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

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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

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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

Pa. Supreme Court Update: Is Ill Will A Required Element of Bad Faith?

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PITTSBURGH, April 4  — This week, the  Pennsylvania Supreme Court heard oral argument on whether intentional ill will or malice was a required element to make out a claim for insurance bad faith in Pennsylvania, exposing insurers to punitive damages.

In Rancosky v. Conseco, the Pa. Superior court reversed a trial court ruling in favor of an insurer on bad faith claims following a bench trial.  The Superior Court held that the insurer  did not have a reasonable basis to deny benefits to LeAnn Rancosky following her diagnosis of ovarian cancer in 2003.  The intermediate appeals court relied on its 1994 ruling in Terletsky v. Prudential, and held that while it was a consideration, ill will and malice was not a stand-alone requirement to establish insurer bad faith.

Ms. Rancosky and her husband sued Conseco in the Washington County Court of Common Pleas in 2008,  and eventually won a $31,000 jury verdict on breach-of-contract claims.  Conseco prevailed, however, on the bad faith claims.

During argument this week, Conseco argued to the state Supreme  Court  that Pennsylvania’s bad faith statute does not contemplate punitive damage awards against carriers without evidence of a malicious motive.  In response, Rancosky’s estate argued that proving ill will was exceptionally difficult, and that making bad motive a requisite element would allow insurers to handle claims recklessly and carelessly without fear of penalty.

Law360.com reported that during argument earlier this week,  Justice Max Baer saw the appeal of Rancosky’s arguments, stating “It’s hard to prove that kind of motive, and if you’re going to hold the insured to that burden then you tend to put the rabbit in the hat and the insurance company wins because they say, ‘We’re the most incompetent organization in the world. We were dead wrong, but we had no motive of ill will.’”

A ruling is anticipated later this year.

Editor’s note:  Justice Baer’s comments during oral argument this week are emblematic of a trending misconception that the Pa. Bad Faith Statute created anything beyond an intentional tort cause of action.  There is a large body of case law in both Pa. state and federal courts holding that mere negligence is not bad faith, and that an insurer has the legal right to be wrong on claims decisions, as long as the decision can be supported by a reasonable basis. 

There should be no real dispute that reasonable but negligenct claims decisions are not actionable, and that intentionally malicious claims decisions are actionable , under the bad faith statute.  The  current battleground in Pennsylvania appears to be the class of claims decisions which lie in the twilight between these two signposts, i.e., claims decisions made recklessly, and wanton disregard to the insured’s rights.   Rancosky is an attempt to find clarity in this twilight.

 

 

No Bad Faith Claim Where UIM Claim Not Covered Under Antique Auto Policy

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PITTSBURGH, March 13 – U.S. District Magistrate Judge Cynthia Reed Eddy has dismissed both a bad faith and breach of contract claim against an issuer  of an antique auto policy where the alleged injury occurred in a vehicle not covered under the UM/UIM portion of the policy.

Bish v. Am. Collectors Insurance, Inc., et. al., (W.D. Pa., March 13, 2017)(Eddy, U.S.D.M.J.)

Disagreement Over ACV Estimate Insufficient To Support Bad Faith Claim, Judge Rules

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PITTSBURGH, March 2  —  An ACV basis estimate upon which a homeowners’ claims offer was made by State Farm Insurance  did not lack a reasonable basis, a federal judge ruled in dismissing the homeowners bad faith claim.  In Randy Gowton v. State Farm Fire and Casualty Co., U.S. District Judge Cathy Bissoon dismissed Gowton’s bad faith claim against State Farm, finding that the  insured  failed to show that his insurer’s offer to settle “was not supported by a thorough and even-handed investigation.”

Gowton sustained damage to his home in a fire, and submitted an estimate from his contractor to State Farm for a replacement cost benefit of $293,911.80.  After performing its own inspection, State Farm offered just $112,694.50, based on a replacement cost estimate of $187,874.50, less  depreciation of $75,180.15.  Gowton’s policy was payable on an “actual cash value benefits” basis.

