Pa. Bad Faith Claim On Lapsed Policy Dismissed

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PHILADELPHIA, May 11 – The Pa. Superior Court has dismissed a bad faith claim filed against Progressive insurance, finding that the policy in question had lapsed, and that it was not bad faith for theinsurer to originally remove the case to federal court, despite a later remand.

The trial court entered summary judgment in favor of appellee Progressive Insurance Company and against appellant Anne Racioppi on her claims of breach of contract and bad faith.  Racioppi had allowed her policy to lapse for non payment of premium, and she did not purchase a new policy until the day following the accident from which she made her UIM claim.

In affirming the trial court, the Pa. Superior Court rejected Racioppi’s claim that Progressive failed to provide statutory  notice of cancellation/non-renewal of her policy.  The court ruled that Act 68 did not apply where an insurer offered to renew the policy and the insured refused to pay the premium — such an act was sufficient evidence of the insured’s intent to cancel the policy, the court ruled. Progressive sent the insured multiple renewal notices instructing her to pay the renewal premium by a certain date, the court observed. Racioppi did not deny receiving the notice.

Judge Kate Ford-Elliot further found that Progressive did  not act in bad faith in removing the case to federal court.  She ruled that Racioppi initially sued an entity of Progressive Insurance domiciled in Ohio. As a result, appellee removed to federal court based on diversity jurisdiction as a legitimate  litigation tactic. Once the proper division of Progressive was substituted, however, the case was properly remanded.  The court held that Progressives engagement in a legitimate litigation strategy did not constitute  bad faith.

Racioppi v. Progressive Insurance Company, (Pa. Super. May 11, 2016)(Ford Elliot, J.)

Geico Loses Summary Judgment Bid In Florida Bad Faith Case

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TAMPA, Fla., May 12 — On May 12, GEICO Insurance lost a bid in Florida federal court to dismiss a bad faith suit premised upon its alleged failure to adequately defend a GEICO insured in a personal injury action.  The Court ruled that a genuine issue of material fact existed as to whether the insurer acted in bad faith in its handling of the claim.

The insureds,  Manuel A. and Aleli Gonzalez bought auto insurance from GEICO General Insurance Co. and added their grandson Ishmael Ramjohn as an additional insured. Ramjohn allegedly injured Lisa Anderson in an automobile accident in February 2009, whereupon Anderson’s attorney attempted to settle Anderson’s claim with GEICO .

Anderson’s lawyer and GEICO communicated several times during 2009, leading to his sending a demand for the $100,000.00 bodily injury policy limit insuring Ramjohn. GEICO offered $2,581.16 to resolve the claim.  Later, GEICO increased its offer to $22,500.00 after receiving additional information on Anderson’s injuries.

After  Anderson sued the insureds in the Hillsborough County, Fla., Circuit Court for damages,  GEICO offered the $100,000 policy limits, which Anderson rejected.  A jury in that case returned a verdict for Anderson in the amount of  $398,097.82.

The insureds then sued GEICO in the U.S. District Court for the Middle District of Florida, alleging bad faith in handling Ramjohn’s defense.

In denying GEICO’s motion for summary judgment, Judge James S. Moody Jr. held:

“the record reflects facts that could permit a jury to find that GEICO acted in bad faith…In other words, this case, like most bad-faith cases, presents a genuine dispute that requires a jury’s resolution…For example, [insureds’ expert Peter] Knowe’s testimony creates a genuine issue for trial. Knowe testified that GEICO’s handling of the Anderson claim deviated from industry standards in several key respects. Remarkably, GEICO does not address or reference Knowe’s expert opinion anywhere in its motion…there is also evidence suggesting that GEICO did not evaluate Anderson’s claim from the perspective of a reasonable insured facing unlimited exposure.”

Judge Moody added that a reasonable jury could find that GEICO’s offer strategy in the case was executed in aid of a policy to reduce average loss payments.

Gonzalez et al v. GEICO General Insurance Company, (M.D. Fla. 2016)(Moody, J.)

Expert Cannot Testify About Exclusion; Can Opine On Industry Custom and Practice

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LOUISIANA, April 13 – A United States District Court in Louisiana has issued a ruling permitting an expert to testify in a coverage action about industry custom and practice, but barring the expert from testifying about the applicability of a policy exclusion to a coverage dispute.

