Gordon v. LM Gen. Ins. Co.
| Decision Date | 17 April 2023 |
| Docket Number | Civil Action 23-479 |
| Parties | DAVID GORDON AND SAMAYA GORDON v. LM GENERAL INSURANCE COMPANY, |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Car owners bought $100,000 in insurance to cover their medical losses if they are involved in an accident with a person who does not have sufficient insurance to pay their losses. An underinsured motorist later hit them resulting in serious physical injury. The car owners sought the full $100,000 recovery from their insurer citing their medical losses. The insurer denied their claim. The car owners sued the insurer for breach of contract, bad faith, and loss of consortium for failing to pay the $100,000 based on demonstrated medical losses. We dismissed the bad faith claim last summer without prejudice to plead facts to proceed on the bad faith claim then known to the car owners. The car owners chose not to amend based on known facts; they instead proceeded to trial on breach of contract and loss of consortium claims. The insurer offered $10,000 to settle the claims. The jury awarded a total of $660,000 in damages for breach of contract and loss of consortium.
The car owners return in a second case bringing back their bad faith theory. They claim the insurer's bad faith arose at the time of denial as now further evidenced by the insurer's litigation conduct immediately before and during trial. The car owners have two problems: bad faith claims under Pennsylvania law arise at the time of coverage denial, we already dismissed this claim last summer, and the owners chose to not amend; and, the insurer's litigation and trial conduct is not bad faith denial under Pennsylvania's bad faith statute. We appreciate the car owners would like to recover the full extent of the jury's award. And it initially seems unfair they cannot. But they purchased a total $100,000 in coverage and convincingly persuaded the jury to find the insurer breached the contract to provide $ 100,000 in coverage. We have no basis under the law to give the car owners a second shot to claim bad faith denial as those claims are barred by res judicata from our earlier final order and the litigation conduct after our earlier Order is not a bad faith denial of benefits.
David Gordon and Samaya Gordon purchased a $100,000 underinsured motorist insurance coverage from LM General Insurance to pay them for losses and injuries from a car accident negligently caused by a driver without sufficient liability insurance.[1] Mr. Gordon claimed a nonparty driver crashed into his car on October 15, 2018.[2] The Gordons filed a claim in December 2018 under their LM General insurance policy alleging Mr. Gordon's medical damages entitled him to the entire $100,000 limits of his insurance coverage.[3] LM General denied the Gordons benefits.[4]
The Gordons sued LM General for breach of contract, loss of consortium, and bad faith on May 27, 2022.[5] The Gordons alleged LM General acted in bad faith supported by boilerplate legal conclusions but lacking facts about LM General's bad faith.[6] LM General moved to dismiss the bad faith claim recognizing the questions of fact in the breach of contract claim. We dismissed the Gordons' bad faith claim without prejudice as legal conclusions and the few facts pleaded did not plausibly give rise to relief.[7] We identified the kinds of pleaded facts which may suffice to plausibly infer bad faith necessary to proceed on this statutory claim. We gave the Gordons leave to amend their bad faith claim until August 5,2022 requiring they “must at least ‘allege the limited facts of which they are aware, including but not limited to: the nature of the correspondence with the insurance company; details of how the negotiations, if any, proceeded; and more detailed allegations supporting claims of injury necessitating benefits.'”[8] The Gordons chose to not amend to allege these facts they would have known by August 5, 2022.
The Gordons instead elected to proceed towards trial only on their breach of contract and loss of consortium claims. LM General offered the Gordons $10,000 to settle.[9] The Gordons refused the $10,000 offer. The Gordons allege “LM General had no facts or evidence to refute” the tortfeasor “made an illegal left-hand turn in violation of the Motor Vehicle Code” and LM General failed to produce statements or take depositions of any witnesses.[10] The Gordons allege LM General waited to serve forensic expert Dr. Paul Shipkin, M.D.'s report until the last business day before trial.[11] The Gordons further allege Dr. Shipkin “mak[es] a living writing reports and testifying for defense lawyers” and “acted with clear bias ... by ignoring [and cherry picking] undisputed relevant and critical facts concerning [Mr. Gordon's] diagnosis and treatment.”[12] LM General cross-examined Dr. Shipkin in front of the jury.[13]
The jury returned a $660,000 verdict in favor of the Gordons on their breach of contract and loss of consortium claims.[14] We entered judgment on February 1,2023 for $100,000 in favor of the Gordons recognizing the jury verdict and the policy's cap on contractual damages of $100,000.[15] Neither party appealed.
