US Supreme Court Grants Certification To Review Choice Of Law Clause In Admiralty Case Could Open Insurers To Bad Faith ActionsThe Supreme Court granted review in Great Lakes Insurance SE v. Raiders Retreat Realty Co., agreeing to consider whether, under federal admiralty law, a choice of law clause in a maritime contract can be rendered unenforceable if its enforcement is found to be contrary to the “strong public policy” of the state whose law is displaced. Raiders stems from a declaratory judgment action brought by Great Lakes Insurance SE (“GLI”). GLI had insured a vessel owned by Raiders Retreat Realty Co. (“Raiders”) that ran aground in June 2019. GLI sought a declaration that Raiders’ alleged failure to recertify or inspect its fire extinguishing equipment, which GLI allegedly violated a warranty in the policy, and rendered the policy void from its inception, meaning GLI owed Raiders no coverage with respect to the incident. Raiders responded to GLI’s declaratory judgment action with several counterclaims, including three counterclaims arising under Pennsylvania law, two of which—for bad faith and unfair trade practices—would not be available under New York law. The United States District Court for the Eastern District of Pennsylvania held that the policy’s choice-of-law provision mandated the application of New York law. As such, the District Court dismissed the Pennsylvania-based counterclaims. In its dismissal, the District Court rejected Raiders’ argument that because applying New York law would contravene Pennsylvania public policy, the policy’s choice-of-law provision was unenforceable under a Supreme Court case, The Bremen v. Zapata Off-Shore Co., which held that a forum-selection provision is unenforceable under federal admiralty law “if enforcement would contravene a strong public policy of the forum in which suit is brought.” The United States Court of Appeals for the Third Circuit reversed the District Court’s holding, finding that the District Court should have considered whether applying New York law would contravene Pennsylvania’s “strong public policy.” The Third Circuit noted that under Supreme Court jurisprudence, “maritime contracts are governed by federal admiralty law when there is an established federal rule, but absent such a rule, state law applies.” GLI had argued that there is an established federal rule—namely, that a choice of law provision in a marine insurance contract will be upheld in the absence of evidence that its enforcement would be unreasonable or unjust. Accordingly, GLI argued, federal admiralty law should apply. The Third Circuit found that the principle noted by GLI, of generally enforcing choice-of-law provisions in marine insurance contracts, is not altogether separate from the choice-of-forum regime set out in The Bremen. As such, the Third Circuit remanded the case for further proceedings, instructing the District Court to consider whether applying New York law would contravene Pennsylvania public policy. The disposition of this case could have a large impact on maritime insurance contracts that are governed by federal admiralty law. If the Third Circuit’s decision is upheld by the Supreme Court, courts would be required to consider whether enforcement of a policy’s choice-of-law provision would contravene a strong public policy of the displaced state. In conflicts between New York and Pennsylvania law, like the one at issue in Raiders, this would mean that insurers could be subject to claims for bad faith and unfair trade practices even if their policy contains a New York choice of law provision. The Supreme Court will likely hear oral argument in Raiders in Fall 2023. Thanks to Erin Gallagher for her assistance in this post. Should you have any questions, please contact Tom Bracken.Read More
NJ Bad Faith Claim Dismissed As Mere Denial Of Coverage Is Not Grounds For Bad FaithThe United States District Court for the District of New Jersey recently granted an insurer’s motion to dismiss a bad faith claim where the insurer merely denied coverage and declined to settle with the plaintiff, reiterating that more than a denial of coverage is required to establish bad faith on the part of an insurer. In Terrance Minor v. Allstate New Jersey Insurance Co., ABC Corp. (1-5) and John Does (1-5), the Court addressed this issue on Allstate’s motion to dismiss. Minor was involved in an uninsured motor vehicle accident, claiming that Allstate (his vehicle’s insurer) owed him uninsured motorist coverage. Minor alleged that he attempted to resolve his claim with Allstate, but that Allstate refused to settle or go to arbitration. Minor alleged that Allstate breached the covenant of good faith and fair dealing in not settling with him. In reaching its decision, the Court noted that to establish a breach of the duty of good faith and fair dealing under New Jersey law, a plaintiff must allege that: “(1) the defendant act[ed] in bad faith or with a malicious motive, (2) to deny the plaintiff some benefit of the bargain originally intended by the parties, even if