The Legal Intelligencer Blog

Fresh Ink: Inside Today's Legal (and DLW!)

By Jaime Bochet
Of the Legal Staff

Welcome to your daily round-up of stories in today's edition of The Legal Intelligencer. Click the links below to access stories directly, or head to The Legal homepage. (Some stories may require registration or a paid subscription.)

Just as Tuesdays always include our Pennsylvania Law Weekly section, Wednesday is the unofficial "Day of Delaware," when we roll out the fresh ink from our First State to the south. That includes the Delaware Law Weekly, available online at www.delawarelawweekly.com, as well as our newest product, the Delaware Business Court Insider, an online newsletter that definitely warrants a look.

But more about Delaware in a bit … let's get to today's Legal.

The Marcellus Shale play receives top billing in today's paper. Zack Needles reports that environmental lawyers across Pennsylvania commended the 137-page report issued Friday by Gov. Tom Corbett's Marcellus Shale Advisory Commission, but said the document is merely a jumping-off point for what is likely to become a very complicated set of statewide issues.

Below the fold, Gina Passarella has a law firm story of note: Cozen O'Connor has brought suit against its landlord in Philadelphia Common Pleas Court in an effort to be released from the five-year lease obligation it began this year with 1900 Market GP because the landlord has failed to properly maintain the Class A building and refused to arbitrate the firm's complaints, according to the court filing.

Our Page 3 Regional News story is by Shannon P. Duffy, who writes that a court battle over alleged industrial espionage and corporate raiding between two major defense contractors has turned especially ugly, with allegations of evidence destruction that was so rampant, according to the plaintiff, that the only proper punishment is to enter a default judgment against the defendants.

As always, our People in the News section is on Page 2, and the top stories from our sister publications across the country make up the Page 4 National News section.

First up in our contributed columns today is the "GC Mid-Atlantic" page, which features an article from our affiliate, Corporate Counsel. James F. Haggerty wonders, was the pie-throwing attack on Rupert Murdoch a setup? Was it all just a publicity stunt designed to draw attention away from his testimony before the British parliamentary committee investigating the News of the World phone-hacking scandal? Of course not. But it certainly had that effect.

Next up is our "Intellectual Property" column by Anthony S. Volpe and Robert D. Leonard of Volpe & Koenig, who write that patent law is changing -- and staying the same. 

As we move south in our weekly coverage to Delaware, we'll stop first at the Delaware Law Weekly, where reporter Jeff Mordock has the top stories. Please note: all of our Delaware coverage is for paid subscribers, but you can register for a free 30-day trial by clicking here.

Jeff first writes that Maryland-based Offit Kurman is expanding its commercial litigation and bankruptcy practice by opening a Wilmington office and has tapped former Gibbons P.C. litigator William R. Firth III to lead it.

In on the law school front, a Widener University Law School panel has cleared law professor Larry Connell of charges that he made racist, sexist and violent comments in his law course, according to his lawyer. However, he was found to have violated the university's code against retaliation.

And finally, attorneys for convicted ax-murderer Robert W. Jackson III will take their two-pronged defense before the Delaware Supreme Court and the U.S. District Court today in an effort to prevent his scheduled execution on July 29.

Finally, we'd like you to meet (if you haven't already) the Delaware Business Court Insider. As the name suggests, this is a national product covering the latest news, analysis and cases from the Delaware Chancery Court, Bankruptcy Court and Supreme Court. The accompanying website is www.delbizcourt.com, where you can go to subscribe to this newsletter weekly. You can also follow us on Twitter at: http://twitter.com/delbizcourt.

