Month: August 2016

Why You Should File (And Win) Summary Judgment In (Almost) Every Bad Faith Case, Part I

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Excepting death and taxes, there are no sure things.  But there are plenty of near – sure things and fat pitches in life, and summary judgment motions by insurers in bad faith cases is one of those things.    Insurers should be filing and winning more of them.  In this post, we undertake a brief review of why more summary judgment motions should be filed by insurers in bad faith cases.  In the next post, we will look at how such motions can be best positioned to win.

But first, why should more summary judgments be sought in bad faith cases?

The Burden of Proof Is Exactingly High, Favoring The Insurer

In most if not all states, bad faith must be proved by a hybrid burden of proof which lies somewhere above preponderance of the evidence, and below beyond a reasonable doubt.  This burden of proof applies as much to the summary judgment stage as it does to the trial of a bad faith case, and it can be used offensively to argue that no genuine issue of material fact can be established.

In my experience, the burden of proof should be stressed more by insurers at the summary judgment stage than it is.  It is a great reminder to the judge to properly orient his frame of reference when reviewing the motion.

Genuine, Bona Fide Bad Faith Is Rare

Don’t believe what the Plaintiff’s bar says.  Claims adjusters and claims departments simply do not benefit from intentionally and unfairly  handling claims, and the list of why they do not benefit is a long one.  Most people want to do a good job and do it fairly.  Even the ones that don’t  seek to avoid unwarranted attention, and don’t want to get fired.  Nobody in a claims department wants their name associated with a bad faith suit, to be drug into interviews and depositions, or to be responsible for legal expense and risk.

I have written on this subject before, but in nearly 30 years of practice I can count the number of instances of claims handling with malice aforethought on a single hand — half of a single hand, actually.  It just does not happen.

Do mistakes happen in claims handling?  Of Course.  Negligence?  Occasionally.  But bad faith law allows safe harbor for both, and neither statutory nor common law bad faith claims are designed to punish an insurer for either mistakes or negligence.

Bad Faith Rulings Are Inherently Ideal  For Judges To Make

Nearly ten times out of ten, the proper adjudication of a bad faith case can be made following discovery, when a judge can look at the facts of the specific claims handling, and apply the particular bad faith law of the jurisdiction to serve a gate keeping function.  If  a judge finds a reasonable basis for handling the claim at issue, the inquiry is over.  And only in the rarest of cases will a judge genuinely believe that an insurance bad faith case can go to trial.

Summary judgments for insurers in bad faith litigation are fat pitches in which the odds favor the insurer.  In the next post, we will examine how to maximize that advantage, and win more summary judgment motions.

For more information on how to file and win more summary judgments in coverage and bad faith cases, and to reduce your legal expense while doing it,  reach  me at chaddick@dmclaw.com or 717-731-4800.

State Farm Wins Auto Claim After Court Finds Insured Misrepresented Residency

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ALLENTOWN, July 22 — A federal judge in Pennsylvania has entered judgment on the pleadings in favor of State Farm Fire and Casualty Co., finding that the denial of an automobile insurance claim was appropriate where the insured stated in his application that he resided in Pennsylvania when he in fact resided in New York.

U.S. Judge Lawrence F. Stengel of the Eastern District of Pennsylvania held that George A. Hancle’s statement regarding where he lived was a material item, and that State Farm would not have issued the policy if it was aware Hancle did not live in Pennsylvania.  Judge Stengel also found that State Farm relied on Hancle’s statement of residency.

State Farm issued an automobile policy to Hancle on Jan. 31, 2014, for his vehicle, a 2013 Nissan Pathfinder. On the policy application, Hancle said he lived in Pennsylvania and that his truck was kept in a garage there.  Hancle and his wife were involved in an accident in February of 2014 in Brooklyn, N.Y.

State Farm sued the Hancles and Nissan Motor Acceptance Corp.  in Pennsylvania federal court on Oct. 27, 2014, seeking a declaration it owed no coverage to Hancle because he made misrepresentations in the application and did in fact not live in Pennsylvana. Hancle did not submit a response to the complaint, and a default judgment was entered in favor of State Farm in June of 2015.