that benefit was not an express provision of the contract.” In the insurance coverage context, the court noted, establishing bad faith “requires a plaintiff to ‘show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.’” The Court disagreed with Minor’s argument that Allstate had acted in bad faith because despite numerous discussions regarding resolution between Minor and Allstate, Allstate refused to settle or go to arbitration. In doing so, the Court also rejected the argument that an insurer’s denial of coverage inferentially establishes bad faith. The Court further noted that the complaint itself did not establish bad faith, as it failed to point to specific provisions of the insurance contract or specific dealings between the parties that could potentially allow the Court to infer that Allstate had no reasonable basis to deny coverage. This decision emphatically reiterates the standard on NJ bad faith. First, it requires a plaintiff to show specificity within the complaint, and that plaintiff avers specific provisions of the insurance contract or specific dealings between the parties rise to the level of bad faith. Second, it demonstrates that an insurer’s refusal to settle or arbitrate a claim, even after numerous discussions with the other parties, is not enough, standing alone, to establish bad faith. Thanks to Erin Gallagher for her assistance in this article. Should you have any questions, please contact Tom Bracken.Read More
Remove Now Or Forever Hold Your Peace
In Florida, plaintiffs often ask the state court to grant leave to amend to assert an insurance bad faith claim upon successful conclusion of their breach of policy claim against an insurer. More often than not, the case is more than one-year old when the amendment is made.
Under federal diversity of jurisdiction rules, a citizen of one state, who is sued by a citizen of another state in state court, may, within one-year of the lawsuit being brought, remove the lawsuit to the US District Court.
Until recently, Florida’s US District Courts inconsistently enforced the one-year limitation on removal when dealing bad faith claims. That inconsistency was recently resolved in Vachon v. Travelers Insurance, 2021 U.S. App. LEXIS 36999, 20 F.4th 1343 | 29 Fla. L. Weekly Fed. C 633 (11th Cir. December 14, 2021).
In Vachon, plaintiff sued Travelers for breach of insurance policy but did not sue for bad faith. Travelers could have but did not remove the case to the US District Court. Plaintiff prevailed and then asked for, and was granted, permission to amend his lawsuit to add a bad faith claim.
Travelers removed the new bad faith claim to the US District Court. Plaintiff, arguing that the lawsuit was more than one-year old, asked the US District Court to remand the case back to state court. Travelers argued that removal was proper because the original claim had been completed and that the new bad faith claim restarted the one-year clock. The US District Court disagreed, remanded the case to state court, and Travelers appealed.
On appeal, the Eleventh Circuit Court of Appeals dismissed on the grounds that an order remanding a case to state court is not an appealable order. Chief Judge Pryor, by separate opinion, explained that remand was proper because, even if it could appeal, Travelers could not win because plaintiff’s lawsuit was filed more than one-year before the removal and the addition of a new bad faith claim did not restart the one-year limitation.
The end result is, Travelers is now litigating a million-dollar bad faith claim in a Florida state court rather than its preferred venue, the US District Court. Chief Judge Pryor’s opinion drives home the old adage: Speak now or forever hold your peace.Thanks to Charles “Chip” George for this post. Please contact Chip with any questions.Read More
New Jersey Passes Insurance Fair Conduct Act (NJ)
On January 18, 2022, Governor Phil Murphy signed into law the New Jersey Insurance Fair Conduct Act. The Act establishes a private cause of action for first-party claimants against a UIM insurer for “unreasonably” denying or delaying claims. It also allows a claimant to sue the insurer if the insurer violates any provision of New Jersey’s Unfair Claims Settlement Practices Act which governs “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance” which includes “unfair claim settlement practices.”
Notably, the Act does not define what “unreasonable” conduct is. Thus, courts will be left to decide that issue. However, the statute provides 15 examples of “unfair claim settlement practices’ which include misrepresentation of the policy limit, failing to promptly investigate a claim, not making a good faith effort to settle a claim when liability becomes reasonably clear, and compelling insureds to institute litigation to recover benefits.
A successful insured will be entitled to recover actual damages, including actual trial verdicts which shall not exceed three times the applicable coverage amount, pre and post judgment interest, reasonable attorneys’ fees and reasonable litigation expenses.
