Presented by the Insurance Coverage/Bad Faith Litigation Practice Group

Legal Updates for Coverage and Bad Faith

May 5, 2015

Edited by Allison L. Krupp, Esq.

Pennsylvania

The Superior Court holds that a “named driver only” policy does not conflict with Section 1718(c) of the Motor Vehicle Financial Responsibility Law (MVFRL) and that it does not violate public policy.

Suk An v. Victoria Fire & Casualty Co., 2015 PA Super 84 (Pa. Super. Ct. April 17, 2015)

In this case, the plaintiff appealed the trial court’s determination that the “named driver only” automobile policy issued to Zainab Walker did not violate Section 1718(c) of the MVFRL and is not contrary to public policy. The plaintiff was allegedly injured in a motor vehicle accident involving a vehicle owned by Walker, but operated by Matthew Gilmore. The complaint included a count against Gilmore for negligent operation of Walker’s vehicle and a count against Walker for negligent entrustment. The Victoria Policy that insured the vehicle did not provide liability coverage for any person not listed as a named driver on the policy, and Walker was the only driver listed on the policy. The plaintiff filed an action for declaratory judgment, seeking a declaration from the court that Victoria had a duty to defend and provide insurance coverage to Walker and Gilmore for all claims arising out of the alleged accident. On appeal, the Superior Court considered that Section 1718(c) of the MVFRL refers to “named driver exclusion” policies, which exclude a particular driver, as opposed to the present situation, where only the named driver is provided coverage. The Superior Court held that the policy did not conflict with, nor was it contrary to, Section 1718(c); rather, Section 1718(c) is inapplicable to the policy in this case. The “named driver only” policy is not contemplated by Section 1718(c). The plaintiff also argued that “named driver only” policies are against public policy because they increase the number of uninsured motorists on Pennsylvania roads. The Superior Court rejected this argument as well, holding that the provision of low-cost, affordable policies in return for motor vehicle liability coverage of the named driver, and the concomitant risk reduction, does not violate public policy. Thus, the trial court’s order was affirmed.

Court holds no coverage for an ATV accident where the accident occurred on a public road that was not part of the “insured location” under the policy.

O’Brien v. Ohio Casualty Ins. Co., 2002 CV 6690 (Lackawanna Cnty. C.C.P. March 12, 2015)

In this declaratory judgment action, the issue was whether an ATV accident occurred on an insured location. If it did, there was coverage for the accident; if not, there was no coverage. The accident occurred on Lake Spangenberg Road when the plaintiff, driving an ATV owned by the O’Briens’ son, hit loose gravel, causing the ATV to slide and strike a tree and telephone pole. The O’Briens’ homeowners insurance policy was issued by defendant Ohio Casualty, which took the position that the accident did not occur on an insured location. The O’Briens’ son had only driven the ATV on Lake Spangenberg Road once or twice, and the O’Briens had never been on nor resided on the property where the ATV struck the tree. The subject road was maintained by Jefferson Township. The plaintiffs argued that their frequent use of the road to enter and exit their property constituted a use in connection with their premises. However, they admittedly had never been to the precise location where the ATV accident occurred. Thus, the court declared that the location of the ATV accident did not meet the policy definition of an “insured location” and, therefore, there was no coverage.

The Western District Court denies the plaintiff’s motion to join an additional defendant since the court held it was an attempt to defeat diversity jurisdiction.

Wehrenberg v. Metropolitan Property and Casualty Ins. Co., 2:14-cv-01477 (W.D. Pa. April 9, 2015)

In this breach of contract/bad faith action, the plaintiff had rented his house to a man named Alphonso Hyman. According to the plaintiff, Hyman had vandalized the house and stopped making rental payments, which resulted in foreclosure. The house was insured by a policy issued by defendant Metropolitan Property and Casualty Insurance Company. The plaintiff filed a claim for vandalism damage with Metropolitan, which denied coverage, and this suit followed. The plaintiff initially filed the suit in the Court of Common Pleas of Allegheny County. Metropolitan subsequently removed the case to federal court on the basis of diversity jurisdiction. The plaintiff then filed a motion to join Hyman as an additional defendant. The Western District Court denied the motion, reasoning that the facts that comprised the basis for the breach of contract claim against Hyman were well known to the plaintiff when he filed his complaint. The court considered that district courts have generally concluded that if a plaintiff was aware at the time the complaint was filed of the activities of the non-diverse defendant, the later attempt to join that defendant will be viewed as an attempt to defeat diversity. Because the plaintiff had not learned anything new about Hyman that he did not already know when the action was filed, the motion was denied.

New Jersey

Superior Court holds that the trial court erred in denying GEICO’s motion to sever and stay discovery as to the bad faith claim in this UIM/bad faith action.

