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Powell v. AmGuard Insurance Co.

Superior Court of Delaware, Kent

September 19, 2019

JASON C. POWELL, ESQ., as personal representative of the ESTATE OF MARK KRIEGER, Plaintiff,

          Submitted: August 23, 2019

         Upon Defendant's Motion for Summary Judgment – GRANTED, in part and DENIED, in part

          John S. Spadaro, Esquire, John Sheehan Spadaro, LLC, Smyrna, Delaware, Attorney for Plaintiff.

          Thaddeus J. Weaver, Esquire, Dilworth Paxson, LLP, Wilmington, Delaware, Attorney for Defendant.


          Jeffrey J Clark Judge.

         Defendant AmGuard Insurance Company ("AmGuard") moves for summary judgment against the Estate of Mark Krieger ("the Estate"), the Plaintiff. The facts of record, when viewed in the light most favorable to the Estate, support a reasonable inference that AmGuard delayed paying benefits to Mr. Krieger without reasonable justification. Accordingly, a factual issue remains regarding whether AmGuard acted in bad faith. The scope of the Estate's potential compensatory damages for that aspect of the claim, however, is limited to interest due on a less than four month delay in payment of Temporary Total Disability ("TTD") benefits. Furthermore, evidence of record, viewed in the appropriate light, could support a jury's reasonable inference that AmGuard acted recklessly by (1) delaying its investigation of the claim, and (2) delaying its payment of it.

         For these reasons and those discussed herein, AmGuard's motion for summary judgment must be DENIED regarding the issues of bad faith and punitive damages. AmGuard's alternative motion for partial summary judgment regarding the unavailability of unliquidated damages must be GRANTED.[1]

         I. Facts of Record

         The facts referenced herein are those of record viewed in the light most favorable to the Estate. Mr. Krieger suffered a work injury on May 22, 2017. Thereafter, on June 5, 2017, AmGuard became aware of Mr. Krieger's claim. That same day, AmGuard informed Mr. Krieger that it could not accept or deny his claim because of a "lack of medical documentation," but hoped to complete its investigation within 30 days. The following day, June 6, 2017, an AmGuard adjuster spoke with a representative at Mr. Krieger's place of employment, Hero Demolition. During the conversation, the Hero Demolition representative conveyed his suspicions that, at the time of his injury, Mr. Krieger was at the job site early in order to steal the company's copper.

         On June 12, 2017, Mr. Krieger received an MRI. The MRI report referenced nine separate bone fractures in his foot and ankle, and AmGuard received the report on July 7, 2017.[2] Prior to that date, AmGuard had also received Mr. Krieger's emergency room records. Notwithstanding the records and report, AmGuard did not accept Mr. Krieger's claim. Instead, it delayed a decision regarding his claim because of (1) "red flags" regarding Mr. Krieger's possible drug use,[3] and (2) Hero Demolition's theft suspicion. AmGuard, however, took no action to investigate the allegedly illegal drug use or theft allegation at any point between June 6, 2017 and when it received the MRI report on July 7, 2017.[4]

         Delay continued. One month later, on August 8, 2017, AmGuard first informed Mr. Krieger's attorney that it was withholding benefits based on the alleged theft and because of a new allegation that Mr. Krieger impermissibly used the forklift involved in his injury.[5] Another month had passed, and AmGuard had taken no action to investigate the employer's claims. When AmGuard notified Mr. Krieger's attorney about these "red flags," Mr. Krieger's attorney began what was the first investigation regarding Hero Demolition's claims. Namely, he interviewed some of Mr. Krieger's co-workers. He then relayed their information to AmGuard, prompting AmGuard's representative to interview one of the co-workers in late August.[6] After that, AmGuard immediately concluded that the employer's theft and impermissible use of a forklift allegations were false.

         Following these exchanges, the parties contested the severity of Mr. Krieger's disability and whether attorney fees were appropriate. The parties did not agree about the amount due until late in September 2017. By that point, Mr. Krieger had received no income for four months. AmGuard generated Mr. Krieger's first check for lost wage benefits on September 29, 2017, and issued it on October 2, 2017. AmGuard continued to pay benefits to Mr. Krieger until he died from unrelated causes in 2018.

