured alleged she “suffered ‘sudden and accidental direct physical loss’ to her insured premises.” She alleged the insurer “determined [the insured] suffered loss to property covered under the policy but did not completely indemnify [the insured] for the loss.”
She allegedly suffered water damage containing human waste. The complaint asserted that the public adjuster told the carrier it was not handling the claim according to the Institute of Inspection Clearing and Restoration Certification (IICRC) protocols, which required removing all porous material.
The insurer’s repair estimate did not include payment for removal and replacement of all porous material in contact with the contaminated water.
The insured alleged the insurer “knew that its estimate of repairs and ultimate payment did not comply with the insurance and construction industries for damage caused by contaminated water,” and that the insurer grossly underestimated the damage and grossly underpaid the claim. Additionally, she claimed the insurer “engaged in a pattern of behavior intended to delay and frustrate the adjustment process.”
To establish statutory bad faith, an insured must prove “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” The insurer sought dismissal, citing earlier federal case law on inadequately pleading Pennsylvania bad faith claims. The court found, however, that the insured’s allegations were not purely conclusory legal statements made without factual support, lacking any description of the insurer’s behavior. Moreover, the court observed that an insured need not “prove her case at the pleading stage.”
The court concluded “the facts alleged by [the insured] . . . are sufficient to make out a claim for bad faith as the facts address the reasonableness of [insurer’s] actions.” The “Complaint contained numerous explanations and descriptions of the alleged bad faith conduct,” including, “notice of contaminated waste; violation of IICRC protocols; and knowledge that estimated repairs and ultimate payment was not in compliance with IICRC.” The insured set out sufficient facts to make out a plausible right to relief.
UIPA VIOLATIONS IRRELEVANT TO PROVING BAD FAITH CLAIMS
The court next considered the insured’s attempt to plead UIPA violations as evidence of bad faith. The court summarized the history of such efforts. It concluded that prior to Terletsky’s establishing the two-part bad faith test —recently adopted by the Pennsylvania Supreme Court — courts did look to the UIPA and Unfair Claim Settlement Practices (UCSP) regulations as bases to prove bad faith. However, once the two part bad faith test (quoted above), became the law, “[T]his two-pronged test effectively replaced the court’s analysis of UIPA or UCSP to determine bad faith.” Thus, all UIPA references in the complaint were stricken.
[Note: There are courts that will consider UIPA violations in evaluating statutory bad faith claims, as well as those recognizing UIPA violations do not themselves constitute bad faith.]
Date of Decision: June 21, 2018
Kunsman v. Metro. Direct Property & Casualty Insurance Co., U. S. District Court, Eastern District of Pennsylvania, NO. 17-4619, 2018 U.S. Dist. LEXIS 104621 (E.D. Pa. June 21, 2018) (Schmehl, J.)
The insured pedestrian sustained injuries after being struck by an automobile. The insured settled with the tortfeasor’s insurer. The insured claimed the injuries left her “permanently lame, sore, and disabled,” and filed a UIM claim with her insurer. The insurer denied the claim and argued that the total value of the insured’s injuries did not exceed $100,000.
Litigation ensued, and the insurer successfully moved for summary judgment on the bad faith claim. The Court stated that “[a]n insured must meet the heightened standard of clear and convincing evidence, which ‘is the highest standard of proof for civil claims’, to establish a claim of bad faith.” The Court found that the evidence of record revealed the insurer reasonably evaluated the claim, and reasonably concluded that the claim did not exceed $100,000.
The Court further observed that the insured continued to work at her job, obtained a new job as a nurse, and never requested any physical accommodations or limitations. Furthermore, the insured’s social media posts showed that she continued to live a very active lifestyle, and an IME report stated that she had recovered from her injuries and required no further care.
In conclusion, the record showed a mere disagreement as to the valuation of the claim. Such a disagreement cannot amount to bad faith under Pennsylvania law.
Date of Decision: May 11, 2018
Shaw v. USAA Casualty Insurance Co., United States District Court, Middle District of Pennsylvania, Civil Action No. 17-947, 2018 U.S. Dist. LEXIS 80101 (M.D. Pa. May 11, 2018) (Mannion, J.)
