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THERE IS NO CAUSE OF ACTION FOR “INSTITUTIONAL BAD FAITH” (Pennsylvania Superior Court) (Non-Precedential)

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In this unpublished opinion, Pennsylvania’s Superior Court addressed whether “institutional bad faith” states a private cause of action under Pennsylvania law. Much like yesterday’s post, the Superior Court emphasized that Pennsylvania bad faith law requires focusing on the case and parties at hand, and not the insurer’s conduct toward other parties or its alleged universal practices. The court also addressed other issues concerning statutory bad faith and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL), among other matters. In this post, we only address all the bad faith and  UTPCPL claims against the insurer.

Factual Background and Trial Court Rulings

The case begins with a home remodeler’s attempt to destroy a bee’s nest in one small section of a house. This unfortunate effort only caused larger problems, contaminating and damaging the house. The chain of misfortune continued when remediation efforts led to more damage, with the home allegedly becoming uninhabitable. At a minimum, all sides agreed some level of reconstruction work was now needed.

The homeowners’ insurer engaged a contractor to fix the original problem. The homeowners eventually challenged the quality of that contractor’s work, which they contended added to the damage. They eventually refused to allow that contractor on site, and unilaterally hired a second contractor to take over. Both the insured and insurer retained their own engineers, who disagreed on the scope of the damage and reconstruction work required.

The second contractor was owned by the insured husband’s parents. The husband himself was the second company’s project manager on the job. The trial court stated that the husband agreed with the position that he “negotiated an oral contract on behalf of … himself and his wife… with himself, as project manager of and on behalf of [the second contractor]” for the reconstruction work. The insurer and first contractor disputed the necessity and cost of the work carried out by the second contractor, as well as other costs.

The trial court ruled for the insurer on breach of warranty, emotional distress, UTPCPL, and bad faith claims, but in favor of the insureds on their breach of contract claim.

There is no Cause of Action in Pennsylvania for Institutional Bad Faith

The insureds argued that institutional bad faith could be the basis for asserting statutory bad faith. Under this theory, a claim can be based solely on an insurer’s policies, practices, and procedures as applied universally to all insureds. The present plaintiffs wanted to introduce evidence to support such institutionalized bad faith conduct. Both the trial and appellate courts rejected this theory.

The Superior Court emphasized that a bad faith action is limited to “the company’s conduct toward the insured asserting the claim.” Thus, “’bad faith claims are fact specific and depend on the conduct of the insurer vis-à-vis the insured.’” The Superior Court agreed with the trial court “that there is no separate cause of action of institutional bad faith.” It stated, that the bad faith statute “authorizes specified actions by the trial court ‘if the court finds that the insurer has acted in bad faith toward the insured . . . ,’ not to the world at large.” (Court’s emphasis).

The Insurer did not Act in Bad Faith

  1. The policy and procedure manual/guideline arguments failed on the merits.

The Superior Court ruled that the trial court’s findings did not result in a refusal to consider evidence relating to the insurer’s conduct and practices. In fact, the insurer’s manuals, guidelines, and procedures were admitted as evidence, all of which were considered by the trial court. This evidence, however, was not considered as part of an institutional bad faith case. Rather, it was only relevant to determining if the insurer acted in bad faith toward the specific plaintiff-insureds, and not to the universe of all insureds.

In deciding the bad faith issue, when the trial court was presented with evidence of the insurer’s policies and procedures, it “did not find them to be improper when applied to the [insureds’] claim, although not a separate claim concerning ‘institutional bad faith.’” (Court’s emphasis) Thus, the actual plaintiffs could not make out a case for themselves on this evidence because they “failed to establish a nexus between [the insurer’s] business policies and the specific claims … asserted in support of bad faith.”

  1. The insureds could not meet the clear and convincing evidence standard.

The trial court found the insurer had not acted in bad faith on other facts of record, and the Superior Court found no abuse of discretion in this ruling. Both courts emphasized the insured’s burden of proof is clear and convincing evidence. Thus, the trial court stated, “[i]cannot be reasonably said, given the facts and evidence adduced at trial, that [the insurer] lacked a reasonable basis for denying benefits and/or that [it] knew or recklessly disregarded its lack of a reasonable basis to deny benefits…. Mere negligence or bad judgment in failing to pay a claim does not constitute bad faith. An insurer may always aggressively investigate and protect its interests. Particularly in light of the higher burden of proof, specifically the requirement that [insureds] must prove a bad faith claim by ‘clear and convincing’ evidence, the record in this case does not support the assertion of statutory bad faith….”

Specifically, the court focused on alleged (i) failures to pay engineering fees, (ii) delays in hiring engineers, (iii) unduly restricting the engineer’s ability to opine, and (iv) instructions that the first contractor and its engineer disregard building codes.

The insurer adduced evidence that (i) it paid engineering fees, (ii) its original decision not to hire an engineer was done based on information provided by the first contractor and a building code officer, (iii) it did agree to hire an engineer once the insureds provided their list of concerns, and (iv) the engineer opined the home was not uninhabitable. The insurer also put on evidence that its adjuster never told the first contractor to ignore the building code, but rather expected the contractor to comply with existing code requirements.

