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

COMPLAINT ALLEGES SUFFICIENTLY DETAILED CHRONOLOGY OF FACTS TO SUPPORT PLAUSIBLE BAD FAITH CLAIM (Middle District)

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The UIM plaintiff brought breach of contract and statutory bad faith claims. The insurer moved to dismiss the bad faith claim.

The complaint sets out 28 paragraphs with factual allegations.  In his decision, Magistrate Judge Carlson recites 15 of those paragraphs verbatim, along with one lengthy paragraph including a litany of conclusory bad faith allegations.

In addressing the motion on the merits, Magistrate Judge Carlson describes the means to measure the adequacy of a complaint’s factual allegations in determining whether a plaintiff makes out a plausible claim:

In practice, consideration of the legal sufficiency of a complaint entails a three-step analysis: “First, the court must ‘tak[e] note of the elements a plaintiff must plead to state a claim.’ … Second, the court should identify allegations that, ‘because they are no more than conclusions, are not entitled to the assumption of truth.’ … Finally, ‘where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.’”

Assessing the complaint requires examining “the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss.” “Where a complaint’s § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was ‘unreasonable’ or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims.” On the other hand, “when a complaint couples general allegations of bad faith with well-pleaded assertions of unreasonable delay, unreasonable claims processing, and failures to communicate, a complaint adequately states a claim under § 8371 and is not subject to dismissal on the pleadings alone.”

In this “somewhat close case,” while one paragraph simply included a litany of conclusory bad faith allegations, “the complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute.” It provides a chronology detailing the insurer’s alleged “failure to honor this underinsured motorist claim….”

“First, the plaintiff alleges that: “On countless occasions since Plaintiff[’]s underinsured motorist claim has been established, Plaintiff provided … medical records and reports concerning her injuries, condition, treatment, prognosis and recommended treatment plan.” “According to [the insured], this ‘documentation provided to [the insurer] clearly establishes Plaintiff continues to suffer from severe injuries, including but not limited to, complex regional pain syndrome.’”

The insured describes “months of indifference, delay, and failure to investigate … stating that: On June 27, 2019, a formal written demand for available policy limit was mailed to [the insurer]. On July 18, 2019, a [carrier] representative … confirmed via telephone he had received the aforementioned demand package. On September 6, 2019, [that representative] admitted he had not reviewed the demand package, but would make a formal settlement offer by September 17, 2019. On November 5, 2019, [plaintiff’s counsel] provided [that representative] with notice of our arbitrator (as is customary with automobile insurance policies in the Commonwealth of Pennsylvania) and requested [the insurer] provide notice of their arbitrator. [Plaintiff’s counsel] followed-up via certified letter dated November 12, 2019 which was received by [the insurer] on November 18, 2019.”

The insured adds “this course of conduct continued for many months, until February of 2020 when [the insurer] made an offer which … ‘does not fairly compensate Plaintiff for the injuries she has sustained’ and ‘has forced her to file litigation pursuant to the policy, in an effort to further delay payment of underinsured motorist benefits under the policy to which Plaintiff is rightly owed.’”

Magistrate Judge Carlson concludes, “these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim.” “Moreover, fairly construed, the complaint alleges failures … to communicate and timely investigate this claim, coupled with allegations of unreasonable delay in claims processing and payment…. Such allegations as a matter of law are sufficient to state a bad faith claim under Pennsylvania law.”

Dates of Decision: July 27, 2020 (Report and Recommendation) and September 11, 2020 (Order adopting Report and Recommendation)

Yohn v. Selective Insurance Co. of America, U.S. District Court Middle District of Pennsylvania Civil No. 3:20-CV-565, 2020 U.S. Dist. LEXIS 133635 (M.D. Pa. July 27, 2020) (Carlson, M.J.) (Report and Recommendation), and District Court Order adopting Report and Recommendation (Sept. 11, 2020) (Mariani, J.)