The Act essentially creates a statutory “bad faith” cause of action. In New Jersey, bad faith claims have traditionally been grounded in the common law and elaborated upon by New Jersey judges over the past several decades. The statute serves to penalize insurers for certain types of conduct in handling claims for uninsured and underinsured motorist coverage.
The Act leaves many questions unanswered which will lead to significant litigation. It will be left to the courts to decide what “unreasonable” conduct actually is, and it further straddled the gay between subjective and objective tests. Courts will have to decide how much time amounts to “unreasonable delay” and what an “unreasonable denial of a claim for benefits” is. Perhaps most importantly, courts will have to determine when a difference of opinion between an insurer and a claimant as to the value of a UM/UIM claim is unreasonable.
Thus, insurers should consider reviewing their claims handling practices for objective reasonableness. Insurers should also consider educating their UM/UIM adjusters on the new law. If interested in a CLE on this topic, please contact WCM.Thanks to Mike Noblett for his contribution to this article.Read More
The End Is Near. Statutory Bad Faith Begins in NJWell, it finally happened. After a few years of debates and a not insignificant amount of plaintiff lobbying, this week, Governor Murphy signed into law the New Jersey Insurance Fair Conduct Act. The law creates statutory bad faith in NJ. Fortunately (although this is likely the canary in the coal mine), the law ONLY applies to parties injured in a motor vehicle accident who are entitled to uninsured or underinsured benefits. If the insurer “unreasonably” denies a claim or “unreasonably” delays payment of owed benefits, then the insurer is subject to: (a) actual damages (including trial verdicts) up to 3x the applicable coverage amount; (b) pre and post judgment interest; (c) reasonable attorneys fees; and (d) reasonable litigation expenses. In other words, the insurer has exposure to what are basically “standard” bad faith damages. In terms of “reasonableness”, I think the policyholder bar is going to push for 30 day turnarounds. Sounds like fun during this time of the Great Resignation It’s safe to say that we can expect a flood of new lawsuits in 2022 (all the while insurers are trying to comply with the onerous new NY insurance disclosure obligations —https://www.wcmlaw.com/2022/01/new-ny-insurance-disclosure-obligations-effective-december-31-2021/). The policyholder bar just does a much better job at getting legislation passed — even when that legislation appears to be a solution in search of a problem. For more information about this new law, please contact Bob Cosgrove.Read More
Claims Of Bad Faith And Vicarious Liability Fall Like Dominoes With Speculative Damages (PA)
In an action brought by the Moses Taylor Foundation (the “Foundation”) in the Middle District of Pennsylvania, it sought to recover damages for an alleged breach of contract by Coverys and its primary insurer (“Coverys”) for failure to negotiate an appropriate settlement in a previous lawsuit. Moses Taylor, additionally, uniquely asserted a claim for bad faith for almost exhausting the available limits of insurance as well as vicarious liability through the breach of contract claim.
In response, Coverys argued the breach of contract claim should be dismissed because the Foundation compiled and pled speculative damages, and therefore, the required predicate cause of action necessary to litigate a claim of bad faith––essential under 42 Pa. Con. Stat. § 8371––could not be established. Specifically, given that the insurance policy limits were not exhausted and there were no pending lawsuits utilizing the same limits, Coverys argued that the claimed damages were too speculative. Likewise, such a failure to establish the necessary cause of action disappeared the Foundation’s vicarious liability claim as well because, given the word’s syntactical underpinnings, “vicarious” implies a predicate cause-of-action.
Under Pennsylvania law, damages are speculative when uncertainty exists concerning the existence of damages, not the amount, and the Court in Moses Taylor held that the possibility of future suits against the Foundation was not concrete enough to fit the law’s corporeal requirement. Therefore, like dominoes, the claims for bad faith and vicarious liability were downed in a fashion that would have made Rube Goldberg smile.
This case represents the importance of attention to detail and provides another arrow in the litigator’s tactical quiver.Thanks to Richard Dunne for his contribution. Should you have any questions, please contact Matthew Care.Read More
Bad Faith Underinsured Motorist Claim Requires at Least SOME Bad Faith (PA)
In a recent Eastern District Court of Pennsylvania case, Bond v. Geico, the court dismissed an underinsured motorist claim against the insurer where the policyholder brought vague, unsubstantiated, conclusory allegations of bad faith in the claim handling.