On these facts, the Superior Court found that the trial court did not abuse its discretion in finding the insureds failed to meet the clear and convincing evidence standard.

The UTPCPL does not Apply to Claim Handling

Both the trial court and Superior Court concluded that the UTPCPL does not apply to insurer claim handling cases.

Date of Decision: January 14, 2020

Wenk v. State Farm Fire & Cas. Co., Superior Court of Pennsylvania No. 1284 WDA 2018, No. 1287 WDA 2018, No. 1288 WDA 2018, 2020 Pa. Super. Unpub. LEXIS 178 (Pa. Super. Ct. Jan. 14, 2020) (Lazarus, Olson, Shogan, JJ.) (non-precedential)

Our thanks to Daniel Cummins of the excellent Tort Talk blog for brining this case to our attention.

THIRD CIRCUIT FINDS: (1) EXPERT PROPERLY EXCLUDED FROM TESTIFYING ABOUT OTHER CASES; (2) REPORT NEVER PROVIDED TO INSURER DURING CLAIM HANDLING CANNOT BE CONSIDERED DURING BAD FAITH CASE; (3) INSURED WAS FULLY ABLE TO PRESENT CLAIM HANDLING EVIDENCE THROUGH HERSELF AND ADJUSTER; (4) USING HAND GESTURES IN JURY INSTRUCTION ON CLEAR AND CONVINCING EVIDENCE NOT AN ERROR (Third Circuit – Pennsylvania Law)

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This is a post-verdict appeal after the jury found for the insurer in a UIM bad faith case. The insured challenged various pre-trial evidentiary rulings from the District Court Judge, and one of the judge’s jury instructions.

Before trial, the insurer moved to preclude plaintiff’s expert report and testimony, medical evidence that was not provided to the insurer during the UIM claim’s pendency, evidence of mental suffering and emotional distress, and evidence concerning non-recoverable damages. The insured also challenged the trial judge’s use of hand gestures during jury instructions to explain the clear and convincing evidence standard.

  1. Decision to Exclude Expert Upheld

The Third Circuit agreed there was no abuse of discretion by the trial judge in not holding a Daubert hearing. There was a sufficient record on the papers, making a hearing unnecessary. Further, the insured failed to explain how a hearing would have benefitted her or the court.

Next, the appellate court found no abuse of discretion in the trial court’s decision barring the expert’s testimony. Plaintiff wanted her expert to testify “for the very limited purpose of establishing a range of value for [her] underlying UIM claim.” However, this involved looking at other cases not before the court. The District Judge found that “’what other cases have paid is not relevant to this case, [and] what the value of this case is’ and [] the jury ‘will be instructed to use their common sense’ in compensating [the insured] should she prevail.”

The Third Circuit found no abuse of discretion in the District Court’s determination that the proposed expert testimony would not aid the jury, which had to rely on the facts in the case before it to determine bad faith.

  1. Medical Report Never Given to Insurer During Claim Handling Inadmissible

The insured wanted to introduce a medical report as evidence, addressing the extent of her injury and damages. However, she never provided that report to the insurer during the claim process. The Third Circuit found no abuse of discretion in the District Court excluding this evidence. “Because [the insurer] was not in possession of the report when it was evaluating [the] claim, it could not have considered the report’s findings when making its settlement offers. Therefore, the report had no relevance to the issue of whether [the insurer] acted in bad faith. Accordingly, we see no abuse of discretion in the District Court’s decision to exclude the report.”

  1. The Insured was Able to Present the Value of Her Case through Her Own Testimony and that of the Claim Adjuster

The insured argued the trial judge’s rulings prevented her from putting on a full case from which the jury could evaluate her claim. The Third Circuit found no abuse of discretion. Rather, the insured was able to put on her case directly through her own testimony, and to examine the claim adjuster at length on the relevant issues as to how the adjuster evaluated the claim.

  1. The District Judge’s Use of Hand Gestures to Explain the Clear and Convincing Evidence Standard was not an Error

The insured challenged the jury charge on the applicable burden of proof because the judge used “hand gestures demonstrating [the insured’s] burden in the ‘clear and convincing’ standard as a point midway between proof by preponderance of the evidence and proof beyond a reasonable doubt.” The Third Circuit found no plain error here that would merit relief for the insured.

“The District Court instructed the jury that clear and convincing evidence ‘means that the evidence is so clear, direct, substantial that you are convinced without hesitation that a fact is true.’ Language used by the District Court was substantially similar to language we have previously approved of. While [the insured] takes issue with the District Court’s use of ‘hand gestures’ during the jury charge, there is no reason to believe that those ‘hand gestures’ confused or in any way distracted the jury from the District Court’s correct instruction on clear and convincing evidence. Therefore, we find no error, much less plain error.”

In sum, the Third Circuit affirmed the District Court’s decisions.

Date of Decision: January 8, 2020

Antonio v. Progressive Insurance Co., U.S. Court of Appeals for the Third Circuit No. 19-1074, 2020 U.S. App. LEXIS 455 (3d Cir. Jan. 8, 2020) (Fuentes, Scirica, Shwartz, JJ.)