INSURED SUCCESSFULLY PLEADS BAD FAITH CLAIM AFTER ORIGINAL COMPLAINT DISMISSED WITHOUT PREJUDICE (Philadelphia Federal)

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In Lopez v. Selective Insurance Company of South Carolina, Eastern District Judge Schiller dismissed plaintiff’s bad faith claim, without prejudice, for only pleading conclusory allegations.  Our summary of this June 2020 decision can be found here.

Plaintiff took the opportunity to file an amended complaint, and the carrier again moved to dismiss the bad faith claim.  This time around, however, plaintiff defeated the motion to dismiss by alleging specific facts.

Judge Schiller relied on earlier case law for the principle that bad faith claims can stand if the “plaintiff’s factual allegations regarding the insurer’s intent, along with the chronology of events, support[] the inference that the defendant had no reasonable basis for denying the claim and knew or recklessly disregarded that lack of reasonable basis in denying the claim.”

In Lopez, plaintiff alleged the insured suffered a covered property loss and provided timely notice. The loss arose from a heating failure on the property.

Addressing the coverage issue, the complaint avers that under the controlling policy language, the insured only had to take reasonable steps to maintain heat on the property. The insured did so, but the heating system failed despite those reasonable steps.

The complaint further alleges the carrier initially took the position that it would cover a portion of the loss. Moreover, the carrier’s representative confirmed that the insured had taken reasonable steps to maintain heat at the property.  Once the carrier realized the size of the loss, however, the complaint alleges the insurer retreated from its original position that a portion of the loss was covered.

Judge Schiller found the specific facts pleaded “would suggest” the carrier both “lacked a reasonable basis for denying the claim; and … knew or recklessly disregarded its lack of a reasonable basis for denying the claim.”The complaint “contains specific factual allegations regarding … intent, and it identifies what actions [the insurer] took that were unreasonable.”

More specifically, “[t]he allegation that Defendant acted in bad faith ‘by unreasonably claiming that heat was not maintained when the policy does not require that heat be maintained, but simply that reasonable steps to maintain heat be taken, all with the intent to deceive Plaintiff about what the policy requires and deny coverage’ is not conclusory.” Likewise, the allegation that the insurer accepted coverage and agreed to pay a portion of the loss, only changing its position when discovering the loss’s magnitude, is not conclusory. It was also significant that the insurer’s representative allegedly conceded that the insured took reasonable steps to maintain the heat.

Thus, “[t]hese specific allegations allow the Court to infer what [the insurer] did, why it was unreasonable, and how [the insurer] knew or should have known it was unreasonable.” [Judge Schiller’s emphases]  In sum, “[b]y accepting these allegations as true, the Court can reasonably infer that [the insurer] knew Plaintiff’s claim was covered under the policy, indicated the claim would be covered, and then, once all of the damage was assessed, denied the claim because it was too expensive. Thus, Plaintiff’s Amended Complaint is well pleaded and survives a motion to dismiss.”

Date of Decision:  August 31, 2020

Lopez v. Selective Insurance Co. of South Carolina, U.S. District Court Eastern District of Pennsylvania No. CV 20-1260, 2020 WL 5121281 (E.D. Pa. Aug. 31, 2020) (Schiller, J.)

DENYING COVERAGE AFTER REPRESENTATIVES CONFIRMED COVERAGE IS BASIS FOR BAD FAITH (Western District)

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In this case, the insured made a water damage claim, as well as claims for roof damages. She hired a public adjuster to pursue the claims. The insured alleged her public adjuster met with the carrier’s adjuster, and the carrier’s adjuster authorized the insured to proceed with remediating the water damage. Five months later, the carrier sent out its own contractor to inspect the insured’s roof, and that contractor informed the public adjuster that the insured’s roof claims were covered.

The carrier subsequently denied all coverage and refused to pay on any claims. Once the insured retained counsel, however, the carrier agreed to pay part of the claim (for water damage).

The insured sued for breach of contract and bad faith, along with a variety of other claims. (The court allowed a negligent misrepresentation claim to stand against the carrier, rejecting the carrier’s gist of the action argument, on the basis that duties outside the contract were assumed and potentially violated.)

The carrier moved to dismiss the bad faith claim. It asserted that its contractor had no power to bind on coverage, and that it offered to pay the insured’s water damage losses after the insured retained counsel. The court rejected these arguments and allowed the bad faith claims to proceed.

