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BAD FAITH CLAIM BARELY STATED BASED ON ALLEGED FAILURES TO INVESTIGATE, DELAY, AND LOW VALUATION, TAKEN IN THEIR TOTALITY (Middle District)

This is a breach of contract and bad faith first party property damage claim.  The court denied the insurer’s motion to dismiss the bad faith claim.

The insured suffered a furnace malfunction that she claimed led to $35,000-$40,000 in damages. She later suffered a second malfunction leading to a roughly equal amount of additional damages.

The insurer valued the first claim at $15,000, paid that sum less the deductible, and refused to pay any sum for the second claim.  This full denial was based on the insured’s alleged failure to clean after the first incident, and that the only odor in the house was from cigarettes, not soot from the furnace discharge.

Middle District Judge Mariani found that while the complaint included some conclusory allegations, and the facts alleged on bad faith were “sparse”, the complaint’s allegations were “enough to barely ‘nudge[ ] [the] claim[ ] across the line from conceivable to plausible….’”

Delay related bad faith

The relevant facts pleaded were that the insurer waited one month until after the first loss to send out an adjuster to investigate.  Further, the insurer did not pay anything for the first loss for seven months. The court observed that “’bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant.’”  Further, “[a]lthough delay ‘on its own [does not] necessarily constitute bad faith’, the delay between a demand for benefits and an insurer’s determination of whether to pay a claim is a relevant factor in determining whether an insurer has acted in bad faith.”

Applying these principles to the factual allegations, Judge Mariani found enough delay pleaded in both sending out an investigator, and in paying on the first claim, to survive dismissal.

Valuation related bad faith

The court next addressed whether the valuation differences could amount to bad faith.  As stated, the insured provided estimates ranging from $35,000 to $40,000 and the carrier’s expert valuation was $15,000.  After taking out the deductible, the payment was $10,400.

Judge Mariani observed that “[a]lthough bad faith ‘is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages,’ the disparity between the defendant insurer’s payment and the plaintiff’s estimates is a relevant consideration in bad faith claims.” He relied on Middle District Judge Mannion’s Meiser v. State Farm opinion for the proposition that an “extreme disparity” in the parties’ damage estimates can lend support to a bad faith claim, especially where exhibits are attached showing the extent of the damages. A link to our Meiser summary can be found here.

Judge Mariani found the $25,000 disparity, accompanied by exhibits explaining the damages, to be sufficient to support a bad faith claim. The opinion’s language indicates that the valuation allegations were read along with the delay allegations in evaluating the bad faith claim, and that it was the totality of these three factors (delayed investigation, delayed payment, and valuation disparity) that together made out a plausible bad faith claim.

[For a few examples of valuation disputes insufficient to state a bad faith claim, see this post.]

Failure to investigate related bad faith

As to totally denying the second claim, the complaint alleged denial was based on the insured’s alleged failure to clean the premises after the first loss. However, the insured allegedly informed the carrier that she and her daughter made a significant cleanup effort after the first malfunction and before the second, and the insurer knew this before denying the claim.  Thus, plaintiff alleged the carrier ignored the fact that she did clean, and then ignored her damage estimate transmitted to the carrier because of this putative failure to clean. The insured also alleged the carrier did not pay heed to her public adjuster “pointing out that the home was a forced, hot air system and that [the insurer] had agreed to clean the ducts on the second floor, but not the rooms that were contaminated with the soot/smoke….”

Judge Mariani found the totality of these factual allegations, taken in the light most favorable to plaintiff,  made out a bad faith claim for failure to conduct an adequate investigation, which in turn resulted in an unfounded claim denial. He added that, “[a]lthough discovery in this case may later reveal that Defendant did in fact have a reasonable basis to deny Plaintiff’s second claim, the Complaint states the minimum amount of facts necessary to allow Plaintiff’s bad faith claim to survive the motion to dismiss.”

After surveying the totality of the facts on both claims, Judge Mariani summarized as follows: “Though none of these factual allegations alone may be sufficient to state a claim under § 8371, taken together, Plaintiff has successfully, though barely, stated a plausible claim of bad faith.”

Date of Decision:  March 19, 2021

Chuplis v. State Farm Fire and Casualty Co., U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1757, 2021 WL 1080932 (M.D. Pa. Mar. 19, 2021) (Mariani, J.)

OCTOBER 2018 BAD FAITH CASES: ALLEGED DISPARITY IN PROPERTY DAMAGE ESTIMATES WENT BEYOND THE ARGUMENT THAT THE INSURER’S ESTIMATE WAS LOW BUT REASONABLE; ALLEGATIONS IN COMPLAINT NOT CONCLUSORY AND NEEDED TO BE EXPLORED IN DISCOVERY (Middle District)

Negligent driving resulted in a truck crashing into the insured’s home. Her carrier evaluated the damage at less than $2,500, which came to less than $600 after deductibles. The tortfeasor’s carrier evaluated the damages at $60,000 based on a finding of structural damage, and the plaintiff’s public adjuster and another entity came in at $40,000. The insurer did not revise its estimate, and the insured brought suit for breach of contract and bad faith. The insurer unsuccessfully moved to dismiss the bad faith claim.

The case provides an overview of: the elements of statutory bad faith; that negligence does not constitute bad faith; the demanding heights of the clear and convincing evidence standard; and some types of conduct that may constitute bad faith, e.g., “a frivolous or unfounded refusal to pay, failure to investigate the facts, failure to communicate with the insured, failure to engage in settlement negotiations, and unreasonable delay.”

The carrier had a representative and engineer inspect the house, and argued that its number was the result of these inspections. It argued that it was willing to pay the claim, and that simply because the insured disagrees with the number offered this does not constitute bad faith. The insurer relied on the principle that low but reasonable offers cannot constitute bad faith. The insurer also argued that the complaint contained only conclusory allegations of bad faith, and should be dismissed on those grounds as well.

The court disagreed, finding the facts pleaded sufficient to state a claim. Further, the court did not characterize the pleadings as supporting the conclusion the insurer’s estimate was low but reasonable. Rather, plaintiff alleged that the extreme disparity between the insurer’s estimate and the other estimates “suggests much more than mere negligence.” The insured also attached exhibits “to show the extent of her damages and the total amount of her damages based on her estimates.”

The court also recognized that other allegations require discovery to determine if they can be substantiated, e.g., her allegation that the insurer “initially misrepresented pertinent facts of her policy provisions regarding coverage and that [the insurer] mislead her.” The issue of whether the house suffered structural damage, as stated in the $60,000 estimate, also requires discovery, as such evidence “would support plaintiff’s bad faith allegation that [the insurer] was unreasonable in failing to reinvestigate and reevaluate her damages.”
Date of Decision: September 28, 2018

Meiser v. State Farm Fire & Cas. Co., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:17-2366, 2018 U.S. Dist. LEXIS 167991 (M.D. Pa. Sept. 28, 2018) (Mannion, J.)