State Farm filed a motion for judgment on the pleadings in the fall of 2015, and the insured again failed to respond. Nissan Motor Acceptance Corp. a defendant in the declaratory judgment action, argued that the motion for judgment on the pleadings should not be granted because the state of Hancle’s residence was a genuine issue of material fact.

Judge Stengel disagreed, stating:

“There are no inferences left in this action to be drawn, and no material issues of fact to be resolved,” the judge concluded. “The well-pleaded factual allegations in State Farm’s complaint are considered admitted, and I accept them as true.”

State Farm Fire and Casualty Company v. Gregory A. Hancle, et al., No. 14-6140, E.D. Pa.; 2016 U.S. Dist. LEXIS 95084

Alternative Fees Case Study: Flat Monthly Subscription Fee Arrangement’s First Birthday Party

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Innovation is worrisome to outside law firms.  In most cases, at best it is given passing lip service as part of the DNA of any law firm attempting to keep pace with the changing market of working for in house legal departments.  At worst, innovation is the object of secret fear and loathing.  The billable hour is comfortable, predictable, measureable.  The problem is,  your clients don’t care about that.  You are in business for them, not the other way around.

But to all of those in secret fear of innovation and giving alternative fee arrangements a try, take heart, and be not afraid, for I bring good news.  In actual, real-life practice, the flat monthly subscription alternative fee arrangement works, and is popular with in house legal departments looking for greater cost control over outside legal fees.

In the past year a large, multi-state errors and omissions insurer was looking to its outside counsel to offer alternative fee options.  I matched them up with the monthly flat fee subscription arrangement with limits on the duration of the subscription for the matters they assigned us.  At the time we were doing work for this legal department in only one state – Pennsylvania.

The mechanics are straight forward – I conduct a brief review of every new assignment to get a sense for the size and probable case duration, and then provide the in house legal department with a quote for handling the case, expressed in a set payment per month with a maximum duration of months.  Each side can request to renegotiate the case duration if there are major changes in case complexion during the life of the case.  Trial prep, trial, and appeal are separately negotiated if necessary on either an hourly fee or flat fee per day basis with parameters on the number of agreed upon days, at the option of the client .

We are now a year into the program, and  we are now working for this insurer in five states, not one.  They have fed back to us the following about the program:

  • the primary benefit to this insurer’s claims operation is the injection of some cost – certainly into an inherently cost-uncertain endeavor — litigation;
  • cost-efficiency of the subscription arrangement grows with the number of assignments made on that basis;
  • they like the billable hour comparison data we provide so they can compare the relative cost, and benefits received, by the monthly subscription arrangement;
  • they enjoy the ability to adjust the subscription duration should new developments in the case, changes in parties, etc., take place during the life of the case; and
  • they appreciate the fact that we often “no charge” them for any months in which no substantial work takes place due to factors beyond our control, and they are willing to extend the subscription duration for a corresponding length in exchange.

Innovation in outside law firms can be taken beyond merely lip service.  It can be put into practice when it comes to alternative fees, and it can be successful for both the lawyer and the client.

For more information on how to deliver efficient, and cost-effective service to  your in house legal department through the use of flat monthly subscription and other alternative fee arrangements, reach  me at chaddick@dmclaw.com or 717-731-4800.

Insured’s Failure To Cooperate In Auto Claim Leads to Summary Judgment for State Farm

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LAS VEGAS, Aug. 3 — A Nevada federal judge has granted State Farm’s motion for summary judgment in a case involving an auto insurance claim, finding that the insureds did not comply with the policy requirement of cooperation with the investigation of the claim.

Jessica Auriemma was insured under an automobile insurance policy from State Farm Mutual Automobile Insurance Co.  After she and Charlette Auriemma were involved in a rear end collision during which the other motorist fled the scene, they filed a claim pursuant to the policy.  State farm asked for information from the Auriemmas  which was not returned.

State Farm made repeated request for information without response.  Nevertheless, the Auriemmas sued State Farm in the Clark County, Nev., District Court, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the Nevada Unfair Claims Practices Act and unjust enrichment.  State Farm removed the action to the U.S. District Court for the District of Nevada after which the parties agreed to voluntary dismissal of all extracontractual claims.