The insured first pleaded coverage was due and her claim was denied. She then specifically alleged that two of the carrier’s representatives agreed coverage was due, establishing that the insurer was without a reasonable basis to deny coverage. This met the first bad faith element.

Next, as to proving the second element concerning the insurer’s intent, plaintiff had alleged the carrier’s two “representatives, upon reviewing [the] insurance claim and/or observing the Property, determined that the damage at issue was covered under the Policy. … These facts, if true, support a finding that [the insurer] knew or recklessly disregarded that it lacked a reasonable basis to deny [the] insurance claim, i.e. that [it] knew, through its representatives, that the damage at issue was covered under the Policy but still chose to deny benefits.”

Eventually offering to pay part of the insured’s claim did not eliminate potential bad faith, as the insured pleaded there was no reasonable basis to deny the entire claim.

The court did agree that the insured could not recover compensatory damages for unpaid insurance benefits under the bad faith statute, but this relief was available under other counts.

Date of Decision: June 3, 2020

Nelson v. State Farm Fire & Casualty Co., U.S. District Court Western District of Pennsylvania 2:19-cv-01382-RJC, 2020 U.S. Dist. LEXIS 97239 (W.D. Pa. June 3, 2020) (Colville, J.)

 

BAD FAITH PLAUSIBLE WHERE INSURER DENIED COVERAGE 11 DAYS AFTER CLAIM MADE SOLELY BASED ON A POLICY EXCLUSION IT KNEW OR SHOULD HAVE KNOWN HAD BEEN VOIDED BY PENNSYLVANIA’S SUPREME COURT (Philadelphia Federal)

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The insurer denied a UIM claim 11 days after it was submitted. Denial was based solely on the policy’s household exclusion. Many months earlier, however, Pennsylvania’s Supreme Court had generally voided the household exclusion’s application under Pennsylvania law in similar circumstances. Gallagher v. GEICO Indemnity Co.   Thus, the exclusion was an invalid basis to deny coverage.

The insured brought breach of contract and bad faith claims, and the carrier moved to dismiss the bad faith claim for inadequate pleading. The court denied the motion, and found a plausible bad faith claim stated.

First, the court found that the insurer was fully on notice that the household exclusion was invalid in Pennsylvania in these circumstances. Even if the carrier somehow was otherwise unaware of the case, the insured’s counsel brought it to the carrier’s attention in making the claim for coverage. Thus, the household exclusion was a plainly invalid basis to deny coverage, but the carrier denied coverage anyway.

The insurer attempted to argue the Supreme Court’s Gallagher decision only applied to Gallagher’s unique facts. Magistrate Judge Wells found this argument patently incorrect on the face of the Gallagher opinion itself.

Second, the court reasonably inferred from the facts pleaded that the carrier did nothing to investigate the claim before denying coverage. Specifically, the court inferred that the defendant carrier did not even know what the other insurers would be paying the insured toward her injuries for purposes of evaluating its own potential share due to the insured. Moreover, she found the defendant insurer made no effort to evaluate the case itself. Thus, at the time it denied the claim, the carrier could not have known if the insured was fairly compensated or was due further payment.

The facts pleaded supporting these conclusions are that the carrier did not require a medical examination, nor did it produce any contrary medical documents; that it denied the claim in only 11 days; and the insured had not even settled yet with the other insurers at the time the claim was denied.

In sum, the court stated the claim denial “was based solely upon a patently false statement of Pennsylvania law, hence, it is plausible that a jury could find [the denial] decision frivolous and issued in bad faith. …. Furthermore, since it can be inferred that [it] made no effort to value the case, it is plausible that [the insurer] violated its duty of good faith and to deal fairly with Plaintiff, its insured.”

Decision: May 6, 2020

Smith v. AAA Interinsurance Exchange of the Automobile Club, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-768, 2020 U.S. Dist. LEXIS 79489 (E.D. Pa. May 6, 2020) (Moore Wells, M.J.)

