Archive for the 'PA - No coverage duty, no bad faith' Category
In this complicated coverage case, involving damages to a condominium unit through the actions of the insured’s own tenant, the court found no coverage due under the policy language in light of the circumstances. Further, the court ruled that the insured’s purchase of additional coverage for renters, even if otherwise applicable, was invalid because of concealment and mischaracterization in applying for that additional coverage.
Having determined no coverage was due, the court granted summary judgment on the bad faith claim. The court emphasized that a reasonable basis for denying coverage is all that is needed to overcome a bad faith claim. In this case, the carrier had a reasonable basis to deny the insured’s claims, and the “pertinent claims [were] not covered by the Policy.”
Date of Decision: June 11, 2019
Beautyman v. General Insurance Company of America, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 17-5804, 2019 U.S. Dist. LEXIS 97526 (E.D. Pa. June 11, 2019) (Kelly, J.)
There were two bad faith claims arising out of a building’s wall collapse case. The first was over whether any coverage was due in connection with building walls that had not collapsed, for which the insured sought replacement to match restoration of the collapsed wall. The second had to do with whether the carrier owed additional damage payments for claims more directly related to the collapse.
The court determined no coverage was due for the other walls, and granted summary judgment on that coverage issue. Because no coverage was due, the court necessarily found “no basis for a bad faith claim based upon an unreasonable denial of coverage.”
Second, the court observed the parties’ experts disagreed on the scope of damages and amount due concerning the wall collapse. The court granted summary judgment on bad faith on this claim as well, finding insurer reasonably relied on its experts in determining the amount of damages it would pay.
The court stated:
As regards additional payment of damages, [the insured] argues that disagreements between the parties’ experts precludes the entry of summary judgment on the bad faith claim. Courts have held that “an insurer’s reasonable reliance on an engineering expert’s report for a coverage decision does not constitute bad faith.” Hamm v. Allstate Prop. & Cas. Ins. Co., 908 F.Supp.2d 656, 673 (W.D.Pa.2012) (citing El Bor Corp. v. Fireman’s Fund Ins. Co., 787 F.Supp.2d 341, 349 (E.D.Pa.2011) (insurance company’s reliance on engineer’s findings as a basis for denial of coverage provides reasonable grounds to deny benefits)) “Moreover, even if the expert incorrectly assessed the cause of damage, this is not evidence that his conclusions were unreasonable or that Defendant acted unreasonably in relying upon them.” Totty v. Chubb Corp., 455 F.Supp.2d 376, 390 (W.D.Pa.2006) (citing Pirino v. Allstate Ins. Co., No. 3:04CV698, 2005 U.S. Dist. LEXIS 27519, 2005 WL 2709014, at *5 (M.D.Pa. Oct. 21, 2005)).
Here, [the insured] only identifies conflicts amongst the expert’s opinions on causation and damages and not the reasonableness of [the carrier’s] expert opinions. The conflict between experts may preclude summary judgment on other claims, but not for bad faith. Based upon the reasonableness standard in the bad faith statute coupled with the high burden of proof of clear and convincing evidence, the Court concludes that a reasonable juror could not find bad faith in [the insured’s] favor. …
Date of Decision: May 14, 2019
Keyser v. State Farm Fire & Casualty Co., U. S. District Court Western District of Pennsylvania 2:18-CV-00226-MJH, 2019 U.S. Dist. LEXIS 81194 (W.D. Pa. May 14, 2019) (Horan, J.)
Three April 2019 decisions out of Pennsylvania’s Eastern District bring up the ongoing issue of whether alleged Unfair Insurance Practices Act (UIPA) violations may be used in any manner to establish statutory bad faith claims under 42 Pa.C.S. § 8371. We also discussed this issue in a February 2019 post that can be found here.
Case holding UIPA violations may be used to prove bad faith
In the April 3, 2019 Blease decision, the court relied heavily on the UIPA in finding the insured adequately pleaded a statutory bad faith case. That opinion is summarized here.
In particular, the court looked to the UIPA code sections governing 45-day status notices when the claim is not resolved within 30 days. Relying on Pennsylvania Superior Court precedent, the Blease Court stated: “This Court further notes that a plaintiff seeking damages for an insurer’s bad faith conduct under 42 Pa. Cons. Stat. § 8371 may attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if they do not independently provide for private causes of action.”
It is not wholly clear whether this means a UIPA violation may be used as evidence of a statutory bad faith claim, or whether the violation constitutes definitive proof, in and of itself, to establish at least the first prong of the Terletsky/Rancosky bad faith test (unreasonableness).
