Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than three decades, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

Pa. Supreme Court Holds Household Exclusion Unenforceable In Auto Policy With Stacked UM/UIM Benefits

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Pittsburgh, Jan. 23 – The Pennsylvania Supreme Court has ruled that a household exclusion in an auto insurance policy was unenforceable because it impermissibly took stacked UM/UIM benefits away from the insured in violation of the Pa. Motor Vehicle Financial Responsibility Law (Pa.M.V.F.R.L.).

In Gallagher v. Geico Indem. Co., the Pa. Supreme Court reversed both trial court and the Pa. Superior Court’s grant of Summary Judgment to Geico, in a case where Geico sought to disallow $200,000 in stacked UM/UIM benefits in an automobile policy covering two vehicles  owned by the insured, Gallagher.  Gallagher also had a separate  motorcycle policy with UM/UIM  limits of $50,000.00, also issued by Geico.

Gallagher was injured in an August 12, 2012 motorcycle accident, and was paid by both the tortfeasor, and by Geico in the amount  of  $50,000.00  which was the UM/UIM limit under the motorcycle policy.  Gallagher sought the additional $200,000.00 in stacked UM/UIM coverage under the auto policy, but Geico denied that claim on the grounds that the auto policy contained a household vehicle exclusion, which provided:

“This coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for Underinsured Motorists Coverage under this policy.”

Gallagher filed suit against Geico, claiming that Geico placed Gallagher’s motorcycle and automobiles on separate policies, and that he paid for the stacked UM/UIM benefits under his auto policy.

Geico won summary judgment in the Westmoreland County Court of Common Pleas based on the exclusion, and the Superior Court affirmed.  On appeal to the state Supreme Court, however, the court, per Justice Baer, reversed in a 5-2 ruling, holding that the household exclusion violated section 1738(b) of the Pa.M.V.F.R.L., which requires that stacked UM/UIM benefits be waived in writing.  Justice Baer wrote that Gallagher did not waive stacking under his auto policy, and that he was entitled to those  benefits, thereby barring application of the household vehicle exclusion.  Of the exclusion, Justice Baer wrote:

“This policy provision, buried in an amendment, is inconsistent with the unambiguous requirements Section 1738 of the MVFRL under the facts of this case insomuch as it acts as a de facto waiver of stacked UIM coverage provided for in the MVFRL, despite the indisputable reality that Gallagher did not sign the statutorily-prescribed UIM coverage waiver form. Instead, Gallagher decided to purchase stacked UM/UIM coverage under both of his policies, and he paid GEICO premiums commensurate with that decision. He simply never chose to waive formally stacking as is plainly required by the MVFRL.”

The Court therefore reversed and remanded the Superior Court ruling, sending the case back to the trial court for further proceedings.

Justice Wecht filed a dissenting opinion, in which he criticized the majority for conflating the stacking waiver provisions of section 1738 with  the entirely  separate question operation of a policy exclusion, arguing that nothing in the Pa.M.V.F.R.L. precluded the valid operation of the household vehicle exclusion.  Justice Wecht also warned against the dangerous implication of the majority ruling, and the use of section 1738 to invalidate all UM/UIM exclusions, essentially allowing a waiver provision to trump the terms and conditions of the policy language.

Finally, Justice Wecht wrote that the majority decision violated earlier state Supreme Court precedent in Erie Exchange v. Baker, 601 Pa. 355, 972 A.2d 507, in which the Court made a clear distinction between the primacy of the nature, scope, and extent of UM/UIM coverage as set down in an insurance policy (and its limitations and exclusions), and the secondary consideration of whether coverage, if not otherwise limited or excluded,  should be stacked, unstacked or waived.

Gallagher v. Geico, 2019 Pa. LEXIS 345 (January 23, 2019, Baer, J.)

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State Auto Had Reasonable Basis To Deny Pipe Burst Claim, Federal Court Rules; Contract and Bad Faith Claims Dismissed

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PITTSBURGH, Oct. 11 – A federal judge has ruled that State Auto Insurance Company was entitled to summary judgment on breach of contract and bad faith claims arising out of a water loss because the insureds violated a continuous occupation provision contained in their homeowners policy.

In Gerow v. State Auto, U.S. District Judge Kim Gibson found that State Auto was not liable to pay the water loss claim, and it could also therefore not be liable for acting in bad faith toward the insured plaintiffs in the case.  The case was originally filed in Pa. state court but removed to the U.S. District Court for the Western District of Pa.

