demystifying the bad faith set-up in insurance...

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Demystifying the "Bad Faith Set-Up"in Insurance LitigationNavigating 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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STRAFFORDPUBLICATIONS

WEBINAR

Demystifying the “Bad Faith SetDemystifying the “Bad Faith Set--Up” inUp” inInsurance LitigationInsurance Litigation

August 16, 2016August 16, 2016

C. Scott RybnyPartner

Timoney Knox, LLP(215) 540-2658

[email protected]

Demystifying the “Bad Faith SetDemystifying the “Bad Faith Set--Up” inUp” inInsurance LitigationInsurance Litigation

Danya J. PincavageShareholder

Ver Ploeg & Lumpkin, P.A.(305) 577-3996

[email protected]

Daniel L. PetrilliAssociate

Timoney Knox, LLP(215) 540-2637

[email protected]

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”

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

VI. Alert! The New Frontier – “Social Duty”

IV. Insurer Best Practices

V. Claimant Pitfalls

VI. Alert! The New Frontier – “Social Duty”

7

INTRODUCTIONINTRODUCTION

8

EVALUATING BAD FAITH

• THE REASONABLE BASIS

DEFENSE

• THE “FAIRLY DEBATABLE”

DEFENSE

10

I. THE “BAD FAITHSET-UP”: FACTOR FICTION?

11

II. DEVELOPINGCASELAW

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-UpAffirmative Defense”

• Policyholder Sued Insurer for Bad Faith Failure toOffer Policy Limits Leading to Jury Award 18X thePolicy Limits

• Insurer Files Motion to Strike “Bad Faith Set-UpAffirmative Defense”

• Policyholder Sued Insurer for Bad Faith Failure toOffer Policy Limits Leading to Jury Award 18X thePolicy 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 settlementdemand, followed by a quick closing of thewindow before important information is providedso that any subsequent limits offers by the insurerare bemoaned as too late."

• Court Does Not Expressly Acknowledge the “BadFaith Set-Up” as an Affirmative Defense, but DoesNot Strike the Defense

• “Bad faith set-up" involved "a quick settlementdemand, followed by a quick closing of thewindow before important information is providedso that any subsequent limits offers by the insurerare bemoaned as too late."

• Court Does Not Expressly Acknowledge the “BadFaith Set-Up” as an Affirmative Defense, but DoesNot 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 ClaimInvolved Collusion Similar to “Bad Faith Set-Up”

• Court Tacitly Acknowledges the “Bad Faith Set-Up” as the Basis for an Affirmative Defense

• Insurer Argued Assignment of Bad Faith ClaimInvolved 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, withoutlimitation, are valid defenses to D&W's[policyholder’s] action. The facts alleged byLiberty [insurer] are sufficient for it to takediscovery into the areas of D&W's allegedvoluntary payment made without the consent ofLiberty and D&W's bad faith.”

• “if proven, these two affirmative defenses, withoutlimitation, are valid defenses to D&W's[policyholder’s] action. The facts alleged byLiberty [insurer] are sufficient for it to takediscovery into the areas of D&W's allegedvoluntary payment made without the consent ofLiberty 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 Insurerto Not Have Settled a Claim within a Two-WeekTimed, Settlement Period

• Because of Multiple Similar Filings, the CourtReferred Counsel for the Claimiant to the State Barof Nevada for Disciplinary Review

• Court Held that it was Reasonable for the Insurerto Not Have Settled a Claim within a Two-WeekTimed, Settlement Period

• Because of Multiple Similar Filings, the CourtReferred Counsel for the Claimiant to the State Barof 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 modusoperandi of using similar demand letters inmultiple cases in this District, which impose anunreasonable time constraint of two weeks ontheir demands for payment to set up a bad faithclaim”

• The Court Opined that Counsel “has a modusoperandi of using similar demand letters inmultiple cases in this District, which impose anunreasonable time constraint of two weeks ontheir demands for payment to set up a bad faithclaim”

