Category: Bad Faith

Computer Fraud Losses Barred By “Authorized Representative” Exclusion

cyber-liability

PASADENA, June 28 — The Ninth Circuit U.S. Court of Appeals affirmed summary judgment for Great American Insurance Co., holding that the relevant policy’s “authorized representative” exclusion barred coverage of $100,000 in losses to Southern California Counseling Center  arising out of computer fraud by one of the Center’s payroll agencies.

The Southern California Counseling Center (SCCC) sued its insurer Great American Insurance Co. (GAIC) for breach of contract and bad faith, alleging  $100,000 in losses after a payroll company withdrew funds from SCCC’s bank accounts and used them instead of paying SCCC’s federal and state payroll tax obligations.  SCCC sought a declaratory judgment that Great American had a duty to cover the underlying losses arising out of computer fraud.

On June 17, 2014, U.S.District  Judge Audrey B. Collins granted summary judgment for Great American, holding that a policy provision excluding coverage for losses caused by “authorized representatives” applied to the misconduct of SCCC’s payroll services agent Ben Franklin Payroll Service .

The Ninth U.S. Circuit Court of appeals  affirmed the District Court’s ruling in favor of the insurer,  holding:

the plain meaning of the “authorized representative” language [here] . . . is not ambiguous and covers those who by authorization of the insured are given access to and permitted to handle the insured’s funds. . . This understanding comports with the function of the provision within the policy: to place the onus of vetting the individuals and entities whom the insured engages to stand in its shoes — and thus the risk of loss stemming from their conduct — squarely on the insured. In other words, the term ‘authorized representative’ is ‘a straightforward effort to embrace all statuses that are “authorized,” and thus are the insured’s responsibility to supervise…’”

“SCCC executed multiple agreements with Ben Franklin Payroll Service and/or its principal, Richard Zakarian, to allow the latter party or parties to provide payroll services…In doing so, SCCC gave them direct access to its bank account and permission to file tax documents on its behalf. These agreements used the word ‘authorize’ numerous times; indeed, it is difficult to imagine contracts that could more explicitly ‘authorize’ a ‘representative’ to act on one’s behalf. Under these circumstances, the district court did not err in concluding that the only reasonable construction of the term ‘authorized representative’ encompasses Ben Franklin Payroll Service and/or Zakarian, and, as a result, the exclusion unambiguously applies.”

Southern California Counseling Center v. Great Am. Ins. Co., (9th  Cir., 2016)

Insured Attorney Disqualified In Pa. Bad Faith Suit; Necessary Fact Witness

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PHILADELPHIA, June 30 – A policyholder’s attorney has been disqualified from serving in a breach of contract and bad faith case by a Pennsylvania federal judge, because he will be a necessary fact witness in that case, the Court held.

The Plaintiff in the underlying case, Susan Adeniyi-Jones was allegedly injured by an  underinsured driver on Oct. 11, 2011. After receiving the offending driver’s liability policy limits of $25,000, Adeniyi-Jones, through her attorney, Rhonda Hill Wilson, contacted State Farm Mutual Automobile Insurance Co., Adeniyi-Jones’  own insurer, and had communications regarding a claim for underinsured motorist benefits.

State Farm offered Jones $15,000 to settle but Adeniyi-Jones demanded $1.5 million.  Adeniyi-Jones sued State Farm in the Philadelphia County Court of Common Pleas, alleging breach of contract and bad faith, after which State Farm removed the action to the U.S. District Court for the Eastern District of Pa..

During discovery in the federal action District Court granted State Farm’s motion to compel the deposition of Adeniyi-Jones’ lawyer, Wilson,  but the deposition was limited to pre litigation dealings between the parties.  Ultimately, State Farm filed a motion for summary judgment regarding the bad faith claim which was denied, in part because of what the Court felt were genuine issues of fact regarding communications among the parties.

Eastern District  Judge Harvey Bartle III  also held that the plaintiff’s lawyer, Wilson, had to be removed from serving as trial ounsel:

“With regard to all of the plaintiffs’ allegations, since her testimony ‘is central to the plaintiffs proving and State Farm defending against the claims that State Farm acted in bad faith in failing to request a statement under oath or independent medical examination.’”