On January 16, 2016, the Gerows suffered a pipe burst water loss at the insured premises, insured by State Auto.  State Auto denied the claim, however, pursuant to an investigation which determined that the house in question was not occupied at the time of the loss,  in violation of the terms of subject homeowners policy which required continuous occupancy.  After State Auto denied the claim, the insureds filed breach of contract and bad faith claims against the insurer.  After the case was removed to federal court, the parties filed cross motions for summary judgment as to both claims.

Judge Gibson found that the insureds did not meet the continuous residency  condition of the policy, and that State Auto had not waived the provision.  He therefore granted summary judgment on the coverage claim to State Auto.

The insureds argued they could still maintain a bad faith action against the insurer however, claiming that State Auto erroneously advised them to seek water remediation and then denied coverage, and failed to inform them that they were not complying with the residency requirement.

Judge Gibson dismissed these arguments, however, after employing the traditional Pennsylvania two part bad faith test — whether the insurer’s position lacked a reasonable basis, and whether it knew or recklessly disregarded the lack of basis.  Judge Gibson wrote that State Auto:

“clearly had a reasonable basis for denying coverage for the Subject Loss: the Policy required Plaintiffs to reside at the Subject Property, and Defendant concluded, after an investigation, that Plaintiffs did not reside there, a conclusion with which this Court agrees…[Therefore, State Auto] could not have known or recklessly disregarded a lack of reasonable basis.”

Judge Gibson also relied in part on a prior Western District ruling which precluded a bad faith claim from proceeding when a lack of coverage was found.

Gerow v. State Auto Prop. & Cas. Co., U. S. District Court Western District of Pennsylvania Case No. 3:17-cv-203, 2018 U.S. Dist. LEXIS 175007 (W.D. Pa. Oct. 11, 2018) (Gibson, J.)

Bad Faith Claims Against Individual Claims Adjuster Arising Out of UM/UIM Claim Dismissed By Federal Judge

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PHILADELPHIA, Aug. 9 –  A bad faith action against an individual claims adjuster has been dismissed by a U.S. District Court Judge, who found that the joinder of the adjuster  in a coverage and bad faith action arising out of a UM/UIM claim was done fraudulently to defeat federal removal jurisdiction.

In Reto v. Liberty Mutual Insurance, U.S. District Judge Timothy Savage denied Retos’ motion to remand the Retos’ case to state court after Liberty Mutual removed the case, contending that the joinder of Liberty Mutual adjuster Stephania DeRosa was fraudulent for the purposes of destroying federal diversity jurisdiction.

Judge Savage noted that Liberty met its burden in opposing the motion for remand:

“[the]removing party has a heavy burden of persuading a court that joinder is fraudulent….[however] the claims against [the claim representative] are wholly insubstantial and frivolous…there is no basis to support a contract [against the claims handler, and] only the principal [Liberty Mutual] may be held liable.”

Judge Savage ruled that the claim representative was only an agent, without a stand-alone contract with the insured.  Finally, the Court held that the Pa. Bad Faith Statute did not apply to claims representatives, but rather only to insurers.  Accordingly, Judge Savage dismissed Ms. DeRosa as a defendant, and denied the Retos’ motion to remand the case to state court.

Reto v. Liberty Mutual Insurance, U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-2483, 2018 U.S. Dist. LEXIS 133336 (E.D. Pa. Aug., 8, 2018) (Savage, J.)

Third Circuit Continues To Rule Faulty Workmanship Not Covered By CGL Policy

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PHILADELPHIA, JUNE  6 – The Third Circuit U.S. Court of Appeals  has recently affirmed a ruling in favor of Selective Way Insurance Company, holding that Selective does not have a duty to defend or indemnify an insured contractor for claims of faulty workmanship arising out of a ondominium construction project. 

In Lenick Construction, Inc. v Selective Way Insurance Company, Lenick was impleaded as a third-party defendant in litigation as the general contractor, Westrum, for defects at the Villas at Packer Park Condominium project.   Lenick notified Selective after it was joined,  seeking defense and indemnity and, while denying the request for indemnity, Selective agreed to defend Lenick in the case under a reservation of rights. 

Lenick sued Selective in the Philadelphia Court of Common Pleas, seeking a declaratory judgment obligating Selective to provide defense and indemnity from Selective , after which Selective removed the action to federal court.  Thereafter, the parties filed cross motions for summary judgment. 

In affirming the US District Court’s conclusion that the allegations against Lenick were not covered by the CGL policy issued to Lenick by Selective, the Third Circuit relied upon Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896-97 (Pa. 2006) and held that the claims in the Joinder Complaint against Lenick did not allege a fortuitous “occurrence” such that the claim would be covered.  In the Opinion written by Chief Judge Hardiman, the Court held that a fair reading of the Complaint against Lenick was that Lenick was guilty of faulty workmanship. 

