Claims and Bad Faith Law Blog

Florida "Totality of the Circumstances" Not Always a Jury Question.

   When I was composing the headline for this post, the alternative I had in mind goes something like this:

 Florida Judges to Florida Injury Lawyers:  Communicate When they Initiate.

   The two concepts at work here are (1) that in Florida, Third-Party Insurer Bad Faith depends on what the Courts call "the totality of the circumstances" and (2) that following the general rule (which they may have started, back in the day), Florida Courts require that the Liability Insurer must "initiate settlement negotiations" in certain cases, such as where in basic terms the Insured's liability is clear and the Injured party's damages are great.

   This combination has led to advice in the past that (1) every Bad Faith case in Florida, or almost every one, goes to a Jury to decide (and Juries supposedly do not like Insurance Companies) and (2) all a lawyer for an Injured party has to do is not respond when the Insurance Company initiates settlement negotiations, as if the Insurance Company's inability to complete a settlement is going to be viewed by a Judge or Jury the same as if the Insurance Company did not initiate settlement negotiations in the first place.  That is old thinking.

   The most recent result in which a Judge rejects this out-of-date approach is in Download Barnard v. GEICO General Insurance Co. (N.D. Fla. Case No. 5.10cv213, Order Filed May 25, 2011) PUBLIC ACCESS, also published as 2011 WL 2039560 (N.D. Fla. May 25, 2011)(authorized password required to access Westlaw).  In that case, the issue of "a consolidated third party insurance bad faith action" depended on whether there were genuine issues of material fact that the Liability Insurance Company Defendant initiated settlement negotiations and, secondly, kept its Insured informed in accordance with Florida Bad Faith Law.

   Under Florida's "totality of the circumstances" approach to deciding liability for Insurer Bad Faith, the Federal Judge wrote the following holding on what might be called the 'totality' of the record evidence whether the Liability Insurance Company Defendant initiated settlement negotiations;

    In the instant case, it is undisputed that Defendant tendered the full policy limits to [Injured Claimant's Attorney], eleven days after the accident occurred. Defendant subsequently attempted to contact [him] sixteen times over the next six months, with no response from [him]. Defendant also delivered a second check for the policy limits when the first check expired after six months without being cashed. It is clear that Defendant made every attempt to settle the claim for the policy limits, despite [the Injured Claimant Attorney's] inexplicable evasive behavior. For an attorney to refuse to respond to attempts to contact him for months at a time is outrageous and unprofessional. As noted in the comment to Florida Rule of Professional Conduct 4–3.2, “[d]ilatory practices bring the administration of justice into disrepute,” and “[r]ealizing financial or other benefit from otherwise improper delay in litigation is not a legitimate interest of the client.”  Thus, Plaintiff cannot now use her own attorney's poor behavior to claim bad faith on the part of Defendant.

Barnard v. GEICO General Insurance Co., 2011 WL 20394560 at * 3.

   On the second issue, whether the Liability Insurance Company kept its Insured informed in a way that complied with Florida Law, the Federal Court held that "[i]n addition to immediately tendering its policy limits and attempting to settle the claim, Defendant actively kept its insured notified of what was happening with the claim."  Id.

   The Federal Court entered Summary Judgment for the Defendant in that case accordingly.

The duty to initiate settlement negotiations, including when and whether evidence of the Claimant's Attorney's conduct is considered by Courts addressing that question, is discussed by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:16 (Third Edition, West Publishing Co.), and in § 3:13 of the Second Edition and 2010 Supplement (Shepard's/McGraw-Hill Second Edition; 2010 Supplement West Publishing Co.).

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Praying for Florida's New Attorney General.

   Prayers are being said for Florida's new Attorney General, Ms. Pamela Bondi.  A Baptist Minister from Orlando says:

I find it very disturbing that she's elected statewide to represent the interests of Floridians, be they Democrats, Republicans or independents.  She is not really interested in Floridians.  You don't get to office to represent your party.  You get into leadership so you can make a difference for people.

Quoted by Mary Shanklin, "Mortgage-Principal Reductions / Ministers' Goal:  Change Bondi's Mind" p. B2, col. 1 (Orlando Sentinel, Thursday, May 26, 2011), published online under the headline, "Church Leaders:  Bondi Siding With Wall Street."

   May 26th was the first day of unceasing prayer that Ms. Bondi may "'stop siding with the banks' in negotiating a large mortgage-fraud settlement."  Id.

