APRIL 2016 BAD FAITH CASES: THERE CAN BE NO BAD FAITH IN FAILING TO PROVIDE INFORMATION TO BENEFICIARY OR DENYING LIFE INSURANCE BENEFITS WHERE INSURED HAD LET POLICY LAPSE BY PREMIUM NON-PAYMENT (Middle District)

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In Moll v. Pruco Life Insurance Company, the Court held that an insurer did not act in bad faith during the claims process or in denying payment on a life insurance policy, after determining that the policy had lapsed for non-payment.

The insurer had issued a life insurance policy, pursuant to which the insured owed premiums on the on the 3rd of every month, but had a 31-day grace period to make a payment before the contract would be void. The insured made monthly payments from September 2012 through February of 2013. Thereafter, the insured elected to cancel the policy.  The insurer mailed several notices of the upcoming March 3rd premium due date, and informed the insured that the policy would lapse at the end of the grace period on April 3rd if he failed to make a payment.  Still, the insured made no further payments.  On April 8th the insured died.

When his beneficiary contacted the insurer about the death benefits, she was informed that the policy had lapsed and no death benefits were due.  In response, she asked for specific information about the policy, but was informed that the insurer could not release any information without a court order appointing the executor/administrator for the insured’s estate.  Four months later, after opening an estate, the now-Administratrix repeated the request on behalf of the insured’s estate.  Although it took an additional four months, the insurer finally released information about the policy.

The estate later brought claims for breach of contract and bad faith.  Among other things, the estate alleged bad faith by failing to release information about the policy until an estate was opened, refusing to answer questions about the denial of benefits in a timely manner, and challenging the insurer’s interpretation of how premiums were to be paid and applied.  In holding that the insurer did not act in bad faith, the Court stated that Pennsylvania does not recognize a common law remedy for bad faith, and analyzed all the claims under Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. § 8371.

Pursuant to the statute, the Court looked no further than determining that the insurer had a reasonable basis for denying coverage.  Notably, the Court did not even address the arguments regarding the failure to provide information and failure to respond in a timely manner.  Instead, the Court relied on the fact that the insured made no premium payments to avoid lapse.  Thus, the Court held that the insurer appropriately and timely declined the death benefits, and granted summary judgment to the insurer.

Date of Decision:  February 26, 2016

Nicole Moll v. Pruco Life Ins. Co., NO. 1:14-CV-1040, 2016 U.S. Dist. LEXIS 23464 (M.D. Pa. February 26, 2016) (Conner, J.)

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