Posts Tagged ‘bad faith’

Eastern District of Pennsylvania Finds No “Link” to Bad Faith in Excess Carrier’s Conduct Towards Sausage Company Insured

Thursday, September 25th, 2014

This month, the Eastern District of Pennsylvania held that excess carrier American Guarantee and Liability Insurance Company (“American Guarantee”) did not engage in bad faith conduct towards insured Maglio Fresh Foods (“Maglio”), a sausage company. Charter Oak Ins. Co. v. Maglio Fresh Foods, Case Civil No. 12-3967, 2012 WL 4434715 (E.D. Pa. Sept. 9, 2014).

Maglio filed cross-claims against American Guarantee for statutory bad faith under 42 P.S.A. § 8371 and breach of the implied covenant of good faith and fair dealing. The claims were based on American Guarantee’s refusal to post a supersedeas bond for Maglio so that Maglio could appeal an adverse judgment entered in the underlying action. Maglio argued that, as the primary carrier had already tendered its policy limits to the court, the primary limits were exhausted and American Guarantee’s duty to defend, including the duty to post the appellate bond, was triggered. In contrast, American Guarantee argued that, under the terms of its “follow form” policy, it had no duty to defend until the primary carrier exhausted its limits through payment for a covered claim. American Guarantee argued that only one out of the two claims in the underlying action was covered (the “Forte brand claim”). American Guarantee previously disclaimed coverage for the other claim (the “Maglio brand claim”). As the value of the covered Forte brand claim was less than the primary policy limit, the primary carrier’s payment of that claim did not exhaust the policy. American Guarantee further contended that the primary carrier’s payment of an additional $440,000 into the court was a “voluntary payment” that did not exhaust the primary policy.

The court found in favor of American Guarantee, holding that “Maglio has failed to prove, by the applicable standard of proof, clear and convincing evidence, that American Guarantee is liable for statutory bad faith, because the evidence does not show any conduct that meets the Pennsylvania legal standard for statutory bad faith, and certainly no conduct that would warrant punitive damages, under Pennsylvania law.” The court further held that its “analysis of the common law bad faith claim, arising out of the contractual relationship … leads to the same conclusion.”

With respect to its disclaimer of coverage, the court held that “Maglio has not brought forth evidence that American Guarantee’s conduct lacked a reasonable basis.” Rather, American Guarantee’s “vigilance” (including (1) conducting a reasonable investigation, (2) justifiably relying on the primary carrier’s denial of coverage of the Maglio brand claim and the primary carrier’s commitment to continue to defend the claim, and (3) hiring coverage counsel to monitor the underlying action), coupled with the primary carrier’s continued defense of Maglio, relieved American Guarantee of having to take any action in the defense. Moreover, the court held that, even if American Guarantee incorrectly evaluated coverage for the Maglio brand claim, “the evidence fails to show that American Guarantee did so out of self-interest or ill will.” The court found that, “[a]bsent such a showing, Maglio’s bad faith claim falls short.”

The court also determined that, as the verdict for the covered Forte brand claim was only $660,000, it did not exhaust the primary policy limits, and thus concluded that the primary insurer’s payment “did not trigger American Guarantee’s duty to defend, and therefore, its duty to post an appellate bond.” As a result, “American Guarantee did not act in bad faith by refusing to post such bond.”

New York Assembly Presents Insurance Reform Overhaul in Wake of Superstorm Sandy

Tuesday, June 25th, 2013

We previously reported on the New Jersey Legislature’s attempts to enact a bill that would allow policyholders to sue an insurer for bad faith in the wake of Superstorm Sandy.  New Jersey Assembly Bill A3710  is still pending.  On the other hand, New York’s Assembly has been very active after Superstorm Sandy and resoundingly passed 12 new bills on June 4, 2013, which would affect changes to the Insurance Law.  The State Senate is now holding debates for these bills, which provides insurers an opportunity to request the legislature to reject these proposed laws.