   Amen.

This follows the post here on Thursday, May 19, 2011, "Florida's New Attorney General Banks on Class War."

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"The Sacred Bargain" of Life and Death Benefits: Institutional Bad Faith?

... Can There Be Such a Thing as "Institutional Bad Faith"?  See also the posts here on Sunday, May 22, 2011 and on Tuesday, May 3, 2011.

Calling Life Insurance "the sacred bargain," California State Controller John Chiang described the actions of one Life Insurance Company which sells both annuities and Life Insurance Policies this way:

"They have a business-based rationale for their practices instead of a consumer-based approach to fulfill their promises."

  Quoted by Marc Lifsher, "California Officials Grill MetLife Over Alleged Failure to Pay Death Benefits" (Los Angeles Times Online, Tuesday May 24, 2011).

   Some Life Insurance Companies sell annuities.  These are payments made by the Insurance Companies during the life of the purchaser of an annuity, in basic terms.  The Life Insurance Company checks the Social Security rolls to learn when the holder dies.  At that time, the Company stops paying the annuity.

   Some of the same Life Insurance Companies sell, well, Life Insurance Policies.  These are of course payments made by the Life Insurance Companies upon the death of the Policyholder.   The same person may hold an annuity and of course the Company knows of that person's death.  Moreover, the same Company that checks the Social Security rolls to learn when an annuity holder dies, also either knows or has the means readily at hand to know, when a Life Insurance Policyholder dies.

   However, when a Life Insurance Policyholder dies, the Life Insurance Companies do not make payment on the Life Insurance Policies to the beneficiaries.  Even though they know in some cases that the Policyholder has died and the beneficiaries are entitled to be paid.  Nonetheless, even with this knowledge, these Life Insurance Companies reportedly do not pay unless and until the beneficiaries also know that the Policyholder is dead and make a claim on the Life Insurance Policy proceeds.

   This dual-track way of handling annuity claims differently from Life Insurance Claims strikes State Insurance Commissioners as worth investigating.  The Florida Office of Insurance Regulation held a Hearing into the practice on May 19, 2011 and, in a coordinated effort, the California Insurance Commissioner held a similar Hearing on May 23, 2011, joined by the California State Controller Mr. John Chiang, quoted above.  (Unfortunately, these things were already publicly reported and so were public knowledge before the first Hearing was held.)  The net result is what I have just posted and, in addition, the National Association of Insurance Commissioners has convened a joint task force to also investigate the practice.  The Insurance Commissioners of both California and Florida are on the NAIC task force.  See generally Press Release of National Association of Insurance Commissioners, "Regulators to Review Life Insurance Payment Practices," May 17, 2011;  Marc Lifsher, "California Officials Grill MetLife Over Alleged Failure to Pay Death Benefits / State Controller John Chiang and Insurance Commissioner Dave Jones Ask Whether the Life Insurer is Boosting Profits by Delaying or Failing to Pay Death Benefits Quickly Enough to Hears or to Search Aggressively for the Beneficiaries" (Los Angeles Times Online, May 24, 2011).

   Time will tell what comes of these coordinated investigations.  And in particular, whether any Court will be moved by whatever further facts may be developed, to entertain future claims and causes of action based on alleged "institutional Bad Faith" by Life Insurance Companies which engage in these practices currently under investigation.

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Shareholders Keep Management Liability Option for Gulf Coast, Deepwater Horizon.

   In a development sparked by Swiss law, the Shareholders of Transocean rejected "a proposal that would have absolved the company's directors and top management from liability for the contract driller's 2010 activities," including the Gulf Coast Deepwater Horizon matter.  See Ryan Dezember, "Transocean Holders Vote to Keep Management Liable for Gulf Spill" p. B3, col. 1 (Wall Street Journal, Thursday, May 19, 2011)(no hyperlink has been made available on the Wall Street Journal's website as of the entry of this post).

   Although the Shareholders' vote is described as not unprecedented, the last time such a routine absolution proposal came before the Transocean Shareholders, in May, 2011 concerning 2009 operations, it was approved by a margin of 32-to-1.  See id.

   Clearly, the Shareholders of Transocean are impressed by the potential extent of their management's liability exposure.  Further, two Shareholder suits against Transocean have already been filed in Texas as a result of the Gulf Coast Fiasco, it is reported.  See id.