COMMON PLEAS JUDGE FINDS BAD FAITH FOR (1) RELYING ON UNWARRANTED RED FLAGS; (2) REACHING COVERAGE CONCLUSIONS UNSUPPORTED BY ACTUAL FACTS; (3) UNREASONABLE INTERPRETATION OF POLICY’S COVERAGE LANGUAGE; (4) DRAWING UNWARRANTED CONCLUSIONS FROM EXPERT REPORT; (5) FAILING TO INVESTIGATE FULLY; (6) VIOLATING UIPA (Common Pleas Lehigh)

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Today’s post summarizes Lehigh County Judge Melissa Pavlack’s Findings of Fact and Conclusions of Law in this breach of contract and bad faith case.

The Court’s Factual Findings

The insureds’ car was stolen. It was recovered, but with considerable damage. The insureds’ license plate was replaced with a stolen plate. The court found that the thieves never intended to return the vehicle. The insureds sought coverage based on the theft and vandalism, relying on policy language covering theft, larceny, vandalism, and malicious mischief.

The court found the insureds were not involved in any way with the theft or vandalism, nor was there any fraud on their part. The car was deemed a total loss, and valued at around $13,000. There were additional costs for hauling and storage, bringing the total claim to approximately $17,000.

The insurer denied the claim, citing insufficient evidence the car had been stolen. It refused to consider a separate vandalism claim because the damages arose out of an alleged theft. Thus, the insurer did not investigate the vandalism claim, and the denial letter never addressed the vandalism claim’s merits. The insurer never cited any policy exclusions applying to the vandalism claims. There was also no denial based on fraud.

The insurer’s investigation included a claim’s adjuster and supervisor, a fraud investigator, an appraiser, an appraisal report, an investigator and three investigator reports, an examination under oath over the telephone and in person, document requests, and a site visit to the loss location. At trial, the adjuster could not recall which of the insured’s statements under oath led to the claim denial.

The investigator reported to the carrier that one of the insureds was uncooperative because she did not bring unredacted tax returns and cell phone records to her examination under oath. Relying on this alleged lack of cooperation, the claims supervisor wrote to the insured that she had failed to cooperate by not bringing these tax returns and records, and failed to cooperate with the insurer’s investigation. However, the investigator was not aware that another of the insurer’s representatives had actually instructed the insured to bring redacted copies of the tax returns to the examination under oath, which she did.

As to other document issues allegedly evidencing a failure to cooperate, it was made clear during the examination under oath that the insured was a medical professional. She could not simply produce her phone records without violating HIPAA. She attempted to cooperate during the examination under oath by showing some messages in her phone from the days in question; but the adjuster was also concerned about HIPAA, and was hesitant to proceed with looking at her phone. Further, the court found the insured could not respond to the insurer’s request for the car purchase documents because these had been stolen from the glove compartment.

Moreover, in contrast to assertions that the insureds failed to cooperate, the court found that the insurer’s fraud investigator conceded the insureds had cooperated, and had provided documents requested in the manner requested.

As to the allegation there was insufficient evidence of theft, the insurer relied upon its expert report. The expert opined there was no forced entry, and that the car only could have been moved using a key. The court found (1) the insurance policy did not require forced entry as a condition precedent to establish theft, and (2) the car could be moved without a key. Further, the insurer’s fraud investigator testified that cars can be stolen without noticeable signs of forced entry, and there was other testimony to the same effect. The court also found that the fraud investigator never communicated with the claim adjuster that forced entry was not required to steal a car.

In sum, the court found these conclusions (forced entry and use of a key) were not reasonable bases to deny the very existence of a theft.

Most significantly, the expert only opined the car was not stolen by means of forced entry, and that a key had to have been used. Whether or not these conclusions were correct was irrelevant in the court’s view, because the expert never opined the car was not stolen. Thus, it was an error to make the leap that the car was not stolen, as it could have been stolen by some means other than forced entry, or could have been moved without a key.

There was Coverage for Theft, Vandalism, and Malicious Mischief

In addressing the breach of contract claim, the court looked at the policy’s plain language. The policy expressly covered theft, larceny, vandalism, and malicious mischief. There were no applicable exclusions in this case, so the court only had to interpret the coverage language.

The court looked at the dictionary definition of these terms, rather than any criminal statutes or case law defining vandalism, theft, etc. It concluded the facts of the case fell within these coverage terms, and the insureds claims were covered. As to bad faith, it was unreasonable to conclude the facts at hand did not fall within the policy’s plain and unambiguous language. Further, the court found the insurer’s conduct unreasonable in failing to consider coverage for vandalism and malicious mischief when denying the claims.

Court uses Unfair Insurance Practices Act and Unfair Claim Settlement Practices Regulations as Standards

The court cited (1) Unfair Claim Settlement Practice regulations (UCSP), 31 Pa. Code § 146.4, on obligations to fully disclose coverages and benefits; and (2) the Unfair Insurance Practices Act (UIPA), 40 Pa.S.A. § 1171.5(a)(10)(iv), on failing to reasonably explain a claim denial.

The court cited these UCSP and UIPA provisions in the context of the first bad faith prong, lack of a reasonable basis to deny benefits. The court then observed the insurer had completely failed to consider the vandalism and malicious mischief claims covered under the policy. This supported the existence of bad faith, though it is not wholly clear whether the UCSP and UIPA violations were evidence of bad faith conduct, or were bad faith per se.

