Presented by the Insurance Coverage/Bad Faith Litigation Practice Group

Legal Updates for Coverage and Bad Faith

June 3, 2015

Edited by Allison L. Krupp, Esq.

Pennsylvania

Plaintiff’s bad faith claim was dismissed to the extent that it fell within the scope of section 1797(b) of the Motor Vehicle Financial Responsibility Law regarding peer reviews.

Gibson v. Progressive Specialty Insurance Co., 2015 U.S. Dist. LEXIS 63144 (E.D. Pa. May 13, 2015)

Progressive had issued an auto policy to the plaintiff. Following a motor vehicle accident, the plaintiff made a claim under the policy for his medical care and treatment. Progressive subsequently contracted with MES Solutions to perform a peer records review of the plaintiff’s treatment and care. The peer review doctor determined that all treatment, injections and compound medications on January 17, 2014, and beyond were considered unreasonable and unnecessary for injuries allegedly sustained in the accident. Progressive then denied payment for treatment provided on or after January 17, 2014, based upon the peer review. The plaintiff sued Progressive, arguing that it had breached its insurance contract by denying his claim for medical services; that Progressive had acted in bad faith by using MES to perform the peer review when MES had a financial interest in providing Progressive with a biased peer review report, failing to conduct a reasonable investigation, failing to timely deny the claim, and various other allegations; and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL) for failing to promptly offer indemnification and objectively and fairly evaluate his claims. Progressive argued that an insured whose claim has been denied based on a PRO determination cannot bring a claim for statutory bad faith because the remedies set forth in the bad faith statute conflict with the remedies available under section 1797(b) of the Motor Vehicle Financial Responsibility Law (MVFRL). The court agreed that there was a conflict between the statutes because the bad faith statute allows for interest at the prime rate plus 3%, punitive damages, costs and attorney fees, whereas the MVFRL provides for interest at 12%, plus reasonable attorney’s fees. The court also considered that section 1797(b) must apply because it is a specific statute limited to motor vehicle liability insurance, while the bad faith statute applies generally to insurance claims. While the Pennsylvania Supreme Court has not addressed this issue, the court predicted that it would limit an insured’s remedies to those specified by section 1797(b) when the insurer submitted the claim to a PRO. The court also predicted, however, that the Supreme Court would find that an insured is not precluded from seeking damages under section 8371 if he/she raises bad faith allegations beyond the scope of section 1797(b). The plaintiff’s claim that MES had a financial interest in providing biased reports was outside the scope of section 1797(b) and could proceed. All other allegations of statutory bad faith were dismissed. The plaintiff’s UTPCPL claim was also dismissed because the UTPCPL relates solely to claims concerning the improper sale of a policy, and the statutory bad faith act is limited to claims concerning the handling of an insurance claim.

The plaintiffs’ claims for statutory bad faith, violation of the Consumer Protection Law and loss of consortium were all dismissed by the court in this property damage case.

Groth v. State Farm Fire & Cas. Co., 2015 U.S. Dist. LEXIS 51031 (E.D. Pa. April 17, 2015)

The roof of the plaintiffs’ home was damaged and required replacement. The plaintiffs made a claim under their homeowners insurance policy with State Farm, and State Farm denied coverage due to “ongoing damage and neglect” of the roof. The plaintiffs appealed the decision, and State Farm again sent out two agents to re-inspect the damages. State Farm had told the plaintiffs to bring their own roofer; however, the agents allegedly would not allow the plaintiffs’ roofer to speak during the re-inspection. The agents determined that improper installation of the roof had allowed exposure to the elements, which resulted in rot, deterioration and mold. The plaintiffs disagreed and file suit against State Farm on a variety of theories, including statutory bad faith, violation of the Consumer Protection Law (CPL) and loss of consortium. State Farm filed a motion to dismiss. With respect to the statutory bad faith claim, the court held that the plaintiffs had failed to allege facts sufficient to sustain a cause of action for bad faith. Thus, the bad faith claim was dismissed. State Farm also argued that the plaintiffs had failed to allege facts sufficient to state a claim for violation of the CPL. The court agreed and held that an alleged violation of the CPL cannot be based solely on the insurer’s decision to deny coverage; an affirmative act of misfeasance is required. Even if all of the statements made by State Farm’s employees had been deceptive, the plaintiffs had failed to allege that they relied on those statements in any way. Thus, the CPL claim was also dismissed. Finally, the court dismissed the plaintiffs’ loss of consortium claim since they had failed to allege that either plaintiff had been personally injured by State Farm’s actions.

