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An insurance company that relied on its lawyers’ advice in denying and defending a claim is insulated from a bad-faith action, a Philadelphia Superior Court said last week in an unpublished memorandum opinion. The decision affirmed in part a Philadelphia trial court’s ruling in Ravindran v. Harleysville Mutual Insurance Co. last year that an attorney’s alleged improper conduct cannot be imputed to that attorney’s client and used to prove a bad-faith claim. The issue in Ravindran was whether the alleged improper conduct of John A. Livingood Jr. and Frederick T. Lachat Jr., attorneys for the insurance company during arbitration, was sufficient proof that the company had acted in bad faith when handling the plaintiff’s underinsured claim for injuries sustained in a 1996 car accident. The plaintiff, Priyamvada Ravindran, claimed the lawyers had made improper settlement offers, improperly suppressed evidence and illegally communicated with the defense arbitrator, according to the memorandum. The Superior Court sided with the insurance carrier. “Harleysville did not hide behind its relationship with counsel to argue that it reasonably ignored its obligations under the insurance policy to its insured,” the court said. “Instead, Harleysville relied upon counsel’s advice that the findings of … a consulting expert were protected from discovery.” And because the attorneys’ communications with the neutral arbitrator in the case were through their appointed defense arbitrator, they did not violate state law or court rules governing arbitration, said the court, citing its 2000 decision in Hozlock v. Donegal Companies. Scott Tredwell of Swartz & Campbell represented the insurance company in Ravindran. He said he was pleased the judges upheld the trial court’s finding that not every act of counsel may be ascribed to a client — and that an insurance company can itself be a client. “Because insurance companies are in the business of litigation, they’re often seen as super-clients, with more power to overrule their lawyers,” Tredwell said. “But they’re not omniscient.” Alan H. Casper represented Ravindran, but he declined to answer questions yesterday. Priyamvada Ravindran was a passenger in a van owned by Roxborough Memorial Hospital when it was struck by another vehicle. The owner of the other car had an insurance policy providing liability coverage in the amount of $50,000 to $100,000. The hospital’s underinsured motorist coverage policy was with Harleysville, providing up to $1 million in coverage, according to the memorandum. The case proceeded to arbitration, in accordance with a clause in the Harleysville policy, and Ravindran pursued a UIM claim against the company, according to the memorandum. In June 1999, two arbitrators agreed upon an award of $750,000 to Ravindran. The third dissented. Harleysville paid the award to Ravindran. Later, Ravindran filed a bad-faith claim against the insurance company and sued for punitive damages, according to the memorandum. After a trial without a jury, the Philadelphia trial court rejected Ravindran’s claim, saying the company had a reasonable basis for questioning her claim for UIM benefits. Saji Ravindran, serving as guardian ad litem for his mother, Priyamvada Ravindran, appealed the trial court’s verdict in favor of the insurance company. In its memorandum, the Superior Court said a plaintiff must show clear and convincing evidence that the insurer did not have a reasonable basis for denying benefits under the policy and that the insurer knew of its lack of reasonable basis when it denied the claim. But state law prohibiting bad-faith conduct is meant to provide “a remedy for bad-faith conduct by an insurer in its capacity as an insurer and not as a legal adversary in a lawsuit filed against it by an insured,” the court said, quoting its 1999 decision in O’Donnell ex rel Mitro v. Allstate. The court did note that the trial court erred in requiring proof of actual pecuniary harm as an essential element in bad-faith claims. But because the error “did not control the outcome of the case, it yields no relief,” the court said. The court rejected Ravindran’s argument that Harleysville’s reliance on its lawyers’ advice should not insulate it from the bad-faith claim, referencing its decision this summer in Zimmerman v. Harleysville Mutual Insurance Co.: “[A]n insurer’s reliance on counsel can preclude a bad-faith claim by ruling in favor of an insurer that argued on appeal that it had a reasonable basis to deny, defend and appeal a claim ‘where the law was complex and the insurer consistently relied on the advice of respected counsel.’” In discussing whether the insurance company’s lawyers behaved illegally by communicating with the arbitrator, the court emphasized that both parties had agreed to select their own arbitrators and to let those arbitrators choose a neutral arbitrator. “Parties who select party-appointed arbitrators also expect them to serve as non-neutrals,” the court said, quoting Hozlock. “The reason parties contract for the choice of their own arbitrator is to ensure that each party will have his or her ‘side’ represented on the arbitration panel by a sympathetic member. The parties expect their party-appointed arbitrators to provide expert guidance and knowledge to the neutral arbitrator, who may not be in a position to appreciate the finer points of the dispute and its history.” Ravindran agreed to the appointment of the non-neutral arbitrators, and so she cannot now blame the insurance company for “ensuring it was represented by a sympathetic arbitrator,” the court said. The court also rejected Ravindran’s final argument, that the trial court’s findings of fact were unsupported. It pointed to testimony from the two attorneys, Livingood and Lachat, who maintained that the ex parte communications were proper, their evidence was properly presented, and that they knew the insurance company was relying on their advice. The court referred to testimony from the litigation supervisor for the insurance company, who said she relied upon the advice of medical experts and the company’s lawyers regarding the presentation of evidence and the value of Ravindran’s claim. The case was before Judges Debra M. Todd, Robert A. Graci and Senior Judge Patrick R. Tamilia. Todd wrote separately to concur in the result that the attorney’s conduct in this case did not support a bad-faith claim against the insurance company. She disagreed with the memorandum to the extent that it appeared to approve of ex parte communications between a party and a non-neutral arbitrator. “Here, counsel for Harleysville conceded at trial that he called the arbitrator and discussed, in some detail, witness testimony and legal issues concerning the case,” Todd wrote. “Despite what may have become ‘common practice,’ I find counsel’s conduct highly improper and an affront to the expectation and requirement of a fair and open arbitration process.”

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