Presented by the Insurance Coverage/Bad Faith Litigation Practice Group

Legal Updates for Coverage and Bad Faith

November 1, 2014

Edited by Allison L. Krupp, Esq.

Ohio

Plaintiff’s property damage claim was properly denied by Allstate following a fire at the insured location since the evidence established that the fire was intentionally set by plaintiff.

Hague v. Allstate Insurance Co., 2014 U.S. Dist. LEXIS 152720 (N.D. Ohio Oct. 8, 2014)

This case arises from a property damage claim submitted by the insured following a fire at the insured’s residence. Plaintiff claimed that he had returned home at 3:00 a.m. to discover that the residence had been destroyed. Plaintiff filed a claim with Allstate, which subsequently conducted an investigation into the origin of the fire. The fire investigator determined that the fire had been intentionally set, as did a private company hired by Allstate, which specializes in the investigation of the origin and causes of fire losses. Allstate subsequently denied the claim based upon breach of contract and fraud. The court considered that the elements of arson are: (1) a fire of incendiary origin; (2) motive to cause the fire; and (3) the opportunity to cause, or participate in causing, the fire. The court considered that plaintiff was unable to refute the investigator’s findings that the fire was incendiary in nature, plaintiff had admitted that the only keys to the home were in his sole possession, and plaintiff was struggling financially. As a result, the court determined that the evidence gathered by Allstate gave rise to a reasonable determination that plaintiff was responsible for the fire. Allstate had, therefore, met its burden of proving that its denial of plaintiff’s claim was based upon a reasonable justification. Plaintiff’s misrepresentation claim against Allstate was dismissed since there were no significant factual discrepancies as to whether plaintiff had given Allstate useless and/or inaccurate information. Plaintiff’s bad faith claim was likewise dismissed since there was no factual dispute as to coverage. Finally, plaintiff’s claim for negligent and intentional infliction of emotional distress was dismissed since plaintiff had failed to show that he had sustained emotional injury as a result of Allstate’s alleged breach of contract.

Plaintiffs’ claim for personal property that had been damaged by vandals was limited to the valuation they had previously averred for that same property in bankruptcy proceedings.

Brown v. Nationwide Property and Casualty Insurance Co., 2014 Ohio 5057 (Ct. App. Ohio, 5th App. District Nov. 10, 2014)

This case arises from a property damage claim submitted by the insureds after vandals had broken into their home and caused extensive damage to the home’s interior and personal property. The residence was insured by Nationwide under a homeowner’s policy. A large loss adjuster for Nationwide estimated the damage to the property to be $155,678.65. However, approximately one year prior to the fire, plaintiffs had filed for bankruptcy and, at that time, had valued the same personal property at $3,100. Nationwide sent plaintiffs a reservation of rights letter advising that they had learned that plaintiffs had previously valued their property at $3,100. Due to judicial estoppel, Nationwide explained, plaintiffs may be ineligible to collect on some or all of the personal property claimed for the loss. Plaintiffs filed a complaint against Nationwide alleging breach of contract and bad faith. Nationwide subsequently filed a motion to bifurcate and stay the bad faith claim, which was granted by the court. The trial court subsequently granted Nationwide’s motion for summary judgment and limited plaintiffs’ recovery on the breach of contract claim to $3,100. The court also granted the motion for summary judgment on the bad faith count because plaintiffs had failed to cooperate in the investigation of the claim. On appeal, the appellate court agreed that plaintiffs were judicially estopped from claiming that the same property was worth more than $3,100. However, the court held that the trial court had erred in granting Nationwide’s motion for summary judgment as to the bad faith claim since, due to the bifurcation order, no discovery had been conducted on the bad faith claim. The trial court should have held its decision on the bad faith claim in abeyance, pending the outcome of discovery.

New York

Plaintiff was not entitled to recover consequential damages or litigation fees in this breach of contract/bad faith action; however, Travelers had failed to show that it was entitled to sever the breach of contract claim.