While Lenick contended that some of the damage to its work occurred as a result of the faulty workmanship of other contractors such that an occurrence could be found, the Court disagreed, referring again to the underlying complaint against Lenick which alleged Lenick’s faulty workmanship, not that Lenick’s work was damaged by the faulty workmanship of others.  Summary judgment in favor of Selective was therefore affirmed.

Lenick Constr., Inc. v. Selective Way Ins. Co., 2018 U.S. App. LEXIS 15197, 2018 WL 2727394

 

 

New Jersey Senate Passes Bad Faith Bill

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TRENTON,  June 8 –  The State Senate of New Jersey has passed a Bill which will, if passed by the General Assembly and signed by the Governor, impact bad faith litigation in the Garden State.  On June 7, 2018, the New Jersey State Senate passed New Jersey Senate Bill 2144, the New Jersey Insurance Fair Conduct Act (IFCA).  The statue provides for remedies and damages against insurers who commit “an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy” or a violation of New Jersey’s Unfair Claims Settlement Practices Act  (UCSPA).  The UCSPA catalogs more than ten different forms of insurer misconduct.

 In its current form, the statute is unclear as to whether or not it adheres to the New Jersey Supreme Court’s common law standard of bad faith conduct which holds that mere negligence is not bad faith and the refusal to settle a debatable claim does not constitute bad faith.  Under Supreme Court precedent, a bad faith Plaintiff must successfully show that there are no debatable reasons for the denial of insurance benefits. 

 The bill passed by the State Senate proposes treble damages and attorney fees as well as cost recovery as part of the remedies.  The Bill also provides for actual damages and the above-mentioned remedies “upon establishing” prohibited conduct, although it is silent as to the requisite burden of proof, e.g. preponderance of the evidence, clear and convincing proof.  The Bill has been referred to the State General Assemblies Banking & Commerce Committee. 

NJ Senate Bill 2144, New Jersey Insurance Fair Conduct  Act

 

Guest Column – Attorney David Cole: The Proper Care & Feeding Of A Bad Faith Litigation Expert

 

 

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In its unanimous opinion in Rancosky v. Washington National Insurance Company, 170 A.3d 364 (Pa. 2017), the Pennsylvania Supreme Court confirmed the elements of an insurance bad faith action under Pennsylvania’s bad faith statute. The Court stated: “we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” Id. at 23-24. Additionally, the Court noted that mere negligence is insufficient for a finding of bad faith under §8371. Id. at 18.

The Rancosky opinion did not change the pursuit, or the defense, of insurance bad faith claims, so much as it confirmed a body of intermediate appellate case law that had developed over the last 24 years. Most practitioners and courts had applied the Terletshy test since its publication in 1994. With Rancosky now firmly establishing what is required to prove bad faith, experts used by the parties in insurance bad faith litigation will need to tailor their reports to that standard.

Experts, of course, are not required by statute or case law in Pennsylvania insurance bad faith cases. Experts are employed by the parties at the discretion of the trial judge. Experts are to provide opinion on the reasonableness of the insurer’s conduct to assist the judge or jury in determining if the insurer acted in bad faith. Experts are to opine on the reasonableness of the insurer’s conduct, not on whether they believe the insurer acted in bad faith. That decision is reserved for the trier of fact. Most courts permit expert testimony to assist in assessing the reasonableness of the involved insurer’s conduct.

Post-Rancosky, what does an expert need to assess the reasonableness of the insurer’s conduct? In other words, what do litigators need to provide an expert in order for him or her to prepare an informed, credible report, one that will stand up to summary judgment motion and trial cross-examination? This article will address these questions. My observations are based on my 15 years and over 50 expert reports in insurance bad faith cases, mostly as an expert for the defense. A second planned article will address what counsel can expect in an insurance bad faith expert report.

What Does the Expert Need to Evaluate An Insurance Bad Faith Claim?

Let’s make the answer simple: SEND ALL NON-PRIVILEGED FILE MATERIAL TO ME and let me review them and decide what is important to my review of the insurer’s conduct. And please don’t try to influence my opinion by sending only the documents that support your client’s position, or only the “pertinent” documents that you believe are determinative of the insurer’s conduct.

Another reason to send it all to me is to avoid surprise and embarrassment at trial. I don’t want to ever have to say I have not seen a document from the file. I won’t appear surprised at trial, and I won’t have to embarrass counsel by pointing out that counsel never provided me with the document.

Finally, do not send an unredacted claim file. I don’t want to rely on documents in my report that were not produced to opposing counsel. To do so is to risk the credibility of my report, or at least result in an order from the court requiring production of the documents in question and me having to perhaps amend my report.