With respect to the remaining claim for breach of contract, State Farm moved for summary judgment, and the Auriemmas failed to respond to the motion within the allotted time, choosing instead to seek remand of the case to state court on grounds that the value of the controversy  fell to below $75,000 after the extracontractual claims were dismissed.. They also moved to obtain more  time to respond to State Farm’s summary judgment motion.

U.S. District Judge  Judge Andrew P. Gordon denied the Aureimma’s motions, specifically refusing remand  because “the parties were diverse and the amount in controversy at the time of removal more likely than not was above the jurisdictional amount.”

Judge Gordon also found that the Auriemmas were not entitled an extension of time to file opposition to State Farm’s summary judgment motion because although State Farm alleged no prejudice, “[t]he filing of a timely opposition was entirely within the plaintiffs’ control.”

Judge Gordon also denied the request for more time to respond to State Farm’s motion for summary judgment, and granted judgment for State Farm,  ruling:

“[N]othing prevented [the Auriemmas] from challenging subject-matter jurisdiction before the response deadline expired. They also could have provided an opposition along with the extension motion, which was filed long after the response deadline had already expired. They did none of these things. Under these circumstances, I find no excusable neglect and I deny the plaintiffs’ motion to extend. . .

State Farm has satisfied its initial burden to show that no genuine dispute exists as to the plaintiffs’ failure to comply with their contractual duties because the plaintiffs did not cooperate before they filed suit. . . The plaintiffs have not responded with any specific facts to show that a genuine dispute exists. Nor does the evidence before me demonstrate any such facts. Because the plaintiffs did not comply with an express condition precedent of the policy, State Farm is entitled to summary judgment on the remaining breach of contract claim.”

The Economics of Loyalty: Why In-House Legal Departments Can’t Afford To Be Nice All The Time

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I turned 51 today.  So I consider myself  a Tweener when it comes to the practice of law:  I am not so old yet to be considered one of the Old Guard Traditionalists, but I am too old to be considered New Blood.  This  gives me a unique perspective of both traditional thinking  about the relationships between law firms and in-house legal departments, and the new reality which doesn’t seem as friendly as collegial as the Old Guard Traditionalists remember it.

I confess I lean a little toward the Old Guard Traditionalists, because I can recall a time when in house legal departments for insurance companies and corporate clients, after a law firm delivered them a defense verdict or a well below case authority settlement, would complain that the bills were not sufficiently large in comparison to the result which was obtained.   Admittedly, this is a distant memory, but it is a memory just the same.

But because I  know and recognize this as a distant memory, I recognize the current reality younger lawyers in outside firms face in working for in house legal departments, and in desperately try to retain work from those departments, and to keep those departments satisfied.

It can become circular discussion.  The Old Guard Traditionalists in  outside firms bemoan the lack of loyalty from clients, some of them previously long-standing ones.  For their part, the in house legal departments bemoan the lack of efficiency and responsiveness of their roster of outside law firms in a patently changing marketplace.  The New Blood wonders which came first in this dialogue, the chicken or the egg?

My perspective as a Tweener is that the latter question doesn’t matter, and the former confidence of the Old Guard Traditionalists in the virtue of their position  about the decline in client loyalty is just as irrelevant.

Which comes first, the chicken or the egg?  The Client.

In house legal departments have always had purchasing power.  They have in the distant past simply not used this lever, a lever they have had all along.  They could afford the luxury of loyalty.  Today, however, in the pressure of the marketplace from both without and within, General Counsel’s offices simply cannot afford to ignore efficiency, responsiveness, and cost – effectiveness.

They will always like you if you have had a good relationship with them.  That is not the question any longer.  The question is can they afford to do business with you?  Do you provide them value over and above the value they give to you in the form of fees?  Are you responsive to requests for alternative fee arrangements, volume discounts, and adherence to budgets and litigation management plans?  Do you give them a straight line plan to their result, or are you simply going to follow a litigation script by rote?

