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Demystifying the "Bad Faith Set-Up" in Insurance Litigation

Navigating the Space Between Aggressive Advocacy and Allegations of the So-Called Set-Up

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, AUGUST 16, 2016

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Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Robert T . Horst, Partner , Timoney Knox, Fort Washington, Pa. Danya J. Pincavage, Partner , Ver Ploeg & Lumpkin, Miami

• C. Scott Rybny, Partner

, Timoney Knox, Fort Washington, Pa. Daniel L. Petrilli, Timoney Knox, Fort Washington, Pa.

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STRAFFORD PUBLICATIONS WEBINAR

Demystifying the “Bad Faith Set Demystifying the “Bad Faith Set-Up” in Up” in

August 16, 2016 August 16, 2016

• C. Scott Rybny

Partner Timoney Knox, LLP (215) 540-2658 Srybny@timoneyknox.com

Demystifying the “Bad Faith Set Demystifying the “Bad Faith Set-Up” in Up” in Insurance Litigation Insurance Litigation

Danya J. Pincavage Shareholder Ver Ploeg & Lumpkin, P.A. (305) 577-3996 dpincavage@vpl-law.com Daniel L. Petrilli Associate Timoney Knox, LLP (215) 540-2637 Dpetrelli@timoneyknox.com

5

OVERVIEW

• I. Is There Really Such a Thing as a

“Set-Up?” Does the Concept Even Exist?

• II. Developing Caselaw
• III. Common Tells for the “Bad Faith Set-Up”

6

OVERVIEW

• IV. Insurer Best Practices
• V. Claimant Pitfalls
• V. Claimant Pitfalls
• VI. Alert! The New Frontier – “Social Duty”

7

INTRODUCTION INTRODUCTION

8

9

EVALUATING BAD FAITH

• THE REASONABLE BASIS

DEFENSE

• THE “FAIRLY DEBATABLE”

DEFENSE

10

• I. THE “BAD FAITH

SET-UP”: FACT OR FICTION?

11

• II. DEVELOPING

CASELAW

12

PENNSYLVANIA

13

SHANNON V. NEW YORK MUTUAL INS. CO.,

2013 U.S. DIST. LEXIS 165280 (M.D. PA. NOV. 21, 2013)

• Insurer Files Motion to Strike “Bad Faith Set-Up

Affirmative Defense”

• Policyholder Sued Insurer for Bad Faith Failure to

Offer Policy Limits Leading to Jury Award 18X the Policy Limits

14

SHANNON V. NEW YORK MUTUAL INS. CO.,

2013 U.S. DIST. LEXIS 165280 (M.D. PA. NOV. 21, 2013)

• “Bad faith set-up" involved "a quick settlement

demand, followed by a quick closing of the window before important information is provided so that any subsequent limits offers by the insurer so that any subsequent limits offers by the insurer are bemoaned as too late."

• Court Does Not Expressly Acknowledge the “Bad

Faith Set-Up” as an Affirmative Defense, but Does Not Strike the Defense

15

DIETZ & WATSON, INC. V. LIBERTY MUTUAL INS.,

2015 U.S. DIST. LEXIS 58827 (E.D. PA. MAY 5, 2015)

• Insurer Argued Assignment of Bad Faith Claim

Involved Collusion Similar to “Bad Faith Set-Up”

• Court Tacitly Acknowledges the “Bad Faith Set-

Up” as the Basis for an Affirmative Defense

16

DIETZ & WATSON, INC. V. LIBERTY MUTUAL INS.,

2015 U.S. DIST. LEXIS 58827 (E.D. PA. MAY 5, 2015)

• “if proven, these two affirmative defenses, without

limitation, are valid defenses to D&W’s [policyholder’s] action. The facts alleged by Liberty [insurer] are sufficient for it to take Liberty [insurer] are sufficient for it to take discovery into the areas of D&W’s alleged voluntary payment made without the consent of Liberty and D&W’s bad faith.”