(1) FAILURE TO MAKE PARTIAL PAYMENT NOT BAD FAITH; (2) BAD FAITH POSSIBLE WHERE INSURER ALLEGEDLY KNEW CLAIM WAS WORTH MORE THAN ITS OFFER, AND THAT IT FAILED TO RE-EVALUATE THE CLAIM AFTER RECEIVING ADDITIONAL INFORMATION (Western District)

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The insureds’ complaint alleged husband-insured was riding a bicycle when hit by the tortfeasor’s car. The driver’s carrier offered to pay $50,000 towards the injuries, but the complaint alleged this was insufficient in light of the severity of the injuries, and the insureds sought UIM coverage from a set of insurers (though we will treat the claim as against one carrier for purposes of this post). The insureds allege they had $250,000 in UIM coverage, per person, and that both insureds were entitled to coverage.

They also allege they made demand on their UIM carrier. The demand package included information as to liability and damages, and was allegedly provided to a UIM adjuster. The package included the $50,000 offer from the tortfeasor’s carrier. The UIM adjuster made an “initial offer” of $10,000. The complaint alleges the adjuster was aware when making the $10,000 offer that the UIM part of the claim was worth “at least $10,000.00” and that Plaintiffs were unable to respond to this initial offer because Plaintiff [husband] was still receiving medical treatment.”

The complaint alleges that after the initial demand and response, plaintiffs’ counsel provided medical records and lien information addressing the husband’s injuries, condition, treatment and prognosis. Counsel also provided various written and oral demands on the carrier to tender UIM benefits. The demands exceeded $10,000 generally, but at some point did include a request for partial payment of the $10,000. Plaintiffs allege the carrier originally refused to pay the $10,000, but later paid that $10,000 without making any additional offers or payments “despite concluding that the value of the UIM claim exceeded this amount [$10,000].”

The insureds brought breach of contract claims, and a bad faith claim under 42 Pa. C.S.A. § 8371. The complaint also references the Unfair Insurance Practices Act (UIPA), 40 P.S. § 1171.5. The carrier moved to dismiss the bad faith claims as well as any claims based on the UIPA.

Three counts alleged identical language for bad faith claims handling, e.g. the complaint included subparagraphs alleging failure “to evaluate and re-evaluate Plaintiffs’ claim on a timely basis, failing to offer a reasonable payment to Plaintiffs, failing to effectuate an equitable settlement of Plaintiffs’ claim, failing to reasonably investigate Plaintiffs’ claim and engaging in ‘dilatory and abusive’ claims handling.”

In opposing the motion to dismiss the claims, the insureds argued that the “bad faith stems from [the insurer’s] untimely and unreasonable offer … failure to properly investigate the claim; and initially refusing to make the partial payment Plaintiffs requested from the adjustor.” The insureds asserted “that upon receipt and review of the settlement package and documentation provided, Defendants recognized that [husband’s] injuries were far in excess of $60,000 (the $50,000 limits paid by [the driver’s] insurance carrier, plus the $10,000 offered by Defendants).” They also argued bad faith because the carrier initially refused to make the partial $10,000 payment, and, for ultimately offering a minimal sum in an untimely manner while knowing the claim was worth far more than the $10,000 offer.

Refusing to Make Partial Payment Not Bad Faith

The court cited Third Circuit precedent for the proposition that “if Pennsylvania were to recognize a cause of action for bad faith for an insurance company’s refusal to pay unconditionally the undisputed amount of a UIM claim, it would do so only where the evidence demonstrated that two conditions had been met. The first is that the insurance company conducted, or the insured requested but was denied, a separate assessment of some part of her claim (i.e., that there was an undisputed amount). The second is, at least until such a duty is clearly established in law (so that the duty is a known duty), that the insured made a request for partial payment.” Pennsylvania Superior Court case law also required that a bad faith plaintiff plead that both parties agreed that the partial valuation was an undisputed amount.

