Presented by the Insurance Coverage/Bad Faith Litigation Practice Group

Legal Updates for Coverage and Bad Faith

January 1, 2015

Edited by Allison L. Krupp, Esq.

Pennsylvania

Pennsylvania Supreme Court will consider attorney fees issue for peer review cases that do not comply with the peer review statute.

Doctor’s Choice Physical Medicine & Rehab Center, P.C. (LaSelva) v. Travelers Personal Ins. Co., No. 512 MAL 214 (Pa. Dec. 31, 2014)

On December 31, 2014, the Pennsylvania Supreme Court granted Travelers’ Petition for Allowance of Appeal in this first-party benefits peer review case. The issues that will be reviewed by the court will be: (1) whether the Superior Court improperly interpreted § 1797 of the MVFRL, the Supreme Court case of Herd Chiropractic v. State Farm and its own case of Levine v. Travelers, to allow attorneys’ fees even when an insurer has utilized the peer review process; and (2) whether the Superior Court improperly interpreted and misapplied § 1797(b)(4) by holding that the insurer must oversee the statutory compliance of peer review organizations with 31 Pa. Code § 69.53(e). This decision will be significant since it should clarify the issue of whether a litigant can obtain attorneys’ fees if the peer review utilized by the insurance company is found to be non-compliant with the MVFRL. Under the current state of the law in Pennsylvania, if the peer review process is properly utilized, a plaintiff is not entitled to attorneys’ fees under the statute. Stay tuned to see how the Pennsylvania Supreme Court resolves this issue.

MVFRL did not apply to UIM claim, where truck was registered and principally garaged out-of-state.

Peters v. National Interstate Ins. Co., 2014 PA Super 276 (Pa. Super. Ct. Dec. 16, 2014)

This case arises from a motor vehicle accident in which plaintiffs were seriously injured. Plaintiff Michael Peters was an Ohio resident and was employed as a truck driver by Evans Delivery, which is a Pennsylvania corporation. National Interstate had issued a commercial vehicle insurance policy to Evans Delivery in Pennsylvania. The truck was registered in Ohio and was not principally garaged in Pennsylvania. Because the driver of the other vehicle that hit plaintiffs was underinsured, plaintiffs made a claim for underinsured motorist benefits under the National Interstate policy. National Interstate denied coverage on the basis that Evans Delivery had signed a form rejecting UIM coverage at the inception of the policy. Plaintiffs subsequently filed a declaratory judgment complaint, arguing that the rejection form was invalid, illegal and void. The trial court held that, because the policy offered no information as to how the premium for UM/UIM was calculated, it was ambiguous and its terms must be construed in favor of the insured. On appeal, the Superior Court ruled that the trial court had erred and reversed its decision. First, the court found that the MVFRL only applies to vehicles registered or principally garaged in Pennsylvania. Because it was undisputed that the truck was registered in Ohio and not principally garaged in Pennsylvania, the MVFRL did not apply. The court also held that even if the MVFRL applied, the trial court erred in ruling that Evans Delivery was obligated to provide plaintiffs the benefit of UIM coverage since the purchase of UIM coverage is optional in Pennsylvania, and because Evans had expressly rejected it. Finally, the Superior Court rejected the trial court’s consideration of the premium issue and held that this was a coverage dispute, not a premium pricing dispute.

Bad faith claim dismissed where plaintiff’s bare-boned complaint failed to include a factual basis to award damages for bad faith.

Mozzo v. Progressive Ins. Co., 2015 U.S. Dist. LEXIS 192 (E.D. Pa. Jan. 5, 2015)

This case arises out of a motor vehicle accident in which it is alleged that plaintiff was injured by an underinsured motorist. Plaintiff submitted an underinsured motorist claim to his insurer, Progressive Insurance Company. Plaintiff alleges that Progressive acted in bad faith by failing to honor his claim and filed suit. Progressive filed a motion to dismiss plaintiff’s bad faith claim. The court considered that courts have dismissed bad faith claims where the complaint sets forth bare-bones conclusory allegations that do not provide a factual basis for the award of bad faith damages. Because the complaint failed to set forth any facts regarding Progressive’s actions, the court granted Progressive’s motion and dismissed the bad faith claim. Plaintiff’s request for attorneys’ fees as to his breach of contract claim was also dismissed since plaintiff had failed to cite to authority entitling him to attorneys’ fees. Finally, the court granted plaintiff 20 days to amend his complaint to set forth a factual basis for the bad faith claim and request for attorneys’ fees. His failure to do so could result in dismissal of the deficient claims with prejudice.

