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

REASONABLENESS OF INVESTIGATION IS NOT SOLELY DETERMINED BY THE LENGTH OF TIME USED BY THE ADJUSTER TO REACH A CONCLUSION ON COVERAGE (Middle District)

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Through an unusual set of circumstances, the insureds’ electricity service at a vacation home was terminated by third parties, unbeknownst to the insureds. This led to the heating system’s not functioning, which in turn led to frozen pipes bursting, and significant water damage to their home. Their insurer denied coverage under a policy provision that required the insureds to take reasonable care in maintaining heat while the property was unoccupied, or in shutting down the water system.

The insureds brought claims for breach of contract, negligence, and bad faith. The negligence claim was dismissed under the gist of the action doctrine, as the claim was based on the breach of an insurance contract and any duties arose out of that contract. The breach of contract claim was dismissed as being initiated after the one-year contract period for bringing suit, expressly required in the insurance policy.

The court analyzed the bad faith came under both the common law and Pennsylvania’s Bad Faith Statute, 42 Pa.C.S. § 8371. One difference between the two claims is that common law bad faith permits recovery of compensatory and consequential damages, while statutory bad faith is limited to interest, punitive damages, legal fees and costs.

In this case, the common law bad faith claim was time barred, being subject to the same analysis as the breach of contract claim.

The statutory bad faith claim was based upon an allegedly unreasonable failure to investigate the facts as to the history of the termination of the insureds’ electric service as the cause of the loss. The insureds argued that the adjuster’s single day visit to “the property was insufficient to ascertain the information necessary to determine the cause of the damage, particularly in light of the adjuster’s failure to contact [other relevant parties] to determine what events led to the transfer and termination of electric service at the [insureds’] Pennsylvania vacation home.” The court, however, granted the insurer summary judgment on this issue.

While the “adjuster may not have pursued an investigation into the ultimate cause of the property damage to the extent the [insureds] desired, a single, one-day visit to the home was sufficient for the adjuster to ascertain that the property was vacant for an extended period of time, that electric service to the home had been shut off for a period of months resulting in a failure to maintain heat inside the home over an extended period of time, and that the cause of property damage was a freeze out. This information, together with that gathered by claims handlers—including, in particular, the [insureds’] failure to note over the course of several months that they were no longer being billed for electric service—was sufficient … to reasonably determine that the [insureds] had failed to use reasonable care to maintain heat in the home while it was vacant for several months of winter weather. Stated another way, we find that, based on the evidence adduced by the parties on summary judgment, viewed in the light most favorable to the plaintiffs, no reasonable jury could find that [the insurer’s] investigation was inadequate or that its denial of coverage was frivolous or unfounded.

Date of Decision: September 27, 2019

Pager v. Metro. Edison, U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:17-cv-00934, 2019 U.S. Dist. LEXIS 166052 (M.D. Pa. Sept. 27, 2019) (Saporito, M.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.)

1. POSSIBLE BAD FAITH FOR IMPROPER RESCISSION AND UNREASONABLY INADEQUATE INVESTIGATION, BUT 2. NO BAD FAITH FOR ALLEGED VIOLATIONS OF THE UIPA OR UCSP REGULATIONS, OR FOR ALLEGEDLY SWITCHING DENIAL THEORIES (Western District)

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The insured purchased various life insurance coverages for her son. She answered no to questions about whether he had any chronic health problems requiring periodic medical care. The terms chronic and periodic were undefined, as to, e.g., what kinds of illness fell under this question and what constituted “periodic” treatment. She answered no. Medical records subsequently showed the son some had gastric issues, lymph issues, and had been in rehab for marijuana dependency on two occasions.

The son was shot in the head and killed. The insurer denied coverage and invoked rescission. The insurer took the position that the mother had failed to disclose that he had chronic conditions that required periodic medical care.

The mother brought claims for breach of contract and bad faith. The insurer sought summary judgment on the bad faith claims. During discovery, the insurer took the position that the marijuana use, along with lymph and gastric problems met the definition of chronic illnesses needing periodic treatment, though later appeared to back off this position on the lymph and gastric allegations on periodic treatment grounds.