17

NEVADA

18

STRIEGEL V. AM. FAMILY MUT. INS. CO.,

2015 U.S. DIST. LEXIS 88653 (D. NEV. JUL. 7, 2015)

• Court Held that it was Reasonable for the Insurer

to Not Have Settled a Claim within a Two-Week Timed, Settlement Period

• Because of Multiple Similar Filings, the Court

Referred Counsel for the Claimiant to the State Bar

• f Nevada for Disciplinary Review

19

STRIEGEL V. AM. FAMILY MUT. INS. CO.,

2015 U.S. DIST. LEXIS 88653 (D. NEV. JUL. 7, 2015)

• The Court Opined that Counsel “has a modus
• perandi of using similar demand letters in

multiple cases in this District, which impose an

• perandi of using similar demand letters in

multiple cases in this District, which impose an unreasonable time constraint of two weeks on their demands for payment to set up a bad faith claim”

20

KANSAS

21

NELSON V. PROGRESSIVE NORTHWESTERN INS.,

2016 U.S. DIST. LEXIS 28952 (D. KAN. MAR. 7, 2016)

• Policyholder Sues Insurer for Bad Faith Failure to

Settle a Third Party Personal Injury Claim

• Insurer Argues Excess Verdict Was Caused By Its

Policyholder’s “Refusal to Defend the Claim” and Her “Counsel’s Intent to Pursue a Bad Faith Claim”

22

NELSON V. PROGRESSIVE NORTHWESTERN INS.,

2016 U.S. DIST. LEXIS 28952 (D. KAN. MAR. 7, 2016)

• Proper inquiry involves whether facts "raise a

suspicion of the ’cat-and-mouse’ game between claimants and insurers”

• Operative facts include “arbitrary settlement
• Operative facts include “arbitrary settlement

deadlines and deprived the insurer of information in order to hamper the insurer’s ability to investigate the accident"

23

ROBERTS V. PRINTUP,

595 F.3D 1181 (10TH CIR. 2010)

• Third Party Claimant Submits a Timed, 10-day

Settlement Demand to an Insurer After an Automobile Accident

• Offer Was Accepted 3 Weeks Later, But Claimant

Filed Suit and Obtained an Excess Verdict

24

ROBERTS V. PRINTUP,

595 F.3D 1181 (10TH CIR. 2010)

• For Timed-Settlement Demands, the Court

Emphasized a Policy Designed "to avoid creating the incentive to manufacture bad faith claims by shortening the length of the settlement offer, while shortening the length of the settlement offer, while starving the insurer of the information needed to make a fair appraisal of the case"

25

WADE V. EMASCO INS. CO.,

483 F.3D 657 (10TH CIR. 2007)

• “Permitting an injured plaintiff’s chosen timetable

for settlement to govern the bad-faith inquiry would promote the customary manufacturing of bad-faith claims, especially in cases where an bad-faith claims, especially in cases where an insured of meager means is covered by a policy of insurance which could finance only a fraction of the damages in a serious personal injury case.” (quoting Pavia v. State Farm Mut. Auto Ins. Co., 82 N.Y. 2d 445 (1993))

26

WADE V. EMASCO INS. CO.,

483 F.3D 657 (10TH CIR. 2007)

• “Courts should not permit bad faith in the

insurance milieu to become a game of cat-and- mouse between claimants and insurer, letting claimants induce damages that they then seek to claimants induce damages that they then seek to recover, whilst relegating the insured to the sidelines as if only a mildly curious spectator.” (quoting Peckham v. Continental Cas. Ins. Co., 895 F.2d 830 (1st Cir. 1990))

27

FLORIDA

28

LOPEZ V. ALLSTATE FIRE & CAS. INS. CO.,

2015 U.S. DIST. LEXIS 121993 (S.D. FLA. SEP. 14, 2015)

• Policyholder Suit for Bad Faith Failure to Settle

Third-Party Claim

• Underlying Action Involved Automobile Accident

Resulting in Personal Injuries and Wrongful Death

29

LOPEZ V. ALLSTATE FIRE & CAS. INS. CO.,

2015 U.S. DIST. LEXIS 121993 (S.D. FLA. SEP. 14, 2015)

• Insurer Asserts “Bad Faith Set-Up” as an

Affirmative Defense

• Defense Upheld on Summary Judgment

30

LOPEZ V. ALLSTATE FIRE & CAS. INS. CO.,

2015 U.S. DIST. LEXIS 121993 (S.D. FLA. SEP. 14, 2015)

• Insurer Can raise the Defense That There Was No

Reasonable Opportunity to Settle “To Be Decided Based on all the Circumstances.” (quoting Rynd v. Nationwide Mut. Fire Ins. Co., 2011 U.S. Dist. LEXIS Nationwide Mut. Fire Ins. Co., 2011 U.S. Dist. LEXIS 116493 (M.D. Fla. Oct. 7, 2011)