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 toSettle a Third Party Personal Injury Claim

• Insurer Argues Excess Verdict Was Caused By ItsPolicyholder’s “Refusal to Defend the Claim” andHer “Counsel’s Intent to Pursue a Bad Faith Claim”

• Policyholder Sues Insurer for Bad Faith Failure toSettle a Third Party Personal Injury Claim

• Insurer Argues Excess Verdict Was Caused By ItsPolicyholder’s “Refusal to Defend the Claim” andHer “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 asuspicion of the 'cat-and-mouse' game betweenclaimants and insurers”

• Operative facts include “arbitrary settlementdeadlines and deprived the insurer of informationin order to hamper the insurer's ability toinvestigate the accident"

• Proper inquiry involves whether facts "raise asuspicion of the 'cat-and-mouse' game betweenclaimants and insurers”

• Operative facts include “arbitrary settlementdeadlines and deprived the insurer of informationin order to hamper the insurer's ability toinvestigate the accident"

23

ROBERTS V. PRINTUP,595 F.3D 1181 (10TH CIR. 2010)

• Third Party Claimant Submits a Timed, 10-daySettlement Demand to an Insurer After anAutomobile Accident

• Offer Was Accepted 3 Weeks Later, But ClaimantFiled Suit and Obtained an Excess Verdict

• Third Party Claimant Submits a Timed, 10-daySettlement Demand to an Insurer After anAutomobile Accident

• Offer Was Accepted 3 Weeks Later, But ClaimantFiled Suit and Obtained an Excess Verdict

24

ROBERTS V. PRINTUP,595 F.3D 1181 (10TH CIR. 2010)

• For Timed-Settlement Demands, the CourtEmphasized a Policy Designed "to avoid creatingthe incentive to manufacture bad faith claims byshortening the length of the settlement offer, whilestarving the insurer of the information needed tomake a fair appraisal of the case"

• For Timed-Settlement Demands, the CourtEmphasized a Policy Designed "to avoid creatingthe incentive to manufacture bad faith claims byshortening the length of the settlement offer, whilestarving the insurer of the information needed tomake 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 timetablefor settlement to govern the bad-faith inquirywould promote the customary manufacturing ofbad-faith claims, especially in cases where aninsured of meager means is covered by a policy ofinsurance which could finance only a fraction ofthe damages in a serious personal injury case.”(quoting Pavia v. State Farm Mut. Auto Ins. Co., 82N.Y. 2d 445 (1993))

• “Permitting an injured plaintiff's chosen timetablefor settlement to govern the bad-faith inquirywould promote the customary manufacturing ofbad-faith claims, especially in cases where aninsured of meager means is covered by a policy ofinsurance which could finance only a fraction ofthe damages in a serious personal injury case.”(quoting Pavia v. State Farm Mut. Auto Ins. Co., 82N.Y. 2d 445 (1993))

26

WADE V. EMASCO INS. CO.,483 F.3D 657 (10TH CIR. 2007)

• “Courts should not permit bad faith in theinsurance milieu to become a game of cat-and-mouse between claimants and insurer, lettingclaimants induce damages that they then seek torecover, whilst relegating the insured to thesidelines as if only a mildly curious spectator.”(quoting Peckham v. Continental Cas. Ins. Co., 895F.2d 830 (1st Cir. 1990))

• “Courts should not permit bad faith in theinsurance milieu to become a game of cat-and-mouse between claimants and insurer, lettingclaimants induce damages that they then seek torecover, whilst relegating the insured to thesidelines as if only a mildly curious spectator.”(quoting Peckham v. Continental Cas. Ins. Co., 895F.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 SettleThird-Party Claim

• Underlying Action Involved Automobile AccidentResulting in Personal Injuries and Wrongful Death

• Policyholder Suit for Bad Faith Failure to SettleThird-Party Claim

• Underlying Action Involved Automobile AccidentResulting in Personal Injuries and Wrongful Death