Gowton sued State Farm in the Fayette County Court of Common Pleas, and after removing the case to federal court, State Farm moved to dismiss the bad faith count.  A breach of contract count had previously been dismissed by Judge Bissoon on statute of limitations grounds.

Judge Bissoon held that mere disagreement on the value of a claim following a reasonable investigation could not support a claim for bad faith:

“Gowton has failed to allege any facts to suggest that State Farm’s settlement offer lacked a reasonable basis or was not supported by a thorough and even-handed investigation… Significantly, Gowton’s response brief reiterates that he is not alleging that State Farm was dilatory, failed to communicate, performed an unsatisfactory or biased investigation or unreasonably delayed in considering his claim.  Rather, Gowton simply alleges that State Farm’s estimate was per se unreasonable for no other reason than that it differed from his own.. In the absence of any supporting facts from which it might be inferred that the company’s investigation was biased or unreasonable, this type of disagreement in an insurance case is ‘not unusual,’ and ‘cannot, without more, amount to bad faith.”

“This conclusion is bolstered by an examination of the exhibits referenced throughout Gowton’s Amended Complaint.  State Farm performed an initial inspection of the property only two days after the damage occurred and provided a detailed, 38-page estimate within a month thereafter.  State Farm’s estimate contains a room-by-room assessment of the damage; detailed measurements; design drawings; materials analysis; and line by line estimates of the cost and depreciation of the construction materials necessary to rebuild the home.  This is precisely the type of thorough and adequate investigation that vitiates a claim of bad faith.”

Randy Gowton v. State Farm Fire and Casualty Co., et al., No. 15-1164, W.D. Pa., 2017 U.S. Dist. LEXIS 29390 (Bissoon, J.)

Washington Supreme Court Ruling May Limit Suits Under Insurance Fair Conduct Act

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WASHINGTON STATE, Feb. 2 – Washington state’s Supreme Court has potentially limited insured’s rights to sue insurers under the state’s Insurance Fair Conduct Act.

In Perez-Santos v. State Farm, the state Supreme Court held that State Farm could not be held liable based on alleged unfair conduct in handling claims for medical bills arising out of a car accident.  The Court ruled that the IFCA does not create an independent right of action for regulatory missteps, but allows a right of action when an insurer unreasonably denies or delays benefits.

Practitioners in the state say that the ruling, however, may raise more questions than it answers, according to a recent report in Law360.com.

In the case, the insured,  Perez-Crisantos, was in a car accident in November 2010 and alleged more than $50,000 in medical bills. State Farm agreed to pay the $10,ooo in first party personal injury protection (PIP) benefits. The insurer denied, however, the insured’s  underinsured motorist(UIM) claim, after concluding the claims included bills for excessive chiropractic treatment and unrelated shoulder surgery.

Perez-Crisantos sued State Farm in Washington state court, and  ultimately won another $24,000 from the insurer on his UIM claim in an arbitration.  Thereafter,
Perez-Crisantos amended the state court civil complaint alleging State Farm’s violation of a Washington Administrative Code provision prohibiting insurers from forcing a first-party policyholder to litigate to recover “amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions.”

A state judge granted State Farm’s motion to dismiss, concluding there was no evidence of “some sort of incentive program to ‘lowball claims.'”

On appeal to the state Supreme Court,  Perez-Crisantos argued regulatory violation alone could support an IFCA claim, but the justices disagreed. The Supreme Court, in an opinion written by  Justice Steven C. Gonzalez, found  no indication that the Washington state Legislature intended to create an independent cause of action under the statute solely for regulatory violations.   “Instead, IFCA makes regulatory violations relevant to the apportioned attorneys’ fees and damages associated with that derivative violation,” Gonzalez wrote.

IFCA permits courts to award successful claimants attorneys’ fees and authorizes courts to award triple damages.

Washington Justice Debra L. Stephens wrote in a concurring opinion that she favored affirmed the judgment in favor of State Farm without tackling the issue of whether a regulatory violation gives rise to an independent cause of action under the IFCA. She wrote, “I fear that the majority’s gratuitous ‘holding’ on IFCA will lead to confusion and will frustrate the intent of this remedial statute.”

Perez-Santos v. State Farm (Wash. Feb. 2, 2017)