Sanctions Award Against Pro Se Plaintiff Upheld

Tred R. Eyerly | Insurance Law Hawaii

    The plaintiff’s failure to timely name an expert witness in his bad faith action led to sanctions being awarded against him in favor of the insurer. Black v. Fireman’s Fund Ins. Co., 2020 Cal. App. Unpub. LEXIS 2477 (Cal. Ct. App. April 23, 2020).

    After Black’s claim was denied by Fireman’s Fund, he communicated with company through letters, emails and phone conversations. Black complained that Fireman’s Fund handled his claim improperly, engaged in illegal activities and had ties to the Nazi regime in Germany. Fireman’s Fund sued Black alleging that his communications amounted to civil extortion, interference with contractual relations, interference with prospective economic advantage, and unfair business practices. Fireman’s Fund eventually dismissed its complaint without prejudice. 

    Black, however, had filed a cross-complaint in which he asserted a number of claims, including bad faith. Black designated attorney Randy Hess as an expert on insurance claims. Over the next year and a half, Fireman’s Fund repeatedly attempted to take Hess’s deposition. In March 2018, Fireman’s Fund moved to compel the deposition or exclude the testimony. The court set a July 20, 2018 deadline for the disposition to take place or else the testimony would be excluded. 

    In mid-July 2018, a new law firm entered its appearance for Black, and asked to postpone Hess’s deposition to July 20. Fireman’s Fund agreed. Then the firm asked for a 45-day extension for Black to locate and designate a new expert to replace Hess. Fireman’s Fund declined. Black moved ex parte to extend the expert discovery period. The court denied the motion. 

    Black filed another motion, seeking “a short continuance to allow a further expert designation and expert deposition.” Fireman’s Fund opposed the motion and sought $7,862.50 in sanctions. The court denied the motion, finding that Black was given 18 months’ notice of Hess’s reluctance or refusal to act as an expert. The court also awarded sanctions. 

    The Court of Appeals affirmed. In April 2017, early in the discovery period, Hess told Black that he would not act as an expert or appear at a deposition unless he was paid. A year later, Hess told Black he had withdrawn as an expert because he had not been paid. 

    Between April 2017 and July 2018, Black could have reached an agreement with Hess or found another expert. He failed to do either, forcing Fireman’s Fund to spend additional time and money to pursue and protect its discovery interests. Sanctions were warranted because in his motion, Black did not identify an additional expert witness, making the motion little more than another effort to delay the proceeding.

A Catch 22: The Interplay Between Bad Faith And Removal

Shayla Bivins | Drew Eckl & Farnham

Federal diversity jurisdiction is established where 1) the opposing parties to a lawsuit are citizens of different states and 2) the amount in controversy exceeds $75,000.1 To successfully remove a state court action to federal court based on diversity jurisdiction, defendants must prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional amount where plaintiffs have failed to plead the specific amount of damages and represents to a court that the amount in controversy does not exceed $75,000.2  

Defendants must also timely remove a state court action. Defendants must file a notice of removal within thirty days of receiving notice from plaintiffs that a state court action is removable.3 If the initial pleadings of the case do not support removal, a notice of removal may be filed within thirty days after receipt by the defendant, of a copy of an amended pleading, motion, or other paper from which it may be first ascertained that the case is or has become removable.4 However, defendants may not remove a case on the basis of diversity jurisdiction more than one year after the commencement of the state court action, unless the district court finds that plaintiffs have acted in bad faith in order to prevent defendants from removing the action.5  

Given each of these statutory requirements that defendants must meet to remove a case, there is a trend amongst plaintiffs to provide lackluster discovery responses or conceal damages in the first year of the case to avoid federal jurisdiction – especially in cases where there are low special damages, but the plaintiff is seeking a large recovery. Then once the one-year removal period expires, plaintiffs unload damages without worrying about the threat of removal. Unfortunately, this sort of strategic gamesmanship is particularly challenging for defendants because plaintiffs who engage in such tactics can delay defendants’ discovery of the amount in controversy until the one-year removal period has passed while also defeating any attempts at proper removal before the one-year mark by failing to produce the evidence defendants need to support removal.6 In these instances, plaintiffs who “hide the ball” essentially spoil defendants’ ability to remove a case.   

