Presented by the Insurance Coverage/Bad Faith Litigation Practice Group

Legal Updates for Coverage and Bad Faith

December 1, 2014

Edited by Allison L. Krupp, Esquire

Pennsylvania

PA Supreme Court rejects multiple trigger for property damage cases.

In this significant Pennsylvania Supreme Court decision, the Court considered whether, pursuant to the facts of this case and the policy language at issue, Penn National is liable for the judgment against its insured under a CGL policy of insurance and companion umbrella policy. The Court also considered whether the multiple trigger theory of liability, adopted by the Pennsylvania Supreme Court in J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502 (Pa. 1993), applied to trigger coverage under all policies in effect from exposure to the harmful condition to manifestation of the injury, where the property damage was continuous and progressive. (Unlike this case, J.H. France was an asbestos bodily injury case.) In the instant case, the St. Johns were the owners of a dairy farm in Chester County, and had hired LPH Plumbing to install a new plumbing system. The system was defective, causing contamination of the dairy herd's drinking water. The contamination began to cause health problems in the cows in 2004; however, the St. Johns began to suspect a problem with the drinking water in 2006, when they noticed that the cows were refusing to drink the water. The St. Johns argued that the injury manifested no earlier than 2006, or alternatively, that the cows were affected by multiple or continuous occurrences, thereby triggering multiple policies. In the underlying liability case, the jury had returned a verdict in favor of the St. Johns and determined that LPH and its subcontractor were jointly and severally liable for $3.5 million in damages, with an additional $277,505.36 in delay damages. Penn National sought a determination regarding which policies were triggered by LPH's negligent installation of the plumbing system. The Supreme Court affirmed the trial court's holding that the injurious effects of LPH's negligent installation first manifested in April 2004, when the dairy herd experienced a significant drop in milk production and higher incidents of various illnesses. The fact that the St. Johns did not discover the cause of the problem until March 2006 had no bearing on the Court's determination of which policy applied. With respect to the St. John's alternative argument that the multiple trigger theory applied, the Court held: "Our holding in J.H. France remains an exception to the general rule under Pennsylvania jurisprudence that the first manifestation rule governs a trigger of coverage analysis for policies containing standard CGL language. We therefore find J.H. France distinguishable and decline to apply the multiple trigger theory of liability to determine coverage under the Penn National policies for the damages sustained by Appellants' dairy herd."

The Pennsylvania Supreme Court determined that an insured’s entitlement to assert damages under Pennsylvania’s bad faith statute may be assigned by the insured to an injured plaintiff.

Allstate Property and Casualty Ins. Co. v. Wolfe, No. 39 MAP 2014 (Pa. Supreme Ct., Dec. 15, 2014)

The Supreme Court certified this appeal to consider whether, under Pennsylvania law, an insured may assign the right to recover damages from his insurance company under Pennsylvania’s bad faith statute. Wolfe had been injured when his vehicle was rear-ended by a vehicle driven by Karl Zierle. Wolfe demanded $25,000 from Zierle’s insurer, Allstate, which was half of the liability limits under the policy. Allstate counter-offered $1,200, which Wolfe rejected. Wolfe then brought a personal injury action against Zierle seeking compensatory damages. During the course of discovery, Wolfe discovered that Zierle had been intoxicated at the time of the accident and obtained leave of court to amend the complaint to include a claim for punitive damages. Allstate advised Zierle that indemnification for exemplary awards would not be covered by his policy. Following a jury trial, Wolfe secured a verdict against Zierle totaling $15,000 in compensatory damages and $50,000 in punitive damages. Allstate subsequently paid the compensatory damages award. With respect to the punitive damages award, Wolfe and Zierle entered into an agreement whereby Zierle assigned all claims arising under his Allstate policy to Wolfe, who then filed a breach of contract and bad faith action against Allstate. Allstate argued that, as a third party to the Allstate/Zierle policy, Wolfe lacked standing to pursue damages under the bad faith statute. The Supreme Court disagreed and concluded that the entitlement to assert damages under section 8371 may be assigned by the insured to an injured plaintiff and judgment creditor, such as Wolfe. The court considered the necessity for section 8371, the objective to be attained, the legal landscape prior to its enactment and the consequences of the court’s interpretation, and held that all of these considerations weigh in favor of Wolfe’s position. The court also considered that if it is incorrect in its assessment, the General Assembly may seek to implement curative measures with respect to future cases, subject to constitutional limitations. This case is significant since it has laid to rest the bad faith assignment issue, which had previously received inconsistent and conflicting rulings from Pennsylvania courts.