Plaintiff in the case was an underinsured motorist under Pennsylvania statute who sought underinsured coverage from Geico (his own UIM insurer). The Insurer initially offered $10,000, then after the plaintiff retained counsel and pursued his claim, he ultimately received $50,000 in UIM benefits. Plaintiff then brought suit against Geico for $1,000,000 claiming the carrier failed to provide “reasonable coverage,” seeking bad faith damages along with the policy limits.
In dismissing Plaintiff’s pro se complaint, the Court noted that rather than require detailed pleadings, the “Rules demand only a short and plain statement of the claim showing that the pleader is entitled to relief[.]” Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016). As such, the court requires specific averments in order to sustain a complaint. Here, the Court found that the plaintiff did not provide enough information regarding identification of the actual policy limits in the complaint. Further, Plaintiff did not provide the court enough information to even show a basis that the policy limits were 1,000,000. Additionally, while a cause of action may be brought by insured parties against their insurer for bad faith. See 42 Pa. Cons. Stat. § 8371, the plaintiff did not allege adequate facts to sustain a claim that the insurer acted improperly here.
While the Court would permit the policyholder to amend his complaint, at least this it did in fact require the plaintiff to specifically plead allegations of bad faith, rather than mere conclusory statements.
Thanks to Kevin Riley for his contribution to this post. Should you have any questions, please contact Thomas Bracken.Read More
38 Allegations But A Bad Faith Claim Ain’t One (PA)
In Brown v. Liberty Mut. Ins. Co., the Eastern U.S District Court for Pennsylvania granted the defendant’s motion to dismiss against a plaintiff’s bad faith claim citing statutory insurance violations against the defendant. The plaintiff was involved in a motor vehicle accident, and sought benefits form her insurer for uninsured motorist benefits. As a result, the plaintiff brought a bad faith claim against the insurer in the initial complaint. The court dismissed the initial bad faith claim made under 42 Pa C.S. § 8371, but allowed the plaintiff to amend and replead the complaint.
After amendment, the court still ruled in favor of the defendant. While plaintiff alleged “dilatory” and “abusive claim handling” in the investigation and negotiation of her UIM claim, the court concluded that the amended complaint’s 38 ways in which Liberty Mutual may have acted in the bad faith, they were all merely conclusions. The Court reminded the policyholder that merely because you have a particular policy limit, that is the “theoretical maximum that an insured could recover.” It is not the de facto value of a claim. Thus Liberty Mutual’s motion to dismiss the bad faith claim with prejudice was granted. In order to make a bad faith claim, the policyholder must show that there was no reasonable basis to deny a benefit, and demonstrate evidence that the insurer knew or recklessly disregarded its knowledge of a reasonable basis. A mere disagreement over a settlement claim does not reach this level.
Thanks to Kevin Riley for his contribution to this post. Should you have any questions, please contact Tom Bracken.Read More
No Bad Faith, No Consequential Damages! Florida Supreme Court Denies Insured’s Attempt To Recover Extra-Contractual Consequential Damages in a First-Party Property Claim
A recent decision from the Supreme Court of Florida punctuates well-established federal precedent that consequential damages in insurance disputes are not recoverable absent a separate action for bad faith. In Citizens Property Ins. Corp. v. Manor House LLC, et al, Manor House, owner of rental apartment buildings, filed an action against its property insurer for breach of contract and fraud related to repair of apartment complex damages by hurricane Frances, and to recover extra-contractual damages for rental income allegedly lost due to delay in repairs and procrastination in adjusting and paying claims.
The certified question before the Florida Supreme Court was whether the insured can recover consequential damages, that is, damages above what the policy expressly provides in a breach of insurance contract absent a bad faith claim. The Federal court answered the certified question in the negative thereby quashing the Fifth District Court’s decision. The Supreme Court reasoned that extra-contractual, consequential damages, are not available in a first party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the insurance policy. Thus, consequential damages in a first party action are not recognizable and are only available in a separate bad faith action.