Judge Bartle also found that Wilson’s testimony was also central to the plaintiff’s claim of bad faith delay, and to the Plaintiff’s claim that State Farm’s $15,000 settlement offer was unreasonable and unjustified, further holding:

“[t]he reasonableness of the $15,000 settlement offer depends on the content of the information State Farm had before it at the time it made that offer. . .
As the individual who supplied all relevant documents and oral representations concerning medical bills, treatment, and wage loss to State Farm, Wilson is a necessary fact witness as to whether the settlement offer was reasonable. Wilson is the only fact witness who can respond on behalf of the plaintiffs to Lukens’ claims.”

Judge Bartle further held that Wilson’s testimony was also relevant to the Plaintiff’s breach of contract claims, calling Wilson a “key fact witness.”  Judge Bartle recognized that  although disqualifying Wilson “burdens the plaintiffs with obtaining new trial counsel,” the “balance of interests favors disqualifying Wilson as trial counsel in this action.” Judge Bartle’s analysis was based in Part on Pa. Rule of Professional Conduct 3.7 and Eastern District Local Rule 83.6 regarding disqualification of counsel.

Susan Adeniyi-Jones v. State Farm Mutual Automobile Insurance Co., No. 14-7101, E.D. Pa.; 2016 U.S. Dist. LEXIS 85053

 

Life Insurer Did Not Act In Bad Faith In Interpleader

life insurance

HARRISBURG, Pa., June 24 —  A federal judge in Pennsylvania has ruled that the  executrix of an estate failed to establish a right to relief for a life insurer’s alleged bad faith in denying her claim for benefits under a policy of life insurance.

MONY issued Steve Eckert a life insurance policy with a death benefit of $127,000.  His wife at the time, Carol, was named the beneficiary.  In 1989, however, The Eckerts divorced, but Steve Eckert failed to remove his ex wife as the beneficiary.   Eckert remarried to Pamela Eckert in 2006.

Eckert died, and the beneficiary was never changed.  MONY filed an interpleader complaint in the U.S. District Court for the Middle District of Pennsylvania, seeking to pay the proceeds into court.  Eckert’s current wife, Pamela, and former wife, Carol,  both filed answers and crossclaims.  Pamela also filed a bad faith claim against MONY, and a claim alleging violation of the Pennsylvania Unfair Insurance Practices Act.

MONY moved to dismiss the three counterclaims filed by Pamela Eckert.  District Judge William W. Caldwell denied the motion in part, but ordered breach of fiduciary duty and bad faith claims dismissed.  Pamela Eckert filed an amended answer, again alleging bad faith, and MONY again filed a motion to dismiss.

Judge Caldwell dismissed the bad faith claims again, finding that aside from her allegation that MONY denied her the policy proceeds, Pamela’s pleading did not support a bad faith claims since it was “wholly unconnected to a denial of benefits.”  He wrote:

“Subparagraphs (a), (d), (e) and (f) [of Eckert’s opposition brief], relate to a transfer of ownership, not to a denial of benefits. Even if they alleged actionable conduct (and we express no opinion on that matter), this conduct could not be understood to bear on a claim for policy proceeds. In other words, Eckert may be correct (at least in this case) that a transfer of ownership led to a denial of (or at least a dispute about) her claim for the proceeds of the policy, but the fact that an insurer’s conduct leads to a transfer of ownership does not mean it gives rise to a claim for denial of benefits after that transfer has been made. As judicially construed, section 8371 covers bad faith in denial of benefits, not bad faith in the transfer of ownership in a policy. Section 8371 does not reach the latter conduct.”

MONY Life Insurance Co. v. Carol Snyder, f/k/a Carol Eckert, and Pamela Eckert, No. 15-2109, M.D. Pa.; 2016 U.S. Dist. LEXIS 34371)(Caldwell, J.).

 

Bad Faith Claims Dismissed in Household, Regular Use Exclusion Case

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SCRANTON, June 13 — A federal judge in Pennsylvania has dismissed a number of breach of contract and bad faith claims, arising out of an auto  insurance claim which the judge said was potentially barred by the policy’s household or regular use exclusions.

