Category Archives: Bad Faith

Causing a Stink for the Jury: Does Animal Waste Fall Under an Insurance Policy’s Domestic Animal Exclusion?

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A Lawrence County Judge has ruled that a jury should make determinations about whether feces and urine, causing nearly $60,000 in damage to a rental property, fall under an insurance policy’s domestic animal exclusion.

David and Marcia Fleeger, held an “all risk” insurance policy from USAA specifically excluding damage caused by a domestic animal. Plaintiffs rented a New Castle, PA property to renters who had a large Doberman Pinscher. Upon the renters’ departure in 2010, plaintiffs discovered urine and feces on the floors, wall, stairs, and heating ducts, causing damages amounting to more than $59,000.

Plaintiffs made a claim for damage caused by animals under their policy; however, USAA contended that the damage was not covered. The plaintiffs later changed their claim to include damage due to vandalism. Upon the USAA’s challenge to the claims, plaintiffs sued, alleging breach of contract, bad faith, and Unfair Trade Practices and Consumer Protection law violations. USAA argued that the insurance policy was void because the plaintiffs had altered and misrepresented their initial claims, and noted that on several occasions Fleeger told the carrier that he believed the dog was confined in the residence while the renters were at work and that the renters knew the damage was happening. A representative for the carrier also testified that the lease between plaintiffs and the renters did not allow a dog in the residence.

The Fleegers argued that questions existed as to the origin of the waste and whether allowing the dog to intentionally cause waste in the property constituted vandalism. Plaintiffs further alleged that based on the doctrine of spoliation, the defendants had a duty to test the waste in order to determine its origin and failed to show that the damage fit the domestic animal exclusion.

The judge ruled that questions of fact existed not only as to the origin of the waste and the renter’s intentions, but also whether the Fleegers misrepresented material facts in the case. Because the court was not presented with any proof to conclusively determine that a dog caused the damage, and there is conflicting evidence concerning whether the plaintiffs misrepresented a material fact, the judge determined that the decision should ultimately be left up to the jury.

Thanks to Chelsea Rendelman for her contribution to this post.

Pennsylvania Supreme Court Issues Another Big Decision — Insureds May Assign Bad Faith Claims to Injured Third Parties in PA (PA)

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In Pennsylvania, tort claims are generally not assignable. In Brown v. Candelora, the Pennsylvania Superior Court held that bad faith claims brought under Pennsylvania’s Bad Faith Statute §8371 can be assignable to injured third parties, but not all Pennsylvania courts have followed Brown. Accordingly, when the Third Circuit was presented with the issue of whether a §8371 bad faith claim may be assigned to an injured third party, it certified the question to the Pennsylvania Supreme Court.

In Allstate Property and Casualty Insurance v. Wolfe, the Pennsylvania Supreme Court held that insureds may assign a §8371 bad faith claim against their carrier to injured third parties. The underlying case involved an automobile accident between an alleged drunk driver, Karl Zierle (“Zierle”) and Jared Wolfe (“Wolfe”). Zierle was insured with Allstate and had a policy limit of $50,000. Wolfe demanded $25,000 to settle the matter, and Allstate only ever offered $1,200 in return. At trial, the verdict awarded Wolfe $15,000 in compensatory damage and $50,000 in punitive damages. Zierle subsequently assigned his right to pursue a bad faith claim to Wolfe who filed suit in state court, and the insurer removed the lawsuit to the United States Middle District of Pennsylvania.

Allstate argued that Pennsylvania has a long history of opposing the assignment of tort claims. Additionally, Allstate contended that allowing such an assignment would create overzealous plaintiffs who could pursue inflated settlement demands in addition to bad faith claims that would normally not be proper. Wolfe countered that bad faith claims brought under §8371 have been held to be assignable to injured third parties by the Pennsylvania Superior Court. Furthermore, Wolfe contended that allowing such an assignment would further public policy by encouraging good faith settlement negotiations and efficient management of claims.

In a 5-1 vote, the Pennsylvania Supreme Court held that assignment of bad faith claims to injured third parties should be allowed. In reaching this decision, the PA Supreme Court relied on the legislative intent of the bad faith statute.

