Failure to Discontinue Constitutes Bad Faith, Frivolous Continuation Warranting Sanctions (NY)

A Justice of the New York County Supreme Court recently imposed sanctions on a plaintiff who refused to discontinue against a defendant that made a showing of non-involvement in the happening of the subject accident.  In Burgund v. Verizon, plaintiff commenced a Labor Law action after he tripped and fell stepping off of a ladder during his work for Verizon. During the deposition of building’s managing agent, plaintiff learned of the potential involvement of a third party entity known as “A&S.” Thereafter, plaintiff named A&S Group and A&S Construction Corp., among others, as defendants in a separate case that was ultimately consolidated.

Upon service of the complaint, A&S Group’s principal immediately contacted plaintiff, explaining that A&S Group had never performed work in the building, never worked for Verizon or any of the other named defendants as a subcontractor or in any other capacity, had no involvement with A&S Corp or its principals, and was not even in existence at the time of the alleged accident. However, plaintiff’s counsel refused to discuss the matter until A&S Group was represented by counsel.

Thereafter, A&S Group composed a series of letters over the course of a one-year period, each requesting a voluntary discontinuance against. Each time, these letters went unanswered. Ultimately A&S Group moved for summary judgment in its favor, denying any liability and asserting that plaintiff wrongfully included it in the action without any factual basis. The Court granted the motion, finding that A&S Group had presented affirmative evidence that it never performed any work at the subject building, had no professional relationships with any of the named parties, and was not even a registered corporation at the time of the accident.

Further, the Court determined that “regardless of whether [p]laintiff originally brought the action in good faith, plaintiff’s repeated failure to voluntarily discontinue the action, despite three specific requests… constituted a bad-faith frivolous continuation that warranted sanctions.”

Thanks to Tyler Rossworn for his contribution to this post.

Pennsylvania Court Rescinds Policy Based On Insured’s Fraudulent Acts

The U.S. Eastern District Court for Pennsylvania recently rescinded an insurance policy based on the insured’s fraudulent misrepresentations.

In Pallante v. Those Certain Underwriters At Lloyd’s, a fire occurred at an insured’s property while the insured was away.  After the fire, during an inspection of the property with the insurer’s adjuster, the insured represented that there were also several personal items missing from the property and advised that a theft had also occurred.  Subsequently, the insured sent photographs of the items that were allegedly stolen from the property.  The insurer had the photographs analyzed and it was revealed that the photographs were all taken after the fire and theft were alleged to have occurred.  Consequently, the insurer denied the claim based on concealment and misrepresentation.

The insured subsequently commenced a declaratory judgment action asserting breach of contract and bad faith claims against the insurer.  The insurer moved for summary judgment.  In determining whether to grant the motion, the court reasoned that there was no dispute that the insured made material false misrepresentations regarding her claim.  Thus, looking to the policy language, the court concluded that since the policy did not provide coverage if the insured concealed or misrepresented facts, the insurer was entitled to rescind the policy on that basis.

Accordingly, this case shows that, under certain factual circumstances, Pennsylvania Courts will support a policy’s rescission, and it appears to be viable basis for insurers to contest coverage in Pennsylvania.

Thanks to Colleen Hayes for her contribution to this post.

Discovering Bad Faith

Insurance Companies have a duty to act in good faith towards their insureds and endeavor to avoid potential bad faith claims.

In Berg v. Nationwide Mutual Insurance Company, Inc., the Pennsylvania Superior Court addressed a ten-year bad-faith suit arising from the repair of an insured’s car following an accident.  Plaintiff was involved in a car accident in 1996, and pursuant to the policy, her insurer was required to either pay for the loss or repair the car.  The insurer initially declared the vehicle totaled, and at the time of the accident, the car was valued at $25,000.  The insurer subsequently decided to repair the vehicle ten days later.  It took four months to repair the car, but plaintiff complained that the car was no longer crashworthy.  Once plaintiff completed her lease agreement for the car two years later, the insurer opted to declare the vehicle totaled, which resulted in the insurer paying far more in costs than if they had initially replaced the car.

The plaintiff sued in part for bad faith arguing that the insurer failed to inspect the repair work before the car was returned after repiar, and discovery violations based on the insurer’s failure to disclose an unredacted privilege log taht contained information about the repairs.

Addressing the first bad faith issue, the Court found that an insurer has no duty to inspect a car after repair to ensure the quality of repairs, absent an affirmative agreement to undertake that action.  The Court reasoned that at most, the insurer was negligent in failing to inspect the repairs, which did not rise to the level of bad faith.  With regards to the second bad faith issue, the Court found that a bad faith claim cannot be based on an insurer’s discovery practices, absent the use of discovery to conduct an improper investigation.  The Court recognized that bad faith is occasioned by the insurers duty as a fiduciary to the insured under the insurance policy, not as an adversary in a legal proceeding initiated by the insured.

This case provides an important takeaway that the duty of good faith between an insurer and an insured is separate from the duties between the two in an adversarial proceeding.  When plaintiff initiated the lawsuit against her insurer, the duties of the insurance company towards her shifted.  Adversaries in a legal proceeding do not have a fiduciary duty to act in the best interests of their opponent.  For that reason, a purported discovery violation was not a ground upon which a bad faith claim can be “discovered.”

Thanks for Malik Pickett for his contribution to this post.

 

Bald Assertions Insufficient to Hold Insurance Professionals Personally Liable for Claims-Handling Practices (TX)

While we do not ordinarily report on Texas litigation, occasionally we learn of decisions of particular import to insurance claim professionals.