According to the opinion written by U.S. District Judge Richard P. Conaboy, Plaintiff Richard Myerski was involved in a car  accident with an uninsured driver while Myerski was driving his mother’s car, which was insured through First Acceptance Insurance Co. Inc.  Myerski was neither a named insured nor a member of his mother’s household at the time of the accident.

First Acceptance denied a claim for benefits with First Acceptance made by Myerski’s mother, however, contending that Myerski lived with Morris at the time of the accident, even though the police report listed Myerski at a different residence address.  Myerski told the insurer he lived with his mother and drove the car “all the time.”

Myerski sued First Acceptance in the Lackawanna County, Pa., Court of Common Pleas, for breach of contract, bad faith, and  breach of the covenant of good faith and fair dealing, in addition to breach of contract and negligence claims.  The case was removed to the U.S. District Court for the Middle District of Pennsylvania and First Acceptance moved to dismiss good faith and fair dealing, bad faith, negligence and vicarious liability claims.

In granting the motion, Judge Conaboy held that dismissal of the bad faith claims were appropriate:

“[t]he facts alleged show that Defendants reasonably denied the claim for damage to the insured’s vehicle based on the policy exclusion: Plaintiff himself stated that he lived with his mother and drove the vehicle ‘all the time’…Even if there is evidence which could support a claim that Plaintiff mistakenly made the August 25, 2015, statement about his residence, Plaintiff does not point to evidence undermining his statement that he used the car ‘all the time,’ usage which would fall under the ‘regular or frequent operator’ exclusion. In fact, Plaintiff does not assert that this exclusion does not apply. Importantly, Defendants’ August 25, 2015, correspondence to Ms. Morris indicates there is no coverage for damage to her auto based on the exclusion set out above — it does not limit the application of the exclusion to Plaintiff’s place of residence. Given the admissions in Plaintiff’s statement and the basis for denial identified in Defendants’ August 25, 2015, correspondence, Plaintiff’s assertion that bad faith is evidenced by Defendants’ failure to properly investigate Plaintiff’s residence is not an accurate assessment of the bases upon which the exclusion may apply in this case. It follows that Defendants’ alleged refusal to further investigate Plaintiff’s residence and failure to pay for damage to Ms. Morris’ auto cannot be considered ‘frivolous or unfounded’ refusals.”

Judge Conaboy further wrote:

“Given the lack of factual support in the record supporting Plaintiff’s assertion of PIP [personal injury protection] and UM [underinsured motorist] claims at the early stage of the claims handling process, the fact that there is no evidence that Plaintiff sought clarification regarding PIP and UM coverage following the call where [First Acceptance claims adjuster Beverly] Bowers allegedly denied all claims, and the fact that the Police Report states that no one was injured and the other vehicle was insured, the ‘clear and convincing evidence’ that Defendants acted in bad faith on the basis of Ms. Morris’ conversation with Ms. Bowers is lacking. Thus, I conclude the record does not provide the evidentiary requirements for establishing a bad faith claim during the initial period and Plaintiff’s statutory bad faith claim is properly dismissed.”

The Judge permitted breach of contract and statutory claims under the Pa.M.V.F.R.L to proceed, and permitted the Plaintiff an opportunity to amend the bad faith allegations, though recognizing that doing so would likely be “futile.”

 Myerski v. First Acceptance Ins. Co., (M.D. Pa. June 1, 2016, Conaboy, J.)

 

 

Ninth Circuit: Payment Delay In UM/UIM Claim Not Bad Faith

lateclaim

SAN FRANCISCO, May 25 — Summary judgment in favor of an insurer in an insurance breach of contract and bad faith lawsuit was appropriate because an insured failed to submit timely support of her claim, a Ninth Circuit U.S. Court of Appeals panel has ruled.

Plaintiff Carol Sierzega was insured by Country Preferred Insurance Co., and filed a claim after she was involved in an accident with Shirleen Okelberry, who was uninsured at the time of the mishap.  Sierzega recovered a trial verdict of more than $4 million against Okelberry, and Country Preferred tendered Sierzega the $50,000 underinsured motorist policy limits.   Sierzega sued County Preferred  for breach of contract, breach of the implied covenant of good faith and fair dealing and violation of the Nevada Unfair Claims Practices Act for failing to pay the claim more promptly.

