Thank You For A Great Year!

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Thank you.

To the tens of thousands of visitors and readers of badfaithadvisor.com, a heartfelt thanks for your interest and loyalty in 2017, and a promise to continue to deliver content of vital interest to the insurance and law practice industries in 2018.

We are always interested in hearing from you, so please feel to drop a line to me anytime at chaddick@dmclaw.com.  If there are any topics you would like to see covered in the weeks and months ahead, please let us know that as well.

Best Wishes For A Happy and Prosperous 2018,

CJ Haddick

www.badfaithadvisor.com

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Summary Judgment For Insurer In Super Storm Sandy Claim; Deposited Claim Check Constitutes Accord and Satisfaction

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PHILADELPHIA, Nov. 17 – The U.S. Third Circuit Court of Appeals has ruled that a day care center which submitted a Super Storm Sandy  claim for nearly a million dollars has accepted less than $30,000.00 from Philadelphia Indemnity Insurance Company in full satisfaction of the claim.

In Cranmer v. Harleysville Insurance Company et al,  2017 U.S. App. LEXIS 23187 *; 2017 WL 5513204, the owners of Tiny Tots day care center submitted a claim for storm damages to PIIC for $956,455.09 for income loss, business interruption, and other related claims.  PIIC valued the claims at $28,542.84.  Ultimately, counsel for PIIC sent counsel for the insureds a letter which stated:

Accordingly, should I not hear from you within ten (10) days of your receipt of this correspondence, I will instruct [PIIC] to tender settlement in an amount of $28,542.84 payable to Tiny Tots Daycare Preschool, LLC and [RLF], its attorney. We will deem the acceptance of this payment as full and final settlement of this claim as well as a release by your client of any further demand for recovery as against Philadelphia Insurance Companies.

The insured endorsed and deposited the check, which was marked “FINAL,” and the comment line stated: “Business Income, windstorm damage, loss of income from the date of loss through the period of restoration.”  PIIC’s counsel also sent a general release to the insureds, however, which was never signed and returned.

The Plaintiffs sued PIIC for breach of contract and bad faith, and PIIC moved for summary judgment, which was granted by the U.S. District Court for the Eastern District of Pa.  In affirming summary judgment in favor of the insurer, Judge Patty Schwartz held that the elements of an accord and satisfaction were met:

Under New Jersey law, the affirmative defense of accord and satisfaction requires the defendant to prove: “(a) a bona fide dispute as to the   amount owed; (b) a clear manifestation of intent by the debtor to the creditor that payment is in satisfaction of the disputed amount; and (c) acceptance of satisfaction by the creditor. . . The undisputed record shows that the first accord and satisfaction requirement of a bona fide dispute was satisfied because PIIC and Plaintiffs disagreed about the amount to which Plaintiffs were entitled under the insurance policy. Plaintiffs submitted Sandy-related claims to PIIC for $956,455.09 while PIIC valued Plaintiffs’ loss at $28,542.84. . .

There is also no genuine dispute that PIIC intended its $28,542.84 payment to satisfy all of Plaintiffs’ Sandy-related claims against PIIC, thus satisfying the second element of accord and satisfaction. The August 15, 2013 letter states that PIIC will “tender settlement in an amount of $28,542.84 payable to Tiny Tots Daycare Preschool, LLC and [RLF], its attorney” and “deem the acceptance of this payment as full and final settlement of this claim as well as a release by [Plaintiffs] of any further demand   for recovery as against [PIIC].” App. 341. One month later, PIIC’s counsel sent RLF a check for $28,542.84, with an accompanying letter that incorporated by reference PIIC’s August 15, 2013 letter and stated that the $28,542.84 payment was tendered “in good faith for the purposes of settlement.” App. 345-46. In  addition, the check contained a claim number matching the Sandy claim that Plaintiffs submitted to PIIC, was marked “FINAL” in the payment line, and the comment line stated “Business Income, windstorm damage, loss of income from the date of loss through the period of restoration.” . . . The combination of the letters and the check demonstrate that PIIC intended to make a payment in full satisfaction of the claim, and Plaintiffs have identified no evidence to the contrary.

