A federal judge recently concluded that the statute of limitations period does not begin to run for common law bad faith actions filed in Pennsylvania until the plaintiff has suffered damages. The court further determined that the plaintiff was not damaged by the insurer's refusal to settle in the face of a time-limit demand on a liability policy until the jury returned an excess verdict.
In Katzenmoyer v. Allstate Ins. Co., No. 11-3427, 2012 U.S. Dist. LEXIS 123483 (E.D. Pa., August 30, 2012), U.S. District Court Judge for the Eastern District of Pennsylvania, Norma Shapiro, was presented with cross-motions for summary judgment in a case rooted in an ATV collision that occurred more than 11 years earlier. Allstate's insured, Donald Drumheller, was transporting Ginger Katzenmoyer on his ATV when he hit a manhole, causing serious injuries to Katzenmoyer.
Before filing suit, Katzenmoyer wrote to Allstate and requested that Allstate tender policy limits in exchange for a release. Allstate refused and filed a declaratory judgment action against Drumheller. The trial court granted Allstate's motion for summary judgment, concluding that Allstate homeowner's policy imposed no duty to defend or indemnify Drumheller in the underlying litigation. Two years later, while the Drumheller appeal was pending, the Pennsylvania Superior Court issued an opinion in a factually similar case, State Farm Fire & Casualty Company v. MacDonald, 2004 PA Super 161, 850 A.2d 707 (Pa. Super. Ct. 2004), holding that the insurer did have a duty to defend and indemnify its insured. Based on that decision, Katzenmoyer made a timelimit demand to Allstate for policy limits, advising that she would hold Allstate responsible for any excess verdict if it refused to tender the limits. Allstate again refused. While the appeal on the declaratory judgment action was still pending, a jury rendered an excess verdict against Drumheller in the personal injury action.
Drumheller assigned all the claims that he had against Allstate to Katzenmoyer and she brought a common law bad faith claim against Allstate for its refusal to settle with her in 2004. Allstate sought summary judgment arguing both that the four-year statute of limitations began to run on the date that Allstate refused to settle and that it had not acted in bad faith. Katzenmoyer countered that the limitations period did not begin to run until after the jury rendered its verdict in 2009 and awarded excess damages.
Shapiro determined that the statute of limitations did not begin to run until 2009. Noting that neither party could cite binding precedent in support of its position, Shapiro concluded that it was unlikely that the Pennsylvania Supreme Court would require plaintiffs to file bad faith suits within four years of a refusal to settle without an explicit denial of coverage. In 2004, Allstate disputed its obligation to cover Drumheller, and was still awaiting a response from the court at the time of the settlement demand. Shapiro also explained that in 2004 Drumheller had not yet suffered any damages because the jury did not return an excess verdict until 2009.
"The limitations period should begin when the jury rendered its verdict against Drumheller, not when Allstate denied the settlement offer. When Allstate denied the settlement offer, it was unclear whether Allstate had any duty at all. Drumheller could not have maintained a suit against Allstate for bad faith in July 2004 because he had not yet suffered damages," Shapiro held.
Although Shapiro concluded that Katzenmoyer's claims were not barred by the statute of limitations, she ultimately found that Katzenmoyer could not present clear and convincing evidence of common law bad faith. In the opinion, Shapiro outlined at least six different reasons that Allstate had to refuse to settle in 2004, based largely on the procedural posture of the declaratory judgment action and the inconsistency with which the courts had interpreted the policy provision at issue.
In evaluating common law bad faith actions in Pennsylvania arising out of a time-limit demand on a liability policy, insurers should be mindful that the clock may not start to run until an excess verdict is entered. Perhaps more significantly, implicit in the Katzenmoyer decision is the court's determination that a plaintiff cannot pursue a common law bad faith action based on the refusal to settle unless and until an excess verdict is rendered.
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