Archive for the 'PA - Sworn Statement/EUO' Category
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The insured brought bad faith and fraud claims against its insurers. There were two discovery issues: (1) whether certain communications in the case involving a lawyer were subject to the attorney client privilege or whether the lawyer was acting as a claims adjuster rather than a lawyer; and (2) whether there was a waiver of the attorney client privilege simply on the basis of a defense that the carrier’s personnel acted in good faith.
In requiring production of certain information on the basis that the attorney was not performing the functions of an attorney, the court certified the issue for an interlocutory appeal and stayed its proceedings.
The insurer had provided redacted copies of the logs relevant to the insured’s claims, and the insured sought unredacted versions of the logs, as well as policy and procedural manuals used in the decision-making process.
The court ordered the production of the policy and procedural manuals governing coverage decisions and the course of the investigation, subject to a confidentiality agreement. Further, the court conducted an in camera review and ordered partially unredacted versions of the logs produced, on the basis that those portions reflected that counsel performed the ordinary business of claims investigation and not as a lawyer.
While the court reduced the number of documents to be produced on reconsideration (the original decision is discussed here), the fundamental principle distinguishing counsel’s conduct as investigator vs. lawyer remained the applicable measure.
Generally, the log entries reflecting investigation, rather than legal work, include those containing direction to conduct routine investigation whether to be done by counsel or by a claims representative, scheduling examinations under oath, and memorializing efforts to pursue subrogation. Directives to counsel as to what to pursue at the examination would be privileged.
The court noted that direction to counsel to retain a cause and origin specialist to determine the cause of the fire, investigating subrogation possibilities, determining the cause of the fire, gathering background information on the claimants, and arranging for examinations under oath are ordinary business functions in claims investigation. “The fact that they were performed by an attorney at the behest of a claims adjuster does not change the character of the activity — basic claims investigation.”
Although the court has considered the timing of counsel’s entry “onto the claims scene” was a factor considered in determining counsel’s role, the log entries were the primary reason the court concluded counsel acted as a claims investigator.
In addition, the court generally observed that in the redacting documents on the basis of privilege, an insurer should not take the approach that every mention of the attorney’s name should be redacted, as some matters are clearly not privileged, e.g. that an attorney had been hired.
In the court’s words, the insurer should not redact by slashing with a sword where it should excise with a pen knife. The court also observed that redacting certain entries while not redacting entries of the same nature worked against protection, and that each entry needed to be analyzed specifically prior to redaction.
The court stated that a “failure to analyze the specific entries at issue undermines its claim of privilege — wherein it has the burden to show that each entry meets the elements of the attorney-client privilege.”
Next, the court rejected the idea that the insurer had entirely waived the privilege by purportedly placing the advice of counsel at issue. The insurer pled as a defense that its alleged withholding of any benefits at issue was made in good faith and was reasonable. The insured asserted that because the insurer’s decision-maker stated in her affidavit that counsel was hired to render legal and coverage decisions, this placed counsel’s advice in issue.
While a party may waive the attorney client privilege by asserting an advice of counsel defense, “advice is not placed in issue merely because it is relevant. . . . A waiver can be found only where a client has made the decision and taken an affirmative step in the litigation to place the advice of attorney in issue. . . . This occurs where the client attempts to prove a claim or defense by disclosing or describing an attorney client communication. . . . .”
Asserting an answer that the insurer did not act in bad faith, and stating that it acted in good faith do not create such a waiver. Nor does the assertion that an attorney was hired to render a legal opinion on coverage waive the privilege. Without actually asserting an advice of counsel defense, the mere idea that an attorney could have affected the adjuster’s mind does not create a waiver. The court rejected this “theory of wholesale waiver.”
Date of Decision: August 7, 2014
Henriquez-Disla v. Allstate Prop. & Cas. Ins. Co., CIVIL ACTION NO. 13-284, 2014 U.S. Dist. LEXIS 108820 (E.D. Pa. August 7, 2014) (Hey, U.S.M.J.)
Mineo v. Geico involved a UIM claim. The insured was a Vietnam War Veteran who had suffered significant combat injuries during the War. Years later he was in a motor vehicle accident and suffered a shoulder injury. After the accident, there was some record that he suffered a further shoulder injury.