The American Insurance Association has attacked the new legislation, stating that it is “misguided, if well-intentioned” because the bills “would simply open the floodgates for even greater litigation after a catastrophe.”  Although policyholders already have considerable privileges under current law, the New York Assembly is attempting to rewrite insurance policies by rejecting basic contractual principles that allow parties to form the terms of their own agreements.  If passed, the insurance market may raise premiums to ensure they can pay the newly-mandated covered claims, and handle an increase in litigation costs.

The New York insurance reform legislative package includes the following bills:

• Investigation and Settlement Standards (Bill No. A01092, passed 121-23).  The Assembly is attempting to require insurers to investigate a claim and advise the claimant in writing within 15 days (with a potential additional 15 day extension) on whether the insurer has accepted or rejected the claim.  The insurer then must pay the claim within 3 days from the settlement date.

• Creating a Task-Force for Disasters (Bill No. A01093, passed 144-0).  This bill creates an 18-member task force, including officials from federal and state agencies, insurers and independent representatives who will examine and report on whether policyholders and communities have adequate insurance coverage for disasters.

• Discounts on Fire and Homeowner’s Insurance Upon Completing Residential Home Safety and Loss Prevention Course (Bill No. A01475, passed 141-3).  The Assembly is attempting to force insurers to provide discounts to homeowners for a three-year period upon completing a state-certified course that would teach insureds how to prevent losses triggered by weather-related events.  The bill does not comment on the amount of the discount, but requires the discount to be based on sound actuarial practices.

• A Homeowner’s Bill of Rights (Bill No. A02287, passed 118-26).  Legislators are attempting to educate homeowners who purchase property and casualty coverage by obligating insurers to provide them with a consumer guide written “in plain language in a clear and understandable format.”  This disclosure must provide information, such as how coverage is affected by different types of weather conditions and natural disasters as well as whether the property is located in a flood zone.  Additionally, the Department of Financial Services will be required to establish a “Consumer’s Guide on Insuring Against Catastrophic Loss” brochure.

• A Uniform Windstorm Deductible (Bill No. A02729, passed 144-0).  The Superintendent of Insurance will have the duty to institute a uniform and reasonable standard for hurricane windstorm deductibles.  Proponents of the bill claim it will help promote a better understanding of the applicability and amount of hurricane windstorm deductibles.

• Expediting State Disaster Emergency Insurance Claims (Bill No. A05570, passed 117-26).  This bill establishes an expedited procedure for claimants to advance any lawsuit against insurers that deny claims related to property damage sustained in counties where a State Disaster Emergency is declared by the Governor.

• Private Right of Action for Unfair Claim Settlement Practices (Bill No. A05780, passed 108-34).  The bill creates a private right of action for unfair claim settlement practices for claims relating to a loss or injury in an area under a declared disaster emergency.  If enacted, insurers will be liable for punitive damages if their claims practices are deemed willful.

• Limiting Insurers from Deciding Not to Renew Homeowners Policies (Bill No. A06913, passed 120-24).  The Assembly is trying to restrict insurers’ reduction of coverage by regulating notices of intention to not renew homeowner’s insurance policies.  If passed, insurance companies must file a plan with the Superintendent of Insurance if they intend to reduce by 20% the net number of these policies in New York, or if they plan to reduce the number of these policies by 500 within five years, whichever is greater.  Additionally, insurers must file a plan if they intend to not renew 4% or more of their total number of covered policies within New York.

• Coverage for Business Interruption Claims Arising From Excluded Perils (Bill No. A07452, passed 113-30).  This bill would force insurers to cover business interruption claims even if the loss directly or indirectly arose from or was caused by an excluded or uninsured peril.

• A Standard Set of Definitions (Bill No. A07453, passed 115-29).  This bill would force all New York insurance policies to adopt a standard set of definitions, as promulgated by the Superintendent of Insurance, for all commonly used terms and phrases.  The proposed legislation does not include a list of the terms and phrases it considers to be common, but provides that an insurer may use alternative definitions as long as they are not any less favorable to the policyholder.

• Providing a Copy of a Policy Prior to it Being Purchased (Bill No. A07454, passed 119-24).  The bill would require insurers to provide potential customers of personal and commercial lines of insurance a copy of the policy prior to the policy being purchased.  Legislators want customers to have sufficient time to review a policy before agreeing to buy it.

