Archive for the 'PA - Underwriting' Category
The insured sued based on a denial of benefits for a vandalism loss. During the course of pre-suit examinations under oath, the insurer concluded that the policy was obtained by fraud. Thus, in addition to denying the claim, the insurer counterclaimed for common law fraud, breach of contract, statutory insurance fraud and reverse bad faith, based on a false insurance application. The jury ruled for the insurer and voided the policy.
The court awarded damages of over $285,000 to the insurer for claims paid and claim expenses incurred under the now voided policy, subject to a reduction for the return of premiums paid. Post-trial motions were denied, and the verdict was affirmed on appeal.
In upholding the verdict, the Superior Court recognized that fraud required the highest standard of proof known in a civil setting. The jury did not err, however, in finding the standard met. The appellate court found “the record is replete with evidence that [the insured], through an agent, knowingly provided … false, misleading and incomplete information in his insurance application statement.”
The court stated the insured had misrepresented his loss history, failed to disclose a foreclosure complaint, failed to disclose tax judgments against him and failed to reveal “he incurred a federal conviction in the Eastern District of Pennsylvania for filing false corporate tax returns.”
The court also rejected arguments concerning the trial court’s evidentiary rulings. There was no error in allowing evidence relating to a prior conviction for underpaying corporate taxes, and previous tax liens. Nor was there error in allowing testimony from an underwriter to describe underwriting practices during the relevant time period.
Date of Decision: August 15, 2018
Smith v. United States Liability Insurance Company, Superior Court of Pennsylvania, No. 1287 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 2968 (Pa. Super. Ct. Aug. 15, 2018) (Lazarus, Panella, Strassburger, JJ.) (Not precendential)
This case involves cross actions for declaratory judgments on a lawyer’s professional liability policy, and bad faith claims by the attorneys against the carrier. The attorneys moved to compel production of the insurer’s underwriting manual and the underwriting files, as well as the personnel files of three employees identified as having worked on the coverage file.
There was no clear case law on production of underwriting files, though the 2011 Consugar case decided by Judge Munley in the Middle District had some relevance. Thus, as with most discovery issues, the court looked at the particulars of the case before it.
The court found that production of the underwriting materials was proper. Although the insured did not bring any underwriting claims, the court observed that in supporting their bad faith claim, the attorneys argued that there were premium increases imposed by the insurer relating to commencement of the underlying litigation. Thus, “[g]iven the bad faith claim and the related allegations, the underwriting materials may well be relevant.” [Note: The opinion does not indicate whether the bad faith claims are under section 8371, common law contractual bad faith, or both. Thus, the question as to whether a premium increase can constitute the actionable denial of a benefit under a statutory bad faith claim is not clear.]
The insureds were not successful in obtaining the personnel files. They argued they were entitled to the information in the personnel files to gain knowledge about “the insurer’s corporate policy, standards, and procedures … relating to [the insurer’s] state of mind and relationship with its employees, and information regarding the relationship between the corporate policies and the training of the claims employees”
“Because there is a strong public policy against disclosure of personnel information, such requests are subject to a heightened relevancy standard.” Again, there was no clear case law, and the court stated it must look at the particular facts of the case. Relevant factors in the discovery of personnel files include “whether there is another way for the requesting party to obtain the information sought … whether there is other evidence suggesting the personnel files are likely to include relevant information … how broad the request is … and how closely the personnel files relate to the requesting party’s claims.”
The balance weighed against production. Although the “request is relatively narrow in that it asks for only the files of the employees who worked on its claim and has agreed to a number of redactions, the other factors do not meet the heightened relevancy requirement.” “The reasons supplied … for wanting the personnel files such as whether the claims employees had some incentive to deny its claim and the nature of the relationship between the company and its employees could likely be obtained through the depositions of those employees.” “Likewise, [the insured] has not presented any other evidence to support the[] theory that the personnel files are likely to include information relevant to their claims.” Thus, the insureds could not meet the heightened standards in obtaining personnel files.
Date of Decision: March 7, 2017
In Fields v. Gerber Life Insurance Company, the case involved an out-of-state insurer licensed to sell endowment life insurance policies, marketed as college savings plans, through the internet and telephone. Plaintiff obtained a policy for her seriously infirm infant grandson. She was forthcoming on the telephone about the child’s condition, but was allegedly not asked to put anything in writing, which would have been electronically under the circumstances.
