Claims and Bad Faith Law Blog

"ANTI-ASSIGNMENT CLAUSES" CAN BAR PARTICULAR OREGON BAD FAITH CLAIMS.

After a liability carrier denied all coverage under several liability policies including any duty to defend and any duty to indemnify, the policyholder settled the underlying claims which had been made against it.  As a part of the settlement, the policyholder assigned all claims against its liability carrier to the underling plaintiff, a condominium association.

The underlying plaintiff sued the carrier as the policyholder's assignee for alleged breaches of contract and of the covenant of good faith and fair dealing.  The carrier defended on the ground, among others, that its liability policies at issue contained provisions which the Oregon Court of Appeals named "anti-assignment clauses, which provide that [the policyholder] cannot assign any rights or claims under the policy without defendant's consent."  Clinton Condos. Owners Ass'n v. Truck Ins. Exch., 282 Or. App. 484, 485, 385 P.3d 1279, 1280 (Or. Ct. App. 2016).

The trial judge granted the defendant liability carrier's motion for summary judgment on the basis of this "anti-assignment clause."  The Oregon Court of Appeals affirmed.

Apparently, an alleged breach of this policy provision is a good defense to at least some extracontractual claims in Oregon as a result of judicial interpretation and application of an Oregon statute including in this case.  The Oregon statute has been held to validate only an assignment of a bad-faith failure-to-settle claim, and then only when an excess judgment has already been entered.

In this case, there was no excess judgment at the time of the assignment, of course.  The assignment in this case was written as a part of a settlement which never went to judgment.  Therefore, the Oregon trial and appellate courts ruled, the assignee had no standing to sue; the assignment was invalid.  Clinton Condos. Owners Ass'n v. Truck Ins. Exch., 282 Or. App. 484, 485-87, 385 P.3d 1279, 1280-81 (Or. Ct. App. 2016).

The net effect of this statutory interpretation is that in Oregon, an assignment of bad faith claims (at least against a liability carrier) is valid only after an excess judgment and then only when the bad faith claim that is assigned is a bad-faith-failure-to-settle claim.

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CARRIER'S BAD FAITH DISCOVERY ENDS WITH OPENING BAD FAITH FILE?

In an alleged third-party-bad-faith-in-settlement case, the defendant liability carrier raised a defense under Florida law that it had no realistic opportunity to settle before the underlying suit was filed against its insured.  On the theory that all discussions on settlement were discoverable under the Florida "totality of the circumstances" standard, the carrier sought discovery from the date of the accident through the date of the underlying judgment:

Further, [the liability carrier] claims it made multiple efforts to communicate with Plaintiff's counsel after litigation was initiated and evidence of those communications supports its defense that there was no realistic opportunity to settle. 

Soricelli v. GEICO Indemnity Co., No. 8:16–cv–1535–T–30TBM, 2017 WL 275967, at *2 (M.D. Fla. January 20, 2017) (McCoun, USMJ).

The carrier served a subpoena duces tecum on its insured's attorney in the underlying case, in part here pertinent.  A U.S. Magistrate Judge granted the lawyer's and the policyholder's objections in part, and denied their objections in part, ruling:

[The lawyer] is ORDERED to produce for copy and inspection all correspondence, emails, records documenting telephone calls, and documents memorializing telephone conversations between [the lawyer] and [the defendant liability insurance carrier] regarding settlement of the underlying accident from October 10, 2009 [which was apparently the date of the accident], through January 17, 2011, the date [the defendant liability insurance company] created its extra-contractual file.³ 

Soricelli v. GEICO Indemnity Co., No. 8:16–cv–1535–T–30TBM, 2017 WL 275967, at *3 (M.D. Fla. January 20, 2017) (McCoun, USMJ).

Why 'through the date that the defendant opened its bad faith file'?  It is not clear, exactly, but the Magistrate Judge wrote his reasoning in a footnote.  The footnote reads in its entirety as follows:

3. Certainly, by this date at least GEICO anticipated a bad faith action and communications up to that date may reasonably relate to the claims and defenses in this suit.

Soricelli v. GEICO Indemnity Co., No. 8:16–cv–1535–T–30TBM, 2017 WL 275967, at *3 n.3 (M.D. Fla. January 20, 2017) (McCoun, USMJ).

If these communications were requested by the policyholder from the carrier, it would make sense to cut off discovery of them as of the date that the carrier anticipated litigation and opened its bad faith file.  The work product immunity from discovery might apply then.

But, respectfully, it makes no sense to cut off the carrier's discovery of these communications from the policyholder's attorney as of the date that the carrier opened its bad faith file.