I have spent more than 25 years in an outside law firm, so what I am about to say is at most an educated guess.  I would wager that if in house legal departments could , they would simply operate on the principle of loyalty also.  After all, it is easier for them too, to work with lawyers they have used for a long time, and whom they like.  But they can no longer afford to measure suitability and to  do things that way, and neither can the outside law firms who work for them.  Efficiency and value must be delivered.  Those benchmarks will be rewarded with client loyalty.  Length of service is no longer the metric.

Those are the Economics of Loyalty in today’s legal marketplace.

For more information on how to deliver efficient, and cost-effective service to  your in house legal department, reach  me at chaddick@dmclaw.com or 717-731-4800.

Subscription Flat – Fee Efficiency Comes to Insurance Litigation and Non-Litigation Matters

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“Adapt or die….”

Billy Beane, Moneyball

As insurance company legal departments continue to feel organizational pressure to improve efficiencies in the  engagement of outside law firms, many outside firms lag behind in adapting products and services to meet this need.  Those firms who have, however, risen to meet the demands of the market continue to innovate.  Subscription fee arrangements are one such innovation.  Under these arrangements, in which clients pay outside firms an monthly flat fee  subscription  for legal services, provide much – wanted control over expense, and help insurers’ legal departments convert variable costs into fixed ones.

We have discussed a broad range of alternative fee innovations in these pages many times in the past.  Subscription fee arrangements represent a narrow but powerful segment of this range.

Rather than pay outside firms by the hour, a referred matter, litigated or not, is quoted by the outside firm at a flat monthly price.  Assignments with a shorter life span of 60 days are simply quoted on a flat rate fee basis.  Most litigated matters are quoted with a cap on the number of months the subscription fee is to be paid.  Both the lawyer and client agree, however, to be open to reasonable adjustments  of the length of subscription, especially in cases of unforeseen circumstances, delays, as well as events which may shorten the life of the assignment.  Trial preparation and trial are billed separately, either on an hourly basis, or an after-negotiated flat rate per day quote.

For comparison purposes, our firm provides clients with a statement of what a subscription fee matter would have cost if it were billed hourly.  This data is used not only to demonstrate extra value provided to the client, but to make adjustments in the monthly subscription fee, if necessary, in similar future assignments to make sure the client is satisfied with the arrangement.

The subscription fee arrangement is also scalable.   Assignments can be negotiated in blocks for a single subscription fee, for example, and volume subscription discounts can also be offered and agreed upon.

Subscription flat fee arrangements are win-win for both legal department and outside law firms.  Firms are encouraged to handle matters quickly and efficiently, and insurance company legal departments can migrate a large portion of outside legal expense to a fixed cost as opposed to a highly variable one.

Reach  me at chaddick@dmclaw.com or 717-731-4800 for more information on how the use of flat fee subscription agreements in insurance litigation and non litigation matters can create efficiencies for your legal department.

Life Insurer Had Reasonable Basis To Rescind; No Bad Faith

 

lifeinsuranceMILWAUKEE, Aug. 5 — A federal judge in Wisconsin has dismissed a  bad faith claim on the insurer’s motion for partial summary judgment, finding it had a reasonable basis to contest a claim for death benefits based on possible misrepresentations in the application.

Calvin Nutt and Lowanda Smith submitted answers to medical questionnaires as part of the purchase of life insurance from United of Omaha Life Insurance Co.  Mr. Nutt answered “No” to a question regarding whether he had ever been treated for chronic obstructive pulmonary disease (COPD).  The policy cancelled for non payment, but the couple resubmitted the application, and again denied treatment of Mr. Nutt for COPD.

On July 10, 2016, Smith submitted a claim under the policy after Nutt was murdered.  United  undertook a policy review within the two year contestability period and obtained medical records which showed that one of Nutt’s treating doctors ordered diagnostic testing on whether his complaints of chest pain may have been caused by COPD.  The results were negative for COPD.

As part of the claim, Smith obtained an autopsy report which indicated Nutt did not have COPD.  She filed suit in Wisconsin State Court alleging breach of contract and bad faith, and United removed the action to U.S, District Court for the Eastern District of Wisconsin.  The insurer thereafter filed a motion for partial summary judgment on the bad faith claim.