The Gordons now again sue LM General for statutory bad faith.[16] The Gordons allege their same boilerplate legal conclusions of bad faith from the first lawsuit but also now allege LM General acted in bad faith by “conducting unfair and unreasonable investigations of Plaintiffs' claims, including hiring forensic witnesses which they know are biased and will act as a bias selfinterested witness on behalf of Defendant.”[17] The Gordons allege LM General had a reasonable basis to approve the Gordons' claim and knowingly or recklessly disregarded the claim by “low-bailing” the Gordons during settlement negotiations.[18] The Gordons allege LM General refused to take the deposition of witnesses, having a “biased” expert write a report days before trial began, including the “biased” experts testimony in the trial, failing to present evidence refuting Mr. Gordon's traumatic brain injury, and failing to act in good faith.[19]
LM General moves to dismiss the Gordons' statutory bad faith claim.[20] LM General argues the doctrine of res judicata bars the Gordons' statutory bad faith claim and they do not plead sufficient facts for a statutory bad faith claim.[21] The Gordons counter they plead a factually plausible bad faith claim, their bad faith claim became ripe when the jury returned its February 1, 2023 verdict, and res judicata does not bar their claim.[22]
The Gordons' claim is barred by res judicata. Even if not barred by res judicata, the Gordons failed to sufficiently plead LM General acted in bad faith. We dismiss the Gordons' statutory bad faith claim.
The Pennsylvania General Assembly prohibits insurers from “act[ing] in bad faith toward the insured.”[23] The Pennsylvania General Assembly enacted the bad faith statute “to provide a statutory remedy to an insured when the insurer denied benefits in bad faith.”[24] “Bad faith on [the] part of [an] insurer is any frivolous or unfounded refusal to pay proceeds of a policy[.]”[25] A statutory bad faith claim requires the Gordons prove “(1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”[26] Our Court of Appeals explains “[t]he essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.”[27]
A. Res judicata bars the Gordons' bad faith claim based on claim denial.
LM General argues res judicata bars the Gordons' bad faith claims because “their bad faith claims accrued when LM ‘initially denied' their [underinsured motorist] claims.”[28] LM General contends the Gordons' failure to amend their bad faith claim after our July 28, 2022 dismissal without prejudice but granting leave to amend by August 5, 2022 in the first lawsuit bars the Gordons' claim.[29] The Gordons counter LM General never denied their claim notwithstanding their repeated sworn statements of denial. They contend res judicata does not apply to their bad faith claim because it only recently became ripe.[30] We cannot ignore the dispositive admissions of a denial of a bad faith claim which is the prerequisite of this statutory claim. The Gordons' claim is barred by res judicata.
“Res judicata, also known as claim preclusion, bars a party from initiating a second suit against the same adversary based on the same ‘cause of action' as the first suit.”[31] Claim preclusion bars an action when three elements are present: “(1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action.”[32] To determine whether the elements exist, we are cautioned by our Court of Appeals not to ”[33] The doctrine “bars not only claims that were brought in a previous action, but also claims that could have been brought.”[34]
So we need to know when the Gordons' bad faith claim became ripe. The governing Pennsylvania law confirms a bad faith claim accrues when the insurer first denies the insured benefits.[35] “[C]ontinuing denials of coverage do not give rise to separate acts of bad faith.”[36] Our Court of Appeals instructs subsequent “alleged acts [of bad faith] . . . [are] related to the initial denial of coverage, not a separate act of bad faith.”[37] Statutory...
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