Sinkholes Near Propane Storage Tanks Not Covered Loss, Federal Judge Rules

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HARRISBURG, Sept. 18 – A federal judge has ruled that a sinkhole collapse near the insured’s propane storage tanks was not a covered loss under the insured’s property policy, finding a flood exclusion in the policy applied.

In Heller’s Gas, Inc. v. International Ins. Co. of Hannover, Ltd.,, U.S. Middle District Judge Matthew Brann granted International’s motion for summary judgment in full on both breach of contract and bad faith claims.  Heller’s had a policy insuring Heller’s property which include  six propane storage tanks.  Several months after policy inception, Heller’s noticed sinkholes near  the tanks.

An engineering firm engaged by Heller’s concluded the sinkholes were the result of excessive rainfall.  International began an investigation, reserving all rights, and raised a number of potential policy exclusions including Excavation Cost, Land and Water, and Earth Movement exclusions.

Ultimately Heller’s brought suit against the insurer, alleging International’s breach of the policy, and bad faith.

In granting the insurer’s summary judgment motion, Judge Brann held that Heller’s failed  to meet the burden of establishing actual property damage.  Judge Brann also found that the policy’s flood exclusion precluded coverage because the damage was the result of “surface water,” as confirmed by the insured’s engineering firm.

Judge Brann held that International had a reasonable basis to ultimately deny the claim, and that as a result Heller’s could not meet the heightened burden of clear and convincing evidence showing that the insurer acted in bad faith.

Heller’s Gas, Inc. v. International Ins. Co. of Hannover, Ltd., No. 4:15-CV001350, 2017 U.S. Dist. LEXIS 151072 (M.D.Pa.  Sept. 18, 2017)(Brann, J.)

 

 

 

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RICO, Fraud Claims Properly Pled Against Insurer, Georgia Federal Judge Rules

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COLUMBUS, Oct. 5 — Georgia’s bad faith statute does not preempt claims against an insurer for fraud or claims of violation of the Georgia Racketeer Influenced and Corrupt Organizations Act (RICO), a federal judge has ruled.  The Court ruled in  Holly Steigel, et al. v. USAA Casualty Insurance Co., et. al., No. 16-346, M.D. Ga., 2017 U.S. Dist. LEXIS 163341  that fraud and state RICO claims could be alleged in addition to bad faith claims because the former were not premised upon the insurer’s unreasonable refusal to pay the claim.

 

Holly Stiegel filed an auto insurance claim with USAA Casualty Insurance Co., which included claims for medical expenses resulting from the  car accident.  USAA denied the claim, after which Steigel filed suit against USAA in the U.S. Middle District of Georgia.  The complaint originally included breach of contract and bad faith claims pursuant to Official Code of Georgia Annotated Section 33-4-6, O.C.G.A. § 33-4-6.  Steigel later amended  the complaint to include her husband as a plaintiff, and to  add claims for fraud, violations of the Georgia RICO Act, O.C.G.A. § 16-14-1 et seq., as well as unjust enrichment.  Steigel aslo added as a defendant Auto Injury Solutions (AIS), a USAA vendor.

According to the  amended complaint, USAA and AIS constructed a plan whereby USAA would outsource claims for medical payments to AIS with the design that AIS would deny or reduce the amount of the medical claims.

USAA and AIS both moved to dismiss the fraud, RICO, and unjust enrichment claims, arguing that they were all preempted by the state bad faith statute, which provided the exclusive remedy for the claims conduct of the defendants in claims handling.

Georgia Middle District Chief Judge Clay D. Land denied the motions to dismiss.  Chief Judge Land ruled that the preemption issue was one of first impression in Georgia, and that RICO and fraud claims were not precluded by Georgia’s bad faith law.  The Court specifically held that RICO and fraud claims were not strictly premised upon USAA’s failure to pay a claim, and that they were therefore not precluded by the bad faith statute.  Rather, the judge ruled, the RICO and fraud claims were based on the alleged conspiracy of the defendants to commit theft and deception:

“Plaintiffs allege that Defendants stole their money when they devised a scheme for USAA to avoid paying benefits legitimately owed under their insurance policy while collecting premiums for insurance that they knew was not being provided.  Thus, Plaintiffs appear to seek as their damages the return of the money they paid in the form of premiums to USAA.  The Court finds that this claim is not a claim by a holder of an insurance policy to recover benefits under the policy and bad-faith penalties based on an insurance company’s refusal to pay a loss covered under the policy.”

Chief Judge Land also denied the motion to dismiss the unjust enrichment claim, writing that he would re-visit the issue at summary judgment.

Holly Steigel, et al. v. USAA Casualty Insurance Co., et. al., No. 16-346, M.D. Ga., 2017 U.S. Dist. LEXIS 163341