Presented by the Insurance Coverage/ Bad Faith Litigation Group

Legal Updates for Coverage and Bad Faith

September 12, 2018

Edited by Allison L. Krupp, Esq.

The Supreme Court of Pennsylvania grants petition for allowance of appeal regarding enforceability of unlisted resident driver exclusion.

Safe Auto Ins. Co. v. Rene Oriental-Guillermo, et al., No. 791 MAL 2017 (Pa. June 4, 2018)

The Supreme Court of Pennsylvania granted the defendants’ Petition for Allowance of Appeal to determine the following issues, as stated by the defendants:

Did the Superior Court err as a matter of law in finding that the unlisted resident driver exclusion in a Personal Auto Policy is valid and enforceable and not violative of the terms and provisions of the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. C.S.A. Sec. 1701, et. seq.?

Did the Superior Court err as a matter of law in finding that the unlisted resident driver exclusion in a Personal Auto Policy is valid and enforceable and not violative of the public policy of the Commonwealth of Pennsylvania as embodied in Section 1786 of the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. C.S.A. Sec. 1786, which implicitly directs that all permissive users of an insured vehicle be insured under the owner’s insurance policy?

Plaintiff’s implausible claims of residency lead to dismissal of claims against State Farm.

Campbell v. State Farm Fire and Casualty Co., No. 2:18-cv-00292 (W.D. Pa. July 18, 2018)

The plaintiff sued her homeowners insurer, State Farm, for breach of contract and bad faith for denying her property damage claim following a fire to her home. State Farm filed a motion to dismiss the complaint. The court considered that the policy defined dwelling as one “used principally as a private residence on the residence premises shown in the Declarations,” and that residence premises was defined as “where the insured resides and which is shown in the Declaration.” The court found that this language is unambiguous, and that for the plaintiff to have coverage for the physical structure, the plaintiff must “reside” at the covered property. The Pennsylvania Supreme Court has defined “residence” as “a factual place of abode evidenced by a person’s physical presence in a particular place,” as opposed to where the plaintiff intends to return at a future date. The court determined that the plaintiff’s factual allegations regarding her relationship to the dwelling, including tending to the lawn, periodic visits and keeping some furniture there, were insufficient to establish a plausible claim of residency. The court also concluded that further leave to amend would be futile. The bad faith claim was likewise dismissed, with the court noting that “in light of the dismissal of the Breach of Contract claim, the Bad Faith claim cannot survive.”

Pennsylvania Superior Court enforces policy exclusion, which excludes GCOP from actual cash value settlement calculation.

Kurach v. Truck Ins. Exch., 2018 Pa. Super. Unpub. LEXIS 3099 (Pa. Super. Aug. 24, 2018) (unpublished)

The plaintiffs had both purchased homeowners insurance from the defendant, and both suffered water damage to their properties that was covered by their policies. The plaintiffs decided not to repair their properties and, instead, decided to pursue an actual cash value (ACV) settlement. In calculating the ACV settlement, the defendant excluded general contractor overhead and profit (GCOP), relying on the following policy exclusion: “[A]ctual cash value settlements will not include GCOP unless and until you actually incur and pay such fees and charges, unless the law of your state requires that such fees and charges be paid with the actual cash value settlement.” The plaintiffs argued that this exclusion is improper under Pennsylvania law, and that GCOP must be included in the calculation of ACV. The trial court granted the plaintiffs’ motions for summary judgment and the defendant appealed. In an unpublished opinion, the Pennsylvania Superior Court found that the policy clearly and obviously provided that GCOP would not be paid to an insured until the insured actually incurs that cost, and that the trial court erred as a matter of law in granting summary judgment to plaintiffs.

Insurer’s motion to dismiss denied due to lack of facts surrounding plaintiff’s breach of contract and bad faith claims.

FAPD, LLC v. Auto-Owners Ins. Co., No. 2:18-cv- 000428 (W.D. Pa. July 17, 2018)

This matter arose from water damage to a building and its elevator shaft after a water pipe broke. The plaintiff initially did not notify its insurer of the loss because it thought the damages would not exceed its high deductible. After the repair costs proved to be much higher than initially expected, the plaintiff notified its insurer of the loss. The insurer denied coverage due to the plaintiff’s failure to timely notify it of the loss, as required by the policy. After the initial denial, the plaintiff realized it had misconstrued the repair costs, which were actually even higher. The plaintiff resubmitted the claim with the new numbers, and the defendant again denied the claim. The plaintiff then sued for breach of contract and bad faith.

The United States District Court for the Western District of Pennsylvania denied the defendant’s motion to dismiss the plaintiff’s bad faith claim and denied its motion for more definite statement. The court considered that the defendant had based its denial of coverage on the late notice and inability to ascertain the cause of loss. The court also considered that the plaintiff’s theory of bad faith was that the defendant had denied coverage on the basis of late notice without showing prejudice and that, with respect to the second denial, the defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim when it chose not to inspect the recovered parts. The court agreed that, in resolving the bad faith claim, it must determine whether the facts alleged in the complaint show that the defendant had suffered prejudice as a matter of law from the late reporting. The court found that it could not answer that question affirmatively based on the pleadings alone. It also found that the plaintiff had demonstrated a plausible claim for relief for bad faith, but only to the extent it related to the second denial of coverage.

Travelers not liable for plaintiff’s PTSD bills.

Evans v. Travelers Ins. Co., No. 531 CIVIL 2016 (C.C.P. Wayne Cnty. Aug. 14, 2018)

In this case, the trial court granted Travelers’ motion for summary judgment on a breach of contract claim, where the plaintiff failed to show that her mental injuries resulted from her physical injuries. The parties had filed cross-motions for summary judgment in this breach of contract case. The issue for the trial court was whether the carrier had breached the terms of the policy when it denied the plaintiff’s first party benefits claim relating to medical bills for PTSD allegedly caused by the accident. The policy defined “bodily injury” as “accidental bodily harm to a person and that person’s resulting illness, disease or death.” The plaintiff argued that, because she had sustained both physical and mental injuries as a result of the accident, the treatment related to both types of injuries should be covered. Travelers argued that, per the policy and controlling case law, mental injuries are only covered if they “result from” the physical injury. Because the PTSD stemmed from the plaintiff’s fear of driving following the accident—as opposed to mental injuries that resulted directly from the physical injuries—Travelers asserted they are not covered. The court agreed with Travelers and found that the language of the policy was clear and unambiguous. It found that the Superior Court’s holding in Zerr v. Erie Ins. Exchange controlled and that the plaintiff had failed to provide evidence that her mental injuries resulted from her bodily injuries. Absent that connection, there was no coverage for the PTSD, regardless of any collateral physical injuries sustained in the accident.

_{The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive these complimentary Coverage and Bad Faith updates, please contact alkrupp@mdwcg.com. If however you continue to receive the alerts in error, please send a note to alkrupp@mdwcg.com.}