A hailstorm severely damaged the insured’s roof, and she submitted a claim to insurer. The insurer estimated replacement costs of $5,145.55. Under the terms of the policy, insurer subtracted $3,380.75 in depreciation (measured by Xactimate—depreciation software used in the insurance industry), and a $1,000 deductible, and remitted $764.80 to the insured. The insured then sued for breach of contract and bad faith.
After the litigation commenced, the insurer conducted a revised estimate and remitted a supplemental payment of $2,500.40 to the insured. The insurer moved for summary judgment on the bad faith claim. Reiterating the evidentiary standard to show bad faith, the Court stated the insured must “produce evidence ‘so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith.’” The insured alleged three ways insurer acted in bad faith: 1) it withheld excessive depreciation; 2) it improperly relied on the Xactimate software; and 3) the insurer’s five-month delay in remitting a supplemental payment.
The Court ruled on the following issues as follows:
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The insured failed to show any evidence indicating that insurer’s depreciation calculation was erroneous;
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The insurer had a reasonable basis to use the Xactimate software because such use is standard industry practice; and
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The five-month delay does not evidence bad faith because it was attributable to further investigation by the insurer.
As a result, the Court granted the insurer’s motion for summary judgment on the bad faith claim.
Date of Decision: April 6, 2018
Sands v. State Farm Fire & Casualty Co., United States District Court, Eastern District of Pennsylvania, Civil Action No. 17-4160 (JFL), 2018 U.S. Dist. LEXIS 58637 (E.D. Pa. Apr. 6, 2018) (Leeson, Jr., J.)
The insured submitted a UIM claim to insurer following an auto accident. After an initial review of the evidence on the accident, and the insured’s medical records, the insurer offered $15,000 to settle the claim. Insurer later increased its offer to $20,000 then $25,000. The insurer’s final valuation was $28,000, but the insurer did not contact the insured about the final increased valuation because the insured unambiguously stated he would not settle for less than $50,000.
An arbitration panel awarded the insured $45,000, and he sued for bad faith. The insured argued the insurer acted in bad faith because its final settlement offer was only about 50% of the arbitration award, and because the insurer failed to notify him of the last increased $28,000 valuation.
The trial court awarded summary judgment to the insurer, holding these facts insufficient to prove the insurer’s offers lacked a reasonable basis. The court found the insurer’s “offers were not arbitrary low-ball offers but rather were the result of a considered analysis of the relevant information regarding [the] claim.”
In an unpublished decision, the Superior Court affirmed on the basis of the trial court’s well-reasoned opinion.
Dates of Decision: August 17, 2017 and April 4, 2018
Boleslavsky v. Travco Ins. Co., Court of Common Pleas of Philadelphia, October Term 2015, No. 886 (Aug. 17, 2017) (Anders, J.),
Affirmed by
Boleslavsky v. Travco Ins. Co., Pennsylvania Superior Court, No. 1227 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 1065 (Pa. Super. Ct. April 4, 2018) (Gantman, McLaughlin, Platt, JJ.)
Sometimes, lengthy litigation is described as an odyssey, warranted or not. In the Berg v. Nationwide case, the litigation has gone on as long as the times covered in both the Odyssey and the Iliad; and this most recent decision may not be the final word in its history.
In this 2-1 decision, the Superior Court reversed the trials judge’s $21 Million bad faith award against the insurer, and directed judgment for the insurer.
The essence of the majority opinion is in its final paragraph: “The trial court engaged in a limited and highly selective analysis of the facts and drew the most malignant possible inferences from the facts it chose to consider. We do not believe our appellate standard of review, circumscribed as it is, requires or even permits us to affirm the trial court’s decision in this case. This is especially so given Plaintiffs’ burden of proving their case by clear and convincing evidence.”
By contrast, the dissenting opinion begins: “Because it is not this Court’s role to usurp the fact-finding power of the trial court by its own interpretation of the factual and testimonial evidence, I respectfully dissent from the Majority’s decision to remand this matter for judgment notwithstanding the verdict.”
Court History
This case started with damage to plaintiffs’ car in September of 1996. The first step on this long road was between treating the car as a total loss vs. repairing it. The expenses at issue were $25,000 for a total loss and approximately half that for repairs. Under the insurance contract at issue, the carrier had significant control over the repair process itself. The insurer chose repairs, and the struggle begins in earnest with the beleaguered history of those repairs, and the litigation born from it.
