bad faith insurance coverage

Copyright 2007. All rights reserved.

Bad Faith, Insurance Coverage & Current Issues

Impacting Insurance Defense

Presented byPatricia L. Dodge and Ronald L. Hicks, Jr.


Discussion Topics

I. Identifying Bad Faith Tort, C/A & Damages I. Identifying Bad Faith Tort, C/A & Damages

II. Negotiation & Settlement Techniques II. Negotiation & Settlement Techniques

III. Legislation Issues & Current Laws III. Legislation Issues & Current Laws

IV. Litigating an Insurance Claim IV. Litigating an Insurance Claim

V. Avoiding Bad Faith Claims V. Avoiding Bad Faith Claims


Bad Faith Tort, C/A & Damages


Bad faith applies to both first party & UM/UIM insurance claims.

No different or heightened duty of good faith exists in the UM/UIM setting.

A. First Party & UM/UIM ClaimsA. First Party & UM/UIM Claims



Bad faith = “Any frivolous or unfounded refusal to pay proceeds of a policy.”

Bad faith includes failure to investigate the facts and failure to communicate with the insured

Found at 42 Pa.C.S.A. §8371; does not define “bad faith.”

1. PA Statutory Bad Faith Claim1. PA Statutory Bad Faith Claim



Bad faith does not mean fraudulent.

Bad faith = dishonest purpose; means breach of known duty through motive of self-interest or ill will.

Mere negligence or bad judgment is not bad faith.



§8371 does not apply to claim of wrongful refusal to renew insurance.

§8371 does not apply to claim for wrongful cancellation of insurance.

§8371 limited to wrongful denial of claim or refusal to pay benefits.



§8371 claim is not dependent upon resolution of underlying breach of contract claim.

§8371 claim can be successful if breach of contract claim fails for procedural reasons.

§8371 claim is separate, independent claim.

§8371 claim cannot be insured’s sole claim.



First element is governed by objective analysis; reliance not necessary.

Bad faith must be proven by clear and convincing evidence.

Two elements: Lacks reasonable basis for denying benefits & Knows or recklessly disregards lack of reasonable basis.

2. Elements PA Statutory Bad Faith2. Elements PA Statutory Bad Faith

§8371 applies throughout claim mgmt.



Hayes and Hollock cases are instructive on what courts find as constituting bad faith.

Bad faith includes asking for unnecessary amount of personal information before honoring claim.

§8371 encompasses a broad range of insurer conduct.

3. Types of Bad Faith Conduct3. Types of Bad Faith Conduct



Bad faith does not if denial is caused by insured’s own conduct.

Bad faith does not exist when reasonable basis to deny claim can be found, even if not relied upon at time of denial.



Discovery violations alone do not equate to bad faith.

Bad faith includes conduct during litigation if done with dishonest purpose.



“Insurer” means only an insurance company.

“Insurer” does not include agents, adjusters, contractors, self-insured entities or loss adjustment companies.

§8371 claim can be pursued only against an “insurer.”

4. Who Is An Insurer?4. Who Is An Insurer?

“Insurer” may be more than one insurance company.



§8371 applies equally to third party claims.

Third party cannot bring a §8371 claim absent assignment.

B. Third Party ClaimsB. Third Party Claims

Judgment creditor can bring a §8371 claim if permitted by policy.



1. Negligence/Fraud Claims

2. Breach of Contract Claims

C. Related Causes of ActionC. Related Causes of Action

3. UTPCPL Claims



Other

DistressInterest

Punitive

Fees

Figuring Out Damages

D. What to Consider When:



Physical injury required in order to recover emotional distress damages.

Restatement (Second) of Damages §353 permits recovery without bodily injury, but limited situations – not yet adopted in PA

Emotional distress damages are not available under §8371, but can be recovered for breach of contract for insurer’s bad faith.

1. Emotional Distress1. Emotional Distress



Interest at 6% legal rate awarded as a matter of right in breach of contract actions.

Interest at prime plus 3% awarded at court’s discretion in §8371 actions.

Recovery of prejudgment interest depends on nature of bad faith claim.

2. Interest2. Interest

Interest awarded at court’s discretion in UTPCPL actions.



Punitive damages are recoverable in §8371 actions at court’s discretion upon bad faith finding.

Punitive damages not recoverable in breach of contract actions for insurer’s bad faith.