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UPDATE: Life Insurance Carriers Targets of Investigation From Florida to California.

   This entry updates a post here on May 3, 2011.

   The Florida Insurance Commissioner was scheduled to hold a day-long hearing on this issue on Thursday, May 19, 2011.  This issue was initiated by investigations from Coast to Coast concerning whether Life Insurance Carriers are failing to pay death benefits to beneficiaries under Life Insurance Policies they issued despite their institutional knowledge of policyholder deaths in some or many instances.  Expectations ran high and potential topics of discussion are explored by Robert Trigaux on Venture Blog, a St. Petersburg Times Business Blog Online, posted Thursday, May 19, 2011.

   Time will tell whether and what expectations were met that day.

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Florida's New Attorney General Banks on Class War.

     Florida Attorney General Pam Bondi is against asking banks to reduce the amount of principal owed on underwater houses.

   Is she also going to oppose sandbags and plywood during hurricane season?

Beth Kassab, "Bondi Should Embrace Lower Principals" p. B5, col. 1 (Orlando Sentinel "Business" Section, Wed., May 18, 2011).

   Florida Attorney General Pamela Bondi is one of 50 Attorneys General in negotiations with Banks and their Mortgage Servicers to settle government claims and lawsuits involving allegations of fraud by the Banks and their Mortgage Servicers in foreclosure proceedings against homeowners.  Ms. Bondi took the position in these negotiations with the Banks and Mortgage Servicers.  See Mary Shanklin, "Bondi Opposes Home Bailouts" p. A1, col. 4 (Orlando Sentinel, Monday, May 16, 2011).

   Here, that does not help Florida Homeowners in Foreclosure.  It does, however, help Banks and their Mortgage Servicers.  Not only do Florida Homeowners become more likely to default rather than pay what they can afford to pay, but as readers of this space know, the Banks and Mortgage Servicers have been burdening Mortgage Insurance Companies with their claims to payment once the Mortgagor-Homeowner is not able to pay the Mortgage any longer.

   The Banks and their Mortgage Servicers are not from Florida, the Homeowners are.

   It is worth recalling that the goal of taking mortgage reductions "off the negotiating table" is not to combat "moral hazard".  If that was the goal, then the announced position would be 'no mortgage reductions for proven frauds'.  No, that is not what Ms. Bondi said.  She said no mortgage reductions for anyone in a home in Florida.  See, e.g., in addition to the above newspaper reports:  David McLaughlin, "BofA Said to Target Individual States in Foreclosure Inquiry" (Bloomberg. com, April 28, 2011); Robert Schmidt & Tom Schoenberg, "Four Attorneys General Say Foreclosure Deal Terms May Cause 'Moral Hazard'" (Bloomberg.com, March 23, 2011).

   So who is Pamela Bondi that she announced this position at this time?

   Little is known, publicly, about her.  What is known is sparse apart from the positions she announces from time to time.  A person's priorities sometimes reveal who they are as a person.

   It is known that she and her boyfriend flew to Las Vegas, Nevada four (4) days after she was sworn in, to attend a birthday party for her personal lawyer's ex-boss.  See Mary Ellen Klas, "Incoming Attorney General Pam Bondi's Vegas Trip:  Duty or Conflict?" (The Miami Herald Online, Saturday, November 13, 2010).  Her boyfriend is a doctor.

   It is also publicly known that she took over a lawsuit in February, 2011.  The lawsuit was filed awhile before by whistle blowers who sued Bank of New York Mellon for fraud allegedly committed against Florida Taxpayers.  In February, a Notice filed by her office advised the Court that they would be filing a new Complaint against the Bank soon in that case.  See, e.g., Carrick Mollenkamp & Lingling Wei, "Suit Alleges Mellon Created Fake Trades, Overcharged" (Wall Street Journal at WSJ.com, February 4, 2011); Sydney P. Freedberg, "Florida Investigating Charges That Bank Defrauded State's Pension Fund" (St. Petersburg Times Online, February 4, 2011).

   As of May 18, 2011 so far as is known to newspapers and reporters who report on such things, no such Complaint has been filed, yet.

   We really know only a little about Pamela Bondi aside from her publicly announced position papers.  The St. Petersburg Times online-accessible archives on politically oriented stories about her, begins at about the time that she ran for office in 2010.  She had never run for office before.  It seems that she never came to the attention of a newspaper reporter reporting on politics before she decided to run for attorney general.  After she decided to run, we learned that she switched parties and she said that she forgot why.