We expect to see much hand-wringing in the new year over the impact of this decision. To our mind, however, the formal allowance of the assignment of a bad faith claim to the underlying plaintiff simply puts Pennsylvania into the US jurisprudential norm. So long as carriers continue to avoid being slow, sinister or stupid in their claims handling decisions, there really isn’t much to fear here. While bad faith litigation can be quite expensive, the mere fear of it cannot supersede good claims handling practices.

Special thanks to Eric Clendening for his contributions to this post. For more information, please contact Bob Cosgrove at

When Does the Clock Strike for PA Bad Faith Claims?

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In Blackwell v. Allstate Insurance Company, plaintiff filed a March 2011 claim with Allstate for property damage due to a water leak, and contractor vandalism.  Allstate covered the claim, and paid for the cost to repair plaintiff’s furnace.  In October 2012, plaintiff realized that the furnace was inoperable, and filed another claim for the replacement cost, alleging the 2011 water damage and vandalism caused the furnace damage.  On November 13, 2012, Allstate denied Plaintiff’s claim, explaining that the twenty months between Plaintiff’s initial claim and the furnace damage barred recovery.  Plaintiff filed suit in November 2013 for breach of contract, common law bad faith and statutory bad faith.

The District Court dismissed the claim for breach of contract.  Under Pennsylvania law, the statutory limitation period generally starts to run from the time of breach, however, the parties agreed to a different limitation period in the policy, as “one year from inception of the loss or damage.”  Since the “inception of the loss or damage” occurred in March 2011, the breach of contract claim filed after March 2012 (a year from the inception of loss) was time barred.  The court also dismissed the common law bad faith claim, since a common law bad faith claim fails to exist independently of a breach of contract claim.  However, the statutory bad faith claim survived, since under Pa. Const. Stat. Ann. § 8371, the time period for the statute of limitations on a bad faith claim begins on the date the insurance company first denied the insured’s claim in bad faith, here November 13, 2012.  As such, plaintiff’s November 2013 filing was timely.

This case is instructive as it evaluates the accrual dates for bad faith claims.  In analyzing bad faith claims, attorneys must take into account the common law and any statutory limitations to evaluate dismissal potentials.

Thanks to Coleen Hill for her contribution to this post. For any questions please contact ">

 

 

 

Allstate Settles Bad Faith Suit for 88 Times Policy Demand (PA)

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Allstate Insurance recently reached a settlement in a bad faith case for $22 million — the largest bad faith settlement recorded in Pennsylvania.

The underlying suit was brought by Patrick Hennessy, who lost his leg in a 2009 auto accident while a passenger of Ryan Caruso.  After Caruso rear-ended another car, Hennessy stepped outside to help push the other car from the road and was hit by a third car (who had no insurance).  Caruso was covered under a $250,000 Allstate policy, and Hennessy offered to settle with Allstate for policy limits, otherwise threatening to sue the Carusos and execute judgment on their personal assets.

Allegedly, Allstate failed to advise the Carusos that Hennessy was willing to settle his claim for the policy limit and did not respond to certain letters from its insured.  Hennessy later filed suit in the Philadelphia Court of Common Pleas in February 2011.  Right before jury selection, Hennessy rejected Allstate’s $250,000 settlement offer, instead demanding $5 million.  The case proceeded to trial which resulted in a verdict of $19.1 million dollars.

Thanks to Thalia Staikos for her contribution to this post.  Please write to Mike Bono for more information.

Caruso assigned his rights against Allstate to Hennesy following the trial. When Allstate refused to pay the judgment, Hennessy brought a bad faith action in the Philadelphia Court of Common Pleas. Allstate attempted to remove the case to federal district court in Philadelphia, but Hennessy joined certain Pennsylvania Allstate employees as defendants, thus defeating diversity jurisdiction which would make removal to federal court appropriate. Judge Stengel of the United States District Court for the Eastern District of Pennsylvania denied Allstate’s motion for removal, stating that all claims against the joined defendants were valid since they were specific to the employees’ conduct and were not frivolous.