It is theoretically possible that the entire range of communications on settlement from the accident through the underlying judgment fits the totality of the circumstances standard of bad faith, extracontractual liability, but it is difficult at best to understand how discovery of communications on settlement must end, not on the date the suit was filed where as here the bad faith claims were apparently based on failure to settle before the underlying suit was filed, but instead must end on the date that the carrier opened a bad faith file.  What if the carrier had never opened a bad faith file?  Under a ruling that discovery of settlement communications ends when the carrier opened its bad faith file, does that mean that if the carrier never opened its bad faith file, that it could have discovered all settlement communications through the date of the underlying judgment after all?

Time will certainly tell whether and how this ruling stands in this case, and how it may be applied in future cases.

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PREEMPTION RUN AMOK: FLOOD INSURANCE BAD FAITH CLAIM HANDLING IMMUNITY.

After his property insurance claims for Superstorm Sandy damage were denied in part, a property owner sued his flood insurance carrier, insurance adjusters and investigators, and others for alleged bad faith in handling the property owner's claims.  The property owner sued in part under the Racketeer Influenced Corrupt Organizations Act.

The defendants defended with a motion to dismiss based at least in part on a contention that they didn't do it, but if they did, they are immune anyway.  Unfortunately for the property owner, as it turns out, the National Flood Insurance Program apparently immunized every other cause of action for bad faith claim handling.  His lawsuit was addressed by the Eastern District of New York.  Melanson v. U.S. Forensic, LLC, 183 F.Supp.3d 376 (E.D.N.Y. 2016).

The District Court held that this was a case of first impression.  That means that the answer to the question of immunity was open to the Judge.  To be clear, the question of immunity from RICO liability here was whether there is immunity under the National Flood Insurance Program or not, for bad faith handling of claims which may otherwise be actionable under federal flood insurance policies.

A related question following from that one is whether any such immunity extends beyond the flood insurance carrier to investigators and adjusters and the other parties that the property owner alleged were parties to the alleged bad faith handling of his property claim.

The District Court's answer was "immunity."  For all.  The Court essentially ruled that the NFIP immunizes every other cause of action for bad faith claim handling, so it must immunize RICO causes of action too.  Melanson v. U.S. Forensic, LLC, 183 F.Supp.3d 376, 390-93, 395 (E.D.N.Y. 2016).

Assuming that this decision stands, it raises further questions.  This question is among the rest raised by this decision:  Will every federal statute which addresses insurance confer immunity for insurance bad faith claim handling?  And another question like it:  Will this mean immunity in every case regardless of the facts of any case?

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PATIENCE, PEOPLE. CLAIMING SUBROGATION RIGHTS PREMATURELY IN PENNSYLVANIA: BAD FAITH?

In Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637 (W.D. Pa. January 13, 2017), a U.S. District Judge in Pennsylvania held just like the title of this article says:

    In this declaratory judgment/bad faith action, the Plaintiff insureds sue their own insurance company, claiming that the insurer has jumped the gun by concretely stating/threatening to begin the pursuit of a subrogation claim before the Plaintiffs have resolved their own coverage claims with the insurer Defendant, and certainly before the Plaintiffs have resolved their excess/uninsured claims with the underlying tortfeasor. They also pile on a “bad faith” claim, asserting that the carrier's concretely stated intention to proceed with its subrogation claim now is “bad faith” entitling them to damages. The Defendant carrier responds with a Motion to Dismiss [ECF No. 7] the whole case, relying on its reading of Pennsylvania law for the conclusion that there is no problem with it proceeding with subrogation full steam ahead right now, and because it is allowed to do that, there can be no bad faith. The Motion to Dismiss will be denied without prejudice.

Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637, at *1 (W.D. Pa. January 13, 2017).  The reason that the first-party insurance company's motion to dismiss was denied, including as to the policyholders' bad faith claim, was due in part to Pennsylvania law which does not look at the "make whole doctrine" in quite the same way as the Defendant insurance company:

[T]he Pennsylvania appellate courts are not nearly as certain as the Defendant is as to the reach and scope of the “make whole” rule. In Professional Flooring Co. v. Bushar Corp., 2016 WL 7105899, *7-9 (Pa. Super. Dec. 6, 2016), the Pennsylvania Superior Court did not limit the reach of the “make whole” rule to those circumstances in which the underlying tortfeasor had insufficient assets to cover both the subrogation claim and the claim by the tort victim for excess/uncovered losses. In reality, it stated both that the “make whole” rule was the law of the Commonwealth, and that it had no such limitation. Id.