[We have previously posted on how courts treat alleged violations of UCSP regulations and the UIPA in bad faith cases, ranging from (1) their being completely outside the scope of consideration in determining bad faith, (2) as constituting potential evidence of bad faith, or (3) as amounting to statutory bad faith. It is not quite clear in the present case which of the latter two standards applied. Even without citing the UCSP or UIPA, however, it would seem the court’s finding that the insurer gave no regard to plainly covered vandalism claims was a basis for bad faith, regardless of any UCSP or UIPA violations.]

Erroneous Red Flags

The insurer justified its conduct by identifying certain “red flags” that caused legitimate doubt in the insureds veracity. When scrutinized, however, the court found these red flags were based on factual errors or erroneous assumptions.

  1. The insured was deemed uncooperative for failing to attend a unilaterally scheduled examination under oath. In fact, however, the court found the insured gave sufficient notice she could not attend on that date, and cooperated in rescheduling the examination under oath on another date, at which she appeared. She also had agreed to, and participated in, an examination over the phone.

As to the original date for the in-person examination, the court observed that the insurer knew in advance the insured was not going to appear on the first scheduled date, but still had its representatives appear to make a record against the insured for failing to appear.

  1. The insurer also asserted the insured was uncooperative because she provided redacted tax returns. As stated above, the insurer’s own representative had informed the insured in writing that certain redactions could be made. Further, when the insurer later requested an unredacted return, the insureds provided it.

  2. As to the alleged lack of cooperation on cell phone records, this was fully addressed during the examination under oath. As stated above, the insured was a medical professional and there were certain items on her phone records that could not be produced under HIPAA. That being said, she still offered to let the insurer’s representative look at her cell phone during the examination under oath, regarding non-HIPAA messages from the date the car was stolen. The adjuster was concerned about violating HIPAA, and was hesitant to do so.

  3. The insurer also deemed it a red flag that the loss came shortly after the policy’s purchase. This turned out to be an error. The court found the policy was purchased at least six months earlier. Another suspicion surrounded alleged excessive mileage on the car, which the court found was likewise not factually the case.

Failure to Fully Investigate the Red Flags

The court observed that while the insurer took the insured’s examination under oath, and conducted various investigations based on these alleged red flags, it failed to contact the police. Nor did the insurer follow up on evidence that drugs reportedly were found in the glove compartment. Though not expressly stated in the conclusions of law, this implies that the presence of drugs, under all the facts, favored the idea that strangers had stolen the car for nefarious purposes.

The Insurer Relied on its Expert Report for the Wrong Conclusion

For the court, the coverage issue concerning the insurer’s expert was simple: Was the car stolen? The issue was not: How was the car stolen?

The expert opined on two means by which the car was not stolen. The court found the expert never opined, however, that the car was not stolen. Moreover, the insurer never argued that the insureds faked a theft or lied about it.

The court pointed out that other means could have been used to steal the car, including non-intrusive and non-mechanical means. For example, after the car was recovered it was towed twice. The court found this demonstrated the car could be moved without forced entry and/or without a key.

Thus, the insurer’s reliance on the expert report to deny the fundamental existence of theft was unreasonable. The court found relying on the expert report to reach a conclusion (no theft) on which the report did not render an opinion, amounted to a knowing or reckless unreasonable denial of benefits, i.e. bad faith.

After finding bad faith on all the foregoing grounds, the court stated it would schedule a hearing on attorney’s fees, interest, and punitive damages.

Date of Decision: December 27, 2019

Unterberg v. Mercury Insurance Company of Florida, Court of Common Pleas of Lehigh County Case No. 2016-C-806 (Dec. 27, 2019) (Pavlack, J.)

Thanks to Daniel Cummins of the excellent and extremely useful Tort Talk Blog for bringing this case to our attention.

DISAGREEMENT WITH AN EXPERT’S CONCLUSIONS, STANDING ALONE, IS NOT BAD FAITH (Philadelphia Federal)

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The insured claimed lost wages resulting from an auto accident that reduced his ability to work full time. The insurer’s examining physician concluded the insured could work full time. The insurer denied the claim.

The insured brought suit. The insurer moved to dismiss all claims. The court analyzed each of the potential claims in the complaint, including a bad faith claim.

The court observed the two elements of statutory bad faith, i.e., a knowing or reckless decision to unreasonably deny benefits. The court also apparently included a showing of self-interest or ill will as a third element. [Per the Pennsylvania Supreme Court’s 2017 Rancosky decision, however, a showing of self-interest or ill will may be evidence of the second bad faith element, but is not itself a third required element.]

The court found that the insured failed to set out a bad faith claim. The complaint alleged “the insurer relied on the findings of its own medical professional that [the insured] was able to return to work full time. While [the insured] might disagree with the doctor’s assessment, that does not mean his insurer acted without a reasonable basis when it denied [the] work loss benefits. Accordingly, the facts plead in the Complaint, without more, fail to show [the] insurer acted in bad faith when it denied his claim.”

The claims were dismissed without prejudice, with leave to amend.

