BAD FAITH INADEQUATELY PLEADED: (1) NO BAD FAITH SOLELY BECAUSE THIRD PARTY UIM CLAIMS WERE NOT PAID WHILE FIRST PARTY BENEFITS WERE PAID; (2) TIME GAP BETWEEN DEMAND AND OFFER ALONE DOES NOT SUPPORT BAD FAITH; (3) ABSENCE OF COMMUNICATIONS WITHOUT ALLEGING EXPLANATION WAS SOUGHT BY THE INSURED NOT BAD FAITH; AND (4) WIDE DIFFERENCE IN VALUE BETWEEN DEMAND VALUE AND AN INSURER’S LOWER VALUATION ALONE IS NOT BAD FAITH ABSENT ADDITIONAL ALLEGATIONS OFFER WAS UNREASONABLE AND MADE IN BAD FAITH (Middle District)

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In this UIM bad faith case, the court dismissed the bad faith count, but sua sponte allowed the insured to file an amended complaint. In setting out general bad faith law, among other things, the court observed that “[f]ailing to plead explanations or descriptions of what an insurer actually did, or why they did it, is fatal to a bad faith claim.”

In carrying out its analysis of whether the complaint could survive a motion to dismiss, the court first identified conclusory allegations that need not be considered in determining the issue. The court then took a close look at the complaint’s actual factual allegations to determine whether those allegations could support an actionable bad faith claim.

Paying first party medical benefits while not paying third party UIM claims is not in itself bad faith.

First, the court observed that an insurer’s paying first party medical benefits “without indicating any dispute regarding the causal relationship between the accident and Plaintiff’s medical bills or income loss,” while denying third party UIM benefits is insufficient, in itself, to make out a bad faith claim. Bad faith must go beyond “a mere inconsistency” in handling these two categories of claims.

A time gap between the insured’s demand and the insurer’s offer of payment alone is not sufficient to make out bad faith.

Second, the court rejected the argument that a seven month time period between here policy limit demand and the insurer’s offer in response does not by itself constitute bad faith “if the insurer had a reasonable basis for the delay.” Here, the plaintiff failed to allege “any facts indicating that Defendant’s delay of nearly seven months did not have a reasonable basis” and the mere calculation of time between demand and offer is not sufficient to make out a bad faith claim.

Alleging a bad faith failure to communicate requires pleading actual efforts to communicate to which the insurer failed to respond in good faith.

Third, if plaintiff wanted to plead failure to communicate as a basis for her bad faith claim, she needed to allege “specific facts regarding the plaintiffs’ unsuccessful attempts to elicit such information from the defendant insurers.” The complaint does not identify any communications attempting to get an explanation from the insurer about the basis for its offer (which was over $800,000 lower than the policy limits demand). Allegations that the insurer failed to support its offer with medical evidence or expert reports did not support the argument of an unreasonable failure to communicate with the insured.

Identifying difference between demand and offer alone cannot be the basis for bad faith, absent allegations that the insurer acted unreasonably and in bad faith in making the lower offer.

Fourth, the insured argued that the large difference between her $1,000,000 demand (which she further averred was lower than her actual damages), and the insurer’s $107,012 offer was alone sufficient to sustain a bad faith claim. The court likewise rejected this argument. A low but reasonable estimate will not be treated as bad faith, and the insured did not allege “facts from which a factfinder could plausibly conclude that Defendant’s offer was unreasonable and made in bad faith … rather than made as part of the ordinary course of negotiations between insurers and insureds.” Judge Kane cites Judge Caputo’s recent Clarke decision to support this conclusion.

She also cited Judge Caputo’s recent Moran decision for the proposition that even a facially unreasonable offer, without more pleaded, may not constitute bad faith, because “[e]ven if an offer is facially unreasonable, it must also be shown to have been made in bad faith.” The complaint must sufficiently allege conduct supporting the unreasonable offer was made in bad faith, rather than the result of a negligent failure to investigate and evaluate the claim.

Summaries of Clarke and Moran can be found here.

Date of Decision: March 26, 2019

Rosenthal v. Am. States Ins. Co., U. S. District Court Middle District of Pennsylvania No. 1:18-cv-01755, 2019 U.S. Dist. LEXIS 50485, 2019 WL 1354141 (M.D. Pa. Mar. 26, 2019) (Kane, J.)

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