Travelers’ “Fairly Debatable” Position On Roof Loss Bars Bad Faith Claim

SALT LAKE CITY, Jan. 25 – A Utah federal judge has dismissed bad faith claims against Travelers on grounds that the insurer’s position on coverage of a roofing damage claim  following a windstorm was “fairly debatable.”  In Pheasantbrook Homeowners Ass’n. v. Travelers, U.D. District Judge David Nuffer ruled that even if an insurer is ultimately incorrect on a coverage position, it should escape bad faith liability if the position it took is “fairly debatable.”

Judge Nuffer reviewed applicable case law, including Utah decisions which have held that an insurer’s engagement of an expert to help assess the nature and extent of covered damage for a given loss could provide a defense to bad faith liability.  He ruled that the denial of certain portions of the windstorm claim in reliance on an expert engaged by the insurer, even if the expert was compensated, created legitimate factual questions regarding which portions of the roofing repairs were attributable to the windstorm, as opposed to betterment, maintenance, or a need to replace the roofing regardless of the wind damage.

Such legitimate factual questions regarding the insured’s proposal for roof replacement created a “fairly debatable” dispute about the amount owed, causing the judge to grant Travelers’ summary judgment motion as to the bad faith claim.

Pheasantbrook Homeowners Ass’n. v. Travelers, N.D. Utah, 2016 (Nuffer, J.)

Federal Judge Denies Stay, Upholds Insurer’s Work Product Privilege In Bad Faith Case

Reading, Pa., Jan. 19.  U.S. District Judge  Joseph Leeson  has denied a motion filed by Allstate Insurance Company to sever and  stay a  bad faith claim, including  discovery,  in a combined breach of contract and bad faith case, but has ordered that Allstate may properly assert work product privilege protection as to matters genuinely prepared in anticipation of litigation.

In Wagner v. Allstate, Judge Leeson conceded that while there may be a basis for separate trial of the breach of contract and bad faith claims under F.R.C.P. 42 , there was no need to prevent simultaneous discovery in both the breach of contract and bad faith claims.

Judge Leeson also granted in part and denied in part Plaintiff’s motion to compel discovery of Allstate’s claims file, ruling that the Court needed more information to make a complete ruling on the motion.  The Court ruled that Allstate did have the right to assert privilege over materials in its claims files which were prepared in anticipation of litigation, while observing the parties disputed the date at which time Allstate’s anticipation of litigation over the underlying UIM claim was bona fide.

Wagner v. Allstate Ins. Co., E.D. Pa. 2016 (Leeson, J.)

Phila. Judge Recommends Bad Faith Dismissal

Philadelphia, Jan. 20.  A Philadelphia Common Pleas Judge has recommended that the Pa. Superior Court affirm her dismissal of breach of contract and bad faith claims filed against Progressive Insurance Company.   In an opinion written pursuant to Pa.R.A.P. 1925(a) in Racioppi v. Progressive Ins. Co.,2015 Phila. Ct. Com. Pl. LEXIS 415 , the Court dismissed the Plaintiff’s claims for UM benefits under her Progressive auto policy following an automobile accident.  The Plaintiff  had previously collected policy limits of the tortfeasor, Insured by Geico.

The Court held that both the breach of contract and bad faith counts suffered from the same fatal defect:  The Plaintiff failed to proved that she paid for a policy which was in force at the time of the collision.  While the Court conceded there were circumstances in which a bad faith claim could proceed in the absence of a breach of contract claim, it found that such circumstances were not presented by the Plaintiff’s UM claim at issue:

Since the breach of contract claim is without evidence, this component of the bad faith claim must immediately be rejected; Appellee-Defendants cannot have failed to pay in reckless disregard of the contract when Appellant-Plaintiff fails to offer any evidence that there was a contract between the parties on the date of the accident.

The Court dismissed the claims by way of a motion for summary judgment filed by Progressive.

Racioppi v. Progressive Ins. Co., 2015 Phila. Ct. Com. Pl. LEXIS 415 (Shreeves-Johns, J.)

DMC Lawyers Obtain Summary Judgment For Harleysville In Bad Faith Suit

Reading, Pa., Jan. 19Dickie, McCamey & Chilcote attorneys C.J. Haddick and Christine Line have won a dismissal in a bad faith case in favor of client Harleysville Insurance Companies.  The Berks County, Pa.  Court of Common Pleas on January 19 granted the motion for summary judgment filed by Haddick and Line in a bad faith suit arising out of a commercial property coverage dispute over an alleged van theft and fire involving business personal property.  Haddick and Line are members of the firm’s Insurance Law and Litigation Group.

Harleysville did not dispute it owed coverage for the value of the van, substitute van rental expense, and for the value of certain business personal property under an inland marine policy.  It did contest, however, the Plaintiff’s claimed entitlement to a variety of other sums for towing, vehicle storage, loss of business income, and claims for tool losses in excess of the policy limit.  The Court agreed that the additional claims were unsupported by the policy language.