In this case, the plaintiffs did not plead that the insureds requested an assessment of a part of their claim and were denied that assessment. Nor did they allege that “the parties had undertaken a partial valuation and agreed that the amount of $10,000 was an undisputed amount of benefits owed.” All they allege is the insurer made an initial offer, and the insureds initially declined that offer and later requested it be paid. The court found that an “’initial offer’ indicates that an insurer is willing to negotiate, and does not in itself represent evidence of bad faith,” citing Judge Flowers Conti’s 2013 Katta decision. Thus, “to the extent that Plaintiffs attempt to assert that the failure by Defendants to make a more timely partial payment represents bad faith, any such claim fails as a matter of law.”

The Bad Faith Claim Survived on Factual Allegations that the Insurer Knew the Claim was Worth More than it Offered, and the Insurer Failed to Re-evaluate the Claim after Receiving Additional Information

Taking the factual allegations in the complaint in plaintiffs’ favor, the court would not dismiss the bad faith claims. The insureds alleged that the carrier knew and was aware the claim value exceed $60,000 (the tortfeasor payment plus the $10,000 offer). From the subsequent $10,000 partial payment, the court had to infer on the pleadings that the carrier had concluded the claim was worth more than $10,000, and had therefore “refused to effectuate an equitable settlement.” The court stated that “[w]hile this may or may not ultimately support a bad faith claim, it is sufficient for now to defeat Defendants’ motion to dismiss.”

Further, the complaint alleges that the carrier refused to do additional investigation or re-evaluate the claim even after receiving additional information from counsel about the insured’s injuries. The insurer argued on the motion to dismiss this conduct was reasonable because there was an “understanding” with the insureds that negotiations would be put on hold pending the husband’s medical treatment. The court could not consider this argument, however, as it relied on facts and a defense outside the pleadings. Rather, it could only consider the allegations that there was a lack of good faith investigation into the facts, and the insurer failed to re-evaluate the claim even after receiving new information that merited re-evaluation.

Finally, the insureds confirmed to the court they were not asserting any claims under the UIPA, and that UIPA references in the complaint could be stricken.

Date of Decision: May 4, 2020

Kleinz v. Unitrin Auto & Home Insurance Co., U.S. District Court Western District of Pennsylvania No. 2:19-CV-01426-PLD, 2020 U.S. Dist. LEXIS 78400 (W.D. Pa. May 4, 2020) (Dodge, M.J.)

 

PLAINTIFFS ADEQUATELY PLEAD DELAY, INADEQUATE INVESTIGATION, AND LACK OF COMMUNICATION TO SUPPORT BAD FAITH CLAIM (Philadelphia Federal)

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This is one of the few recent cases finding that a bad faith plaintiff met federal pleading standards, surviving a motion to dismiss.

In this UIM case, the plaintiffs alleged the insured husband suffered serious and permanent bodily injuries, requiring ongoing treatment. The tortfeasor’s carrier paid $250,000, and the insureds sought the full UIM coverage limit, $1,000,000, from the insurer. The insurer’s highest offer was $200,000, only made nearly three years after the original claim. The insureds brought breach of contract and bad faith claims.

The complaint alleged the insureds cooperated with the carrier, providing information over a 32-month period, “with the necessary liquidated and unliquidated damages information from which Defendant could fairly evaluate and make a timely and reasonable offer on the claim.” The insureds estimated their damages in excess of $1,000,000, “based on Plaintiffs’ unchallenged medical records, narrative reports, and vocational loss and medical prognosis reports, which they provided to Defendant.” They further alleged the carrier “failed to timely respond or comply with Plaintiffs’ counsel’s request for Defendant to fairly evaluate the underinsured motorist claim.”

The insureds focused their bad faith arguments on the insurer’s alleged conduct over the 32-month time period. They alleged the carrier failed to properly respond to the claim and/or failed to evaluate the UIM claim; failed to offer a payment or to pay in good faith; and failed to inform the insureds of its evaluation of their claim. The insureds asserted the carrier “did not have a reasonable basis for delaying and/or denying underinsured motorist benefits or a partial tender of such under the policy” for nearly three years. The insureds labeled the refusal to pay policy limits as frivolous and unfounded, adding that the insurer “lacked a legal and factual basis” for its valuation of the claim.

The insurer moved to dismiss for failing to adequately plead a bad faith claim.