The insurer issued a $50,000 life insurance policy for the baby, attaching unsigned and unverified application forms prepared by and/or on behalf of the insurer. The grandmother alleged that she never agreed in writing to the answers placed on the medical questionnaire which had been completed by the insurer’s representative after the follow-up telephone call.
Unfortunately, the child died. The grandmother notified the insurer, and completed all forms required by the insurer to obtain the death benefits due under the policy. Upon receiving notice, the insurer obtained the child’s medical records and began to investigate whether the grandmother made a material misrepresentation in the application process. She allegedly cooperated fully at all times in this process. The carrier denied coverage and canceled the life insurance policy allegedly “based upon information contained on the application forms attached to the policy, knowing that the forms were bogus and should never have been used in denying payment for the loss.”
The grandmother brought various claims, including a bad faith claim. The insurer sought to dismiss the claim. It alleged that plaintiff was seeking relief for improper solicitation and/or post-claims practices, neither of which is encompassed within the bad faith statute under controlling Pennsylvania Supreme Court and Third Circuit precedent; the former on the basis that there could have been no denial of benefits prior to there being a policy in place and the statute was not aimed at deceptive or fraudulent solicitations, and the later because an insurer can investigate a questionable claim.
The court concluded, however, that the grandmother’s claim was not premised solely on the theory that the insurer engaged in improper solicitation or post-claim underwriting practices. By way of one example, she averred that the insurer attached improper and illegal documentation to the insurance policy, and used that documentation to deny coverage. Thus, the bad faith claim could not be dismissed.
Date of Decision: September 2, 2014
Fields v. Gerber Life Ins. Co., 2:14-cv-727, 2014 U.S. Dist. LEXIS 121671 (W.D. Pa. September 2, 2014) (McVerry, J.)
In Muckelman v. Companion Life Insurance Company, the insured brought claims against his health insurer. The insured was treated for cancer during the policy period, and alleged that he had requested that the insurer give authorization for additional specialized treatments beyond what he was undergoing. After months of review, without any prior notice to the insured, the carrier rescinded the policy and returned the premium.
The rescission was based upon a failure to provide information in the insurance application, as to the results of a medical test from some years earlier. On the record, there did not appear to be a dispute that this alleged failure to disclose these results was either fraudulent, intentional, or material. The carrier refused to pay the outstanding costs for the treatments taken, as well as for the additional treatments. The insured brought bad faith, breach of contract, and UTPCPL claims.
On the bad faith claim, the court made general statements of the law in beginning its analysis. It stated, among other things, that section 8371 bad faith concerns the duty of good faith and fair dealing in the parties’ contract and the manner in which an insurer discharged its obligation to pay for a loss in the first party claim context.
While bad faith may be found in circumstances other than an insurer’s refusal to pay, a reasonable basis is all that is required to defeat a claim of bad faith. Per Pennsylvania’s Superior Court, since the statute is not limited to an insurer’s bad faith in denying a claim, a plaintiff may also successfully assert an action for an insurer’s bad faith in investigating a claim.
Examples include a failure to conduct a sufficiently thorough investigation to yield a reasonable foundation for the insurer’s action based upon available information; and failure to communicate with the claimant. The court also stated that delay is a relevant factor in determining whether bad faith has occurred. Neither negligence nor bad judgment, however, constitutes bad faith. Rather, to support a finding of bad faith, the insurer’s conduct must be such as to import a dishonest purpose, and the plaintiff must show that the insurer breached its duty of good faith through some motive of self-interest or ill will.
In his complaint, the insured alleged that (1) the insurer delayed payment, resulting in economic harm; (2) the insurer denied the use and benefit of monies to which the insured was entitled; (3) the carrier’s interest was misplaced; (4) the insurer engaged in post-claim underwriting; and (5) the insurer decided to rescind the policy without a reasonable basis, and in violation of the Patient Protection and Affordable Care Act. The court found a plausible claim pleaded under Twombly/Iqbal.
The complaint, viewed in the light most favorable to the plaintiffs, contained allegations of potentially unacceptable delays in denying rights under the policy and paying benefits under the policy. The insured alleged that for a period of 10 months, the insurer was allegedly aware of the insurance claims submitted by the plaintiffs; but rather than providing a prompt response, the insurer allegedly misled the plaintiffs into believing that their claims would be covered under the insurance policy.