The Court also agreed with Harleysville’s position that regardless of the outcome of the several coverage claims, the claims decisions made were made with reasonable legal and factual bases.  As a result, the Plaintiff’s bad faith claims were dismissed as well.

For additional details on  the ruling, or suggestions  how to have your coverage and bad faith claims decided faster and more favorably with greater cost control, contact us at chaddick@dmclaw.com or 717-731-4800

Rogers Flooring Co. v. Harleysville Ins. Co., Berks County No. 14-674 (Sprecher, J.)

Insured’s Failure To Cooperate During Time Limit Demand Leads To Bad Faith Dismissal

Florida, Jan. 19.  A Federal District Judge in Florida has granted summary judgment in favor of Titan Insurance Co. in a bad faith case, finding that the insured’s lack of responsiveness during a time limits settlement demand precluded the case from proceeding further.

In Hinson v. Titan Ins. Co., 2015 U.S. Dist. LEXIS 121666 (N.D. Fla. 2015), Chief Judge M. Casey Rodgers dismissed a third party bad faith suit arising out of an excess verdict against Titan’s insured, Hinson.  During an underlying personal injury case against Hinson, the plaintiff’s lawyer issued a 20 day settlement demand for policy limits, requiring among other things an affidavit from Hinson as to any other applicable insurance.

Titan’s claims personnel made multiple attempts to alert Hinson, including the hand delivery of a draft affidavit to his address, in an effort to comply with the terms of the time limits demand.  Chief Judge Rodgers wrote:

Hinson failed to timely return the required affidavit to meet the [terms of the time limit] demand…The totality of the circumstances demonstrate that Titan diligently pursued a settlement; advised Hinson of the risks of an excess judgment, of settlement opportunities, and the probable outcome of the litigation; and tendered checks on more than one occasion.

Hinson at 15-16.

The Court found that the failure to meet the conditions of the 20 day time limit demand were therefore attributable to the insured, not Titan, and entered judgment for Titan.

The Court also found that Titan’s refusal to agree to try the bad faith claim before the personal injury action and pay the limits to the personal injury plaintiff  if the insurer prevailed in the bad faith case (known in Florida as a “Cunningham agreement”) was not bad faith as a matter of law.

Takeaway:  There is nothing new under the sun here, although the case is a perfect illustration of two key components of dealing with time limit personal injury settlement demands: 1.) claims staff must make Herculean efforts to act  on the insured’s behalf within the demand window, and before it is too late; and 2.) those efforts must be re-traceable in a well-d0cumented claims file.  For additional information on defensive handling of time limit settlement demands, reach me at chaddick@dmclaw.com or 717-731-4800.

Hinson v. Titan Ins. Co., 2015 U.S. Dist. LEXIS 121666 (N.D. Fla. 2015),

Philly Trial Court Recommends Dismissal of Time-Barred Bad Faith Claim

In an opinion  recommending that summary judgment in favor of the insurer be affirmed pursuant to Pa.R.A.P. 1925, , the Philadelphia Court of Common Pleas has ruled that the plaintiff failed to file his bad faith claim within two years of his claims denial, time-barring the claim under the two year statute of limitations.

In Fieldhouse v. Metropolitan Property Ins. Co., 2015 Phila. Ct. Com. Pl. LEXIS 396, the Court found that the Plaintiff’s bad faith claim, premised upon the insurer’s cooperation with law enforcement in their investigation of the auto accident which gave rise to the claim, was filed more than two years after the claim was denied.

Fieldhouse v. Metropolitan Property Ins. Co., 2015 Phila. Ct. Com. Pl. LEXIS 396

Editor’s Note: The statute of limitations defense  aside, it is highly unlikely any Court would find that an insurer’s cooperation with law enforcement in the investigation of an auto accident would constitute bad faith under the Pa. Bad Faith Statute, 42 Pa. C.S. A. §8371.

Federal Magistrate Judge Sanctions Insurer for Delayed Production of Draft Coverage Letter; Rules In-House Counsel E-mails Not Privileged

US D. New Jersey, Dec. 30, 2015 – U.S. Magistrate Judge Ann Marie Donio has granted in part and denied in part Plaintiff’s motion for sanctions against Bankers Standard Insurance Company in a bad faith and breach of contract case under a  homeowners’ insurance policy arising out of damage from Superstorm Sandy.   In Zawadsky v. Bankers Standard Insurance (link to full opinion below), the Court made several pronouncements which should be of concern to insurers, and their in house legal departments.

Draft Partial Coverage Letter: Admission of Coverage?

Although Bankers Standard issued a denial letter regarding the insured’s homeowners claim,  there was evidence that a junior adjuster had previously drafted a coverage letter extending partial coverage for the loss.  Judge Donio ruled that the intentional delay in turning the draft letter over was sanctionable under F.R.C.P. 37:

Most importantly, the Draft Partial Coverage Letter — despite Defendant’s assertion to the contrary — is an admission by one claims adjuster that there is coverage under the Policy. The fact that a more senior adjuster trumped that position and directed a flat denial of coverage be issued does not erase this conclusion. Additionally, the concealment of that conclusion — that admission — bespeaks of purposeful conduct that may, after the depositions are conducted, warrant additional sanctions. As noted by Plaintiffs, if it were not for the inadvertent production by Defendant on February 2, 2015 of the unredacted email, Plaintiffs would still not have the Draft Partial Coverage Letter.

