Federal Judge Rules Pollution Exclusion Ambiguous; Orders Insurers To Defend School District In Copper/Lead Class Action

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Pittsburgh, June 9 – A U.S. District Judge in Pittsburgh has granted a motion for judgment on the pleadings in favor of a school district, ordering a primary and excess insurer to defend the district in a pollution class action case.  In The Netherlands Ins. Co., et. al. v. Butler School District, et. al., U.S District Judge Arthur Schwab interepreted pollution exclusions in the involved insurance policies as ambiguous because they did not specifically exclude pollution claims arising out of copper becoming “bioavailable.”

The school district had a  general liability policy issued by Netherlands and an umbrella policy written by Peerless.  The insurers sought a declaratory judgment in the Western District of Pa. that they had no duty to defend the district because the claims were within exclusions for “pollutants” and lead exposure.

Judge Schwab ruled that both The Netherlands Insurance Co. and Peerless Insurance Co. had to defend Butler Area School District and a prior superintendent, Dale Lumley,  from parents’ claims against the district for concealing hazardous levels of lead and copper in one of the district’s elementary schools.  The Court found the insurance policies’ general pollution exclusions were ambiguous enough to allow coverage and that the specific lead poisoning exclusions did not specifically reference copper.

In ruling on the parties’ cross-motions for summary judgment, Judge Schwab looked to prior decisions in lead paint cases which held that exclusions “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants,’” did not sufficiently address the gradual chemical process by which the paint caused lead poisoning.

“These findings are similar to the facts, as here, where lead and copper are essentially components of the water system at Summit Elementary, which have degraded over time, thereby allegedly rendering the lead and copper bioavailable.”

The judge also held that without a specific copper exclusion, the insurers were bound  to provide a defense in the underlying case, as there has been no factual decisions made as to whether the alleged injuries were caused by the lead, copper or both.  He also ruled that the duty to indemnify would have to await those factual determinations in the underlying case.

Judge Schwab emphasized the bedrock premise that the duty to defend was broader than the duty to indemnify, and then concluded:

“The court will not countenance the insurers’ invitation to turn Pennsylvania law relative to the duty to defend on its head, so as to allow the potential exclusion of a single type of claim to relieve them of their duty to defend, when the law actually requires a defense when a single potentially covered claim is alleged.”

The Netherlands Ins. Co., et. al. v. Butler School District, et. al., (W.D. Pa., June 9, 2017)(Schwab, J.)

 

Insured’s Claims Conduct Dooms Bad Faith Claim, Federal Judge Rules

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SCRANTON, May 30 – In Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017), U.S. District Judge Richard Conaboy dismissed the plaintiff’s bad faith case, finding that the insured, who was already paid nearly $350,000 for a fire property loss by State Farm, delayed and frustrated a disputed additional payment amount.

The parties disputed that the insured was entitled to more than $17,000 in landscaping charges.  The insurer had already paid $347,000 for other property loss.  And while the contract dispute over the landscaping fees was not resolved at summary judgment, the bad faith claim made by the insured was dismissed, Judge Conaboy finding it unthinkable” on the facts that a jury could find State Farm acted in bad faith.

The Court ruled that the issue of delay could be analyzed first by a review of the insuring agreement itself.  Judge Conaboy found that the policy placed a duty on the insured to advance his claim by providing information supporting the claim.  The insured in this case, the Court observed, delayed production of supporting documentation for over a year:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that ‘the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.’ Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. ‘The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith,’  citing J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004)…. In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)

 

 

Insurer’s Failure To Obtain Stacking Waiver On Added Vehicle Results In Stacked Benefits, Pa. Judge Rules

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STROUDSBURG, May 30 –  A Pennsylvania state court judge has decided that a driver was entitled to $400,000 in stacked coverage because the driver did not sign stacking waivers when adding the most recent vehicles to his policy.

In Newhook v. Erie Ins. Exchange, Monroe County Court of Common Pleas Judge David J. Williamson granted declaratory relief sought by  Kenneth Newhook when he filed a complaint against Erie seeking entitlement  to the stacked coverage.   Newhook was involved in a rear end accident when he was struck by a drunk driver, and he alleged he sustained severe injuries in the collision.

Erie paid $100,000 in single-vehicle coverage but denied Newhook’s claim for $300,000 in additional stacking benefits based on 3 other vehicles listed on the policy.  Newhook neither selected nor waived stacking  when adding the most recent vehicles, Williamson noted in his opinion.

Williamson declined to follow Erie’s argument that it had no duty to obtain new stacking waivers for the recently added vehicles after the insured initially declined stacking on the former vehicles:

“It appears that the existing case law varies regarding availability of stacked UM/UIM coverage when it is not selected by an insured, but also not specifically waived in writing…From a pure public policy standpoint, and in conformity with the intent of Section 1738 of the [Motor Vehicle Financial Responsibility Law], it would seem that when more benefits are available, a written waiver of those benefits should be given…Clearly, a significant change was made when the Ford Fusion was added to the policy. No stop-gap insurance was needed because Erie was informed and issued a new declaration and also renewed the insurance policy prior to the accident. No new waiver was executed.”

Williamson ruled in favor of stacking despite the fact that the vehicle in the accident, a Ford Fusion, was a replacement for an automobile on which stacking had originally been rejected.  The judge ruled that acquisition of the new cars was akin to the purchase of a new vehicle, on which a stacking waiver would be required.

A link to the opinion appears below.

