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.)

Zurich Asks 3rd Circuit To Reverse $1M UM/UIM Award

PHILADELPHIA, Jan. 13.  Zurich American Insurance company has asked the U.S. Court of appeals  for the Third Circuit to reverse a lower court’s ruling ordering it to pay $1 million in uninsured motorist (UM) benefits, arguing that a sign down form setting UM limits at $35,oo0.00 was valid and enforceable.

Stefan Freeth alleged injury while working on a truck owned by roadway contractor Road-Con Inc.  He sought UM/UIM benefits under Road – Con’s commercial auto policy with Zurich, and was awarded $1 million in U.S. District Court for the Eastern District of Pa., following Zurich’s removal of the case from the Chester County, Pa. Court of Common Pleas.

On appeal, Zurich contends that the sign down form completed by a company executive was a sufficient “express designation” within the meaning of the Pa. M.V.F.R.L.  to constitute a valid election of UM/UIM limits lower than the commercial auto policy’s bodily injury limits of $1 million dollars.  Freeth’s counsel claims the form is ambiguous, stating,  “there is no affirmative written election of the amount of $35,000.00 by Road-Con. There is no handwritten entry by the named insured or check mark or initialing of the amount of $35,000.00 on the Summary Form.”

Stefan Freeth v. Zurich American Insurance Co., No. 15-2924, (3rd Cir 2015)

Editor’s Note:  For copies of the briefing, email me at chaddick@dmclaw.com

Travelers, Cincinnati Owe No Duty To Defend School In Lacrosse Death

Louisville, Jan. 21.  A U.S. District Court Judge in Kentucky has ruled that neither Travelers or excess insurer Cincinnati Ins. Co. have a duty to defend Bellarmine University in a wrongful death suit brought by the estate of a university lacrosse player who died while participating in conditioning drills.

On January 21, U.S. District Judge Charles R. Simpson granted the insurers’ motion for judgment on the pleadings, holding that the policy’s Athletic Participants Exclusion Endorsement relieved the insurers of the duty to defend or indemnify Bellarmine in the underlying death suit.   The endorsement excluded coverage for bodily injury “to any person engaged in athletic, exercise, or sports activities” sponsored by the university.

The Court held that Travelers did not contract to ensure the exposure for which Bellarmine was seeking defense and indemnity.  It also held that the excess policy issued by Cincinnati did not apply, as it contained language disclaiming coverage for any loss which came within an applicable exclusion in the language of the primary policy.

Underwriters Safety et al v. Travelers et al, W.D. Ky. 2016 (Simpson, 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.)

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)

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)