J. Kokolakis Contracting Corp. v. The Travelers Indemnity Co. of Connecticut, 2014 N.Y. Misc. LEXIS 4614 (N.Y. Supreme Ct., Suffolk Cnty. Oct. 21, 2014)

Plaintiff was a general contractor for a job at a college in New York. Plaintiff sued one of its subcontractors, alleging damages totaling $300,000 after the subcontractor had allegedly caused water damage to the property while testing a sprinkler system at the job site. Plaintiff was listed as an additional insured on the policy of insurance the subcontractor had with Travelers. Plaintiff sued Travelers for breach of contract, breach of the implied covenant of good faith and fair dealing, and bad faith. Travelers contended that plaintiff’s claims for consequential damages arising from the alleged breach of the implied covenant of good faith and fair dealing, and its claim for litigation costs, were not actionable. The court agreed and held that the underlying facts applicable to these claims were the same as those that were applicable to the breach of contract claim. The court also dismissed plaintiff’s claim for counsel fees since Travelers had sufficiently established that such fees are not recoverable in this type of action, nor were they recoverable under the terms of the subcontract between plaintiff and the subcontractor. However, the court denied Travelers’ demands for severance of the fourth cause of action, which sounded in breach of contract, since Travelers had failed to demonstrate that it was entitled to severance at this stage of the litigation on the grounds that it would be prejudiced if the cause of action was not severed.

The New York Insurance Law did not apply to a pollution and remediation legal liability policy since the policy was not issued in New York.

Indian Harbor Insurance Co. v. The City of San Diego, 13-4244-cv (2nd Cir. Oct. 2, 2014) (not precedential)

Indian Harbor had issued a pollution and remediation legal liability policy to the City of San Diego in 2009. The policy required the City to notify Indian Harbor “as soon as practicable” about any liability claims relating to “pollution conditions.” Immediately prior to the issuance of the policy, the New York legislature amended the New York Insurance Law to prevent liability insurers who had issued or delivered policies in New York from denying claims due to late notice unless the insurer has suffered prejudice as a result of the late notice. Indian Harbor filed a declaratory judgment action and argued that it had no duty to indemnify the City for three late-notified claims. Indian Harbor did not assert that it had been prejudiced by the City’s late notification of the claims. The City argued that the New York Insurance Law, as amended, required Indian Harbor to establish that it had been prejudiced by the late notice and that the three notifications were not late as a matter of law. The district court granted judgment in favor of Indian Harbor, and the City appealed to the Second Circuit. On appeal, the City argued that a reasonable fact-finder could conclude that the policy was issued in New York and, therefore, that the New York Insurance Law applied. Alternatively, the City argued that the amendment to the statute implicitly abrogated the common law “no prejudice” rule, even with respect to policies issued outside of New York. The Second Circuit agreed with the district court that no reasonable fact-finder could conclude that the policy had been “issued” in New York since the City had not offered any evidence that the policy was issued or even signed in New York. As a result, the New York Insurance Law did not apply. The Circuit Court also rejected the City’s argument that the amendment to the law created a new public policy and, thus, changed the common law “no-prejudice” rule. Numerous cases have continued to apply the common law “no-prejudice” rule after the Insurance Law was amended where the criteria under the statute had not been met. The Circuit Court also held that the 58-day delay in reporting one of the claims was unreasonable as a matter of law. The court reasoned that, under New York law, delays of one or two months are routinely considered to be unreasonable. The lower court’s decision in favor of the insurer was, therefore, affirmed.

Florida

Plaintiffs’ claims for breach of contract and negligence against the insurance agency and agent were dismissed as premature since plaintiffs would first have to establish that they were covered by the Infinity policy.

