Legal Updates for Coverage and Bad Faith

edited by Allison L. Krupp, Esq.

Claims dismissed in absence of evidence of residency  

Gerow v. State Auto Prop. & Cas. Co., 3:17-cv-203 (W.D. Pa. 2018)

In this breach of contract/bad faith action, the Western District Court considered whether to grant the plaintiffs’ and insurer’s cross-motions for summary judgment. This suit arose from a property damage claim following a burst water pipe at the plaintiffs’ alleged residence. The insurer had denied the claim on the basis that the insureds were not residing there at the time of the loss, as was required by the homeowners policy. The plaintiffs argued that the policy language was ambiguous and that, even if there was a residency requirement, Mr. Gerow was residing there. They also asserted that the insurer had waived the right to argue that they were not residing there and that it was estopped from denying coverage. The court found that the policy language was not ambiguous and that similar language has previously been upheld by Pennsylvania courts. While the plaintiffs agreed that Mrs. Gerow was not residing at the subject property, as she was in Connecticut taking care of her mother, they argued that Mr. Gerow was a resident of the insured property. The court disagreed, finding that Mr. Gerow stayed with his wife in Connecticut three to four nights per week and was only at the subject property two to four times per month. While the plaintiffs argued that they intended to return to the property, the court considered that their intention is not evidence of residency. Rather, it is “a factual place of abode evidenced by a person’s physical presence,” which was lacking in this case. The court also rejected the plaintiffs’ argument that the insurer had waived the residency requirement and was estopped from denying coverage. The plaintiffs were unable to point to an express declaration from the insurer that it was waiving this condition precedent. With respect to the bad faith claim, the court considered that the insurer clearly had a reasonable basis for denying coverage in light of its conclusion that the insureds were not residing at the insured property at the time of the loss. Thus, the court granted the insurers’ motion for summary judgment in its entirety and dismissed the breach of contract and bad faith claims.

Court dismisses bad faith claim where insurer had reasonable basis for its valuation of UIM claim

Debellis v. Mid-Century Ins. Co., 18-cv-0214 (W.D. Pa. 2018) 

In this breach of contract/bad faith action, the Western District Court considered whether to preclude the insurer’s bad faith expert from testifying at trial. The court considered that, while an insured is not required to prove an insurer’s alleged bad faith practices through expert testimony, such testimony is permissible if it is helpful to the trier of fact and is otherwise admissible. The court also considered that, while some courts have permitted such testimony, others courts have not and the use of such testimony appears to be controversial. Because this bad faith claim was slated to proceed to a bench trial (as opposed to a jury trial), the court found that the parties will benefit from the court’s familiarity with bad faith law and the plaintiff’s burden of proof. However, the court also found that the bad faith expert testimony may assist the court as the trier of fact, assuming the insurer’s claims handling procedures are complex. Thus, the court ruled that, while the insurer’s expert could not offer opinions that could be construed as legal conclusions, he could otherwise provide testimony. The court cautioned that the testimony would be given appropriate weight and, if the testimony appears to be nothing more than speculation unsupported by scientific or specialized knowledge, it will be disregarded by the court.

Court dismisses bad faith claim and rejects insured’s argument that insurer made a “low-ball” offer to settle

Rau v. Allstate Fire and Casualty Ins. Co., 3:16-cv-0359 (M.D. Pa. 2018) 

This bad faith case arises from the insurer’s handling of the plaintiff’s underinsured motorist (UIM) claim following a 2011 motor vehicle accident. The parties had previously agreed to submit the UIM claim to high/low binding arbitration, with $200,000 as the high and $10,000 as the low. The arbitrator awarded $306,345, which was molded consistent with the high/low terms and with credit for the tortfeasor’s liability limits. Following that arbitration, the plaintiff pursued a bad faith claim against her insurer. Her primary argument was that the insurer had acted in bad faith by failing to offer her the full policy limits prior to the arbitration. After discovery was closed, the insurer filed a motion for summary judgment, which the Middle District Court granted. The court considered that, prior to the arbitration, the plaintiff had demanded the full $200,000 UIM policy limits to settle her UIM claim. The insurer counter-offered $10,000, which the plaintiff rejected and reiterated her policy limits demand. The court found that the plaintiff had failed to offer any evidence demonstrating a genuine factual dispute that the insurer did not have a reasonable basis for its valuation. The medical reports from the plaintiff’s doctors and the insurer’s medical experts indicated that further medical treatment was unnecessary because most of the plaintiff’s injuries had resolved. The insurer’s pre-suit offer was, at least in part, reflective of the lack of surgical records or records indicating that the plaintiff immediately intended to undergo spinal fusion surgery. The court also reasoned that the insurer was not required to tender the full policy limits merely because the plaintiff had demanded them. Thus, the insurer’s motion for summary judgment was granted.

Plaintiff's demand package and preexisting medical condition lead court to side with insurer

Newhouse v. Geico Cas. Co., 4:17-cv-00477 (M.D. Pa. 2018)

In this breach of contract/bad faith action, the Middle District of Pennsylvania considered whether to grant the insurer’s motion for summary judgment with respect to the plaintiff’s bad faith claim. The court considered that prior to suit, the plaintiff had demanded the policy limits of $200,000 to settle her UIM claim, and the insurer had offered $10,000. The plaintiff argued that the insurer had made a low-ball offer to settle with no reasonable relationship to her actual losses. The court disagreed and granted the insurer’s motion for summary judgment. It considered that the plaintiff’s demand package indicated that the plaintiff “might” require surgery at some point in the future. It did not, however, estimate the cost of such surgery, and the plaintiff’s medical bills totaled less than $15,000, of which $5,000 were covered by the plaintiff’s first party medical benefits. The court also considered that two doctors, including the plaintiff’s own expert, believed that a preexisting medical condition was contributing to the plaintiff’s current medical issues and that the insurer was not precluded from considering these doctors’ opinions regarding alternate causation.