The court observed that the first bad faith element, concerning the reasonableness or unreasonableness of the insurer’s benefit denial, is objective. Thus, if a reasonable basis exists for an insurer’s decision, even if the insurer did not rely on that reason, there is no bad faith as a matter of law. It then described the other bad faith elements, and the burden of proof requiring clear and convincing evidence.

There were four types of bad faith claims at issue in the case:

  1. Refusal to pay insurance proceeds and rescission of the Policies.

The court found that the jury could conclude rescission was unreasonable in determining the son’s marijuana, lymph, and gastric allegations, were reasonable bases to rescind. The court further found that rescinding based on the lymph or gastric issues could go to the jury on intent/recklessness because there was apparently no periodic treatment in the record.

As to the marijuana issue, the mother explained to the insurer why she did not think the son’s stints in rehab constituted periodic treatment. Rescission required a knowing misrepresentation. A jury could find it reckless to conclude that this was a knowing misrepresentation on the mother’s part.

In sum, the bad faith claims could proceed on the rescission issue.

  1. Lack of investigation into the facts regarding the son’s alleged medical conditions.

The court allowed a bad faith claim for an unreasonably inadequate investigation to proceed as well. First, the court stated that an unreasonably inadequate investigation could be a separate ground for bad faith. It noted, however, while the law does require a thorough investigation, that investigation need not be flawless.

The insurer took the position that obtaining medical records was sufficient. The mother argued this was not enough. She set out six detailed steps the insurer failed to take in further drilling down beyond the medical records to get full answers. “While the Court agree[d] that not all the disputed facts identified by Plaintiff suggest bad faith, there is enough evidence from which a jury could reasonably conclude that Defendant failed to conduct a reasonable investigation into the factual circumstances underlying Plaintiff’s insurance claims.”

        3. Failure to comply with a Pennsylvania statute and regulation.

The mother also cited failure to comply with specific sections of the Unfair Insurance Practices Act and Unfair Claims Settlement Practices regulations in connection with the manner of rescission. Assuming arguendo these sections were applicable, the court found the insurer’s claim handling, in how it formally went about rescinding the policies, did not violate those sections.

Moreover, even assuming the UIPA and UCSP were violated, “a violation of the UIPA does not constitute per se bad faith under section 8371.” In this case, “the rescission letter’s language is not sufficient for a reasonable jury to find statutory bad faith, as the letter does not suggest unreasonable behavior on the part of Defendant and there is no evidence that Defendant knew of or recklessly disregarded any unreasonable behavior. At most, any violations of these provisions suggest that Defendant may have been negligent in the preparation of the rescission letter.”

        4.  No bad faith for alleged theory switching.

“Finally, Plaintiff argues that Defendant’s constantly changing bases for rescinding the Policies, as well as Defendant’s failure to reference gastroenteritis and lymphadenopathy in its affirmative defenses, are evidence of Defendant’s bad faith. The Court disagrees. There is no evidence that Defendant has constantly changed its basis for rescission—instead, Defendant has asserted since it sent the rescission letter that the rescission was based on misrepresentations about [the son’s] medical history in the applications. And the fact that the specific medical conditions that Defendant claims Plaintiff omitted have changed as the parties engaged in discovery, without more, is simply not evidence of bad faith.”

Thus, the motion was granted in part and denied in part.

Date of Decision: August 27, 2019

Horvath v. Globe Life & Accident Insurance Co., U. S. District Court Western District of Pennsylvania Case No. 3:18-cv-84, 2019 U.S. Dist. LEXIS 144933 (W.D. Pa. Aug. 27, 2019) (Gibson, 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.)

COURT STRIKES ALLEGATIONS THAT INFER DUTIES OUTSIDE THE POLICY, BUT PERMITS ALLEGATIONS OF PRESENT OR PAST BENEFIT DENIALS (Middle District)

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Offering a different take on the usual challenge to federal pleadings, the insurer moved to strike portions of this UIM bad faith complaint as immaterial and impertinent, rather than to dismiss the entire complaint.