Judge J.P. Stadmueller granted United’s motion on the bad faith claim, and denied Smith’s motion for partial summary judgment on the breach of contract claim on grounds of lateness and reliance on evidence not in the record.   Judge Stadmueller  wrote, in granting United’s summary judgment motion on the bad faith:

“[t]he undisputed evidence shows that Smith’s bad faith claim must fail…United was within its rights to review the policy given that Smith’s claim occurred within the contestability window. It sought medical records and, from those it could obtain, there was some basis to believe that Nutt had lied about his COPD. Though that basis was moderated by other statements in the records, for instance the ‘well aerated’ opinion on Nutt’s x-rays, all that is required ‘[t]o avoid a bad faith claim . . . [is] one reasonable basis on which to deny benefits.’ As of September 1, 2015, United had ‘exercise[d] its duty of ordinary care and reasonable diligence in investigating and evaluating’ Smith’s claim and had a reasonable basis to debate the claim. . . . [T]he fact that the basis for denial later evaporated is no reason to impose bad faith liability for the earlier denial decision.”

The judge also ruled Smith failed to show United was unaware of a reasonable basis to contest the claim, which was also fatal to Smith’s bad faith claim.

Lowanda Smith v. United of Omaha Life Insurance, No. 15-1344, E.D. Wis.; 2016 U.S. Dist. LEXIS 101726

 

 

Concurrent Clause Exclusion Bars Sewer Backup Claim

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FRANKFORT, July 26 — A Kentucky appeals court ruled that a concurrent cause exclusion barred coverage provided under a Sewer and Drain Back-Up endorsement  in a policy issued by Maryland Casualty Co.  to a building owner and eye car practice.   The court affirmed summary judgment for the insurer in the case.

Eye Doctor Caroline L. Hendy, Insight Properties LLC and Eye Deal Eye Care II PLLC were insured by Maryland Casualty.  On Nov. 30, 2010 extensive damage was done to the insureds’ office building following heavy rains.  The doctor discontinued her practice for nearly 5 full days, and furnished an engineers’ report which attributed the damage to a collapsed drainage tile on a neighboring property which was under construction.

On March 7, 2011, the insureds sued Maryland Casualty in state court for negligence and bad faith  after the insurer declined coverage on grounds of the concurrent clause exclusion.  While the policy provided coverage for sewer backup, the policy also contained flood and surface water exclusions, and a concurrent cause exclusion which, Maryland Casutalty asserted, made the sewer backup coverage inapplicable to the loss.

Maryland Casualty was granted  summary judgment by the trial court, which found that the concurrent causes of heavy rain and surface water from overflow of a nearby creek likely contributed to the loss and the insureds’ damages.  The court held that the surface and flood water exclusions applied, regardless of any other contributory or concurrent event.

The Kentucky appeals court affirmed summary judgment for Marlyand Casualty, holding that the sewer backup coverage provision was essentially irrelevant  when the trial court determined that flood or surface water contributed to the loss:

“When viewing the record in a light most favorable to Appellants and resolving all doubts in their favor, we cannot conclude that the trial court erred in finding that there were no genuine issues of material fact and that [Maryland Casualty] was entitled to a Judgment as a matter of law. The policy language is not ambiguous and expressly provides an exclusion from covered loss for damages resulting from ‘flood, surface water . . . [or] overflow of any body of water.”

Dr. Caroline I. Hendy, et al. v. Maryland Casualty Co., No. 2015-CA-001030, Ky. App.; 2016 Ky. App. Unpub. LEXIS 502

Iqbal Used To Dismiss Bad Faith Claims Against Foremost

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SCRANTON, Aug. 5 — A federal magistrate judge has granted Foremost Insurance’s motion to dismiss a bad faith claim on the grounds it did not meet minimum fact pleading requirements under federal law.  The judge found that the Plaintiff’s reliance solely on the allegation of a breach of contract count and the bare language of the Pa. Bad Faith Statute were not enough to allow the claim to survive.