Case holding UIPA provides an evidentiary yardstick for bad faith cases
On April 23, 2019, another Eastern District Court issued a detailed opinion granting partial summary judgment to the insured, by holding that the insurer acted in bad faith during a very specific period of time. The court left other issues of bad faith, and other time periods, to the jury.
In Shawnee Tabernacle Church v. GuideOne, the court carried out a close factual analysis showing no dispute of material fact that the claim adjusters acted unreasonably and in bad faith in delaying the claim handling process over a period of many months, where there was no excuse for denying coverage or promptly responding to the insured. Thus, the court stated: “As a matter of law, I find that [the insurer] acted in bad faith when it abandoned the investigation and resolution of Plaintiffs’ claim between June 16, 2015 and October 5, 2015, and then further delayed a determination of coverage until December 11, 2015, despite the fact that it possessed all relevant information about the vacancy provision once the EUOs were complete.”
Following Rancosky, the court observed that the insured need not prove ill-will or self-interest to establish statutory bad faith. Moreover, relying on Pennsylvania Superior Court precedent, the court found that “bad faith may include ‘lack of good faith investigation into fact[s], and failure to communicate with the claimant,’ both of which certainly occurred in this case between June and December. … ‘Similarly, a delay in investigation of a claim may constitute bad faith where it involves [i]nexcusable periods of inactivity, unreasonable assumptions, and inadequate communication.’ Here, [the insurer] has offered no excuse for the inactivity with respect to coverage between June 16 and December 11, and it engaged in little to no communication with Plaintiffs about the coverage issue during the same period.”
Getting to the UIPA, again citing Superior Court precedent, the court found that “[t]he lack of communication is a violation of Section 146.7(c)(1) of Title 31 of the Pennsylvania Code, which requires a report to the insured every 45 days explaining the reasons for delay in resolving a claim. Although such a violation does not establish bad faith per se, it constitutes relevant evidence. But Section 146.7(c)(1) has relevance beyond the obligation to communicate. By specifying the frequency with which a carrier must report to its insured, it provides an objective yardstick recognized by the Pennsylvania Insurance Department as to what constitutes a reasonable interval within which a carrier should be able to address the merits of a claim. From mid-June through mid-December, four full intervals elapsed without resolution or explanation, even as [the insured] faced financial peril. This further supports the conclusion that [the insurer’s] conduct was reckless during this period and constituted bad faith.”
UIPA violations cannot be used as evidence of statutory bad faith
By contrast, also on April 23, 2019, a third Eastern District Judge appears to deny any role for the UIPA in determining a statutory bad faith claim. The decision in Horn v. Minnesota Life Insurance Company can be found here. To quote that decision:
At Count IV, Plaintiff asserts that the handling of her claim under the Policy constituted bad faith, thus, entitling her to damages under 42 Pa. Cons. Stat. § 8371. Plaintiff contends that [the insurer] acted in bad faith by, inter alia, denying her claim, engaging in misleading marketing practices, failing to communicate regularly about its investigation, and acting in a manner prohibited by the Unfair Insurance Practices Act (“UIPA”), 40 Pa. Stat. § 1171.1 et seq. “To prevail on a bad faith claim, the insured must prove two elements: ‘(1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.'” U.S. Fire Ins. Co. v. Kelman Bottles, 538 F. App’x 175, 182 (3d Cir. 2013) (quoting Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005)). The insured must prove these elements by clear and convincing evidence, and “the insured’s burden in opposing a summary judgment motion brought by the insurer is commensurately high.” Babayan, 430 F.3d at 137 (internal quotations omitted). Here, this Court finds that [the insurer] had a reasonable basis for denying benefits; namely, [the insured’s] premium had not been paid, and the grace period described in the Policy had expired at the time of [the insured’s] death. As such, Plaintiff cannot prove the first element of her bad faith claim, and summary judgment is granted with respect to that claim.
