Cases, legislation, articles and items of interest to the insurance bad faith practitioner and insurance claim professional

Supreme Court Clarifies Plaintiff’s Burden in Insurance Bad Faith Cases

Pennsylvania’s Supreme Court in a unanimous opinion in Rancosky v. Washington National Insurance Company, 170 A. 3d 364 (Pa. 2017) dated September 28, 2017, in a case of first impression clarified the elements of an insurance bad faith action under Pennsylvania’s bad faith statute found at 42 Pa.C.S. Section 8371. The Court stated “… we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A. 2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to is lack of a reasonable basis in denying policy benefits is sufficient.” Additionally, the Court noted that mere negligence is insufficient for a finding of bad faith under Section 8371.


Three Significant Cases to be Decided by Pennsylvania Supreme Court

Pennsylvania’s Supreme Court has its work cut out for it in three cases important to Pennsylvania tort law practitioners, defense and plaintiff alike.

First up is Zauflik v. Pennsboro School District, in which the Court will consider a challenge to the caps on recoveries against municipalities unbder Pennsylvania’s Political Subdivision Tort Claims Act. The caps under the Act have been consistently upheld as constitutional, and were so upheld in this case by the lower Commonwealth Court. The plaintiff was seriously injured in a school bus accident, and under the Act her recovery is limited to $500,000. A finding by the Court that the Act’s caps are unconstitutional would throw municipal tort law into chaos. Municipalities would face serious economic peril if their liability is unlimited. And, if they sought to purchase insurance to protect themselves, how much would be enough? And how much would “enough” cost? If the plaintiff’s tort bar is unhappy with the liability limit provided in the Act, the proper resolution is to amend the Act.

Next is Babcock & Wilcox v. American Nuclear Insurance, et. al., a case in which the Court will consider if an insurer’s defense of its insured under a reservation of rights ia tantamount to a coverage denial, freeing the insured to settle claims against it without the insurer’s consent. The case involved claims against Babcock & Wilcox arising from exposure to radiation from a Babcock & Wilcox facility. When ANI advised Babcock & Wilcox that it would provide a defense for  them to the claims under a reservation of rights, Babcock & Wilcox proceeded to settle the claims on its own, and then sought reimbursement from ANI under its insurance policy. ANI argued it had no duty to provide reimbursement as Babcock & Wilcox violated the “consent to settle” clause under the insurance policy requiring ANI’s consent to settle claims under the policy. Pennsylvania’s Superior Court held that when an insurer tenders defense to an insured under a reservation of rights, the insured may accept the defense and in doing so is bound by the consent to settle clause, or the insured may decline the insurer’s tender of a qualified defense and retain control of its own defense, including the option of settling the underlying clsims, and the insured may then recover from the insurer the costs of settlement and defense costs to the extent these costs are fair, reasonable, and non-collusive. This result is inconsistent with current Pennsylvania law and insurance practice. Currently, insurers are entitled to defend an insured under a reservation of rights and continue to control the defense of the claim, including settlement of the claim. A reservation of rights is not tantamount to a denial of coverage, allowing the insured control of the litigation. Rather, the insurer continues to control the litigation, including settlement. If the insurer improperly refuses to settle a claim defended under a reservatuion of rights, the insured may seek damages from the insurer in a bad faith action.

Finally, in Allstate Property & Casualty Insurance Company v. Wolfe, the United States Court of Appeals for the Third Circuit has requested the Pennsylvania Supreme Court to opine on whether a tortfeasor under Pennsylvania law may assign his or her bad faith claim against an insurer to an injured party. Although Pennsylvania’s courts have long held that tort claims are not assignable, such assignment in bad faith cases has become accepted practice based on piecemeal Pennsylvania state court decisions. Pennsylvania’s federal courts, however, have held that bad faith claims are not assignable, “to prevent speculation or profiteering in litigation by individuals who othee have no interest in the claim”. A decision by the Pennsylvania Supreme Court that bad faith claims are not assignable would be a welcome change in bad faith practice, would be consistent with Pennsylvania law that tort actions are generally not assignable, and would prevent double recoveries by injured parties who seek to recover for theior injuries but also profit from the insurer’s conduct toward the insured.

Federal Judge Bars Discovery of Documents in Bad faith case

U.S. Pennsylvania Middle District Magistrate Judge Martin Carlson has ruled that documents created by an insurance company in-house lawyer acting as a claims adjuster are protected by the attorney-client privilege from discovery by the plaintiff in a bad faith case. The documents sought by the plaintiff in Walter v. Travelers Personal Insurance included e-mails, letters and claim file log notes prepared in relation to the underlying uninsured motorist claim. Presumably, testimony at deposition or trial by the in-house lawyer would likewise be shielded by the privilege.

