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

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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

 

What Two Roofing Companies Taught Me About Pricing Legal Services

Roofers On The Roof.

My wife and I recently downsized into a house we love, except for the roof we had to replace.  What ensued as I sought estimates from two roofing companies was a signal lesson to me about what clients want from their service providers, including law firms.  I was put in the rare position of calling the shots — I was for the purposes of this roofing job, the client.  What power.

Here’s how it went:

Company A’s estimator was a no-nonsense guy, who did a thorough tour of the roof and handed me a simple, one page estimate for X.   On the spot.

This number — X — was fairly close in my mind to what I would have to reasonably pay for a new roof.  I’d rather get the new roof for nothing, of course, but X made sense to me on a gut level.  It felt like a fair price to pay for what I was getting.

Company B’s estimator, on the other hand,  was nice also,  but a little more polished.  He handed me a glossy brochure after looking the roof over,  and said he would email me his estimate after he got back to his office and “did some satellite measurements” of the roof surface area.  A day later I got an estimate.  For 2X.

I didn’t like 2X as much as I liked X.  Company A got the job because Company A’s pricing made more sense to me.  It was lower, yes, and that certainly didn’t hurt, but a bid can become so low that it is no longer credible.  This bid was not so low.  This bid was  credible.

And thus, here is what the endeavors of laying shingles and hanging a shingle have in common, and what I learned from the experience:

  1. Some roofers (and some lawyers) will price their services based on what they think they can get away with — the highest possible number  which gives them what they perceive is a chance at the business.
  2. The more successful roofers (and lawyers) price their products and services at a level which is very close to the client’s perceived value of the result to be delivered.  The price is not directly or necessarily linked inexorably with the amount of time it  takes to produce the result, but rather the result itself.

The lesson I share here  is a mildly damning indictment  of the  billable hour to the extent that the billable hour creates disunion between price and result.  The billable hour is a wonderful tool for lawyers who want to maximize what they can get out of a client.  Value-based pricing, on the other hand, is the better tool for lawyers who are trying to price their services  to match the client’s perception of the value they are receiving.

Which pricing model do you think the clients prefer?

With the exception of the legal and consulting fields, customers largely pay for outcomes, not inputs.  This outcome-based pricing has made its way into how lawyers charge for their services.   Jim Savina, General Counsel of Kraft Heinz Co., said the following about the billable hour  in an interview earlier this week on Law360.com:

I have to think there is a better way to correlate price paid with value delivered, while aligning incentives to outcomes. I want my firms to be thorough and conscientious, but I never want them to spend five hours doing what they could do in one. The billable hour rewards them for doing so. I would rather reward firms for delivering the outcome at a rate that would be three times their billable rate. I have to think firms have access to data they could mine to develop those types of “win-win” arrangements in lots of areas.

And I would rather pay, and I did pay,  a roofing company the value of what that company did for me, as opposed to what the company thought it could get away with charging me.  That is the essence of pricing based on value,  which sophisticated clients will continue to demand.

 

A Roadmap For CGL Insurers To Disclaim Defense and Indemnity For Underlying Opioid Litigation

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In a post last  week, we discussed an appeals court opinion from California, Traveler’s Prop. Cas. Co. of Am. v. Actavis, Inc., 2017 Cal. App. LEXIS 976, which ruled that Travelers Insurance had no duty to defend or indemnify pharmaceutical company insured who was sued by various state and local government units for deceptive practices leading to the overuse and abuse of opioids.  The opinion is a signpost on a road to what is likely to come a multiplicity of opioid suits against the drug-makers by governmental health organizations now overwhelmed with the problems arising out of opioid addition and abuse.

Insurers should be ready, therefore, to stake out clear lines demarcating the limits of the CGL coverage they wrote and priced, which  did not contemplate opioid suits.  Here is a very brief review of key points for successfully disclaiming duties to defend and indemnify insurers never contemplated:

What Does Your Policy Say?

CGL policies routinely cover “occurrences” which are traditionally seen to be accidental, unintended, and unexpected.  As discussed below, the current trend in opioid litigation is the allegation of intentional, deliberate conduct on the part of pharmaceutical companies.

In addition,  CGL policies routinely come with “Products and Completed Work” and / or “Completed Operations / Your Product” exclusions.  In the California case discussed earlier this week, and in most Pharma CGL’s, there is also a “Products-Completed Operations Hazard – Medical and Biotechnology” exclusion, which was seen by the Court as directly on point in Actavis.  The definition of an “occurrence” under the policy, and exclusions like these are the first steps to defining coverage, and these provisions have routinely been held by courts across the U.S. to be clear and unambiguous.

What Is Your Insured Being Sued For?

The emerging trend in opioid litigation against the manufacturers is the allegation by state and local governmental health units that the manufacturers deliberately misrepresented the benefits and downplayed the risks of opioids to self-grow demand for the drugs, and to diminish concern in the medical community for the risks and downside of opioid products, namely addiction.    The allegations sound in intentional conduct and intentionally deceptive trade and marketing practices, and are not the  types of allegations of accident or negligence which CGL polices are intended to cover, i.e., they are generally not “occurrences” as defined in the CGL policy.

The Actavis Court went to great pains to examine the underlying complaints against the drug makers, and in the end it found that the conduct complained of was neither accidental nor fortuitous such that it would be insurable under the CGL, but rather calculated and intentional.

Avoid The “Duty to Defend” Trap

While in the Actavis case the court recognized the distinction between an insurer’s duty to defend and duty to indemnity, it also  pointed out that where there is no possibility of coverage, not even the broad duty to defend was triggered.  The Court found that all of the conduct alleged was deliberate and not accidental, and that, according to the underlying complaints, none of the damages caused by the drug makers were unexpected or unforeseen.   It held, therefore, that not even the duty to defend was triggered.

There is case law in almost every jurisdiction holding that the duty to defend is not so broad and infinite as to require an insurer to defend its insured if there is no possible way the underlying wrongful conduct comes within the terms and conditions of the policy.   Insurers should take advantage of this to avoid incurring defense costs in these kinds of opioid cases where it is almost certain to never have a duty to indemnify.

The Best Defense…..

The costs of defending opioid litigation is, and will continue to be substantial.  Therefore, in the right cases, an insurer may be wise to invest in an early, interventional, declaratory judgment suit to free itself from any question of its duty to either defend, or indemnify insureds in the type of litigation seen in the Actavis case.  So too, early, well -reasoned denial letters, and, where appropriate, reservations of rights letters, will help protect the insurer from covering a risk it may never have contemplated, and certainly never priced into the policy it sold.

As discussed above, opioid litigation of the type seen in Actavis is likely to multiply.  Insurers should take pains to make sure that the CGL policies they issued, which  cover only accidental occurrences arising out of negligence, are not converted into product liability insurance for injuries and damages caused by opioids.