Courts continue to recognize the unique nature of insurance contracts thereby distinguishing their interpretation from other general contracts, especially with the exclusion of parole evidence, and the myriad of bad faith protections afforded to insureds. It is important to note that this case does not universally protect insurance carriers from bad faith claims, but it does further deter first-party breach of contract claims seeking consequential damages, absent a claim for bad faith.
Thanks to James Papadakis for this contribution to this article. Should you have any questions, please contact Thomas Bracken.Read More
Statute of Limitations and Pollution Exclusion at Play for Toxic Tort Coverage Analysis (PA)
The Western District of Pennsylvania recently determined that a number of insurers did not owe coverage for hundreds of bodily injury claims brought forth in a toxic-tort action. In Allegheny Ludlum, LLC. v. Liberty Mutual Insurance Company, et al., the District Court granted the defendants’ motions for summary judgment after determining that the plaintiff’s claims were brought too late and that a pollution exclusion barred coverage.
The underlying lawsuit involved four employees of Arvin-Meritor, Inc. (“Arvin-Meritor”) claiming bodily injuries as a result of toxic chemical exposure against Allegheny Ludlum, LLC (“Allegheny”) . Included in the plaintiffs’ complaint, was a claim for wantonness. During the relevant time period, Allegheny was insured by Liberty Mutual Insurance Company (“Liberty”), Hartford Casualty Insurance Company (“Hartford”), Continental Casualty Company (“Continental”), and U.S. Fidelity and Guaranty Company (“U.S. Fidelity”). Ultimately, Allegheny settled the litigation in 2017 but later changed its position as to whether its insurers owed it coverage.
In 2010, Allegheny told Liberty and Hartford that they did not owe it coverage for the lawsuit. In 2013, Liberty and Hartford set a cost-share limit for Allegheny’s defense costs prior to 2009. However, three years later, Allegheny claimed it wrongly interpreted the underlying action and consequently erred in negotiating the cost-share. As a result of all four of its insurers denying coverage, Allegheny filed a declaratory judgment action alleging failure to defend and bad faith.
First, the District Court determined that Allegheny’s claims against Liberty and Hartford were time-barred. Liberty and Hartford argued that Allegheny’s declaratory judgment action was untimely under Pennsylvania’s statute of limitations of four years. Specifically, Liberty and Hartford argued that the statute of limitations began to run once coverage was disclaimed whereas Allegheny argued that the statute of limitations does not begin to run until after the termination of the underlying action.
The District Court determined that Allegheny had a sufficient factual basis to conclude that Hartford and Liberty did not intend to provide coverage when they denied coverage back in 2010. Additionally, the District Court emphasized that all parties agreed on this issue at that same time. The District Court opined that “[t]here can be no greater guarantee against the potential of a claim failing within an insurance policy than when an insured itself takes the position that coverage is not obliged.”
Additionally, the District Court determined that Allegheny’s bad faith claims were also barred under the two year statute of limitations for statutory bad faith and the four year statute of limitations for common law bad faith. The District Court determined that because the statute of limitations began to run when the insurer denied coverage, Allegheny’s bad faith counts were clearly time-barred as a matter of law.
Second, the District Court determined that Allegheny’s claims against Continental did not apply as there was no “occurrence” that took place and that claims against U.S. Fidelity were also barred due to a pollution exclusion. The U.S. Fidelity policy specifically excluded bodily injury expected or intended by the insured that would not have occurred but for exposure to pollutants. Further, the District Court stated that the toxic tort in the underlying case was the exposure of employees to welding fumes containing toxic substances. Determining that “fumes” was listed in the policy’s definition of “pollutants,” the District Court determined that the exposure to the fumes clearly fell into the pollutants exclusion. As such, the District Court determined that the language of the policy related to this exclusion was clear and unambiguous and dismissed Allegheny’s claims against U.S. Fidelity.
Overall, the main takeaway from this lawsuit is the significant barriers to coverage once an insured has conceded that no coverage is owed to it and later attempts to change its mind. Additionally, this case once against emphasizes the importance of clear and unambiguous language within an insurance policy, this time through the pollution exclusion.
Thanks to Zhanna Dubinsky for her post. Please contact Vincent F. Terrasi with any questions of comments.Read More