The trial court granted the tortfeasor's motion for reconsideration of its motion to sever the negligence claim and UIM claim after the first trial ended in a mistrial.

Oaks v. Erie Insurance Exchange and Austin, No. 2012-CV-3741 (C.C.P. Dauphin Cnty. May 8, 2015)

In a one-line order, without an opinion, Judge Bratton of the Dauphin County Court of Common Pleas granted the tortfeasor’s Motion for Reconsideration of the court’s prior denial of his Motion to Sever the negligence claims from the plaintiff’s underinsured motorist claims against the insurer. As a result, there will be one trial on the negligence claim against the tortfeasor and a separate trial on the UIM claim against the carrier. The post-Koken case had previously ended in a mistrial after Judge Bratton originally denied the Motion to Sever. The mistrial occurred after the jury, during their deliberations, was focusing on matters that were prejudicial to the defendants and suggested that the jury was aware that the tortfeasor had insurance coverage. This case serves as an excellent example of what could potentially occur if the trial court refuses to sever the negligence and UIM claims.

New York

Insurer was not required to indemnify insured when timely notice of the medical malpractice claim was not provided to the insurer as required by the policy.

Ramlochan v. Scottsdale Ins. Co., 2015 NY Slip Op. 30830 (N.Y., Queens Cnty. April 7, 2015) (unpublished)

Sweet P. Home Care, a home nurse agency, had a Home Health Care General Liability Policy with Scottsdale Insurance Company. The plaintiff made a claim under the policy, after his wife had given birth to a premature baby, and Sweet P. was providing home care for the baby. In January 2008, the child went into respiratory distress, and the nurse from Sweet P. allegedly performed CPR incorrectly on the child, resulting in the child’s death. The nurse reported the incident to Sweet P., but Sweet P. failed to report the incident to the insurer. After sending multiple letters from his attorney in 2008 regarding the incident, the plaintiff filed a pre-action discovery proceeding in the New York State Supreme Court for the purpose of obtaining medical records in March 2009. Sweet P. subsequently produced the requested records. The plaintiff then sued Sweet P. It was only then that Sweet P. notified Scottsdale of the claim. Scottsdale denied coverage due to the late notice of an occurrence and late notice of a lawsuit. Following trial, judgment was entered against Sweet P. for approximately $2 million. The plaintiff then filed suit against Scottsdale, alleging that it had improperly disclaimed coverage and that it was obligated to satisfy the judgment. The court considered that, with respect to policies issued before January 17, 2009, New York law provides that absent a valid excuse, where an insured has failed to give timely notice of an occurrence, the insurer may disclaim coverage without demonstrating prejudice. The court found that the plaintiff had failed to offer a valid excuse for the delay. The court also held that notice that was provided 20 months after the event occurred did not comply with the condition precedent in the Scottsdale Policy, requiring notice of an occurrence “as soon as practicable.” Thus, the court declared that Scottsdale has no duty to satisfy the judgment obtained in the underlying action.

New Jersey

Insurer’s motion to sever and stay the statutory bad faith claim, pending resolution of the breach of contract claim, was granted.

Riverview Towers Apt. Corp. v. QBE Ins. Corp., 2015 U.S. Dist. LEXIS 57100 (U.S. Dist. N.J. April 17, 2015)

The plaintiff, a cooperative apartment corporation, alleged that QBE had failed to pay full benefits owed under its insurance policy after its property was damaged in Superstorm Sandy. The plaintiff alleges that QBE breached its insurance contract and acted in bad faith by underpaying the plaintiff for its wind claim. QBE filed a motion to stay and sever the plaintiff’s bad faith claim, pending resolution of the plaintiff’s breach of contract claim. QBE argued that the plaintiff must first succeed on its contract claim before it can assert its bad faith claim. QBE also requested that the entire case be stayed while it completed its investigation of the plaintiff’s first-party insurance claim. The court ruled that severance of the bad faith claim was warranted under Federal Rule of Civil Procedure 21. The court considered that the issues sought to be tried separately were significantly different from one another. The contract claim concerned the property at issue, whereas the bad faith claim addressed QBE’s general claims handling procedures. The court also considered that the bad faith claim and breach of contract claim required the testimony of different witnesses and different documentary proof. The court considered that the plaintiff would not be prejudiced if the bad faith claim was severed and stayed since the bad faith claim was premature. Finally, the court determined that QBE would be prejudiced if the bad faith claim was not stayed since it would be forced to litigate that claim before the first party claim was resolved. The court did, however, deny QBE’s request that the entire case be stayed as it determined that QBE would not suffer a clear case of hardship or inequity if the breach of contract claim went forward.

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