Notwithstanding the foregoing, Plaintiff argues that Defendants’ bad faith is evidenced by their alleged violation of the UTPCPL and “insurance regulations” such as the UIPA and the Unfair Claims Settlement Practices regulations (“UCSP”), 31 Pa. Code §§ 146.1-146.10. However, Plaintiff is mistaken as these claims fail as a matter of law. See Leach v. Nw. Mut. Ins. Co., 262 F. App’x 455, 459 (3d Cir. 2008) (holding that “insofar as [plaintiff’s] claim for bad faith was based upon an alleged violation of the UIPA, it failed as a matter of law.”); Dinner v. U.S. Auto. Ass’n Cas. Ins. Co., 29 F. App’x 823, 827 (3d Cir. 2002); (“it is apparent from a comparison of bad faith standard [that the Pennsylvania Superior Court] adopted with the provisions of the UIPA and the UCSP that much of the conduct proscribed by the latter is wholly irrelevant” to the bad faith analysis); Watson v. Nationwide Mut. Ins. Co., 2011 U.S. Dist. LEXIS 118873, 2011 WL 4894073, at *4 (E.D. Pa. Oct. 12, 2011) (observing that, since the current bad faith standard was established in Terletsky, “courts in the [Third] circuit have . . . refused to consider UIPA violations as evidence of bad faith.”). Therefore, summary judgment is granted with respect to Plaintiff’s claim of bad faith.
A link to other UIPA cases summarized on this Blog can be found here.
Copies of these April 2019 opinions can be found here:
Blease v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3893, 2019 U.S. Dist. LEXIS 57145 (E.D. Pa. April 3, 2019) (Jones, II, J.)
Shawnee Tabernacle Church v. GuideOne Insurance, U. S. District Court Middle District of Pennsylvania CIVIL ACTION No. 16-5728, 2019 U.S. Dist. LEXIS 68442 (E.D. Pa. April 23, 2019) (McHugh, J.)
Horn v. Minnesota Life Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-238, 2019 U.S. Dist. LEXIS 69016 (E.D. Pa. April 23, 2019) (Quiñones Alejandro, J.)
The insured leased a rental car, and obtained excess insurance through the rental company. He was injured in a motor vehicle accident and sought UIM coverage under the excess policy. The excess carrier asserted UIM coverage was excluded, and denied coverage. The insured brought breach of contract and bad faith claims.
The court granted the excess insurer summary judgment on all counts. The court agreed the excess policy excluded UIM coverage, and there were no exceptions that could force such coverage on the carrier. The court held that because the policy “specifically excluded coverage for underinsured motorist claims … Plaintiff’s claims for breach of contract and bad faith are unfounded.”
Date of Decision: March 25, 2019
Warrick v. Empire Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-1952, 2019 U.S. Dist. LEXIS 49716, 2019 WL 1359737 (E.D. Pa. Mar. 25, 2019) (Kenney, J.)
The insured was sued for physically attacking the underlying plaintiff, while hurling racial epithets. The carrier denied a defense on the basis the alleged injuries resulted from an intentional attack, which was not an “occurrence” under the policy. The insured sought a declaratory judgment that a defense was due, and further asserted breach of contract and bad faith. The insurer counterclaimed with its own request for declaratory judgment.
The case went to trial. After the insured put on her case, the trial court granted the insurer a non-suit. On appeal, the Superior Court affirmed, but applied stricter standards than the trial court in doing so.
The Superior Court reiterated the rule that the duty to defend is defined solely by the allegations in the complaint, and courts cannot consider extrinsic evidence outside the complaint. Here, the trial court permitted the insured to put on evidence of mental incapacity to support her position that the conduct was not intentional. The appellate court ruled the trial court erred in permitting or considering this extrinsic evidence when evaluating the duty to defend, which is solely defined by the four corners of the complaint.
In this case, the complaint itself only alleged intentional conduct, without any mitigating circumstances. Thus, the Superior Court concluded the conduct alleged did not constitute an “occurrence”, and there was no duty to defend on the face of the complaint. [Note: This suggests the case could have been decided on Preliminary Objections or Summary Judgment.]
The Superior Court’s Opinion does not separately address the bad faith claim on the merits. It is clear, however, that once the Court determined there was no duty to defend, the bad faith claim simultaneously failed because the necessary predicate of unreasonably denying a benefit owed under the policy did not exist.
Date of Decision: March 26, 2019
Kiely v. Philadelphia Contributionship Insurance Co., Superior Court of Pennsylvania No. 1957 EDA 2018, 2019 Pa. Super. LEXIS 277, 2019 PA Super 90, 2019 WL 1348397 (Pa. Super. Ct. Mar. 26, 2019) (Dubow, Ott, Stevens, JJ.)
This case involves two bases for coverage denials: (1) late notice resulting in prejudice, and (2) first party claims are not covered under a commercial general liability policy.
The bad faith plaintiff is a general contractor. It was named as an additional insured on a subcontractor’s policy with the defendant insurer.