         II. The Parties' Arguments

         First, AmGuard argues that the Estate's bad faith breach of contract claim fails because AmGuard did not unjustifiably delay its investigation or payment of benefits. AmGuard emphasizes that it acknowledged the claim on the day it was made, that the Compensation Agreement was completed in a shorter amount of time than the average for 2017, and that its expert opines that AmGuard handled the claim in a timely and appropriate manner. AmGuard also argues that its use of a defense medical expert ("DME") was proper under Delaware statutory law, particularly in light of conflicts in some of the medical reports. Second, AmGuard argues the Estate's claim for unliquidated damages is unavailable in this bad faith contract action. Third, AmGuard argues that punitive damages are unavailable because the evidence of record does not support an inference that AmGuard acted in a willful or malicious manner or that it acted recklessly. AmGuard again emphasizes that it paid the benefits within four months. It also emphasizes the aforementioned "red flags" justifying the delay in payment.

         The Estate counters that the facts surrounding AmGuard's claims handling provide sufficient evidence for a reasonable juror to conclude that AmGuard unjustifiably delayed paying lost wage benefits and acted indifferently to Mr. Krieger's circumstances. Specifically, the Estate claims AmGuard failed to investigate with reasonable diligence and promptness, prioritized suspicions, considered "bogus" theories, mislead Mr. Krieger as to its basis for its coverage position, and denied him a chance to contest its position.

         III. Summary Judgment Standard

         Summary judgment is appropriate only if there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law.[7] The Court must view the evidence in the light most favorable to the non-moving party.[8] The burden of proof is initially on the moving party.[9] However, if the movant meets his or her initial burden, then the burden shifts to the non-moving party to demonstrate the existence of material issues of fact.[10] The non-movant's evidence of material facts in dispute must be sufficient to withstand a motion for judgment as a matter of law and sufficient to support the verdict of a reasonable jury.[11]

         IV. Analysis

         AmGuard primarily argues that the record contains insufficient evidence for a reasonable jury to infer that AmGuard acted "clearly without reasonable justification." Given this lack of evidence, AmGuard further argues that the Estate cannot identify evidence in the record permitting an inference of recklessness. Because the Court's summary judgment analysis regarding both of these issues turns so heavily on the circumstances relevant to AmGuard's state of mind, they are best addressed together. When doing so, the Court finds that there are sufficient facts of record for a jury to reasonably infer both. With regard to compensatory damages, the Estate's claim for non-liquidated damages is unavailable as a matter of law. Furthermore, the Estate does not identify evidence of record supporting a compensatory damages award to a reasonable degree of certainty.

         A. Bad Faith Insurance Claims

         Because an insurance policy is a contract between an insurer and insured, it includes an implied covenant of good faith and fair dealing.[12] An insurer's duty of good faith extends to third-party beneficiaries: the employees of an employer that an insurance company has promised to pay.[13] An insurer acts in bad faith (and breaches the implied covenant of good faith) when it refuses to honor its obligations and lacks reasonable justification for its refusal.[14] More specifically, an insurer breaches this covenant of good faith when in bad faith it delays processing a claim or terminates payment of one.[15] It also breaches its obligation when it unjustifiably delays investigating a claim.[16] A mere delay in investigating a claim or paying benefits does not alone establish an insurer's bad faith if there was a reasonable justification for the insurer's failure to do so.[17] Nevertheless, an insured does not need to "come forward with a smoking gun to survive summary judgment. In an appropriate case, inferences from facts can lead to a triable bad faith claim."[18]

         In these claims, recoverable compensatory damages are generally limited to those that are direct or consequential.[19] In addition, the special nature of an insurance relationship creates an exception that permits punitive damages.[20] Mere bad faith delay or denial, or an unreasonable or unjustified stance do not alone justify punitive damages.[21] To justify them, "the denial of the coverage [must also be] willful or malicious … [or] the bad faith actions of an insurer [must be] taken with reckless indifference or malice toward the plight of the [insured]."[22]

         In Tackett v. State Farm, the Delaware Supreme Court best described the nature of an insurance punitive damages claim. It recognized that:

[t]he penal aspect and public policy considerations which justify the imposition of punitive damages require that they be imposed only after a close examination of whether the defendant's conduct is "outrageous," because of "evil motive" or "reckless indifference to the rights of others." . . . Mere inadvertence, mistake or errors of judgment which constitute mere negligence will not suffice. It is not enough that a decision be wrong. It must result from a conscious indifference to the decision's foreseeable effect.[23]

         Moreover, "[p]unitive damages are recoverable where the defendant's conduct exhibits a wanton or willful disregard for the rights of plaintiff. For a defendant's conduct to be found willful or wanton, his or her conduct must reflect a 'conscious indifference' or 'I don't care' attitude."[24] Thus, at its least level of culpability, the state of mind necessary to support ...

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