Date of Decision: December 9, 2019

Elansari v. Liberty Mutual Insurance Co., U. S. District Court Eastern District of Pennsylvania Case No. 2:19-cv-03404-JDW, 2019 U.S. Dist. LEXIS 211369, 2019 WL 6698209 (E.D. Pa. Dec. 9, 2019) (Wolson, J.)

A LOW BUT REASONABLE ESTIMATE IS NOT BAD FAITH (Third Circuit)

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The Third Circuit affirmed Middle District Judge Robert Mariani’s grant of summary judgment to the insurer on a bad faith claim. A summary of the trial court opinion can be found here.

In this UIM case, the tortfeasor paid $95,000 out of a $100,000 policy. The insurer initially valued the claim at $110,000 to $115,000 and offered $10,000 to settle (after deducting the $100,000 for the tortfeasor’s policy). The insured demanded the full $200,000 UIM policy limits, and filed suit when her demand was not met. The insurer upped its offer to $50,000, and the parties finally agreed to a high low arbitration ($200,000/$10,000). The arbitrator found the “total claim was worth $306,345, and calculated [the insurer’s] responsibility under the UIM policy to be $160,786.78.”

Insured’s Responses to Undisputed Facts Found Inadequate

First, the appeals court rejected the argument that the trial court improperly accepted certain of the insurer’s statements of undisputed fact as undisputed. The insured failed to set forth detailed facts contradicting the insurer’s specifically described undisputed facts. Rather, she generally denied the insurer’s undisputed facts and responded with facts that did not actually go to the issues presented in the insurer’s statements of fact. The Third Circuit found these failings amounted to admissions.

[This is a clear warning to parties opposing summary judgment that simply denying an alleged undisputed fact, without also setting out specific facts of record directly casting doubt on the putative undisputed facts, will result in an admission.]

Next, the appellate court affirmed the trial court’s discretion to disregard an additional 289 counterstatements of fact that went beyond the insured’s responsive paragraphs to the insurer’s allegations of undisputed facts. Under local district court rules, the trial court had broad discretion in reviewing such supplementary counterstatements of fact, and determined they were outside the scope of the evidentiary issues presented in the insurer’s statement of undisputed facts.

Low but Reasonable Estimate not Bad Faith

Finally, the Third Circuit observed that “[w]hile successful bad faith claims do not need to show fraudulent behavior, negligence or bad judgment will not support a bad faith claim. … Nor will ‘a low but reasonable estimate of the insured’s losses.’”

The Third Circuit found “[t]he District Court properly applied this standard and granted summary judgment because the undisputed facts in the record show that [the insurer] had a reasonable basis for contesting [the insured’s] UIM claim. The record shows that (1) a large portion of [the insured’s] valuation of her claim was attributable to potential future surgery, (2) an independent medical examination disputed [her] claim that she needed the future surgery, (3) [she] had additional health coverage that would defray the cost of future surgery, and (4) [the carrier] believed [the insured] was exaggerating her symptoms in her deposition during the underlying UIM litigation.”

Even taking any remaining factual disputes in the insured’s favor, she could not demonstrate the absence of a reasonable basis to deny benefits. As there was a reasonable basis to deny benefits, the court did not have to address the second bad faith element of knowing or reckless disregard.

Date of Decision: November 27, 2019

Rau v. Allstate Fire & Casualty Insurance Co., U. S. Court of Appeals for the Third Circuit No. 19-1078, 2019 U.S. App. LEXIS 35560 (3d Cir. Nov. 27, 2019) (Chagares, Jordan, Restrepo, JJ.)

[UPDATED JANUARY 25, 2020] COURT ACCEPTS GENERAL ALLEGATIONS OF BAD FAITH CONDUCT AS ADEQUATE, BASED ON APPARENTLY LIMITED PLEADING OF UNDERLYING FACTS CONCERNING SEVERITY OF HARM AND LENGTH OF TIME WITH NO PAYMENT, AND LATER DENIES THE INSURER SUMMARY JUDGMENT ON SAME GROUNDS AND EXPERT REPORT ON DEVIATIONS FROM INDUSTRY CLAIM HANDLING STANDARDS (Western District)

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In this UIM breach of contract and bad faith case, the insureds were severely injured by a drunk driver. There was $600,000 in UIM coverage. No UIM payments were made for two years and the insured brought suit. The insurer moved to dismiss both counts.

The court first found the plaintiffs adequately pleaded a breach of the insurance contract. Next, the court drew inferences from the complaint’s averments in allowing the bad faith claim to proceed.

Specifically, plaintiffs pleaded severe injuries, through no fault of their own, that could not be fully compensated by the tortfeasor’s insurance. The complaint alleges that two years after the accident, the insurer “had failed to make any payments whatsoever to [the insureds] under the policy’s UIM coverage provision.” The insureds complied with the terms of the insurance policy at issue, giving reasonable notice of the accident and cooperating with the investigation.

“The complaint further alleges that, in addition to [the insurer’s] unreasonable delay in claims handling and its unreasonable failure to pay benefits, [the insurer] has failed to make a reasonable settlement offer, failed to reasonably and adequately investigate their claims, and failed to reasonably evaluate or review all pertinent documentation provided by the plaintiffs in support of their claim for UIM benefits. Accepting the facts alleged in the complaint as true and viewing them in the light most favorable to the plaintiffs, we find that the plaintiffs have stated a plausible statutory bad faith claim….”