The court first focused on delay. Delay is a bad faith factor, but standing alone does not make out an automatic case for bad faith. In evaluating whether delay might constitute bad faith, “’[t]he primary consideration is the degree to which a defendant insurer knew it had no basis to deny the claimant: if delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’” (Court’s emphasis)

In beginning his analysis, Judge Jones took cognizance of the potential negative impact of a 32-month window between the claim’s submission and the carrier’s first offer, though again, standing alone this could not prove bad faith. However, as pleaded in the complaint, there were additional factual allegations fleshing out the bad faith delay argument. These included the absence of any facts suggesting the husband was at fault, or that there was any question the UIM policy limit was $1,000,000. The insureds further pleaded: (i) the husband suffered multiple injuries with ongoing expenses; (ii) they provided medical records, reports, vocational loss information and medical prognoses over the 32-month period; and (3) their liquidated and unliquidated damage estimates to the insurer exceeded the $1,000,000 policy limit.

As to the carrier’s conduct, the insureds alleged that during the 32-month period the insurer did not seek an independent medical examination, and did not conduct a records review to properly evaluate the claim. The insureds added that the carrier’s motion to dismiss did not include any argument that the “delay was attributable to the need to investigate further or even to simple negligence.”

On these facts, Judge Jones found the plaintiffs set forth a plausible bad faith claim, focusing on a lack of investigation and failure to communicate. He distinguished this pleading from numerous other cases dismissing conclusory bad faith claims. He stated, “[i]n particular, it is wholly plausible that Defendant did not have a reasonable basis for denying Plaintiffs’ monies owed based upon the information Plaintiffs provided Defendant. Additionally, viewing the time lapse in conjunction with the lack of an independent medical evaluation by Defendant, it is plausible that Defendant knew of, or recklessly disregarded, its lack of a reasonable basis for denying Plaintiffs’ benefits of the policy.”

Judge Jones also rejected the argument that this was merely a disagreement over fair valuation. On a motion to dismiss, the court had to assume the truth of the plaintiffs’ factual allegations. The allegations set out a plausible case the insurer made an unreasonably low offer, or no offer, potentially constituting bad faith conduct. Judge Jones looked to Judge Stengel’s 2017 Davis decision to support this finding.

Date of Decision: April 17, 2020

Lowndes v. Travelers Property Casualty Co. of America, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5823, 2020 U.S. Dist. LEXIS 67620 (E.D. Pa. April 17, 2020) (Jones, II, J.)

 

WHETHER DELAY AMOUNTED TO BAD FAITH MUST GO TO JURY (Middle District)

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Middle District Judge Robert Mariani denied the insurer’s summary judgment motion on this UIM bad faith claim.

The court went into a lengthy recitation of the relevant facts, as well as a lengthy summary of statutory bad faith case law in Pennsylvania (though not citing the Rancosky decision). For immediate purposes, we focus solely on the court’s conclusions about whether a delay could amount to reckless indifference.

There was an undisputed delay in opening a file and starting the claim handling process, which the insurer argued amounted to negligence at most. Negligence cannot be the basis for statutory bad faith in Pennsylvania. The insurer cited cases where an internal mix-up in opening a file caused some delay. The court found it could not make a factual determination at this point attributing the delay solely to this level of negligence.

The court cited to facts from which a jury could find recklessness by clear and convincing evidence. The insured’s counsel wrote to the insurer making a claim, but no file was opened and no response was sent to counsel. Counsel sent another letter making a demand and asking for documents. Again, counsel received no response and still no UIM claim file was opened. Only after the insured called directly and asked to speak to an adjuster was a file opened and an adjuster assigned. Between then and the time of suit, the claim log showed no activity concerning the UIM claim. This all occurred over a six month period.

The court found this lack of responsiveness and activity over a six-month period could amount to reckless indifference, and should go to a jury to determine negligence vs. recklessness.

As the bad faith claim was allowed to proceed, the court did not address other allegations concerning alleged bad faith claims handling once the file was being actively adjusted.