The insurer offered a settlement sum that the insured rejected. The insured contended that the adjuster incorrectly placed too much emphasis on the post-accident injury in devaluing the extent of his injury from the accident.
In addressing the insurer’s motion for summary judgment on the bad faith claim, the court stated that in evaluating the insured’s bad faith claim it could consider insurer’s because bad faith can include a lack of good faith investigation into facts, and failure to communicate with the claimant.
The court stated that an “insurance company … is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” However, it “must conduct a meaningful investigation, which may include an in-person interview, examination under oath, medical authorizations, and/or independent medical examinations.”
The adjuster relied on only one physical therapy record to justify her position that the injury was caused or aggravated by the post-accident fall. This was based on her review of the medical records, and her conclusion that no IME was needed. The court observed she was not a doctor, knew that the insured disputed the record, and the insured’s physical therapist had explained that there was a significant left shoulder dysfunction prior to the post-accident fall.
The court cited to the insurer’s claims manual which “admonishes its adjusters to avoid drawing conclusions based on assumption or speculation,” and which “underscores the importance of completeness….” The manual warned: “If the denial is unsound, the result may be a complaint or a lawsuit, either of which could have been avoided. Because some cases turn on very fine points, reports must be complete and accurate.”
The manual also included “a Sequence of Investigation, which ‘applies to the majority of cases,’ and sets forth that adjusters should: ‘Determine whether independent medical examinations are necessary, and if so, see your supervisor and then arrange for them. Determine whether medical peer review should be secured. If so, see your supervisor.’” The adjuster did neither, and the carrier only had an IME pursued post-litigation.
The court next addressed the issue of whether the insurer failed to meet its own standards of using a “90-Day Control” which is used to calculated and set reserves and to revisit these matters at 6, 12, and 18 months. Under the insured’s manual “Supervisors and managers review each summary and give direction, comments and instructions…. Each Summary and supervisor/manager review must be completed by the end of the month in which the 90th day falls.”
The court questioned whether this was created or produced to the insured.
In addressing stalled negotiations and the languishing nature of the process, the court stated that the insurer could have conducted an in-person interview, done an examination under oath, sought medical authorizations and/or an IME. The IME eventually conducted appeared to favor the insured’s version of events; and the court cited case law for the proposition that a failure to conduct an IME could be the basis for a bad faith claim.
In this regard, the court was “mindful” of the Unfair Insurance Practices Act.
The summary judgment motion was denied.
Date of Decision: July 15, 2014
Mineo v. Geico, Civil Action No. 12-1547, 2014 U.S. Dist. LEXIS 95686 (W.D. Pa. July 15, 2014) (Fischer, J.)
In Henriquez-Disla v. Allstate Property and Casualty Insurance Company, the carrier had provided redacted claim files, asserting the attorney-client privilege, and including a privilege log. The insured moved to compel production of the unredacted files on the basis that the attorney was acting in the role of claims adjuster or investigator. The insured also sought certain information regarding the retention of counsel and counsels’ activities in the “investigation of Plaintiffs’ claims.” Again, the insured provided the redacted claim logs and claimed attorney-client privilege.
The case actually involved two separate claims, one for theft and one for fire loss. The judge reviewed the unredacted document in camera prior to making her rulings. The underlying claims were for breach of contract and bad faith.
Counsel was retained early in the investigation of these claims, and this included an examination under oath (“EUO”). The carrier argued that counsel was retained for legal advice, which, the court observed, was “not unusual occurrence when an insurer is considering denying a claim.”
However, following New York case law, the court found that taking an examination under oath prior to a coverage decision is an ordinary business function, and is not subject to the attorney-client privilege. Reviewing the documents before her, it did “not appear from the claim logs that any coverage decision had been made at the time counsel was contacted to conduct the EUO’s.”
The unredacted logs indicated “that counsel was charged, at least in part, with the duty of collecting financial and ownership information in connection with the EUO.” Thus, the court concluded “that log entries and emails related to the scheduling and taking of the EUO’s, including the collection of information for the EUO’s, are part of the ordinary business function of claims investigation and therefore fall outside the attorney-client privilege.”
The court did state that “any communication seeking counsel’s advice remains privileged.” Further, “once the EUO was taken, counsel’s observations and opinions concerning the content of the statement are privileged, as it was legal advice regarding the propriety of the denial of the claim.”
