Kentucky Court Finds Insurer Did Not Commit Bad Faith in Delaying UM Benefit Payment Until Medicare Lien Was Determined

Posted on April 24, 2012 by Aaron French

Summary: Claimant brought action against automobile insurer alleging insurer acted in bad faith for delaying payment of his claim for uninsured motorist (UM) benefits until determining the exact amount of the Medicare lien. The appellate court held the insurer did not act in bad faith by waiting to determine the amount of the Medicare lien before paying the UM benefits.

Wilson v. State Farm Mutual Automobile Insurance Company, 795 F. Supp. 2d 604

The claimant was a passenger in a vehicle insured by State Farm when it was involved in a collision with another vehicle. The driver of the other vehicle was at fault and uninsured. As a result of the accident, claimant had significant medical bills, some of which were paid by Medicare. The insurer agreed that claimant was due uninsured benefits up to the policy limits of $50,000.

The insurer attempted to determine the value of Medicare’s lien and asked for permission to discuss the lien with Medicare. The claimant refused the request and instead asked the insurer to deposit the full policy limits into an escrow account from which the Medicare lien would be paid. The claimant agreed to hold the insurer harmless from any claim by Medicare; however, Medicare was not involved in and not bound by this agreement. As an alternative, the insurer suggested including Medicare as a payee on the settlement check. Claimant also rejected this request. Finally, the insurer decided to await Medicare’s determination of the value of the lien and then issue separate checks to Medicare and plaintiff.

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This Policy’s Ambiguous, So Let’s Have a Trial. On Second Thought …

Posted on March 27, 2012 by Tim Sansone

Summary: A severe flood struck Cedar Rapids, Iowa in 2008, damaging the insured’s manufacturing facility and impacting its business operations, leading to claims of property damages exceeding $35 million and business interruption losses exceeding $26 million. Two insurers equally shared responsibility for payment of claims under the same insurance policy. They paid only $20 million, contending the policy’s flood sublimits had been reached. The insured then filed a first-party claim for breach of contract and bad faith. After the insured rested its case at trial, the U.S. District Court for the Northern District of Iowa directed a verdict against the insured on the bad faith claim. Then after the insurers rested their case, they won a directed verdict on the breach of contract claim. The Eighth Circuit affirmed.

Penford Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 662 F.3d 497 (8th Cir. 2011)

The insured, a producer of starch for the paper industry and gasoline-additive ethanol, had a plant sitting on a 29-acre parcel occupying three different flood zones designated A, B, and C. In 2008, the insured bought flood insurance from the National Flood Insurance Program and additional insurance from the two insurers. Though losses of up to $300 million were covered under the policy, specific sublimits capped the insurers’ exposure depending upon the specific peril. The flood peril sublimit was $50 million “per occurrence and annual aggregate,” which was further limited by specific flood zone sublimits for the insured’s plant: $10 million in Zone A and $10 million in Zone B.

On June 13, 2008, the Cedar River breached a dike system surrounding the plant, eventually cresting 12 feet higher than the previous record set in the 1920s. The flood extensively damaged the insured’s plant and shut down operations. In the following months, the insured and its insurers disagreed regarding what losses were subject to the flood sublimits, whether payments were made timely, and how much was due under the policy.

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Eighth Circuit Finds No Bad Faith by Primary Insurer Under Missouri Law in Insurer Versus Insurer Dispute

Posted on March 9, 2012 by Aaron French

Summary: This case is a dispute between an excess and primary insurer, both of whom insured a trucking company whose tractor trailer was involved in a fatal traffic accident. The parties injured in the accident sued the trucking company and obtained a jury verdict, which exposed the excess carrier to a $17 million liability. The excess carrier sued the primary carrier alleging bad faith for failing to settle the underlying claim within the policy limits. The district court granted primary insurer’s Motion for Summary Judgment and the Eighth Circuit affirmed.