To that end, the “bad faith” exception is crucial because it is the only way to overcome the one-year removal period when plaintiffs have concealed damages. Indeed, the bad faith exception was specifically added to 28 U.S.C. § 1446(c)(1) in 2011 to address this issue. While many courts in the Eleventh Circuit have not actually interpreted this exception,7  the courts that have examined the exception have typically held there is bad faith where a plaintiff employs affirmative, overt acts to avoid removal.8  For example, in Cameron v. Teeberry Logistics, LLC, the court found bad faith where the plaintiff (1) failed to amend her complaint, or otherwise notify defendants that she considered the amount in controversy to be over $75,000 despite representing that she was seeking no more than $50,000 in damages; and (2) sent a time-limited demand letter exactly one year and four days after commencement of the suit.9 

Likewise, in Hill v. Allianz Life Ins. Co. of N.A., the court found an intentional obfuscation of the amount in controversy where the plaintiff had (1) specifically pled that he was seeking damages greater than $15,000.00 but less than $75,000.00 and (2) attempted to amend his complaint to plead damages in excess of $75,000 just over three months after the one year removal window had run.10 The plaintiff offered no explanation for amending his complaint to remove the damages limitation and, perhaps more importantly, the amended complaint contained no additional information that would justify an increase in the damages sought.11 Thus, the court found that the plaintiff’s attempt to ‘restrict’ the amount in controversy was an effort to avoid removal, and therefore, constituted bad faith.12 

On the other hand, other courts in this circuit have declined to establish bad faith where there is only a showing of simple negligence or bad lawyering.13 For instance, in Hajdasz v. Magic Burgers, LLC, the court held that the plaintiff had not acted in bad faith to deliberately prevent removal when the defendant did absolutely nothing to compel plaintiff’s response to a crucial damages question and failed to point to any specific statements in plaintiff’s deposition transcript to establish the so-called “bad faith pattern” of failing to disclose the amount in controversy.14 Similarly, in Wilson v. Fresh Market, Inc., the court recently granted plaintiff’s motion to remand because defendant did not exhaust every opportunity at its disposal to compel more complete discovery responses from plaintiff and there was no evidence plaintiff overtly engaged in any bad faith tactics.15  

Thus, it appears the bad faith exception is more likely to be implicated in cases that largely concern affirmative, deliberate acts that clearly reflect clear attempts at gamesmanship.16 Should you find yourself in a situation where a plaintiff was withholding information and later discloses evidence to satisfy the amount in controversy, the following steps should be taken to help prove bad faith:  

Keep a record of conversations with plaintiff’s counsel about damages; 

Ask plaintiff’s counsel to agree to a stipulation on damages which stipulates that plaintiff is not seeking damages in excess of $75,000; 

Serve plaintiff with Request for Admissions focused on the amount in controversy issue. Be sure to ask specific questions that will force counsel to confirm what damages plaintiff is seeking, including but not limited to, whether there is ongoing treatment, whether he has provided all of the medical records and bills attributable to the subject incident, and whether a medical expert has provided any causation evidence; and 

Repeatedly and relentlessly request that all insufficient discovery responses be supplemented – especially for responses that pertain to special damages, extent and nature of injury, and ongoing medical treatment; and  

If plaintiff fails to provide the necessary information, seek state court intervention to compel complete responses and discovery of information. 

Proving bad faith is a fairly high bar in addition to the heavy burden defendants bear in establishing federal jurisdiction.17 Completing these recommendations will not guarantee that a court finds bad faith. However, to the extent that a plaintiff fails to comply with discovery or discloses damages after the one-year removal period, these recommendations may help a defendant establish bad faith. In the meantime, plaintiffs who deliberately obfuscate the amount in controversy place defendants in a Catch-22 type scenario.  