The court, again following New York law, further held that “log entries and information relating to subrogation possibilities and obtaining a cause and origin report (C&O) are ordinary business functions in claims investigation.”
However, with respect to the log entries once suit was filed, the communications between counsel and the carrier were clearly in anticipation of litigation, reflected discussion of strategy, and were privileged communications. These redactions remained in-tact.
The insured also sought the identities of the individuals who determined that counsel needed to investigate Plaintiffs’ claims, the identities of all individuals at the law firm representing the carrier who participated in the investigation of the claims, and the individuals at the firm who determined that EUO’s were necessary. The insured also sought all documents concerning that firm’s consulting in its investigation and in determining that the EUO’s were necessary.
The court found those questions should be answered by the discovery already permitted. The court noted that that the unredacted log entries would reveal that counsel was retained to conduct the EUO’s and counsel’s investigation began in preparing to take the EUO’s. This adequately covered the identities of the specific lawyers making the decision to take the EUO’s.
Lastly, the insured sought certain documents, including policy and procedural manuals used to determine whether to deny a claim, whether to hire counsel to investigate claims, and whether to obtain EUO’s. The carrier argued that the information was confidential and proprietary, irrelevant, subject to the attorney-client and work product privileges, and that the requests were overbroad.
The court observed that in the carrier’s response to the bad faith claim, it specifically denied “taking the depositions of Plaintiffs for the pretext of trying to find a reason to deny the Claims” and “applying improper standards to substantiate its denial of Plaintiffs’ first-party benefit claims.” Because of this, the court found that the insured had a right to test the legitimacy of these defenses, and thus needed to know the policies which inform the carrier’s decisions on these matters.
The court followed Judge Buckwalter’s November 16, 2011 decision in Platt v. Fireman’s Fund Ins. Co., which did a study to date on the discoverability of an insurance company’s internal claims-handling procedures, and permitted discovery on the subject, within limits, in concluding that “materials used by Defendant in processing Plaintiff’s insurance claims may be relevant to her cause of action for bad faith.”
However, in light of the sensitive nature of the claims manuals and the overbroad request in Platt, he had limited discovery to “any material which pertains to instructions and procedures for adjusting claims and which was given to the adjusters who worked on [Plaintiff’s] claim,” and ordered that the material be kept confidential. The court then required the insurer to “produce copies of the claims procedures which inform its employees’ decisions to deny claims similar to Plaintiffs’, obtain EUO’s, and hire counsel to investigate claims (in the context of preparation for the EUO’s).”
The court further ordered the insureds and their counsel to “maintain the confidentiality of these disclosures.”
Date of Decision: May 29, 2014
Plaintiff’s home was destroyed in a fire. An investigation of the cause of the fire took place, and plaintiff’s son was arrested and charged with arson. The insurer continued its investigation, but failed to make a decision as to coverage until nearly 10 months after the fire when the charges against plaintiff’s son were dropped and he submitted to an examination under oath. Following the deposition, the insurer accepted coverage and issued payment, but aggregated the total value of all items included in plaintiff’s personal property claim and depreciated the value. The insurer also ended additional living expense payments under suspicious circumstances.
Multiple lawsuits were filed as a result of the claims settlement process, with the instant breach of contract and statutory bad faith action being filed in state court and removed to federal court by the insurer. The insurer then moved for summary judgment on the bad faith claims.
First, the court found that a bad faith claim can be pursued despite the insurer’s acceptance of coverage. A statutory bad faith claim extends to an insurer’s actions such as unfair investigation techniques or delayed payment of claims. Thus, plaintiff’s allegations that the insurer unreasonably delayed its investigation and coverage decision, as well as her challenge of the depreciation reduction on her personal property claim and the insurer’s refusal to reinstate her ALE payments, could all support a bad faith claim.
The court then turned to each allegation of bad faith to consider the insurer’s argument plaintiff lacked evidentiary support for her claims. First, the court considered whether the insurer’s delay in investigation was in bad faith. The only piece of evidence needed to make the coverage determination was plaintiff’s son’s sworn statement, and the insurer failed to take the deposition for nine months. The court found whether this presented an unreasonable delay in investigation was a question of fact for the jury and denied summary judgment.
