Legal Updates for Coverage and Bad Faith

Edited by Allison Krupp, Esq.

No coverage for wrongful death claims under umbrella policy since bodily injury occurred to an insured.   

Charles v. USAA, No. 7106 of 2016 (Luzerne Cnty. C.C.P. March 3, 2017)

The plaintiffs filed a declaratory judgment action against the defendant insurer, seeking a declaration regarding the applicability of a personal umbrella policy to wrongful death claims asserted by the decedent’s children against the decedent’s husband, who was the owner of the policy. USAA denied coverage under the umbrella policy due to a policy exclusion for the bodily or personal injury to any insured. The court considered the parties did not dispute that the language of the exclusion was unambiguous and did not challenge the notion that the decedent was an insured under the policy. Thus, the exclusion applied. The plaintiffs also argued that they had suffered emotional harm due to their mother’s death, which is recoverable pursuant to the wrongful death statute. However, because the plaintiffs did not allege physical injury resulting from the emotional harm, the claim was not covered. Thus, the plaintiffs’ motion for summary judgment was denied, and USAA’s motion was granted.   

Can't sue reinsurers under the bad faith statute.

Three Rivers Hydroponics, LLC v. Florists’ Mutual Ins. Co., et al., 2:15-cv-00809 (W.D. Pa. Feb. 8, 2018)

In this breach of contract/bad faith action, the plaintiff alleged that a component of its hydroponic ozone system exploded, caught fire and damaged the plaintiff’s crops located in its commercial greenhouse. There were two relevant contracts at issue: an insurance policy issued by Florists’ Mutual Insurance Company and a reinsurance agreement between HSB and Florists, in which HSB agreed to reinsure Florists for equipment breakdown claims under Florists’ policies and maintained the right to investigate those claims. The plaintiff claimed that HSB had breached its duties owed to the plaintiff under both contracts. HSB argued that it was not in privity with the plaintiff under either contract, and, therefore, the plaintiff could not establish the elements for breach of contract. The plaintiff argued that Florists had assigned its duties under the policy to HSB, in which HSB assumed a contractual duty to the plaintiff, and that it was also an intended third-party beneficiary of the reinsurance agreement. The court granted the defendant’s motion to dismiss, finding that HSB did not directly assume any of Florists’ obligations to the plaintiff under the policy, and that nothing in the reinsurance agreement evidenced an intent to give the plaintiff third-party beneficiary status. The court also considered that the plaintiff’s argument, if accepted, would mean that every reinsurance agreement would necessarily intend to benefit individual policyholders as third-party beneficiaries. Thus, the court found that there was no privity between the parties and that the plaintiff could not establish breach of contract. With respect to the bad faith claim, the court found that there was no legal precedent to allow an insured to maintain a Section 8371 claim against a reinsurer and that Pennsylvania courts have actually held the opposite. Thus, because neither reinsurers, nor third-party claims investigators, are considered insurers under the bad faith statute, the plaintiff could not sue HSB for bad faith. The plaintiff could only sue its own insurer, Florists, for bad faith.

Attempt to defeat diversity fails in UIM action.

Hagan v. Leon, 3:17-cv-2155 (M.D. Pa. Jan. 3, 2018)  

This action arose from a motor vehicle accident, after which the plaintiffs sued the tortfeasor and underinsured motorist (UIM) insurer. The UIM carrier removed the action to federal court, and the plaintiffs moved to remand the case. The plaintiffs argued that the notice of removal failed to allege the citizenship of all the parties at the time the complaint was filed and that not all of the defendants had consented to the removal. After the motion to remand was filed, the UIM carrier amended its notice of removal to allege the citizenship of all the parties. The court found that the amended notice of removal cured any potential defect and that the plaintiffs had settled their claims against the alleged tortfeasor. Thus, the tort defendants had no real remaining interest in the litigation and were merely nominal parties from whom consent was no longer required. The sole reason for the continued inclusion of the alleged tortfeasors was to defeat diversity. Thus, their consent was not required, and the motion to remand was denied.

Court grants motion to transfer and coordinate UIM claim and tort action.

Grimes v. Velez, 2016-cv-4071 (Lackawanna Cnty. C.C.P. Jan. 22, 2018)

In this case, the plaintiffs sued the alleged tortfeasor for negligence and their own insurer for underinsured motorist (UIM) benefits. The UIM insurer subsequently filed preliminary objections on the basis that venue was improper in Lackawanna County. As residents of Monroe County, the plaintiffs were bound by their insurance contract to litigate all claims against their insurer in the county in which they reside. The court granted the preliminary objections, severed the UIM claim and transferred it to Monroe County. The plaintiffs subsequently sought to coordinate the tort action with the UIM action in Monroe County. The court considered that, while common questions of law or fact existed between the two cases, the mere fact that the claims arose from the same occurrence could not serve as a basis for a coordination motion. The court also considered, however, that it would obviously be more convenient for the parties and witnesses to attend one trial instead of two, particularly since the parties and witnesses called to testify in the tort action would also be called to testify in the UIM case. The court found that judicial economy and the prevention of duplicative or inconsistent orders also weighed in favor of transfer. Thus, the totality of the circumstances warranted transfer of the action to Monroe County so that it could be consolidated with the UIM claim.

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