The Court also ruled that the Plaintiffs failed to demonstrate any bona fide evidence of bad faith on the part of PIIC, and affirmed summary judgment in favor of PIIC on the bad faith claims as well.

Cranmer v. Harleysville Insurance Company et al,  2017 U.S. App. LEXIS 23187 *; 2017 WL 5513204

Electronic Signature On Limited Tort Form and Medical Peer Review Both Valid; Court Dismisses Bad Faith Claims Against Progressive

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PHILDADELPHIA, Dec. 11 – A Pennsylvania Federal judge has granted summary judgment in favor of Progressive Insurance in a bad faith case, finding in part that an electronic signature on a limited tort form was valid, and that use of a PRO medical review was also appropriate

In Jallad v. Progressive Advanced Ins. Co., 2017 U.S. Dist. LEXIS 202999, Plaintiff Sahar Jallad (“Jallad”) filed suit against a motorist defendant and her own insurer, Progressive Advanced Insurance Company (“Progressive”) in the Court of Common Pleas of Philadelphia County, alleging negligence against the motorist,  Madera causing personal injuries,  and claims of breach of contract and bad faith against Progressive related to its handling of Jallad’s underinsured motorist (“UIM”) claim.

Following removal of the case to the U.S. District Court for the Eastern District of Pennsylvania, U.S. District Judge Robert F. Kelly granted Progressive’s motion for summary judgment on the bad faith claims.

Judge Kelly confirmed a long standing principle that the mere disagreement over the value of the insured’s injuries in the setting of a UIM claim was not a sufficient basis for a prima facie bad faith case against an insurer.

Judge Kelly went on to rule that none of four other arguments made by Jallad created a genuine issue of material fact as to the bad faith claims.  First, Kelly ruled that regardless of whether or not the tortfeasor’s insurer paid a $15,000.00 liability limit insuring Madera,  Progressive was entitled to a credit of that available limit toward the valuation of Jallad’s UIM claim.

Kelly further dismissed Jallad’s argument that her signature on a limited tort election was invalid:

“Jallad provides no citation to any case law or statute that prohibits insurance companies from obtaining electronic signatures for tort waiver forms. Further, Progressive responds that electronic signatures are permissible under both federal and Pennsylvania state law. See 15 U.S.C. § 7001; 73 P.S. § 2260.305. Accordingly, Jallad’s argument is without merit.”

Next, Judge Kelly ruled that Proressive’s use of a PRO reviews of Jallad’s medical records did not, as a matter of law, constitute bad faith:

“Pennsylvania law provides that “[i]nsurers shall contract jointly or separately with any peer review organization established for the purpose of evaluating treatment, health care services, products or accommodations provided to any injured person” and “[s]uch evaluation shall be for the purpose of confirming that such treatment, products, services or accommodations conform to the professional standards of performance and are medically necessary.” 75 Pa. Cons. Stat. § 1797(b)(1). Under the circumstances presented here, we fail to see how sending medical documentation to a PRO to determine whether medical treatment conforms to the professional standards of performance or is medically necessary amounts to bad faith.”

The Court finally ruled that Progressive’s request for documents concerning Jallad’s wage information was appropriate, and  dismissed Jallad’s bad faith claims with prejudice.

Jallad v. Progressive Advanced Ins. Co., 2017 U.S. Dist. LEXIS 202999

Bad Faith Cannot Be Presumed In UIM Claim, Federal Judge Rules

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PHILADELPHIA, Nov. 17 – A federal judge in Pennsylvania has dismissed a bad faith claim against State Farm Insurance arising out of the handling of a UIM claim, ruling that neither the passage of time or the non-payment of the claim in themselves can establish a prima facie case of insurer bad faith under the Pennsylvania Bad Faith Statute.

In Sherman v. State Farm Ins. Co., 2017 U.S. Dist. LEXIS 190363, Judge Mark A. Kearney ruled that the Plaintiffs had not plausibly set forth a bad faith claim against State Farm arising out of a January 2013 auto accident involving Edward Sherman.  After settling with the tortfeasor following the accident,  the Shermans notified State Farm of their intent to pursue a UIM claim u nder their own auto policy in February 2015. 

