Judge Rules DWI Victims Adequately State Bad Faith Claim Against Progressive

PHILADELPHIA, Feb. 4 – U.S. District Judge Timothy J. Savage has denied a motion to dismiss filed by Progressive Insurance Company in response to a bad faith complaint filed by Progressive insureds Jeffrey and Aimee Kelly arising out of a UM/UIM claim.    The Court did dismiss, however, claims the Kellys made against progressive under the Pa. Unfair Trade Practices and Consumer Protection Law.

The Kellys were injured in 2010 when their vehicle was struck from behind by a drunk driver.  They settled with the drunk driver for the driver’s policy limits, and then filed a UM/UIM claim with their own carrier, Progressive.  Progressive denied the claim, and the Kelly’s filed suit.

The Judge stated succinctly:

The Kellys allege that Progressive failed to pay their claims, make a reasonable settlement offer, investigate their claims properly, and consider medical and other documentation. These allegations suffice to state a claim under § 8371… The insurance bad faith statute applies to post-contract formation conduct. The UTPCPL, on the other hand, applies to conduct surrounding  the insurer’s pre-formation conduct.  The UTPCPL applies to the sale of an insurance policy.  It does not apply to the handling of insurance claims.

Kelly v. Progressive Advanced Ins. Co., (E.D. Pa. Feb. 4, 2016)(Savage, J.)


GC’s: Are You Demanding Fee Options From Outside Counsel?

For many years the arrangement was understood — a negotiated hourly rate would cover the assignments from General Counsels at Insurance Companies and other Corporations to their outside lawyers.  The seismic shift in legal departments to emphasis on speed, efficiency, and cost-effectiveness has obliterated that status quo, for the most part.

Some outside firms have slowly, glacially, begun to shift to alternative fee arrangements.  But as I have written in the past, this shift is not likely enough to keep pace with what  in-house legal departments are searching for:  the nimble ability to select the right fee arrangement for each and every case which gets assigned to outside firms.   Having a single, alternative fee proposal is barely better than the hourly rate concept it replaces.

How can outside lawyers offer more? By letting the clients, the law departments and general counsel we serve pick the arrangement.  This can be done either by a.)  offering the client a list of several alternative fee options; b.)  listening to the client to hear about what they have been using and what they like (that is what good service is all about):  or c.) collaborating somewhere between these two approaches to tailor an arrangement that works in a particular case for both the law department and the outside lawyer.

There is no magic to it.  It is simply a matter of demanding options from outside lawyers so that clients are comfortable that with cost control over the assignment, and the alignment of the clients interests and outside counsel’s interests.



Breach of Contract, Bad Faith Cases Dismissed In Pittsburgh

PITTSBURGH, Feb. 5 – Chief District Magistrate Judge Maureen Kelly has dismissed breach of contract and bad faith claims against State Farm by an insured contractor, finding that the underlying allegations of damage caused by the contractor fell outside of policy period.

Reginella Construction was insured under a contractor’s liability policy with State Farm between July 2004 and May 2006.  In 2013, a homeowner filed suit against Reginella complaining of problems with the floor, caused by poor materials and workmanship.  The homeowner subsequently won the underlying case against Reginella.  State Farm denied defense and indemnity to Reginella in February 2014, claiming that the occurrence per the suit against Reginella fell outside of the policy period(s).

After Reginella sued State Farm in Allegheny County, Pa. in 2015, State Farm removed the case to federal court and filed a motion to dismiss pursuant to F.R.C.P. 12(b)(6).

“Although the cause of the damages to the Eck home was arguably within the coverage period, ‘the cause of injury . . . has no special relevance to determining the date an insurance policy is triggered, unless specifically required by the language of the applicable policy of insurance.’ Where, as here, there is no policy language requiring the cause of injury to be identified, Pennsylvania courts apply the ‘first manifestation rule’ to occurrence policies; that is, the court looks to when injury is ‘reasonably apparent,’ i.e., when it is first manifested.”

Judge Kelly granted State Farm’s motion to dismiss, based on the first manifestation rule and the allegations of the underlying complaint against Reginella, the damage caused by Reginella’s conduct fell outside of the applicable policy period.

