SUMMER ISSUE 2007

Court throws out Torrent of Fraud and Bad Faith Claims from Flood-Damage Case. 

Legally inadequate tort and punitive damage claims were thrown out by a judge who recently considered the scope and nature of the federal government’s National Flood Insurance Program (NFIP). NFIP, under which many insurers issue flood insurance policies called Standard Flood Insurance Policies or SFIPs, does not allow claimants to assert state-law based tort claims when they challenge the adjustment of their flood damages.

In Dudick v. Nationwide, the complaint was awash in tort and bad faith allegations aimed at Nationwide and its agents for having improperly issued an SFIP, and for having failed to properly handle the flood claim or pay the amount of flood damages demanded by the plaintiffs. The plaintiffs also asserted a deluge of tort claims, including fraud, negligence, and violations of Pennsylvania’s Unfair Trade Practices Act, due to the alleged malfeasance of the defendants in not timely issuing the SFIP, in requiring certain property inspections before the policy became effective, and in allegedly misrepresenting the limits and applicability of the flood policy during its procurement. In making these contentions, the plaintiffs tried to shelter their complaint under the umbrella of a purported “policy procurement exception” to federal preemption of tort claims under the NFIP.

After removing the matter to federal court as is necessary for lawsuits involving the NFIP, Nationwide filed a motion to dismiss all of plaintiffs’ state-law based tort claims. Nationwide argued that such tort claims were preempted by federal law and that governing Third Circuit jurisprudence did not permit such claims to continue into litigation. In response to the purported “policy procurement exception,” Nationwide countered that the gist of the action was one of insurance coverage, not policy procurement. Nationwide argued that a federal flood policy had indeed been issued covering the property in question at the time of loss, and that artful pleading could not be used to squeeze from the contract action a river of tort and punitive damage claims which sought to wash away the very notion of federal preemption. The District Court for the Eastern District of Pennsylvania agreed.

In its ruling, the Court concurred with Nationwide that all of plaintiffs’ tort claims were preempted by federal law since the essence of the complaint was one seeking insurance coverage. The Court recognized that “although plaintiffs’ claims may appear to sound in tort, they are intimately related to -and inextricably intertwined with- the disallowance of their claim for damages.” Therefore, despite the attempt to couch the tort claims in procurement-based arguments, the nucleus of the complaint was one for damages sought under an SFIP, which placed the complaint squarely under a different umbrella- that of federal preemption as required by the National Flood Insurance Program. Judge Clifford Scott Green thus granted Nationwide’s motion, and held that all of plaintiffs’ tort claims, which included demands for punitive damages, treble damages, and attorney’s fees, had to be dismissed. The Court’s opinion in this matter can be found at 2007 WL 984459 (E.D.Pa.) (March 27, 2007).

For further information on litigation involving the National Flood Insurance Act or Standard Flood Insurance Policies, please contact Jordan D. Koko, Esquire, at (215) 663-3382, or koko@bbs-law.com.

 

 

Superior Court Upholds One-Year Suit Limitation Clause in Fire Insurance Policy; Supreme Court Denies Allowance of Appeal

The Pennsylvania Superior Court recently had the opportunity to consider a number of issues relating to the terms of a commercial fire insurance policy as well as the contractual and statutory obligations of a premium finance company. The Court managed to avoid most of those issues, premising its affirmance of summary judgments on contract principles as well as the statutorily imposed one-year suit limitation provision in the standard Pennsylvania fire insurance policy. Subsequently, on March 21, 2007, the Pennsylvania Supreme Court denied plaintiff’s Petition for Allowance of Appeal.

In Penny vs. Merchants & Business Men’s Mutual Insurance Company, American Business Insurance Services, Inc. and CPF Premium Funding, Inc., the plaintiff, Mr. Penny, entered into an installment sales agreement to sell the Paradise Village Inn to Mr. Harry. Through an agent, Mr. Harry obtained a commercial casualty insurance policy from Merchants & Business Men’s Mutual covering the period January 7, 1995 to January 7, 1996. Mr. Harry financed the premium through a premium finance company. In accordance with the Insurance Premium Finance Company Act, Mr. Harry appointed the financing company as attorney in-fact with the authority to cancel the policy in the event of a default. After making his initial payment, Mr. Harry defaulted, and in February and March the finance company mailed notices of intent to request cancellation of the policy to Mr. Harry, with copies to the agent. However, in both instances, the notices to Mr. Harry were mailed to an incorrect address. The Superior Court accepted, for purposes of its opinion, that Mr. Harry never received the notices of cancellation.

