Presented by the Insurance Coverage/ Bad Faith Litigation Group

Legal Updates for Coverage and Bad Faith

Edited by Allison L. Krupp, Esq. & Christopher W. Woodward, Esq.

Insurer Not Required to Reimburse Attorneys' Fees for Defense of Underlying Case

Desabato v. Assurance Company of America, et al., 2:15-CV-484 (W.D. Pa. 9/30/16)

The United States District Court for the Western District of Pennsylvania determined that the insureds were not owed attorneys’ fees for the underlying litigation as the allegations were not covered by their commercial general liability policy. The original suit was brought by a former co-owner/employee alleging that he had been forced out of the business and fired by the other owners for entering a lease in the name of the business without prior approval. The lawsuit sought a declaratory judgment and alleged breach of fiduciary duty, conversion, breach of contract, breach of the duty of fair dealing, violations of COBRA and ERISA, and, finally, requested an accounting of the business. The insurer denied the demand to defend the owners and the business in the underlying litigation because there was no coverage under the subject policy. After the primary litigation was arbitrated in favor of the former co-owner, the owners and business sued their insurer, seeking reimbursement of the attorneys’ fees expended in defense of the litigation. The Western District dismissed the owners’ arguments that the underlying litigation contained allegations of defamation and misappropriation of an advertising idea. Ultimately, the Western District agreed with the insurer that no coverage was afforded for the original litigation and, therefore, no attorneys’ fees were owed.


Court Upholds BOC and Statutory Bad Faith Claims; Dismisses Allegations of Violation of the UIPA

Long v. Hartford Life and Accident Ins. Co., Case No. 4:16-cv-00138 (M.D. Pa. 8/29/16)

Hartford filed a 12(b)(6) motion to dismiss the complaint the plaintiff had filed against it for breach of contract and statutory bad faith. The plaintiff had slipped and fallen on some rocks near his home, which allegedly resulted in the amputation of his left foot and lower leg. The plaintiff submitted a claim under his life and accident insurance policy with Hartford. Hartford denied coverage, and the plaintiff filed suit. Hartford argued that the plaintiff’s breach of contract claim should be dismissed because the plaintiff failed to meet the pleading requirements because he had not identified any specific policy provision that Hartford had breached. The court considered that, while the plaintiff’s complaint was relatively sparse, he had attached a copy of the policy, and the court ruled that the plaintiff had provided sufficient facts in the complaint to place Hartford on notice of the claim in such a way that it could reasonably respond. The court determined that whether the loss was due to the subject accident or the plaintiff’s Type I Diabetes would be determined at the summary judgment stage. With respect to the bad faith claim, the court concluded that the plaintiff had pled sufficient facts to support that claim as well. The court found that the complaint adequately stated facts which suggested that Hartford’s decision to deny the claim may have been reached through an unreasonable or inadequate investigation. However, the court also found that Pennsylvania law does not provide for recovery under the bad faith statute when it is based on violations of the Unfair Insurance Practices Act (UIPA). Thus, the bad faith claim was dismissed to the extent that it rested on violations of the UIPA.


Motion to Sever and Stay Claims from Same Motor Vehicle Accident Denied

Smith v. Koch, Allstate Ins. Co., No. S-460-2016 (Schuylkill Cnty. C.C.P. 7/22/16)

The court denied Allstate’s motion to sever and stay the plaintiff’s breach of contract/underinsured motorist (UIM) claim from the negligence claim against the alleged tortfeasor. Allstate argued that the breach of contract/UIM claim is premature because the plaintiff had not yet established liability/comparative negligence. Also, the amount of the tortfeasor’s insurance coverage was unknown. The plaintiff argued that recent trial court decisions overwhelmingly support consolidating the liability and UIM claims because they arose from the same transaction or occurrence. The court agreed with the plaintiff and considered that both counts dealt with similar facts. The court found that consolidating them would prevent the necessity for multiple trials and would also allow Allstate to remain involved with the liability phase. The court recognized that Pennsylvania Rule of Civil Procedure 411 generally prohibits reference to insurance during trials but determined that a carefully managed trial could address any prejudice or confusion.   

Court Dismisses Bad Faith Claim that Arose from Litigation of Underlying UIM Claim

Homer v. Nationwide Mutual Ins. Co., No. 2:15-cv-01184 (W.D. Pa. 8/26/16)

The plaintiff sued Nationwide for bad faith and alleged violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL) arising from actions taken by Nationwide during the trial of the plaintiff’s underinsured motorist (UIM) claim. Nationwide filed a motion to dismiss on the ground that the plaintiff could not rely on litigation conduct as the basis for an insurance bad faith claim and that the plaintiff had not sufficiently pled the essential elements for violation of the UTPCPL. Prior to the trial on the UIM claim, the parties had entered into a high/low agreement, which stipulated a high of $300,000 and a low of $100,000. The parties also stipulated that all claims for bad faith occurring prior to the date of the agreement were dismissed, with prejudice, but that any claims for bad faith occurring after the date of the agreement were not barred. Following the trial, the jury returned a verdict of $1.61 million. Nationwide filed a motion to mold the verdict and to dismiss the plaintiff’s bad faith claim for acts that occurred “[a]s of June 1, 2015.” The plaintiff objected to the wording of the motion and argued that the court should dismiss “[a]ll claims for bad faith . . . occurring prior to June 1, 2015.” The Court of Common Pleas of Allegheny County ruled in favor of the plaintiff and against Nationwide on the motion. The plaintiff then filed the bad faith action against Nationwide in federal court, arguing that Nationwide had acted in bad faith when it introduced the videotaped testimony of its experts at trial, referenced the experts’ testimony during closing arguments, and filed the motion to mold with, what the plaintiff believed, was inaccurate wording. Nationwide filed a motion to dismiss, which the court granted. The court considered that there is not a hard and fast rule in Pennsylvania regarding what types of litigation tactics may serve as the basis for insurance bad faith. The court considered that there are four general approaches to this issue and agreed with the fourth such approach: evidence of litigation conduct is admissible as evidence of bad faith but only in rare cases involving extraordinary facts. The court held that this case did not meet that standard and granted the motion to dismiss. The court also ruled that the plaintiff had failed to plead justified reliance or ascertainable loss and dismissed the UPTCPL claim as well. 



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