Next, the court considered whether the insurer’s interpretation of the policy was unreasonable as to establish bad faith. Plaintiff alleged the insurer acted in bad faith when it asserted an “appraisal defense” in an underlying action. Although the defense was procedurally rendered moot and never reasserted, the court found if reliance on the defense, even temporarily, was a frivolous interpretation of the policy, such an action could constitute bad faith. Therefore, summary judgment was denied on that count.
Conversely, the court found no reasonable jury could find the insurer’s interpretation of the policy allowing it aggregate and depreciate the value of plaintiff’s personal property was unreasonable, and granted summary judgment.
The court found a material question of fact as to whether the insurer’s decision to stop making ALE payments was in bad faith. Plaintiff presented evidence suggesting the insurer stopped paying ALE because plaintiff sought sanctions in response to a motion filed by the insurer in an underlying litigation, as well as evidence its refusal to reinstate the payments broke with its usual practice. Therefore, summary judgment was denied.
Finally, plaintiff’s attempt to include an ‘abuse of process’ claim as a part of her allegations of bad faith failed due to plaintiff’s failure to produce enough evidence to enable a jury to find the insurer did not have a reasonable basis for its actions in the underlying action.
Date of Decision: July 31, 2013
Hudgins v. Travelers Home & Marine Ins. Co., Civil Action No. 11-882, 2013 U.S. Dist. LEXIS 107775 (E.D. Pa. July 31, 2013) (Yohn, J.)
In Deibler v. Nationwide Mutual Insurance Company, the insured brought a statutory bad faith claim against his UIM insurer. The non-insured motorist had asserted the insured was at fault. The carrier investigated that claim by reviewing the police record and attempted to speak with the plaintiff, but was not successful; though the plaintiff’s reasons for not doing so may have been justified. Based on the policy reports, the investigator concluded that the insured was totally at fault, rather than the other driver (who was uninsured for the vehicle in use at the time).
The insured later raised a UIM claim which was investigated by a different person who reviewed the police report and an interview with the other driver, and he concluded the insured was more than 51% at fault. He later obtained examinations under oath for both the insured and the other driver, and determined there to be an issue of fact regarding fault and proposed binding arbitration. Prior to arbitration, the carrier re-evaluated the claims and tendered the policy limits ($50,000) to plaintiff.
That the first investigator, of the other driver’s claim, did not obtain plaintiff’s statement during the course of her investigation, and did not inform plaintiff of his right to file an UIM claim did not amount to bad faith. That the UIM investigator made an initial decision to deny benefits based on information contained in plaintiff’s file (a file that did not, at the time, contain plaintiff’s statement), likewise did not amount to bad faith. Delays based on the need to obtain further information or even negligence do not constitute bad faith; rather, the delay must be a time when the carrier knew or recklessly disregarded the fact that there was no basis to deny the claim. Further, delays could be attributed to a variety of persons and circumstances and not simply the carrier.
Date of Decision: August 23, 2013
Deibler v. Nationwide Mutal Ins. Co., Civil Action No. 11-929, 2013 U.S. Dist. LEXIS 119723 (W.D. Pa. August 23, 2013) (Bissoon, J.)
In Helm v. Allstate Property & Casualty Ins. Co., the case involved a claim against a homeowner’s policy for water loss. The insureds claim the loss arose from a single leak, originating above the kitchen. The carrier sent an investigator and also requested a sworn proof of loss be resubmitted on two occasions after the original sworn proof of loss, and took the position that the vast bulk of the damage came from a different event and source. The court ultimately found summary judgment was warranted on the bad faith claim in the insurer’s favor.
Plaintiffs had acknowledged the insurer conducted a timely inspection and investigation; and moreover the plaintiffs testified that they did not know if the inspection was reasonable or unreasonable. They offered no expert testimony or other evidence indicating that the inspection and investigation were inadequate, incomplete, or unreasonable; and they did not know of any facts that supported their allegation that the insurer made misrepresentations to them about their claims.
The court also found that evidence of malice or ill will was relevant, and that one insured said his belief that the insurer treated him with bias or ill-will might be tainted by his own prior experiences with the company, and the other insured testified that she did not believe the insurer acted with any ill will or malice regarding the claim.
The record did not support a finding that the insurer intentionally ignored certain areas of damage or otherwise demonstrated corrupt motive sufficient to sustain a bad faith claim; but rather reflected a genuine disagreement as to the cause of certain issues found in the home, and thus on the value of the insureds’ claim.