A New Bad Faith Trend Emerges in COVID-19 Business Interruption Litigation

Gregory Gidus | Property Casualty Focus

With governments across the world ordering the shutdown of restaurants, bars, and other “non-essential” businesses due to the COVID-19 pandemic, business interruption insurance claims are, not surprisingly, on the rise. While typical commercial property policies require “direct physical loss or damage” to property — a requirement that is unlikely satisfied by the shutdowns — policyholders are getting creative, alleging that the potential presence of the novel coronavirus on the surfaces of their premises is direct physical damage. Unconvinced, insurers are denying these claims, in many instances without further investigation or inspection of the insured premises. As these disputes make their way into the courts, a new trend is beginning to emerge — in addition to seeking coverage for their losses, insureds are including counts for bad faith premised on the insurers’ purported failure to reasonably investigate the COVID-19 claims.

One such case, Big Onion Tavern Group LLC vs. Society Insurance Inc., was filed by several Chicago restaurants in the Northern District of Illinois on March 27, 2020. In addition to seeking a declaration that their losses due to the shutdown were covered by their commercial property policies, the plaintiffs also assert that Society acted in bad faith by immediately denying the claims “without conducting any investigation, let alone a ‘reasonable investigation based on all available information’ as required under Illinois law.” In support, the plaintiffs attached a message from Society’s CEO and president to Society’s agents, stating that COVID-19 claims were unlikely to result in business interruption coverage. According to the plaintiffs, this message supports their theory that Society blanketly denied their claims “without conducting reasonable investigations based on all available information.”

Similar allegations were made in Mace Marine Inc. v. Tokio Marine Specialty Insurance Co., filed in Monroe County, Florida, on April 6, 2020. The insured in Mace Marine, a Florida Keys dive shop, asserted that it suffered direct physical loss or damage to property due to the potential presence of the coronavirus on its premises, but its claim was denied. The insured subsequently sued the insurer seeking coverage and also brought a statutory bad faith claim. According to the policyholder, the insurer acted in bad faith because it “formally denied the claim on March 30, 2020 without conducting any substantive investigation into the claim. The insurance company did not attempt to inspect the premises, nor did they request any photographs or send out any experts or field adjusters to evaluate the claim.” The insured contends that these actions constituted “willful, wanton, immoral, unlawful, malicious and/or deceptive claims handling practices.”

third suit alleging bad faith as a result of a COVID-19 denial was brought in Harris County, Texas, alleging that the insured acted in bad faith by failing to conduct “a reasonable, full and fair claim investigation.”

These suits, all of which are in their nascent stages, will likely present similar legal issues:

  • What constitutes a “reasonable investigation” of a COVID-19 business interruption claim given that these claims should not be covered in the first place?
  • If the COVID-19 claims are judicially determined to be uncovered, can an insurer nevertheless be liable for bad faith based on the purported failure to investigate?
  • Does an insurer’s categorical denial of COVID-19 claims evidence a general business practice of bad faith conduct?
  • If an insurer’s failure to investigate a COVID-19 claim is indeed in bad faith, what extra-contractual damages is the insured entitled to receive?

These COVID-19 bad faith cases are likely just the tip of the iceberg, with more to be filed even after the shelter-in-place orders are eventually lifted and life goes back to normal. How the courts rule on these issues remains to be seen, but it is certain that the insurance industry will be watching closely.

Defending Institutional Bad Faith Claims, Part III – Proof By Other Claims

John David Dickenson and Chad A. Pasternack | Cozen O’Connor | November 27, 2019

In Part I of this series, we explored the differences between institutional and non-institutional bad faith. For claims of institutional bad faith, plaintiffs often attempt to demonstrate a pattern and practice by offering evidence of claims of other policyholders. Unlike claims of institutional bad faith premised on the insurer’s policies and procedures, “other claims” allegations do not require knowledge of the insurer’s motives or internal programs, but instead rely on evidence of repeated behavior to make the threshold showing of bad faith.