The complaint pleaded the insurer’s alleged refusal to pay full medical benefits, and the alleged consequences of that refusal vis-à-vis the insured and third parties. The insurer focused its motion on striking four specific paragraphs of the complaint.

The first two paragraphs raised the insurer’s advertisements directed to members of the military. The insured, a long serving Army veteran, alleged that he relied on representations and warranties made in these advertisements, which the insurer breached. The court agreed to strike these two paragraphs as irrelevant to the issue of whether the insurer breached a duty under the policy itself, or violated the bad faith statute. In addition, the court found these warranty averments prejudicial, as they could lead a jury to believe the insurer owed duties outside the policy.

The court, however, refused to strike the other two paragraphs at issue.

One of these paragraphs included an averment that the insurer refused to pay a benefit due, while also mentioning grievances directed at third parties. The alleged refusal to pay the insured was enough to preserve this paragraph, even though the allegations regarding third parties may not be actionable.

As to the final paragraph at issue, the insurer took the position that the injuries at issue did not arise from the accident. The insured argued the ramifications of this erroneous position posed a variety of detriments to him, with simultaneous advantages to the insurer. While the paragraph did have some focus on contingent future conduct, it still alleged the insurer had already refused to pay for medical treatment, and how this refusal might be used by the insurer to its advantage in limiting payments or evidence. The court held: “These averments could bear some possible relation to whether Defendant … breached a duty owed under the Policy or imposed by Pennsylvania’s bad faith statute. See Rancosky v. Wash. Nat’l Ins. Co., 642 Pa. 153, 170 A.3d 364, 365 (Pa. 2017) (finding that evidence of an insurance company’s motive of self-interest or ill-will may be probative of a bad faith claim).”

Date of Decision: May 6, 2018

Bacon v. USAA Casualty Insurance Co., U. S. District Court Middle District of Pennsylvania No. 1:18-cv-01686, 2019 U.S. Dist. LEXIS 76218, 2019 WL 1988214 (M.D. Pa. May 6, 2019) (Kane, J.)

SUPERIOR COURT AFFIRMS DEFENSE VERDICT THAT 10 MONTH NEGOTIATION/INVESTIGATION PERIOD DID NOT AMOUNT TO BAD FAITH (Pennsylvania Superior Court) (non-precedential)

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In this UIM case, the insured settled with the other driver for $50,000. The insurer initially determined the injury at issue did not arise from the accident, based on an IME. The insured later aggravated the injury, and his doctor determined the original injury was from the first accident.

The insured demanded the full UIM policy limits ($100,000). The insurer offered $7,500(considering $50,000 had already been paid). Over the next ten months, the insurer increased the offer six times, ultimately paying the $100,000 policy limit.

The insured sued for bad faith. After a six-day bench trial, the trial court found no bad faith under the Pennsylvania statute. The Superior Court of Pennsylvania affirmed.

The appellate court relied upon the following trial court findings in upholding the defense verdict:

  1. “In this case, the trial court found that [the insurer] never denied Appellant’s claim.”

  2. “Instead, it determined that ‘[b]y all accounts … [the] investigation was vigorous; [the insurer] sought and received numerous medical records, ordered independent medical examinations and sought to reconcile often conflicting or changing information, all the time communicating with [the insured] and his attorney.’”

  3. “It further opined that ‘the ten-month negotiation period under examination cannot be deemed unreasonable’ where it was ‘undisputed that [the insured’s] treatment was off-again and on-again throughout this period, substantiating [the insurer’s] observation that [the insured’s] claim, from a medical standpoint, was a ‘fluid file’ with ongoing developments that complicated the evaluation process.’”

  4. “As such, the trial court concluded that at ‘[e]ach step of the way, [the insurer] acknowledged and credited new information and responded accordingly [during the tenth month period].”

  5. “The trial court also methodically details the procedural timeline of [the insurer’s] six increasing offers based upon the information as it became available … over the 10-month time period involved.”