   She was a registered Democrat from 1984 to July 21, 2000.  That date was one week after her boss, State Attorney Harry Coe and a Democrat, died.  His chief Republican challenger, Mark Ober, then handily won the election and became Ms. Bondi's boss.  "Despite those dramatic events, Bondi said she could not recall why she became a Republican when she did."  Steve Bousquet, "GOP Attorney General Candidate Pam Bondi Has Democratic Roots" (St. Petersburg Times Online, July 13, 2010).

   We know less about her, in short, than we knew about Jessica Lynch, a person she resembles, actually.

   Her political story, at least, reportedly begins with a political operative who called her from a phone in a parking lot.  He urged her to run for office.  The experienced politician, so the reported story goes, had previously been employed by one Rudolph Giuliani when he, Mr. Giuliani, was told to run for political office.  See Colleen Jenkins, "Bondi's Rise to Attorney General Began With One Man's Idea" (St. Petersburg Times Online, November 7, 2010).  Soon she could be seen as a 'legal analyst' on Fox Television.  See id.

   Another thing that is publicly known about her is the dog story.  I will put that story on a split post, extending this entry for that story.  It is true, so far as I know having tracked down several sources for it, but it may not necessarily reflect on the kind of lawyer who negotiates on behalf of other people by announcing that she will not even ask, she will not negotiate at all, for what may be in some cases in the best interests of the State of Florida, her clients.

   Conclusion:  You Make The Call.

   So, then, you decide:  Why should Florida's A.G. declare that poor people living in Florida should not even think about having their mortgages reduced while she is in office?

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California Fire Coverage Exclusion, Summary Judgment on Good Faith.

   In Download Bishara v. Century Surety Co. (C.D. Cal. Case No. EDCV 09.01745, Order Filed April 6, 2011) PUBLIC ACCESS, also published as 2011 WL 1334406 (C.D. Cal. April 6, 2011)(authorized password required to access Westlaw), three rulings in particular deserve to be highlighted.  This is a case in which the Insurance Company issued a Policy which provided Coverage for loss  by Fire, but in which the Insurance Company denied all Coverage under an Exclusion for loss or damage caused by or resulting from a dishonest or criminal act by or on behalf of the Insured, among other provisIons.

   The Federal Court applied California Law and granted the Defendant Insurance Company's Motion for Summary Judgment of Good Faith, holding in pertinent part:

1. The Court held that the Exclusion was properly applied by the Insurance Company to deny all Coverage, carefully pointing out that in doing so, "the Court does not opine or make any findings as to whether Swidan actually set fire to the Restaurant.  Rather, the Court finds only that the uncontroverted evidence satisfies Defendant's burden of demonstrating there is an absence of evidence establishing Defendant breached the Policy" by denying Plaintiff's Coverage Claim.  Bishara v. Century Surety Co., 2011 WL 1334406 at *9.
2. As there was no Coverage, there could be no Bad Faith in this case under California Law, the Federal Court concluded.  Id. at *10.
3. Even if there could be a legally cognizable Bad Faith Claim in this case, said the Federal Court, California law would still impel the grant of Summary Judgment to the Insurance Company because of the California "genuine dispute" rule.  In this case, the Insurance Company relied on the Report of an Expert as to the cause of the Fire Loss in question before the Insurance Company denied all Coverage for the Fire Loss.  Under the California "genuine dispute" rule, Coverage may be genuinely disputed on the basis of "'a single, thorough report by an independent expert'".  Id. at *11.  So it was in this case.

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Fair Dealing in Purchase of Curricula, Professors: A Duty Ignored?

   The Koch Brothers Foundation gives Florida State lots of money and gets the right to control who is interviewed to teach in the Business School, and apparently to 'add' some course material there.  See Kris Hundley, "Billionaire's Role in Hiring Decisions at Florida State University Raises Questions" (St. Petersburg Times Online, Tuesday, May 10, 2011).  

   Another billionaire gives lots of money to different colleges and becomes a professor at one school, even as he conditions control over the curriculum on his giving money to another school or schools.  His condition?   That greed without remorse be taught as a class, some would say.  Regardless, his condition is this:  No prescribed training, no money.  See Seth Lubove & Oliver Staley, "Schools Find Ayn Rand Can't Be Shrugged as Donors Build Courses" (Bloomberg.com, Thursday, May 5, 2011).