Date of Decision: October 24, 2019

Golden v. Brethren Mutual Insurance Company, U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-cv-02425, 2019 U.S. Dist. LEXIS 183691 (M.D. Pa. Oct. 24, 2019) (Saporito, M.J.)

One month later, the court issued an opinion denying summary judgment on both breach of contract and statutory bad faith. On the contract claim, the court stated that the contractual duty of good faith can be breached through a delay in payment of an inordinate and unreasonable time period.  Within the breach of contract analysis, the court looked to such  issues as the insurer’s claims handling and investigation, the insureds cooperation, and the ultimate claim valuation.

On the statutory bad faith claim, the court identified documents produced by the parties concerning the years long claims handling process. The insurer produced a body of documents in support of its claim that it was in constant communication with the insureds, and the insureds submitted other communication documents including demands on the insurer and medical records to support their bad faith position. The court also considered the insureds expert’s testimony opining that “in the context of industry standard for claims handling, [the] investigation, evaluation and resolution of the plaintiffs UIM claims was unreasonable and intentionally dilatory.”

Taking the evidence in the light most favorable to the non-moving insured, the court found there remained a material dispute of fact concerning the alleged failure to reasonably investigate, evaluate, or pay the claim.

Date of Decision: November 25, 2019

Golden v. Brethren Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-cv-02425, 2019 U.S. Dist. LEXIS 183691 (M.D. Pa. Nov. 25, 2019) (Saporito, M.J.)

COURT EXCLUDES EXPERT REPORT BEFORE TRIAL, AND REINSTATES BAD FAITH CLAIM THAT HAD BEEN DISMISSED ON THE BASIS OF THAT EXPERT REPORT (Middle District)

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This is a breach of contract and bad faith disability benefits case. The court originally granted the insurer summary judgment on bad faith, based on a defense medical expert report that plaintiff could go back to work in his field (dentistry). Reliance of this report had established the insurer’s reasonableness in denying the claim.

On motions in limine and a Daubert hearing before trial, however, the court ruled the insurer’s same medical expert was not qualified to opine on the insured’s ability to continue working. It excluded this expert’s medical testimony. Soon after, the court reconsidered its earlier bad faith ruling, and reinstated the bad faith claim on plaintiff’s motion. The court stated: “Given that [the expert] can no longer give his expert opinion as an independent medical examiner that [the insured] was no longer disabled, the evidence in the record does not establish as a matter of law that Defendants ‘had a reasonable basis to deny [the insured’s] claim.’”

The insurer then moved for reconsideration, and the court denied that motion, allowing the bad faith claim to proceed.

Further opening the door on bad faith, the insured was now permitted to testify about his personal beliefs on the insured’s intentions during claims handling and the reasonableness of the insurer’s conduct, the insurer’s requiring certain testing on plaintiff, and the reasonableness of how the insurer’s expert conducted that testing. The insured’s credibility could be challenged at trial on these issues. The insured could not testify, however, about his own internet research into the insurer’s claim handling history, “given [the insurer’s] recent reforms to its claim handling procedures.”

For purposes of defending the bad faith claims, the insurer could still use evidence of certain excluded expert opinions, even though these experts were found unqualified for other purposes. These reports remained relevant to show what the insurer relied upon during the denial process, and in “considering [the insured’s] credibility in bringing his disability claim.”

Date of Decision: October 4, 2019

Brugler v. Unum Group, U. S. District Court Middle District of Pennsylvania No. 4:15-CV-01031, 2019 U.S. Dist. LEXIS 172587, 2019 WL 4917922 (M.D. Pa. Oct. 4, 2019) (Brann, J.)

BAD FAITH CLAIM MAY PROCEED ON SOME CLAIMS HANDLING ISSUES, BUT OTHERS FAIL TO MAKE OUT A CASE (Western District)

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In this UIM bad faith case, Judge Conner, sitting in the Western District for this matter, closely analyzed the insurer’s investigation and claims handling in allowing the bad faith case to proceed. While agreeing with the carrier on a few distinct bad faith sub-issues, summary judgment was denied on the bad faith and breach of contract claims.

The insured was a tetraplegic prior to being hit by the tortfeasors’ vehicle. She made claims that there were new injuries and an exacerbation of her existing autonomic dysreflexia (AD). The carrier assigned a senior adjuster, and offered $20,000 on a $1 Million policy.

The key underlying fact is that a claims adjuster, with no medical training, was making critical decisions based on medical reports and records, or an absence thereof, without sufficiently consulting with doctors or someone with medical training who had experience with AD. The insured provided medical records and a report from her own doctor, a specialist in spinal cord injuries, setting out the basis of her claims of new injuries and the details of the exacerbated AD. The adjuster did have access to a consulting nurse, but the nurse had no AD experience, and her advice to obtain an IME allegedly was disregarded.

The adjuster never sought a statement under oath or obtained an IME, despite the consulting nurse’s recommendation to obtain an IME. There was a hot dispute of fact over whether the adjuster orally requested an IME from the insured’s attorney. After finally obtaining all medical records, the carrier offered $25,000 on the UIM claim, and the insured subsequently sued for breach of contract and bad faith. After litigation started, the carrier did obtain an IME. The carrier’s IME concluded that any AD symptoms were the result of preexisting injuries, and not the motor vehicle accident at issue.