Suit was filed in January 1998. The matter was bifurcated for trial purposes. In 2004, the first phase went to a jury, on fraud, conspiracy, and consumer protection law claims (UTPCPL). The jury found for plaintiffs on the UTPCPL claim, and awarded $1,925 against the auto repair shop and $295 against the insurer. The second trial phase was before the judge only, on the issues of treble damages, and statutory bad faith, both non-jury decisions. In 2007, the trial judge ruled for the insurer on the Bergs’ bad faith claim.
They appealed, but in 2008, the Superior Court ruled that they had waived all issues on appeal by failing to serve the trial court with a copy of their Rule 1925(b) statement. In 2010, the Supreme Court reversed that ruling and remanded to the Superior Court.
In 2012, reviewing the appeal on the merits, the Superior Court reversed and remanded the 2007 trial court decision. As discussed in our May 2012 blog posting, among other things, the Superior Court concluded that the trial court failed to consider various claims handling issues during the course of repairs and thereafter, as well as failing to consider the violation of other statutes in determining bad faith. Moreover, while the trial court would not consider the $900,000 spent to date by the carrier in defending the action, the Superior Court said this could be considered as evidence of bad faithfocusing on the concept of claims handling, and tying the amount to the claims handling.
After remand, a non-jury trial was held in 2014, and the trial judge found substantial evidence of bad faith in the carrier’s conduct, awarding $18,000,000 in punitive damages and $3,000,000 in attorneys’ fees. Again, this decision is discussed in our 2014 blog post.
On April 9, 2018, a 2-1 majority reversed that judgment, and entered judgment for the insurer. The dissenter would have affirmed. We discuss the highlights below, and commend the reader to the attached opinions for the lengthy drill-down detail the majority exercised in reaching its decision, with some of the same in the dissent.
Highlights of the 2018 Majority Opinion
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An appellate court can closely scrutinize the facts of record.
The most significant aspect of the majority opinion is its willingness to drill down into the factual record, and to put the trial judge’s factual findings and conclusions under very close analysis. The majority recognized that deference is due the trial court as trier of fact, but would not give deference where findings of fact were not supported in the record, and where conclusions about the factual record did not have the support of actual facts in the record. For the majority, hand-in-glove with the necessity for this oversight function is the heightened burden of proof in statutory bad faith cases, i.e., proof by clear and convincing evidence.
Specifically, the majority stated: “This Court will reverse a finding of bad faith where the trial court’s ‘critical factual findings are either unsupported by the record or do not rise to the level of bad faith.’” (emphasis in original). The majority added that the “[factfinder] may not be permitted to reach its verdict merely on the basis of speculation and conjecture, but there must be evidence upon which logically its conclusion may be based. Therefore, when a party who has the burden of proof relies upon circumstantial evidence and inferences reasonably deducible therefrom, such evidence, in order to prevail, must be adequate to establish the conclusion sought and must so preponderate in favor of that conclusion as to outweigh in the mind of the fact-finder any other evidence and reasonable inferences therefrom which are inconsistent therewith.”
After doing its own analysis of the same trial court findings of fact, the dissent replied that: “The majority vacates the judgment ‘because the record does not support many of the trial court’s critical findings of fact.’ …. In doing so, however, the Majority tacitly admits that other critical findings of the trial court are supported by clear and convincing evidence.” (Emphasis in original).
Again, we commend the reader to the attached majority opinion for its fact analysis, and the dissent’s analysis of the facts it concludes support affirming the trial court.
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Discovery violations do not constitute bad faith litigation conduct.
As stated by the majority: “The trial court found that Appellant hid and refused to give discoverable material to Plaintiffs, never produced photographs of the Jeep taken during the appraisal process, and refused to produce [a] report until ordered to do so during discovery. To the extent the trial court based its finding of bad faith upon discovery violations, it committed clear error. While it is true that a finding of bad faith under section 8371 may be premised upon an insurer’s conduct occurring before, during or after litigation, … we have refused to recognize that an insurer’s discovery practices constitute grounds for a bad faith claim under section 8371, absent the use of discovery to conduct an improper investigation.”
