Justia Insurance Law Opinion Summaries

Articles Posted in US Court of Appeals for the Third Circuit
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Geist, seriously injured in an automobile accident, settled a claim against the driver and his insurer, which did not fully compensate her. Geist sought to recover underinsured motorist (UIM) benefits from State Farm under a policy issued to her parents. When State Farm issued the policy in 2010, it provided liability coverage of $100,000 per person / $300,000 per accident for bodily injuries. Geist’s parents elected UIM benefits of up to $50,000 per person / $100,000 per accident. When they added a third vehicle to the policy, her parents did not execute an acknowledgment for UIM-coverage limits below the bodily injury limits. Geist believed that she could recover up to $200,000 in UIM benefits, the stacked total of the $100,000 UIM coverage for each insured vehicle. State Farm paid her $100,000.The Third Circuit affirmed the dismissal of Geist’s purported class action. Under Pennsylvania’s Motor Vehicle Financial Responsibility Law an insurer must seek an election of UIM-coverage limits that are less than the bodily injury coverage limits only when it issues a new policy; the UIM-coverage limits remain in effect as long as the policy does. Geist’s parents executed a written election for lower limits when State Farm issued the policy, and never sought a new policy. View "Geist v. State Farm Mutual Automobile Insurance Co." on Justia Law

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A fire at the Barclay assisted living facility caused four residents’ deaths. Their estates sued Barclay and Johnson Controls, which maintained and monitored Barclay’s fire-suppression system. After Barclay and its liability insurers settled with the estates, the insurers sued Johnson in federal court, asserting diversity jurisdiction. The insurers alleged that they stood in the shoes of Barclay as its subrogees and were entitled to damages for the settlement payments they made on Barclay’s behalf. The insurers are structured as reciprocal insurance exchanges--distinct legal entities that can sue or be sued but without corporate existence. Each is an unincorporated association whose subscribers exchange contracts and pay premiums for the purpose of insuring themselves and each other. The subscribers are simultaneously both the insureds of and insurers to one another, with the exchanges of insurance between them effected by a common representative.The district court, reasoning that there was no clear Pennsylvania subrogation law prohibition on insurers “asserting tort-based claims against third-party tortfeasors,” denied Johnson’s motion to dismiss. The Third Circuit vacated without reaching the issue of the availability of the tort claims under Pennsylvania law. Before any federal court can decide the merits of such a question, it must have jurisdiction, which may be lacking in this case. For purposes of diversity jurisdiction, the citizenship of reciprocal insurance exchanges turns on the citizenship of their subscribers, who may not be completely diverse from Johnson. Additional fact-finding is needed. View "Peace Church Risk Retention Group v. Johnson Controls Fire Protection LP" on Justia Law

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A yacht owned by Raiders ran aground. Raiders had insured the vessel with GLI, which denied coverage stating the yacht’s fire-extinguishing equipment had not been timely recertified or inspected notwithstanding that the vessel’s damage was not caused by fire. GLI sought a declaratory judgment that Raiders’ alleged failure to recertify or inspect its fire-suppression equipment rendered the policy void from its inception. Raiders responded with five counterclaims, including three extra-contractual counterclaims arising under Pennsylvania law for breach of fiduciary duty, insurance bad faith, and breach of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.Concluding the policy’s choice-of-law provision mandated the application of New York law and precluded Raiders’ Pennsylvania law-based counterclaims, the district court dismissed those claims. The court rejected Raiders’ argument that applying New York law would contravene Pennsylvania public policy, thereby making the choice-of-law provision unenforceable under Supreme Court precedent (Bremen (1972)), which held that under federal admiralty law a forum-selection provision is unenforceable “if enforcement would contravene a strong public policy of the forum in which suit is brought.” The Third Circuit vacated. Bremen’s framework extends to the choice-of-law provision at issue; the district court needed to consider whether Pennsylvania has a strong public policy that would be thwarted by applying New York law. View "Great Lakes Insurance SE v. Raiders Retreat Realty Co LLC" on Justia Law