Federal Judge Bars Testimony of Bad Faith Experts

On May 31, 2013, United States District Judge Terrence McVerry of the Western District of Pennsylvania granted motions in limine precluding the testimony of insurance bad faith experts in the case of Schifino v. Geico General Insurance. McVerry ruled that jurors possess the requisite knowledge to assess bad faith allegations as the triers of fact. This was the second time a Western District judge had so ruled, following Judge Kim Gibson’s ruling in Smith v. Allstate Insurance. Allowance of bad faith experts in Pennsylvania  remains within the discretion of the trial judge.

Cole Quoted in Newspaper Article

Mr. Cole was quoted in the July 23, 2013 edition of the Legal Intelligencer newspaper in an article entitled “Bad-Faith Litigation Getting Increased Play” by Amaris Elliott-Engel about the purported increase in bad faith suits in Pennsylvania. Several prominent bad faith plaintiff and defense counsel were interviewed and quoted about the possible reasons for such increase.

Judge Finds No Bad Faith in Underinsured Motorist Claim Handling

On July 18, 2013, Centre County (Pennsylvania) Senior Judge Charles C. Brown, Jr., on assignment to Blair County, issued a verdict and opinion in the case of Rhodes v. USAA Insurance  holding that USAA did not act in bad faith in handling the underinsured motorist (UI) claim of William Rhodes, Jr. The key allegation was USAA’s alleged unreasonable delay in handling the UI claim.

The Judge first confirmed the standards to be applied in a first -party UI bad faith suit by an insured against his insurer:
-the burden is on the insured to prove the insurer acted in bad faith by clear and convincing evidence
-the insured must prove the insurer lacked a reasonable basis in handling the  insured’s claim and
the insurer knew or recklessly disregarded the lack of a reasonable basis for its actions
-a reasonable basis is all that is required to defeat a claim of bad faith.

Based on the facts of the claim, Judge Brown found no unreasonable delay in USAA’s handling of the claim. Any delays in the case were caused by the reasonable pace of the claim, in his opinion.

Mr. Cole served as the bad faith defense expert for USAA.


Summary Judgment Granted in Bad Faith Case

A United States District Court for the District of Delaware judge has recently granted summary judgment to the insurer in a bad faith insurance case. On July 24, 2008, Andrew Downing rented a U-Haul trailer from Kirkwood Shell for his employer. Shortly after renting the trailer, Downing was hauling the trailer when it became detached, struck the center median, crossed into an oncoming lane and struck an oncoming vehicle operated by Daniel Billings, who was seriously injured.

Kirkwood Shell was insured by Utica Mutual Insurance. U-Haul was self-insured. Billings sued Downing, U-Haul and Kirkwood Shell for negligence. A representative of Kirkwood Shell entered into an agreement with U-Haul whereby U-Haul agreed to defend and indemnify Kirkwood. Subsequently, U-Haul entered into settlement negotiations with Billings on behalf of U-Haul and Kirkwood. Upon reaching a settlement agreement, U-Haul sought contribution from Utica on behalf of Kirkwood toward the settlement and purported to tender the defense of Kirkwood back to Utica.

Utica advised it was willing to assume Kirkwood’s defense, but needed time to evaluate the claim, as U-Haul had exclusively handled Kirkwood’s defense up to that point. U-Haul responded by advising that it had decided not to withdraw its defense of Kirkwood, but was requesting Utica participate in the settlement as part of Utica’s independent good faith obligation toward Kirkwood, its insured. Utica advised it had insufficient information to evaluate the case and participate in the settlement. U-Haul them proceeded to settle the case on behalf of Kirkwood.

U-Haul filed a bad faith action against Utica on behalf of Kirkwood, who assigned its right of bad faith against Utica to U-Haul. In a March 28, 2013 memorandum opinion, Judge Andrews granted summary judgment for Utica. He found that Kirkwood violated the terms of its insurance policy with Utica by settling the Billings case without Utica’s consent as provided in the insurance policy. The Court further found that Utica was prejudiced by settlement of the Billings claim without its consent. Kenneth M. Portner, Esquire of Weber, Gallagher, Simpson, Stapleton, Fires & Newby represented Utica, and David E. Cole, Esquire served as Utica’s expert witness.

Pennsylvania Senate Bill 173

Pennsylvania Senate Bill 173 would replace the word “court” in Pennsylvania’s bad faith statute with the term “trier of fact”, effectively requiring that state bad faith cases be tried by jury. This would be consistent with the practice in federal bad faith cases. The bill was referred to the Senate Judiciary Committee on January 15, 2013.

Barrick v. Holy Spirit Hospital

The Pennsylvania Supreme Court in August 2012 agreed to consider whether communications from an attorney to an expert hired by the attorney are discoverable in the case of Barrick v. Holy Spirit Hospital. An en banc panel of Pennsylvania’s Superior Court had previously held such communications are not discoverable.