(emphasis added).  The Court found the conduct of Bankers Standard Insurance sanctionable in this regard.

Emails Involving In House Counsel:  Lawyers or Claims Investigators?

Judge Donio ruled that Bankers Standard failed to adequately demonstrate that email strings involving in house legal department lawyers sufficiently came under protection for attorney client privilege.  She wrote:

…the timing of these communications supports Plaintiffs’ argument that Defendant’s in-house counsel was part of the investigation of Plaintiffs’ claim and not providing legal advice. The burden is on Defendant to appropriately support its application of the privilege at the time of the motion. Defendant has left it up to the Court to decipher these emails and determine whether in-house counsel is providing legal advice or acting as part of the claims investigation. Defendant has failed to demonstrate that the documents are protected by the attorney-client privilege.

As a result, the Court also ordered production of unredacted emails including communication with in house counsel.

Severity of the Sanction

Rather than granting the sanction requested by the Plaintiff — striking all of the insurer’s substantive defenses and moving directly to a damages trial — Judge Donio issued the lesser sanction of orders compelling production of the documents under dispute, and allowing the Plaintiff to re-open discovery on the issue of the draft partial coverage letter

Takeaways:

  • Bankers Standard was clearly concerned about the presence of a draft partial coverage letter in the same claims file in which a later full denial of coverage letter existed.   They elected to attempt to shield the letter from discovery.  Another option which may have proved the better route would have been to simply disclose the letter as part of the story of the on-going thought process of the claim, which later gave way to a reasonable conclusion, after consultation with senior claims staff and counsel, that there was ultimately no coverage for the loss.   Insurers are not prohibited from a change of mind on a coverage position if the claims investigation supports it.

 

  • This case is a signal example of why the  line of demarcation between claims staff and in-house legal counsel should never be blurred.  Here, Bankers Standard’s  failure to sufficiently articulate to the Court why the in house legal staff performed legal work, rather than claims investigation, sounded the death knell for attorney client privilege in the case.

 

  • The chances of Inadvertent production of privileged material can be reduced by the cross-checking of the production by a second or third pair of eyes in counsel’s office, and can be guarded against by inadvertent disclosure and claw-back discovery agreements, entered into at the outset of the case, along with such things as confidentiality agreements, and consent agreements to protective orders.

Zawadsky v. Bankers Standard Ins. Co., (D. N.J. 2015)

Cyber Liability Insurance Bad Faith Suit Trimmed In Utah

A U.S. District Court Judge in Utah has granted partial summary judgment in favor of Travelers Insurance in a bad faith suit involving a Cyber Liability insurance policy.  U.S. District Judge Ted Stewart of Utah has dismissed portions of a bad faith suit against Travelers, ruling that it has no duty to defend or indemnify its insured, Federal Recovery, in an underlying data breach lawsuit.  The Court found that Travelers’ coverage position was “fairly debatable,” and therefore that the position it took cannot, as a matter  of law, be found to have been taken in bad faith.

The Court denied Traveler’s motion to dismiss that portion of the suit against it relating to Traveler’s intake and handling of the claim, however.  The insured claims that Travelers breached its duty of good faith and fair dealing in allegedly misleading its insured to delay the filing of the claim until it received formal suit papers.   The Court also found there were factual issues relating to whether Travelers  diligently investigated, evaluated, and communicated about the claim to its insured, and denied Travelers’ summary judgment motion as to those claims also.

The Takeaway:   This decision is a textbook example of a jurisdiction in which having a reasonable position to deny coverage to an insured is not the end of the bad faith analysis.  Claims handling (the means), separate and apart from the claims decision (the end), is subject to bad faith scrutiny under this jurisdiction’s bad faith law.  Best claims practices, therefore, should facilitate proper claims decisions being made in conjunction with proper claims handling, from initial intake to final coverage decision.

Travelers v. Fed. Recovery Services (D. Utah 2016)

3rd Circuit Affirms Denial of Remand Motion, Upholds UM/UIM Waiver

In Lieb v. Allstate, the 3rd Circuit Court of Appeals affirmed district court rulings 1.) denying the insured’s remand motion after Allstate removed the case from state court; and 2.) affirming dismissal of breach of contract claims under an automobile insurance policy, finding the insured’s waiver of UM/UIM coverage to be valid under the Pa.M.V.F.R.L.

The district court properly looked to  assessing jurisdictional amount as of the time of the removal, the appeals court found.  At that time, the Plaintiff’s complaint contained a claim for insurance bad faith, thus taking the value of the case in excess of the $75,000 jurisdictional limit.

The appeals court also affirmed the dismissal of the insured’s suit for UM/UIM benefits, finding a signed waiver form in compliance with Pa. law.

Lieb v. Allstate (3rd Cir. 2016)