Top stories there include:

- The News of the World phone hacking scandal has spawned a second derivative suit against its parent company, News Corp., in the Court of Chancery by a shareholder alleging the paper's misdeeds have negatively impacted the company's value; 

- The Delaware Supreme Court clarified the rules regarding the preservation of electronic discovery and opined that the Court of Chancery did not abuse its discretion when it held a defendant in contempt for spoiling material;

- The Court of Chancery has ruled that clear language in an agreement between a company and one of its directors regarding the interim review of attorney fees when the director is sued as a result of their corporate role can trump the standard procedure for reviewing fees established by the court in its 2008 case, Duthie v. CorSolutions Medical Inc.; and

- Private equity firms often own or control portfolio companies today. As part of efforts to maximize the value of its portfolio, a PE firm may well exercise certain control over a subsidiary portfolio company to reduce unnecessary costs and increase profit margin. Cost-cutting measures could include a reduction in workforce in certain segments of a business.

Have questions or comments about any of today's stories, or our coverage as a whole? E-mail me or any of the reporters directly. We hope you'll enjoy today's Legal!

Jaime Bochet is the Magazines & Supplements Editor for The Legal. Follow her on Twitter at @JaimeBochetTLI or e-mail [email protected].

Analysis of Wisinski: Final Thoughts

By Charles E. Haddick Jr.
Special to the Legal

In this final installment reviewing the Western District Court bad faith opinion, Wisinski vs. American Commerce Insurance, I am taking a look at three final areas where the court may have departed from conventional established Pennsylvania law. (Check out Part I, Part II and Part III here.)

In finding that American Commerce committed bad faith by failing to inform its insured of the correct policy limits (American Commerce, it turns out, did inform the plaintiff of the correct limits of $50,000; just not that the limits were stacked for total applicable coverage of $100,000), the court cited with approval Hollock vs. Erie Insurance Exchange Company. In so doing, the court found, "Erie Insurance intentionally mislead its insured for over a year regarding coverage available."

This is correct insofar as it goes. However, the court in Wisinski may have attempted to apply a case involving intentional conduct to a case in which the court had already recognized it was aware of no evidence of intentional conduct with respect to disclosure of  policy limits. 

In place of such knowledge, the court patched the hole in logic, saying "While not as egregious as the conduct in Hollock, ACIC's conduct in the instant case in representing the policy limits to Ms. Wisinski is unreasonable and reveals either intentional or reckless conduct on the part of ACIC." (emhasis added)

Allow me to respectfully suggest two difficulties with this patch. First, the court's analysis appears to dismiss out of hand the possibility of mistake or inadvertence in Wisinski in favor of intentional or reckless conduct so as to make Hollock the right size. In truth, the court conceded it had no more evidence of one possibility than the other when it came to the policy limits issue.

Second, this patch blurs to the point of indistinguishable that which makes bad faith bad faith: the element of state of mind -- intentional or reckless disregard for the rights of the insured. The difference in the established degrees of conduct in Wisinski and Hollock -- evidence of intentional misrepresentation v. no direct evidence of intentional misrepresentation -- is the very difference under Pennsylvania law between negligence and actionable conduct under the bad faith statute. The court recognized the disparity as the essence of the difference between bad faith conduct and negligence, and yet it transmuted one into the other. 

Finally, the court held that American Commerce was guilty of bad faith conduct because it violated its own claims guidelines regarding prompt confirmation of policy limits and the state Unfair Insurance Practices Act, which prohibits insurers from portraying to insureds a "policy of appealing from awards."

As with claims underwriting guidelines, courts have previously held that failure to follow state insurance practices regulations is "equally consistent with a mistake as with bad faith," according to Employers Mutual v. Loos and Pittas v. Hartford Life Ins. Co. See also Oehlmann v. Met Life Ins.Co.

Moreover, even if this were an appropriate bad faith standard, the Unfair Practices Act section upon which the court relied, on its face, would not impose bad faith conduct on American Commerce in the case. The statute precludes insurers from having a policy of appealing from awards. Yet, in the Wisinski opinion, the court referred only to evidence that American Commerce wanted to convey to the claimant that it was contemplating an appeal of the single possible arbitration award in the case. The statute is aimed at a pattern and practice of portraying a conduct policy to insureds. The court cited to no pattern or practice evidence, and no multiple awards from which appeals were to have been taken by ACI.