Newhook v. Erie Ins. Exchange (Monroe C.P., May 30, 2017)(Williamson, J.)

Judge Rules IME Policy Provision May Violate Pa. Motor Vehicle Law

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SCRANTON, May 15  — A Pennsylvania federal judge  dismissed  bad faith and other claims against Allstate Insurance Co.  in a class action, but permitted claims brought under the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL)  by a woman injured in a car accident.

In Sayles v. Allstate Insurance Co., No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760),  Sayles filed suit after the company denied her claim for medical benefits for injuries she sustained following an automobile accident.  According to Sayles, Allstate denied her claim  because she did not first obtain a physical examination, as required in the insuring agreement.  The suit, originally filed against Allstate in Pike County,  was removed to federal Court.

Sayles claimed Allstate’s policy requirement of a mandatory medical examination violated provisions of the MVFRL which permit medical examinations by court order.  She also advanced claims under the Unfair Trade Practices and Consumer Protection Law, and for bad faith under 42 Pa,C.S.A. section 8371.  Sayles also sought class certification for Allstate policyholders denied medical benefits where Allstate had not first obtained a court-ordered physical examination

Allstate moved to dismiss all claims relating to its policy’s examination requirement, which permits it to require  insureds to undergo an independent medical examination (IME) by a physician of Allstate’s choosing as a condition precedent to payment of medical expenses.  Allstate claimed the provision was enforceable notwithstanding Section 1796 of the MVFRL, because Section 1796 relating to court-ordered IME’s  was permissive in nature, not mandatory.

U.S. Middle District Judge Richard Caputo granted the motion to dismiss as to the bad faith claims, but denied the motion regarding Sayles’ claims that the policy provision requiring IME’s violated the MVFRL:

“[T]he Court predicts that the Pennsylvania Supreme Court would find Allstate’s examination requirement, as alleged, in conflict with § 1796 of the MVFRL and thus void as against public policy.  The examination requirement conflicts with the plain language of the statute and is inconsistent with the twin purposes of § 1796.  Moreover, the Court is not persuaded by the ‘implication’ of the Superior Court’s decision in Fleming and, consequently, departs from the conclusion reached by the district court in Williams.  Instead, the Court finds it appropriate to rely on the opinion of the district court in Scott, as well as the opinions of Judge [R. Stanton] Wettick [Jr.] in Erie and Hoch.  Additionally, the Court finds the analogous case law from the Commonwealth of Kentucky addressing a similar statutory provision under similar factual circumstances compelling.  Accordingly, in light of the above discussion, Allstate’s Motion to Dismiss will be denied with respect to Counts I and II of Sayles’s Complaint.”

In dismissing both statutory and common law bad faith claims against Allstate, Judge Caputo recognized that the law regarding mandatory IME’s in Pennsylvania was not fully settled, and that Allstate was not unreasonable in relying on some lower court precedent which had approved of similar mandatory examination provisions.  He wrote, therefore:

“It was reasonable for Allstate to rely on [precedent] which supported Allstate’s decision to deny Sayles’s medical benefits based on her failure to submit to an IME per the terms of the Policy.  Because Sayles’s bad faith claim is predicated entirely on the examination requirement, the Court finds that the Complaint alleges only that Allstate made a ‘reasonable legal conclusion based on an area of the law that is uncertain or in flux.’ . . .  Accordingly, the Court will grant Allstate’s Motion to Dismiss with respect to Count IV of Sayles’s Complaint.”

The judge also dismissed Sayles’ claims for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, unjust enrichment and intentional misrepresentation.

Sayles v. Allstate, No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760) (Caputo, J.)

 

Pa. Judge: Bad Faith Case Severed, Jury To Hear Common Law Bad Faith Claims

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Pennsylvania’s  Westmoreland County Court of Common Pleas has denied a motion to stay of discovery in a  bad faith case pending completion of a UIM case, but has also ordered severance of trial of the bad faith claims under which common law bad faith claims will be tried by a jury, and statutory bad faith claims will be tried by the judge.

In Madeja v. State Farm Mutual Automobile Ins. Co., No. 5493 of 2016 (C.P. Westmoreland Co. April 11, 2017 Scherer, J.), the plaintiffs advanced both common law bad faith claims and statutory bad faith claims,  The trial court ordered those claims severed from the underlying UIM claim.  In a bit of a quirk, however, the court ruled that depending on the verdict returned on the UIM claim,  the common law bad faith claims would be heard with the same jury that determined the UIM claim while the court would hear the statutory bad faith claim on a non-jury basis.

A copy of the trial court order can be found here.

Editor’s note:  The trial court order in this case points out the somewhat unique nature of bad faith law in Pennsylvania — it is a two-headed creature with both a common law component and a statutory law component.  In this writer’s experience, trials of both statutory and common law bad faith claims is not the norm — statutory bad faith claims are usually singly tried to the bench in state court.  The court order in question sets up for a potentially unruly and cumbersome bad faith trail, given the likelihood of overlapping evidence presented on the common law and statutory bad faith claims.   The Court might streamline the process by simply taking evidence in a single bad faith proceeding, and then letting the jury render a verdict on the common law claims, with the Court issuing a decision on the statutory bad faith claims. 

The ruling could serve as an incentive to the plaintiffs’ bar to not only plead common law bad faith claims, but seek trial of those claims in an effort to work around what has traditionally been the province of the trial judge in bad faith cases. 

 

 

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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.)