Hernandez v. Infinity Indemnity Insurance Co., 2014 U.S. Dist. LEXIS 129506 (S.D. Fl. Sept. 12, 2014)

The deceased was involved in a motor vehicle accident and killed while riding as a passenger in Jorge Luis Arroyo’s vehicle. Plaintiffs, the deceased’s estate, filed suit against Arroyo’s estate as a result of the accident. Plaintiffs claimed that Infinity had issued an auto policy to Arroyo, which provided bodily injury liability coverage in the amount of $10,000. Infinity advised Arroyo’s estate that coverage under the policy had been cancelled two months before the accident. Infinity denied coverage as a result and did not provide Arroyo’s estate with a defense. Plaintiffs obtained a consent final judgment against the estate of Arroyo in the amount of $3 million. Plaintiffs then filed suit against Infinity, the insurance agency that had issued the policy, and the agent himself. Infinity argued that plaintiffs had intentionally mis-joined the insurance agency and agent in order to defeat the jurisdiction of the district court. Infinity also filed a motion to dismiss the breach of contract and negligence counts against the agency, as well as the breach of contract and negligence counts against the agent. The court found that plaintiffs’ claims against the agency and agent should be dismissed because they were premature. The claims against the agency and agent could only be decided once a conclusion is reached regarding whether plaintiffs are covered under the Infinity policy. Dismissing those claims resulted in complete diversity between the remaining parties. As a result, plaintiffs’ motion to remand was denied.

Pennsylvania

“Named driver only” type of automobile policy was upheld by the court as valid and not against public policy.

Byoung An v. Gilmore, 2120 EDA 2014 (Sept. 2, 2014)

Plaintiff alleged that he had been injured in a motor vehicle accident in March 2011 with a vehicle owned by Defendant Zanaib Walker and operated by Defendant Matthew Gilmore. The motor vehicle owned by Walker was insured by Victoria Fire and Casualty Company. That policy included a named driver only exclusion, which excluded coverage for anyone not listed as a named insured on the policy. Walker was the sole driver listed on the policy. Plaintiff filed an action for declaratory judgment seeking a declaration that Victoria had a duty to defend and provide coverage to Walker and Gilmore for all claims arising out of the accident. Victoria filed a motion for summary judgment, claiming that it had no duty to defend or indemnify Walker because the policy specifically stated that Victoria “will not provide coverage when the driver of your auto is not listed on the policy.” Plaintiff also filed a motion for summary judgment, claiming that the “named insured only” provision violated section 1718(c) of Pennsylvania’s Motor Vehicle Financial Responsibility Law and that it is against public policy. The court considered that Walker admitted that she had applied for the policy and executed the application. The court also considered that Walker admitted that Gilmore was not a named driver on the policy. Plaintiff argued that the last sentence of section 1718(c)(2) of the MVFRL requires any driver excluded from a policy to be insured by another insurance policy. The court determined that this argument was without merit since 1718(c) refers to named driver exclusion policies that exclude a particular driver, as opposed to a named driver only provision. The court also rejected plaintiff’s argument that the named driver only provision violated public policy because it would increase the number of uninsured drivers since plaintiff had failed to produce any evidence to establish that assertion.

The Superior Court upheld the trial court’s grant of summary judgment in favor of Nationwide based upon the application of the endorsement that excluded the driver of the vehicle from coverage.

Trimmer v. Nationwide Mut. Ins. Co., No. 54 WDA 2014 (Pa. Super. Ct. Oct. 21, 2014) (non-precedential)

