Pa. Federal Judge Says Amended Complaint Sufficiently Alleges GEICO Attempted To Avoid UIM Claim In Bad Faith

ACCIDENT

LANCASTER, July 11 –  A Federal District Judge has ruled that an amended complaint sufficiently alleges that GEICO sought to avoid a UIM claim in bad faith on grounds that the vehicle in question was not added to the subject policy.  In Reidi v. Geico Casualty Co., U.S. Middle District Judge Lawrence Stengel found that the insureds sufficiently alleged Geico failed to follow its own policy language guaranteeing coverage for new vehicles if they were reported to the company within 30 days of acquisition.

After granting Plaintiff’s leave to file an amended complaint following a motion to dismiss which Geico filed to the original complaint, the Judge held that the newer pleading sufficiently alleged breach of contract and bad faith.

After purchasing a new car, Ms. Reidi and her son were involved in an accident with an uninsured motor vehicle. The insureds made a claim for UIM benefits to Geico, which denied the claim because the  the newly purchased car was not listed an insured vehicle at the time of the accident. Ms. Reidi brought suit against Geico including claims for breach of contract and statutory bad faith.

In the amended complaint, the insureds attached their automobile policy which assured coverage  to plaintiffs “as long as they request a car be added to the policy within 30 days of acquiring the car.”

Judge Stengel found that reference to the specific policy language re newly acquired vehicles was sufficient allegation of bad faith.  He wrote, “an insurance company ignoring its costumer’s claim in the face of its own policy language clearly guaranteeing coverage for the very claim at issue certainly forms the basis for a bad faith claim.”

Editor’s Note:  This particular fact pattern provides very unfavorable optics for the insurer, and can easily, in the hands of competent plaintiff’s bad faith counsel, be made to look as if the insurer was attempting to use a technicality to avoid its coverage obligation — a technicality that its own policy took care of with the after-acquired vehicle provision.

Reidi v. Geico Cas. Co.CIVIL ACTION NO. 16-6139 (E.D. Pa. Jul. 11, 2017)

Oklahoma Supreme Court Permits Third Party To Sue State Farm for Bad Faith

PILLARS

Oklahoma City, June 22 – The Supreme Court of Oklahoma has reversed summary judgment for State Farm Insurance in a bad faith claim brought by a third party to an insurance contract  who bought the property in question from State Farm’s insured.

In Hensley v. State Farm Insurance, the Court ruled:

We hold buyer’s action in this case for breach of the implied-in-law duty of good faith by an insurer is based upon his status as an insured or third party beneficiary; and buyer’s equitable title to property arising from a contract for deed is insufficient by itself to confer upon him the status of an insured. We hold buyer presented facts on the issue whether he was an intended third party beneficiary, and these facts and their inferences were disputed by insurer. Whether buyer is a third party beneficiary and an insured under the policy based upon disputed facts and inferences is a matter for the trier of fact and summary judgment for insurer must be reversed.

The Court summarized the relationships of the parties as follows:

Kenneth Hensley and his wife owned real estate containing a mobile home in which they resided. They moved and sold the property to Douglas in May 2000 using a contract for deed. The contract for deed required Douglas to keep the premises insured, and the monthly payments made by Douglas to the Hensleys were required to include the premiums. The contract for deed specified any increase in insurance premiums during the term of indebtedness would be matched with a corresponding increase in monthly payments paid to the Hensleys. The Hensleys had an insurance policy with State Farm Fire & Casualty Company on the property and the Hensleys continued to make the premium payments and the policy continued to be renewed.

In 2008, Douglas reported a vandalism claim.  After the parties could not agree as to whether State Farm’s payment of the claim was adequate, both Douglas and Hensley sued State farm in state court.  State Farm sought and was granted summary judgment, in part on grounds that Douglas was not an insured, was a “stranger” to the insuring agreement, and therefore lacked standing to bring bad faith claims against State Farm.

In reversing the trial court’s ruling in State Farm’s favor, the Oklahoma Supreme Court ruled that while Douglas’ equitable title to the property insured by State Farm did not create a bad faith right of action, Douglas should be entitled on remand to demonstrate he and is wife were intended third party beneficiaries of the insuring agreement between State farm and the Hensleys:

Douglas presented facts that State Farm construed the policy to include Douglas as an insured or beneficiary. Whether Douglas is a third party beneficiary and an insured under the policy is based upon an adjudication of disputed material facts. We are required to take all inferences in favor of the party opposing summary judgment, and when it appears that there are disputed material facts a summary judgment must be reversed.

Hensley v. State Farm Fire & Cas. Co., 2017 OK 57, 2017 Okla. LEXIS 59 (Okla. June 20, 2017)

Insured’s Claims Conduct Dooms Bad Faith Claim, Federal Judge Rules

CSCC-Lawsuit-Dismissed

SCRANTON, May 30 – In Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017), U.S. District Judge Richard Conaboy dismissed the plaintiff’s bad faith case, finding that the insured, who was already paid nearly $350,000 for a fire property loss by State Farm, delayed and frustrated a disputed additional payment amount.