31

HAYAS V. GEICO GEN. INS. CO.,

2014 U.S. DIST. LEXIS 155205 (M.D. FLA. NOV. 3, 2014)

• Policyholder Sues Insurer for Bad Faith Failure to

Settle Third-Party Automobile Claim Involving Personal Injuries and Wrongful Death

• Prior to Trial, Policyholder Files Motion in Limine

to Preclude Reference to any “Bad Faith Set-Up”

32

HAYAS V. GEICO GEN. INS. CO.,

2014 U.S. DIST. LEXIS 155205 (M.D. FLA. NOV. 3, 2014)

• Policyholder Also Argues that the “Bad Faith Set-

Up” Cannot Be Referenced at Trial Because it Was Not Pled as an Affirmative Defense

• Court Suggests the “Bad Faith Set-Up” Would be
• Court Suggests the “Bad Faith Set-Up” Would be

Precluded Due to the Insurer’s Failure to Plead

• Motion Denied as Moot Because the Insurer

Agreed to Limit Evidence to the Policyholder’s Unwillingness to Settle as opposed to the Insurer Being “Set Up”

33

MANY COURTS DO NOT RECOGNIZE A BAD FAITH “SET-UP” DEFENSE

• Rynd v. Nationwide Mut. Fire Ins. Co., No. 8:09-CV-1556-T-27TGW (M.D Fla.

July 17, 2010): “Florida law recognizes that an insurer may raise as defenses to a bad faith claim the claimant’s unwillingness to settle, an unreasonable settlement demand, or no reasonable opportunity to settle, but not that it was ‘set up.’”

• Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 390, 394, 2 P.3d 1,

4 (2000): “a liability insurer cannot assert the comparative bad faith of its insured in the underlying third party litigation as an affirmative defense in a bad faith action brought against it.” bad faith action brought against it.”

• Miller v. Kenny, 180 Wash. App. 772, 810 (2014): “Pressing for a policy limits

settlement for a badly injured client is a professional responsibility, not a sinister plot. Keeping bad faith litigation in mind as a plan B if the insurer balks is a fair practice. Safeco could have protected itself by putting the limits on the table…”

• Miller v. Byrne, 916 P.2d 566, 576 (1995): “Contrary to the contentions of the

Attorneys and Southern, however, the motivation or intent of Sweeney to ‘set up’ Southern or the Attorneys for a bad faith claim does not, on this record, appear to meet the tests of legal materiality or logical relevance.”

34

MANY COURTS DO NOT RECOGNIZE A BAD FAITH “SET-UP” DEFENSE – OR COMPARATIVE BAD FAITH

• Hartford Roman Catholic Diocesan, Corp. v. Interstate

Fire & Cas. Co., No. 3:12CV1641(JBA), 2016 WL 4064028, at *29 (D. Conn. July 28, 2016)

• Nationwide Prop. & Casualty Ins. Co. v. King, 568 So. 2d

990 (Fla. 4th DCA 1990): “We decline to create a new affirmative defense of comparative bad faith.” Id. at 990. affirmative defense of comparative bad faith.” Id. at 990.

35

• III. COMMON TELLS

FOR THE “BAD FAITH SET-UP”

36

TELL # 1 REPETITIVE & ACCUSATORY CORRESPONDENCE

37

TELL #2 TIMED SETTLEMENT DEMANDS

38

TELL #3 REPEATED DEMANDS FOR AN EXPLANATIONS

39

OTHER TELLS IN THE ADVANCED GAME…

• Challenging the holdback
• >> demands for depreciation tables
• >> refusing to accept straight line

depreciation calculations

• >> utilizing accountants and IRS

standards standards

• >> challenging holdback applied to the

“10&10” and to labor charges

• >> asserting that the holdback is

simply unreasonable or poorly documented

40

OTHER TELLS IN THE ADVANCED GAME…

• The defamation and “intentional

interference” actions

• >> baiting to fire the public adjuster
• >> baiting for negative -- or even

slanderous -- comments about the public adjuster or another involved party/vendor public adjuster or another involved party/vendor

41

• IV. INSURER BEST

PRACTICES

42

• Be Responsive & Reasonable…
• Even When Wrong.