Bad faith and consumer protection law claims dismissed where plaintiffs failed to present facts showing that State Farm lacked a reasonable basis for delaying payment of their benefits.

Morrissey v. State Farm Fire & Casualty Co., 2014 U.S. Dist. LEXIS 174998 (Dec. 18, 2014)

This case arises from a fire loss that occurred at plaintiffs’ residence in 2012. Plaintiffs submitted a claim to their insurer, State Farm, which investigated the claim and extended coverage under plaintiffs’ homeowners policy. Plaintiffs were given $11,886.50 for the damage to the home. Plaintiffs subsequently filed suit against State Farm, arguing that it had violated the bad faith statute by: (1) issuing the settlement check over one year after the fire occurred; (2) delaying reissuing the check for three and a half months for no valid reason; (3) filing boilerplate objections to plaintiffs’ discovery requests for the purpose of preventing the drafting of the complaint; (4) arbitrarily refusing to settle their claims; and (5) breaching fiduciary duties and other state laws. State Farm moved to dismiss the bad faith and state consumer law claims. The court granted State Farm’s motion to dismiss the bad faith claim since plaintiffs had failed to offer facts to explain why State Farm’s delay in settling the claim was arbitrary or otherwise provide facts to show that State Farm lacked a reasonable basis for delaying payment of their benefits. The court also held that State Farm’s objections to the pre-complaint discovery requests were reasonable. Because plaintiffs had used the same allegations to support their consumer protection law claim, the court dismissed that claim as well. Both claims were dismissed without prejudice.

Plaintiff’s UTPCPL claim was dismissed pursuant to the economic loss doctrine, since the alleged wrongful conduct was interwoven with the breach of contract count.

Vaughan v. State Farm and Casualty Co., 2014 U.S. Dist. LEXIS 167208 (E.D. Pa. Dec. 3, 2014)

In this case plaintiff sued State Farm for failing to pay a claim she had made under her State Farm homeowners insurance policy. Plaintiff’s home had been flooded by water from the plumbing or heating system. State Farm argued that plaintiff was not residing at the home at the time of the loss and that the flood occurred due to a plumbing line that had frozen. As a result, State Farm denied coverage. Plaintiff’s complaint included three counts, including breach of contract, statutory bad faith, and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. State Farm moved to dismiss the UTPCPL claim on the basis that the economic loss doctrine applied. The court agreed. The court considered that the economic loss doctrine prohibits plaintiffs from recovering economic losses for tort claims where their entitlement flows only from a contract. The court noted that the Pennsylvania Supreme Court has not yet addressed whether the doctrine can bar a UTPCPL claim. The court found that the wrongful conduct that plaintiff alleged State Farm had engaged in was clearly “interwoven” with the breach of contract count. Plaintiff did not claim that there was any fraud or inducement, or any conduct that was extraneous to the contractual relationship. The UTPCPL claim was, therefore, dismissed.

Florida

Trial court erred in granting summary judgment in favor of GEICO, where issues of fact existed regarding the ownership of the motorcycle.

GEICO General Ins. Co. v. Gould, 2014 U.S. App. LEXIS 23488 (11th Cir. Dec. 15, 2014)

This case arose from a motor vehicle accident involving defendant Farag and defendant Gould. Farag was operating her father’s vehicle at the time of the accident, which was insured by GEICO, and Gould was operating a motorcycle. Gould’s attorney subsequently sent GEICO’s attorney a demand letter for $107,720.35 to settle the claims and gave GEICO approximately 17 days to accept the offer. When GEICO did not respond by the deadline, Gould filed suit against Farag in state court. The jury found in favor of Gould and awarded damages in excess of $298,000. GEICO subsequently filed a declaratory judgment action, seeking a declaration that it had not acted in bad faith in handling defendant’s claim. Specifically, GEICO sought a declaration that it was not liable to Farag or Gould for the state court judgment which exceeded the policy limits. Farag and Gould filed counterclaims accusing GEICO of bad faith. The trial court found in favor of GEICO, and the defendants appealed. On appeal, the appellate court held that the district court had erred by granting summary judgment in favor of GEICO. The trial court’s decision hinged on its finding that Gould was not the legal owner of the bike. The appellate court found that there was at least a question of fact regarding the issue of ownership. Because the district court rested all of its legal conclusions on this determination, there remained a question of fact as to whether GEICO had acted in bad faith by refusing to settle with Gould for the property damage.