Date of Decision: March 11, 2020

Angeli v. Liberty Mutual Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:18-CV-703, 2020 U.S. Dist. LEXIS 43159 (M.D. Pa. Mar. 11, 2020) (Mariani, J.)

FAILURES TO COMMUNICATE WITH THE INSURED UNDERMINE INSURER’S SUMMARY JUDGMENT EFFORTS; INSURER MUST SHOW ACTUAL DISAGREEMENT OVER VALUE OCCURRED (Western District)

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The court denied the insurer’s motion for summary judgment on plaintiff’s UIM bad faith. Key issues were the insurer’s having failed to adduce evidence explaining the basis for its denial, and not sufficiently adducing facts contrary to the claims handling allegations in the insured’s complaint. The carrier focused on the fact that the insured did not take discovery, but this was not as detrimental to plaintiff’s case as the insurer believed.

The insured received $50,000 from the tortfeasor’s carrier, and had $250,000 in UIM coverage under his own policy. The complaint alleged detailed facts supporting the position that the insured was highly cooperative in producing information, both independently and upon the insurer’s request. Moreover, the insured submitted to an examination under oath and an independent medical examination, and follow up requests after both.

The claim/investigation process went on for eight months, with the insured’s counsel repeatedly making policy limits demands, with no counteroffer. Ultimately, the insurer offered no payment of any kind to the insured.

During the claim/investigation process, the insured filed a writ of summons. The insurer ultimately responded with a rule to file a complaint, and after the complaint was filed it removed the action to federal court. [Note: Among the various legal principles governing bad faith claims the court recites, is “[t]he Third Circuit has also recognized that ‘using litigation in a bad faith effort to evade a duty owed under a policy [is] actionable under [Pennsylvania’s bad faith statute].’” The court did not amplify on that principle in this case.]

The court observed the carrier did not develop a factual record refuting the detailed claims handling history in the complaint. Thus, “[w]hether the undisputed facts in the Complaint are sufficient for Plaintiff to prove by clear and convincing evidence that [the insurer] acted in bad faith is for the jury to determine.” Further, there was no evidence in the record as to how, or if, the insurer provided the basis for its claim denial to the insured. At most, the rule to file a complaint functioned as the notice of denial; but even then, the insurer never gave the insured “any information about the basis for its decision.”

The insurer did include a copy of its medical expert’s reports in moving for summary judgment. These reports concluded that the insured “required no further care, treatment or limitations as a result of his motor vehicle accident.” On the other hand, the court found that the insured had apparently produced his own medical expert report during the litigation, opining that significant medical issues resulted in a “no work” restriction.

The court stated: “It may well be that [the insurer] relied upon the results of the independent medical examination or other valid grounds, but the record does not reflect that [this] report was supplied to Plaintiff or that [the insurer] relied on this report in denying Plaintiff’s claim.”

Generally, the court accepted that there might a been a reasonable basis for evaluating the claim for eight months and then denying it, but that reasoning was not disclosed in the record. The insurer attempted to frame the issue as merely a disagreement over value (apparently $250,000+ on the insured’s end and $0 on the insurer’s end).

However, “to prevail on its motion on the ground that the parties had a legitimate value disagreement, it is [the insurer’s] burden, [1] initially, to point to evidence illustrating not only that there was indeed a disagreement over the value of Plaintiff’s claim (as opposed to an outright denial), but [2] also that [the insurer] communicated that disagreement to Plaintiff, for example, by making a counter-offer. [The insurer] has not done so.”

In sum, “[b]ecause there are genuine issues of material fact regarding Plaintiff’s bad faith claim based upon the current state of the record, [the insurer] is not entitled to judgment as matter of law.”

Date of Decision: February 10, 2020

Baldridge v. Geico Insurance Co., U.S. District Court Western District of Pennsylvania, Civil Action No. 18-1407, 2020 U.S. Dist. LEXIS 22311 (W.D. Pa. Feb. 10, 2020) (Dodge, M.J.)

On April 1, 2020, Magistrate Judge Dodge denied the insurer’s motion for reconsideration. A copy of her opinion can be found here.