   In short, if these colleges want their money, they will allow the money givers to control the content of the classes and who teaches them.

 This is not the same as wanting a say in the hiring and firing of your alma mater's football coach.  See Catherine Rampell, "Buying Influence at Universities" (Economix Blog, New York Times Online, posted May 12, 2011).  For one thing, this is not extracurricular activity.  It is curricular, and it goes to the core of the curriculum.

  Further, it goes to the core of Fair Dealing:  If the love of money is the root of all evil, then what of these colleges that love money so well that they actually say that their academic freedom has not been compromised?

   Even Judas saw what his thirty pieces of silver bought, and, having seen, he returned the money.

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Good Faith in Florida, One Claim at a Time.

   In Download United Auto. Insurance Co. v. Estate of Levine ex rel. Howard (Fla. 3d DCA Case No. 3D09.3234, Opinion Filed March 30, 2011) PUBLIC ACCESS, also published as 2011 WL 1135518 (Fla. 3d DCA March 30, 2011)(authorized password required to access Westlaw), a two-Judge majority on a three-Judge panel clarified, or changed, the law of Good Faith and Fair Dealing in cases involving multiple claims and injured claimants.

   Mr. Jose Hernandez was insured by United Auto Insurance Company.  The auto policy contained a "$10,000 bodily injury limit," United Automobile Insurance Co. v. Estate of Levine ex rel. Howard, 2011 WL 1135518 at *1, "with an aggregate limit of $20,000, as well as $10,000 of property damage."  Id.

   Mr. Hernandez, with one Ruben Soto as his passenger, "drove his flatbed truck into an automobile driven by [Miami-Dade Circuit Judge] Stephen D. Levine.  Levine and his passenger, Lourdes Maldonado, were killed."  Id.  UAIC's adjuster identified four potential claims against UAIC's insured, Mr. Hernandez, and settled two of them pretty quickly:  Soto's Bodily Injury Claim and the Maldonado Estate's Wrongful Death Claim.  The Trial Court excluded all evidence of these settlements in a Bad Faith Case filed on behalf of the Levine Estate, which did not settle its claims against Mr. Hernandez with UAIC.  One issue on appeal was whether evidence of these settlements should have been admitted.

   The Third District majority began by reviewing the issue as an evidentiary one, i.e., whether "the trial court's exclusion of the evidence" was an "abuse of discretion" which meant that in order to reverse on this ground, the appellate court would have to conclude that the Trial Court's exclusion of the evidence was "'arbitrary, fanciful, or unreasonable'" in this case.  Id. at *2.

   To their credit, the two-Judge majority did not answer this question as simply a review of whether a Trial Court properly declined to admit evidence.  Instead, they considered that in Florida, Liability Insurers have been instructed to take special steps to initiate settlement negotiations in cases rendered special because they involve multiple injured claimants with claims resulting from a single accident.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:40 ("Multiple Claimants") (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement, § 3:45 in Third Edition in process).

   The majority in this case clarified the law of Insurance Good Faith and Fair Dealing, or rewrote it depending on your approach to the question.  The majority affirmed the exclusion of the evidence that UAIC had settled the claims held by claimants other than the Levine Estate, namely, by the Maldonado Estate and by Mr. Soto, because in essence even where there are multiple injured claimants injured in a single accident the law still requires that Liability Insurers of tortfeasors approach each claim as though it were the only claim:

   Neither the statute nor any reported case requires or even permits such detours [to examine and cross-examine the participants in the settlement of other claims resulting from a single accident]....  In short, the focus is on the insurer's reasonable assessment of "a" claim against its insured.  In this case, "the" claim upon which the statutory bad faith claim was based was the Levine estate's claim against Hernandez.  For these reasons, we find no error in the trial court's exclusion of evidence regarding UAIC's resolution of the separate Maldonado estate and Soto claims against Hernandez.

Id. at *3.  The majority took note of what it termed the "essence of UAIC's claim in this case, though not directly articulated," that the Levine Estate's lawyers set it up for Bad Faith.  The majority noted also that this question was the subject of furious debate in the Florida Bar Journal, for example.  Id. at *5.

   How and why UAIC thought that it was "set up" for Bad Faith in this case is the subject of the next post.

To be continued .....

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Florida Attorney's Fees, Contingent Judgments, Bad Faith, and Settlement Proposals.

