Archive for the 'PA – Claims Handling (general)' Category

1. GOOD NEWS AND BAD NEWS IN DEFINING SCOPE OF STATUTORY BAD FAITH; 2. MOTION TO SEVER AND STAY DENIED; 3. COURT OUTLINES PROPER PRIVILEGE LOG AND CHALLENGE PROCESS (Middle District)

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The good news: The court in Ferguson v. USAA General Indemnity takes on the issue of whether a statutory bad faith claim can survive if the insured’s breach of contract claim fails, and does an historical analysis of the statute and case law to reach a conclusion.

The bad news: The court does not address the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life. As we have observed over the years, Toy requires the denial of a benefit as a necessary predicate for statutory bad faith claims. Yet, numerous courts have applied pre-Toy case law, or cases rooted in pre-Toy case law, in holding that bad faith might exist outside of that context, e.g., solely for unfair claims handling or unreasonable failures to communicate. These courts have not directly addressed the argument that Toy apparently rejected that possibility, and that poor conduct may be evidence of bad faith, but not cognizable bad faith in itself where no benefit is denied.

We are not speaking of the situation where there is a contractually due benefit that the insurer belatedly pays. As Toy itself makes clear, there is little dispute that delay in paying a benefit can still support a bad faith case on the basis that this denies a benefit. Rather, we are speaking of the situation where there is no indemnity or defense of any kind contractually due, and the insurer prevails on the breach of contract count. Attached here is an article addressing Toy’s distinction between bad faith conduct that is necessary to make out a cognizable cause of action, and bad faith conduct that is only evidentiary in nature.

The Ferguson court, and similar cases, are concerned with dishonest claims handling and unreasonable delay even in cases where no coverage was ultimately due. They may want to inhibit poor conduct on the claims handling end that is driven by a presently unsubstantiated hope that there will be no coverage at the end of the day. In the court’s words, statutory bad faith exists to “generally regulate dishonest conduct by insurers….” This dishonest conduct still can be punished even if no coverage is due because “[h]olding otherwise could potentially result in insurers taking the gamble that a denial based on a cursory review will be rescued by a clever trial lawyer.”

Arguably, this interpretation runs counter to the Supreme Court’s decision in Toy, which concludes that there must be a denial of a benefit accompanying such poor claims handling. This reading of Toy implies that dishonest conduct where no coverage is due and no benefit denied is left to regulation by the Insurance Commissioner, not the courts.

In one of the few cases addressing this aspect of Toy, previously summarized on this Blog, another district court states:

Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None of the “benefits” that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he “does not allege bad faith for refusal to pay benefits.”

Motion to sever claims and stay discovery denied

As stated, the Ferguson court determined a bad faith claim could proceed independently of the breach of contract claim, even if the breach of contract claim failed. The court reached this conclusion in the context of a motion to stay discovery and sever the breach of contract and bad faith claims. After reaching this conclusion, the court reviewed and denied the motion to sever and stay.

Even if conceptually distinct, the breach of contract and bad faith claims are “significantly intertwined from a practical perspective.” By way of example, the court states that both claims will involve discovery on “the nature of Plaintiffs’ injuries; and … what efforts did the insurer make to investigate Plaintiffs’ injuries.”

Trying to separate the two claims and stay discovery “would potentially create a discovery mess, requiring truncated depositions, interrogatories, and requests for production, only to have them all re-started following the conclusion of the first leg. This risk of judicial inefficiency warrants denial of Defendant’s request.” In sum, “Defendant’s request is, at root, asking the court to manipulate this case’s procedural framework in a way that will make litigation convenient for insurers, which the court will not do.”

This is how to handle the privilege and work product process

The court did observe there might still be legitimate attorney client privilege or work product issues. The court outlined how the parties should address this issue:

“This issue, however, is not properly before the court at this time. Defendant has not filed a protective order, nor has Plaintiff yet moved to compel. While Plaintiffs have requested the court conduct an in camera review of Defendant’s claims file, it will only do so if Plaintiffs show which parts of the claims file they may legally be entitled to. While Plaintiffs’ brief fails to do as much, they were unable to in part because Defendant has not provided an adequate privilege log.”

An adequate privilege log requires the party asserting the privilege to set forth sufficient facts as to each document at issue, and is further required to “establish each element of the privilege or immunity that is claimed. The focus is on the specific descriptive portion of the log, and not on conclusory invocations of the privilege or work-product rule.”