Plaintiff Beata Rogowski bought a policy of  homeowners insurance from Foremost Insurance Co. and filed a claim for fire damage sustained in her home.  After disagreements arose during the claim, Rogowski sued Foremost in U.S. District Court for the Middle District of Pennsylvania, claiming that Foremost did not properly handle adjustment of the claim.  She alleged both a breach of contract count and a bad faith count.

Foremost filed a motion to dismiss both claims, but Magistrate Judge Martin C. Carlson granted the motion only as to the bad faith count, finding it not to have been properly plead.

Judge Carlson wrote:

“In reaching this conclusion, we note that [the bad faith] count of the plaintiff’s complaint consists of little more than a paraphrase of the statute, coupled with a factual assertion that the defendant has breached the insurance policy in ways which are undefined, but allegedly willful and malicious. Upon consideration, we conclude that these ‘[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice’ to state a claim under [42 Pa. Consolidated Statutes Annotated] §8371. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009). In this bad faith context, we require more than conclusory, bare-bones allegations that an insurance company acted in bad faith to sustain such a claim. Since Rogowski has not met these pleading requirements in her current, spare complaint the bad faith claim set forth in Count II of the complaint should be dismissed. However, mindful of the fact that plaintiffs often should be afforded an opportunity to further amend and articulate their bad faith claims, it is recommended that this count of the complaint be dismissed without prejudice to the filing of an amended complaint which meets the pleading standards prescribed by law for such claims.”

Judge Carlson also found the complaint not sufficiently specific to allow him at that point to dismiss the breach of contract count on grounds it was time-barred:

“Given the legal and factual ambiguity of the plaintiff’s complaint, an ambiguity which prevent[s] us from determining whether there are any barriers to the application of the contractual terms which call for the filing of a lawsuit within one year of the alleged loss, we believe that the plaintiff should be required to provide a more definite statement of this claim before the Court is tasked with assessing the legal merits of this motion to dismiss. Therefore, it is recommended that the plaintiff be directed pursuant to [Federal Rule of Civil Procedure] Rule 12(e) to submit a more definite statement of this claim. Upon receipt of this more definite statement the Court could then determine whether that claim is time-barred.”

Beata Rogowski v. Foremost Insurance Co., No. 15-1606, M.D. Pa.; 2016 U.S. Dist. LEXIS 95930 (Carlson, Dist. Mag. Judge)

3rd Circuit: Termination of Disability Benefits Proper

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PHILADELPHIA,  July 11 — The Third Circuit U.S. Court of Appeal found no ambiguity in a residual disability policy’s definition of the  term “occupation” and as a result held that the insurer’s termination of benefits was proper.

Daniel Bowerman, a chiropractor, sued National Life Insurance Co., claiming that benefits were improperly terminated under the  Employee Retirement Security Act.   Bowerman suffered a bike-riding injury to his shoulder, and had been receiving benefits for twenty one  years. After the accident, however, Bowerman continued his chiropractic practice and also worked as a consultant.

In 2011, National Life sent Bowerman a letter to terminate partial disability benefits as of his 55th birthday, and asserted he no longer was disabled as defined in the policy.  The insurer claimed that Bowerman’s full time consulting work for Independence Blue Cross took him outside of the definition of disabled as written in the policy, as he was performing his occupation.

After Bowerman filed suit to overturn the determination, the parties filed cross-motions for summary judgment. The District Court granted summary judgment to National Life, rejecting Bowerman’s argument that the terms of “occupation,” and “insured’s occupation,” were ambiguous.

After Bowerman appealed to the Third Circuit, the Third Circuit Panel of  Circuit Judges Julio M. Fuentes, D. Brooks Smith and Richard L. Nygaard affirmed the summary judgment for National life, ruling that the  “plain language of the [policy] Rider tied the definition of occupation to the Policy.”

In a footnote to the opinion, Circuit Judge Smith noted he would have vacated the District Court’s judgment  for subject matter jurisdiction, because Bowerman’s individual policy was not within the coverage of ERISA, therefore not presenting a federal question.

Daniel S. Bowerman D.C. v. National Life Insurance Co., No. 15-1129, 3rd Cir.; 2016 U.S. App. LEXIS 12503.