Even assuming that the investigator’s conclusions were incorrect and directly contrary to the physical evidence, which the insureds had asserted without support in the record, they still put forth no evidence suggesting that insurer knew that it lacked a reasonable basis for its actions, or acted with reckless disregard for its lack of reasonable basis.
Date of Decision: August 15, 2013
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.)
In Chemij v. Allstate Insurance Company, the court heard competing motions for summary judgment arising from allegations of bad faith in the handling of the insured’s underinsured motorist claim (“UIM”). The insured’s claim began when she was injured by a school bus operated by a local school district. After several attempts to return to work, the insured took a permanent leave of absence, sued the school district and filed a UIM claim.
The insured raised two primary issues that allegedly amounted to bad faith conduct by her carrier. She claimed that (1) the carrier acted in bad faith in its evaluation of her claim and in (2) the arbitration of the UIM claim. The court disagreed, granting the carrier’s motion it its entirety.
First, the insured contended that the carrier failed to investigate her claim promptly and thoroughly. However, most of the delay that occurred actually was caused by the insured’s own counsel. It took until 2009 for her attorney to send the carrier additional documents that it requested in 2007. Moreover, it took considerable time to schedule the insured’s statement under oath because of a lack of cooperation. Further, the carrier made an initial offer three months after first receiving the insured’s medical records and used several methods to evaluate the worth of the claim.
Second, the insured claimed that the carrier acted in bad faith during the arbitration of the UIM claim. Specifically, the insured claimed that the carrier should have sent a copy of the full policy upon request rather than just a copy of the declarations page. The court found that the carrier did not deliberately refuse to send a copy of the policy when originally asked and expedited the request when it was renewed by the insured’s attorney years later.
Therefore, the court rejected the insured’s claims and granted summary judgment to the carrier, holding that the insured did not meet her burden of proof.
Date of Decision: June 11, 2012
Chemij v. Allstate Ins. Co., No. 11-4106, 2012 U.S. Dist. LEXIS 80688, U.S. District Court for the District of Pennsylvania (E.D. Pa. June 11, 2012) (Schiller, J.)
In Portside Investors, L.P. v. Northern Insurance Company, the Superior Court heard cross appeals from the Court of Common Pleas of Philadelphia County, which awarded the insured $1.2 million dollars following a non-jury trial. The insured argued that the court erred by finding for the carrier on its bad faith claim. The carrier’s cross-appeal challenges the verdict awarded to the insured in a jury trial on the breach of contract claim.
Specifically, the carrier argues that the evidence fails to support various factual findings, that the insured’s valuation expert was unqualified and articulated an improper formula for determining value, and that the court erred by estopping the carrier from asserting the policy’s limitation of suit provision.
The initial suit arose from the collapse of pier 34 on the Delaware River in Philadelphia. After the insured was denied coverage, it sought a bifurcated trial for bad faith, tried by a judge, and breach of contract, tried by a jury. (See this blog). The judge in the bad faith action rejected the insured’s bad faith allegations, but a jury awarded the insured $1.2 million dollars for the carrier’s breach of contract.
The court first examined the insured’s sole claim on appeal, which challenged the summary judgment entered in favor of the carrier on the insured’s bad faith count. The carrier had originally claimed that it could not proceed with the claim without an examination under oath of Michael Asbell, the owner of the pier that had recently been indicted for his pre-collapse knowledge of the pier’s underwater decay. Asbell had chosen to exert his Fifth Amendment rights and did not testify at all during the course of his criminal case.
However, under the insured’s policy, coverage was unavailable for a loss caused by “decay” unless the decay was “hidden decay.” As the criminal indictment gave reason to believe that Pier 34’s collapse resulted from something other than “hidden decay,” the carrier’s decision to insist on a statement from Asbell as to what he knew prior to collapse was not an exercise in statutory bad faith. Therefore, the court denied the insured’s appeal.
Turning to the carrier’s cross-appeal, the court first examined the contention that the carrier is entitled to judgment notwithstanding the verdict regarding the Actual Cash Value (“ACV”) of the damaged portion of Pier 34 because the insured’s expert, an insurance adjuster, neither was qualified to offer an informed opinion on ACV nor actually offered one at trial.