The parties disputed that the insured was entitled to more than $17,000 in landscaping charges.  The insurer had already paid $347,000 for other property loss.  And while the contract dispute over the landscaping fees was not resolved at summary judgment, the bad faith claim made by the insured was dismissed, Judge Conaboy finding it unthinkable” on the facts that a jury could find State Farm acted in bad faith.

The Court ruled that the issue of delay could be analyzed first by a review of the insuring agreement itself.  Judge Conaboy found that the policy placed a duty on the insured to advance his claim by providing information supporting the claim.  The insured in this case, the Court observed, delayed production of supporting documentation for over a year:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that ‘the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.’ Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. ‘The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith,’  citing J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004)…. In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)

 

 

Judge Rules IME Policy Provision May Violate Pa. Motor Vehicle Law

discovery

SCRANTON, May 15  — A Pennsylvania federal judge  dismissed  bad faith and other claims against Allstate Insurance Co.  in a class action, but permitted claims brought under the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL)  by a woman injured in a car accident.

In Sayles v. Allstate Insurance Co., No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760),  Sayles filed suit after the company denied her claim for medical benefits for injuries she sustained following an automobile accident.  According to Sayles, Allstate denied her claim  because she did not first obtain a physical examination, as required in the insuring agreement.  The suit, originally filed against Allstate in Pike County,  was removed to federal Court.

Sayles claimed Allstate’s policy requirement of a mandatory medical examination violated provisions of the MVFRL which permit medical examinations by court order.  She also advanced claims under the Unfair Trade Practices and Consumer Protection Law, and for bad faith under 42 Pa,C.S.A. section 8371.  Sayles also sought class certification for Allstate policyholders denied medical benefits where Allstate had not first obtained a court-ordered physical examination

Allstate moved to dismiss all claims relating to its policy’s examination requirement, which permits it to require  insureds to undergo an independent medical examination (IME) by a physician of Allstate’s choosing as a condition precedent to payment of medical expenses.  Allstate claimed the provision was enforceable notwithstanding Section 1796 of the MVFRL, because Section 1796 relating to court-ordered IME’s  was permissive in nature, not mandatory.

U.S. Middle District Judge Richard Caputo granted the motion to dismiss as to the bad faith claims, but denied the motion regarding Sayles’ claims that the policy provision requiring IME’s violated the MVFRL:

“[T]he Court predicts that the Pennsylvania Supreme Court would find Allstate’s examination requirement, as alleged, in conflict with § 1796 of the MVFRL and thus void as against public policy.  The examination requirement conflicts with the plain language of the statute and is inconsistent with the twin purposes of § 1796.  Moreover, the Court is not persuaded by the ‘implication’ of the Superior Court’s decision in Fleming and, consequently, departs from the conclusion reached by the district court in Williams.  Instead, the Court finds it appropriate to rely on the opinion of the district court in Scott, as well as the opinions of Judge [R. Stanton] Wettick [Jr.] in Erie and Hoch.  Additionally, the Court finds the analogous case law from the Commonwealth of Kentucky addressing a similar statutory provision under similar factual circumstances compelling.  Accordingly, in light of the above discussion, Allstate’s Motion to Dismiss will be denied with respect to Counts I and II of Sayles’s Complaint.”

In dismissing both statutory and common law bad faith claims against Allstate, Judge Caputo recognized that the law regarding mandatory IME’s in Pennsylvania was not fully settled, and that Allstate was not unreasonable in relying on some lower court precedent which had approved of similar mandatory examination provisions.  He wrote, therefore:

“It was reasonable for Allstate to rely on [precedent] which supported Allstate’s decision to deny Sayles’s medical benefits based on her failure to submit to an IME per the terms of the Policy.  Because Sayles’s bad faith claim is predicated entirely on the examination requirement, the Court finds that the Complaint alleges only that Allstate made a ‘reasonable legal conclusion based on an area of the law that is uncertain or in flux.’ . . .  Accordingly, the Court will grant Allstate’s Motion to Dismiss with respect to Count IV of Sayles’s Complaint.”

The judge also dismissed Sayles’ claims for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, unjust enrichment and intentional misrepresentation.

Sayles v. Allstate, No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760) (Caputo, J.)

 

Pa. Judge: Bad Faith Case Severed, Jury To Hear Common Law Bad Faith Claims

Witness_stand_in_a_courtroom

Pennsylvania’s  Westmoreland County Court of Common Pleas has denied a motion to stay of discovery in a  bad faith case pending completion of a UIM case, but has also ordered severance of trial of the bad faith claims under which common law bad faith claims will be tried by a jury, and statutory bad faith claims will be tried by the judge.

In Madeja v. State Farm Mutual Automobile Ins. Co., No. 5493 of 2016 (C.P. Westmoreland Co. April 11, 2017 Scherer, J.), the plaintiffs advanced both common law bad faith claims and statutory bad faith claims,  The trial court ordered those claims severed from the underlying UIM claim.  In a bit of a quirk, however, the court ruled that depending on the verdict returned on the UIM claim,  the common law bad faith claims would be heard with the same jury that determined the UIM claim while the court would hear the statutory bad faith claim on a non-jury basis.