Subsequently, a fire occurred at the inn on December 6, 1996 causing in excess of $300,000.00 in damage. Prior to suit being filed, Mr. Harry assigned all of his rights under the policy to Mr. Penny.

All three defendants, the agent, the premium finance company and the insurance carrier, Merchants, filed Motions for Summary Judgment. The Court granted summary judgments in favor of the agent and Merchants, and subsequently entered judgment in favor of the finance company following submission of a stipulated record to the trial court.

On appeal, plaintiff’s chief argument was that Merchants had a duty to issue its own notice to Mr. Harry of its intent to cancel the policy, that the agent had a duty to notify Mr. Harry when it received notice of cancellation from the premium finance company, and that the premium finance company was negligent in sending the cancellation notices to an incorrect address. Merchants advanced several grounds in support of its contention that summary judgment properly was entered in its favor including: (1) it had no obligation to provide notice of cancellation to the policy holder under the Premium Finance Company Act; (2) the fire occurred eleven months after the policy was scheduled to expire; (3) the one-year suit limitations provision in the Pennsylvania Standard Fire Policy provisions; and (4) the coverage was voided pursuant to the policy provision voiding coverage where the premises is vacant or unoccupied for more than sixty consecutive days.

As to Merchants, the Court chose to affirm the grant of summary judgment based on the one-year suit limitation provision which has been consistently upheld by Pennsylvania courts. The Court also held that the agent did not have a contractual obligation to notify Mr. Harry when it received the cancellation notices and that Mr. Harry’s claim for breach of contract appropriately was dismissed. The Court also affirmed the finding in favor of the premium finance company, holding that although the premium finance company may have been negligent in sending the cancellation notices to the wrong address, its mistake did not constitute an actionable breach of a contractual obligation under its contract with the policy holder. Because the suit against the financing company was only based on breach of contract, the Superior Court affirmed the judgment entered in its favor.

Should you wish a copy of the opinion or have any questions, please contact Paul F. Lantieri, Esquire at (215) 665-3301 or (717) 393-4400.

IN SUIT CLAIMING IMPROPER POLICY CANCELLATION BY COMPANY
“GIST OF THE ACTION” DOCTRINE COMPELLED DISMISSAL OF TORT CLAIMS AND NON-SUIT GRANTED IN FAVOR OF LIFE INSURANCE COMPANY BASED ON EXPIRATION OF FOUR YEAR STATUTE OF LIMITATIONS

Pan-American Life Insurance Company issued a life insurance policy dated June 28, 1993, on the life of Cham Nagaraj with a face amount of $750,000. The owner and beneficiary was his wife, Susheela Nagaraj. She was the only person who could cancel the policy. A Request for Cancellation form was received by Pan-American which appeared to be signed by Susheela and was dated July 9, 1999. The form had been sent to her at the address on file. In actuality, it was her husband’s home and she did not live there at the time the policy was issued. However, it was the address which she directed Pan-American to use in a May, 1994, change of address form.

The policy was cancelled and the cash value check in the amount of approximately $90,000 was made out to Susheela and mailed to her on or about July 15, 1999. She claimed she never received it and that her husband not only forged her name on the cancellation form but also on the check and cashed it. Cham died on January 9, 2004. Susheela claimed she was entitled either to the cash value paid or the death benefit if the policy had not been properly cancelled.

Trial was held before the Honorable William P. Mahon sitting without a jury in Chester County Court of Common Pleas. The tort claims against Pan-American were dismissed on summary judgment shortly before trial, as were the claims for punitive damages and attorney’s fees, based on the “gist of the action” doctrine and the American Rule (that absent a statutory provision, successful plaintiffs are not entitled to attorney’s fees from the defendant). At the conclusion of plaintiff’s case, Pan American moved for compulsory nonsuits on all remaining claims.

Judge Mahon granted the non-suit on the remaining claims based on the expiration of the statute of limitations prior to institution of suit. He decided that plaintiff, who did not start suit until November 1, 2004, was barred because the statute began to run on July 9, 1999, the date the cancellation form was signed. The applicable four year statute therefore expired July 9, 2003. The Court, sitting as finder of fact, found that the plaintiff did not exercise reasonable diligence to discover her alleged injury and the source thereof. She knew or should have known when she and her husband separated in May, 1999, that she was the owner of the policy and that her husband agreed to pay the premiums which were $2,616 per month. Despite this knowledge, she failed to advise Pan-American of the separation or to check the status of the policy then or when she sued her husband for divorce in November, 1999. The first three premiums payments were made by Susheela Nagaraj in 1993; thus, she should have known or been able to discover the name of the insurance company, contrary to her testimony that it was not until late in 2003 that she or her divorce attorney discovered the policy and that it had been cancelled.