29


• Insurer Asserts “Bad Faith Set-Up” as anAffirmative Defense

• Defense Upheld on Summary Judgment

• Insurer Asserts “Bad Faith Set-Up” as anAffirmative Defense

• Defense Upheld on Summary Judgment

30


• Insurer Can raise the Defense That There Was NoReasonable Opportunity to Settle “To Be DecidedBased on all the Circumstances.” (quoting Rynd v.Nationwide Mut. Fire Ins. Co., 2011 U.S. Dist. LEXIS116493 (M.D. Fla. Oct. 7, 2011)

• Insurer Can raise the Defense That There Was NoReasonable Opportunity to Settle “To Be DecidedBased on all the Circumstances.” (quoting Rynd v.Nationwide Mut. Fire Ins. Co., 2011 U.S. Dist. LEXIS116493 (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 toSettle Third-Party Automobile Claim InvolvingPersonal Injuries and Wrongful Death

• Prior to Trial, Policyholder Files Motion in Limineto Preclude Reference to any “Bad Faith Set-Up”

• Policyholder Sues Insurer for Bad Faith Failure toSettle Third-Party Automobile Claim InvolvingPersonal Injuries and Wrongful Death

• Prior to Trial, Policyholder Files Motion in Limineto 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 WasNot Pled as an Affirmative Defense

• Court Suggests the “Bad Faith Set-Up” Would bePrecluded Due to the Insurer’s Failure to Plead

• Motion Denied as Moot Because the InsurerAgreed to Limit Evidence to the Policyholder’sUnwillingness to Settle as opposed to the InsurerBeing “Set Up”

• Policyholder Also Argues that the “Bad Faith Set-Up” Cannot Be Referenced at Trial Because it WasNot Pled as an Affirmative Defense

• Court Suggests the “Bad Faith Set-Up” Would bePrecluded Due to the Insurer’s Failure to Plead

• Motion Denied as Moot Because the InsurerAgreed to Limit Evidence to the Policyholder’sUnwillingness to Settle as opposed to the InsurerBeing “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 defensesto a bad faith claim the claimant’s unwillingness to settle, an unreasonablesettlement 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 itsinsured in the underlying third party litigation as an affirmative defense in abad faith action brought against it.”

• Miller v. Kenny, 180 Wash. App. 772, 810 (2014): “Pressing for a policy limitssettlement for a badly injured client is a professional responsibility, not asinister plot. Keeping bad faith litigation in mind as a plan B if the insurerbalks is a fair practice. Safeco could have protected itself by putting thelimits on the table…”

• Miller v. Byrne, 916 P.2d 566, 576 (1995): “Contrary to the contentions of theAttorneys and Southern, however, the motivation or intent of Sweeney to ‘setup’ 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.”

• 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 defensesto a bad faith claim the claimant’s unwillingness to settle, an unreasonablesettlement 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 itsinsured in the underlying third party litigation as an affirmative defense in abad faith action brought against it.”

• Miller v. Kenny, 180 Wash. App. 772, 810 (2014): “Pressing for a policy limitssettlement for a badly injured client is a professional responsibility, not asinister plot. Keeping bad faith litigation in mind as a plan B if the insurerbalks is a fair practice. Safeco could have protected itself by putting thelimits on the table…”

• Miller v. Byrne, 916 P.2d 566, 576 (1995): “Contrary to the contentions of theAttorneys and Southern, however, the motivation or intent of Sweeney to ‘setup’ 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. InterstateFire & 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. 2d990 (Fla. 4th DCA 1990): “We decline to create a newaffirmative defense of comparative bad faith.” Id. at 990.

• Hartford Roman Catholic Diocesan, Corp. v. InterstateFire & 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. 2d990 (Fla. 4th DCA 1990): “We decline to create a newaffirmative defense of comparative bad faith.” Id. at 990.