• Outlawing Anti-Concurrent Clauses (Bill No. A07455, passed 119-24).  The law would forbid insurers from denying a claim when a loss occurred from several causes, and one cause is covered while another cause is precluded from coverage.  If enacted, New York would be joining California,[1] North Dakota,[2] West Virginia,[3] and Washington[4] in eliminating anti-concurrent causation clauses.

The Assembly also passed Bill No. A07456 on June 10, 2013, by a vote of 125-14, which would require the Superintendent of Financial Services to prepare a report card on insurers’ responses to emergencies and disasters.  Insurers would be graded on: (1) the number of claims the insurer received and the status of those claims; (2) the number of independent adjusters the insurer has working in the field; (3) the number of policyholders who have hired public adjusters; (4) the average amount of time, in days, for the insurer to investigate a claim, make a payment, and close a claim; (5) the number of complaints the insurer has received from its insureds and the number of complaints the Department has received on each insurer; and (6) any other information the Superintendent deems necessary.  This report card must be published within 20 days of the declaration of a disaster or emergency and updated every week for at least 6 months or until the Superintendent determines that the report card is no longer necessary.

 

NJ’s Bad Faith Legislation Stemming From Superstorm Sandy Needs Emergency Relief

Tuesday, March 19th, 2013

In the wake of Superstorm Sandy, the New Jersey Legislature is considering the passage of A3710, which will enable policyholders to sue insurers for bad faith based on a single alleged violation of the New Jersey Insurance Trade Practices Act, NJSA § 17:29B-1, et seq.

The proposed legislation is unnecessary and will just promote more litigation, delay the resolution of first-party claims, disturb New Jersey’s current landscape of thoughtful and termperate common law remedies, and result in higher premiums for all policyholders. Although the proposed legislation may be a boon for lawyers, it likely will be a losing proposition for virtually everyone else.

Prior to Superstorm Sandy, the New Jersey Legislature and the courts had carefully crafted a comprehensive framework of rules, causes of action, and damages measures which have adequately protected the public against the bad faith claims settlement practices of insurers.  For example, in Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 323 A.2d 495 (1974), the New Jersey Supreme Court prescribed a cause of action that protects policyholders from excess verdicts.  In Pickett v. Lloyd’s, 131 N.J. 457, 621 A.2d 445 (1993), the Supreme Court conducted a thorough national survey of insurance bad faith decisions before adopting the centrist “fairly debatable” test for New Jersey first-party bad faith claims, thereby rejecting the extreme standards that prevail in some jurisdictions.

While New Jersey already permits policyholders to recover extra-contractual damages against insurers, both the Legislature and courts have adroitly balanced the competing interests.  The Supreme Court in Pickett posited that, when the policyholder has demonstrated that the insurer has engaged in bad faith, the policyholder may recover consequential damages (including attorneys’ fees) and punitive damages.  On liability insurance disputes, prevailing policyholders are generally permitted to recover their costs and fees if they can satisfy the elements of New Jersey Civil Practice Rule 4:42-9(a)(6).  Thus, the remedies are in place and the public is adequately protected.

Policyholder attorneys dislike the Pickett standard because it requires a showing of “gross negligence” by the insurer.  This middle-of-the-road standard eschews the extreme liberal standard of simple negligence advocated by policyholder attorneys, and the extreme conservative standard of “intentional wrongdoing” favored by some insurance industry advocates.  In adopting the Pickett standard, the Supreme Court sent the strong message that bad faith claims should not be a routine add-on to the typical insurance coverage dispute, but should be reserved for sufficiently reckless conduct by the insurer.  The Supreme Court was clear that, to make out an actionable bad faith claim, “simple negligence” is not enough.

The proposed legislation will eviscerate the time-honored Pickett standard.  If enacted, the legislation will unsettle the New Jersey insurance market by equating bad faith with simple negligence, thus making bad faith claims commonplace in most first-party cases.  In the interest of maintaining a stable insurance market in New Jersey, the proposed legislation should not be adopted.

Sedgwick Attorneys
Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. For a complete list of our attorneys, click here.
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