   In Download Government Employees Insurance Co. v. King (Fla. 2d DCA Case No. 2D09.4742, en banc Opinion Filed 05.06.11) PUBLIC ACCESS STATED NOT FINAL, also published as 2011 WL 1709825 (Fla. 2d DCA May 6, 2011)(en banc)(authorized password required to access Westlaw), the entire Florida Second District Court of Appeal came to the same conclusion on rehearing.  Unfortunately, its opinion was not entirely transparent.

   The Court dealt a blow to the practice of Trial Courts entering "contingent judgments" and of Florida Appellate Courts approving them -- although the Second District had previously approved the practice and in this case, did not define exactly what it had in mind when it wrote about "contingent judgments".  It is clear from the context of the decision, however, that what the Court had in mind in this case was the practice by which Trial Courts have entered Judgment for Insurance Policy Limits, reserved jurisdiction to determine attorney's fees and costs at a later time, and proceed thereafter to "conduct a hearing on attorneys' fees" even though there was no determination of "bad faith and there was no legal basis at the time of the judgment for an award of fees."  Id. at *2.  [Emphasis added.]  Apparently the "contingency" of the attorney's fees Judgment was that the Plaintiffs would prevail on a claim that would entitle them to attorney's fees.  See id.

   In this UIM Case, the Court had previously affirmed a Judgment entered, not for actual damages sustained, but for the amount of the UIM Policy Limits, i.e.,  "based on the $25,000 in insurance coverage."  Id. at *1.  Since there was no denial of the Insurance Coverage, and since the proposal of settlement was in an amount greater than the judgment obtained and on appeal, the original Second District panel denied the Plaintiffs'-Appellees' motion for appellate attorney's fees.  Id. at *1.

   In the course of the underlying case, the Plaintiffs had "each made a proposal for settlement in the amount of $100,000."  Id.  The Plaintiffs argued that the Second District should allow the entry of a "contingent judgment" for appellate attorney's fees if they should later prove entitlement to them.

   The Second District, well, demurred.  It certainly declined to agree with the Plaintiffs' position but it left open the possibility that the Trial Court might award appellate attorney's fees if the Trial Court determined that they were recoverable damages in an action for Bad Faith.  The Court held:

The damages in a bad faith action involving underinsured motorist coverage are specified in section 627.727(10), Florida Statutes (2009)[unchanged in the official 2010 publication].  If attorneys' fees for this appeal are an element of damages under the language of that statute, an issue we do not decide today, those damages are awardable under section 627.727(10), not under section 768.79 [the Florida settlement proposal or offer of judgment statute, also unchanged in the official 2010 publication].  It is the finder of fact in the subsequent lawsuit that is entitled to determine the amount of those fees.   We are aware of no legal authority granted to this court or the trial court to predetermine those fees for the trier of fact in the subsequent lawsuit.

Id. at *3.

   In sum and in substance, the en banc Second District Court of Appeal (1) disapproved the entry of judgments in an amount certain, contingent on the party seeking attorney's fees later proving that it is entitled to attorney's fees and (2) held that only Fla. Stat. § 627.727(10) governs the awardability of attorney's fees if the Plaintiff prevails in a Bad Faith action, not Fla. Stat. § 768.79, the settlement proposal/offer of judgment statute.  The whole of the en banc panel agreed with these legal conclusions, withheld its approval of any "contingent judgment" for the appellate fees in this case, granted rehearing to the extent of the above substituted holding, and denied the Plaintiffs'-Appellees' motion for appellate attorney's fees.  Id.

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Pennsylvania Insurance Company's "Right to be Wrong" on Likely Damages: ...

... Evaluating Damages in Good Faith.

   "They brought two claims:  breach of contract and bad faith."  Download Rossi v. Progressive Insurance (M.D. Pa. Case No. 3.09CV876, Memorandum Order Filed April 25, 2011) PUBLIC ACCESS, also published as 2011 WL 1565848 (M.D. Pa. April 25, 2011)(authorized password required to access Westlaw).  "They" are Mr. and Mrs. Alan and Laura Rossi.  They are the Policyholders on a Progressive Policy that provides Underinsured Motorist Coverage in accordance with its terms.