DOES TOY V. METROPOLITAN LIFE PROVIDE BINDING PRECEDENT REQUIRING A DENIAL OF BENEFITS FOR COURTS APPLYING PENNSYLVANIA LAW ON THE SCOPE OF STATUTORY BAD FAITH (Western District)

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Like the recent Middle District Ferguson decision, the opinion in this case involves good news and bad news. First, the court addresses head on whether statutory bad faith must be predicated on a denial of benefits, or can be independently sustained based upon a variety of poor claims handling practices. That’s good for those seeking clarity on this issue. The bad news is that, like Ferguson, this opinion never addresses head on the 2007 Pennsylvania Supreme Court decision in Toy v. Metropolitan Life Insurance Company.

As we have set forth many times on this Blog, the Toy decision strongly appears to require the denial of a benefit as a predicate to bringing a statutory bad faith claim, meaning a refusal to pay proceeds due under the policy, unreasonably delaying payment of proceeds due under the policy, or refusing to pay for a defense due under the policy. Under Toy, other types of poor conduct in claims handling go to evidence of statutory bad faith, without being actionable bad faith standing alone. See this 2014 article for a more detailed discussion.

In the present case, an excess carrier paid $19,000,000 to settle a malpractice suit, contingent on its right to recoup that payment. The insured objected. The insurer brought suit to recover the money, and the insured counterclaimed for breach of contract, common law contractual bad faith, statutory bad faith, and for a declaratory judgment.

The court denied the insurer’s motion to dismiss the counterclaims, and the insurer brought a motion for reconsideration on whether the bad faith claim was adequately pleaded, and whether the damage claims were too speculative and contingent to stand. Both motions were unsuccessful. [We only address the bad faith claim.]

The court focused on the Pennsylvania Supreme Court’s 2017 Rancosky decision to address the issue of whether an actionable statutory bad faith claims requires “the plaintiff must allege that the insurer has denied benefits under the policy. … [and] that only either a refusal to pay benefits or a delay in paying benefits that becomes an effective denial can constitute a denial of benefits sufficient to state a claim under § 8371.” The court points out that the Rancosky majority did not address that issue, but Justice Wecht’s Rancosky concurrence “listed several types of conduct, including poor claims-handling, a failure to respond to the insured, and other similar conduct, which could give rise to a § 8371 claim and that list is broader than a refusal or delay in paying benefits.” Although the majority had not adopted that concurrence, because the majority did not expressly refute the concurrence, the District Court “remain[ed] convinced that the Pennsylvania Supreme Court, if confronted with the issue … would hold that [the insured] had stated a claim.”

[Note: Per the above comment, however, it strongly appears that the Pennsylvania Supreme Court did address the issue in 2007. A review of the carrier’s brief indicates that it argued Toy stood for the proposition “that ‘bad faith’ under § 8371 is strictly limited to ‘those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss.’” The carrier further argued that Rancosky did not overrule or limit this principle, and if anything reaffirmed it. The District Court clearly rejected the notion that Rancosky limited statutory bad faith claims to the denial of benefits, but never addressed whether Toy did so.]

Thus, the motion for reconsideration was denied. The court held that the insured stated a claim by alleging “poor claims-handling, a failure to respond to the insured, and other similar conduct, which could give rise to a § 8371 claim,” wholly independent of any refusal to pay or delay in paying benefits.

Date of Decision: January 23, 2020

Ironshore Specialty Insurance Co. v. Conemaugh Health System, U. S. District Court Western District of Pennsylvania CASE NO. 3:18-cv-153, 2020 U.S. Dist. LEXIS 11060 (W.D. Pa. Jan. 23, 2020) (Gibson, J.)

Two recent examples of cases finding that statutory bad faith claims must be based upon a denial of benefits are Judge Dubois’ 2019 Buck decision, and Judge Kearney’s 2019 Boring decision. In her 2019 Purvi decision, Judge Beetlestone states that, with limited exceptions, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” (Emphasis in original).

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)

The January 14, 2020 decision was not a final disposition, and a subsequent opinion was filed on February 7, 2020, attached here, which appears to be identical to the January 14, 2020 opinion.

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