Auto Insurer Can’t Put the Brakes on Bad-Faith Case

In Newhouse v. Geico Casualty Company, the court denied an insurer’s motion to sever and stay the bad faith portion of a claim filed by its insured for uninsured motorist benefits.

In March 2015, plaintiff was driving a rental car when he was struck from behind while stopped at a stop sign . As a result of the accident, plaintiff suffered a variety of injuries, some of which required medical treatment.  Following payment of the tortfeasor’s policy limits, plaintiff sought UIM benefits from his auto insurer.  Plaintiff claimed he was owed the full amount of the UIM coverage offered by the policy, $100,000. The insurer evaluated the claim and offered $10,000.  Newhouse believed his injuries exceeded the offer, and filed suit alleging breach of contract regarding the offer, bad faith in relation to making such an offer, and loss of consortium on behalf of plaintiff’s wife.

In denying the insurer’s motion to sever and stay the litigation the court examined four factors: (1) whether the issues are significantly different from each other; (2) whether they require separate witnesses and documents; (3) whether the nonmoving party would be prejudiced by bifurcation; and (4) whether the moving party would be prejudiced if bifurcation is not granted. While the insurer argued the issues were distinct, and the evidence in the UIM claim differed from the bad-faith claim, the court disagreed.  The court also rejected the insurer’s argument that it would be prejudiced by a lack of bifurcation because, relative to the bad faith action, the carrier would have to present information on how it valued a claim before the jury assessed liability and damages in the UIM portion of the claim.

Bifurcation is a common strategy for defending allegations of bad faith arising out of UIM claims handling. The court’s decision signals a turn away from severing cases in favor of judicial economy and is something that should be monitored.

Thanks for Hillary Ladov for her contribution to this post.


Pennsylvania Statutory Bad Faith Claims Cannot Be Maintained Against Insurance Agent

A Pennsylvania Court recently ruled that a plaintiff-insured could not maintain a claim for statutory bad faith against an insurance agent, since Pennsylvania’s bad faith statute only governed the conduct of insurers.

In Fertig v. Kelly, plaintiff was involved in a motor vehicle accident and sued the driver of the other vehicle, the plaintiff’s insurance carrier, and the plaintiff’s insurance agent.  Plaintiff alleged his insurer and agent acted in bad faith in investigating and evaluating his claim.  In determining whether the plaintiff could sustain his claim for bad faith against his insurance agent, the court first determined the allegations asserted against the agent did not meet the standard required to constitute bad faith under the Pennsylvania statute.  Moreover, the court concluded that even if the plaintiff’s allegations were sufficient to meet the bad faith standard, Section 8371 only applied to bad faith conduct of an insurer, as that term was defined by the statute.

If you are defending a bad faith claim on behalf of an insurance agent, this case can serve as the basis to dismiss the complaint early on in the litigation process.

Thanks to Colleen Hayes for her contribution to this post.


Getting What You Need in PA Bad Faith Law.

Yesterday, in the case of Matthew Rancosky, et al. v. Washington National Insurance, et al., the Pennsylvania Supreme Court ruled on what qualifies as insurer bad faith. In Rancosky, the decedent plaintiff purchased a cancer insurance policy as a supplement to her health insurance. Unfortunately, some 11 years after first purchasing this insurance, she was diagnosed with cancer. She battled cancer on and off for several years, but ultimately the insurer denied any additional benefits because of a mistake made by plaintiff’s physician as to when her disability began. The insurer, despite having access to forms, never sought to rectify or clarify the mistake although it had access to the information and was advised of the mistake’s existence.

An §8371 PA bad faith claim was ultimately brought. The trial court found for the insurer, but the appellate court found for the plaintiff. The question before the PA Supreme Court was whether under the Terletsky standard, a PA bad faith claim still turns on evidence that (1) the defendant did not have a reasonable basis for denying benefits under the policy, and (2) that the defendant knew or recklessly disregarded its lack of a reasonable basis in denying the claim.

The Supreme Court has answered that question in the affirmative. In answering that question, the Supreme Court made a few interesting observations. First, the Court noted that the first prong of the Terletsky test is an “objective inquiry into whether a reasonable insurer would have denied payment of the claim under the facts and circumstances presented.”

Second, in respect of the second prong of the Terletsky test (and the part of the opinion that will no doubt generate the most public comment), the Court held that “proof of an insurer’s motive of self-interest or ill-will, while potentially probative of the second prong, is not a mandatory prerequisite to bad faith recovery.” In other words, to prove the “reckless disregard” requirement, the insured need not prove almost intentional insurer misconduct.

Third, and perhaps most significantly, and almost as an aside, the PA Supreme Court also noted that “mere negligence is insufficient for a finding of bad faith under Section 8371.” This part of the opinion runs contrary to some recent federal case law that suggests that a bad faith claim can sound in mere negligence.