American Guarantee and Liability Insurance Company v. United States Fidelity & Guaranty Company; TIG Insurance Company, Eighth Circuit (No.-10-2275)

The primary insurer insured the trucking company under a policy with limits of $5 million. The primary policy was a fronting policy. Fronting policies are policies in which the insured’s deductible is equal to the policy limits. A fronting policy protects the public in the event the insured entity becomes insolvent. These policies are frequently used by trucking companies to stay self insured while still complying with the financial responsibility laws in the state in which they operate. In this case, the insured agreed to indemnify the primary insurer in the event the primary insurer paid any amounts payable under the policy. The insured secured its indemnity obligation with $187 million in collateral which could be drawn upon in the event that the insured became insolvent or bankrupt, which is what happened.

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What a Mess! — Insurer Has No Right to Jury Trial to Determine if Settlement Between Its Insured and Claimant Was Reasonable

Posted on March 6, 2012 by Aaron French

Summary: After the insurer denied a settlement demand for the $2 million policy limits, the insured, a plumbing contractor, and the land owner plaintiff (“claimant”) reached a settlement agreement for approximately $3.75 million. The trial court judge determined that the settlement was reasonable. The insurer appealed arguing it had a right to a jury trial on the issues of reasonableness and that the reasonableness finding was supported by substantial evidence. The appeals court affirmed.

Bird v. Farmers Insurance Exchange, 260 P.3d 209 (Wash.App. 2011)

The claimant’s next door neighbor contacted the insured, a plumbing contractor, to repair a leaking sewer line. The insured’s employee, without claimant’s consent, went on to claimant’s property and cut claimant’s pressured sewer line. When the claimant returned home from work, his system cycled on and engulfed him in an explosion of sewage, which caused him to fall and crack his elbow. The claimant later learned that the insured’s employee had cut the sewer line and he demanded that the insured fix the line. The insured attempted to repair the line.  However, over the next 8 months, sewage continued to escape from the line and to cause extensive damage to the residence. The claimant then removed contaminated soil from his lot.  The claimant attributed his subsequent heart attack to the physical labor undertaken during the soil removal. Moreover, to determine the full extent of the damage, the claimant hired a geotechnical engineering firm, contractors, and others. Eventually, a retaining wall estimated to cost approximately $850,000 had to be installed due to instability problems in the hillside water-front property.

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Evidence Suggesting Substandard Claims Handling Supports South Dakota Statutory Vexatious Awards

Posted on February 23, 2012 by Anthony Martin

Summary: Cindy Tripp and Andrea Bjornestad suffered injuries in separate car accidents. Each settled with the at-fault driver and then sought underinsured motorist benefits from their own insurance companies each of which offered to settle for less than the UIM limits and less than the value placed on the UIM claim by the company’s adjustor. After separate juries denied the tort-based bad faith claims, separate district court judges ruled that the carrier’s refusal to pay the amount demanded by the insured was “vexatious or without reasonable cause” and awarded statutory attorney fees. The Eighth Circuit affirmed.

Tripp v. W. Nat’l Mut. Ins. Co., #10-3759 (8th Cir. Dec. 29, 2011)
Bjornestad v. Progressive N. Ins. Co., #10-3733 (8th Cir. Dec. 29, 2011)

Cindy Tripp was involved in a car accident against an underinsured motorist. After pursuing her claim against the UIM, she notified her insurance company that she would be presenting a UIM claim. She had $250,000 UIM coverage with Western National Mutual Insurance Company (Western National) but sought UIM payments of $150,000. The tortfeasor’s insurance company settled with Tripp for $87,500 of the $100,000 liability limit. Under South Dakota law that was deemed the “best settlement” which could be reached and was all that was necessary in order to preserve her UIM claim. Because Tripp and Western National stipulated that that was the best settlement offer, Western National got credit for the tortfeasor’s full $100,000 liability limit reducing Tripp’s UIM claim to the balance of her UIM limits, $150,000. Western National offered only $10,000.