The complaint alleged that State Farm investigated the claim between Febryary and July of 2015 but that State Farm failed to make any offer of payment.  After the Shermans sued State Farm in 2017, State Farm moved to dismiss statutory and common law bad faith claims  from the complaint.  In granting the motion to dismiss, Judge Kearney wrote:

“After July 1, 2015, we have no idea what happened. As of July 1, 2015, the parties were working together to address the Shermans’ UIM claim. Over two years later on September 27, 2017, the Shermans sued State Farm claiming it never provided the Shermans with UIM benefits…

Our court of appeals has consistently dismissed Section 8371 claims when the complaint lacks factual allegations of bad faith conduct, and only states conclusory allegations…

[The] Shermans allege communications evidencing responsive insurer conduct and then conclude, simply because they have not been paid since, State Farm is liable for bad faith. We have a gap of over two years with no allegation as to what happened. Bad faith is not presumed simply from a conclusory allegation  of no payment. In conclusory fashion, the Shermans allege State Farm failed to make an informed decision regarding their claims, failed to pursue a diligent investigation, and failed to act in good faith.  They also allege State Farm failed to make a settlement offer, and these actions were intentional, taken in bad faith, and aimed solely at reducing State Farm’s expenditures. These are the types of conclusory allegations which do not suffice. Failing to plead explanations or descriptions of what an insurer actually did, or why they did it, is fatal to a bad faith claim.  We cannot measure the reasonableness of the insurer’s conduct absent facts. Legal conclusions are insufficient.”

Judge Kearney also dismissed the Plaintiff’s Breach of Implied Covenant of Good Faith and Fair Dealing claims, and further  ruled that the Plaintiffs could not plead or recover attorneys’ fees on the remaining Breach of Contract claim.

Sherman v. State Farm Ins. Co., 2017 U.S. Dist. LEXIS 190363 (E.D. Pa. Nov. 17, 2017)(Kearney, J.)

Control Outside Legal Costs By Building Fee Caps Into Outside Representation

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It’s no secret that the biggest fear any in-house legal department has with engaging outside law firms in handling matters, especially litigation matters, is the fear that there is no way to know when the billing will end, and how high it will be when it gets there. This can commonly be referred to as The Runaway Train Syndrome.  Every in-house lawyer or general counsel reading this is nodding in agreement.  They have met the enemy, and it is outside law firms charging exclusively by the hour, with no objective or external controls ensuring proportionality between the price paid, the result delivered, and the timeliness with which the result was delivered.

The concept of fee caps, and the notion that there is always, up front, a known end in sight, is not only the perfect antidote to Runaway Train Syndrome, it is also the Swiss knife of legal fees.  Fee caps are so universally useful, in fact, that they can be put to use in billing arrangements  ranging from traditional billable hour fee arrangements, to newer, alternative fee offerings to give those who pay outside law firms the ultimate in cost-certainty.

Set an overall fee cap on top of a billable hour arrangement, for example.  Immediately, the outside law firm’s disincentive to accelerate an outcome disappears.  The incentive has aligned much better with that of the client – to deliver the requested outcome within budget, and within a reasonable time.  In this type of arrangements, the fee cap can be as simple as an overall matter total fee cap, or an annual fee cap, subject to an overall cap on the number of months or years a matter can be charged.

Fee caps can also  be used in alternative  billing arrangements to give the client some measure of clarity as to when a matter might reasonably  be concluded, and what the total project cost is going to be.  A good number of insurance clients I work with are using flat monthly fee agreements to retain me, and those fee agreements are always subject to an overall cap on the number of months for which they will be obligated to pay the flat fee.

Fee caps also do not eliminate flexibility to accommodate unforeseen circumstances as an assignment proceeds.  Both sides should remain free to re-negotiate caps upwards or downwards as case circumstances change.

If you are not already using fee caps to accelerate outcomes and reduce your outside legal expense, you should give them a try to see how much cost-control they can deliver.

CJH

 

 

Liquor Liability Exclusion In CGL Policy Unambiguous, Federal Judge Finds

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PHILADELPHIA, Nov. 20 – A federal district judge has ruled that a liquor liability exclusion in a CGL policy is unambiguous, and relieved an insurer from the duty to defend or indemnify its insured in underlying liquor liability litigation.