Wacker-Ciocco v. Government Employees Insurance Company, 2015 N.J. Super. LEXIS 38 (N.J. Super. Ct. March 16, 2015)

In this underinsured motorist (UIM)/bad faith case, the Superior Court of New Jersey, Appellate Division, reversed the orders of the trial court that denied GEICO’s motion to sever and stay the bad faith claim and discovery related to the pending resolution of the underlying UIM claim. By way of background, the plaintiff had an auto policy with GEICO that provided UM/UIM benefits. After the plaintiff had been rear-ended by another motorist and incurred medical expenses that exceeded that motorist’s liability limits, she demanded $200,000 in UIM benefits from GEICO. The plaintiff subsequently filed suit against GEICO for UIM benefits and bad faith. With respect to the bad faith claim, the plaintiff alleged that GEICO had declined to participate in arbitration, failed to make a reasonable effort to settle the UIM claim, and demanded documents unrelated to the UIM claim. During pretrial discovery, the plaintiff sought to compel the depositions of GEICO’s UIM claim adjusters and documents related to the bad faith claim. GEICO filed motions to sever the bad faith claim and stay discovery related thereto until the UIM claim was resolved. The trial court denied GEICO’s motion and compelled the depositions of GEICO’s UIM adjusters. On appeal, the Superior Court reversed the trial court’s order. The court held that the trial court had erred in concluding that the disclosure of some bad faith-related discovery resolved the issue of potential prejudice to the insured and paved the way for simultaneous discovery without regard to whether the plaintiff had establish that she was entitled to coverage as a matter of law. The court considered that proof that an insured is entitled to coverage as a matter of law is a necessary pre-requisite to pursuing discovery regarding a bad faith claim. This principle did not become inapplicable simply because some discovery relevant to the bad faith claim had already been produced.

New York

The court grants in part and denies in part the plaintiff’s motion for partial summary judgment and declares that the defendant was obligated to provide a defense to the plaintiff as an additional insured on the policy.

100 Church Fee Owner LLC v. Harleysville Worcester Ins. Co., 2015 N.Y. Misc. LEXIS 1350 (N.Y. Supreme Ct., New York Cnty. April 21, 2015) (unpublished)

The plaintiff owned a building and had hired Ecker Window Corp. to install windows at the premises. Ecker secured an insurance policy from Harleysville and listed the plaintiff as an additional insured in accordance with the parties’ written agreement. The plaintiff also had a separate CGL policy through Zurich, which provided coverage subject to a $150,000 self-insured retention. Michael Wenzel commenced an underlying action against the plaintiff, alleging that he had sustained personal injuries while performing work on behalf of Ecker at the premises. The plaintiff tendered its defense and requested indemnification from the defendant insurer. The defendant declined the request on the basis that, in order for the additional insured coverage to apply, the loss must have arisen from the acts or omissions of the named insured. Because the loss allegedly occurred due to the plaintiff’s negligence, the defendant denied coverage. The plaintiff filed a declaratory judgment action and subsequently filed a motion for partial summary judgment requesting a declaration that the defendant was obligated to defend the plaintiff in the underlying action; that the defendant was obligated to reimburse the plaintiff its past defense costs incurred in the underlying action; that the coverage applicable to the plaintiff as an additional insured was primary to any other coverage available to the plaintiff as a named insured; and that the plaintiff was entitled to consequential damages, including attorney’s fees and expenses. The defendant filed a cross-motion for summary judgment, requesting that the court dismiss the complaint. The court granted the plaintiff’s motion for summary judgment in part, declaring that the defendant was obligated to defend the plaintiff as an additional insured since the underlying complaint alleged that Wenzel’s injuries arose out of work performed by Ecker. The portion of the plaintiff’s motion declaring that the defendant was obligated to reimburse the plaintiff its past defense costs was likewise granted. However, the portion of the plaintiff’s motion declaring that the coverage the defendant afforded to the plaintiff as an additional insured was primary to any other coverage available to the plaintiff as a named insured, was denied on the ground that Zurich was not a party to the action. The plaintiff’s motion declaring that it was entitled to consequential damages was also denied.

Florida

The court grants in part and denies in part the defendant’s motion to dismiss and holds that the plaintiffs’ bad faith claim can be held in abatement, pending resolution of the breach of contract count.

Esposito v. 21st Century Centennial Ins. Co., 2015 U.S. Dist. LEXIS 46472 (M.D.Fl., Tampa Division April 9, 2015)

The plaintiffs were involved in an automobile collision and subsequently submitted a claim for uninsured motorist (UM) benefits to their insurer, alleging that an uninsured motorist had caused the injuries. The plaintiffs claimed that the defendant failed to timely pay claims made under the UM policy. The plaintiffs sued for breach of contract, bad faith, and declaratory relief on liability and damages. The defendant moved to dismiss the bad faith and declaratory relief causes of action on the basis that the bad faith claim had not yet accrued because the underlying first-party liability had not yet been resolved, and because declaratory relief on liability and damages do not concern justifiable cases or controversies. The plaintiffs argued that abatement, as opposed to dismissal, was appropriate. The court denied the defendant’s motion to dismiss the bad faith claim and instead held that it would be abated pending resolution of the breach of contract count. With respect to the declaratory judgment count, the court held that it did not currently address actual existing controversies that would support the entry of a declaratory judgment. Thus, the declaratory judgment count was dismissed with prejudice.

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