Thereafter she filed breach of contract and bad faith claims. The jury awarded her the full amount she sought, the $150,000 balance left on her UIM coverage. However, the jury verdict was in favor of Western National on the first party common law bad faith claim. Even so, the U.S. district judge awarded attorney’s fees to Tripp in the amount of $65,000 after finding that Western National’s failure to pay the $150,000 was vexatious or without reasonable cause within the meaning of South Dakota’s statute, S.D. Codified Laws § 58-12-3.

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Florida Appeals Court Refuses to Enter a Conditional Judgment Awarding Attorney’s Fees

Posted on December 28, 2011 by Aaron French

Summary: Insured motorist and his wife brought action against their insurer seeking underinsured motorist (UIM) benefits. After the trial court entered judgment in favor of the insureds, the insurer appealed. The appeals court affirmed but denied the insureds’ motion for appellate attorney’s fees. The appeals court, sitting en banc, granted the insureds’ motion for re-hearing on the denial of appellate attorney’s fees. The court of appeals held it could not enter a conditional judgment awarding appellate attorney’s fees contingent on the insureds subsequently prevailing on a bad faith claim.

Government Employees Insurance Company v. King, 68 So. 3d 267

Insured was driving a car when it was struck from behind by another vehicle. The liability insurance company for the other vehicle settled the claim of insured and his wife for its policy limits. Subsequently, the insured and his wife filed claims for UIM with Government Employees Insurance Company (GEICO). GEICO did not settle the UIM claims. The insured filed suit against GEICO. Ultimately, a jury returned a verdict in favor of the insured for approximately $1,588,000 and in favor of his wife for $50,000. The UIM limits were $25,000 per person.

Because the trial involved only a claim for UIM benefits under the insurance contract, the judgment on appeal was not a judgment for the full amount of the jury’s verdict, but rather a judgment based on the $25,000 in insurance coverage. After oral argument on appeal, the three judge panel determined that there was no reversible error and affirmed without a written opinion. The three judge panel denied the insureds’ motion for attorney’s fees because the judgment did not involve a denial of coverage and the insured’s proposal of settlement before the trial had been in the amount of $100,000, which was an amount in excess of the $25,000 policy limits.

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Insurer Did Not Commit Bad Faith in Denying Worker’s Comp Claim

Posted on November 16, 2011 by Aaron French

Summary: Worker’s compensation insurer filed dispute as to whether claimant’s compensable injury included right carpal tunnel syndrome, a wrist sprain/strain, and tendonitis. Following a contested case hearing with the Department of Worker’s Compensation, it was found that evidence of causation was insufficient to establish claimant’s injuries were work related. Claimant filed a bad faith action against the worker’s compensation insurer and its claims examiner for denying her claims. After the lower court granted summary judgment in favor of the worker’s compensation insurer, the Court of Appeals affirmed, holding that worker’s compensation insurer’s claims examiner did not act in bad faith by filing a dispute asserting that claimant’s compensable injury did not extend to carpal tunnel syndrome, wrist strain/sprain or tendonitis.

Aleman v. Zenith Insurance Company, 343 S.W.3rd 817 (Tx. App. 2011)

Rita Aleman (“claimant”) was employed as a packer by an automotive parts manufacturer.  Zenith Insurance provided worker’s compensation insurance for claimant’s employer.  Claimant filed an injury report alleging she had suffered an on-the-job injury to her right hand.  Claimant’s employer immediately referred her to a doctor who diagnosed her with a right wrist sprain and right tenosynovitis.  Claimant also visited a chiropractor who diagnosed her with a wrist sprain/strain and carpal tunnel syndrome.

Zenith handled claimant’s condition as a compensable but it continued to investigate the claim.  As part of the investigation, Zenith’s claims examiner took claimant’s statement and spoke with her employer about claimant’s duties.  Claimant’s supervisor refuted claimant’s claim she packaged 600 orders a day as the entire packaging department packaged only 160 to 165 orders per day.  Zenith and its claims examiner also reviewed the available medical information.  Claimant stated she was still in pain five to six weeks after the date of the injury and that was inconsistent with tendonitis or tenosynovitis according to the medical disability advisor.  Also, an MRI did not reveal any soft tissue swelling or tendon damage in the right wrist.  Zenith also consulted numerous peer reviewed medical studies which led it to conclude that claimant’s work activities would not have caused carpal tunnel syndrome.