The court instructed the insurer “to provide an amended privilege log supplying some of the underlying factual bases for its privilege and work product claims—but not so much that it effectively discloses any such privileged information—so that Plaintiffs may raise, by brief, the parts of the privilege log they believe Defendant has failed to show are privileged.” After these steps are taken, the “court can then decide whether to conduct an in camera inspection of certain portions of the insurer’s claim file.”

Date of Decision: December 5, 2019

Ferguson v. USAA General Indemnity Co., U. S. District Court Middle District of Pennsylvania Civil No. 1:19-cv-401, 2019 U.S. Dist. LEXIS 209579 (M.D. Pa. Dec. 5, 2019) (Rambo, J.)

BAD FAITH REQUIRES DENIAL OF A BENEFIT, EXCEPT IN LIMITED CIRCUMSTANCES; NO SEPARATE BREACH OF GOOD FAITH ACTION (Philadelphia federal)

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To paraphrase from the summary below: Though courts have extended the concept of bad faith beyond an insured’s denial of a claim in several limited areas, the essence of a bad faith claim must be the unreasonable and intentional or reckless denial of benefits.

A dispute between the insured and insurer settled for $237,000. During the post-settlement drafting process, the insurer included a term in the settlement agreement making the insured’s mortgagee a payee on the settlement check. The insured objected, but the carrier responded the policy required it to include the payee. It refused to issue the settlement check without the mortgagee and the parties were at loggerheads.

The insured filed a new action against the carrier, seeking to enforce the settlement agreement without the mortgagee’s inclusion. The insured brought a breach of contract claim, as well as a separate breach of the duty of good faith and fair dealing in connection with the settlement agreement. The carrier moved to dismiss the good faith and fair dealing count.

The court dismissed that count, following the principle a breach of the covenant of good faith and fair dealing is subsumed within the contract claim, and cannot state a distinct cause of action. “Such subsuming occurs when ‘the actions forming the basis of the breach of contract claim are essentially the same as the actions forming the basis of the bad faith claim.’” Here, both counts arose out of the refusal to remove the mortgagee from the settlement payment.

The court also noted there was no separate tort claim for bad faith in Pennsylvania.

Finally, the court rejected the notion that the good faith count could survive if treated as a statutory bad faith claim. It observed that the case arose from an alleged breach of a settlement agreement, not a violation of the insurance policy. The issue here was the insurer’s including the mortgagee on the payment check, not the denial of a benefit, i.e., the carrier was ready and willing to make a payment under the policy.

As the court states:

Critically, while Plaintiff does claim that [the carrier] “refus[ed] to make payment of a settlement amount within 60 days as required by the policy of insurance,” it is clear from Plaintiff’s own recitation of the facts that what Plaintiff means by “refus[al] to make payment” amounts to Plaintiff’s refusal to accept a settlement check naming the mortgagee as a payee, rather than a denial of benefits under the policy. Though “Courts have extended the concept of ‘bad faith’ beyond an insured’s denial of a claim in several limited areas,” … “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” [Emphasis in original] As such, Section 8371 “do[es] not apply to [mere] disputes over contract terms.” … Tellingly, Plaintiff identifies no case in which a Pennsylvania court or a court interpreting Pennsylvania law has found that Section 8371 encompasses the type of settlement dispute at issue here. Count II of Plaintiff’s Amended Complaint is therefore dismissed for failure to state a claim.

Date of Decision: November 18, 2019

Purvi, LLC v. Nat’l Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-4250, 2019 U.S. Dist. LEXIS 199469 (E.D. Pa. Nov. 18, 2019) (Beetlestone, 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.)

(1) NOT ACCEDING TO INSURED’S DEMAND IS NOT BAD FAITH PER SE (2) THERE IS NO FIDUCIARY DUTY IN UIM CONTEXT AND (3) COMPENSATORY DAMAGES NOT AVAILABLE UNDER BAD FAITH STATUTE (Western District)

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In this UIM bad faith case, the court dismissed the bad faith count with leave to amend, struck all allegations referencing fiduciary duty, and dismissed the claim for compensatory damages under the Bad Faith Statute, 42 Pa.C.S. § 8371.

The insured was injured in a motor vehicle accident. The tortfeasor’s carrier paid his $25,000 policy limits. The insured sought additional recovery under the UIM provisions of his own policy.