   Among the terms is of course the universally followed rule of Underinsured Motorist Coverage that the Underinsured Tortfeasor must in fact be "underinsured" in relation to the Policyholders' Damages.  Based on the Damages information submitted to Progressive in this case, the Federal Court concluded that Progressive could reasonably conclude that the likely Damages did not invade UIM Coverage at all, id. at *4, even assuming that "liability and causation issues" were to be determined in the Policyholders' favor.  However, the UIM Tortfeasor's Liability Insurer, Allstate, settled with Progressives' Policyholders for $131,567.82 or $31,567.82 above the $100,000.00 limit on Allstate's Liability Policy.  "Of this amount, $31,567.82 is described as costs and fees."  Id. at *7.

   Under the circumstances of this case, the Federal Court in Pennsylvania granted Progressive's Motion for Summary Judgment on the Bad Faith Claim.  That Claim was brought under the Pennsylvania Bad Faith Statute, 42 Pa. C.S.A. § 8371 because in Pennsylvania there is no Bad Faith Cause of Action in a case like this UIM case, unless that statute applies.

   The Federal Court's opinion in this case reads like a primer on Pennsylvania Statutory Bad Faith Claims.  It is significant to potential parties and to practitioners outside of Pennsylvania to note that many of the points summarized by the Federal Court are generally held applicable in other jurisdictions in cases of Third-Party or Liability Insurance Company "Bad Faith" Claims.  The Court summarized that Pennsylvania Statutory Bad Faith Claims have the following features:

1. The Insurance Company in Pennsylvania "'assumes a fiduciary status by virtue of the policy's provisions which give the insurer the right to handle claims and control settlement.'"
2. "'Bad faith' ... is any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent.'"
3. To constitute actionable Bad Faith, the Insurance Company's conduct must show "'a dishonest purpose,'" "self-interest or ill will; mere negligence or bad judgment is not bad faith.'"
4. Bad Faith can be shown when the Insurance Company "'did not have a reasonable basis for denying benefits under the policy and ... the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.'"
5. Bad Faith can include the Insurance Company's investigation.
6. Moreover, "conduct that violates the Unfair Insurance Practices Act may rise to the level of bad faith."
7. The Insurance Company's duties of Good Faith  continue "during the pendency of the litigation."
8. And, finally, "[t]he plaintiff must prove bad faith by clear and convincing evidence."

Id. at *9-*10.

   In this case, the evidence showed the District Judge that "Progressive continued its investigation in an objectively reasonable manner, even if it did not move as quickly as [its Policyholder] would have liked."  Id. at *10.  The available proof on damages led to an objectively verifiable conclusion that the likely damages would not exceed the UIM Tortfeasor's available Liability Coverage in this case, even if in fact the damages settlement did  exceed that limit:  "However, considering the lack of evidence that Rossi's injuries would exceed the amount covered by McGroarty's [the UIM Tortfeasor's] policy, the pace and scope of Progressive's investigation does not suggest bad faith."  Id. at *11.

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Louisiana Federal Court Applies Florida Law, Determines Refusal to Defend.

   In the Multidistrict Litigation case of In re FEMA TRAILER FORMALDEHYDE PRODUCTS LIABILITY LITIGATION, 2011 WL 381616 (E.D. La. January 25, 2011)(authorized password required to access Westlaw), a Federal Court in Louisiana was confronted with a Declaratory Judgment Action or DJA.  On the surface, the action would determine whether Northfield Insurance Company had a duty to defend its Policyholder, North American Catastrophe Services, Inc. ("NACS"), in an underlying lawsuit filed after Hurricanes Katrina and Rita passed through Louisiana in 2005.

   NACS was a broker "between FEMA and modular-home manufacturers in acquiring emergency housing units".  The units allegedly were loaded with formaldehyde fumes.  NACS was sued as a result.  Northfield had previously issued a Commercial General Liability Insurance Policy to NACS.  NACS demanded a defense from Northfield.  Northfield refused to defend NACS in the underlying litigation.  Id. at *1.

   As noted, Northfield had already denied any duty to defend NACS.  Although NACS's DJA was about the Northfield CGL Policy language, an affirmative determination of Northfield's duty to defend would also determine that its refusal to defend was wrongful and thus generally subject Northfield to the potential risk of so-called "bad faith" or extracontractual damages.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 3:46-3:59 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement, Third Edition scheduled for publication in June, 2011).

   The underlying Plaintiffs alleged injuries that "were caused by formaldehyde fumes".  Id. at *6.  Under Louisiana's choice-of-law rules, Florida law would apply to the Insurance Coverage issue in this case, the Louisiana Federal Court held.  Id. at *9.