Over the last several posts, I have subjected the Wisinski opinion to a lot of scrutiny and criticism. In fairness, American Commerce could have been more precise in its claims handling to avoid the outcome that befell it, and Cohill did put together a comprehensive and factually rich opinion.  

There is no question, however, that the opinion in Wisinski stands out, somewhat, against the backdrop of the last five to seven years of bad faith opinions at both the state and federal level. Whether it will prove to be a temporary departure from the general trend, or a sign of the change in direction of judicial bad faith opinions, is not yet known. 

Charles E. Haddick Jr. is a partner with Dickie McCamey & Chilcote. I welcome feedback from readers, along with any suggestions for topics you would like to see discussed in this space. Please e-mail me at [email protected].

Wisinski and ‘Lowball’ Settlement Offers

By Charles E. Haddick Jr.
Special to the Legal

In this post, we continue our analysis of a recent bad faith ruling in Wisinski vs. American Commerce Group Inc. and American Commerce Insurance Company. Here, we will discuss the court’s finding that settlement negotiations included  “lowball” settlement offers by the insurer, and constituted bad faith.

Specifically, the court found, in light of seeing American Commerce ultimately settle for policy limits ($100,000), that two earlier offers, each less than $15,000, were “lowball” in nature and constituted bad faith on the part of the insurer. 

According to the opinion, American Commerce doubted causation in the UIM claim in dispute. It was aware that prior to the accident injuring the plaintiff’s knees, the plaintiff had previously filed a Social Security income disability claim. In addition, Wisinski’s own counsel provided a physician’s report from a doctor indicating she had an injury to her right knee prior to the December 2001 car accident.  The same doctor found the 2001 accident caused an “exacerbation of underlying arthritis.” 

Before examining whether Pennsylvania law allows for such a retrospective, results-backward analysis of settlement offers, we might first examine an assumption underlying the court’s opinion: that American Commerce had any duty to participate in settlement negotiations at all, in light of the limits demand.

Under Pennsylvania law, an insurance company does not have an obligation to participate in settlement talks where the insured has demonstrated no interest in resolution of the claim. Under Zappile vs. Amex Insurance (2007), the Superior Court held that where a plaintiff insured maintains a policy limits demand, such a position is not indicative of willingness to compromise, and thus the insurer has no obligation to enter into settlement discussions. Zappile, then, invites the conclusion that a policy limits demand by an insured signifies no more interest in compromise than a zero-dollar offer from the insurer: both represent 100 percent victories for the respective proponents.

Here, despite the plaintiff’s adherence to a policy limits demand throughout the course of the claim, American Commerce did make settlement offers, where arguably under Zappile it had no obligation to do so. And if an insurer has no obligation to make any settlement offers, how is it possible to consider those offers “lowball” or made in bad faith?

Beyond that question, we turn our attention to whether there was a reasonable basis for the initial offers the insurer made. American Commerce questioned causation in the case and viewed the claim as, if anything, a potential exacerbation of a pre-existing condition. The insurer also obtained an independent medical report that indicated the automobile accident did nothing to change the preordained course of the plaintiff’s degenerative knee arthritis.

The court nonetheless felt that because late in the claim the insurer came to the realization that the plaintiff was likely to win policy limits of $100,000, this made earlier offers of less than $15,000 “lowball”and bad faith in nature. This is a dangerous way to look at settlement offers.

The court’s analysis of the nature of the original offers can be questioned on at least two grounds. First, the quality of the offers should be objectively measured as of the time they are made and not retroactively against other offers when the case has materially developed and changed, as seen in the Middle District of Pennsylvania’s 2007 decision in Oehlmann v. Met Life Ins. Co.

Secondly, the court took great pains to analyze the initial lower offers in terms of what the insurer subjectively knew. Under Pennsylvania law, bad faith is not to be judged on a subject of standard, but rather, an objective one; any justification for an insurer’s position on a claim, whether the insurer was aware of the justification or not, is a valid defense to a Section 8371 claim, as seen in the Eastern District’s 2007 decision in Wedemeyer v. The United States Life Insurance Company In The City Of New York, et al.