    In light of the above, the Court concludes that it would be improvident to dismiss the declaratory judgment claim at this point in the proceedings. Further, in light of the matters set forth above, the Court at this juncture is not in a position to conclude that as a matter of law, the “bad faith” claim is wholly lacking in merit, and the Motion to Dismiss as to that claim will likewise be denied, without prejudice.

    The Defendant shall answer the Complaint on or before February 8, 2017.

Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637, at *2 (W.D. Pa. January 13, 2017).

          So, until your jurisdiction definitively rules to accept, or to reject, the doctrine that subrogation cannot lie until the "subrogor" (in insurance cases, the policyholder/insured) is made whole, then asserting subrogation rights before their time may lead to an unwanted bad faith claim.  Patience, people.  There is plenty of time to assert subrogation rights later.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

RESPA TECHNICAL VIOLATION: "THE LIGHTS WERE ON THE WHOLE TIME."

RESPA, the Real Estate Settlement Procedures Act, requires lenders and servicers to provide information in response to borrowers' letters or other "Qualified Written Requests."  12 U.S.C. § 2605(e).  However, the statutory duty to respond does not include a duty to respond to every inquiry.

There are actually only two types of written requests that trigger a statutory response:

Rather, the statute covers only written requests alleging an account error or seeking information relating to loan servicing....  So a qualified written request can't be used to collect information about, or allege an error in, the underlying mortgage loan.

Perron ex rel. Jackson v. J.P. Morgan Chase Bank, N.A., No. 15-2206, 2017 WL 104466, at *4 (7th Cir. January 11, 2017).

Mr. Perron and Ms. Jackson sent several written requests to Chase for information about their mortgage.  Chase serviced the Perron-Jackson note and mortgage.  As noted above, "RESPA requires mortgage servicers to correct account errors and disclose account information when a borrower sends a written request for information."   Perron ex rel. Jackson v. J.P. Morgan Chase Bank, N.A., No. 15-2206, 2017 WL 104466, at *1 (7th Cir. January 11, 2017).

Even in those two instances, RESPA does not require a reply when the borrowers already have the information.  In this case, Mr. Perron and Ms. Jackson already had the information in Chase's past replies to their past written requests for information.  There came a time when Chase did not provide all the information it had already provided, when Chase was faced with responding to the most recent Perron-Jackson written request.

Perron and Jackson sued Chase for damages for failure to comply with RESPA, in pertinent part, including alleged damages for wrecking their marriage.  The District Court granted Chase's motion for summary judgment.  On appeal, the Seventh Circuit Court of Appeals affirmed because none of the damages they alleged -- including their divorce -- was caused by Chase's noncompliance with RESPA in this instance, and the damages simply were not substantiated with record evidence sufficient to raise a genuine issue of material fact:

    But of course Perron and Jackson already knew that information; the bank had supplied it in earlier correspondence. So even if Chase's response fell slightly short of full compliance as a technical matter, the couple cannot show that they suffered any actual damages “as a result of” any failure to comply with RESPA response duties. § 2605(f)(1)(A).

* * *

Simply put, Perron and Jackson weren't harmed by being in the dark because the lights were on the whole time.

Perron ex rel. Jackson v. J.P. Morgan Chase Bank, N.A., No. 15-2206, 2017 WL 104466, at *4 (7th Cir. January 11, 2017).

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

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FLORIDA POLICYHOLDER'S CONDUCT RELEVANT TO BAD FAITH. SO IS HER LAWYER'S.

A Federal District Judge followed settled Florida law in ruling that a Florida policyholder's conduct is relevant to her claims of bad-faith-failure-to-settle.  And that her lawyer's conduct is relevant too:

Opinions Regarding Anderson's and Her Counsel's Motives

    Plaintiffs anticipate that [the defendant liability carrier] will attempt to elicit opinions about [the underlying plaintiff's-policyholder's] and her counsel's motives and beliefs to the extent that they “set up” a bad faith claim. For example, Plaintiffs state that certain witnesses may testify that [the underlying plaintiff and policyholder] secretly hoped [the defendant liability carrier] would not accept her settlement offers so she could pursue a bad faith case. Or that [her] counsel intentionally withheld certain medical reports in an attempt to set up a bad faith claim. This issue has been squarely addressed by other courts in this district; specifically, in prior bad faith cases, the courts have ruled that evidence regarding the motive and conduct of the underlying plaintiff and her attorney is relevant and should not be prohibited as long as it is not purely speculative. 

Gonzalez v. GEICO General Ins. Co., No. 8:15-cv-240-T-30TBM, 2017 WL 39113, at *1-*2 (M.D. Fla. January 4, 2017).

Settled law in Florida.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

CAUSING BAD FAITH DAMAGES.

