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

Breaking: Pa. Supreme Court Rules Ill Will / Malice Not Required To Establish Bad Faith

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PITTSBURGH, Sept. 28— The Pennsylvania Supreme Court declined to require a showing of intentional ill will or malice to establish  bad faith claims against insurers in Pennsylvania, calling such ill will merely a factor in the analysis.

In Rancosky v. Washington National Insurance, the Court affirmed the  state’s Superior Court which held that an insurer’s motive of self-interest or ill will is only one factor that can be considered in an analysis of potential bad faith conduct under Pennsylvania’s bad faith statute.  The Superior Court  held that Washington’s predecessor, Conseco Health Insurance Co. did not have a reasonable basis to deny medical benefits to LeAnn Rancosky for the treatment of her ovarian cancer, or to refuse to honor a waiver of premium provision in her health insurance policy following her diagnosis.

Rancosky sued the insurer in the Pa. Court of Common Pleas in 2008,  and her estate later won  $31,000 jury verdict on breach-of-contract claims.  Conseco won the bench trial at that level on the bad faith claims however, after the trial judge ruled that Rancosky demonstrated no ill will or actual malice on the part of Conseco in the handling of her claim.

In affirming the Superior Court and sending the case back to the trial court under the clarified bad faith test, Justice Max Bear noted:

“We do not believe that the General Assembly intended to create a standard so stringent that it would be highly unlikely that any plaintiff could prevail thereunder when it created the remedy for bad faith. . . Such a construction could functionally write bad faith under Section 8371 out of the law altogether.”

The Supreme Court confirmed a long standing two part bad faith test first announced in a prior Superior Court ruling in 1994 in the case of in Terletsky v. Prudential.  In Terletsky, the Court held that  an insurance company’s bad faith was established when   the insured demonstrates that 1.) the insurer lacked a reasonable basis for denying benefits under the policy, and 2.)  the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.

The Supreme Court affirmed the intermediate appeals court finding that dishonest purpose or motive of self interest was not a third element of the Terletsky standard, but rather an element that could be considered as part of the second prong of the Terletsky test.

Rancosky v. Washington National Insurance Co., case number 28 WAP 2016

Federal Judge Denies Bifurcation of Bad Faith / UIM Claims

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WILLIAMSPORT, Sept. 20  — A Pennsylvania federal has refused GEICO’s motion to sever and stay bad faith claim after finding that judicial economy would not be served, and that no prejudice would occur to GEICO if the bad faith and UIM claims were tried together.

In David Newhouse et al. v. GEICO Casualty Co., No. 17-477, M.D. Pa., 2017 U.S. Dist. LEXIS 150793, U.S. Middle District of Pa. Judge Matthew Brann denied GEICO’s request to bifurcate the case, which was originally filed in state court, but removed by GEICO to the U.S. District Court for the Middle District of Pennsylvania.

On March 16, 2015, GEICO insured David Newhouse was operating a rental car when he was struck from behind by a car driven by Joseph Haywood.  As a result of the accident, Newhouse alleged he  suffered a number of injuries. Haywood’s liability  insurer tendered his $15,000 limit of his insurance policy to Newhouse.  The policy Newhouse had with GEICO provided $100,000.00 in UIM coverage, stacked for two vehicles, for a total of  $200,000 in UIM benefits.

After the Haywood tender, Newhouse  demanded the $200,000.00 policy limit he had with GEICO.  GEICO responded with an offer of  $10,000,  after which Newhouse filed suit for breach of contract and bad faith.

Judge Brann rejected GEICO’s argument that the breach of contract and  bad faith claims were “wholly distinct” from one another and severing the claims would promote judicial economy:

 

“Newhouse’s bad faith claim is based on GEICO offering $10,000.00 as the UIM settlement amount and failing ‘to act with reasonable promptness in evaluating and responding’ to Newhouse’s demand.  While the two claims are grounded on similar findings of evidence, they are nevertheless separate claims.  Thus, litigation on the bad faith claim is not contingent upon success of the breach of contract claim. . .  For example, documents concerning how Newhouse’s insurance claim was handled, documents reflecting the claims adjuster’s determination, and how GEICO arrived at its settlement value would be relevant for both claims.  Contrary to GEICO’s contention, bifurcating these claims and consequently requiring two separate discovery processes would be a waste of both judicial resources and time.”

Judge Brann also determined that GEICO would not be prejudiced by denial of the motion to bifurcate, sever, and stay.

David Newhouse et al. v. GEICO Casualty Co., No. 17-477, M.D. Pa., 2017 U.S. Dist. LEXIS 150793

UM/UIM Plaintiff Fails to State Bad Faith Claim, Federal Judge Rules

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Philadelphia, Sept. 6 – A Pennsylvania federal judge has ruled that a UM/UIM insured has failed to state a bad faith claim against State Farm Insurance arising out of the handling of her UIM claim.  In Myers v.  State Farm Automobile Insurance Company, federal judge R. Barclay Surrick granted State Farm’s 12(b)(6) motion to the complaint, but granted the insured plaintiff leave to file an amended complaint.

The insured filed a UIM claim with her insurer after sustaining injuries in an auto accident.  After failing to reach agreement on the settlement of her UIM claim, the insured filed breach of contract and bad faith claims against State Farm in Philadelphia County Common Pleas Court.   In the complaint, the insured alleged State Farm’s failure to act with reasonable promptness or to act with reasonable fairness, as well as the failure to conduct a proper investigation.