The Eastern District Court determined that the UIM waiver signed by the insured was valid and enforceable, even though it was pre-dated and not dated specifically by the insured.

Lieb v. Allstate Property & Casualty Ins. Co., No. 14-4225 (E.D. Pa. Dec. 10, 2014)

The plaintiffs claimed that their vehicle, which was insured by Allstate, had been struck by another vehicle and that their damages exceeded the amount of insurance recovered from the tortfeasor. The plaintiffs asserted a claim for UIM benefits and argued that Allstate had wrongfully denied their claim in bad faith. Allstate argued that the plaintiffs had waived UIM coverage by signing an effective and valid waiver. The plaintiffs countered that the waiver failed to comply with the applicable statute and was, therefore, ineffective. Specifically, the form contained the statutorily required language; however, the plaintiffs had not dated the form themselves. Rather, the date was already on the form at the time it was signed. The statute provided that the form “must be signed by the first named insured and dated to be valid.” The court determined that the most natural reading of this provision is that the form must be signed by the insured; it does not require that the insured also date the form. Therefore, the notice provided to the plaintiffs complied with the statute, and the case was dismissed with prejudice.

The Eastern District Court determined that the insurer had a reasonable basis for its handling of the insured’s claim where the insured had failed to comply with the policy’s requirements that he submit to an EUO and medical exam.

Stanford v. National Grange Ins. Co., 2014 U.S. Dist. LEXIS 155323 (E.D. Pa. Nov. 3, 2014)

The plaintiff sued his insurer, National Grange, for bad faith and breach of contract arising from National Grange’s alleged delay in paying the proceeds of a successful prosecution of a claim for uninsured motorist benefits. The plaintiff raised four reasons why the court should conclude that National Grange had acted in bad faith: (1) it delayed in handling the claim by requesting that the plaintiff submit to an EUO and medical examination; (2) the $10,000 pre-arbitration settlement offer was inadequate and made in bad faith; (3) it delayed payment of the arbitration award; and (4) it acted in bad faith by conditioning the payment of the arbitration award on the plaintiff signing a waiver of claims arising from the accident. The court considered that the policy required the plaintiff to submit to EUOs and medical exams and that the plaintiff had repeatedly refused to submit to either. When he finally did submit to a EUO, he refused to answer questions that were necessary and material to National Grange’s adjustment of his claim. Therefore, National Grange had a reasonable basis to handle the claim in the manner that it did since the plaintiff had failed to comply with the policy’s requirements. The court also considered that the plaintiff’s breach of contract claim failed since National Grange did eventually pay the plaintiff the policy limits; thus, the plaintiff had not sustained any damages under the policy. The court rejected the plaintiff’s claim that the pre-arbitration offer was inadequate and made in bad faith, as well as the plaintiff’s other arguments.

Summary judgment entered in favor of the insureds where the underlying issue was whether the insureds’ grandson, who had stolen property from their home, was a resident of their household.

