• No Damages, No Common Law Bad Faith - District Court's Prediction as to When the Limitations Period Begins to Run on Pennsylvania Common Law Bad Faith Claims
  • December 26, 2012 | Author: Allison Bressler Goldis
  • Law Firm: Marshall Dennehey Warner Coleman & Goggin, P.C. - Philadelphia Office
  • Key Points:

    • Statute of limitations for bad faith refusal to settle third-party suit begins to run when the jury renders an excess verdict against the insured.
    • Statute of limitations for common law bad faith claims in Pennsylvania is four years.
    • Insurance carrier refusing policy limit settlement demand not in bad faith, though excess verdict rendered, when it had "a bona-fide belief" that it had a good possibility of winning the suit.

    In the recent decision of Katzenmoyer v. Allstate Ins. Co., 2012 U.S. Dist. LEXIS 123483, (E.D. Pa. Aug. 30, 2012) U.S. District Judge Norma Shapiro predicted how Pennsylvania courts would determine when the four-year statute of limitations period for common law bad faith claims begins to run. She indicated that the period should begin to run when a jury renders an excess verdict against an insured.

    The Katzenmoyer case arose out of an ATV accident that occurred on September 20, 2001. The plaintiff, Ginger Katzenmoyer, was a passenger on Donald Drumheller's ATV when he drove through a wooded area near his house into a raised manhole cover. The impact threw Ms. Katzenmoyer from the ATV and caused her to suffer serious injuries.

    Mr. Drumheller was insured under a policy of homeowners insurance issued by the defendant, Allstate Insurance Company. Five months after the accident, Ms. Katzenmoyer requested that Allstate pay the $100,000 policy limit in exchange for a full release of all claims. When Allstate refused, Ms. Katzenmoyer brought a personal injury action against Mr. Drumheller, who requested that Allstate settle the claim.

    On September 20, 2002, Allstate filed a declaratory judgment action in federal court denying coverage under its policy and contending that it did not owe a duty to defend or indemnify because the accident occurred away from the insured's premises. A federal court judge granted summary judgment in favor of Allstate, and Mr. Drumheller appealed.

    During May of 2004, while the appeal was pending, the Pennsylvania Superior Court decided a case contrary to the decision in favor of Allstate. On June 7, 2004, Ms. Katzenmoyer, citing that case, again demanded Allstate's $100,000 policy limit and notified Allstate that, if it failed to tender that amount within 30 days, she would hold Allstate responsible for any excess verdict in the personal injury action. Allstate did not tender the $100,000 by July 7, 2004.

    On September 30, 2004, the Court of Appeals vacated the order in favor of Allstate and remanded for further consideration in light of the intervening Superior Court case. On March 16, 2005, the district court held that Allstate had a duty to defend and indemnify Mr. Drumheller, and Allstate appealed that decision. On June 27, 2006, the Third Circuit Court of Appeals affirmed the district court's decision. In August 2006, Allstate offered to settle with Ms. Katzenmoyer for $100,000. In July 2007, Ms. Katzenmoyer offered to release Mr. Drumheller and Allstate for $750,000, but the parties again failed to settle.

    On February 26, 2009, a state court jury rendered a $1.5 million verdict against Mr. Drumheller in the personal injury action. Allstate again requested a release of all claims in return for payment of the amount of $100,000. Ms. Katzenmoyer would accept no less than $1,975,000.

    Mr. Drumheller assigned his rights under the policy to Ms. Katzenmoyer. Ms. Katzenmoyer initiated suit against Allstate for common law bad faith under Pennsylvania law in July of 2010. She alleged that Allstate "acted negligently, unreasonably and recklessly by ignoring the policy limit settlement demand" made by her attorney in 2004, during the pendency of the declaratory judgment action. Ms. Katzenmoyer and Allstate filed cross-motions for summary judgment.

    In its motion, Allstate argued that Ms. Katzenmoyer's claims were barred by the statute of limitations and that it had a reasonable basis to deny her settlement demand on July 7, 2004. Allstate contended that the four-year statute of limitations began to run on that date and, therefore, Ms. Katzenmoyer's common law bad faith claim was time-barred. Ms. Katzenmoyer argued that the claim did not accrue until the jury returned its verdict on February 26, 2009. As Judge Shapiro noted, the Pennsylvania Supreme Court has not expressly addressed this issue, and neither side could cite to on-point, binding precedent.

    Judge Shapiro reasoned that the limitations period should begin to run when the jury rendered its verdict against Mr. Drumheller, not when Allstate refused to pay the policy limit demand because it was unclear whether Allstate had any duty at all when it refused to pay. Allstate had contested its responsibility to cover Mr. Drumheller and was still awaiting an answer from the court regarding the status of coverage in 2004. Citing to the Third Circuit's decision in Sikirica v. Nationwide Ins. Co., 416 F.3d 214 (3d Cir. 2005), which held that, generally, limitations periods begin to run when the right to institute and maintain a suit arises, Judge Shapiro found that Mr. Drumheller could not have maintained a suit against Allstate for bad faith in July of 2004 because she had not yet suffered damages. She stated that "[a]though Pennsylvania law is unclear on this issue, it seems unlikely the Pennsylvania Supreme Court would adopt a rule requiring plaintiffs to file bad faith suits within four years of a failure to settle without an explicit, unambiguous denial of coverage." On that basis, the court denied Allstate's cross-motion for summary judgment.

    Although she found in favor of Ms. Katzenmoyer with regard to the statute of limitations issue, Judge Shapiro granted Allstate's motion on the merits of the common law bad faith claim. Judge Shapiro found that Ms. Katzenmoyer "failed to show, by clear and convincing evidence, a disputed issue of material fact whether Allstate acted unreasonably or negligently when it denied the settlement offer in July 2004." She noted that Allstate had at least six reasons to deny the offer at that time, including a previous favorable order that remained in effect, advice from counsel to defer responding to the offer and pending litigation relevant to the outcome of the issue. Judge Shapiro stated that "[t]o accept the settlement offer in July 2004, Allstate would have had to assume the Court of Appeals would overturn a favorable district court decision in light of an intervening state court decision." She found that Allstate considered the factual differences in the state court case and had "a bona fide belief" that the company had "a good possibility of winning" the declaratory judgment action. Plaintiff's counsel has indicated that she is planning to appeal.