35

III. COMMON TELLSFOR THE “BADFAITH SET-UP”

36

TELL # 1

REPETITIVE &ACCUSATORYCORRESPONDENCE

37

TELL #2

TIMED SETTLEMENTDEMANDS

38

TELL #3

REPEATED DEMANDSFOR AN EXPLANATIONS

39

OTHER TELLS IN THEADVANCED GAME…

• Challenging the holdback

• >> demands for depreciation tables

• >> refusing to accept straight linedepreciation calculations

• >> utilizing accountants and IRSstandards

• >> challenging holdback applied to the“10&10” and to labor charges

• >> asserting that the holdback issimply unreasonable or poorlydocumented

• Challenging the holdback

• >> demands for depreciation tables

• >> refusing to accept straight linedepreciation calculations

• >> utilizing accountants and IRSstandards

• >> challenging holdback applied to the“10&10” and to labor charges

• >> asserting that the holdback issimply unreasonable or poorlydocumented

40

OTHER TELLS IN THEADVANCED GAME…

• The defamation and “intentionalinterference” actions

• >> baiting to fire the public adjuster

• >> baiting for negative -- or evenslanderous -- comments about thepublic adjuster or another involvedparty/vendor

• The defamation and “intentionalinterference” actions

• >> baiting to fire the public adjuster

• >> baiting for negative -- or evenslanderous -- comments about thepublic adjuster or another involvedparty/vendor

41

IV. INSURER BESTPRACTICES

42

• Be Responsive & Reasonable…• Even When Wrong.

• Be Responsive & Reasonable…• Even When Wrong.

43

• DEMONSTRATING• REASONABLENESS• CAN START WITH

• YOUR• CALENDAR

• DEMONSTRATING• REASONABLENESS• CAN START WITH

• YOUR• CALENDAR

44

RELIANCE ONTHIRD-PARTYPROFESSIONALS

45

•V. CLAIMANTPITFALLS: WHENATTORNEY ACTIONSARE CHALLENGEDAS A BAD-FAITH SET-UP ATTEMPT

•V. CLAIMANTPITFALLS: WHENATTORNEY ACTIONSARE CHALLENGEDAS A BAD-FAITH SET-UP ATTEMPT

46

CRYING “SET-UP” DOES NOT PERMIT AN INSURERTO 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 tocompel, but agreed to an in camera review of the documents explaining:

• “First, the fact that documents prepared in anticipation of litigation contain factualinformation does not remove them from the protections of work-productprivilege. Second, Plaintiff was not the one that brought up the alleged“unwillingness” to settle into this case. Rather, it is Defendant that first raised this asan 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 discoveringmaterials protected by work-product privilege . . . Part of the motion, then, seeksfactual information and the other seeks the impression of the underlyingattorney and his or her staff. There are other ways that Defendant can establishthe 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 thespecific message left. With regards to the mental impressions of Plaintiff’s counsel,this Court refuses to grant Defendant unrestricted access to underlying Plaintiff’scounsel’s thoughts…”

• 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 tocompel, but agreed to an in camera review of the documents explaining:

• “First, the fact that documents prepared in anticipation of litigation contain factualinformation does not remove them from the protections of work-productprivilege. Second, Plaintiff was not the one that brought up the alleged“unwillingness” to settle into this case. Rather, it is Defendant that first raised this asan 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 discoveringmaterials protected by work-product privilege . . . Part of the motion, then, seeksfactual information and the other seeks the impression of the underlyingattorney and his or her staff. There are other ways that Defendant can establishthe 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 thespecific message left. With regards to the mental impressions of Plaintiff’s counsel,this Court refuses to grant Defendant unrestricted access to underlying Plaintiff’scounsel’s thoughts…”

47

CRYING “SET-UP” DOES NOT PERMIT AN INSURERTO 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. May29, 2012): It is clear that the focus in a bad faithfailure to settle claim is on the conduct of theinsurance company. Consequently, the Courtcannot conceive of how correspondence betweencounsel for the injured parties who obtainedjudgments in excess of the insured’s policy limitscould be relevant to a subsequent bad faith failureto settle claim against the insurance company by itsinsured.