At trial, the expert testified that the replacement value of the pier was $13 million. However, in light of the policy limit of $4.9 million, replacement would be impossible. Therefore, the expert sought to determine the ACV of the lost section of the pier. He listed several factors to consider when making such a calculation, including depreciation, maintenance, and replacement cost value, and gave a thorough explanation to the court. The carrier’s cross-examination at trial consisted of attacks upon the expert’s training and experience. The carrier also introduced testimony to prove that the ACV was really $0.
However this court reasoned that the carrier’s cross-examination and experts never established that the insured’s ACV/depreciation methodology was unreliable, lacked a foundation in fact, or, most important, conflicted with either accepted industry practice or the insurance policy’s specific definition of ACV. The court therefore denied the carrier’s post-trial motion for a judgment notwithstanding the verdict.
Next, the court focused on the carrier’s argument that the two-year statute of limitation period was applicable to the insured’s lawsuit. The policy stated that (1) the insured has complied with all terms of the “Coverage” part; and (2) the action is brought within two years after the date on which direct physical loss or damage occurred. It is undisputed that the December 6, 2002 date on which the insured commenced the breach of contract action was more than two years after the May 18, 2000 collapse in question. The court examined statements made by the carrier that implied that it would consider the insured’s claim without the suit limitation clause. This correspondence was part of the record established at around the time of Ashbell’s criminal trial. The carrier essentially was telling the insured that it would resume action in the civil case after the criminal trial had concluded.
Lastly, the carrier alleged that the trial court erred by awarding pre-judgment interest to the insured. That party contended that the insured caused several delays in moving forward on its claim by: deferring suit until almost 14 months after the carrier refused to pay on the claim without an EUO of Michael Asbell; obtaining a stay of two years and eight months to accommodate criminal proceedings against Michael Asbell; and waiting another 11 months to resume discovery after the stay was lifted. The court agreed with this contention and remanded the issue solely for calculation of pre-judgment interest.
As for the rest of the claims, the court affirmed the judgment of both the non-jury and jury trials.
The court was faced with a carrier’s motion for summary judgment on an insured’s breach of contract and bad faith claims. The suit arose from a fire that occurred at a property rented by the insured. At the time of the incident, the insured had renter’s insurance with the carrier.
The insured moved into the rental home and shortly thereafter a fire erupted at the property. The fire marshal investigating the matter ruled that the fire was the result of arson. The insured began the claims process by filling out an inventory form, as required by the carrier. The forms indicated a large amount of valuable items, many of them less than two years old.
The carrier was put in contact with the investigating fire marshal, who ruled the fire arson and told the carrier that he did not see very much person property at the residence. He also reported that the insured had previously been involved in arson of another property. The carrier then decided to have the matter further investigated.
The carrier requested that the insured party sign various authorization forms, as required under the policy, requesting phone and financial records. The insured refused. The carrier also hired a salvage company to begin working on the damaged property, but the insured’s landlord denied entrance to their home for several weeks. The carrier subsequently sent the insured a Reservation of Rights letter, citing questions over the cause of the fire and whether the insured misrepresented their claims. The carrier hired an outside party to conduct an Examination under Oath, but the insured again refused to cooperate with the investigation. After the carrier denied coverage, the insured filed suit.
The court first examined the insured’s bad faith claim, finding that the carrier acted reasonably and did not delay or stall the investigation of the insured’s claim. Specifically, several significant “red flags” provided a reasonable basis for investigating the claim, including: the fire being ruled an arson; the claim being on a policy less than six months old; and the history of late payments on the policy.
Moreover, the insured refused to turn over the records they were contractually obligated to provide. Without the requested financial and telephone records, which were critical to determining the insured’s motive and opportunity for setting the fire, the carrier could not complete the investigation. Therefore, the court concluded that summary judgment was appropriate on the bad faith claim.
The court also granted summary judgment on the insured’s breach of contract claim. The insured was contractually bound to provide any documents requested by the carrier. The refusal to do so was a significant departure from the terms of their policy and substantially prejudiced the carrier’s investigation of the claim. Therefore, the court disposed of the matter because the insured’s material breach of the terms of its policy precluded any finding of liability on the part of the carrier.
Date of Decision: November 23, 2011
Verdetto v. State Farm Fire and Casualty Company, NO. 3:10-CV-1917, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 135287 (M.D. Pa. Nov. 23, 2011) (Caputo, J.)