Because the Court found that State Farm’s coverage position was supported by a “plain reading” of the policy provisions, it dismissed bad faith claims against State Farm as well.

Reginella Construction Co., Inc. v. State Farm Fire and Casualty Co., (W.D. Pa. Feb 5. 2016)(Kelly, C.M.J.)

Florida: Policyholder Can Assign Benefits Without Insurer Consent

FLORIDA, Feb. 5 – An intermediate state appeals court in Florida has ruled that the policyholder can assign the right to post loss benefits to third parties without insurer consent.  In Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 2016 Fla. App. LEXIS 1548 (2nd Dist. 2016), a unanimous three-judge panel held that the homeowner/insured could assign post loss benefits to Bioscience W., reversing a summary judgment entered for Gulfstream by the trial court.

In Bioscience the homeowner-insured, Gattus, engaged Bioscience, an emergency water mitigation company, to provide cleanup services after a water loss her home.  As part of Gattus’ arrangement with Bioscience she assigned all loss-related policy benefits to them as compensation.  Following the loss, and the assignment, Gattus made a claim under her property insurance policy with Gulfstream.

Gulfstream denied the claim as an uncovered loss, and Bioscience subsequently filed suit against Gulfstream for breach of the policy.  Gulfstream sought dismissal, and the  trial court granted summary judgment to Gulfstream on grounds that the policy had an anti-assignment provision, requiring Gulfstream’s consent to any policy assignment.

In reversing the trial court, the appeals court held:

“Gulfstream does not and cannot argue that the entire policy was unilaterally transferred from Ms. Gattus to Bioscience, which would have been void under the language of the policy’s anti-assignment clause. Instead, it is clear that Ms. Gattus merely assigned to Bioscience the “insurance rights, benefits, and proceeds pertaining to services provided by” the policy in consideration for Bioscience’s emergency mitigation services and authorization to directly bill and to be directly paid by Gulfstream. (Emphasis added).  Stated differently, it was a post-loss assignment of a benefit under the policy to Bioscience, namely a right to seek payment for the mitigation services it rendered under the policy, not an assignment of “this policy” issued by Gulfstream to Bioscience.”

The Court also found support for its ruling in the policy’s loss payable provisions, which contemplated that payment of policy benefits might be made to persons or entities other than the insured.  It also pointed out a long history of Florida case law which permitted post-loss assignment of policy benefits without the insured’s consent.

The case remanded to the trial court for further proceedings.

Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 2016 Fla. App. LEXIS 1548 (2nd Dist. 2016)

Texas Judge Rules Bad Faith Claim Inadequate To Survive Summary Judgment

SHERMAN, Feb 4 – A federal judge has ruled that a bad faith suit against State Farm Lloyds arising out of property damage claims lacked sufficient questions of material fact to avoid dismissal by summary judgment pursuant to F.R.C.P. 56.

After the case, involving breach of contract and statutory and common law bad faith claims was removed from Texas state court to federal court, the Plaintiff voluntarily dismissed common law bad faith claims, but retained statutory bad faith claims under the Texas Insurance Statute and the Texas Deceptive Trade Practices Act.

“Plaintiff has failed to cite any evidence that would create a genuine issue of fact as to whether Defendant acted unreasonably in its handling of the claims.”

Judge Amos Mazzant ruled.

He found that the Plaintiff did not produce any credible evidence that the insurer misrepresented provisions of the policy,  misrepresented the authority of the agents, or that it unreasonably delayed the investigation or the processing of the Plaintiff’s insurance claims.

The Court ruled that the Plaintiffs breach of contract claims for coverage should proceed to trial.

Broxterman v. State Farm Lloyds, (E.D. Tx. 2016)(Mazzant, J.)

Hawaii: Defending Insured In Underlying Claim Not Necessarily Bad Faith Safe Harbor

HAWAII, Feb. 4 – The Supreme Court of Hawaii has ruled that a title insurer’s defense of its insured in underlying action to quiet title does not shield that insurer from bad faith exposure, and that questions of fact regarding the reasonableness of such action, as opposed to settling the underlying claim which appeared to be meritorious,  precluded summary judgment in favor of the title insurer.