• State Auto Prop. and Cas. Co. v. Griffin, No. 4:11-CV-14 CDL, 2012 WL 1940797, at *1 (M.D. Ga. May29, 2012): It is clear that the focus in a bad faithfailure to settle claim is on the conduct of theinsurance company. Consequently, the Courtcannot conceive of how correspondence betweencounsel for the injured parties who obtainedjudgments in excess of the insured’s policy limitscould be relevant to a subsequent bad faith failureto settle claim against the insurance company by itsinsured.

48

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

• Fulbrook v. Allstate Ins. Co., No. 61567, 2015WL 439598, at *1 (Nev. Jan. 30, 2015) (Pickering,J., dissenting) “It is one thing to say that, in aparticular case, an insured’s demand letterimposed such unreasonable conditions that theinsurer did not act in bad faith in notimmediately meeting the demand … it isanother proposition altogether to admit, asevidence of an insured’s subjective intent to‘set up’ his insurer, letters the insured’s lawyersent on behalf of other insureds to ‘set up’other insurers in other unrelated cases.” Id. *6-7.

• Fulbrook v. Allstate Ins. Co., No. 61567, 2015WL 439598, at *1 (Nev. Jan. 30, 2015) (Pickering,J., dissenting) “It is one thing to say that, in aparticular case, an insured’s demand letterimposed such unreasonable conditions that theinsurer did not act in bad faith in notimmediately meeting the demand … it isanother proposition altogether to admit, asevidence of an insured’s subjective intent to‘set up’ his insurer, letters the insured’s lawyersent on behalf of other insureds to ‘set up’other insurers in other unrelated cases.” Id. *6-7.

49

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

• Barnard v. GEICO, No. 5:10CV213/RS-CJK, 2011WL 2039560, at *3 (N.D. Fla. May 25, 2011), aff'd, 448F. App’x 940 (11th Cir. 2011): “For an attorney torefuse to respond to [16] attempts to contact him formonths at a time is outrageous and unprofessional… Plaintiff cannot now use her own attorney’s poorbehavior to claim bad faith on the part of Defendant”.

• Barnard v. GEICO, No. 5:10CV213/RS-CJK, 2011WL 2039560, at *3 (N.D. Fla. May 25, 2011), aff'd, 448F. App’x 940 (11th Cir. 2011): “For an attorney torefuse to respond to [16] attempts to contact him formonths at a time is outrageous and unprofessional… Plaintiff cannot now use her own attorney’s poorbehavior to claim bad faith on the part of Defendant”.

50

AVOIDING A “SET-UP” DEFENSE: REJECTINGPOLICY LIMITS

• Kemp v. Hudgins, 133 F. Supp. 3d 1271, 1296 (D.Kan. 2015): Kemp rejected each policy limitsettlement proposal after the lawsuit was filedbecause he did not believe that the policy limitssufficiently covered his claim, even though DairylandInsurance repeatedly offered to settle for its policylimit.

• Kemp v. Hudgins, 133 F. Supp. 3d 1271, 1296 (D.Kan. 2015): Kemp rejected each policy limitsettlement proposal after the lawsuit was filedbecause he did not believe that the policy limitssufficiently covered his claim, even though DairylandInsurance repeatedly offered to settle for its policylimit.

51

AVOIDING A “SET-UP” DEFENSE: TIME LIMITDEMANDS

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 amodus operandi of using similar demand letters inmultiple cases in this District, which impose anunreasonable time constraint of two weeks on theirdemands for payment to set up a bad faith claim.” Id.at *6. The Court admonished Mr. Christiansen’sbehavior stating that “if Christensen attempts to bringbefore this Court another baseless bad faith claimpremised on an unreasonable settlement demand,sanctions will be imposed.” Id.