Moreover, the length of the delay was suspect given the insurer’s ultimate reason for denying coverage for the cancer treatments and rescinding the policy; a reason apparently unconnected to the insured’s condition for which he sought insurance coverage, and a reason that should have and could have been easily established once the insurance application was first submitted.
Additionally, prior to rescinding the policy, the insurer did not notify the insured that his claim would be denied. Further, the insurer never informed the insured that his response to application question at issue was material. Similarly, it was not clear that the insured’s answer was in fact material, fraudulent, or intentional. In relation to the one question at issue on the application, there was evidence of only a single doctor visit that occurred five years before applying for insurance coverage.
At the pleading stage, finding that this was a material misrepresentation or that the insurer engaged in a sufficiently thorough investigation “would be putting the cart before the horse and have the potential effect of chilling litigation in this area of the law.” The court stated that: “Health insurance companies would effectively be permitted to simply comb through insurance applications to later find reasons for denying coverage knowing full-well that the insured, despite a well-pleaded complaint, would not be permitted to look behind the curtain to see the wizard.” Thus, the case called for discovery on the insurer’s claims handling, and the motion to dismiss was denied.
The Magistrate Judge then found the UTPCPL claim barred by the economic loss doctrine, following Judge Rambo’s decision in Sarsfield v. Citimortgage, Inc., 707 F.Supp.2d 546 (M.D. Pa. 2010).
Date of Decision: January 15, 2014 Report and Recommendation, adopted March 12, 2014
Muckelman v. Companion Life Ins. Co., CIVIL NO. 4:13-CV-00663 , 2014 U.S. Dist. LEXIS 32868, (M.D. Pa. January 15, 2014) (Schwab, M.J.) (Report and Recommendation),
The court considered whether pleadings alleging bad faith conduct in the handling of claims arising from the mortgage crisis were legally sufficient. Plaintiff is a bank that provided home mortgage loans to individual consumers. These loans were insured by defendant (“the carrier”) through “flow” policies, intended to insure against the risk a borrower will default on a particular, individual loan, even if that loan is sold in the secondary market. The loans were also insured through a “pool” policy, which provides coverage to a group of loans, and is intended to protect the lender against the risk of exposure to investors in the event of adverse economic conditions or increased borrower defaults.
Plaintiff claimed to have paid all premiums and complied or substantially complied with all of its duties under the policies, entitling it to coverage for 248 defaulted loans. Therefore, the carrier’s rescission and/or cancellation of the policies constituted a breach of contract and bad faith conduct. In its complaint, plaintiff used five loans which were denied coverage as “example loans” to demonstrate the breach of contract and bad faith conduct of the carrier.
Plaintiff sought declaratory judgment as to how the policies should be interpreted and applied to the various disputed loans; money damages for breach of contract; and compensatory and punitive damages for bad faith pursuant to Pennsylvania and Ohio law.
The carrier filed a motion to dismiss pursuant to Rule 12(b)(6), alleging plaintiff misrepresented material information, making the cancellation or rescission of its policies appropriate. The carrier also argued each loan should be considered separately, and that broad declaratory relief would be inappropriate. Furthermore, the complaint only made conclusory statements as to the 243 loans not used as “example loans” in the complaint. The carrier also argued the loans were governed by Minnesota and Indiana law pursuant to the choice of law provision in the insurance contracts, preventing a claim of bad faith.
The Third Circuit instructs district courts to apply a three step test in assessing the legal sufficiency of a complaint.
First, the court must “take notes of the elements a plaintiff must plead to state a claim.”
Second, the court should identify allegations that are not entitled to the assumption of truth because they are not more than conclusions.
Finally, where there are well-pleaded factual allegations, a court should consider the veracity of the allegations and “whether they plausibly give rise to an entitlement for relief.” In performing the final step, the court must determine whether a complaint does more than just allege an entitlement to relief, requiring the court “to draw on its judicial experience and common sense.”
The Court found the complaint complied with the Federal Rules of Civil Procedure, and that interpretation of the rights and duties of the parties under an insurance contract is an appropriate scenario for declaratory relief to be provided. The court declined to dismiss any counts of the complaint, believing the declaratory relief issues would be better resolved on a more developed record.