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Vitamin Energy is the defendant in 5-hour Energy’s 2019 lawsuit under the Lanham Act for trademark infringement, false designation of origin, false advertising, and trademark dilution; 5-hour also made claims under Michigan law for trademark infringement, indirect trademark infringement, and unfair competition. Vitamin Energy was insured by Evanston. In a declaratory judgment action, the district court decided Evanston had no duty to defend. The Third Circuit vacated. Pennsylvania law imposes on insurers a broad duty to defend lawsuits brought against those they insure. An insured’s burden to establish its insurer’s duty to defend is light, and Vitamin Energy has carried it. The policy excludes coverage for Advertising Injury, defined as an injury “arising out of oral or written publication of material that libels or slanders.” While some allegations of the complaint involve disparagement, others do not. An underlying complaint need only contain at least one allegation that falls within the scope of the policy’s coverage for the duty to defend to be triggered. The duty to defend is broader than the duty to indemnify. Similarly, exclusions for suits based on “Intellectual Property,” “Incorrect Description,” “Failure to Conform,” and “Knowing” actions do not defeat the duty to defend. View "Vitamin Energy LLC v. Evanston Insurance Co" on Justia Law

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Grace operated a Montana asbestos facility, 1963-1990. Facing thousands of asbestos-related suits, Grace filed for Chapter 11 bankruptcy. Its reorganization plan provided for a several-billion-dollar asbestos personal-injury trust to compensate existing and future claimants. All asbestos-related personal injury claims were to be channeled through the trust (“Grace Injunction,” 11 U.S.C. 524(g)(4)). CNA provided Grace's general liability, workers’ compensation, employers’ liability, and umbrella insurance policies, 1973-1996 and had the right to inspect the operation and to make loss-control recommendations. After 26 years of litigation regarding the scope of CNA’s coverage of Grace’s asbestos liabilities, a settlement agreement ensured that CNA would be protected by Grace’s channeling injunction. CNA agreed to contribute $84 million to the trust.The “Montana Plaintiffs,” who worked at the Libby mine and now suffer from asbestos disease, sued in state court, asserting negligence against CNA based on a duty to protect and warn the workers, arising from the provision of “industrial hygiene services,” and inspections. The Bankruptcy Court initially concluded that the claims were barred by the Grace Injunction but on remand granted the Montana Plaintiffs summary judgment.The Third Circuit vacated. Section 524(g) channeling injunction protections do not extend to all claims brought against third parties. To conform with the statute, these claims must be “directed against a third party who is identifiable from the terms of such injunction”; the third party must be “alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor”; and “such alleged liability” must arise “by reason of” one of four statutory relationships, including the provision of insurance to the debtor. The Bankruptcy Court erred in anlyzing the “derivative liability” and “statutory relationship” requirements. While the claims meet the derivative liability requirement, it is unclear whether they meet the statutory relationship requirement. View "In re: WR Grace & Co" on Justia Law

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The three restaurants in these consolidated appeals each brought its own action in state court seeking a declaration that its respective Insurer was obligated to provide coverage for COVID-19-related losses under an insurance policy. Each Insurer removed its case to federal court invoking diversity jurisdiction; each district court exercised its discretion under the Declaratory Judgment Act (DJA), 28 U.S.C. 2201–02, to abstain from hearing the case and ordered the matter be remanded to state court. The Third Circuit vacated the orders, concluding that the District Courts erred in weighing factors relevant to the exercise of discretion under the DJA: the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy, the general policy of restraint when the same issues are pending in a state court, and the public interest in settlement of the uncertainty of obligation. In this case, a declaratory judgment would be sufficient to afford relief and settle their respective controversies. View "Dianoias Eatery LLC v. Motorists Mutual Insurance Co" on Justia Law

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Before filing for bankruptcy, the Debtors provided general contracting services for large construction projects, including many projects for departments of the federal government. To enter into contracts with the United States, contractors are generally required to post both a performance bond and a payment bond signed by the contractor and a qualified surety (such as ICSP), 40 U.S.C. 3131. When the Debtors defaulted on the contract at issue, ICSP stepped in to make sure that the work was completed. ICSP claims that it is subrogated to the United States’ rights to set off a tax refund (owed to one or more of the Debtors) against the losses that ICSP covered. However, to settle various claims in the Debtors’ Chapter 7 bankruptcy proceedings, the United States and the Trustee agreed that the United States would waive its setoff rights.The Bankruptcy Court, district court, and Third Circuit held that ICSP is not entitled to the tax refund. The United States had not yet been “paid in full,” within the meaning of 11 U.S.C. 509(c), when the Bankruptcy Court approved the settlement, so ICSP’s subrogation rights were subordinate to the remaining and superior claims of the United States at the time of the settlement. The United States was entitled to waive its setoff rights in order to settle its remaining and superior claims; the waiver of its setoff rights extinguished ICSP’s ability to be subrogated to those rights. View "Insurance Co of the State of Pennsylania v. Giuliano" on Justia Law