Even if the subjective of standard were the correct one, the court claimed the insurer made the early low offers in bad faith because they were made at a time when it did not have the benefit of the insurer’s IME findings attacking causation. While true, the court apparently overlooked the fact that the insurer did have information at the time of the offers from the insured’s own attorney indicating prior degenerative joint disease in the plaintiff’s knees. Under either standard, therefore, it is respectfully suggested that analysis of the prior offers as “lowball” is suspect. 

Medical causation, when in question, can be an all-or-nothing proposition when decided by a panel of arbitrators. It is not necessarily unreasonable, therefore, that settlement discussions might approximate this model as well. We will continue our look at Wisinski in our next post.

Charles E. Haddick Jr. is a partner with Dickie McCamey & Chilcote. I welcome feedback from readers, along with any suggestions for topics you would like to see discussed in this space. Please e-mail me at [email protected].

Analysis of Wisinski: Negligence v. Bad Faith

By Charles Haddick
Special to the Legal

In my last post, I introduced a bad faith ruling from the Western District of Pennsylvania that has received considerable attention since it was published on Jan. 4. Now, we continue our look at the Wisinski case, beginning with an in-depth analysis of the ruling.

To the extent an over-arching observation can be made, the ruling, in large part, appears to place heavy burdens and obligations on the insurer to safeguard the rights of the insured even though Pennsylvania law clearly holds that a UM/UIM proceeding is adversarial in nature, according to Condio vs. Erie, and that an insurer need not subvert it’s own rights in such a proceeding to the rights of the insured.

Moreover, even though the insured in Wisinski was represented by counsel throughout the duration of her UM claim, the court did not appear to find this highly significant and appeared to impose greater responsibility for safeguarding the insured’s rights on the insurer than Wisinski’s own lawyer.

Starting off with a change in assumption of such high magnitude -- the precise duty owed by an insurer to an insured in a UM/UIM context -- was sufficiently fundamental to then cause the remainder of the opinion to lean the way it did, contrary to existing bad faith law and highly in favor of the insured. In fairness to the ruling, we will examine each feature of the opinion individually.

The first casualty of the above assumption was the falling of another:  the long-held belief in Pennsylvania that negligence and bad faith do not describe legally equivalent conduct. Nonetheless, in Wisinski, the court may have interpreted conduct on the part of the insurer that may have been no more than negligence as satisfying the liability standard under the bad faith statute.

Ironically, Cohill correctly observed that the insured has a burden of producing clear and convincing evidence that the insurer acted intentionally or recklessly in handling of the claim, citing Employer’s Mutual Casualty Company vs. Loos. The court also observed that an insured must show that the breach of the duty of good faith must include some motive of self-interest or ill will, citing Koserowski vs. Allstate. In fact, the court appears to have correctly applied this standard when it entered summary judgment in favor of American Commerce on the bad faith claim relating to the handling of the first-party portion of the claim when Cohill wrote, “we can discern no ill will on the part of ACIC and find that ACIC did not act in bad faith with regard to this claim.”

But this same discernment appears to be lost, to some degree, when the handling of the UM/UIM claim is examined. The court found that ACIC committed bad faith by failing to advise the insured of the proper limits of coverage. The court did so despite writing, “while there is no direct evidence that ACIC intentionally did not inform Mrs. Wisinski of the correct policy limit, and insurance company is in the best position to accurately determine the correct policy limit of its own policy.”

While this may or may not be true, the next leap in logic was substantial, when the court wrote: “an insurance company that possesses the information to allow them to accurately determine the policy limits but failed to inform the insured of the correct policy limits does so either intentionally or recklessly.” (emphasis added) 

The court here appeared to overlook two fairly significant facts. First, the insured had a copy of her policy and her own lawyer. Wouldn’t that, especially in the adversarial setting of a UM/UIM claim, put the insurer in at least as good a position to make a determination what her limits were?  Second, why doesn’t the court here at least allow for the possibility of mistake or inadvertence on the part of the insurer, especially at the summary judgment stage where disagreement over the “limit” was actually whether a recognized $50,000 limit was stacked to provide an aggregate of $100,000 in coverage? To ignore such a possibility is to wrongly equate negligence and bad faith, and controlling Pennsylvania law does not permit such an equation, as we shall see in an upcoming post.