43

• DEMONSTRATING
• REASONABLENESS
• CAN START WITH
• CAN START WITH
• YOUR
• CALENDAR

44

RELIANCE ON THIRD-PARTY PROFESSIONALS

45

• V. CLAIMANT

PITFALLS: WHEN ATTORNEY ACTIONS ATTORNEY ACTIONS ARE CHALLENGED AS A BAD-FAITH SET- UP ATTEMPT

46

CRYING “SET-UP” DOES NOT PERMIT AN INSURER TO DISCOVER PRIVILEGED DOCUMENTS

• In Ford v. GEICO, No. 1:14cv180-MW/GRJ, 2015 WL 11109370, at *1 (N.D. Fla. Aug. 28,

2015), GEICO argued the documents were relevant to the question of whether it “could” have settled the underlying claim. Id. The Court denied GEICO’s motion to compel, but agreed to an in camera review of the documents explaining:

• “First, the fact that documents prepared in anticipation of litigation contain factual

information does not remove them from the protections of work-product privilege. Second, Plaintiff was not the

• ne

that brought up the alleged “unwillingness” to settle into this case. Rather, it is Defendant that first raised this as an affirmative defense to the bad faith suit. Plaintiff therefore did not waive privilege.

• This Court finds that Defendant has not made the showing necessary to discovering
• This Court finds that Defendant has not made the showing necessary to discovering

materials protected by work-product privilege . . . Part of the motion, then, seeks factual information and the

• ther seeks the impression of the underlying

attorney and his or her staff. There are other ways that Defendant can establish the fact that it called Plaintiff’s counsel without obtaining the privileged document. Moreover, the person who placed the call can testify that a call was placed and the specific message left. With regards to the mental impressions of Plaintiff’s counsel, this Court refuses to grant Defendant unrestricted access to underlying Plaintiff’s counsel’s thoughts…”

47

CRYING “SET-UP” DOES NOT PERMIT AN INSURER TO DISCOVER PRIVILEGED DOCUMENTS

• State Auto Prop. and Cas. Co. v. Griffin, No. 4:11-

CV-14 CDL, 2012 WL 1940797, at *1 (M.D. Ga. May 29, 2012): It is clear that the focus in a bad faith failure to settle claim is on the conduct of the insurance company. Consequently, the Court cannot conceive of how correspondence between cannot conceive of how correspondence between counsel for the injured parties who

• btained

judgments in excess of the insured’s policy limits could be relevant to a subsequent bad faith failure to settle claim against the insurance company by its insured.

48

CRYING “SET-UP” SHOULD NOT PERMIT AN THE INTRODUCTION OF “MOTIVE”

• Fulbrook v. Allstate Ins. Co., No. 61567, 2015

WL 439598, at *1 (Nev. Jan. 30, 2015) (Pickering, J., dissenting) “It is one thing to say that, in a particular case, an insured’s demand letter imposed such unreasonable conditions that the insurer did not act in bad faith in not immediately meeting the demand … it is immediately meeting the demand … it is another proposition altogether to admit, as evidence of an insured’s subjective intent to ‘set up’ his insurer, letters the insured’s lawyer sent on behalf of other insureds to ‘set up’

• ther insurers in other unrelated cases.” Id. *6-

7.

49

AVOIDING A “SET-UP” DEFENSE: RESPONDING TO INSURER’S INQUIRIES

• Barnard v. GEICO, No. 5:10CV213/RS-CJK, 2011

WL 2039560, at *3 (N.D. Fla. May 25, 2011), aff'd, 448

• F. App’x 940 (11th Cir. 2011): “For an attorney to

refuse to respond to [16] attempts to contact him for months at a time is outrageous and unprofessional months at a time is outrageous and unprofessional … Plaintiff cannot now use her own attorney’s poor behavior to claim bad faith on the part of Defendant”.

50

AVOIDING A “SET-UP” DEFENSE: REJECTING POLICY LIMITS

• Kemp v. Hudgins, 133 F. Supp. 3d 1271, 1296 (D.

Kan. 2015): Kemp rejected each policy limit settlement proposal after the lawsuit was filed because he did not believe that the policy limits sufficiently covered his claim, even though Dairyland sufficiently covered his claim, even though Dairyland Insurance repeatedly offered to settle for its policy limit.