What Do I Expect To See In The Claim File?

What is typically contained in a claim file will depend on the type of claim involved. For example, a property damage claim will not contain medical reports and records. An auto personal injury liability claim file will not contain a fire cause and origin report. Having said that, we can generalize what most claim files should contain, as follows:

  • Insurance policy: The applicable insurance policy and declaration page for the date of loss.
  • Correspondence: All correspondence, including letters, e-mail and texts by and between anyone involved in the claim.
  • Reports: Police, doctors, witnesses, parties, experts, investigators, counsel.
  • Court related documents: Pleadings, motions, discovery and opinions from the bad faith action and pertinent documents from the underlying tort suit if there was one.
  • Log entries: Pennsylvania insurance regulations require insurers to maintain records of their claim handling activity sufficient to permit the Insurance Department to assess what was done on a given claim. Typically, this is done by insurers through a “claim log”, either manual or more likely today by computer entry. These notes are often invaluable in assessing the insurer’s conduct in a bad faith case. It is the place where claims adjusters can sort out their thinking on a claim and explain their actions, or fail to do so.
  • Claim specific records: For example, medical records in injury cases and damage assessments and insurer has allegedly failed to adhere to its own internal claims handling procedures) the insurer’s claims handling manual and “best claims practices” should be provided to me.

Not all claim files will contain all these items.

Some counsel will go in the other direction, and want to send me everything, even their “work product”, such as their summary of the case, their theory of the case, a chronology they prepared for the case, their summary of medical records in the case, etc. I do not want that information; I want to review the file on my own, prepare my own chronology, summarize the issues in my own way, and form my own understanding of the case.

I am being paid to reach my own conclusions about the insurer’s conduct, not “parrot” counsel’s view of the case. To do otherwise – that is, to provide me your work product – can make for a very uncomfortable cross-examination for me, and an effective challenge to the credibility of the defense for you.

David Cole is owner of David Cole Consulting, Inc. and he may contacted at 844-744-5600 or dcole@philadefense.org. For more information about Mr. Cole and his litigation support services, please see his website at  www.colelitigationconsulting.com 

CJ Haddick Guests On A.M. Best’s “Updates In Insurance and Bad Faith Podcast”

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A.M. Best has published the most recent episode of its Updates In Insurance Coverage and Bad Faith podcast earlier today, in which I discuss some recent developments in insurance coverage and bad faith law with the show’s host, John Czuba.  You can listen to the episode via the link below.

A transcript of the podcast can be found here:

PodcastTranscript-137PodcastTranscript-137

 

PRESS RELEASE: Haddick Featured Guest on National AM Best Insurance Podcast

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Contact:  Greta Kelly, Assoc. Marketing Director

Dickie, McCamey & Chilcote

412-392-5311

gkelly@dmclaw.com

 

Dickie McCamey Attorney Haddick is Featured Speaker on National Podcast

February 2018 (Harrisburg, PA) –  For Immediate Release – Dickie, McCamey & Chilcote, P.C. attorney Charles E. Haddick, Jr. will be the featured speaker on A.M. Best’s monthly podcast, which airs February 28, on the Legal Talk Network. Haddick’s episode will focus on recent national trends in bad faith insurance coverage law.

Mr. Haddick is a shareholder of Dickie, McCamey & Chilcote, P.C. and is the Location Chair of the Harrisburg office. He has practiced law for almost 30 years. He concentrates his practice in the areas of insurance coverage and insurance bad faith litigation; insurance fraud, arson, fire and explosion cases; cybersecurity and cyber insurance coverage and litigation; professional liability including insurance agency errors and omissions; subrogation; and general liability defense. Haddick is the author and editor of the legal insurance blog www.badfaithadvisor.com.

Mr. Haddick received his J.D. from The Dickinson School of Law of the Pennsylvania State University. He is AV Preeminent® Peer Review Rated by Martindale-Hubbell® and he is also listed in Best Lawyers in America® for Insurance Law.

The Insurance Law Podcast examines timely insurance issues from an attorney’s point of view and is published by Best’s Directory of Recommended Insurance Attorneys. Guest speakers are prominent attorneys from across the United States who specialize in insurance defense. To listen or subscribe to the Insurance Law Podcast, click here.

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About Dickie, McCamey & Chilcote, P.C.: Dickie, McCamey & Chilcote, P.C. is a nationally recognized law firm providing comprehensive legal expertise in a multitude of practice areas. Headquartered in Pittsburgh, Pennsylvania and founded more than 100 years ago, the firm serves industry-leading clients across the country from offices throughout the mid-Atlantic region in Delaware, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina and West Virginia, the Southwestern region in California, and the Rockies in Colorado. For more information: 800-243-5412 or www.dmclaw.com.