In Anastasi v. Fidelity National Title Ins. Co., the Court affirmed an intermediate appeals court ruling that a summary judgment in favor of Fidelity National should be reversed, and the case remanded to trial for exploration of whether the title insurer should have paid to settle the underlying action to quiet title against its insured, Anastasi,  earlier, as opposed to continuing to litigate.  There was evidence that a warranty deed upon which Anastasi issued a mortgage to the borrower  was falsified, and the true owners of the property would prevail in the underlying suit against Anastasi and the mortgagee.

The Court found there were questions of fact regarding the reasonableness of Fidelity National’s continuing the defense of its insured in the underlying case after learning the deed upon which Anastatia issued the mortgage was forged.  Justice Paula Nakayama wrote for the court:

“If insurance companies were held to be acting reasonably as a matter of law any time they filed or defended lawsuits under a contractual right to pursue litigation, frivolous lawsuits could be used to unfairly delay payments to insureds for years…

The opinion also contains an excellent discussion of an ongoing discovery dispute regarding whether documents prepared by Fidelity’s in house legal department during the claims investigation were protected by attorney client privilege or the attorney work product doctrine.  The Court remanded that issue to the trial court as well, directing it to make a determination whether the documents in question were prepared “because of” litigation or the threat of litigation, or whether they would have been prepared regardless.

Anastasi v. Fidelity National Title Ins. Co. (HI 2016)(Nakayama, J.)

Dickie McCamey Lawyers Obtain Rescission of $25M Product Contamination Policy For Client In Coverage Dispute

PITTSBURGH, Feb. 1 – Dickie McCamey lawyers Robert Marino and Dave Ziegler along with lawyers from Choate, Hall & Steward have successfully obtained rescission of a $25 million dollar surplus Product Contamination Insurance (PCI) policy issued by Starr Surplus Lines Inc. Co . to H.J. Heinz.  The ruling  relieves the insurer of reimbursing Heinz for expenses arising out of the furnishing of lead-contaminated baby food.

Applying New York law, U.S. District Judge Arthur Schwab ruled earlier this week that the omission of multiple significant prior contamination claims from Heinz’ loss histories in the application for coverage was material, thereby entitling Starr to rescission of the policies.  Schwab found testimony from Starr’s underwriters and executives that the unreported losses were material to insuring Heinz’ risk credible.

The Court, with the consent of counsel, empaneled an advisory jury to assist with fact finding, and while it agreed with most of the jury’s findings,  it departed and disagreed with that portion of the advisory jury verdict which found that Heinz had adequately proved Starr had waived the right to assert Heinz’ material misrepresentations as to prior losses.  Schwab wrote:

While Starr was not “perfect” in its assessment and underwriting practices, perfection is not the standard.  Instead, this Court finds that Starr acted more than reasonably under the circumstances.  Specifically, the Court finds that Starr’s expert was credible, and that Starr’s underwriters lacked sufficient knowledge of Heinz’ misrepresentations or omissions.

The Court rejected Heinz’ claims that Starr engaged in post-claim underwriting, and that Starr should have conducted further investigation during the underwriting process about prior losses, including delving into information about Heinz’ prior losses from sources other than the application, including applications for other coverages, and prior news coverage of Heinz contamination claims.

While Schwab conceded the equitable remedy of rescission ab initio was an extreme one, he ruled that Starr met its burden of proving entitlement to the equitable remedy.  Dickie McCamey’s attorneys worked as co-counsel in the case with Attorneys Bob Frank, John Nadas, Matt Arnould and others at Choate Hall & Stewart in the representation of Starr.

H.J. Heinz Company v. Starr Surplus Lines Ins. Co., (W.D. Pa., Feb. 1, 2016)(Schwab, J.).

Editor’s Note:  Judge Schwab’s opinion makes it fairly clear that an insurer does not have a reasonable duty to either 1.) presume an applicant is omitting information; or 2. ) investigate items which do not appear on the application.