There was an explosion resulting in personal injury to a third party, and first party property damage to the contractor. The contractor was named as a defendant in the personal injury action, and claimed over against other parties, including the named insured subcontractor. The contractor also brought a property damage suit against others, including the subcontractor, for its own property damages.
Nearly 3½ years into the personal injury suit, the parties mediated a settlement. The contractor did not request a defense or indemnity from the insurer in the personal injury action until the day that suit settled. For the first time, during that mediation, the additional insured contractor orally requested a defense and indemnification from the defendant insurer.
A representative of the contractor’s own primary insurer was present at the mediation as well as a representative of the defendant insurer. However, the defendant insurer’s representative had only come to the mediation to represent the subcontractor’s interests, not the contractor’s interests.
There is no bad faith when the claim is plainly outside the scope of coverage.
The court readily found no coverage due for the contractor’s own property damage claims. The contractor was seeking coverage as an additional insured under the subcontractor’s CGL policy. CGL policies only apply to property damage claims raised by others against an insured, not to the insured’s own property damages.
An “insurer does not act in bad faith when the insurer does not breach its duty to defend or indemnify.” The property damage claim “was plainly outside the scope of coverage”. Thus, as there was no duty to defend or indemnify there could be no bad faith, and summary judgment was granted on both the first party property damage coverage and bad faith claims.
There could be no bad faith where late notice and prejudice also resulted in a coverage denial.
After extensive analysis, Judge Hornak concluded that there was no coverage due in the personal injury action because of the contractor’s late notice, and the actual prejudice resulting from the late notice. He granted the insurer’s summary judgment motion on any duty to defend or indemnify. The insurer lost the opportunity to retain counsel and pay a fee structure significantly less expensive than what was charged by the contractor’s counsel; lost “the opportunity to take control of the matter at an early stage and resolve it prior to the accumulation of those expenses”; lost the opportunity to advance potential defenses; and “was indisputably prejudiced by its inability to control [the] defense, or the costs incurred in furtherance of it, until the end of the underlying litigation—when [the contractor] expected payment for all of the expenses that they had accumulated up to that point along with what it ‘fronted’ for settlement.”
Absent that late notice and prejudice, there is no question the insurer had a duty to defend the personal injury claim against the contractor. Still, as no coverage was due because of the late notice and prejudice, there could be no bad faith under the same principles used in rejecting the bad faith claim on property damage, i.e., no coverage due = no bad faith.
However, the court went on to analyze the personal injury bad faith claim, assuming arguendo what would have happened if it allowed the issue of prejudice to go to the jury instead of granting summary judgment. Judge Hornak concluded that even under those circumstances, he would have rejected the bad faith claim. There was simply no basis in the record to show the insurer’s refusal to step in at the mediation, or its ongoing refusal to pay the contractor, was frivolous or unfounded.
The following facts were undisputed, and showed the insurer acted reasonably in believing it was prejudiced by late notice and would not have to provide any defense or indemnity payments. It did not choose counsel; the contractor had amassed years of legal fees and expenses over which the insurer had no control; the insurer “was not provided an accounting of the defense costs for which it would potentially have to indemnify” the contractor; the insurer “did not participate in early investigation or settlement discussions”; and the insurer “had no reason, until the moment that the oral demand was made, to believe that [the contractor] desired a defense or expected indemnification”.
The court also found it nonsensical to conclude the insurer could have made a decision in the midst of the mediation to provide indemnification and pay a settlement, or even could have stopped the mediation at which it was protecting the named insured’s interests. This was highlighted by the fact that the case had been going on for years, and the contractor had never before asked for defense or indemnification. Moreover, at that moment in time there remained legitimate coverage issues reasonably justifying a refusal to pay on demand.
Finally, the insurer’s ongoing refusal to pay for the subcontractor’s legal fees and settlement payment also had a reasonable foundation, and could not be deemed frivolous or unfounded. Thus, summary judgment on bad faith was granted even assuming it would not have been granted on the coverage claim.
Date of Decision: March 1, 2019
NVR, Inc. v. Motorists Mutual Insurance Co., U. S. District Court Western District of Pennsylvania No. 2:16-cv-00722, 2019 U.S. Dist. LEXIS 32802, 2019 WL 989393 (W.D. Pa. Mar. 1, 2019) (Hornak, J.)
An “entrustment” exclusion precluded coverage in this property damage case. After the court’s lengthy analysis reaching this conclusion, it addressed the insured’s bad faith claims. Notably, neither party briefed the bad faith issue, even though the insurer moved for summary judgment on that claim as well as the breach of contract claim.