In a new decision, one of Florida's district courts of appeal understandably exonerated a liability carrier from causing an excess judgment, where the record displayed that the carrier did not act in bad faith and, even if it had, there was insufficient evidence that the carrier's conduct caused the excess judgment.

Then, exuberance apparently took over reason.  The same court exhumed a long-dead doctrine of proximate cause that where the victim contributes to the damage, the defendant is immune from liability regardless of any other evidence:

The record in this case shows that GEICO did not fail to meet any deadlines or other requirements established by the estate, as a requirement for settling the claim and avoiding the filing of a lawsuit against its insured. Also, where the insured's own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be liable for bad faith.

GEICO General Ins. Co. v. Harvey, No. 4D15–4724, 2017 WL 33659, at *5 (Fla. 4th DCA January 4, 2017) (emphasis by the Court; opinion released with this NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL).

Whether this once again becomes the law of Florida, or anywhere else, remains to be seen.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved. 

STAY! HOW JUDGES JUDGE, A CASE EXAMPLE FROM NORTHERN CALIFORNIA.

An officially unpublished opinion issued by the Northern District of California offers a case study in how judges judge.  And so the opinion offers a case study in how successful practitioners practice.

According to Westlaw and Keycite, the decision is not cited by any other court in any other case.  Officially unreported and uncited.  A perfect example for our case study of a decision which nobody but the parties and their lawyers were watching.  We may be the only other people to review this decision.  The lessons it offers to practitioners are potentially priceless.

The District Judge in Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584 (N.D. Cal. March 30, 2016) clearly followed established law in this opinion.  The judge's decision addressed Southwest Business Corporation's (SWBC's ) motion to stay a "putative class action" presenting lender force-placed insurance (LFPI) practices claims under a Second Amended Complaint.  Parenthetically, the court does not mention it in this opinion, but LFPI claims typically include alleged breaches of contract, breaches of fiduciary duties, and alleged "bad faith" claims usually including alleged breaches of the implied covenant of good faith and fair dealing.  So, SWBC's motion to stay the entire case may fairly be taken as a motion to stay these claims against all the defendants involved in the alleged practices involving insurance that was force-placed by a lender on a homeowner in this case.

SWBC filed motions to dismiss the original complaint and the First Amended Complaint before the Second Amended Complaint was filed.  Both previous times, the court granted SWBC's motion to dismiss.  Instead of filing a motion to dismiss the Second Amended Complaint, however, this time SWBC departed from its winning track record to file instead a motion to stay the entire case.

The judge approached SWBC's motion to stay with settled principles of law.  A motion to stay a case is discretionary with the trial judge.  As the court in this case summarized the law of stays, she or he is supposed to weigh the equities in the balance, evaluating the hardships on the party opposing the stay and on the party requesting the stay, and whether a stay would "simplify or complicate" the probable "issues, proof, and questions of law" that would result from a stay.  Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584, at *1 (N.D. Cal. March 30, 2016).  This last factor seems to mean, in reality, whether the court as well as the parties would be prejudiced.

So, there's the background of deciding a motion to stay a case.  Here is how the district judge decided the motion in this particular case.  Unreported, uncited, yet available to the public.  But now, perhaps, more available to the public than ever before.

By examining the four factors of discretion which this District Judge wrote about in deciding a motion to stay a case, I do not mean to suggest in any way that the judge's conclusions were wrong.  As for the particular decision in this case, right or wrong the judge's conclusions govern the outcome of course.  I mean rather to take a look at the different factors involved from a distance, so to speak.  It may be that in other cases, perhaps in the same jurisdiction or perhaps even on the docket of the same judge, other answers may be suggested.

1. "First, it is unclear to the Court how Plaintiff will be prejudiced by a stay." It is true that weighing a court's discretion whether to grant a motion to stay an action involves considering hardship to the party opposing the motion if the case was stayed.  That certainly appears to be the governing law in the Circuit where this case was decided.  The District Judge was following that law in this case.

However, is that the right question?  Shouldn't the question be instead whether the party requesting a stay has shown good cause for getting one? 

In some sense, every case can be stayed because a plaintiff will hardly ever be in a position to prove that it would "not be prejudiced" if its claims were stayed.  Except of course that the claims would never see a courtroom if this reasoning were carried to that extreme.

2. "Second, continuing this action against SWBC solely because Plaintiff wishes to obtain discovery from SWBC regarding another defendant would prejudice SWBC by requiring SWBC to devote resources to respond to plaintiff's discovery requests, which resources SWBC would otherwise not be required to devote."