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Basic underinsured motorist (UIM) coverage is equal to the policy's bodily injury limits; Pennsylvania insureds can reduce costs by making a “request in writing” for lower UIM coverage. Gibson signed a State Farm (SF) insurance application for bodily injury coverage of $250,000 with $100,000 in stacked UIM coverage; for the Gibsons' three cars, the total UIM coverage described was $300,000. The application's signature block attested that “the limits and coverages ... were selected by me”; the last page referenced other “required” documents, including an acknowledgment of UIM coverage selection. SF did not provide those additional forms. Gibson was seriously injured in an accident. Weeks later, Gibson returned to SF and signed the form, stating that UIM benefits “are available with limits up to the Liability Coverage limits for bodily injury” and that she had selected “lower limits of $100,000 (per person)/$300,000 (per accident).”Gibson sued for UIM coverage, breach of contract, and bad faith, demanding “the maximum amount of UIM coverage,” of “$300,000.” A Magistrate granted SF summary judgment on the bad faith claim. A jury awarded Gibson $1,750,000. SF moved to mold the verdict to the UIM policy limit, $300,000, listed on the application and in the complaint. Gibson successfully cross-moved to mold the verdict to $750,000 (the $250,000 bodily injury limit stacked for three cars), arguing that the application to elect a lower UIM policy limit did not comply with Pennsylvania’s Motor Vehicle Financial Responsibility Law. The Third Circuit reversed. The statute’s minimal requirement of a “request in writing” for the lower optional UIM coverage was met. The court affirmed the dismissal of the bad faith claim. View "Gibson v. State Farm Mutual Automobile Insurance Co." on Justia Law

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J.L. and D.W. were covered by employer-sponsored Aetna insurance plans that provided out-of-network benefits only in cases of “Urgent Care or a Medical Emergency” (J.L.) or not at all (D.W.). J.L. needed bilateral breast reconstruction surgery and there were no in-network physicians available to perform the procedure. D.W. required facial reanimation surgery—a niche procedure performed by only a few U.S. surgeons. Both were referred for treatment to the Plastic Surgery Center, an out-of-network New Jersey medical practice. The Center negotiated with Aetna, which agreed to pay a “reasonable amount.” The Center billed $292,742 for J.L.’s services, Aetna paid only $95,534.04. Of the $420,750 the Center billed for D.W.’s services, Aetna paid only $40,230.32.The district court dismissed common law breach of contract, promissory estoppel, and unjust enrichment claims, holding that section 514(a) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1000, expressly preempted all claims. The Third Circuit reversed as the breach of contract and promissory estoppel claims, which do not require impermissible “reference to” ERISA plans. The claims, as pleaded, plausibly seek to enforce obligations independent of the plan and do not require interpretation or construction of ERISA plans. The claims plausibly arise out of a relationship that ERISA did not intend to govern. View "Plastic Surgery Center, P.A. v. Aetna Life Insurance Co" on Justia Law

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A mortgage conveys an interest in real property as security. Lenders often require borrowers to maintain hazard insurance that protects the property. If the borrower fails to maintain adequate coverage, the lender may buy the insurance and force the borrower to cover the cost (force-placed coverage). States generally require insurers to file their rates with an administrative agency and may not charge rates other than the filed rates. The filed-rate is unassailable in judicial proceedings even if the insurance company defrauded an administrative agency to obtain approval of the rate.Borrowers alleged that their lender, Nationstar, colluded with an insurance company, Great American, and an insurance agent, Willis. Great American allegedly inflated the filed rate filed so it and Willis could return a portion of the profits to Nationstar to induce Nationstar’s continued business. The borrowers paid the filed rate but claimed that the practice violated their mortgages, New Jersey law concerning unjust enrichment, the implied covenant of good faith and fair dealing, and tortious interference with business relationships; the New Jersey Consumer Fraud Act; the Truth in Lending Act, 15 U.S.C. 1601–1665; and RICO, 18 U.S.C. 1961–1968.The Third Circuit affirmed the dismissal of the suit. Once an insurance rate is filed with the appropriate regulatory body, courts have no ability to effectively reduce it by awarding damages for alleged overcharges: the filed-rate doctrine prevents courts from deciding whether the rate is unreasonable or fraudulently inflated. View "Leo v. Nationstar Mortgage LLC of Delaware" on Justia Law