The insured, Foundation Health Services,  sought reimbursement from Zurich American  for defense costs and lossess associated with an underlying  settlement with the U.S. Department of Justice and the Department of Health and Human Services. The disputed issues in the case were (1) whether a claim was first made during the policy period (2) whether a “professional services” exclusion in the policy applied to preclude coverage and (3) whether the insurer committed bad faith in denying coverage.

The insurer moved to preclude the plaintiff’s expert who was offered to testify about whether the insurer “met its obligations and responsibilities in connection with the claim at issue under custom and practice of the industry.” Id. at 4.

District Judge James Brady reviewed Federal Evidence Rules 702 and 704 and held that expert opinion on the applicability of certain exclusions “cross into the realm of making legal conclusions” were, therefore, inadmissible. Id. at 6. The Court also ruled however that “an expert may be allowed to testify regarding insurance industry standards for claims adjusting, but not the ultimate legal conclusions that an insurance company is acting in good faith.” Id.

 Foundation Health Services., Inc., et al. v. Zurich Am. Ins. Co., (M.D. La. 2016)(Brady, J.)

State Farm Voids Homeowners’ Policy For Material Misrepresentation

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OXFORD, April 19 – A federal judge in Mississippi has granted State Farm’s request to void a homeowners insurance policy on grounds the insureds made misrepresentations material to the risk.

U.S. District Judge Sharion Aycock of the Northern District of Mississippi voided a policy issued to Cedric Flowers, because he misrepresented his ownership interest in the policy on the coverage application.   On April 19, 2012, Cedric Flowers applied to State Farm for homeowners insurance, after which State Farm issued a policy.  A fire destroyed a portion of the home on June 17, 2012, a fire damaged the house and its contents.

In 2015  State Farm sought to have the policy voided, and  filed a declaratory judgment suit seeking an order voiding the policy was void when issued.  State Farm also sought to void the policy claiming the Flowers violated several policy conditions.  Cedric Flowers counterclaimed for breach of contract, negligence, bad faith and fraudulent and negligent misrepresentation.

Judge Aycock granted State Farm’s motion for summary judgment, holding:

“This Court has held in other cases that ownership is a ‘material fact’ that would influence ‘a prudent insurer in determining whether to accept the risk. . . Therefore, the Court finds that the representation that the Flowers owned the property at the time he applied for this homeowner’s insurance policy is a material misrepresentation under both the objective (prudent insurer) and subjective (particular insurer) standards, and due to this material misrepresentation the policy was void from the beginning. . . [That] the Defendant .  believed, in good faith, that he owned the home at the time he applied for the policy is unavailing because the relevant cases make clear that the fact that a misrepresentation ‘was intentional, negligent, or the result of mistake or oversight is of no consequence.’”

State Farm Fire and Casualty Company v. Flowers et al, (N.D. Miss. 2016)

The Developing Cyber-Gap In Insurance Coverage

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Conventional wisdom has been that insureds might be able to recoup losses for cyber-related risks causing personal injury or property damage to third parties by submitting claims to their general liability insurers.   But that window is closing.

In 2013, the Insurance Services Office (ISO), an industry organization responsible for drafting coverage language, issued two endorsements for CGL policies which eliminate the possibility of CGL coverage for cyber-related losses:

  • ISO Endorsement CG 21 07 05 14 excludes coverage for damages arising out of: “The loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.” “Electronic data” includes “information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software … which are used with electronically controlled equipment.”
  • ISO Endorsement CG 21 06 05 14 contains  identical language, but contains a limited exception for bodily injury.

These endorsements are appearing more frequently in CGL policies, and insurers are likely to argue that they exclude liability coverage for  bodily injury or property damage claims which are the result, for example, of security breaches in to computers, and electronic programmable controllers of all kinds,  including ubiquitous programmable logic controllers (PLCs), used in everything from Christmas trees to cars to manufacturing plants.

Moreover, in its current form, stand-alone cyber insurance may not close the gap.  Most existing cyber-insurance policies, or ones in development, contain exclusions for bodily injury or property damage.  These exclusions are based on an assumption which is becoming less and less true — that CGL coverage responds to such losses.