Date of Decision: April 18, 2019

Camiolo v. Erie Insurance Exchange, Superior Court of Pennsylvania No. 478 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 1456 (Pa. Super. Ct. April 18, 2019) (Dubow, Olson, Stevens, JJ.)

IS THE UNFAIR INSURANCE PRACTICES ACT (UIPA) RELEVANT TO STATUTORY BAD FAITH CLAIMS, OR NOT?

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Three April 2019 decisions out of Pennsylvania’s Eastern District bring up the ongoing issue of whether alleged Unfair Insurance Practices Act (UIPA) violations may be used in any manner to establish statutory bad faith claims under 42 Pa.C.S. § 8371. We also discussed this issue in a February 2019 post that can be found here.

Case holding UIPA violations may be used to prove bad faith

In the April 3, 2019 Blease decision, the court relied heavily on the UIPA in finding the insured adequately pleaded a statutory bad faith case. That opinion is summarized here.

In particular, the court looked to the UIPA code sections governing 45-day status notices when the claim is not resolved within 30 days. Relying on Pennsylvania Superior Court precedent, the Blease Court stated: “This Court further notes that a plaintiff seeking damages for an insurer’s bad faith conduct under 42 Pa. Cons. Stat. § 8371 may attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if they do not independently provide for private causes of action.”

It is not wholly clear whether this means a UIPA violation may be used as evidence of a statutory bad faith claim, or whether the violation constitutes definitive proof, in and of itself, to establish at least the first prong of the Terletsky/Rancosky bad faith test (unreasonableness).

Case holding UIPA provides an evidentiary yardstick for bad faith cases

On April 23, 2019, another Eastern District Court issued a detailed opinion granting partial summary judgment to the insured, by holding that the insurer acted in bad faith during a very specific period of time. The court left other issues of bad faith, and other time periods, to the jury.

In Shawnee Tabernacle Church v. GuideOne, the court carried out a close factual analysis showing no dispute of material fact that the claim adjusters acted unreasonably and in bad faith in delaying the claim handling process over a period of many months, where there was no excuse for denying coverage or promptly responding to the insured. Thus, the court stated: “As a matter of law, I find that [the insurer] acted in bad faith when it abandoned the investigation and resolution of Plaintiffs’ claim between June 16, 2015 and October 5, 2015, and then further delayed a determination of coverage until December 11, 2015, despite the fact that it possessed all relevant information about the vacancy provision once the EUOs were complete.”

Following Rancosky, the court observed that the insured need not prove ill-will or self-interest to establish statutory bad faith. Moreover, relying on Pennsylvania Superior Court precedent, the court found that “bad faith may include ‘lack of good faith investigation into fact[s], and failure to communicate with the claimant,’ both of which certainly occurred in this case between June and December. … ‘Similarly, a delay in investigation of a claim may constitute bad faith where it involves [i]nexcusable periods of inactivity, unreasonable assumptions, and inadequate communication.’ Here, [the insurer] has offered no excuse for the inactivity with respect to coverage between June 16 and December 11, and it engaged in little to no communication with Plaintiffs about the coverage issue during the same period.”

Getting to the UIPA, again citing Superior Court precedent, the court found that “[t]he lack of communication is a violation of Section 146.7(c)(1) of Title 31 of the Pennsylvania Code, which requires a report to the insured every 45 days explaining the reasons for delay in resolving a claim. Although such a violation does not establish bad faith per se, it constitutes relevant evidence. But Section 146.7(c)(1) has relevance beyond the obligation to communicate. By specifying the frequency with which a carrier must report to its insured, it provides an objective yardstick recognized by the Pennsylvania Insurance Department as to what constitutes a reasonable interval within which a carrier should be able to address the merits of a claim. From mid-June through mid-December, four full intervals elapsed without resolution or explanation, even as [the insured] faced financial peril. This further supports the conclusion that [the insurer’s] conduct was reckless during this period and constituted bad faith.”