Court abated plaintiff’s bad faith claim against GEICO on the basis that it was premature, and dismissed the declaratory judgment count since it was duplicative of the UM claim.

Shapiro v. Government Employees Insurance Co. (GEICO), 2015 U.S. Dis. LXIS 1963 (S.D. Fl. Jan. 8, 2015)

This case arises from a motor vehicle accident with an uninsured motorist. Plaintiffs had a motor vehicle policy with GEICO. GEICO denied plaintiffs’ claims for uninsured motorist benefits, and plaintiffs filed suit for UM benefits, bad faith and declaratory judgment. GEICO filed a motion to dismiss the bad faith and declaratory judgment counts. GEICO asserted that the bad faith count was premature, since the underlying contract claim was still unresolved, and that the declaratory judgment count was duplicative of the uninsured motorist claim. The court ruled that abatement, as opposed to dismissal, of the bad faith claim was appropriate. The court also agreed that the declaratory judgment count was duplicative of the UM claim. Because plaintiffs’ underlying claim for UM benefits had not yet been resolved, plaintiff’s claim for declaratory relief was inappropriate since the controversy was not yet sufficiently concrete.

New York

Plaintiffs’ claim for punitive damages was dismissed, without leave to amend, where Allstate denied plaintiffs’ claim for a fire loss to their home on the basis that it had been intentionally started.

Goodfellow v. Allstate Indemnity Co., 2014 U.S. Dist. LEXIS 177835 (W.D. N.Y. Dec. 29, 2014)

This case arises from Allstate’s denial of plaintiffs’ insurance claim for a fire loss to their home. Allstate had denied the claim on the basis that the fire had been intentionally started. Plaintiffs claimed that Allstate had acted in bad faith by failing to timely and with good cause disclaim and adjust plaintiffs’ loss, resulting in a breach of contract. Among the damages demanded, plaintiffs requested exemplary, punitive and consequential damages. Allstate filed a motion to partially dismiss the complaint. Plaintiffs conceded that their complaint failed to state a claim for punitive damages, and they sought to rectify this by filing an amended complaint. Plaintiffs argued that Allstate intentionally inflicted harm on them by its accusation that they had deliberately committed arson and filed false statements in relation to their insurance claim. The court ruled that the additional cause of action asserted in plaintiffs’ proposed amended complaint would be subject to dismissal, and as such, granting leave to file an amended complaint would be futile. Plaintiffs’ claim for exemplary and punitive damages was, therefore, dismissed. Plaintiffs’ request for attorneys’ fees, costs and litigation expenses was also dismissed since plaintiffs had not alleged that the policy provided for those types of damages.

Ohio

Insurer had no duty to defend, where underlying complaint did not meet the definition of “personal injury” under the policy.

G & K Management Services, Inc. v. Owners Ins. Co., 2014 Ohio 5497 (Ohio Ct. App., 5th App. District Dec. 11, 2014)

Plaintiffs were named insureds under a commercial general liability policy issued by defendant. Plaintiff G & K, a franchisor of the Fred Astaire Dance System, was being sued for violation of the Ohio Consumer Sales Practices Act, fraud, negligent misrepresentation and various other claims. Upon receipt of the complaint, plaintiffs notified defendant. Defendant denied coverage, and plaintiffs filed a declaratory judgment action. Plaintiffs filed a motion for partial summary judgment on their claim for declaratory judgment on the issue of the duty to defend, and defendant filed a cross-motion for summary judgment. The court ruled that there was no coverage under the policy for the claims raised in the underlying complaint. The court considered that, while the policy provided coverage for claims based on “personal injury,” the underlying allegation of emotional distress was not contemplated within the definition of “personal injury.” Thus, there was no duty to defend.

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