In Transportation Ins. Co. V. Healthland Hosp. Group, No. 15-4525, 2017 U.S. Dist. LEXIS 191951 (E.D.Pa. 2017), the U.S. District Court for the Eastern District of Pa. ruled that Transportation and CNA Insurance companies had no duty to defend or indemnity Healthland Hospitality, a group that operated bar service for the Woodbury Country Club.    Healthland was sued in state court after an over-served patron killed another motorist in a motor vehicle accident.

The exclusion in the CGL policy excluded defense or indemnity to Healthland for losses arising from:

“Bodily injury” or “property damage” for which any insured may be held liable by reason of:

(1) Causing or contributing to the intoxication of any person;

(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

CNA denied coverage to Healthland, citing the exclusion.

Healthland argued in opposition, however,  that the exclusion’s  “in the business of” language was ambiguous.  The Court disagreed after the parties filed cross-motions for summary judgment:

“Here, reading the relevant “in the business of” language in the context of the entire policy and the exclusion, it is clear that the provision is intended to distinguish an insured who occasionally serves alcohol from an insured who is involved with the service of alcohol with such regularity that the insured represents a significantly greater insurance risk. Indeed, numerous courts, including the Pennsylvania Superior Court, have reviewed identical or nearly identical liquor liability provisions and found them to not be ambiguous.”

Since the Court found the exclusion unambiguous, it found the underlying state court liquor liability litigation to be squarely within the exclusion, and held that CNA did not have a duty to defend or indemnify Healthland in those cases.  The Court granted the insurers’ motions for summary judgment, and denied Healthland’s cross-motion for summary judgment on coverage.

Transportation Ins. Co. V. Healthland Hosp. Group, No. 15-4525, 2017 U.S. Dist. LEXIS 191951 (E.D.Pa. 2017)

 

Liberty Mutual Wins Bad Faith Claim In Flood Loss Dispute

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PHILADELPHIA, Nov. 15 – A Pennsylvania federal judge on Nov. 15 dismissed a bad faith claim against Liberty Mutual, finding that a dispute over the amount Liberty Mutual should pay over a flood loss was not sufficient to create a legitimate bad faith cause of action.

In Steven Barnwell, et al. v. Liberty Mutual Insurance Co, No. 16-4739, E.D. Pa.,  2017 U.S. Dist. LEXIS 188427 (Beetlestone, J.), the Barnwells sued Liberty Mutual after a dispute arose over payment for an August 3, 2015 flood loss under the Barnewells’ homeowners policy with the insurer.  The home was under renovation at the time of the loss.

While the insurer made partial payment of the claim, the insureds sought further reimbursement and ultimately filed suit against Liberty Mutual in the U.S. District Court for the Eastern District of Pa.  In the proceeding, Liberty Mutual sought partial summary judgment on the bad faith claims.

U.S. District Judge Wendy Beetlestone granted Liberty Mutual’s motion, observing that a mere dispute over the nature and extent of damage did not constitute bad faith on the part of the insurer:

“Plaintiffs’ do not point to any competent record evidence to subvert the restoration company’s determination that only one marble tile needed to be reinstalled. Plaintiff Barnwell himself testified at the arbitration hearing that only four to six of the tiles were ruined. Even so, neither Plaintiff contacted Liberty to tell it that there was more damage to the floor tiles than the restoration company had identified and that the cost of repair would, accordingly, be higher. Instead, they replaced the entire floor and asked Liberty to pay for it. Under the circumstances, it was not unreasonable for Liberty to deny benefits under the policy.”

Judge Beetlestone also held as a matter of law that Liberty’s positions on food loss and living expense reimbursement of the insureds were not so unreasonable as to create a genuine issue of fact regarding bad faith.

Finally, the Court ruled that Liberty’s withholding of depreciation allowance did not constitute bad faith either:

“By the terms of the policy, Liberty is not obligated to pay depreciation until repair or replacement is complete. Plaintiff has not pointed to record evidence that the repairs are complete or that it has notified Liberty that the repairs are complete. Absent such evidence, it was not unreasonable for Liberty to withhold payment to Plaintiffs for any deductions for depreciation.”

Steven Barnwell, et al. v. Liberty Mutual Insurance Co, No. 16-4739, E.D. Pa.,  2017 U.S. Dist. LEXIS 188427