The Bad Faith statute “is designed to provide a remedy for bad faith conduct by an insurer in its capacity as an insurer for breach of its fiduciary duty to an insured by virtue of the parties’ insurance policy and not as a legal adversary in a lawsuit filed against it by an insured. Discovery violations are governed under the exclusive provisions of the Pennsylvania Rules of Civil Procedure. Nonetheless, even when considering these issues, we still find no merit to them supporting a bad faith claim under section 8371 by clear and convincing evidence.”
The majority recognized, among other things, that while there was an unwarranted refusal to produce an unredacted claims log, because the redacted material included no “smoking gun” this did not go beyond a discovery dispute subject to sanctions under rules governing discovery. Thus, it could not be used as actionable bad faith conduct subject to statutory relief under section 8371.
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There was no clear and convincing evidence of bad faith via a scorched earth policy, and the length of litigation alone is not evidence of bad faith.
The majority characterized the trial judge’s decision as improperly relying on an earlier Superior Court Opinion to establish a fact in the present case. The prior Opinion involved a ruling against the same insurer, but involved another party with a different dispute. That prior Opinion found the existence of a claim manual, in evidence in that case, material to its finding of bad faith because the manual directed bad faith practices. The Berg trial judge used that earlier Superior Court Opinion as a basis to include the same manual as part of the bad faith evidence in the Berg case.
On appeal, the Berg majority refused to permit this factual assumption about the existence of an internal manual directing bad faith coverage practices. Under the clear and convincing evidence standard, there had to be actual facts adduced in this case establishing the manual’s existence.
The majority further rejected the trial court’s using the length of the Berg litigation as evidence of bad faith. The majority had done some analysis rebutting that notion during its review of the record, and declined “further to conduct a detailed analysis of nearly two decades of highly contentious litigation and we note that the trial court did not do so in its findings. Plaintiffs had the right to prosecute their case zealously within the bounds of the law, just as Appellant had the right to defend itself if it believed its personnel did not act in bad faith. We cannot arbitrarily impose a limit on the time and resources an insurer spends in defending a bad faith action.”
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Matters, and thoughts, not of record cannot be considered.
The majority observed the trial court opinion was over 100 pages, and “devoted substantial portions … to matters not of record.” The majority was “troubled by [the] failure to limit … analysis to the facts of this case and applicable law.” The majority gave a number of examples of passages that concerned them. Excerpts of these non-record conclusions, which the majority describes as the trial court having “offered its thoughts”, concerning the insurance industry are quoted from the trial court’s opinion.
We quote just the first example of these conclusions/thoughts that the majority found to be outside the record. “[W]hat [p]laintiff, and more importantly, what lawyer in his right mind will compete with a conglomerate insurance company if the insurance company can drag the case out 18 years and is willing to spend $3 million in defense expenses to keep the policyholder from getting just compensation under the contract. Its message is 1) that it is a defense minded carrier, 2) do not mess with us if you know what is good for you, 3) you cannot run with the big dogs, 4) there is no level playing field to be had in your case, 5) you cannot afford it and what client will pay thousands of dollars to fight the battle, 6) so we can get away with anything we want to, and 7) you cannot stop us.” The majority clearly found such language out of bounds.
The majority’s conclusion.
In its conclusion, the majority states, among other things: “We disagree with the Dissent’s assertion that we are substituting our own findings for those of the trial court. Rather, our review of the extensive record in this matter convinces us that the trial court’s findings are not supported by the facts of record and our citations to the certified record belie any assertion that we have improperly substituted our findings for the trial court’s. The law permits a finding of bad faith only on clear and convincing evidence. Clear and convincing evidence is evidence that is “so clear, direct, weighty, and convincing as to enable either a judge or jury to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.’ ….The trial court’s highly selective citation to a voluminous record plainly failed to meet that standard. Respectfully, we believe the Dissent, under the guise of strict adherence to the standard of review, makes the same error.”
Date of Decision: April 9, 2018
Berg v. Nationwide Mutual Insurance Company, Pennsylvania Superior Court, No. 713 MDA 2015, 2018 Pa. Super. LEXIS 317 (Pa. Super. Ct. April 9, 2018) (Stabile and Ott, JJ., with Stevens, J., dissenting)
An order granting reconsideration and withdrawing this opinion was entered on May 31, 2018, and new opinions were issued on June 5, 2018 along the same lines, consistent with the foregoing majority and dissent.