The insured provided various medical records, economic reports, and other documents to the carrier, and ultimately demanded $250,000 in UIM policy limits. The insured’s carrier did not meet this demand, and the insured sued for breach of contract and bad faith, as well as loss of consortium for his wife.

The insurer moved to dismiss the bad faith count for failure to state a claim. It also moved to strike all averments concerning fiduciary duty, and to dismiss any claim for compensatory damages under the Bad Faith Statute.

The insured fails to plead a plausible bad faith claim

In reviewing the complaint, the court observed that while the list of 15 allegations in the bad faith count was long, it only pleaded “essentially conclusory acts and omissions,” which are insufficient to make out a plausible bad faith cause of action. These flawed allegations included:

a) “failing to objectively and fairly evaluate Plaintiffs’ claim”; b) “failing to objectively and fairly reevaluate Plaintiffs’ claim based on new information”; c) “engaging in dilatory and abusive claims handling”; d) “failing to adopt or implement reasonable standards in evaluating Plaintiffs’ claim”; e) “acting unreasonably and unfairly in response to Plaintiffs’ claim”; f) “not attempting in good faith to effectuate a fair, prompt, and equitable settlement of Plaintiffs’ claim in which the Defendant’s liability under the policy had become reasonably clear”; g) “subordinating the interests of its insured and those entitled under its insureds’ coverage to its own financial monetary interests”; h) “failing to promptly offer reasonable payment to the Plaintiffs”; i) “failing reasonably and adequately to investigate Plaintiffs’ claim”; j) “failing reasonably and adequately to evaluate or review the medical documentation in Defendant’s possession”; k) “violating the fiduciary duty owed to the Plaintiffs”; l) “acting unreasonably and unfairly by withholding underinsured motorist benefits justly due and owing to the Plaintiffs”; m) “failing to make an honest, intelligent, and objective settlement offer”; n) “causing Plaintiffs to expend money on the presentation of their claim”; and o) “causing the plaintiffs to bear the stress and anxiety associated with litigation.”

Beyond these conclusory allegations, the bad faith count was “devoid of facts explaining ‘who, what, where, when, and how’ Defendant failed to handle Plaintiffs’ UIM claim in good faith.”

The court did scour the complaint for facts. However, those facts did “not detail which of Defendant’s acts or omissions constitute bad faith, separately or in conjunction with others.” All those facts amounted to was that the insured was (1) injured in a motor vehicle accident, (2) the tortfeasor’s liability limit did not cover all of the insured’s injury claims, (3) the insured submitted his claim to his UIM carrier, and (4) the claim made has not been paid.

“While such facts might be sufficient to plead a claim for breach of contract, they are insufficient to support a claim of bad faith under the Pennsylvania statute. Simply put, requiring the Court to infer bad faith through Defendant’s ‘failure to immediately accede to a demand [under an insurance policy] cannot, without more, amount to bad faith.’”

Plaintiff’s citation to documents in his pleadings did not cure this problem. These documents simply show there may be some merit to the UIM claim, but do not show the “where, when and how” of a bad faith claim. These documents do not show how the denial was unreasonable or that that the allegedly unreasonable denial was knowing or reckless.

Again, the complaint simply amounted to an argument that bad faith should be inferred from the carrier’s refusing the insured’s demand. This is not enough.

There is no fiduciary duty in the UIM context

The court also struck all references in the complaint to breaches of fiduciary duty. The court rejected the notion that an insurer bears a fiduciary duty to the insured in all circumstances. Rather, while there may be a fiduciary duty in the context of third party claims against the insured, there is no such duty in first party claims, such as UIM claims.

Compensatory damages cannot be recovered under the Bad Faith Statute

Pennsylvania’s Bad Faith Statute only allows for recovery of punitive damages, interest, attorney’s fees, and costs. It essentially provides for additional remedies other than compensatory damages, which must be recovered under other theories, principally breach of contract.

Date of Decision: September 9, 2019

Ream v. Nationwide Property & Casualty Insurance Co., NAIC, U.S. District Court Western District of Pennsylvania No. 2:19-cv-00768, 2019 U.S. Dist. LEXIS 152870, 2019 WL 4254059 (W.D. Pa. Sept. 9, 2019) (Hornak, J.)

FACTS MAKING OUT A POSSIBLE BAD FAITH CLAIM DID NOT SET OUT A PLAUSIBLE BAD FAITH CLAIM ABSENT SPECULATION (Middle District)

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Judge Caputo dismissed a UIM based bad faith count, but with leave to amend the complaint.

