Presented by the Insurance Coverage/Bad Faith Litigation Practice Group

Legal Updates for Coverage and Bad Faith

September 18, 2015

Edited by Allison Krupp, Esq.

Pennsylvania

Plaintiff’s negligence claim was not barred by the gist of the action doctrine and was “otherwise legally cognizable,” where Erie had allegedly advised plaintiff that the mold contained in his home was not hazardous to his health.

Bruno v. Erie Ins. Co., 2015 Pa. Super. Unpub. LEXIS 2308 (Pa. Super. Ct. July 22, 2015) (unpublished)

The plaintiff purchased a home from Theresa and Marc Pitcher, who had failed to inform him of water leakage and mold in the home. The plaintiff purchased a homeowners insurance policy from Erie Insurance. While remodeling the home, the plaintiff learned of the mold and immediately made a claim with Erie under his policy. An Erie adjuster and an engineer inspected the damage and allegedly advised the plaintiff that the mold was harmless and that he could continue tearing out the existing paneling in his home. The plaintiff continued the renovations and discovered additional plumbing leaks and other areas of mold. The plaintiff notified Erie, and a second inspection was conducted. It was alleged that neither the adjuster nor the engineer told the plaintiff of the alleged dangers to his and his family’s physical health by exposure to mold. The plaintiff claimed that he and his family began to experience health problems. He also claimed the home had to be demolished after it was learned the mold was allegedly toxic. Erie subsequently rendered payment of the claim. The plaintiff filed suit against Erie for bad faith, breach of the covenant of good faith and fair dealing, and negligence. Erie filed preliminary objections, which the trial court granted. The trial court ruled, in part, that the negligence claim was precluded by the gist of the action doctrine. The Superior Court affirmed in part, vacated in part and remanded the case. The Pennsylvania Supreme Court then granted the plaintiff’s petition for allowance of appeal and reversed and remanded. The court held that the negligence claim was not barred by the gist of the action doctrine, as the claim was based on an alleged breach of the social duty imposed by the law of torts, not a breach of a duty created by the policy. The court remanded the case to the Superior Court to determine whether the negligence claim against Erie was “otherwise legally cognizable.” On remand, the Superior Court held that it was cognizable under Sections 323 and 324A of the Restatement (Second) of Torts.

A motion to sever the UIM claim from the bad faith claim was denied; however, the UIM claim would still go before a jury first, and the bad faith claim would then proceed to a bench trial.

Kiszlo v. Erie Ins. Exchange, No. 2355 (Philadelphia Cnty. C.C.P. March 30, 2015)

In this Philadelphia County case, Judge Rau, without opinion, denied the defendant’s motion to sever the underinsured motorist claim and bad faith claim. Despite having indicated that the motion was denied, the order indicated that the same judge who presides over the UIM jury trial will also decide the bad faith claim immediately after the UIM jury trial. Evidence that is irrelevant to the UIM claim, but that is relevant to the bad faith claim, will be presented to the judge following the UIM claim. Note that, per Pennsylvania case law, a plaintiff is not entitled to a jury trial with respect to a bad faith claim in state court. As a result, the claims could not have been consolidated for trial as a matter of law.

New York

Appellate court holds that an additional insured endorsement that limits coverage for the additional insured to liability for damages caused by the acts or omissions of the named insured is triggered when the non-negligent act of the named insured caused the underlying injury.

The Burlington Insurance Company v. NYC Transit Authority, et al., 2015 NY Slip Op. 06481 (N.Y. Supreme Ct., App. Div. First Judicial Dept. Aug. 22, 2015)

The underlying personal injury action in this case arose from a subway construction project in Brooklyn. The issue before the court was whether the defendants were entitled to coverage from the plaintiff for the subject loss under a policy endorsement that made the defendants additional insureds, which provided in part: “[o]nly with respect to liability for bodily injury . . . caused, in whole or in part, by the named insured’s acts or omissions . . . in the performance of the named insured’s ongoing operations.” The court held that the defendants were entitled to coverage as additional insureds in the underlying action under the subject policy, even though the named insured’s causal “act” was not negligent. The court reasoned that the language of the relevant endorsement, on its face, defined the additional insured coverage in terms of whether the loss was “caused by” the named insured’s “acts or omissions,” regardless of whether those “acts or omissions” constituted negligence or were otherwise actionable. The language of the endorsement did not reference the negligence or fault of the named insured.

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