To us, the decision is good news for the insurance world. While it might have been nice to have the PA Supreme Court hold that intentional misconduct is a condition precedent to a bad faith claim, reconfirmation of the Terletsky standard and a repudiation of the idea that mere negligence can give rise to a bad faith claim are good, solid developments. As the Rolling Stones sang, you can’t always get what you want, but if you try sometimes, you might find, you get what you need.

For more information about this post please e-mail Bob Cosgrove.

Even In Victory, The Rules Of Professional Conduct Still Apply

Following a favorable judgment in a bad faith case, plaintiff’s counsel in Clemens v. New York Central Mutual Fire Ins. Co., sought $1.12 million in fees, costs and interest.

While Pennsylvania’s bad faith statute does permit an award of attorneys’ fees when an insurer has acted in bad faith, U.S. District Judge Malachy E. Mannion of the Middle District of Pennsylvania denied counsel’s request and referred the case to the Disciplinary Board of the Supreme Court of Pennsylvania.

The plaintiff’s attorneys sought $48,050 for their work on the UIM claim, $827,515 for working on the bad-faith claim and $27,090 for preparing the fee petition, for a total of $902,655 in fees for a case that had been litigated for nearly nine years. Judge Mannion began his memorandum opinion with a cautionary reminder that “attorneys are quasi-officers of the court and they are expected to be careful and scrupulously honest in their representations to the court . . . they must exercise care, judgment, and ethical sensitivity in the delicate task of billing time and excluding hours that are vague, redundant, excessive or unnecessary.”  Judge Mannion then spent the next 100-pages going through plaintiff’s counsel’s request line-by-line, slashing fees he deemed vague, duplicative and excessive.

Even in victory, lawyers are expected to adhere to the rules of professional conduct. As a self-policing profession, the enforcement of such rules can be lax, but this federal case is a strong reminder that unscrupulous conduct has no place in the court room.

Thanks to Hillary Ladov for her contribution to this post.

Tendering Policy Limits Could Constitute Settlement Agreement

A Pennsylvania Court found a settlement existed once policy limits were tendered to a plaintiff.

In Wise v. Hyundai Motor Company, plaintiffs’ daughter died in an automobile accident.  Plaintiffs sued Hyudai Motors (and others). USAA insured the defendants. After commencing the lawsuit in 2010, plaintiffs sent a letter to defense counsel demanding full insurance policy limits.  In response to this demand, in 2012, defense counsel responded with a letter “offering” the policy limits.  After the offer letter was issued, defense counsel was only minimally involved in the litigation, since the products liability action against the car manufacturer had taken precedence.  Four years later, once the plaintiffs and the manufacturer settled, plaintiffs informed defendants they would be now be asserting a bad faith claim against their insurer, USAA, for failing to properly defend defendants in the action.

Defendants countered that plaintiffs’ new claim must fail since the parties entered into a settlement back in 2012, when defendants tendered the policy limits to plaintiffs.

In determining whether plaintiffs and defendants agreed to settle the claim in 2012, the court first looked to the plaintiffs’ 2010 letter.  The court noted that although the letter did not use the word “settlement,” the letter was clearly intended to act as a settlement offer, because plaintiffs had demanded policy limits from defendants.  The court then looked to defendants’ 2012 letter, which, it determined, clearly tendered the policy limits to plaintiffs, despite using the phrase “offering.”  Thus, the court reasoned there had been a meeting of minds, and a settlement had been reached based on the two letters.

Thus, this case illustrates the importance of making sure any offer or demand to opposing counsel expressly states what is being demanded, offered or accepted, to avoid unnecessary motion practice to clarify whether the parties actually intended to settle a matter.

Thanks to Colleen Hayes for her contribution to this post.


PA Court Enforces Settlement Where Policy Limits Demanded And Offered

In Wise v. Hyundai Motor Company, a passenger died in an automobile accident and her estate sued the owner of the car, the driver of the car, and various insurance companies. This lawsuit was originated in Monroe County, Pennsylvania and implicated Pennsylvania law. Of interest here was that the estate of the decedent sent a policy limit demand to the insurance company of the driver and owner of the car (USAA).

USAA’s counsel replied, “offering” the policy limit of $115,000. At no point, in either the letter to USAA’s counsel or the reply, was the word “settlement” used. Plaintiff’s counsel never responded to the policy limit offer. From that point, USAA’s counsel was minimally involved in the matter, as the case primarily focused on products liability against Hyundai.

Four years after the policy limit demand, decedent’s estate settled with the products defendants and subsequently asserted a bad faith claim against USAA for failure to defend the driver and owner of the car, as USAA did not participate in any pre-trial proceedings or offered an expert and thus, arguably, could not assert a defense at trial. Decedent’s estate asserted this is cause for a bad faith claim. USSA, in response, moved to enforce the earlier $115,000 “settlement.”