Plaintiffs appealed from an order granting Nationwide’s motion for summary judgment. Defendant Aaron Stevens was involved in a motor vehicle accident while operating his brother’s Hyundai Sonata. Stevens collided with another vehicle in which the deceased was a passenger. The deceased sustained fatal injuries as a result of the accident. The Sonata was insured by Geico, which subsequently tendered its policy limits. At the time of the accident, Stevens and his brother both resided with their parents. Their parents had an auto policy through Nationwide, which included an endorsement excluding Stevens as an insured under the policy while operating any motor vehicle to which the policy applied. Nationwide denied coverage based upon the excluded driver endorsement. Plaintiffs subsequently filed a complaint for declaratory judgment, seeking a declaration that Stevens was an insured driver under the Nationwide policy. Nationwide filed a motion for summary judgment, which the trial court granted. On appeal, plaintiffs alleged that the trial court had improperly granted summary judgment in favor of Nationwide because Nationwide’s exclusion of Stevens under the policy was not permissible under Pennsylvania’s Motor Vehicle Financial Responsibility Law. On appeal, the Superior Court considered that the parents would not have qualified for insurance through Nationwide if Stevens was insured by the policy due to his prior driving record, including his history of DUI. The Superior Court ruled that Nationwide’s exclusion of Stevens was valid. Nowhere in 40 P.S. § 991.2003(a), which lists the reasons an insurer may not refuse to write a policy of insurance, does it state that DUI is a prohibited reason for refusing to write a policy. Nationwide was, therefore, permitted to exclude Stevens based on his prior DUI. The trial court’s order was affirmed.

New Jersey

Plaintiff was required to produce expert testimony that the insurance agent had breached his fiduciary duties in order to sustain its causes of action for professional negligence and negligent misrepresentation.

Omega Financial Services, Inc. v. Aspen Specialty Insurance Co., and Jackson, 2014 N.J. Super. Unpub. LEXIS 2333 (N.J. Super. Ct., Bergen Cnty. Sept. 22, 2014) (unpublished)

This coverage action regarded a claim that had been filed by Omega, a mortgage banker, under its professional liability policy with Aspen. After its claim was denied, Omega filed a complaint against David Jackson for professional negligence, negligent misrepresentation, fraud and liability based upon the theory of “reasonable expectations.” Omega’s complaint against Aspen Specialty Insurance Company sought a declaration from the court that Aspen must provide coverage under the insurance policy at issue, and it also asserted a claim for bad faith, liability based on “reasonable expectations” and liability based upon Jackson’s representation that he was Aspen’s agent. The president of Omega admitted that he did not read the policy after applying for it. One of the issues before the court was whether Omega could establish that Jackson had breached his fiduciary duty without producing expert testimony. Omega asserted that Jackson had told it that the Aspen policy would provide the same coverage as another policy that Omega already had in effect. Omega contended that the other policy would have provided coverage for the subject loss. The court concluded that expert testimony was required to establish Omega’s claims against Jackson for professional negligence and negligent misrepresentation since they required a determination of whether the Aspen policy provided “identical coverage” as the other policy and, if not, whether the difference had any bearing on Aspen’s denial of Omega’s claim.

Delaware

Defendant insurer was permitted to void a life insurance policy where the insurance application included a misrepresentation regarding the insured’s height.

Mulrooney v. Life Insurance Company of the Southwest, 2014 Del. Super. LEXIS 450 (Del. Super. Ct., New Castle Sept. 3, 2014)

Plaintiff’s application for life insurance included an incorrect statement regarding plaintiff’s height. Four months after completing the application, plaintiff suffered a non-fatal stroke. The policy included an accelerated benefits rider, which provided that under certain circumstances the insureds could receive some portion of the death benefits even if the insured did not die. Plaintiff sought benefits under the policy following the non-fatal stroke. Defendant insurer denied coverage and sought to void the policy due to the material misstatement regarding plaintiff’s height. Plaintiff alleged that any misstatement was due to the agent who had filled out the application forms before she signed them. Plaintiff asserted claims for breach of contract and negligence against the agent, as well as breach of contract and bad faith against the insurer. The insurer filed a counterclaim seeking a declaratory judgment that it is entitled to void the policy due to the misrepresentation on the application. The court determined that it was undisputed that plaintiff had materially misrepresented her height on the application and, therefore, that the insurer was entitled to void the policy. The court reasoned that Delaware statutory law permits rescission if the misrepresentation is attributable to the insured. The representation regarding plaintiff’s height was attributable to her because she was the one who had signed the application, and she was bound by that representation. The court assumed that the agent had incorrectly recorded plaintiff’s height on the application. Regardless, it was plaintiff’s responsibility to read the application and confirm that all of the information was correct.

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