Judge Conner gave close analysis to each distinct aspect of the insured’s bad faith claim.

  1. There must be a meaningful investigation.

An “insurance company must conduct a meaningful investigation, which may include an in-person interview, examination under oath, medical authorizations, and/or independent medical examinations.” “Both federal and Pennsylvania courts have indicated that failure to timely obtain an IME is probative of bad faith. … Common sense dictates that an IME is particularly insightful when the insured suffers from a rare, complex, and unique preexisting condition.”

Again, this was summary judgment, so the facts were taken in the insured’s favor as non-movant. That said, it is undisputed there was no pre-suit IME, that the insured had a long medical history, and that her expert doctor stated the accident exacerbated the AD. Moreover, the carrier’s own nursing consultant had recommended an IME, which advice was not followed. The court was concerned “that an adjuster with no medical training, tasked with evaluating a unique medical condition for an insured with a unique medical history, ignored a medical professional’s recommendation.” “Whether this decision was made in bad faith is an issue of genuine dispute, but [the insured] has put forth enough clear and convincing evidence that [the carrier’s] decision stemmed from recklessness rather than mere negligence.”

  1. The court rejects a “harmless error” argument.

The carrier argued that even if it improperly failed to take a pre-suit IME, it did so post-suit and its doctor found no claim existed because all symptoms were the result of a pre-existing condition. The court rejected this theory.

“To begin with, the court is unaware of a harmless error doctrine in Pennsylvania’s statutory bad-faith jurisprudence, and [the carrier] does not point to one. This argument also misconceives our inquiry. We must review the process by which [the carrier] made its decisions and determine whether they were supported by a reasonable basis. That process need not be ‘flawless,’ but it must be thorough enough to provide … a ‘reasonable basis’ for declining to settle [the] claim. Whether [the carrier] had a ‘reasonable basis’ during its investigation is in dispute because [it] did not seek a pre-suit IME. This, coupled with [the consulting nurse’s] disregarded recommendation that [the carrier] obtain an IME, is enough clear and convincing evidence to suggest that [the] settlement strategy lacked a reasonable basis. That [the] post-suit report confirms [the carrier’s] pre-suit determination does not change whether [the carrier] acted in bad faith in making that determination.”

  1. The insurer’s selecting a doctor to conduct an IME does not by itself show bias.

The insured asserted that the doctor selected to perform the IME was improperly biased. The court observed, “[b]ias in selecting a physician to conduct an IME may be relevant to bad faith, but a baseless allegation of bias alone will not suffice.” The insured did not bring out any evidence to support her bias claim. This naked assertion was not sufficient: “[I]t is clear that [the carrier] chose a physician who would not be independent but instead would be biased in his opinions regarding the extent of [the] alleged injuries and complaints as well as the cause of same.” That the doctor did “prior work for insurance companies does not alone establish unlawful bias or bad faith, and [the insured] does not cite on-point authority to show otherwise.”

  1. The court rejects the carrier’s argument that chose not to take the IME to avoid acting in bad faith.

In its final point on the IME issue, the court states: “In a last-ditch effort to combat [the insured’s] claim, [the carrier] maintains that an IME is not required because ‘insurers have been sued for bad faith when they require insureds submit to IME’s to obtain benefits.’ (Doc. 91 at 14 (citing Sayles v. Allstate Ins. Co., 260 F. Supp. 3d 427, 432 (M.D. Pa. 2017)). That may be true in a vacuum, but Sayles arose in a different context: there, the insurer demanded that the insured submit to an IME without seeking leave from the court in violation of Pennsylvania law. Sayles, 260 F. Supp. 3d at 432, 434-38. [The carrier] did not demand (or request) an IME here. Thus, Sayles is unhelpful.”

  1. A failure to consider relevant information could support a bad faith claim.

The court found that whether the carrier “adequately considered [the insured’s] complete medical profile is a material issue, and the evidence on this point is in genuine dispute.” The record did include the adjuster’s testimony that she considered the insured’s medical report, but relied more heavily on the actual medical records. The court stated: “At first blush this sounds reasonable. But [the adjuster] is not a medical professional and is not qualified to decide if a treating doctor’s narrative is irrelevant to an insured’s medical condition. No IME was conducted to place these records in context despite the suggestion of [the nursing consultant]—a medical professional. [The adjuster] may not have ignored facts per se, but it is difficult for an adjuster to favor some evidence (medical records) over others (medical reports) without professional expertise or the findings of an IME.” Thus, the insured had put on sufficient evidence to go forward on the argument that the insurer “based its settlement strategy on an incomplete medical picture.”

  1. The insured did not have a case for bad faith delay.

“To show bad-faith delay, the insured must establish ‘the delay is attributable to the defendant, that the defendant had no reasonable basis for the actions it undertook which resulted in the delay, and that the defendant knew or recklessly disregarded the fact that it had no reasonable basis to deny payment.’” The court observed that “[t]he process for resolving an insurance claim can be slow and frustrating … but a long claims-processing period does not constitute bad faith by itself….”