For further information, contact Victoria M. Komarnicki at 215-665-3303 or Komarnicki@bbs-law.com

 

 

Plaintiffs’ Verdict for $4.25 Million Dollars; Bennett, Bricklin & Saltzburg LLP Client Assessed 0% Liability.

This lawsuit arose out of a fatal motor vehicle accident that occurred on August 27, 2004, on southbound Interstate 83 between the entrance and exit ramps for State Route 22 in Lower Paxton Township, Dauphin County, Pennsylvania. On that date a grandmother was traveling from Babies “R” Us with her grandson secured in a child seat in the middle rear of the grandmother’s Chevrolet sedan. The grandmother had intended to enter southbound Interstate 83 from the State Route 22 entrance ramp at the time the collision occurred. The SR22 ramp is a classic “clover leaf” ramp where vehicles exiting SR22 and attempting to merge on to I83 are using the same acceleration/deceleration lane as vehicles on I83 which are attempting to exit onto SR22.

On the date of the incident, I83 was heavily congested and traffic prevented the grandmother from completing the merge. The grandmother had traveled approximately two-thirds of the way down the acceleration/deceleration lane between the entrance ramp and exit ramp when she stopped because in her opinion she could not safely enter the highway. A short time later defendant arrived on the exit ramp, traveling directly behind the grandmother and merged into the right lane of Interstate 83 proceeding around grandmother’s stopped vehicle. The co-defendant, a tractor-trailer driver, was traveling in the right lane of Interstate 83 when the defendant entered the roadway. The truck driver initially testified that the lane between him and the entrance way was clear when the defendant first merged and that there were no obstructions to his line of sight. Sight line measurements indicated that there was an approximate quarter-mile distance between the spot the exit ramp would first have come into the truck driver’s view and the point where the collision occurred. It was thus determined by the truck driver’s speed that approximately thirteen seconds elapsed between the time he first had a visual sight line of the intersection and the time of impact.

The truck driver initially testified that when the defendant entered the lane he felt there was sufficient room between the two vehicles for the defendant to speed-up and meet the flow of traffic. As such, the truck driver did not activate his brakes but instead took his foot off the accelerator which activated the engine’s “Jake Brake,” a device on the engine that retards acceleration. According to the co-defendant, activating the Jake Brake slowed his vehicle 1 or 2 m.p.h., giving a speed of approximately 48 m.p.h. as he approached the defendant’s vehicle. The truck driver continued forward without braking and ultimately noticed that defendant was not accelerating to the flow of traffic. Defendant truck driver testified that his truck ultimately got so close to the defendant that he realized he would be unable to avoid impact even if he fully activated his foot brake. According to the truck driver, there was too much traffic in the left lane of Interstate 83 to allow him to switch lanes. The truck driver did pull his air horn for a number of seconds as he approached the defendant’s vehicle. According to defendant, this loud noise was disorienting and initially caused her to freeze and step off the accelerator.

Since he was so close to the defendant that he could not avoid an impact, the truck driver testified that he swung his vehicle to the right and into the acceleration/deceleration lane. He further testified that he did so without looking to see if vehicles were occupying the acceleration/deceleration lane. Moreover, as he entered the acceleration/deceleration lane he continued to look to his left at the defendant’s vehicle as he passed it. When he finally looked forward, at or near the area of an overpass, he finally realized grandmother’s vehicle was stopped in the acceleration/deceleration lane. At that point, he activated his foot brake but was unable to avoid impact. According to police and private accident reconstructionists, the approximate 80,000 pound truck struck the Chevrolet at roughly 40 m.p.h.

The truck pushed the Chevrolet forward and to the left over two hundred feet. As it was being pushed forward by the truck, the Chevrolet came into contact with defendant’s vehicle. The Chevrolet caught fire at or near the time the vehicles came to a rest. The truck driver and other passersby broke the window and pulled grandmother from the vehicle as the vehicle started to smoke heavily. After pulling grandmother from the vehicle and checking the vehicle for other occupants they pulled grandmother forward and past the vehicle to a grassy shoulder. Grandmother was unconscious. No one observed the grandson in the back of the vehicle, apparently because the child safety seat had slid over and to the rear, resting on the back of the rear seat. Grandmother regained consciousness and started screaming, “where’s my baby.” The vehicle was by then totally engulfed in flames. It was undisputed that the grandson was burned alive in the car.