Ripley v. Brethren Mutual Ins. Co., 2014 U.S. Dist. LEXIS 165448 (E.D. Pa. Nov. 25, 2014)

Michael Ripley and two acquaintances stole antiques worth more than $50,000 from his grandparents’ home. The coverage issue presented was whether Michael was a member of his grandparents’ household, which would trigger a policy exclusion in their insurance policy with Brethren and preclude coverage for the theft. Brethren had hired a risk management company to investigate the claim. During the course of their investigation, the grandmother advised the investigator that Michael resided in their household and had admitted to the theft. Michael paid rent of $25 per week and bartered work by caring for their horses in exchange for a room. He bought his own food and ate meals separately from his grandparents. Michael was not permitted to use his grandparents’ vehicle and was not permitted in certain parts of the household. The court considered that determining who is a resident of a household is a fact-specific inquiry that may include consideration of the intent of the parties; the amount of time spent in the residence; the nature of the living arrangements; the type of activities undertaken in the residence; and the age and self-sufficiency of the person at issue. The fact that the individual is a child or grandchild of the insured does not automatically make him/her a member of the insured’s household. The court determined that Brethren had failed to meet its burden of establishing that the exclusion applied, and therefore, the plaintiffs’ motion for partial summary judgment was granted, and Brethren’s motion for summary judgment was denied. The plaintiffs’ motion for partial summary judgment sought a judicial determination that Michael Ripley was not an insured for purposes of the policy exclusion.

Delaware

Judgment was entered in favor of the insurer and against the plaintiff since the plaintiff was not entitled to UIM benefits because he had failed to exhaust all available liability coverage.

Rostocki v. GEICO General Ins. Co., 2014 Del. Super. LEXIS 584 (DE Super. Ct. Nov. 17, 2014)

The plaintiff was a passenger in a vehicle operated by his father. He did not pursue a claim against his father and declined a settlement from his father’s insurer. He did, however, pursue a claim against the driver of the other vehicle involved in the accident and the owner of the other vehicle, and he submitted a UIM claim under his father’s GEICO policy. GEICO filed a motion for summary judgment on the grounds that the plaintiff had failed to exhaust all available liability coverage. The court considered that the plaintiff has UIM benefits under his father’s GEICO policy but did not exhaust the liability benefits under the policy. Thus, he did not exhaust all available liability coverage, and exhaustion is a prerequisite to triggering UIM coverage. As a result, the plaintiff was barred under both statutory law and case law from recovering UIM benefits from GEICO. Judgment was, therefore, entered in favor of GEICO and against the plaintiff.

Florida

Plaintiff’s bad faith claim was abated by the court since it was premature, and the declaratory judgment claim was dismissed since there is not an actual controversy at this time.

Cruz v. Progressive Selective Ins. Co., 2014 U.S. Dist. LEXIS 165671 (M.D. Fl. Nov. 26, 2014)

Following a motor vehicle accident, Progressive denied the plaintiff’s claim for uninsured motorist benefits but permitted the plaintiff’s settlement with the tortfeasor. The plaintiff subsequently sued Progressive for uninsured motorist benefits, bad faith and declaratory judgment. Progressive argued that the bad faith claim was premature since there had been no determination of liability with respect to the first party insurance claim. It also argued that under the Declaratory Judgment Act, the plaintiff had not stated a cause of action for declaratory relief because there was no case or controversy that currently existed. With respect to the bad faith claim, the court reasoned that Florida courts prefer abatement rather than dismissal when confronted with a premature bad faith claim. Thus, Court II was abated by the court. With respect to the declaratory judgment claim, the court ruled that there was no actual controversy prior to the determination of the damages suffered in the underlying contract claim. Thus, declaratory relief is an improper remedy at this time.

The court held that plaintiff’s premature bad faith claim would be held in abatement, pending resolution of the UM claim.

