PHILADELPHIA – An appeals court recently determined that breach of contract and bad faith claims against Nationwide Mutual Insurance Company were without merit.
On. Oct. 4, a ruling issued by Judge Thomas M. Hardiman of the U.S. Court of Appeals for the Third Circuit, said plaintiffs Stephen Bodnar and Danielle E. Berry did not provide clear proof Nationwide improperly handled a claim Bodnar made in the aftermath of a 2010 land development accident.
“In April 2010, Stephen Bodnar owned a masonry business that was developing land in Luzerne County for the purpose of opening a campground. Bodnar paid James Berry to work at the site. Both men were digging a trench for a sewer line when the sides of the trench collapsed. Bodnar survived, but Berry died from his injuries,” Hardiman said.
“After the accident, Berry’s widow Danielle sued Bodnar and the campground. Bodnar was insured under a commercial general liability policy with Nationwide and filed a claim with the company for indemnification. Nationwide hired a lawyer to defend Bodnar in the underlying lawsuit,” Hardiman continued.
As that lawsuit was pending, Nationwide investigated Bodnar’s claim to determine whether it was due to owe coverage, which was predicated on whether Berry had been working for Bodnar as an employee or as a temporary worker. If it was the former, the policy would not cover Berry because employees were specifically excluded under the insurance policy. However, if Berry was a temporary worker, the policy would cover him.
“Nationwide’s claim file included conflicting information about Berry’s status. Some evidence suggested Berry was an employee: Nationwide learned that Bodnar’s workers’ compensation insurer was investigating a possible workers’ compensation claim; OSHA reports identified Bodnar as Berry’s employer; and Bodnar issued compensation checks and payroll documents to Berry after the accident. However, other evidence suggested that Berry was a temporary worker, including statements from Bodnar,” Hardiman said.
Nationwide filed a declaratory action in the Luzerne County Court of Common Pleas in August 2011.
“As part of that action, Nationwide took Bodnar’s deposition in March 2012. Bodnar testified that Berry was a temporary worker and not an employee because Berry brought his own tools to work, Berry only planned to work with Bodnar for a few weeks, and Bodnar did not pay Berry like a regular employee,” Hardiman said.
Bodnar and Danielle Berry entered a settlement agreement in August 2012, whereby Bodnar agreed to pay Berry the $1 million limit of his insurance policy, with accrued interest, and to transfer his interests in the policy to her. In return, Berry agreed to indemnify Bodnar from any further liability or claims.
“In February 2013, Nationwide discontinued its declaratory judgment action, and paid Danielle Berry the policy limit of $1 million, plus interest,” Hardiman stated.
But in June 2012, Bodnar and Berry filed the instant action, alleging Nationwide “handled Bodnar’s claim for indemnification in bad faith and breached its contractual duty of good faith and fair dealing.” Ultimately, the Court found “that the undisputed facts of record did not support bad faith or a breach of the duty of good faith and fair dealing” and granted Nationwide’s motion for summary judgment.
The plaintiffs moved for reconsideration, which was denied, and the instant appeal followed – in which the plaintiffs argued Nationwide’s investigation was not conducted in an unbiased manner or in good faith.
Hardiman disagreed, and concurred with the District Court’s analysis.
“As the District Court correctly observed, however, the claims file showed that Nationwide evaluated Bodnar’s claim, consulted with legal counsel, and tried to determine whether Berry was an employee or a temporary worker,” Hardiman said.
“Rather than denying the claim, Nationwide filed a declaratory judgment action and asked a court to adjudicate Berry’s employment status to determine whether there was coverage. And Nationwide ultimately paid the policy’s liability limit, which demonstrated its willingness to consider new evidence and adjust its position,” Hardiman added.
Hardiman further said Nationwide was right to file for a declaratory judgment to resolve “legal ambiguities”.
“Nationwide mainly relies on state case law to determine the employment status of workers. As the District Court explained, there is nothing wrong with relying on state law to define a term. Nor did Nationwide act in bad faith by seeking a determination of its coverage obligations under Pennsylvania law,” Hardiman said.
The plaintiffs next argued Nationwide acted in bad faith by asserting a defense in the declaratory judgment action adverse to Bodnar’s interests. Specifically, they argued “Nationwide’s decision to assert a workers’ compensation defense might have left Bodnar without any liability coverage.”
Again, Hardiman agreed with the trial court’s view.
“As Nationwide points out, however, if Berry were found to be Bodnar’s employee, Pennsylvania’s Workers’ Compensation Act would have provided the ‘exclusive remedy’ for Danielle Berry’s claims. As a result, although Mrs. Berry might have been unable to recover damages if the workers compensation carrier denied coverage, Bodnar himself would have been immune from further liability,” Hardiman said.
Finally, the plaintiffs believed Nationwide acted in bad faith by “reversing course after it began its investigation”, what they termed as an “unreasonable about-face.”
“The claims file indicates that Nationwide first reached a consensus that Berry was a temporary worker, but then decided to file a declaratory judgment action a few days later. As an initial matter, Nationwide consulted with in-house legal counsel before deciding to file a declaratory judgment action, which demonstrates ongoing consideration of Bodnar’s claim. Moreover, given the ambiguities surrounding Berry’s employment status, it was reasonable for Nationwide to seek declaratory relief,” Hardiman said.
“For these reasons, we agree with the District Court that plaintiffs failed to show by clear and convincing evidence that Nationwide acted unreasonably in the manner it handled Bodnar’s claim,” Hardiman concluded. “And plaintiffs’ breach of contract claim, which is based on a breach of the duty of good faith, fails for the same reasons. Accordingly, the District Court did not err in granting Nationwide’s motion for summary judgment.”
The plaintiffs are represented by Michael R. Mey of Wormuth Mey & Sulla, in Scranton.
The defendant is represented by Bryon R. Kaster and Charles E. Haddick Jr. of Dickie McCamey & Chilcote, in Camp Hill.
U.S. Court of Appeals for the Third Circuit case 15-3485
U.S. District Court for the Middle District of Pennsylvania case 3:12-cv-01337
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com