In this case, the insured cause some of the delay, “which leans against a finding of bad faith.” The court further observed the four-month time delay between the insured’s last contact with the carrier and filing suit, and rejected the argument of delays in connection with transmitting records, the timing of the IME report and the IME itself, and the carrier’s filing various motions in the case.

After finding the bad faith case could go forward, the court also denied the carrier’s summary judgment on the breach of contract claims, under the law of the case theory and because there was a dispute of fact over whether the AD exacerbation resulted from accident or pre-existing condition.

September 26, 2019

Baum v. Metro. Prop. & Cas. Ins. Co., U. S. District Court Western District of Pennsylvania CIVIL ACTION NO. 2:16-CV-623, 2019 U.S. Dist. LEXIS 164736 (W.D. Pa. Sept. 26, 2019) (Conner, J.)

BAD FAITH CLAIM SURVIVES SUMMARY JUDGMENT WHERE INSURER ALLEGEDLY DID NOT KNOW BASIS OF ITS EXPERT'S ESTIMATES (Middle District)

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In this property loss case arising from a home fire, the insurer’s public adjuster estimated personal property damages at over $220,000. The insurer’s various experts estimated the personal property losses at approximately $51,000.

The insurer’s claim handler relied upon two vendors, one to inventory the lost property and the other to value the items inventoried. The claim handler concluded that the public adjuster’s inventory and photographs did not justify the $220,000 claim, so he adhered to the results of the insurer’s expert vendors.

The insured brought claims for breach of contract and bad faith, and the insurer moved for summary judgment on the bad faith claim.

The court denied summary judgment. It found the following facts in the record supported a potential bad faith claim:

  1. The insureds offered evidence the insurer’s claim handler did not know how his valuation expert obtained the price and depreciation schedules in the lower estimate.

  2. The insurer’s proof of loss requirements for the burned items was “significantly burdensome.”

  3. The insurer’s adjuster failed to send a proof of loss.

Taking these facts in the light most favorable to the insureds, the court concluded they may show the insurer knew there was no reasonable basis for failing to increase its value estimate, or recklessly disregarded the absence of a reasonable basis to do so.

Date of Decision: June 20, 2019

Obelkevich v. Safeco Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:18cv1111, 2019 U.S. Dist. LEXIS 103177 (M.D. Pa. June 20, 2019) (Munley, J.)

(1) NO BAD FAITH POSSIBLE WHERE NO COVERAGE DUE; (2) INSURER’S REASONABLE RELIANCE ON ENGINEERING EXPERT’S REPORT FOR A COVERAGE DECISION DOES NOT CONSTITUTE BAD FAITH (Western District)

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There were two bad faith claims arising out of a building’s wall collapse case. The first was over whether any coverage was due in connection with building walls that had not collapsed, for which the insured sought replacement to match restoration of the collapsed wall. The second had to do with whether the carrier owed additional damage payments for claims more directly related to the collapse.

The court determined no coverage was due for the other walls, and granted summary judgment on that coverage issue. Because no coverage was due, the court necessarily found “no basis for a bad faith claim based upon an unreasonable denial of coverage.”

Second, the court observed the parties’ experts disagreed on the scope of damages and amount due concerning the wall collapse. The court granted summary judgment on bad faith on this claim as well, finding insurer reasonably relied on its experts in determining the amount of damages it would pay.

The court stated:

As regards additional payment of damages, [the insured] argues that disagreements between the parties’ experts precludes the entry of summary judgment on the bad faith claim. Courts have held that “an insurer’s reasonable reliance on an engineering expert’s report for a coverage decision does not constitute bad faith.” Hamm v. Allstate Prop. & Cas. Ins. Co., 908 F.Supp.2d 656, 673 (W.D.Pa.2012) (citing El Bor Corp. v. Fireman’s Fund Ins. Co., 787 F.Supp.2d 341, 349 (E.D.Pa.2011) (insurance company’s reliance on engineer’s findings as a basis for denial of coverage provides reasonable grounds to deny benefits)) “Moreover, even if the expert incorrectly assessed the cause of damage, this is not evidence that his conclusions were unreasonable or that Defendant acted unreasonably in relying upon them.” Totty v. Chubb Corp., 455 F.Supp.2d 376, 390 (W.D.Pa.2006) (citing Pirino v. Allstate Ins. Co., No. 3:04CV698, 2005 U.S. Dist. LEXIS 27519, 2005 WL 2709014, at *5 (M.D.Pa. Oct. 21, 2005)).

Here, [the insured] only identifies conflicts amongst the expert’s opinions on causation and damages and not the reasonableness of [the carrier’s] expert opinions. The conflict between experts may preclude summary judgment on other claims, but not for bad faith. Based upon the reasonableness standard in the bad faith statute coupled with the high burden of proof of clear and convincing evidence, the Court concludes that a reasonable juror could not find bad faith in [the insured’s] favor. …

Date of Decision: May 14, 2019

Keyser v. State Farm Fire & Casualty Co., U. S. District Court Western District of Pennsylvania 2:18-CV-00226-MJH, 2019 U.S. Dist. LEXIS 81194 (W.D. Pa. May 14, 2019) (Horan, J.)