Lawton-Davis v. State Farm Mutual Auto. Ins. Co., 2014 U.S. Dist. LEXIS 164055 (M.D. Fl. Nov. 24, 2014)

The plaintiff was allegedly permanently injured in an accident with an uninsured motorist. State Farm denied the plaintiff’s claim for UM coverage. The plaintiff argued that State Farm had failed to conduct a reasonable investigation or make a good faith settlement effort. The parties agreed that the plaintiff’s bad faith claim was premature, but they disagreed as to how to handle it. State Farm contended that the court should dismiss the claim, without prejudice, while the plaintiff argued that the court should abate the claim pending disposition of the UM claim. The court considered that Florida courts utilize both procedures to handle premature claims. As a general rule, courts permit abatement where the premature element of an action is curable simply by the passage of time. They prefer dismissal, however, if an action is premature because one of the essential elements is contingent upon the occurrence of an event that may or may not occur. The court held that, given that this action is still in its early stages and that the state of the law on excess UM benefits verdicts has not fully developed, the court would exercise its discretion and abate the bad faith claim.

New Jersey

Plaintiff’s suit was dismissed since the plaintiff had failed to permit the insurer to inspect the commercial property following the loss.

Lighthouse Point Marina & Yacht Club, LLC v. International Marine Underwriters, 2014 U.S. Dist. LEXIS159770 (U.S. Dist. of N.J. Nov. 13, 2014) (not for publication)

The plaintiff alleged that its commercial property had sustained wind damage during Superstorm Sandy and brought an action to recover under its policy issued by International Marine Underwriters. The insurer moved to dismiss the case on the grounds that the plaintiff had refused to permit re-inspection of the property and, therefore, failed to comply with the court-ordered joint discovery plan. The plaintiff failed to respond to the motion. The insurer also argued that it had already sufficiently compensated the plaintiff for its losses and that the plaintiff had failed to permit the insurer to re-inspect the commercial property after the plaintiff had made a demand that was more than 300 times the initial assessment. The court held that the insurer had made a sufficient showing of the plaintiff’s failure to comply with the policy’s obligations. The policy barred litigation if the insured fails to comply with the policy’s terms, and among those terms is the requirement to allow the insurer to inspect the property as often as is reasonably required. Thus, the policy barred the suit brought by the plaintiff.

The insurer’s motion to dismiss the plaintiff’s breach of contract claim, which was brought under state law, was granted. However, the motion to dismiss the breach of contract claim, which was brought under the NFIA, was denied, without prejudice.

Linblad v. Nationwide Mutual Ins. Co., 2014 U.S. Dist. LEXIS 168444 (U.S. Dist. of N.J. Dec. 5, 2014)

The plaintiff had a standard flood insurance policy with Nationwide for her residence and made a claim for damages following Superstorm Sandy. The plaintiff sued Nationwide for breach of contract under both state law and the National Flood Insurance Act (NFIA). The plaintiff argued that Nationwide had improperly adjusted and mishandled her claim, and that she had not received proper payment for the damages. Nationwide filed a motion to dismiss on the basis that the claims are precluded by the statute of limitations. In the alternative, Nationwide sought to dismiss the plaintiff’s claims for consequential damages and attorney fees. The plaintiff did not respond to the motion. The court determined that the plaintiff’s state-law claim had been preempted by the NFIA and was, therefore, subject to dismissal. With respect to the federal breach of contract claim, the court held that the time for filing suit is calculated by the date of the denial letter. Specifically, the one-year statute of limitations begins to run when the insurer denies a claim that is based upon the insured’s sworn proof of loss. The court concluded that it was not apparent from the record that Nationwide’s denial was based on a claim that included the plaintiff’s sworn proof of loss. Thus, the court could not conclude that the plaintiff had filed suit after the statute of limitations had expired. Nationwide’s motion to dismiss the plaintiff’s breach of contract claim pursuant to the NFIA was, therefore, denied, without prejudice. However, the court did dismiss the plaintiff’s claim for attorney fees since courts have held that, in breach of contract actions, where the contract had been issued pursuant to the NFIA, prevailing plaintiffs are not entitled to recover attorney fees. The court also held that the plaintiff was not entitled to recover sums for any and all loss resulting from the flood since the policy specifically excluded certain enumerated damages.

_{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.}