Bad Faith Insurance Coverage

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Bad Faith Insurance Coverage

  1. 1. Bad Faith, Insurance Coverage & Current Issues Impacting Insurance Defense Presented by Patricia L. Dodge and Ronald L. Hicks, Jr.
  2. 2. Discussion Topics I. Identifying Bad Faith Tort, C/A & Damages II. Negotiation & Settlement Techniques III. Legislation Issues & Current Laws IV. Litigating an Insurance Claim V. Avoiding Bad Faith Claims
  3. 3. Bad Faith Tort, C/A & Damages I. Identifying 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 Claims
  4. 4. Bad Faith Tort, C/A & Damages 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 Claim
  5. 5. Bad Faith Tort, C/A & Damages 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.
  6. 6. Bad Faith Tort, C/A & Damages §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.
  7. 7. Bad Faith Tort, C/A & Damages §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.
  8. 8. Bad Faith Tort, C/A & Damages 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 Faith §8371 applies throughout claim mgmt.
  9. 9. Bad Faith Tort, C/A & Damages 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 Conduct
  10. 10. Bad Faith Tort, C/A & Damages 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.
  11. 11. Bad Faith Tort, C/A & Damages Discovery violations alone do not equate to bad faith. Bad faith includes conduct during litigation if done with dishonest purpose.
  12. 12. Bad Faith Tort, C/A & Damages “ 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? “ Insurer” may be more than one insurance company.
  13. 13. Bad Faith Tort, C/A & Damages §8371 applies equally to third party claims. Third party cannot bring a §8371 claim absent assignment. B. Third Party Claims Judgment creditor can bring a §8371 claim if permitted by policy.
  14. 14. Bad Faith Tort, C/A & Damages 1. Negligence/Fraud Claims 2. Breach of Contract Claims C. Related Causes of Action 3. UTPCPL Claims
  15. 15. Bad Faith Tort, C/A & Damages Other Distress Interest Punitive Fees Figuring Out Damages D. What to Consider When:
  16. 16. Bad Faith Tort, C/A & Damages 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 Distress
  17. 17. Bad Faith Tort, C/A & Damages 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. Interest Interest awarded at court’s discretion in UTPCPL actions.
  18. 18. Bad Faith Tort, C/A & Damages 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 Damages Punitive damages are recoverable in UTPCPL actions at court’s discretion.
  19. 19. Bad Faith Tort, C/A & Damages 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.
  20. 20. Bad Faith Tort, C/A & 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/Gore Difference b/n punitive damages and civil penalties authorized in comparable cases.
  21. 21. Bad Faith Tort, C/A & Damages 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 Expenses Attorney’s fees are awarded at court’s discretion in UTPCPL actions.
  22. 22. Bad Faith Tort, C/A & Damages No reported case on recovery of “Diagnostic v. Treatment” damages for insurer’s bad faith. 5. Other Damages
  23. 23. Bad Faith Tort, C/A & Damages I. Identifying Bad Faith Tort, C/A & Damages Question & Answer Session
  24. 24. Negotiation & Settlement II. Negotiation & Settlement Techniques 1. Investigation of Liability & Damages 2. Available Insurance Coverage A. Appraisal of Insurance Claims 3. Other Relevant Issues
  25. 25. Negotiation & Settlement II. Negotiation & Settlement Techniques 1. Joinder/Consolidation 2. Involvement of Neutral B. Negotiation Strategies
  26. 26. Negotiation & Settlement Question & Answer Session II. Negotiation & Settlement Techniques
  27. 27. Legislation & Current Laws III. Legislation Issues & 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.
  28. 28. Legislation & Current Laws Question & Answer Session III. Legislation Issues & Current Laws
  29. 29. 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.
  30. 30. Litigating An Insurance Claim Question & Answer Session IV. Litigating An Insurance Claim
  31. 31. Avoiding Bad Faith Claims V. 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.
  32. 32. Avoiding Bad Faith Claims Question & Answer Session V. Avoiding Bad Faith Claims
  33. 33. Bad Faith, Insurance Coverage & Current Issues Impacting Insurance Defense Presented by Patricia L. Dodge and Ronald L. Hicks, Jr.
  34. 34. Learn About The Lawsuit Opposing Counsel Caption Issuing Attorney Orders & Rules Target Information What you need is:
  35. 35. Assess Risks Response Costs Relationship Costs Party Costs Other Lawsuits Appearance Fees Attorneys’ Fees Copying Costs Public Disclosure Owens v. QVC (EDPA) NMH v. Ashcroft (7 th ) “ Fishing Expedition” MGM Studios v. Groskter (D.Del.) Threat not proper obj. Self-incrimination Other privileges Party’s private information 3 rd Party Information Trade Secrets
  36. 36. Procedural Defects Fees & Mileage Personal Service 100 Mile Rule Issuing Signature Beyond Close of Discovery Who May Serve
  37. 37. Relevancy Relevancy Pertains to Claim or Defense Admissibility Unimportant Not Privileged Reasonably Calculated
  38. 38. Undue Burden Other Means Untimely Service Health Issues Excessive Costs Overly Broad Examples What you need is:
  39. 39. 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.
  40. 40. 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).
  41. 41. 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.
  42. 42. Privileges Quality Review Tax Preparer Accountant Attorney-Client & Work Product Sarbanes-Oxley Investigation Self-Critical Analysis

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