When a plaintiff attempts to offer specific factual allegations relating to other policyholders in order to demonstrate a general business practice, the relevant inquiries relate to any actual similarities between the claims and the threshold at which the plaintiff alleges enough “other claims” to constitute a general business practice. “A defendant’s dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages.”1 Unique policyholders make unique insurance claims. Factors courts consider in determining whether acts involving other policyholders suggest a general business practice include: (1) the degree of similarity between the alleged unfair practices in other instances and the practice allegedly harming the plaintiff; (2) the degree of similarity between the insurance policy held by the plaintiff and the polices held by other alleged victims of the insurer’s practices; (3) the degree of similarity between the claims made under the plaintiff’s policy and those made by other alleged victims under their respective policies; and (4) the degree to which the insurer is related to other entities engaging in similar practices.2

Use the plaintiff’s detailed bad faith allegations to show that the alleged bad faith is unique to the circumstances of the case, and but for the specific circumstances, each successive act or omission would not have happened. Consider the pool of policyholders that the plaintiff is offering as similar. Variables to analyze—in addition to the allegations of bad faith conduct—include the geographic scope, the temporal range, the type of loss or claim, and the personnel involved. In the discovery context, the Supreme Court of Texas considered “the many variables associated with a particular claim, such as when the claim was filed, the condition of the property at the time of filing (including the presence of any preexisting damage), and the type and extent of damage inflicted by the covered event.”3

With respect to the number of other claims, some courts require the plaintiff to “produce evidence of far more than three other claims in addition to his own.”4 While there is no “magic number,” the “appropriate consideration is whether the plaintiff has made facially plausible allegations that, in the circumstances of the particular case, the defendant has engaged in the alleged wrongful acts enough to suggest it has a general business practice of doing so.”5

The best practice for limiting general business practices discovery is to stop it before it starts. Scrutinize the pleadings carefully. When the plaintiff attempts to demonstrate a general business practice with allegations regarding other insurance claims, explore the similarities and the dissimilarities of the claims and emphasize the latter. Failure to do so gives the plaintiff an opportunity to go on what might be a costly and intrusive fishing expedition.

Footnotes

1 State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 422 (2003).

2 Belz v. Peerless Ins. Co., 46 F. Supp. 3d 157, 166 (D. Conn. 2014).

3 In re National Lloyds Ins. Co., 449 S.W.3d 486, 489 (Tex. 2014). In National Lloyds, the Supreme Court of Texas vacated a trial court order compelling an insurer to produce documents relating to the insurer’s valuation of other insurance claims. The court held that the insurer’s evaluation of the damage to other homes is not probative of the plaintiff’s undervaluation claims at issue. Id.

4 See, e.g., Jablonski v. St. Paul Fire & Marine Ins. Co., No. 2:07-cv-00386, 2010 WL 1417063 (M.D. Fla. Apr. 7, 2010) (citing Howell-Demarest v. State Farm Mut. Ins. Co., 673 So. 2d 526, 529 (Fla. Dist. Ct. App. 1996)).

5 Belz, 46 F. Supp. 3d at 167 (holding three alleged other instance of unfair settlement practices are sufficient to withstand a motion to dismiss); see also K Kim v. State Farm Fire & Cas. Co., No. 3:15-cv-879, 2015 WL 6675532, at *5 (D. Conn. Oct. 30, 2015) (“Here, Plaintiffs rely on one instance of wrongful conduct, the denial of their claim at issue in this litigation. They fail to allege any pattern of wrongful conduct, either with respect to their claim or those of others.”).

Defending Institutional Bad Faith Claims, Part II – Focusing On Plausibility

John David Dickenson and Chad A. Pasternack | Cozen O’Connor | November 26, 2019

In Part I of this series, we discussed institutional bad faith and best practices for insurers to minimize the risk of these costly and intrusive lawsuits. In Part II, we will focus on cutting discovery off at the pleadings—by narrowing the plaintiff’s claim, you limit the scope of relevance in discovery. Under Federal Rule of Civil Procedure 26(b), “[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case….”

