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CLASS ACTION FOR DEDUCTIBLE, Brenda Jones v. Nationwide, 2010 PA Super 90

Published by August Ober on August 23, 2010 in Auto, Bad Faith and Property | 0 Comments

This matter was a Class Action filed in the Pennsylvania Court of Common Pleas Philadelphia County by Insured Brenda Jones (and those similarly situated) against her Insurer, Nationwide Property and Casualty Insurance Company. 

 The basis of the claim was the Insurer did not reimburse the full $500.00 deductible, and instead reimbursed the Insured a pro-rata amount of the recovery, namely $450.00. 

 Insured’s suit claimed a breach of contract, bad faith, conversion and unjust enrichment by the Insurer.  Insurer filed Preliminary Objections to the complaint asserting the complaint failed to state a cause of action. 

 The Common Pleas Court granted Insurer’s Preliminary Objections, without issuing an opinion.  The Insured appealed the Court of Common Pleas decision. 

 The Superior Court of Pennsylvania affirmed the Court of Common Pleas, finding the pro-rata pay out was consistent with the Insured’s policy language and the insurance practices outlined in 31 Pa. Code § 146.8(c).

Insurers shall, upon the request of the claimant, include the first-party claimant’s deductible, if any, in subrogation demands. Subrogation recoveries shall be shared on a proportionate basis with the first-party claimant, unless the deductible amount has been otherwise recovered. A deduction for expenses can not be made from the deductible recovery unless an outside attorney is retained to collect the recovery. The deduction may then be for only a pro rata share of the allocated loss adjustment expense.

 Said practices were created by the Pennsylvania Insurance Department, under the authority granted by the Pennsylvania General Assembly.  See 40 P.S.A. § 1171, et seq. (Unfair Insurance Practices Act (UIPA)).

The Superior Court held the Insured’s remedy for alleged violations under the UIPA was to file a grievance requesting an investigation by the Insurance Commissioner.  Thereafter the Commissioner may impose sanctions and seek civil penalties.

 Lastly, the Superior Court reasoned that since the practices created by the Pennsylvania Insurance Commission “fits squarely within the scope of authority delegated by the General Assembly”, the ‘made whole doctrine’ was not violated (assuming arguendo that it was applicable). 

 The Court adopted the reasoning of Harnick v. State Farm Mutual Ins. Co., 2009 U.S. Dist. LEXIS 43126 (E.D. Pa., March 6, 2009).  Harnick is a federal case and thus not binding upon the Pennsylvania Superior Court however, the Court found Harnick’s reasoning to be sound and directly on point.

To summarize, Pennsylvania Insurers may reimburse their Insureds deductible pro-rata, without fear of running aground of State or Federal law.

Spoliation And Subrogation

Published by admin on September 10, 2009 in Bad Faith and Property | 0 Comments

Spoliation or as many in our field have incorrectly stated “spoilation” is an issue faced by many subrogation professionals. While “spoilation” is the incorrect spelling and pronunciation, it does partially convey the meaning of it’s properly spelled cousin. Blacks Law Dictionary defines spoliation as, “The intentional destruction, mutilation, alteration or concealment of evidence, usually a document.” In a sense, the evidence is spoiled.

houseIn the subrogation world, spoliation normally applies to the destruction of a home, boat, automobile, or product therein, more so than a document. Most commonly, spoliation is a defense raised by a defendant against the plaintiff at the time of suit. The spoliation defense arises after a loss occurs (due to a fire, product defect, etc.) where the alleged cause of the loss is not preserved by the spoliator or the spoliator does not give the opposing party an opportunity to investigate the loss scene. An opposing party typically claims their case is prejudiced due to an inability to investigate and/or examine the alleged cause of the loss. It is important to point out that the spoliation can be either intentionally or unintentional.

It should be noted that spoliation applies not only to the alleged cause of the loss, but also extends to alternative potential causes. Mt. Olivet Tabernacle Church v. Edwin L. Wiegand Division, et al., 781 A.2d 1263 (Pa. Super. 2001). The policy behind this application reasons that a defendant is prejudiced if unable to investigate other potential causes and in turn partially indemnify themselves or exculpate liability completely.

In Pennsylvania, if the Court finds that spoliation has occurred, it may issue sanctions, preclude testimony, direct the jury to consider an adverse inference toward the spoliator, or in the most severe of cases dismiss the entire action. The ultimate decision of whether and how to sanction a party rests within the sound discretion of the trial court. Eichman, et al. v. McKeon, et al., 824 A.2d 305 (Pa. Super. 2003).

In determining the appropriate sanction, Pennsylvania courts consider three key elements:

  1. the degree of fault of the spoliator;
  2. the degree of prejudice suffered by the opposing party; and
  3. whether a lesser sanction than dismissal will avoid unfairness and deter such future conduct.

The Courts goal is to achieve accuracy at trial, punish the spoliator, and compensate the victims. Schroeder v. DOT, 710 A.2d 23 (Pa. 1998).

When examining fault, the Court imposes a general duty to preserve relative evidence when the spoliator knows litigation is likely and when it is foreseeable that discarding the evidence would prejudice the opposing party. Secondly, the Court will look for the presence or absence of good faith, not necessarily for the presence of bad faith.

The Courts have held that prejudice to the opposing party is less severe: (1) when alternative causes of the loss are speculative; (2) when an independent third party, such as a fire marshal, investigates the loss thus mooting the defendant’s need to rely solely on the plaintiff’s investigation; and (3) in design defect cases, because products with identical designs are easily attainable for examination.

Generally Courts should select the least onerous sanctions that are commensurate with the spoliator’s fault and the opposition’s prejudice. Where fault and prejudice are not severe, dismissal of the entire action is rarely appropriate. Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 73 (3rd Cir. Pa. 1994).

To guard against spoliation, it is recommended to our clients to have a third party perform the site investigation when possible. When practical, we recommend preserving all possible causes of the loss until causes can be conclusively ruled out or the opposition stipulates in writing to the items disposal. Lastly, when scheduling and conducting a loss clean up, remain in contact with the opposition to insure against the unilateral discarding of relevant evidence and ward off claims of bad faith.