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Is It Bad Faith to Delay the Pay? Federal Court in Pennsylvania Says No

Posted on November 9, 2011 by Aaron French

Summary: Uninsured motorist filed a bad faith action against his automobile insurer for failure to pay underinsured motorist (UIM) benefits. Insurer moved for summary judgment and district court held that insurer’s delay in paying UIM benefits did not constitute bad faith.

Rossi v. Progressive Insurance, 2011 WL 1565848 (M.D.Pa. 2011)

On January 5, 2007, the insured, Rossi was involved in an automobile collision with McGroarty. Rossi was insured by Progressive, and his policy provided UIM coverage with a limit of $30,000. The insured turned his car left across on-coming traffic lanes and collided with McGroarty’s vehicle. Both liability and the insured’s damages were hotly contested, which resulted in extensive discovery. Approximately two years after being provided notice of insured’s UIM claim, Progressive forwarded a $30,000 settlement draft to the insured’s attorney. Progressive paid the $30,000 policy limits approximately one year after the insured had filed a bad faith action against it.

Under Pennsylvania law, an insurer has a duty to act in the “utmost good faith towards its insured.” Pennsylvania courts have defined bad faith as “any frivolous or unfounded or refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self interest or ill will; mere negligence or bad judgment is not bad faith.” Under Pennsylvania law, a plaintiff must prove bad faith by clear and convincing evidence.

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Clearly Written Exclusion Defeats Contract and Bad Faith Claims

Posted on October 24, 2011 by John Sandberg

Summary: “Use” is an easily understood word that includes both intentional and accidental actions such that any use of an illegal drug triggered the exclusion.

Sonja Skinner v Guarantee Trust Life Insurance Company, 2011 WL 1598787 (S.D.Ohio)

In this United States District Court case the plaintiff’s husband died while insured under an accidental death and dismemberment insurance policy issued by defendant Guarantee.  The dispute was whether the husband’s death was excluded by a provision of the policy that excluded deaths resulting from taking narcotics, amphetamines or other stimulants without a prescription.  The decedent died of methadone intoxication.  He did not have a prescription for methadone but the wife did and the wife argued that her husband accidentally took the methadone pills in the middle of the night thinking it was his own prescription medication.  The plaintiff contended that the exclusion of the use of methadone only included voluntary or intentional acts of consuming and did not include the accidental use of methadone.

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One Reasonable Basis for Denying Coverage Defeats Bad Faith in Iowa

Posted on October 17, 2011 by Anthony Martin

Summary: Pella Corporation, an Iowa company, was a defendant in two class action cases in Illinois. Those cases alleged that Pella’s windows were defectively designed and manufactured. Liberty Mutual filed a declaratory judgment action in Iowa federal court contending it owed no coverage. The District Court ruled that Liberty Mutual had a duty to reimburse Pella’s defense costs, but denied Pella’s bad faith denial of coverage claim. The Eighth Circuit affirmed the bad faith ruling on appeal.

Liberty Mutual Insurance Co. v. Pella Corp., 650 F.3d 1161, (8th Cir. Iowa) 2011 W.L. 3611485

Pella found itself a defendant in Illinois state and federal court class action cases alleging that Pella defectively designed and manufactured windows which resulted in damage to those windows.  The plaintiffs in the underlying cases alleged multiple theories of recovery.  Liberty Mutual denied coverage, but entered into an apparent cost-sharing agreement with Pella’s pre-2001 carriers to pay portions of the defense costs.  Thereafter, it filed a declaratory judgment action contending that it had no duty to reimburse Pella.

The Eighth Circuit reviewed several arguments Liberty Mutual raised in support of its coverage denial.  The Eighth Circuit held that several of Liberty Mutual’s positions were not supported by the policy language and controlling authorities.

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