UIPA violations cannot be used as evidence of statutory bad faith

By contrast, also on April 23, 2019, a third Eastern District Judge appears to deny any role for the UIPA in determining a statutory bad faith claim. The decision in Horn v. Minnesota Life Insurance Company can be found here. To quote that decision:

At Count IV, Plaintiff asserts that the handling of her claim under the Policy constituted bad faith, thus, entitling her to damages under 42 Pa. Cons. Stat. § 8371. Plaintiff contends that [the insurer] acted in bad faith by, inter alia, denying her claim, engaging in misleading marketing practices, failing to communicate regularly about its investigation, and acting in a manner prohibited by the Unfair Insurance Practices Act (“UIPA”), 40 Pa. Stat. § 1171.1 et seq. “To prevail on a bad faith claim, the insured must prove two elements: ‘(1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.'” U.S. Fire Ins. Co. v. Kelman Bottles, 538 F. App’x 175, 182 (3d Cir. 2013) (quoting Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005)). The insured must prove these elements by clear and convincing evidence, and “the insured’s burden in opposing a summary judgment motion brought by the insurer is commensurately high.” Babayan, 430 F.3d at 137 (internal quotations omitted). Here, this Court finds that [the insurer] had a reasonable basis for denying benefits; namely, [the insured’s] premium had not been paid, and the grace period described in the Policy had expired at the time of [the insured’s] death. As such, Plaintiff cannot prove the first element of her bad faith claim, and summary judgment is granted with respect to that claim.

Notwithstanding the foregoing, Plaintiff argues that Defendants’ bad faith is evidenced by their alleged violation of the UTPCPL and “insurance regulations” such as the UIPA and the Unfair Claims Settlement Practices regulations (“UCSP”), 31 Pa. Code §§ 146.1-146.10. However, Plaintiff is mistaken as these claims fail as a matter of law. See Leach v. Nw. Mut. Ins. Co., 262 F. App’x 455, 459 (3d Cir. 2008) (holding that “insofar as [plaintiff’s] claim for bad faith was based upon an alleged violation of the UIPA, it failed as a matter of law.”); Dinner v. U.S. Auto. Ass’n Cas. Ins. Co., 29 F. App’x 823, 827 (3d Cir. 2002); (“it is apparent from a comparison of bad faith standard [that the Pennsylvania Superior Court] adopted with the provisions of the UIPA and the UCSP that much of the conduct proscribed by the latter is wholly irrelevant” to the bad faith analysis); Watson v. Nationwide Mut. Ins. Co., 2011 U.S. Dist. LEXIS 118873, 2011 WL 4894073, at *4 (E.D. Pa. Oct. 12, 2011) (observing that, since the current bad faith standard was established in Terletsky, “courts in the [Third] circuit have . . . refused to consider UIPA violations as evidence of bad faith.”). Therefore, summary judgment is granted with respect to Plaintiff’s claim of bad faith.

A link to other UIPA cases summarized on this Blog can be found here.

Copies of these April 2019 opinions can be found here:

Blease v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3893, 2019 U.S. Dist. LEXIS 57145 (E.D. Pa. April 3, 2019) (Jones, II, J.)

Shawnee Tabernacle Church v. GuideOne Insurance, U. S. District Court Middle District of Pennsylvania CIVIL ACTION No. 16-5728, 2019 U.S. Dist. LEXIS 68442 (E.D. Pa. April 23, 2019) (McHugh, J.)

Horn v. Minnesota Life Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-238, 2019 U.S. Dist. LEXIS 69016 (E.D. Pa. April 23, 2019) (Quiñones Alejandro, J.)

NO BAD FAITH WHERE (1) REASONABLE AND TIMELY INVESTIGATION AND (2) INSURED FAILED TO MEET CONTRACTUAL BURDEN TO SHOW CONNECTION BETWEEN CLAIM AND PROPERTY DAMAGE (Philadelphia Federal)

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In this homeowner’s case, the insured attempted to tie a fallen tree to water pipe damage. The court laid out a detailed history of the insurer’s responses to the insured’s claims and communications, demonstrating the insurer’s active role in investigating the claim. The court also detailed the carriers’ review of documents and information from the insured’s contractors. The court found the insured’s communications and investigation timely and reasonable.