Furthermore, the bad faith claim was properly pled as it provided a “short and plain statement” as required by Fed. R. Civ. P. 8, and gave the carrier fair notice of the conduct which plaintiff alleged was in bad faith. Furthermore, to dismiss those claims based on the choice of law provision defense before those defenses were fully developed would be premature.
Date of Decision: May 23, 2013
PNC Bank, N.A. v. Republic Mortg. Ins. Co., Civil Case No. 2:12-cv-1470, 2013 U.S. Dist. LEXIS 72872 (May 23, 2013 W.D. Pa.) (McVerry, J.).
In AJT Props. v. Lexington Ins. Co., a commercial property owner purchased building and property insurance, which, based on surveys, indicated that the property was not in a special flood hazard area (“SFHA”). Several years later, the property suffered flood damage. The insured filed a claim under its policy and the carrier tendered coverage for building and personal property losses, totaling $1,000,000. However, the carrier denied coverage for the flood loss based on a post-claim survey establishing that the property was in an excluded SFHA area.
The insured property owner filed suit, alleging breach of contract and bad faith. The carrier responded by filing a motion for summary judgment.
First, the court rejected an opportunity to predict whether the carrier’s alleged post-claim underwriting was tantamount to bad faith conduct because the insured property had been the subject of an underwriting investigation more than two months before the flood.
Second, the court ruled that the insured was not entitled to a finding that its policy was ambiguous with respect to flood coverage.
However, the court recognized that the carrier might be estopped from denying coverage based on a pre-flood investigation concluding that the insured property was not in an SFHA area. The court was unable to conclusively determine this issue because of disputed factual issues. As such, summary judgment was not appropriate and the carrier’s motion was denied.
Date of Decision: July 26, 2012
AJT Props. v. Lexington Ins. Co., NO. 08-CV-4252, 2012 Pa. Dist. & Cnty. Dec. LEXIS 308, Lackawanna County Court of Common Pleas (Pa. County Ct. 2012) (Nealon, J.)
The court addressed a subpoena requesting documents relating to a bad faith case proceeding in the Middle District of Florida. The underlying bad faith action was brought by the guardian of an accident victim, who was hit by a driver during the scope of the driver’s employment. For the purposes of litigation, the insured-employer also assigned its rights to the victim’s guardian.
Following the accident, the victim filed a personal injury claim against the driver and employer. The employer’s primary insurer investigated the claim and defended the insured-employer. The primary insurer also hired an adjuster to investigate the facts and an attorney to represent the insured driver and employer.
In May, 2008, the insurers offered a combined $2 million of coverage to the accident victim. The victim rejected the offer and on March, 20, 2009, a jury returned a $65 million verdict against the negligent driver and employer. After the judgment was returned, a series of mediations took place that involved all of the parties to the litigation. As a result, the judgment was satisfied as to the driver and partially satisfied as to the employer, whose primary insurer paid more than its $1 million policy limit. Thereafter, the guardian-assignee commenced the underlying bad faith action, seeking to recover the balance of the judgment from the excess insurer.
The insured-employer’s excess insurer issued the subpoena in question out of the Middle District of Pennsylvania, serving the employer’s primary carrier — a non-party in the bad faith action. The subpoena requested twenty-one documents relating to the bad faith lawsuit, including settlement reserve authority requests, the underwriting file held by the primary insurer, and the personnel file of the insurance adjuster hired by the primary insurer. The primary insurer objected and the court issued an opinion, grouping the objections into several categories.
First, the court addressed technical objections to the subpoena. The primary insurer argued that Federal Rule of Civil Procedure 45(a)(3) required the excess carrier’s attorney to be admitted to the district court where the subpoena was to be served. The court rejected this argument because the attorney that issued the subpoena was admitted in Florida, where the bad faith litigation was pending.
The court also rejected an argument that the service of process itself was flawed because the person upon whom service was made is an agent of the primary insurer. Moreover, Rule 4(h) allows a corporation to be served in the same manner as a person.
Second, the primary insurer objected on the grounds of work-product, arguing that the excess insurer did not make a showing of “substantial need” or “undue hardship” as required by Rule 26(b)(3). The court ruled that, under Florida law, “work product material generated in the adjustment of an underlying claim . . . is discoverable in a third-party bad faith case.”