In light of this ruling, Allstate decided to settle with Hennessy this fall for $22 million (which included interest and the like) rather than proceed to trial on its bad faith claims.

Coverage Denial is as Clear as Glass (PA)

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In US Fire v. Kelman, the Western District of Pennsylvania determined that Continental Casualty Company’s denial of a glass manufacturer’s insurance claim for a furnace accident was reasonable.  Pointing to Continental Casualty’s clear denial letter, the court held that the bad faith claims against the insurer fail.

Kelman Bottles LLC manufactures glass containers for the food industry.  In March 2011, an accident occurred involving one of the furnaces Kelman used to melt glass.  A leak in the furnace caused molten glass to escape, damaging both the furnace and other property in the facility.   While Kelman filed claims with its insurer, Continental Casualty, to obtain coverage for the damaged property, Continental subsequently denied Kelman’s request for coverage.  Continental’s denial letter explained that their investigation determined that the leak in the furnace “is not uncommon,” and was not caused by operator error or a failure in any component of the furnace.  Therefore, the accident did not meet the requirements for a “breakdown” that would be entitled to coverage under the insurance policy.

Alternatively, Kelman insisted that the leak in the furnace was “sudden and accidental,” thus satisfying the conditions for coverage.  Furthermore, Kelman alleged that Continental’s basis for denying insurance benefits was “unclear” and possibly also “intentionally vague.”  Accordingly, Kelman claimed that Continental Casualty’s denial of coverage violated Pennsylvania’s bad faith statute.

The court noted that recovery on a bad faith claim would require Kelman to provide clear and convincing evidence that Continental Casualty did not have a reasonable basis for denying coverage.  But the court determined that Continental Casualty’s denial letter was appropriately clear, as it discussed the findings and conclusions of its investigation, a recitation of relevant policy language, and a step-by-step analysis of its decision.  Therefore, the court concluded that Kelman failed to meet the clear and convincing standard to establish unclear or intentionally vague reasons for denial.

Further, the court pointed to instances of similar leaks referenced in the investigative report Continental Casualty obtained, strengthening the reasonableness of the insurance company’s denial of benefits.  The report contradicted Kelman’s claim that the incident was not a routine occurrence, since furnace leaks were described as uncommon.  Concluding that there are no genuine issues of material fact regarding Continental Casualty’s reasonable basis to deny coverage to Kelman, the court held that Kelman failed meet the first prong of the bad faith test.

Thanks to Nicole Pedi for her contribution to this post.  If you have any questions, please email Paul at .

Court Finds Good Faith Requirement Even In Mandatory Settlement Conference (PA)

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While it is axiomatic that good faith is the polestar of the transactional world, it is often times less evident whether the same obligation extends to adverse parties involved in litigation.  In particular, the question can arise where adverse parties submit to some form of alternative dispute resolution – mediation, settlement conference or otherwise – that depends heavily on good faith negotiations to resolve the dispute.  For at least one court in Pennsylvania, however, it appears that the good faith is an immutable requirement in ADR even where the parties are, by their very nature, adverse to one another.

In Grigoryants v. Safety-Kleen, United States Magistrate Judge Maureen Kelly entertained sanctions against a defendant whose corporate policy was to entertain settlement only after the close of discovery.  Specifically, the Grigoryants litigation involved husband-and-wife plaintiffs who sued Safety Kleen after the husband was exposed to one of that company’s chemicals, and later contracted myelofibrosis.  Following initial discovery, the United States District Court for the Western District of Pennsylvania ordered the parties to appear for mediation and instructed both sides to produce representatives with full and unqualified settlement authority.  In anticipation of the mediation, both parties engaged in pre-mediation conference calls with the mediating judge to discuss their respective positions on liability and damages, and also submitted pre-mediation memorandum outlining the same.  Despite this preparation, however, the mediation was ultimately unsuccessful and prompted the plaintiffs to move for sanctions against Safety-Kleen after learning that the corporation had an internal policy of not discussing potential settlement before the filing of dispositive motions.