After removing the case to the U.S. District Court for the District of Nevada, County Preferred won summary judgment on all claims,  after which Sierzega appealed to the Ninth Circuit.

The Ninth Circuit affirmed the summary judgment in County Preferred’s favor, ruling that the District Court did not err in granting summary judgment on the breach of the implied covenant of good faith and fair dealing claim because there was no clear basis upon which County Preferred was on notice of a potential UIM claim, the Court ruled.
“Upon receiving notice of the claim, Country Preferred requested additional information, but it took Sierzega’s counsel more than five months to respond, with a demand letter. Once counsel sent the demand letter making clear that Sierzega was making an underinsured claim, Country Preferred promptly requested that Sierzega provide Okelberry’s policy limits and her medical records. Country Preferred also sent requests for records to Sierzega’s medical providers and notified Sierzega that some of the providers had not responded. Despite these efforts, Country Preferred still was not in possession of medical bills that established expenses greater than Okelberry’s policy limit at the time the judgment was entered in Sierzega’s civil case against Okelberry.”
The three-judge panel held that the summary judgment in favor of the insurer on the bad faith claims were proper because:
“[t]he delay in obtaining Okelberry’s policy limit information was a result of Allstate’s initial refusal to release the information, and there is no evidence that Sierzega was unable to obtain her own medical records from the non-responding providers and provide them to Country Preferred…Once Country Preferred obtained sufficient information about the policy limits and established that Sierzega’s medical bills exceeded Okelberry’s policy limit, Country Preferred paid Sierzega’s full claim. As a result, no reasonable jury, viewing the evidence in a light most favorable to Sierzega, would infer that Country Preferred was ‘act[ing] unreasonably and with knowledge that there [was] no reasonable basis for its conduct.”
Summary judgment on the breach of contract and unfair claims practices claims were also affirmed by the panel of  Circuit Judges M. Margaret McKeown and Michelle T. Friedland and Senior Judge Joan H. Lefkow of the Northern District of Illinois, who was sitting by designation.
Carol Sierzega v. Country Preferred Insurance Co., No. 14-15979, 9th Cir.; 2016 U.S. App. LEXIS 9087

3rd Circuit Rules Discovery Conduct Not Basis for Bad Faith Claim, Distinguishes Hollock

discovery

PHILADELPHIA, May 10 – The U.S. Court of Appeals for the Third Circuit has affirmed the dismissal of a disability insurance breach of contract and bad faith case, ruling in part that the insurer’s discovery practices in the case could not serve as the basis for a valid claim under the Pennsylvania Bad Faith Statute.

Dr.  John Duda  sued Standard Insurance, his disability insurer, claiming a wrist injury prevented him from performing the functions of his job as an orthopedic surgeon.  Duda conceded that he could still perform many functions, such as minor surgeries, office consults, and serving as an independent medical examiner.  He also failed to produce sufficient medical documentation, claiming that he was either self-treating for the injury, or treated by partners in his medical practice as a professional courtesy.

The Third Circuit affirmed the District Court’s dismissal of Duda’s breach of contract and bad faith claims.  Regarding the latter claim the Court held:

Duda attempts to prop up his insurance-based bad faith claim under 42 Pa. Cons. Stat. § 8371 by claiming that Lincoln engaged in bad faith during the discovery stage of the instant litigation.  However, Pennsylvania courts have held that § 8371 “clearly does not contemplate actions for bad faith based upon allegation of discovery violations.”  O’Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901, 908 (Pa. Super. Ct. 1999).  Although the Hollock v. Erie Insurance Exchange case, upon which Duda relies, allowed for the possibility that an insurer’s actions during litigation, at least in some circumstances, may be admissible evidence in support of the underlying bad faith claim, 842 A.2d 409, 414-15 (Pa. Super. Ct. 2004), it also emphasized that a bad faith claim is still established upon a showing that the insurer “refused to pay the proceeds of [the] policy” because of “a frivolous or unfounded reason,” id. at 416.

The three judge panel concluded that Standard had a reasonable basis to deny Duda’s claims for coverage.