The court held that, he policy limits were demanded and offered in return, and as such there was a settlement.  Although optimally there would be evidence that plaintiff send a letter accepting the policy limit offer, the course of conduct of the parties can also establish acceptance. The course of conduct showed that USAA had minimally been involved in the litigation after the policy limit offer, did not engage in discovery, and circulated a letter to all counsel stating USAA would not be involved in the litigation as the full policy limits had already been tendered. As such, all parties acted with the belief that settlement had been reached – including the plaintiff and the court therefore agreed to enforce the settlement.

Thanks to Matt Care for his contribution to this post and please write to Mike Bono if you would like further information.

Insurers May be Liable for Foreseeable Consequences if there is a Breach of the Covenant of Good Faith and Fair Dealing.

In Mano Enterprises, Inc. v. Metropolitan Life Insurance Company, plaintiff attempted to assign its policy to a third-party.  The insurance company then placed a hold on the policy that resulted in a lapse of the policy due to non-payment of premium.  The Court held that there were issues of fact as to whether the insurance company appropriately refused to process the assignment of the policy by the plaintiff, and any damages for the foreseeable consequences.

Insurers should remain cognizant of potential liability incurred in the event that policy determinations effect contractual obligations.

Thanks to Valerie Prizimenter for her contribution to this post.






Lack of Explanation in Coverage Decision May Constitute Bad Faith

Making the wrong coverage decision generally does not constitute bad faith.  However, failing to explain the decision might.

In Rosewood Cancer Care Inc. et al. v. The Travelers Indemnity Co., a water leak damaged $1 million radiation machine. The insurer agreed to cover the radiation machine as “business personal property” which allowed up to $103,000 in coverage per the policy to replace the machine. Rosewood argued that the machine was a “building fixture,” which warranted $560,000 in coverage per the policy.

The insured sued for a declaration that the radiation machine should have been covered as a building fixture, rather than business personal property. The insured also alleged bad faith and breach of contract claims against the insurer for failing to provide coverage for the machine as a fixture, and for allegedly failing to provide an explanation for the denial of coverage as a building fixture after multiple requests. The insurer maintained that the radiation machine was business personal property since it was capable of being bought, sold, moved, installed or removed from the building.

On motion, the court ruled that the radiation machine should have been covered as a building fixture, since the machine was permanently attached to the building and would have required significant drilling through concrete to remove. The court allowed plaintiff to proceed to trial on the allegation of bad faith stemming from the alleged failure to provide a written explanation for its coverage decision.

This case demonstrates that for an insurer to prevent viable bad faith claims, communication with the insured and explanation is key.

Thanks to Rachel Freedman for her contribution to this post.




Is The Pennsylvania Bad Faith Test Bad?

On August 30, 2016, the Pennsylvania Supreme Court granted a Petition for Allowance of Appeal in Rancosky v. Washington National Insurance Company, agreeing to review certain current requirements to prove bad faith.

In its order, the Supreme Court agreed to review the current requirements for proving insurer bad faith in Pennsylvania, and if it determined these requirements were proper, it agreed to review whether the factor of “motive of self-interest or ill-will” was a mandatory prerequisite to proving bad faith, or whether it was merely a discretionary condition.  In the intermediate appellate court, the Superior Court had previously held that proving a “dishonest purpose” or “motive of self-interest or ill-will” was merely a discretionary condition that was probative of the issue of whether “the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.”

The Opinion of the Supreme Court, when issued, could drastically reshape the current landscape in Pennsylvania’s bad faith law.  Pennsylvania’s statute on bad faith does not define a standard for bad faith, and the current rule was established by the Superior Court in Terletsky v. Prudential Prop. And Cas. Ins. Co.  437 Pa.Super 108 (1994).  The Terletsky rule requires a plaintiff to satisfy a two-part test: (1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.”  The Pennsylvania Supreme Court’s order granting review offered a sweeping basis for reviewing the Terletsky test, and could alter how insurers are forced to approach defending bad faith in the future.  We will issue further guidance on this issue once the Court issues its opinion.

Thanks to Konrad Kreb for his contribution to this post.




WCM Partner Fights on the Side of Angels and Against Policyholders.

Such was the mission tasked to Partner Bob Cosgrove when he was asked to be a panel speaker at a March 22, 2016 Anderson Kill sponsored seminar entitled “Fight Night: Attacking and Defending Insurance Claims.” Mr. Cosgrove was asked to explain (to a pro policyholder audience) how and why insurance companies analyze claims and why, contrary to policyholder beliefs, such behavior is typically reasonable. Hopefully, the explanations stuck.

For more information about this post, please e-mail Bob Cosgrove .