A copy of the trial court order can be found here.

Editor’s note:  The trial court order in this case points out the somewhat unique nature of bad faith law in Pennsylvania — it is a two-headed creature with both a common law component and a statutory law component.  In this writer’s experience, trials of both statutory and common law bad faith claims is not the norm — statutory bad faith claims are usually singly tried to the bench in state court.  The court order in question sets up for a potentially unruly and cumbersome bad faith trail, given the likelihood of overlapping evidence presented on the common law and statutory bad faith claims.   The Court might streamline the process by simply taking evidence in a single bad faith proceeding, and then letting the jury render a verdict on the common law claims, with the Court issuing a decision on the statutory bad faith claims. 

The ruling could serve as an incentive to the plaintiffs’ bar to not only plead common law bad faith claims, but seek trial of those claims in an effort to work around what has traditionally been the province of the trial judge in bad faith cases. 

 

 

.

 

New Jersey: Bad Faith Claims Must Contain Factual Support For Insurer’s Reckless Disregard

Witness_stand_in_a_courtroom

NEW JERSEY, April 3 – A New Jersey Federal Court has dismissed a bad faith claim filed by homeowners seeking coverage for property damage sustained  in a fire loss on January 12, 2016.   In Williams v. State Farm, U.S. District Judge Joseph H. Rodriquez found that the homeowners’ bad faith  allegations fell short of the factual support required under the Federal Rules of Civil Procedure.   The allegations were based around State Farm’s failure to pay the claim, but added little factual detail.

In granting State Farm’s motioin to dismiss, Judge Rodriguez wrote:

 

“While the lack of a reasonable basis may be inferred and imputed to an insurance company, there must be allegations of reckless indifference to facts or to proofs submitted by the insured… (quotations and citations omitted).  Plaintiffs reference a ‘reckless disregard for the rights of the Plaintiffs’ but do so in conclusory fashion, thereby leaving the Court to infer reckless indifference from the fact that Defendant denied coverage; however, the Court declines to make such an inference. Plaintiffs do not  provide sufficient factual allegations to suggest an absence of a reasonable basis on the part of Defendant for denying coverage. The mere allegation that Defendant’s denial of coverage inferentially establishes bad faith relies on the very speculation forbidden by Twombly and Iqbal. Accordingly, the Court dismisses Plaintiffs’ claim for bad faith without prejudice.

Having determined that Plaintiffs’ claim for breach of the duty of good faith and fair dealing is insufficiently pled and therefore is dismissed, the Court need not address whether Plaintiffs are entitled to punitive damages under that claim.”

Williams v. State Farm Fire & Cas. Ins. Co., No. 16-9028, 2017 U.S. Dist. LEXIS 50261 (D.N.J. Apr. 3, 2017) (Rodriguez, J.)

Re-Purposing The Free Initial Consultation For The Benefit of Insurers and Corporate Clients

lateclaim

Alternative fee arrangements are out of the bag by now.  They are being tried and used by insurers as part of ongoing efforts to bring cost-certainty to outside legal fees.  Badfaithadvisor.com has a complete survey of alternative fee options here.

But that is not the end of the leverage in favor of  insurers and corporate clients.  And to that end,  I am going to let you all in on a very big secret.  Not only that, I am going to invite — no — I’m going to dare, you to take advantage of it, and here it is:   I would rather my clients and prospects talk to me for free about matters of concern to them ,  than to let them  talk to any of my competitors.  Under any terms.

And so, the free initial consultation, long a staple of the plaintiff’s bar, has been co-opted and re-purposed for my insurance company and other corporate clients.

Insurance and corporate clients, and prospective clients who are interested in testing the waters, are given  free initial consultations of anywhere from 30 minutes to 2 hours (and sometimes more)  to review documents, and to discuss cases they are considering assigning to outside counsel.  But I offer the same thing to the same clients and the same prospects who are actually looking to AVOID sending a matter to outside counsel, too.  This provides value to them in the form of an informal first or second opinion which will give them early clarity on a matter, and peace of mind on potential action plans for handling those claims or matters.

The free initial document review / consultation is a win – win for clients and prospects.  If they do decide to retain me, on either en alternative or conventional fee basis, they have familiarized me with the matter they will be assigning and brought me up to speed at no cost to them, thereby reducing their overall legal expense on the matter.   If they decide to keep the matter in-house, they have received the value of an outside look for free, and I have hopefully created good will my clients will remember when the next matter comes up for consideration.

There are and will always be major coverage matters and bet-the-company litigation which insurers and corporate clients on which clients will seek outside representation.  Free initial consultations on both these matters and matters which clients never assign to outside counsel is another way to provide value to clients in business environments encouraging the limitation and reduction of outside legal expense.

C.J. Haddick