3. Punitive Damages3. Punitive Damages

Punitive damages are recoverable in UTPCPL actions at court’s discretion.



Reasonableness must exist b/n amount and deterrence, tortuous act, plaintiff’s actual harm and defendant’s wealth.

Punitive damages have no proportional relationship to compensatory damages.



Ratio of punitive damages to actual harm – generally only single-digit ratio will pass muster.

Degree of reprehensibility of tortuous conduct

3. Punitive Damages – Campbell/Gore3. Punitive Damages – Campbell/Gore

Difference b/n punitive damages and civil penalties authorized in comparable cases.



Attorney’s fees cannot be recovered for breach of contract absent insurer’s bad faith.

Attorney’s fees are awarded at court’s discretion in §8371 actions.

PA follows the “American Rule.”

4. Attorney’s Fees and Expenses4. Attorney’s Fees and Expenses

Attorney’s fees are awarded at court’s discretion in UTPCPL actions.



No reported case on recovery of “Diagnostic v. Treatment” damages for insurer’s bad faith.

5. Other Damages5. Other Damages




Question & Answer Session


Negotiation & Settlement

II. Negotiation & Settlement TechniquesII. Negotiation & Settlement Techniques

1. Investigation of Liability & Damages

2. Available Insurance Coverage

A. Appraisal of Insurance ClaimsA. Appraisal of Insurance Claims

3. Other Relevant Issues




1. Joinder/Consolidation

2. Involvement of Neutral

B. Negotiation StrategiesB. Negotiation Strategies


Legislation & Current Laws


Objections can attack both the procedure and substance of the subpoena.

Failure to raise objections before or at the time of compliance may constitute waiver.


Legislation & Current Laws




Litigating An Insurance Claim

IV. Litigating An Insurance Claim IV. Litigating An Insurance Claim

PA state civil procedure rules mandate use of a timely motion for protective order.

Federal civil procedure rules permit not only a timely motion for protective order, but also written objections to document requests w/n 14 days of service or before compliance if less than 14 days.

Burden of proof is on you.


Litigating An Insurance Claim


IV. Litigating An Insurance Claim IV. Litigating An Insurance Claim


Avoiding Bad Faith Claims


A valid subpoena cannot be ignored.

Failure to comply with a subpoena may result in a contempt proceedings.

Contempt of a subpoena is generally punished by way of fine.


Avoiding Bad Faith Claims




Bad Faith, Insurance Coverage & Current Issues

Impacting Insurance Defense

Presented byPatricia L. Dodge and Ronald L. Hicks, Jr.


Learn About The Lawsuit

OpposingCounsel

Caption IssuingAttorney

Orders& Rules

Target

Information

What you need is:


Assess Risks

ResponseCosts

Relationship Costs

Party Costs

Other Lawsuits

Appearance Fees

Attorneys’ Fees

Copying Costs

Public Disclosure

Owens v. QVC (EDPA)

NMH v. Ashcroft (7th)

“Fishing Expedition”

MGM Studios v. Groskter (D.Del.)

Threat not proper obj.

Self-incrimination

Other privileges

Party’s private information

3rd PartyInformation

Trade Secrets


Procedural Defects

Fees &Mileage

PersonalService

100 MileRule

Issuing Signature Beyond Close

of Discovery

Who May Serve


Relevancy

Relevancy

Pertains toClaim or Defense

AdmissibilityUnimportant

Not Privileged

ReasonablyCalculated


Undue Burden

OtherMeans

UntimelyService Health

Issues

ExcessiveCosts

Overly Broad

Examples

What you need is:


Possession, Custody or Control

Actual possession or legal right to obtain documents on demand.

“Practical ability” to demand = ability to enforce compliance with demand.

“Possession, custody or control” is coextensive with other discovery rules.


Unreasonable Response Time

Unreasonable response time is a matter of the court’s discretion.

“Fails to allow reasonable time for compliance” is a stated grounds to quash under Fed.R.Civ.Proc. 45(c)(3)(A).


Trade Secrets

It is rare that a federal or state court subpoena is quashed on the basis of trade secret or confidential information.

Fed.R.Civ.Proc. 45(c)(3)(B)(i) authorizes the quashing of a subpoena to prevent disclosure of trade secrets and confidential information. The rule is not absolute.


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Self-Critical Analysis

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