Duda v. Standard Ins. Co. et. al., (3rd. Cir., May 10, 2016)

Bad Faith Allegations Too General, Dismissed Again In Pa. Federal Court

CSCC-Lawsuit-Dismissed

PHILADELPHIA, June 8 – A  federal magistrate judge in Philadelphia has found that overly broad bad faith allegations in a complaint filed against New Jersey Manuracturers Insurance Company should be dismissed.  The Court ruled that the insured plaintiff made only conclusory allegations insufficient to withstand the early challenge.

Mary Camp settled and auto accident claim with the tortfeasor’s insurer for $82,000, and then made a demand to her insurer, New Jersey Manufacturers Insurance Co. (NJMIC), for UIM benefits, seeking $221,412 for future medical treatment requirements.  NJMIC denied the claim, and Camp sued the insurer in the U.S. District Court for the Eastern District of Pennsylvania.  The complaint included claims for breach of contract and bad faith.

NJMIC filed a motion to dismiss the bad faith claims as insufficiently conclusory pursuant to F.R.C.P. 9.  NJMIC contended that the bad faith claims were simply  “a generic and non-specific reference to bad faith without enumerating any specific conduct of the defendant other than a disagreement over the value or amount of the claim.”

It was the second time Magistrate Judge Marilyn Heffley granted a motion to dismiss.  She earlier granted the same motion in March, but granted Camp leave to amend her complaint.  Camp’s amended complaint was not sufficiently different, according to Judge Heffley, with withstand dismissal.  In dismissing the similarly conclusory allegations, she wrote:

“The bad faith allegations in subsections (i) through (k) of paragraph 35 of the Amended Complaint remain unchanged from Camp’s original pleading. They include claims that NJMIC ‘engag[ed] in dilatory and abusive claims handling,’ ‘fail[ed] to adopt or implement reasonable standards in evaluating plaintiff’s claim,’ and ‘act[ed] unreasonably and unfairly in response to plaintiff’s claim.’ These allegations are devoid of factual specificity as to what claims handling practices were abusive or how NJMIC acted unreasonably. As the Third Circuit [U.S. Court of Appeals] ruled in Smith [Smith v. State Farm Mutual Automobile Insurance Co. (506 F. App’x 133, 136 [3d Cir. 2012])], without such details, a plaintiff has “fail[ed] to allege a legally sufficient cause of action for bad faith under [Pa. Consolidated Statutes] § 8371…

Alhough bad faith may be found where an insurer fails to communicate its reasons for denying a claim to an insured, in this case, according to the facts pled by Camp in her Amended Complaint, NJMIC actually did provide a reason for denying the claim. In paragraph 23 of the Amended Complaint, Camp alleges that in response to her submission for UIM coverage, NJMIC responded that it ‘[would] not be making a settlement offer as “it appears [Plaintiff] has been fairly compensated by the tort carrier for the injuries she sustained in the loss.”’ Thus, the facts alleged in the Amended Complaint clearly contradict the legal conclusion that Camp asks this Court to accept. Accordingly, Camp’s bad faith claim is insufficient to state a claim upon which relief can be granted.”

(Mary Camp v. New Jersey Manufacturers Insurance Co., No. 16-1087, E.D. Pa.; 2016 U.S. Dist. LEXIS 74496)

Pa. Bad Faith Claim On Lapsed Policy Dismissed

lateclaim

PHILADELPHIA, May 11 – The Pa. Superior Court has dismissed a bad faith claim filed against Progressive insurance, finding that the policy in question had lapsed, and that it was not bad faith for theinsurer to originally remove the case to federal court, despite a later remand.

The trial court entered summary judgment in favor of appellee Progressive Insurance Company and against appellant Anne Racioppi on her claims of breach of contract and bad faith.  Racioppi had allowed her policy to lapse for non payment of premium, and she did not purchase a new policy until the day following the accident from which she made her UIM claim.

In affirming the trial court, the Pa. Superior Court rejected Racioppi’s claim that Progressive failed to provide statutory  notice of cancellation/non-renewal of her policy.  The court ruled that Act 68 did not apply where an insurer offered to renew the policy and the insured refused to pay the premium — such an act was sufficient evidence of the insured’s intent to cancel the policy, the court ruled. Progressive sent the insured multiple renewal notices instructing her to pay the renewal premium by a certain date, the court observed. Racioppi did not deny receiving the notice.