So, despite acknowledging the need for the plaintiff to produce clear and convincing evidence of bad faith, and that such evidence must include proof of ill will or improper motive, and despite acknowledging it was aware of no direct evidence of intentional misrepresentation concerning the policy limits, the Wisinski court nevertheless made an assumption at the summary judgment stage that ACIC could not have simply made a mistake, or been negligent, but ruled that because the insurer had the same information the insured and her lawyer had, it either knew or should have known the correct policy limits, and intentionally or recklessly misrepresented them to its insured.

Charles Haddick is a partner with Dickie McCamey & Chilote. I welcome feedback from readers, along with any suggestions for topics you would like to see discussed in this space.  Please e-mail me at [email protected].

Recent Bad Faith Ruling Draws Attention

By Charles Haddick
Special to the Legal

On Jan. 4, Judge Maurice Cohill of the U.S. District Court for the Western District of Pennsylvania issued a ruling in the insurance bad faith case of Wisinski vs. American Commerce Group Inc. and American Commerce Insurance Company. The court entered summary judgment in favor of the insured relative to bad faith and breach of contract claims arising out of an uninsured motorist claim.

While the court also granted summary judgment in favor of the insurer with respect to the plaintiff’s first party benefits claim, it is the portion of Cohill’s opinion that found bad faith in the handling of the UM/UIM claim that is drawing the most attention.

It is unclear whether or not American Commerce will seek an appeal of the ruling at the conclusion of the litigation.

The opinion spans 32 pages and is such a rich discussion of so many facets of bad faith claims handling that it cannot be broken down and analyzed in a single post. Over the next several blog posts, then, we will look at the Wisinski decision in some detail and analyze why some of the assumptions underlying the opinion may be a departure from existing bad faith precedent in Pennsylvania on both the state and federal levels. While it is far too early to determine whether the opinion is a brief departure from the trend to narrow the footprint cast by Section 8371, or perhaps a sign of something more, it is worth an immediate look.

The court’s discussion of the factual history of the first party and UM/UIM insurance claims alone comprises nearly half of the 32-page opinion. We will discuss specific facts as they lend themselves to the specific issues we will be examining. It is sufficient for current purposes to know that the case arises out of an auto accident Wisinski reported to ACIC on Dec. 21, 2001. The first party claim was pursued initially, and Wisinski, who was represented by counsel throughout the claim, did not place American Commerce on notice of a UM claim until Dec. 18, 2003. The parties disputed whether or not the policy between them provided for arbitration of the UM claims. ACIC originally informed Wisinski that the policy was a single $50,000 limit policy, when in reality the limit was stacked twice in the aggregate to $100,000. 

Several settlement offers were made by ACIC after learning that Wisinski, who sought compensation for knee injury, had made a prior SSI claim, and was diagnosed by her own doctor with degenerative arthritis. Settlement in principal for the policy limit of $100,000 was reached in late 2006 and an acceptable release agreement was finalized in February 2007 under which $100,000 policy limits were paid. 

A bad faith claim was subsequently filed on behalf of Wisinski. The three chief claims against American Commerce relative to handling the UIM claim concerning bad faith were the company’s failure to advise its insured of the correct policy limits; its failure to proceed to arbitration; and its initial offer of a release agreement which sought release of any and all claims, including bad faith claims. 

In our next post, we will start to tackle analysis of Cohill’s ruling.

Charles Haddick is a partner with Dickie McCamey & Chilote. I welcome feedback from readers, along with any suggestions for topics you would like to see discussed in this space.  Please e-mail me at [email protected].