   The Northfield CGL Policy had a Total Pollution Exclusion and formaldehyde was inarguably an excluded pollutant.  Under Florida law, the Total Pollution Exclusion in Northfield's CGL Policy was unambiguous and applied to exclude all Coverage to NACS here, the Federal Court held:

   Based on Louisiana's choice of law provisions and prior jurisprudence, Florida law should be applied to the insurance contract at issue.  Under Florida law, it seems clear that the total pollution exclusion unambiguously excludes coverage for these claims.  See Deni Associates, 711 So. 2d 1135, 1138 (Fla. 1998)(finding the total pollution exclusion to be clear and unambiguous).  Thus, because Plaintiffs['] alleged injuries were caused by formaldehyde fumes, the Northfield policy does not apply, based on the Total Pollution exclusion located therein.  The exclusion should be enforced as written and coverage is precluded.

Accordingly, the Federal Court in this case denied NACS's Motion for Partial Summary Judgment on the Duty to Defend, and granted Northfield's Motion for Summary Judgment.  Id. at *9-*10.

   This lawsuit is not the only effort to resolve formaldehyde issues in FEMA Trailers left in Louisiana.  See also "Push is on to Rid Louisiana of FEMA Trailers" (Claims Journal Online, March 14, 2011).

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Life Insurance Carriers Targets of Investigations From Florida to California.

   With the headline, "Are Some Life Insurers in Florida Purposely Avoiding Paying Out On Policies of Deceased?", Robert Trigaux of the St. Petersburg Times Venture Blog poses this question based on reports of investigations by State Regulators from California to Florida:

If this is true, it's one of the more despicable schemes out there. Florida and other states are investigating whether some of America's largest life insurers are failing to ensure that they pay out on policies of deceased customers.

Robert Trigaux, Venture Blog, posted April 28, 2011.  The source of the story?  The Wall Street Journal.  Investigation confirmations reported in the Blog from the Florida Office of Insurance Regulation (Florida Department of Insurance) and from another report in the Wall Street Journal. 

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Can There Be Bad Faith in Reimbursement Claims Against Insureds?

     In American Modern Home Insurance Co. v. Fahmian, 2011 WL 1334959 (Cal. 4th DCA, Div. 3, April 8, 2011) a California District Court of Appeal affirmed and directed awards to American Modern Home Insurance Company which include reimbursement from its Policyholder, Mr. Fahmian, whom it defended in an underlying lawsuit.  The reimbursement award included $300,000 paid by American Modern to settle the underlying lawsuit on behalf of Mr. Fahmian and his business; fees and defense expenses "that the trial court determines are reimbursable under the terms of the policy," i.e., that were not covered by the policy;  plus prejudgment interest.  Id. at *10.

     The California Appellate Court applied what it called these "binding" rules concerning reimbursement claims and causes of action by liability insurance companies against their policyholders and other insureds:

Under binding California Supreme Court authority, an insurance company may obtain reimbursement from its insured for a policy limits settlement, when it is determined the underlying claim was not covered by the policy, if the insurance company (1) made a timely and express reservation of rights, (2) provided express notification to the insured of the insurer's intent to accept the proposed settlement offer, and (3) made an express offer that the insured could assume its own defense.  In this case, American Modern did all of the foregoing.  We decline to add any additional requirements.

 Id. at *1.

   The "additional requirement" that the California Appellate Court did not add in this particular case was a requirement added by the Trial Court in denying American Modern's claim for reimbursement against Mr. Fahmian.  The Jury in that case found as a fact, and the Trial Judge incorporated that finding into his ruling, "that Fahmian did not have sufficient time to make a reasoned reply to American Modern."  Id.

   Some practitioners have wondered whether there can be Bad Faith and Unfair Dealing issues where a Policyholder or other Insured -- and perhaps the Liability Insurance Company as well -- is presented with a situation like this, in which as a matter of fact the Insured "did not have sufficient time to make a reasoned reply to" their Liability Insurance Company.  The case law has not yet addressed this issue to my knowledge.

   The American Modern Home Insurance Co. v. Fahmian decision is the subject of a post I wrote for the Defense Research Institute Official Blogger at www.dri.org (no password or registration required to access it).  The case has also received comments at the "Insurance Coverage" Group on LinkedIn (registration believed to be required for access to www.linkedin.com).

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