  1. He found these averments to be conclusory:

Failing objectively and fairly to evaluate Plaintiff’s claim;

Failing objectively and fairly to reevaluate Plaintiff’s claim based on new information;

Failing reasonably and adequately to investigate Plaintiff’s claim; and

Failing reasonably and adequately to evaluate or review the medical documentation in Defendant’s possession.

  1. He found these averments “regarding how Defendant handled the claim after receipt [to be] conclusory without additional factual support that would inform the court why Defendants actions are unreasonable”:

Engaging in dilatory and abusive claims handling;

Acting unreasonable and unfairly in response to Plaintiff’s claim;

Subrogating the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interests;

Failing to promptly offer reasonable payments to the Plaintiff;

Acting unreasonably and unfairly by withholding underinsured motorist benefits justly due and owing to the Plaintiff; and

Failing to make an honest, intelligent, and objective settlement offer.

  1. He stated that the following averment was conclusory, circular, and proved nothing:

Not attempting in good faith to effectuate a fair, prompt, and equitable settlement of Plaintiff’s claim, in which the Defendant’s liability under the policy had become reasonably clear.

  1. He found the allegations that Defendant failed to adopt “reasonable standards” and subordinated “the interestsof its insured” to their own financial monetary interest to be conclusory in the absence of supporting facts.

Judge Caputo has previously described the method of stripping away conclusory allegations to determine a bad faith claim’s plausibility under federal pleading standards. A summary of his analysis can be found here.

Following the method of stripping away conclusory allegations in determining plausibility, Judge Caputo found here that the complaint simply alleged the following facts: an accident, the tortfeasor’s willingness to pay policy limits, the insurer’s agreement to that payment, the insured’s written demand for UIM benefits supported by a medical report, and the insurer’s failing to settle or resolve the UIM claim. These facts alone did not support the elements of a bad faith claim, i.e., unreasonable denial of benefits with a knowing or reckless disregard that the basis to deny benefits was unreasonable.

The court found that “[w]hile such assertions perhaps suggest that a bad faith claim is possible, they do not allow for any non-speculative inference that a finding of bad faith is plausible.”

Judge Caputo did permit the insured to amend the complaint, with the reminder that if the insured “elects to do so, the amended complaint must set forth facts, not merely conclusory statements, to support a bad faith claim.”

Date of Decision: August 14, 2019

Peters v. Geico Advantage Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 19-CV-1119, 2019 U.S. Dist. LEXIS 137087 (M.D. Pa. Aug. 14, 2019) (Caputo, J.)

EMAILS BETWEEN CLAIMS ADJUSTER AND PLAINTIFF’S COUNSEL AFTER INSURER’S DEFENSE COUNSEL’S INVOLVEMENT IS MADE KNOWN: IT’S BEST NOT TO DO THAT, EVEN IF ADJUSTER INITIATES THE CONTACT (Middle District)

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This UIM breach of contract and bad faith case involved an alleged ex parte contact with the carrier’s claims adjuster, after defense counsel had communicated a letter of representation to the insured’s counsel. Three months later after that representation letter, there were direct communications, via email exchanges, between plaintiff’s counsel and the claims adjuster. They discussed the plaintiff’s demands and claims handling events. The carrier brought a motion for a protective order to preclude use of these emails in the case, because of the allegedly impermissible ex parte contacts with a represented person.

The email initiating the communications came from the adjuster to plaintiff’s counsel. The carrier took the position this was inadvertent, asserting the adjuster actually intended the email for her own defense counsel. The court observed it was unclear whether the communication was inadvertent. In any event, the court found whether intended or inadvertent, the result is the same.

The court generally observed that the prudent course would have been for plaintiff’s counsel to communicate with defense counsel regarding the adjuster’s very first email, rather than responding to the adjuster. This clearly would have avoided the ensuing issues.

The court analyzed the contact under Rule of Professional Conduct 4.2, governing direct contacts with represented persons. It concluded the rule was not violated. There was no intent to create an unfair advantage or indicia of dishonest intent. Further, the court observed defense counsel did not make an issue of the email exchange for a year, in demanding that it not be disseminated by plaintiff’s counsel, e.g., to plaintiff’s expert.