Further, the insured was contractually obligated to show property damage resulting from a covered event, but failed to do so, e.g., there were no photographs of the fallen tree, nor sufficient evidence of how the tree could have damaged concrete encased pipes. Under the circumstances, the insured “had to retain a contractor to provide a report making the connection.”

Moreover, the insured’s “plumbing and heating contractors both testified the fallen tree did not cause the pipe damage, rather, the pipes needed to be replaced because of their age.” On these facts, the carrier could not be expected to “make payments on claims devoid of some evidence linking damage to an event.”

In light of the delineated efforts by the insurer to investigate the claim, and the insured’s failure to produce evidence of the necessary connection between the fallen tree and the pipe damage, the court granted summary judgment on the bad faith claim.

Date of Decision: March 29, 2019

Mitchell v. Allstate Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1806, 2019 U.S. Dist. LEXIS 55613, 2019 WL 1440043 (E.D. Pa. Mar. 29, 2019) (Kearney, J.)

AN INSURER DOES NOT ACT IN BAD FAITH WHEN IT DOES NOT BREACH A DUTY TO DEFEND OR INDEMNIFY, EVEN WHEN DENIAL IS BASED ON LATE NOTICE (Western District)

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This case involves two bases for coverage denials: (1) late notice resulting in prejudice, and (2) first party claims are not covered under a commercial general liability policy.

The bad faith plaintiff is a general contractor. It was named as an additional insured on a subcontractor’s policy with the defendant insurer.

There was an explosion resulting in personal injury to a third party, and first party property damage to the contractor. The contractor was named as a defendant in the personal injury action, and claimed over against other parties, including the named insured subcontractor. The contractor also brought a property damage suit against others, including the subcontractor, for its own property damages.

Nearly 3½ years into the personal injury suit, the parties mediated a settlement. The contractor did not request a defense or indemnity from the insurer in the personal injury action until the day that suit settled. For the first time, during that mediation, the additional insured contractor orally requested a defense and indemnification from the defendant insurer.

A representative of the contractor’s own primary insurer was present at the mediation as well as a representative of the defendant insurer. However, the defendant insurer’s representative had only come to the mediation to represent the subcontractor’s interests, not the contractor’s interests.

There is no bad faith when the claim is plainly outside the scope of coverage.

The court readily found no coverage due for the contractor’s own property damage claims. The contractor was seeking coverage as an additional insured under the subcontractor’s CGL policy. CGL policies only apply to property damage claims raised by others against an insured, not to the insured’s own property damages.

An “insurer does not act in bad faith when the insurer does not breach its duty to defend or indemnify.” The property damage claim “was plainly outside the scope of coverage”. Thus, as there was no duty to defend or indemnify there could be no bad faith, and summary judgment was granted on both the first party property damage coverage and bad faith claims.

There could be no bad faith where late notice and prejudice also resulted in a coverage denial.

After extensive analysis, Judge Hornak concluded that there was no coverage due in the personal injury action because of the contractor’s late notice, and the actual prejudice resulting from the late notice. He granted the insurer’s summary judgment motion on any duty to defend or indemnify. The insurer lost the opportunity to retain counsel and pay a fee structure significantly less expensive than what was charged by the contractor’s counsel; lost “the opportunity to take control of the matter at an early stage and resolve it prior to the accumulation of those expenses”; lost the opportunity to advance potential defenses; and “was indisputably prejudiced by its inability to control [the] defense, or the costs incurred in furtherance of it, until the end of the underlying litigation—when [the contractor] expected payment for all of the expenses that they had accumulated up to that point along with what it ‘fronted’ for settlement.”

Absent that late notice and prejudice, there is no question the insurer had a duty to defend the personal injury claim against the contractor. Still, as no coverage was due because of the late notice and prejudice, there could be no bad faith under the same principles used in rejecting the bad faith claim on property damage, i.e., no coverage due = no bad faith.