Moreover, in the previous litigation, the primary insurer owed a fiduciary duty to the insured parties and the excess insurer seeking the documents. Accordingly, the court found that the work-product doctrine was inapplicable.
Third, the primary insurer argued that the attorney-client privilege rendered documents undiscoverable because the interests of the two parties are not aligned. However, the court reasoned that, during the previous personal injury suit, their interests were aligned in defense of the insured driver and employer.
Because the parties’ interests were essentially the same in the prior dispute, the court held that “any correspondence between the insurer and the insurer’s retained counsel concerning the insured’s cases was not privileged and must be produced by the insurance company.” The parties shared a common interest in defending against the personal injury claim in the underlying litigation, rendering the privilege inapplicable.
Fourth, the primary insurer objected under Florida’s Mediation and Privilege Act, which states that “[a] mediation participant shall not disclose a mediation communication to a person other than another mediation participant or participant’s counsel.” The court reasoned that the privilege is inapplicable in this case because both insurers “were mediation participants and there has been no effort to disclose the communications to persons other than mediation participants.” The court also rejected the primary insurer’s objection to disclosing communications that occurred outside the mediation process.
Fifth, the excess insurer sought the employment file of the primary insurer’s adjuster who handled the personal injury claim. The court disagreed with the excess insurer that this request was overly broad. The court repeated its rationale that the primary insurer “was a party to, and assumed the responsibility of defending against claims made in the underlying litigation which led to the bad faith claim,” rendering the privilege inapplicable.
Sixth, the excess insurer observed that some of the documents produced by the primary insurer were redacted, seeking a privilege log from its opposition. The primary insurer defended that that no privilege log was necessary because of a prior comment by the excess insurer that it would not seek privileged information. The court again found for the excess insurer. It reasoned that Rule 45(d)(2)(A) allows a party to assess a claim of privilege through examining a general description of the sought after documents.
Lastly, the court held that, under Rule 45(c)(1), the excess insurer has “a duty to take reasonable steps to avoid imposing an undue burden or expense” upon the primary insurer.
Date of Decision: February 2, 2012
Allied World Assur. Co. v. Lincoln Gen. Ins. Co., NO. 1:11-mc-00342, 280 F.R.D. 197, 2012 U.S. Dist. LEXIS 12883 (M.D. Pa. Feb. 2, 2012) (Rambo, J.)
In Letwin v. Rain & Hale, LLC, a Philadelphia Commerce Court case, the Court addressed whether a denial to defend and indemnify a workers’ compensation claim breached the insurance agreement and constituted bad faith. The policy included exclusions for workers’ compensation claims.
The court refused plaintiff’s request to look at the underwriting file, instead following Pennsylvania law and looking at the face of the complaint to determine defense and coverage issues. The court further declined to revisit the workers’ compensation judge’s employment status ruling, on collateral estoppel grounds. Since “the insurer did not breach the duty to defend, a claim for bad faith can not exist.” The Court cited T.A. v. Allen, 868 A.2d 594 (Pa. Super. 2005), Cresswell v. Nat’l Mut. Cas. Ins. Co., 820 A.2d 172 (Pa. Super. 2003), and Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999), .
Date of Decision: June 17, 2009
Letwin v. Rain & Hale, August Term 2007, No. 2316, 2009 Phila. Ct. Com. Pl. LEXIS 96 (C.C.P. Phila. June 17, 2009) (New J.) (Commerce Case Management Program)
The Third Circuit affirmed an award of costs against the insured under Federal Rule of Civil Procedure 54(d)(1). The district court had taken the insured’s indigence argument into account in lowering the costs awarded, and did not have to lower them to zero. Further, there was no legitimate unclean hands argument, but rather a restatement of a substantive claim on which the insured had already lost.
In its earlier decision, the district court had found that the policy was void ab initio because of misrepresentations in applying for the policy, that there could be no breach of contract where there was no contract, and that there could be no bad faith on the novel post-claims underwriting practices. This was affirmed by the Third Circuit in Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121 (3d Cir. 2005), which also stated that the idea of post-claims underwriting could not really be distinguished from the permissible and necessary practice of claims investigation.
Date of Decision: October 30, 2007
L.A.