51

AVOIDING A “SET-UP” DEFENSE: TIME LIMIT DEMANDS Striegel v. Am. Family Mut. Ins. Co., No. 2:13-CV- 01338-GMN, 2015 WL 4113178, at *1 (D. Nev. July 7, 2015): “[Claimant’s attorney] Christiansen clearly has a modus operandi of using similar demand letters in multiple cases in this District, which impose an unreasonable time constraint of two weeks on their demands for payment to set up a bad faith claim.” Id. demands for payment to set up a bad faith claim.” Id. at *6. The Court admonished Mr. Christiansen’s behavior stating that “if Christensen attempts to bring before this Court another baseless bad faith claim premised on an unreasonable settlement demand, sanctions will be imposed.” Id.

52

AVOIDING A “SET-UP” DEFENSE: IS AN OFFER TO SETTLE REQUIRED?

• Markel Am. Ins. Co. v. Flugga, No. 5:11-CV-588-OC-10PRL,

2013 WL 1289522 (M.D. Mar. 13, Fla. 2013): “the lack of a demand or offer of settlement by the injured party is merely

• ne of the factors to be considered in deciding, on the basis
• f the totality of the circumstances, whether the insurer

acted in bad faith.” Id.

• But see Johnson v. GEICO Gen. Ins. Co., 318 Fed. Appx. 847,

851 (11th Cir. 2009): When liability is disputed in a third-party

• But see Johnson v. GEICO Gen. Ins. Co., 318 Fed. Appx. 847,

851 (11th Cir. 2009): When liability is disputed in a third-party claim, an “insurer-acting with diligence and due regard for its-insured is allowed a reasonable time to investigate a claim; no obligation exists to accept a settlement offer (or to tender policy limits in advance of a settlement offer) without time for investigation.”

53

AVOIDING A “SET-UP” DEFENSE: RELEASE LANGUAGE

• Cardenas v. GEICO Cas. Co., 760 F. Supp. 2d 1305 (M.D. Fla.

2011): Claimant cannot rely on an alleged defect in an insurer’s release where the insurer was willing to modify same or an “inadvertent” failure to tender a copy of the policy with settlement as grounds for bad faith.

• But see: Government Employees Ins. Co. v. Prushansky, No.

12-80556-CIV, 2014 WL 47734 (S.D. Fla. Jan. 7, 2014): The

• But see: Government Employees Ins. Co. v. Prushansky, No.

12-80556-CIV, 2014 WL 47734 (S.D. Fla. Jan. 7, 2014): The court denied GEICO’s motion for summary judgment finding “that there is a factual question regarding whether GEICO refused to remove the release’s indemnity language” and that a jury “could find that the refusal to remove this language from the release demonstrates the failure of GEICO to act in good faith.”

54

• VI. ALERT!!!

THE NEW FRONTIER- “SOCIAL DUTY”

55

RESTATEMENT 2D OF TORTS § 324A

• One who undertakes, gratuitously or for consideration, to

render services to another which he should recognize as necessary for the protection of a third person … is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if undertaking, if

• (a) his failure to exercise reasonable care increases the risk
• f such harm, or
• (b) he has undertaken to perform a duty owed by the other to

the third person, or

• (c) the harm is suffered because of reliance of the other or

the third person upon the undertaking.

56

RESTATEMENT 2D OF TORTS § 324A

• One who undertakes, gratuitously or for consideration, to

render services to another which he should recognize as necessary for the protection of a third person … is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if undertaking, if

• (a) his failure to exercise reasonable care increases the risk
• f such harm, or
• (b) he has undertaken to perform a duty owed by the other to

the third person, or

• (c) the harm is suffered because of reliance of the other or

the third person upon the undertaking.

57

BRUNO V. ERIE INS. CO.,

104 PA LEXIS 3319 (PA. DEC. 15, 2014)

• PA Supreme Court allows policyholder negligence claim

against carrier to proceed.

• Policyholders pled negligent and false assurances by Erie’s

contractor and engineer regarding toxicity of black mold

• Policyholders pled negligent and false assurances by Erie’s

contractor and engineer regarding toxicity of black mold

• Wife/Policyholder dies of esophageal cancer

58

BRUNO V. ERIE INS. CO.,

104 PA LEXIS 3319 (PA. DEC. 15, 2014)

• Court stated that these negligence allegations

“facially concern Erie’s alleged breach of a general social duty, not a breach of any duty created by social duty, not a breach of any duty created by the insurance policy itself.”

59