However, the court went on to analyze the personal injury bad faith claim, assuming arguendo what would have happened if it allowed the issue of prejudice to go to the jury instead of granting summary judgment. Judge Hornak concluded that even under those circumstances, he would have rejected the bad faith claim. There was simply no basis in the record to show the insurer’s refusal to step in at the mediation, or its ongoing refusal to pay the contractor, was frivolous or unfounded.

The following facts were undisputed, and showed the insurer acted reasonably in believing it was prejudiced by late notice and would not have to provide any defense or indemnity payments. It did not choose counsel; the contractor had amassed years of legal fees and expenses over which the insurer had no control; the insurer “was not provided an accounting of the defense costs for which it would potentially have to indemnify” the contractor; the insurer “did not participate in early investigation or settlement discussions”; and the insurer “had no reason, until the moment that the oral demand was made, to believe that [the contractor] desired a defense or expected indemnification”.

The court also found it nonsensical to conclude the insurer could have made a decision in the midst of the mediation to provide indemnification and pay a settlement, or even could have stopped the mediation at which it was protecting the named insured’s interests. This was highlighted by the fact that the case had been going on for years, and the contractor had never before asked for defense or indemnification. Moreover, at that moment in time there remained legitimate coverage issues reasonably justifying a refusal to pay on demand.

Finally, the insurer’s ongoing refusal to pay for the subcontractor’s legal fees and settlement payment also had a reasonable foundation, and could not be deemed frivolous or unfounded. Thus, summary judgment on bad faith was granted even assuming it would not have been granted on the coverage claim.

Date of Decision: March 1, 2019

NVR, Inc. v. Motorists Mutual Insurance Co., U. S. District Court Western District of Pennsylvania No. 2:16-cv-00722, 2019 U.S. Dist. LEXIS 32802, 2019 WL 989393 (W.D. Pa. Mar. 1, 2019) (Hornak, J.)

NO BAD FAITH WHERE REFUSAL TO MEET INSURED’S PAYMENT DEMAND IS JUSTIFIED BY EXPRESS POLICY LANGUAGE (Philadelphia Federal)

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The insurer successfully obtained summary judgment despite its continued refusal to reimburse its insured the sum actually paid to repair property damage.

The policy covered fire damage to the insured’s motel. However, coverage was limited to the least expensive of the following three options: “(1) the applicable insurance limit; (2) the cost to replace with property ‘[o]f comparable material and quality’ and ‘used for the same purpose;’ or, (3) ‘[t]he amount actually spent that is necessary to repair or replace the lost or damaged property.’” The building’s coverage limit was $2.25 Million.

Fire damaged the hotel, and the insurer paid approximately $1.6 Million. The insured claimed the loss exceeded $2.25 million, and that the insurer acted in bad faith by not reimbursing sums actually paid to repair the motel. The insured’s argument boiled down to: (a) the loss was covered; (b) the insured actually paid more than $2.25 Million to contractors, which could be proven through invoices, etc.; (c) and the insurer only paid $1.6 Million to the insured even though the insured demonstrably paid more than $2.25 Million.

The insurer offered evidence from third party contractors that the repair work could have been done at less expense, and used that as its basis to pay less than what the insured actually paid. The court found that the insurer’s payment theory comported with one of the three permissible options in the policy, i.e., the cost to replace with property of comparable material and quality. The insured’s unqualified demand for full reimbursement misread the policy.

Thus, “the Policy allows room for disagreement between the parties as to whether the invoices Plaintiff submitted were more than the ‘cost to replace’ with property of ‘comparable material and quality’—and as a result [the insurer’s] failure to fully compensate the claimed loss is not evidence of bad faith.”

Further, the insured failed to present any evidence beyond the payment invoices. Those invoices did not create any issues of material fact as to the insurer’s bad faith. Simply failing to pay what an insured demands is not bad faith where express policy language allows for a different standard of payment.

Date of Decision: February 12, 2019

Purvi, LLC v. National Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-822, 2019 U.S. Dist. LEXIS 22774, 2019 WL 558195 (E.D. Pa. Feb. 12, 2019) (Beetlestone, J.)