Those monitoring this industry issue say it is likely too soon in the process to tell if the gap is likely to become a significant one.  While not all insurers are using the new ISO language, it is becoming more and more popular, however.  The case law remains in its infancy, so there is little to no current guidance on this specific problem.

Conducting a thorough review of existing insurance policies to diagnose the gap is an important first step.  Filling the gap, however, is somewhat more complicated.  It may be that unique products like captive insurance coverage might be the best solution for this exposure, unless and until the conventional insurance market responds.

Reach  me at chaddick@dmclaw.com or 717-731-4800 for more information and a no-cost consultation..

 

 

Insurance Agent Dropped From Bad Faith Suit

insagentTULSA, May 6 – An insurance agent who neither wrote nor issued the insurance policy was dismissed from a federal bad faith and coverage suit by an Oklahoma federal judge last week.

Christopher Wise filed a state court breach of contract suit against two insurers after they denied coverage  to Wise following a motorcycle accident Wise was involved in on the same day he purchased the bike.  The Hagerty Insurance Agency produced one of the policies issued by Essentia Insurance Company.  CSAA General Insurance Co. was the other insurer.

Essentia removed the action to the U.S. District Court for the Northern District of Oklahoma based on diversity jurisdiction, and the Hagerty  agency  moved to dismiss for failure to state a claim for relief on the grounds that it was not an insurance company, and it neither wrote nor issued any policy to Wise.

U.S. District  Judge Claire V. Eagan granted the motion, holding:

“[u]nder Oklahoma law, an insured cannot state a claim against an insurance agent for breach of contract when it is not in privity of contract with that agent…Defendant Hagerty included with its motion to dismiss both the insurance card and the relevant policy. The insurance card clearly states that the insurance company is Essentia and that Hagerty is the agent. The policy itself, in the definitions section, defines ‘we,’ ‘us,’ and ‘our’ as ‘the Company providing insurance.’ The policy does not include any provision involving the insurance agent, nor does it impose any responsibility on the agent under the contract. These documents clearly demonstrate that defendant Hagerty is the insurance agent, not the insurance company. The insurance contract is between Essentia and plaintiff, and Hagerty is a stranger to this contract. As such, plaintiff has failed to state a claim against Hagerty for breach of contract and bad faith. Defendant Hagerty’s motion to dismiss should be granted.”

Wise v. CSAA Insurance Group, Inc. et al  (N.D. Okla. 2016)

Allstate’s Denial of Water Leak Claim Reasonable, Court Rules

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PHILADELPHIA, May 5  — A Pennsylvania federal judge on May 5 granted judgment in favor of an insurer in a water damage suit after determining that the company’s reliance on a maintenance exclusion to deny the claim was reasonable.

David Dougherty filed sued Allstate in state court for breach of contract and bad faith.   The suit was removed the U.S. District Court for the Eastern District of Pennsylvania on diversity jurisdiction grounds. Allstate denied Dougherty’s homeowner’s  water damage claim, contending that coverage was barred by the policy’s occupancy/heat exclusion and the planning, construction or maintenance exclusion.

The home was vacant and unoccupied at the time of the water loss, which occurred in winter weather.

Following cross motions for summary judgment Judge Thomas N. O’Neill Jr.held  Allstate met its burden in proving that it properly applied the policy’s maintenance exclusion in denying coverage. He held that the evidence presented

“supports a conclusion that the incident was caused by a failure to maintain the furnace at the property…On the record before me, viewed in the light most favorable to plaintiff, I find that a reasonable jury could not conclude that Allstate breached its obligation to plaintiff in applying the maintenance exclusion to bar plaintiff’s claim.”

Allstate’s summary judgment motion was also granted as to the bad faith claim.  The Judge held:

“It was not unreasonable for Allstate to focus its claim investigation on the condition of plaintiff’s furnace given that the water damage to the property occurred in January in Pennsylvania in an unoccupied property where the gauge on the oil tank read empty at the time of the loss (even though the gauge was later determined to be faulty.”

Dougherty v. Allstate Property And Casualty Insurance Company, (E.D. Pa. May 5, 2016, O’Neill, J.)