The court readily granted judgment on the bad faith claim, stating: “The record is devoid of any evidence that Defendant denied coverage to Plaintiff in bad faith and, what is more, the Court has already determined that Defendant’s denial of coverage was proper based on the entrustment exclusion of the Policy. Accordingly, there is no basis for finding that Defendant acted in bad faith, and summary judgment is appropriate.”
Date of Decision: January 25, 2019
KA Together, Inc. v. Aspen Specialty Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-142, 2019 U.S. Dist. LEXIS 12184, 2019 WL 325319 (E.D. Pa. Jan. 25, 2019) (Slomsky, J.)
The insured’s boyfriend was at a family reunion with his daughter. The boyfriend was listed as an additional driver on the policy. His daughter went to retrieve some items from the insured’s car, and decided to move the car, resulting in injury to the underlying plaintiff.
The injured plaintiff sued the daughter, who claimed she was an insured. The insurer disagreed, and refused to defend or indemnify the daughter on the basis she was not an insured under the policy. The injured plaintiff, as assignee, sued for breach of contract and bad faith after settling with the daughter.
After a close look at the facts, the court agreed that the daughter was not an insured or a permissive user. Thus, the insurer had no duty of any kind to her. Further, no bad faith claim could exist where the person denied coverage was not an insured.
The assignee-plaintiff argued that the insurer still had a duty to defend because he had alleged facts in the underlying tort complaint implying she was an insured. Therefore, on the theory that the four corners of the complaint controls the duty to defend, the allegation that the defendant was an insured overcame the actual facts and policy language under which she was not insured.
The court found this issue had never been decided by Pennsylvania’s courts, and so the judge had to predict what the Pennsylvania Supreme Court would do. He found “the Pennsylvania Supreme Court would hold that an insurer is not required to defend someone it has determined is not an insured under the policy even if a subsequent third-party complaint suggests the person is an insured.” The complaint does not control because “the duty to defend stems directly from the insurance policy and should not apply where there is no possibility of coverage.” The court also cited case law from other jurisdictions supporting its conclusion.
The court granted summary judgment. Plaintiff appealed the following day.
Date of Decision: January 10, 2019
Myers v. Geico Casualty Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 17-3933, 2019 U.S. Dist. LEXIS 5093 (E.D. Pa. Jan. 10, 2019) (Rice, M.J.)
The insurer ceased making payments under a disability policy on the basis of two independent medical examinations, and its interpretation that the results of those examinations fell outside the policy’s coverage. The insured brought various claims, including bad faith. The court ruled in the insurer’s favor on summary judgment.
First, the insurer had a reasonable basis to deny the claim. Insurers “may reasonably rely on the findings of an independent medical examination—even in the face of contrary medical opinions.” The insured argued the insurer unfairly favored its physician/expert opinion over the treating physicians’ opinions, however, “an insurer is not required to give greater credence to opinions of treating medical providers.”
Second, the record did not yield an inference that there was a frivolous or unfounded refusal to pay. The record showed a thorough investigation, with reviews by medical experts, and requests and reviews of relevant documents. This created a reasonable basis for denial.
Finally, “an insurer has a right to evaluate legitimate coverage issues and does not act in bad faith by aggressively protecting its interests.” Merely insinuating a pre-determined intent to deny a claim is not sufficient to meet the burden of actually establishing bad faith. Plaintiff’s claims handling examples adduced to discredit the insurer, did not actually evidence improper claims handling, “or that their methods otherwise went beyond mere negligence and constituted conduct amounting to bad faith.”
Date of Decision: November 2, 2018
Brugler v. Unum Group & Provident Life & Accident Ins. Co., U. S. District Court Middle District of Pennsylvania No. 4:15-CV-01031, 2018 U.S. Dist. LEXIS 187836 (M.D. Pa. Nov. 2, 2018) (Brann, J.)
This disability insurance case hinged on whether the insured could no longer perform his job because of a “factual disability” or a “legal disability”. The factual disability was a substance abuse problem, and the legal disability was the loss of an occupational license. The policy only covered factual disabilities, and the insurer had denied benefits finding employment ended for a legal disability. The court determined that the loss arose from the insured’s legal disability, and thus no coverage was due.
As to the bad faith claim accompanying the breach of contract action, the court noted: “Because [the insurer] properly terminated benefits, it cannot be liable for bad faith.”
Date of Decision: October 15, 2018
Rothman v. Unum Group, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-1299, 2018 U.S. Dist. LEXIS 176525, 2018 WL 4961609 (E.D. Pa. Oct. 15, 2018) (Savage, J.)