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How To Defend A Bad Faith Case When The Claims Rep Is A Bot, And Other Terrifying Questions…..

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I came across an extremely thought –  provoking article this morning on Artificial Intelligence (A.I.) and the law, by Dennis Anderson on Law360.com, which began with the following futuristic, bone-chilling scenario:

On the evening of Dec. 23, 2016, at seven seconds after 5:49 p.m., the holder of a renter’s policy issued by upstart insurance company Lemonade tapped “submit” on the company’s smartphone app. Just three seconds later, he received a notification that his claim for the value of a stolen parka had been approved, wire transfer instructions for the proper amount had been sent and the claim was closed. The insured was also informed that before approving the claim, Lemonade’s friendly claims-handling bot, “A.I. Jim,” cross-referenced it against the policy and ran 18 algorithms designed to detect fraud.

This piece goes on to ask a question which I have yet to stop thinking about:  how to defend an insurance company claims decision when the decision is made by an algorithm, not a human being?

Before attempting a reasonably good answer to this question, if there is  good answer to be had at all,  a quick review of history is in order:  this is not the insurance claims industry’s first foray into using artificial intelligence to process claims.   Countless bad faith claims in the past have in fact been premised on that very thing, i.e., the use of a computer program to put the value on a bodily injury claim, for example.  The very use of software to value a claim was the central theme of the bad faith complaint.  Many of those claims, however, were successfully defended by lawyers for  insurers who  argued that such computer-provided data was merely a starting point, and that claims representatives with blood pulsing through their veins then went to work to take that piece of information, along with countless other pieces of information, to value, negotiate,  and otherwise  process the claim in good faith –  the Human Element Defense, let’s call it.

Now, a stolen parka, I grant you,  is a far cry from  a soft tissue neck injury.  But it is not hard to see that in the future, algorithms can and will be developed to use A.I. to adjust property damage and homeowners’ claims, commercial coverage claims,  and , yes, let’s  be bold here, personal injury claims.

I have spent decades defending bad faith claims, and every defense begins and ends with the same thing:  what was the claims representatives thought process?  Can that process be traced, documented, demonstrated, and shown in the light of day to be a reasonable approach to a difficult problem?

Are we coming to a time now when claims logs and insurer communications will simply be replaced with massive strings of zeroes and ones?  How can you tell a story made out of zeroes and ones?

The immediate question, of course, becomes how to defend a claims algorithm in a bad faith case  to a jury of humans, or a human judge sitting in a bench trial.  There is, I’m afraid no immediate answer, except perhaps this one — it is best to continue to  include human beings, in some capacity,  in a claims process which may later have to be explained and legally justified to other human beings.

Stated another way, a purely mathematical,  algorithmic defense of a bad faith claim may not be fully successful until the time comes when judges and juries are also algorithms, and, so too, are the lawyers.

I hope I’m retired by then.

CJH

 

 

 

Professional Liability Insurer Off The Hook For Settlement After Insured Fails To Obtain Consent To Settle, Ninth Circuit Rules

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PASADENA, Jan. 19 – The Ninth Circuit Court of Appeals has ruled that a professional liability insurer had no obligation to fund a settlement agreed to by the insured, which did not obtain the insurer’s consent to the deal, as required in the policy.

In One West Bank, FSB v. Houston Casualty Co.,  Houston Casualty wrote a professional liability policy requiring the insured to seek prior written consent before resolving any covered claim by way of settlement.

The insured, One West, was sued for failure to properly administer loans it was servicing.  One West reached an agreement to settle with the plaintiff in the underlying case, but it neither sought or obtained  Houston Casualty’s written consent to the terms prior to executing the term sheet.  Applying California law, the 9th Circuit Court ruled that One West breached  prior written consent provision of the policy, thereby relieving Houston Casualty of its obligation to fund or cover the settlement.

In the ruling, while the Court recognized that an insured could be relieved of the consent obligation for  economic necessity, insurer breach, or other extraordinary circumstances, it affirmed the district court’s finding that no such circumstances existed.

Also, while One West alleged that Houston Casualty breached the insuring agreement and its common law obligation of good faith, the Court affirmed dismissal of those claims, ruling that there was no evidence that Houston Casualty withheld any benefits due under the policy, in light of the consent provision.

One West Bank, FSB v. Houston Casualty Co., 676 Fed.Appx. 664, 2017 WL 218900 (9th Cir., filed January 19, 2017).

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