In coverage litigation, insureds often attempt to recover more than damages for simple breach of contract.  Most often, this comes in the form of a bald assertion of bad faith.  At other times, however, insureds rely on state statutes that impose personal liability on insurance professionals.  Fortunately, as they often do in bad faith cases, courts typically require something more than bald assertions to impose extra-contractual liability.

One example is the recent decision from the United States District Court for the Northern District of Texas.  In Caruth v. Chubb Lloyd’s Co of Texas et al.., the insureds submitted an insurance claim for property damage.  Chubb’s assigned adjuster retained a roofing company to investigate the loss and that company determined that the property damage was not the result of wind or hail.  The insureds claimed that the adjuster’s handling of the claim led to an underpayment and a wrongful partial denial of coverage.

In the ensuing coverage action, the insureds relied on a Texas statute under which an individual adjuster may be held personally liable for how it adjusts a claim.  According to the plaintiffs, personal liability was appropriate because the adjuster “failed to perform a proper and complete investigation of the claim;” represented that certain damages would be covered then failed to pay for such damage,” and retained the roofing company “because it was known that it would issue a report on which the claim for benefits would be denied.”

On these allegations, the court granted the insurer’s motion to dismiss.  In doing so, the court reasoned that despite the allegations, the insureds failed to adequately describe the cause of their loss or specifically allege how the adjuster’s investigation was inadequate.  According to the court, these conclusory statements were insufficient to state a cause of action for personal liability.

All insurance professionals should be cognizant of the possibility of a bad faith claim or even the imposition of personal liability.  But the Caruth decision should provide some reassurance that bald assertions, without specific allegations of bad faith claim handling, fall short of the high burden necessary to impose extra-contractual remedies.  Thanks to Michael Gauvin for his contribution to this post.  Please email Brian Gibbons with any questions.

PA Court Reverses $21 Million Bad Faith Judgment Against Auto Insurer

In Berg v. Nationwide Mutual Insurance Company, plaintiff sought coverage from Nationwide for repairs to their vehicle after an auto accident. Ultimately, the plaintiffs ended up suing Nationwide for bad faith, due to Nationwide’s decision to repair the plaintiffs’ vehicle rather than declaring it a total loss.  Nationwide initially received an estimate that the vehicle should be totaled, but rejected it, repaired the vehicle, and returned what it allegedly knew was a dangerous vehicle back to its insured.

Plaintiffs asserted claims for negligence, fraud, conspiracy and insurance bad faith. After a trial, the jury found in favor of Nationwide on all counts except for the catchall provision of the Unfair Trade Practices and Consumer Protection Law, or UTPCPL. The jury awarded the plaintiffs $295.00.

But in the second phase, the trial court found that Nationwide acted in bad faith by repairing the plaintiffs’ vehicle rather than declaring it a total loss and ordered Nationwide to pay $18 million in punitive damages and $3 million in attorneys fees.

On appeal, the Superior Court noted that a finding of bad faith will be reversed where the trial court’s critical findings are either unsupported by the record or do not rise to the level of bad faith. In this case, the Superior Court reversed the trial court’s finding of bath faith, finding that the evidence of record did not support the trial court’s finding that Nationwide overrode or vetoed a total loss appraisal. Upon review of the record, the Superior Court found that the record indicated that Nationwide and the entity handling repairs had support to determine that plaintiffs’ vehicle was repairable. In support of its reversal, the Superior Court noted that the record did not support a finding that Nationwide had actual knowledge of or recklessly disregarded any knowledge of the vehicle’s allegedly faulty condition when the repairing entity returned it to plaintiffs.

In addition, the Superior Court admonished the trial court for incorporating an irrelevant critique of the insurance industry in its holding, stating that a judge sitting as fact finder should confine his or her analysis to the facts of the case at bar without consideration of the perceived ills of the insurance industry in general.

Thanks to Alexandra Perry for her contribution to this post and please write to Mike Bono for more information.

Pennsylvania Court Allows For Partial Bifurcation of Bad Faith Claims

In Fertig v. Kelley, et al., the plaintiff was injured in a motor vehicle accident.  The plaintiff sued the driver of the other car, and her insurance company.  The plaintiff claimed that the insurer failed to pay underinsured motorist benefits under her policy.  As such, she asserted claims for breach of contract, and statutory bad faith.

The insurer moved to bifurcate or sever the bad faith claim, and stay discovery of the bad faith claim until the UIM claim was tried.  The Pennsylvania Court of Common Pleas noted that no appellate court in Pennsylvania “has addressed the severance of a UIM claim and a statutory bad faith claim or the stay of bad faith discovery and proceedings pending the resolution of the UIM claim.”  With regard to the plaintiff’s liability claims (against the driver) and UIM claim (a/k/a breach of contract claim against the insurer), the court concluded that since those claims raised similar questions of fact and law, they should be joined for trial purposes.  Conversely, the court determined, that if the plaintiff’s claim for bad faith was tried with her liability and UIM claims, it could result in unfair prejudice to the insurer.  Therefore, the bad faith claim was bifurcated and to be tried after the liability and UIM claims.  However, given the similar issues raised in all claims, the court held that all claims should remain consolidated for discovery.

Often times a plaintiff will commence an action asserting claims against both the tortfeasor, and an insurance company.  Typically, when bad faith claims are involved, a motion to bifurcate is filed, to ensure that the insurance company is not prejudiced by that claim at trial.  This case provides guidance on how Pennsylvania courts faced with similar motions will rule, allowing insurers to know how to best defend themselves against bad faith claims.

Thanks to Colleen Hayes for her contribution to this post.

 

 

 

 

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.