However, though there was no rule violation, some remedial measures were warranted. Thus, the court precluded any information obtained from the adjuster via these emails, that could bind the carrier.

The court did deny a request for attorney’s fees on the motion. The communications were limited, and the conduct did not rise to the level of egregiousness that would call for an attorney’s fee award.

Date of Decision: July 17, 2019

Golden v. Brethren Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-02425, 2019 U.S. Dist. LEXIS 118519, 2019 WL 3216629 (M.D. Pa. July 17, 2019) (Saporito, M.J.)

 

BAD FAITH STATUTE OF LIMITATIONS NOT TOLLED, OR RENEWED, BY CHANGE IN THE LAW ON COVERAGE; NO PLAUSIBLE CLAIM PLEADED; BAD FAITH POSSIBLE EVEN IF BENEFIT NOT DUE (Philadelphia Federal)

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This UIM case was stimulated by the Pennsylvania Supreme Court’s recent decision reversing precedent on the household vehicle exclusion. In dismissing the bad faith claim, the court found:

  1. The two-year statute of limitations was not tolled by a change in the law.

  2. The change in the law, which resulted in the insured renewing her demand for coverage, did not re-start the statute of limitations.

  3. Alternatively, the insured failed to plead sufficient facts to set forth a plausible bad faith claim; rather she only made a few conclusory allegations.

The court did have a significant footnote, which addresses the long-standing debate over whether there can be statutory bad faith where no coverage is due. Judge Pappert clearly comes down on the side that bad faith can still exist, noting that “a claim for bad faith pursuant to 42 Pa. C.S. § 8371 is a separate and distinct cause of action and is not contingent on the resolution of the underlying contract claim. … Thus, if bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.” As we have noted before on this blog, other courts dispute this view.

Date of Decision: July 3, 2019

O’Brien v. GEICO Employees Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-01920, 2019 U.S. Dist. LEXIS 110914 (E.D. Pa. July 3, 2019) (Pappert, J.)

TWO NON-PRECEDENTIAL BAD FAITH OPINIONS FROM PENNSYLVANIA’S SUPERIOR COURT: (1) INSUREDS’ CONDUCT AND STATE OF MIND ARE NOT WHAT DETERMINES AN INSURER’S BAD FAITH, RATHER IT IS THE INSURER’S OWN CONDUCT; (2) BAD FAITH PLEADING INADEQUATE

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In Wilson v. Erie Insurance Group, the Superior Court reversed the entry of a judgment for non pros on a bad faith claim which had been in suit for 16 years.

Among other points, the appellate court observed that the focus in bad faith cases is the insurer’s conduct and state of mind, not the insured’s. Thus, the Court observed:

[B]ad faith applies to “those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.” In order to prove bad faith, a plaintiff must show by clear and convincing evidence that the insurer did not have a reasonable basis for denying benefits under the policy, and knew or recklessly disregarded its lack of reasonable basis in denying the claim. … Thus, the insured’s argue, a bad faith action turns on the reasonableness of the conduct of the insurer, not the insured. …

Similarly, although the [insureds] could not remember the timing of … settlement offers, and the amount of those offers, it did not impair [the insurer’s] ability to defend the case. All of that information is documented in [the insurer’s] files or, in some cases, admitted in the pleadings. The fact that the [the insureds] could not remember if they had any expectations in terms of settlement was of no consequence as their expectations are irrelevant in this bad faith case. See Rhodes v. USAA Casualty Ins. Co., 2011 PA Super 105, 21 A.3d 1253 (Pa.Super. 2011) (holding expectations of the insureds are not material to bad faith liability). It is difficult to imagine how [the insurer] was substantially impaired in its ability to present a defense by the [the insureds’] inability to recall these details. Moreover, if [the insurer] genuinely required that information, it would not have waited until 2018 to take the depositions.

Date of Decision: May 13, 2019

Wilson v. Erie Insurance Group & Erie Insurance Exchange, Superior Court of Pennsylvania No. 717 WDA 2018, 2019 Pa. Super. Unpub. LEXIS 1867 (Pa. Super. Ct. May 13, 2019) (Bowes, Shogan, Strassburger, JJ.)