Judge Kate Ford-Elliot further found that Progressive did  not act in bad faith in removing the case to federal court.  She ruled that Racioppi initially sued an entity of Progressive Insurance domiciled in Ohio. As a result, appellee removed to federal court based on diversity jurisdiction as a legitimate  litigation tactic. Once the proper division of Progressive was substituted, however, the case was properly remanded.  The court held that Progressives engagement in a legitimate litigation strategy did not constitute  bad faith.

Racioppi v. Progressive Insurance Company, (Pa. Super. May 11, 2016)(Ford Elliot, J.)

Geico Loses Summary Judgment Bid In Florida Bad Faith Case

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TAMPA, Fla., May 12 — On May 12, GEICO Insurance lost a bid in Florida federal court to dismiss a bad faith suit premised upon its alleged failure to adequately defend a GEICO insured in a personal injury action.  The Court ruled that a genuine issue of material fact existed as to whether the insurer acted in bad faith in its handling of the claim.

The insureds,  Manuel A. and Aleli Gonzalez bought auto insurance from GEICO General Insurance Co. and added their grandson Ishmael Ramjohn as an additional insured. Ramjohn allegedly injured Lisa Anderson in an automobile accident in February 2009, whereupon Anderson’s attorney attempted to settle Anderson’s claim with GEICO .

Anderson’s lawyer and GEICO communicated several times during 2009, leading to his sending a demand for the $100,000.00 bodily injury policy limit insuring Ramjohn. GEICO offered $2,581.16 to resolve the claim.  Later, GEICO increased its offer to $22,500.00 after receiving additional information on Anderson’s injuries.

After  Anderson sued the insureds in the Hillsborough County, Fla., Circuit Court for damages,  GEICO offered the $100,000 policy limits, which Anderson rejected.  A jury in that case returned a verdict for Anderson in the amount of  $398,097.82.

The insureds then sued GEICO in the U.S. District Court for the Middle District of Florida, alleging bad faith in handling Ramjohn’s defense.

In denying GEICO’s motion for summary judgment, Judge James S. Moody Jr. held:

“the record reflects facts that could permit a jury to find that GEICO acted in bad faith…In other words, this case, like most bad-faith cases, presents a genuine dispute that requires a jury’s resolution…For example, [insureds’ expert Peter] Knowe’s testimony creates a genuine issue for trial. Knowe testified that GEICO’s handling of the Anderson claim deviated from industry standards in several key respects. Remarkably, GEICO does not address or reference Knowe’s expert opinion anywhere in its motion…there is also evidence suggesting that GEICO did not evaluate Anderson’s claim from the perspective of a reasonable insured facing unlimited exposure.”

Judge Moody added that a reasonable jury could find that GEICO’s offer strategy in the case was executed in aid of a policy to reduce average loss payments.

Gonzalez et al v. GEICO General Insurance Company, (M.D. Fla. 2016)(Moody, J.)

Expert Cannot Testify About Exclusion; Can Opine On Industry Custom and Practice

expert

LOUISIANA, April 13 – A United States District Court in Louisiana has issued a ruling permitting an expert to testify in a coverage action about industry custom and practice, but barring the expert from testifying about the applicability of a policy exclusion to a coverage dispute.

The insured, Foundation Health Services,  sought reimbursement from Zurich American  for defense costs and lossess associated with an underlying  settlement with the U.S. Department of Justice and the Department of Health and Human Services. The disputed issues in the case were (1) whether a claim was first made during the policy period (2) whether a “professional services” exclusion in the policy applied to preclude coverage and (3) whether the insurer committed bad faith in denying coverage.

The insurer moved to preclude the plaintiff’s expert who was offered to testify about whether the insurer “met its obligations and responsibilities in connection with the claim at issue under custom and practice of the industry.” Id. at 4.

District Judge James Brady reviewed Federal Evidence Rules 702 and 704 and held that expert opinion on the applicability of certain exclusions “cross into the realm of making legal conclusions” were, therefore, inadmissible. Id. at 6. The Court also ruled however that “an expert may be allowed to testify regarding insurance industry standards for claims adjusting, but not the ultimate legal conclusions that an insurance company is acting in good faith.” Id.

 Foundation Health Services., Inc., et al. v. Zurich Am. Ins. Co., (M.D. La. 2016)(Brady, J.)