Grandmother and the estate of the baby filed suit against the defendants in the Court of Common Pleas of Philadelphia. The matter could not be removed as defendant trucking company regularly conducted business in Philadelphia. The trucking company joined grandmother as an additional defendant to the grandson’s claims.

Various efforts at mediation were unsuccessful and so the matter proceeded to trial. Plaintiffs presented the testimony of two experts in the field of trucking and transportation safety each of whom testified that the truck driver’s actions in failing to immediately activate his foot brake, in getting so close to the co-defendant that he was unable to slow to avoid impact, and most importantly, in entering the acceleration/deceleration lane without checking ahead to see if the lane was clear, were evidence of negligence, carelessness, and wanton acts. The experts further testified that the actions of the truck driver on the date of the incident failed to comport to standard minimum safety standards. Plaintiffs’ experts likewise testified that co-defendant should not have entered Interstate 83 at the time she did. Plaintiffs also introduced the testimony of a forensic pathologist who testified that the grandson was conscious at the time of the incident and thus sustained conscious pain and suffering prior to his death. Last, plaintiffs provided expert testimony from a vocational specialist who testified that the baby, whose mother, father, uncle, aunt, uncle-in-law, grandfather, and great uncle were all physicians, would likely have earned between $1 million and $11 million dollars during his lifetime.

Defendant trucking company provided expert testimony in the form of an accident reconstructionist and an expert in the field of trucking to argue that the driver’s actions were reasonable. They also provided the testimony of a forensic pathologist who opined that the baby was unconscious following impact and suffered no pain and suffering prior to death.

Bennett, Bricklin & Saltzburg LLP represented grandmother as a defendant. While not participating in the damages phase of plaintiffs’ case, counsel cross-examined the truck driver and truck driver’s experts on the various failures of the driver to conform to safe driving practices. After a twelve day jury trial before The Honorable Marlene Lachman, the jury determined that the defendant truck driver was 90%, and co-defendant 10% liable for the accident at issue. Additional defendant grandmother was assessed 0% liability. The estate of the grandson was awarded $1 million on the claim for wrongful death and $3 million on the survival action claim. The grandmother was awarded $250,000 for her pain, suffering, and emotional distress.

For further information, contact Kevin M. Blake, Esquire at (267) 654-1100 or blake@bbs-law.com

 

 

JURY VERDICT FOR DEFENSE IN FIRE CLAIM

Penn National Insurance Co. A/S/O Elsenbaumer, et al. v. Steven A. Myers, et al.

In February, 1999, the Elsenbaumers hired Defendant Steven A. Myers Building Contractor (Myers) to construct an addition, deck and porch on their residence. Attendant to the new construction was some electrical work. Defendant Myers subcontracted Ken Haines Electric (Haines) to do that work.

At approximately 2:30 a.m. on March 5, 2002, a fire occurred at the residence while the Elsenbaumers slept. Damages ensued both to the structure of the residence itself and also to its contents approaching nearly $300,000.00.

All parties concluded the origin of the fire was electrical; however, the specific cause was vigorously contested. Plaintiffs maintained that the cause was installation of an improper receptacle on the porch, while Defendants asserted that the cause was a small portable on/off switch purchased by the Elsenbaumers and kept plugged into the outlet. Plaintiffs brought suit against Myers on theories of negligence, breach of contract and breach of warranty. The suit against Co-Defendant Haines was asserted strictly in negligence.

Through the use of thorough discovery and a narrowly tailored motion for summary judgment, it was established as a matter of law prior to trial that Haines was an independent contractor for Myers and not Myers’ agent. As a consequence, the matter was tried with explicit instructions to the jurors that even if they found Haines to have been negligent in the electrical installation, they could not, for that reason alone, also find Myers to have been negligent.

At the conclusion of all testimony, the jury concluded that Myers was not negligent (Count I), did not breach the contract he had with the Elsenbaumers to do the addition (Count II) and did not violate any warranty with respect to the addition (Count III).

For further information, contact Michael Wagman, Esquire at (717) 397-7000 or wagman@bbs-law.com.