In Feingold v. State Farm, the Superior Court dealt with an unusual set of procedural circumstances, but we only focus on its discussion of bad faith pleading standards. The court states:

An insured has a cause of action “if the court finds that the insurer has acted in bad faith toward the insured[.]” 42 Pa.C.S. § 8371. To prove a bad faith claim, the insured must present clear and convincing evidence that (1) the insurer did not have a reasonable basis for denying benefits under the policy, and (2) the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim. …

Based on our review of his complaint, [plaintiff-assignee] failed to allege either requisite element. First, [plaintiff-assignee] averred that after the UIM arbitration award, [the insurer] informed him that it did not believe the [the insureds] were entitled to UIM damages under their policy. [The] complaint did not allege that [the insurer] was without a reasonable basis for denying benefits. Second, [plaintiff-assignee] averred only that [the insurer] did not advise him of a specific reason for denying the … UIM claims. This is not sufficient to demonstrate that [the insurer] knew or recklessly disregarded its lack of a reasonable basis for denying the claim. Accordingly, we find no abuse of discretion or error in the trial court’s determination that the bad faith claim was frivolous.

Date of Decision: May 17, 2018

Feingold v. State Farm Insurance Co., Superior Court of Pennsylvania No. 2340 EDA 2018, No. 2833 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 1931 (Pa. Super. Ct. May 17, 2019) (Kunselman, Murray, Pelligrinia, JJ.)

AN INSURED MUST PLEAD SOME SPECIFIC DETAILS RAISING CONDUCT TO THE LEVEL OF BAD FAITH TO SURVIVE A MOTION TO DISMISS, AND NOT SIMPLY THAT A CLAIM WAS DENIED OR A DEMAND REJECTED (Philadelphia Federal)

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This was the insureds’ second chance at pleading bad faith, after having their original UIM bad faith counterclaim dismissed without prejudice. The earlier post summarizing the first dismissal can be found here.

The second try fared no better. Rather, review of the second amended counterclaim made “clear that any further attempt at amendment would be futile because Defendants cannot plead their bad faith claim with adequate factual support and specificity.”

Once again, the court observed that: “A bad faith claim is ‘fact specific’ and depends upon the insure[r]’s conduct in connection with handling and evaluating a specific claim.” … As the party bringing the bad faith claim under 42 PA. C.S. § 8371, it is [the insured’s] burden to “‘describe who, what, where, when, and how the alleged bad faith conduct occurred.’”

The insureds’ two new paragraphs, set forth below, were deemed conclusory:

  1. Specifically, Insurance Company has taken [the insured’s] testimony and has been provided all of her documentation, which clearly demonstrates that she was covered under the applicable insurance policy and that her damages are far in excess of the UIM coverage amount.

  2. However, despite objective and subjective knowledge that [the insured] was covered under the applicable insurance policy and that her damages are far in excess of the UIM coverage amount, Insurance Company refused to honor their obligations under the insurance agreement for the bad faith purpose of seeking to evade their obligations to the Das family under the insurance contract.

The court observed that these paragraphs lacked “’the dates of any actions’ taken regarding the policy to support their allegation of unreasonable delay, nor have [the insureds] explained, in detail, ‘what was unfair’ about Plaintiff’s interpretation of the policy provisions.”

The court added:

Absent specific details that establish a dishonest purpose, it is not bad faith for an insurer to investigate and protect its interests during litigation. Jung v. Nationwide Mut. Fire Ins. Co., 949 F. Supp. 353, 360 (E.D. Pa.1997) (finding that insurer “had a reasonable basis to investigate and deny the claim.”). Moreover, the failure of an insurance company “to immediately accede to a demand for the policy limit” is not, without specific facts, enough to establish bad faith. Smith, 506 F. App’x at 137. [The insureds’] inclusion of two conclusory paragraphs to the Second Amended Counterclaim does not alter that conclusion.

The inability to plead bad faith also required dismissing the punitive damages claim with prejudice as well.

Date of Decision: May 8, 2019

Amica Mutual Insurance Co. v. Das, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-1613, 2019 U.S. Dist. LEXIS 78320 (E.D. Pa. May 8, 2019) (Jones, II, J.)