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 amodus operandi of using similar demand letters inmultiple cases in this District, which impose anunreasonable time constraint of two weeks on theirdemands for payment to set up a bad faith claim.” Id.at *6. The Court admonished Mr. Christiansen’sbehavior stating that “if Christensen attempts to bringbefore this Court another baseless bad faith claimpremised on an unreasonable settlement demand,sanctions will be imposed.” Id.

52

AVOIDING A “SET-UP” DEFENSE: IS AN OFFER TOSETTLE 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 ademand or offer of settlement by the injured party is merelyone of the factors to be considered in deciding, on the basisof the totality of the circumstances, whether the insureracted 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-partyclaim, an “insurer-acting with diligence and due regard forits-insured is allowed a reasonable time to investigate aclaim; no obligation exists to accept a settlement offer (or totender policy limits in advance of a settlement offer) withouttime for investigation.”

• 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 ademand or offer of settlement by the injured party is merelyone of the factors to be considered in deciding, on the basisof the totality of the circumstances, whether the insureracted 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-partyclaim, an “insurer-acting with diligence and due regard forits-insured is allowed a reasonable time to investigate aclaim; no obligation exists to accept a settlement offer (or totender policy limits in advance of a settlement offer) withouttime for investigation.”

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AVOIDING A “SET-UP” DEFENSE: RELEASELANGUAGE

• Cardenas v. GEICO Cas. Co., 760 F. Supp. 2d 1305 (M.D. Fla.2011): Claimant cannot rely on an alleged defect in aninsurer’s release where the insurer was willing to modifysame or an “inadvertent” failure to tender a copy of thepolicy 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): Thecourt denied GEICO’s motion for summary judgment finding“that there is a factual question regarding whether GEICOrefused to remove the release’s indemnity language” andthat a jury “could find that the refusal to remove thislanguage from the release demonstrates the failure of GEICOto act in good faith.”

• Cardenas v. GEICO Cas. Co., 760 F. Supp. 2d 1305 (M.D. Fla.2011): Claimant cannot rely on an alleged defect in aninsurer’s release where the insurer was willing to modifysame or an “inadvertent” failure to tender a copy of thepolicy 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): Thecourt denied GEICO’s motion for summary judgment finding“that there is a factual question regarding whether GEICOrefused to remove the release’s indemnity language” andthat a jury “could find that the refusal to remove thislanguage from the release demonstrates the failure of GEICOto act in good faith.”

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VI. ALERT!!!THE NEW FRONTIER-“SOCIAL DUTY”

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RESTATEMENT 2D OF TORTS § 324A

• One who undertakes, gratuitously or for consideration, torender services to another which he should recognize asnecessary for the protection of a third person … is subject toliability to the third person for physical harm resulting fromhis failure to exercise reasonable care to protect hisundertaking, if

• (a) his failure to exercise reasonable care increases the riskof such harm, or

• (b) he has undertaken to perform a duty owed by the other tothe third person, or

• (c) the harm is suffered because of reliance of the other orthe third person upon the undertaking.





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RESTATEMENT 2D OF TORTS § 324A









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BRUNO V. ERIE INS. CO.,104 PA LEXIS 3319 (PA. DEC. 15, 2014)

• PA Supreme Court allows policyholder negligence claimagainst carrier to proceed.

• Policyholders pled negligent and false assurances by Erie’scontractor and engineer regarding toxicity of black mold

• Wife/Policyholder dies of esophageal cancer

• PA Supreme Court allows policyholder negligence claimagainst carrier to proceed.

• Policyholders pled negligent and false assurances by Erie’scontractor and engineer regarding toxicity of black mold

• Wife/Policyholder dies of esophageal cancer

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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 generalsocial duty, not a breach of any duty created bythe insurance policy itself.”

• Court stated that these negligence allegations“facially concern Erie’s alleged breach of a generalsocial duty, not a breach of any duty created bythe insurance policy itself.”

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demystifying the bad faith set-up in insurance...

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