The plaintiff opposed SWBC's motion to stay her entire LFPI practices case because the claims she alleged included claims she presented in that case against one Litton Loan Servicing, LP.  She pointed out that Litton "'is not a party'" to either one of two settlement agreements, one in New York and one in Florida, which SWBC urged as reasons for a stay of this case in California.  The effect of granting SWBC's motion to stay the case in California on the basis of two cases in other jurisdictions which did not involve Litton, would mean that the plaintiff's claims against Litton would not be subject to discovery.  Instead, they would be deferred in the California case.   Even though Litton was not a party to either one of the settlements pending in New York and in Florida at the time.

Note that it was SWBC, not Litton, that filed a motion to stay the Second Amended Complaint in California.

With all respect, "devotion of resources" to respond to discovery requests seems like a lame justification, on the face of it, to stay an entire case.  Candidly, every civil case involves the prospect of "devoting resources" to discovery, yet that is not a good reason to dismantle any case.  It ought not to be a reason to support a stay of any case, either.

Finally, why do you suppose that SWBC changed its winning ways from successfully filing motions to dismiss the LFPI claims against it in this case, to filing instead a motion to stay?  The difference of course is that if SWBC prevailed on yet another motion to dismiss the LFPI claims alleged against it, then in that event SWBC would be dismissed (perhaps, this time, with prejudice) but Litton Servicing would remain in the case.

On the other hand, after SWBC's motion to stay the case including against Litton was granted, the claims against Litton theoretically were still in place but they were going nowhere.  One wonders why the result of a motion for stay was "better" for SWBC than being dismissed from the California case yet again, perhaps this time with prejudice.

3. "Third, as Plaintiff herself admits, 'it would be inefficient to continue this litigation against [SWBC] pending the resolution of settlement proceedings'" in the cases in New York and Florida.

Perhaps this statement was taken out of context a little.  Or perhaps I misunderstand it.  If I understand it correctly, what the Plaintiff was saying is that it would be inefficient to grant the stay motion, effectively granting a continuance in the case, and not that it would be inefficient to deny the stay motion.

The court quoted another statement of the Plaintiff in a footnote:  "While 'Plaintiff does not concede that SWBC is released under the [Florida] settlement[,] ... for the purposes of this motion, Plaintiff does not oppose staying this case as to SWBC (with the exception of discovery relevant to Litton)....'"  Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584, at *2 n.1 (N.D. Cal. March 30, 2016).

This further statement may present a cautionary tale to practitioners.  The Plaintiff's attorneys were clearly attempting to offer a compromise in making this statement, yet this attempt may have been viewed instead as an "admission."

4. "Finally, as SWBC notes in its motion, 'if a legitimate need for discovery arises in the future ... [the Plaintiff] is free to present good cause to the Court for relief from the stay.'"

It is legitimate to ask, it seems, why should the party opposing a stay in the first place, be required as a matter of law to "present good cause" to lift the stay in the future?  Why should not the burden of proof, if proof is indeed involved, not be placed on the party that sought the stay in the first place, to keep it in place, as a matter of law?

The fact is, of course, that in this case as in many cases, practitioners will note how judges may judge, and therefore how practitioners may successfully practice.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

MISSOURI SCHOOL BUS DRIVER DOES NOT HAVE TO ARBITRATE BAD FAITH CLAIMS.

In Leonberger v. Missouri Utd. Sch. Ins. Council, 501 S.W.3d 1 (Mo. Ct. App., E.D., Div. 4, 2016), rehearing and/or transfer denied on June 30, 2016 and again on November 1, 2016 (unreported), a Missouri Court of Appeals held that a Missouri State Statute which bars mandatory arbitration clauses for insurance disputes applied to preclude arbitration of an original insured's alleged bad faith claims (bad faith in settlement, bad faith in defense) and alleged breach of fiduciary duty against his liability carrier and the liability carrier's reinsurance carrier as well.

Further, the Court followed established precedent and held that the Federal Liability Risk Retention Act did not preempt the Missouri State Statute:

Section 435.350 of the Missouri Arbitration Act prohibiting mandatory arbitration clauses in insurance contracts does not regulate Appellant's operation as a risk retention group.  (Citation omitted.) The purpose of Section 435.350 of the Missouri Arbitration Act is to regulate the business of insurance.  (Citation omitted.)  The Missouri statute was enacted for the purpose of regulating insurance in that it was designed to regulate the operation of an insurance contract.

Leonberger, 501 S.W.3d 1, under Point III—Preemption.

See in addition these articles posted on Insurance Claims and Issues Blog on

November 28, 2016, "Shh!  WELLS FARGO, INSURANCE CARRIERS, AND SECRET ARBITRATION," and on October 3, 2016, "ARBITRATION OF INSURANCE COVERAGE?"

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.