In ultimately imposing sanctions against Safety-Kleen, Judge Kelly noted that good faith is a necessary element of court-mandated mediation.  Further, Judge Kelly found that certain of Safety-Kleen’s actions constituted bad faith insofar as they undermined the opportunity to alternatively resolve the litigation.  Chief among Safety-Kleen’s bad faith actions was the fact that it knew of its unwillingness to engage in settlement negotiations prior to the close of discovery, but neglected to make that fact known to the Court.  In fact, Judge Kelly explained that the concealment of Safety-Kleen’s position with respect to settlement, not the failure to settle, itself, was the core of its sanctionable conduct.  Consequently, Judge Kelly ordered Safety-Kleen to restore the plaintiff to their pre-mediation condition by paying costs, expenses and attorneys-fees incurred.

To our mind, the decision in Grigoryants is both cautionary and encouraging.  On the one hand, there is no doubt that Pennsylvania’s state and federal courts consider alternative dispute resolution an indispensable cog in the litigation process, and, as a result, require transparency with the mediator in respect of settlement positions.  On the other, however, it appears that Pennsylvania courts do recognize the thin line between requiring good-faith and simply fruitless settlement negotiations.   Simply put, candor with the court and adversaries is the preferable – and safer- way to proceed   

Thanks to Adam Gomez for his contribution to this post.   If you have any questions, please email Paul at .

PA Supreme Court to Weigh in on Assignment of Bad Faith Claims

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The Pennsylvania Supreme Court will soon tackle the issue of whether an insured tortfeasor can assign his or her bad faith claims against the insurer to the injured plaintiff.  The issue, which has caused a split in the in the Eastern and Middle districts of Pennsylvania, remains an unsettled issue of Pennsylvania law.

The underlying tort action involved a car accident in which intoxicated tortfeasor Karl Zierle injured plaintiff Jared Wolfe.  Wolfe’s counsel submitted a $25,000 settlement demand to Zierle’s insurance company, Allstate.  Believing that Wolfe had “minimal medical treatment, lack of out of pocket expenses, and pre-existing injuries,” Allstate’s claim adjuster authorized Zierel’s counsel, whom Allstate appointed,  to settle the case for only $1,200 – $1,400.  Wolfe rejected the offer and subsequently filed a claim against Zierle.

According to the Third Circuit’s opinion, there was “scant evidence” of communication between the parties regarding a possible settlement from the time the complaint was filed to the pre-trial conference.  Prior to trial, Zierle’s counsel requested that Allstate consider settling the case for $7,500 in light of the fact that the jury could possible hear about Zierle’s past history of driving under the influence. Allstate decline counsel’s request and the case went to trial. The jury awarded Wolfe $15,000 in compensatory damages and $50,000 in punitive damages against Zierle.  Allstate paid the compensatory damages but did not indemnify Zierle for the $50,000 in punitive damages.

Eager to avoid paying $50,000 in punitive damages, Zierle agreed to assign whatever rights he had against Allstate to Wolfe in exchange for Wolfe’s promise not to pursue punitive damages against him.  Wolfe subsequently filed suit against Allstate in the Pennsylvania Court of Common Pleas alleging, among other things, a bad faith claim pursuant to 42 Pa. Cons. Stat. Section 8371. The case was removed to the United States District Court of the Middle District of Pennsylvania based on diversity citizenship.

Allstate filed a motion to dismiss the bad faith claim on the grounds that the claim was not assignable. However, its motion was denied and the jury ultimately found that Allstate violated Pennsylvania’s bad faith insurance statue and awarded Wolfe $50,000 in punitive damages. Allstate appealed the award of damages and the court’s decision to deny its motion to dismiss the bad faith claim.

In its request to the state Supreme Court, the United States Court of Appeals for the Third Circuit explained that there is conflicting precedent on the issue of whether bad faith claims are assignable in both the courts of Pennsylvania and the federal courts within the Third Circuit.   On April 24, 2014, the state Supreme Court issued an order agreeing to decide the issue.

We will continue to follow this interesting issue and will post the Supreme Court’s decision.  Thanks to Sheri Flannery for her contribution to this post.  Please write to Mike Bono for more information.