Plaintiffs often allege institutional bad faith by providing a small amount of information pertaining to the company at large, and then making significant inferences and conclusions and offering those inferences as factual allegations. A skilled attorney can make such logical leaps appear valid. To avoid general business practices discovery, the battle begins with the initial pleadings. If the complaint does not allege institutional bad faith, then it will be much easier to argue that such discovery is not relevant. If, on the other hand, the complaint alleges institutional bad faith, limiting discovery will become more difficult and more dependent on the specific circumstances of the lawsuit and the discovery requests.1

Since the United States Supreme Court’s rulings in Twombly and Iqbal,2 Federal courts are taking a closer look at bad faith allegations. For example, in a case out of Florida, the court dismissed a claim for punitive damages that contained only “[c]onclusory assertions about business practices and profit motives ….”3 In Moss v. Liberty Mut. Fire Ins. Co., the plaintiffs alleged the insurer defendant hired a consultant to develop programs to increase the company’s profits and to motivate adjusters to pay claims unfairly and make “low ball” offers, and that this program led to an increase in profits.4 But, the plaintiffs “fail[ed] to provide any factual underpinnings which make the leap from alleged bad faith delay in processing Plaintiffs’ insurance claim to a general business practice of acting with bad faith toward other unnamed insureds.”5 The lesson learned from Moss is that you have to scrutinize even detailed, well-researched complaints. Inferences are not facts and do not raise a claim to the level of facially plausible.

Similarly, vague allegations of bad faith based upon a plaintiff’s “information and belief” do not rise to the level of “plausible.”6 If the plaintiff knew of specific facts that would support its assertions of institutional bad faith, the plaintiff would allege those facts.7 Some plaintiffs may attempt to skirt the pleading requirements of Rule 8(a) by arguing that “information regarding a company’s general business practices is peculiarly within the possession and control of the [company], such that they may plead facts on the basis of information and belief.”8 “However, they still must plead enough facts to permit for the reasonable inference that the unfair insurance practice occurred with enough frequency for it to be deemed a ‘general business practice.'”9 In Kim v. State Farm Fire & Cas. Co., the plaintiffs alleged “it is the general business practice of State Farm to wrongfully deny coverage by relying upon inapplicable policy exclusions.”10 The court rejected the plaintiffs’ argument that “the issue of the frequency with which the defendants engaged in the insurance practices complained of is a more appropriate area for discovery than pleading and that conclusory allegations of [a] ‘general business practice’ suffice for purposes of permitting discovery.”11 Accordingly, the court held that the plaintiffs’ bare allegations fail to state a claim.12

By challenging unsupported allegations, you take away the plaintiff’s argument that broad general business practices discovery is relevant to its claims. To that end, plausible claims of “general” business practices based on “other claims” require allegations of specific facts relating to the insurer’s conduct in regard to policyholders other than the plaintiff.13

Footnotes

1. See All Moving Servs.Inc. v. Stonington, Ins. Co., No. 11-61003-CIV, 2012 WL 718786, at *5 (S.D. Fla. Mar. 5, 2012) (holding that if the general business practices allegations are deemed legally sufficient, or are not challenged, the plaintiff may pursue discovery relevant to its claim for punitive damages).

2. Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

3. Moss v. Liberty Mut. Fire Ins. Co., No. 3:16-cv-677-J-39JBT, at *5 (M.D. Fla. Aug. 18, 2017).

4. Id. at *6.

5. Id.

6. 316, Inc. v. Md. Cas. Co., 625 F. Supp. 2d 1179, 1184 (N.D. Fla. 2008); accord Alqamus v. Pac. Specialty Ins. Co., No. 3:14-cv-00550, 2015 WL 5722722, at *3 (D. Conn. Sept. 29, 2015).

7. See El Doral Office Condo. Ass’n v. Scottsdale Ins. Co., No. 19-20418, 2019 WL 1979361, at *2 (S.D. Fla. May 3, 2019) (“The inclusion of the term ‘to the extent’ within the pleading undermines any claim that the affirmative defense can be supported by facts known to Scottsdale at this moment. If such facts were known, they would almost certainly have been included.”).

8. Kim v. State Farm Fire & Cas. Co., No. 3:15-cv-879, 2015 WL 6675532, at *5 (D. Conn. Oct. 30, 2015) (quotation marks omitted).

9. Id. (quotation marks omitted).

10. Id. at *4.

11. Id. at *5 (quotation marks omitted).

12. Id.

13. Niagara Distribs., Inc. v. N. Ins. Co. of N.Y., No. 10-61113, 2010 WL 11441045, at *3 (S.D. Fla. Oct. 22, 2010).