State Farm removed the action to the Eastern District of Pa., and filed a motion to dismiss  the bad faith claim pursuant to Federal Rule of Civil Procedure 12(b)(6).  Judge Surrick, in granting the motion, observed that “[t]o survive a motion to dismiss, [the insured’s] complaint must include factual allegations from which the Court may plausibly infer the unreasonable and intentional or reckless denial of benefits.”  The judge found the plaintiff’s allegations to be conclusory at best, observing that the complaint failed to describe the ways and means in which the insurer allegedly failed to properly investigate her claim.  The complaint also, Judge Surrick observed, failed to cite to any specific transactions or contact between the insured and the insurer which would factually make out a bad faith claim.

The Court concluded that even if it took the averments  the insured’s complaint as true, it was unable to  “plausibly infer from those facts that [insurer] acted unreasonably and intentionally or recklessly in denying benefits to [the insured].”  The Plaintiff was granted leave to attempt to amend her complaint to allege sufficient factual support for her bad faith claims.

Myers v. State Farm Mutual Automobile Ins. Co.,  No. 17-3509, 2017 U.S. Dist. LEXIS 143794 (E.D. Pa. Sept. 6, 2017) (Surrick, J.)

Judge Rules No Bad Faith In Insurer’s Low But Reasonable Valuation of UM/UIM Claim

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PHILADELPHIA, Aug. 17 – A Pennsylvania state court judge has granted summary judgment in favor of Travco Insurance Company, ruling that a $25,000.00 offer in a UIM claim which later ended in a $45,000.00 arbitration award was not so unreasonably low as to constitute bad faith.

In Boleslavksy v. Travco Insurance Co., Travco offered its insured $25,000.00 to settle a UIM claim in response to the insured’s  policy limits demand of $50,000.00.  After reviewing some additional information on the claim, Travco increased the valuation of the claim to $28,000.00 but did not change it’s offer in light of the policy limits demand.

The UIM case went to arbitration where the insured won an award of $45,000.00.  The insured thereafter  filed sued Travco for bad faith in the Philadelphia County Court of Common Pleas, arguing first  that insurer’s final settlement offer of $25,000 was inadequately low in light of the ultimate arbitration award, and second that Travco never notified the insured of the valuation increase.

Travco filed a motion for summary judgment, arguing that its offer and claims conduct were reasonable as a matter of law.  The Court agreed with the insurer, granted the motion and found Travco’s offer to be low but reasonable, and therefore not in bad faith.  The Court also found that Travco continued to reasonably evaluate information concerning the claim, and that offers of settlement which were made in the context of that information were not without basis.

Finally, the court ruled Travco had no obligation to increase its offer to $28,000.00 because the insured had unambiguously hewed to a policy limits demand, signaling no desire to negotiate.

Boleslavksy v. Travco Insurance Co., No. 151000886, 2017 Phila. Ct. Com. Pl. LEXIS 257 (Phila. C.C.P. Aug. 17, 2017) (Anders, J.)

Faulty Workmanship Not Occurrence, Travelers No Duty to Defend / Indemnify Real Estate Investment Companies, Federal Judge Rules

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PHILADELPHIA,  September 1 — A Pennsylvania federal judge granted summary judgment Travelers Insurance last week, ruling it had no duty to defend insured real estate developers who were sued for claims of defective community living infrastructure construction.

In the breach of contract suit over coverage (bad faith claims had been dismissed earlier in the case), U.S. District Judge Mitchell Goldberg said that no coverage existed under the applicable Travelers insurance policies because the defective workmanship issues were not “occurrences” under well-established Pennsylvania precedent.

The insured plaintiffs, Northridge Village LP and Hastings Investment Co. Inc., bought and subdivided lots in Chester County, Pa., subsequently selling them to a builder.   Northridge built roads, storm water and runoff  management and other infrastructure for the planned community.

The community  association alleged defects with the construction of roads, drainage ponds, utility boxes, and other items, later suing Northridge and Hastings in Pennsylvania state court in 2013.  Northridge and Hastings then sought defense and indemnity for the suits under a commercial general liability policy with a $1 million occurrence limit, $2 million aggregate limit and $2 million products-completed-operations aggregate limit, as well as excess coverage of $2 million.  When Travelers denied the claims, Northridge and Hastings brought a coverage and bad faith suit against Travelers  in 2015.

Judge Goldberg dismissed the coverage suit, relying on what he called well-settled precedent stemming from a 2006 case, Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006).  Judge Goldberg held that under Kvaerner, construction workmanship issues did not constitute “occurrences”‘ within the meaning of the CGL policies, as they were not accidental, fortuitous events which the instrument of insurance is designed to cover:

 “Courts in this circuit have consistently applied Kvaerner and held that claims based upon faulty workmanship do not amount to an ‘occurrence,’ and thus do not trigger an insurer’s duty to defend … The same conclusion has been reached in this circuit in cases where the faulty workmanship results in foreseeable damage to property other than the insured’s work product…Given the weight of Pennsylvania and Third Circuit precedent, I conclude that the term ‘occurrence’ in defendants’ CGL policies and excess policies does not include faulty workmanship. Further, the definition of ‘occurrence’ excludes negligence claims premised on faulty workmanship.”

Judge Goldberg further held that even if a duty to defend were potentially triggered, that was mooted by a ‘Real Estate Development Activities’ exclusion which also appeared in the applicable policies.

Northridge Village LP and Hastings Investment Co. Inc. v. Travelers Indemnity Co. of Connecticut et al., (E.D. Pa 2:15-cv-01947)(Goldberg., J.)