COURT (1) DISMISSES BAD FAITH CLAIM THAT DOES NOT ALLEGE FACTS SHOWING “HOW” THE PUTATIVE BAD FAITH OCCURRED, AND (2) OBSERVES THE INSURED FILED SUIT, WITHOUT NEGOTIATING OR COMMUNICATING WITH THE INSURER, AFTER THE INSURER MADE AN INITIAL OFFER ONLY ONE MONTH PRIOR TO SUIT (Philadelphia Federal)

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We first note that Eastern District Judge Kearney typically writes informative introductions as guides to his opinions, with summaries of the salient conclusions. We quote his introduction to this UIM bad faith case at length (in addition to summarizing the opinion):

“A car insurer’s verbal offer to pay approximately half of its insured’s alleged medical bills as underinsured motorist benefits may allow the insured to sue for breach of the insurance contract. But the verbal offer does not automatically equal bad faith under Pennsylvania’s insurance statutes. The insured must plead much more than her insurer did not offer her all she requested. The insured deciding to sue the insurer for statutory bad faith a month after the verbal offer instead of responding to the offer, opening discussions, or negotiating the import of submitted medical data may sue to obtain negotiating leverage. The tactic must include a complaint with specific facts or we will summarily dismiss this bad faith claim supported by conclusions rather than facts. Absent pleading more than a breach of contract, we today grant the insurer’s partial motion to dismiss the insured’s bad faith and punitive damages claims.”

The insured settled with the other driver, and submitted her medical bills to the insurer, seeking UIM coverage. The medical bills were approximately $14,000 and the insurer offered $7,000 in UIM benefits on February 7, 2019. Less than one month later, the insured sued for breach of contract and statutory bad faith.

Judge Kearney applied the Third Circuit’s decision in Smith v. State Farm in coming to his decision. Smith emphasizes that bad faith cases are fact specific, and must look at the insurer’s conduct vis-à-vis the insured for the matter at issue. Conclusory statements unsupported by factual allegations cannot survive a motion to dismiss.

First, Judge Kearney found the following allegations conclusory:

“[i]) failed to investigate and evaluate her claim in an objective and fair manner,

[ii] used invasive and improper investigative tactics,

[iii] engaged in dilatory claim’s handling,

[iv] failed to promptly offer payment,

[v] failed to provide contracted-for insurance coverage

[vi] subordinated her interest to its financial interest,

[vii] violated its fiduciary duty owed to her,

[viii] compelled her to sue,

[ix] caused her to spend money on litigation and endure anxiety associated with litigation.”

Beyond these patently conclusory allegations, the court further found that the following allegations, while somewhat more specific, still lacked any factual support, and were thus likewise conclusory:

  1. The insurer “acted in bad faith when it played a ‘cat and mouse’ game with her, [and] offered $7,000 on February 7, 2019 though it knew the amount did not ‘cover lawfully recoverable medical bills….” On this point, the court states asserted that the insurer “played a ‘cat and mouse’ game, caused her to spend money on litigation, or caused her anxiety associated with litigation does not plead … bad faith.”

  2. The insurer “failed to provide her with a calculation or summary of how it determined its offer.”

  3. The insurer “’ignored or acted with reckless indifference’ to the medical documents establishing her injuries and entitlement to underinsured motorist benefits.” However, Judge Kearney found the insured “alleges no facts showing how [the insurer] ignored or acted with reckless indifference to reviewing her medical records. To the contrary, [the] $7,000 verbal offer in February 2019 suggests it did review her medical records.”

  4. The insurer “did not have a doctor examine her immediately, [and therefore] it lacked refuting ‘medical evidence or documentation’ and refused to pay benefits without justification.”

The court found the complaint flawed for failing to allege how the insurer “failed to investigate and evaluate her claim in an objective and fair manner, subordinated her interest to its own, or violated its fiduciary duty owed to her.” Further, the insured did “not plead her communications with [the insurer] or [the insurer’s] conduct even though a claim for bad faith is based on [the insurer’s] conduct in handling her claim.” This included that she did “not plead calls or communications since the February 7, 2019 verbal offer of $7,000.”

The court also was concerned with contradictions in the pleadings. It noted the complaint alleged both that the insurer failed to promptly make a settlement offer and that the insurer offered the $7,000 one month after she submitted her medical records to the insurer. The court found these allegations contradictory.

The bad faith count was dismissed without prejudice for failing to allege facts supporting a plausible claim.

Finally, the court dismissed the punitive damages claim, again without prejudice, because the bad faith claim was dismissed. Judge Kearney found that a simple breach of contract, the only claim remaining, cannot be the basis for punitive damages.

Date of Decision: April 22, 2019

Hwang v. State Farm Mutual Automobile Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-927, 2019 U.S. Dist. LEXIS 67955, 2019 WL 1765938 (E.D. Pa. April 22, 2019) (Kearney, J.)