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

POTPOURRI OF ISSUES ADDRESSED IN RESPONSE TO 11 COUNT COMPLAINT: (1) REMAND (2) GIST OF THE ACTION/ECONOMIC LOSS (3) UIPA; (4) DUTY OF GOOD FAITH AND FAIR DEALING; (5) UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (6) DECLARATORY JUDGMENT ACTIONS BY BREACH OF CONTRACT PLAINTIFFS AND (7) ADEQUATELY PLEADING BAD FAITH (Philadelphia Federal)

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In this Opinion, Eastern District Judge Tucker addresses a wide range of fundamental legal issues in the context of ruling on a motion to dismiss the insured’s 11 count complaint. The complaint includes not only breach of contract and bad faith claims, but tort claims, UIPA claims, declaratory judgment claims, and injunctive relief claims, all arising out of the alleged failure to pay on an insurance claim. The court also addresses a motion to remand after removal.

We do not address all of the issues Judge Tucker discusses, but highlight a few of the key principles adduced in her opinion. Her full opinion can be found here.

  1. Motion to remand denied.  (i) In determining the jurisdictional minimum amount-in-controversy, the court may consider the possibility of punitive damages under the bad faith statute. (ii) Diversity of citizenship can be established by showing the defendant is not a citizen of plaintiff’s state, just as well as by affirmatively showing the state(s) in which defendant is a citizen.

  2. The gist of the action doctrine and/or the economic loss doctrine will typically bar tort claims based on violations of an insurance contract.

  3. Violating the Unfair Insurance Practices Act (UIPA) (i) does not create a private right of action, and (ii) some courts hold it may not be used to establish violation of statutory bad faith.

As the court states: “Plaintiff’s claim is also barred to the extent that it relies on an alleged violation of the Pennsylvania Unfair Insurance Practices Act (‘UIPA’) because the UIPA does not permit private recovery for a violation of its provisions. Plaintiff advances a claim for damages based, in part, on a theory that [the insurer] was negligent having breached duties imposed upon it by the UIPA, 40 Pa Const. Stat. Ann. § 1171.1, et seq. ‘Courts within the Third Circuit and the Commonwealth of Pennsylvania continue to recognize [, however,] that the UIPA does not provide plaintiffs with a private cause of action.’ Tippett, 2015 U.S. Dist. LEXIS 37513, 2015 WL 1345442 at *2 (quoting Weinberg v. Nationwide Cas. and Ins. Co., 949 F. Supp. 2d 588, 598 (E.D. Pa. 2013)) (internal quotation marks omitted). Indeed, in Tippett, the district court not only rejected a plaintiff’s attempt to state a separate claim under the UIPA, but also rejected the plaintiff’s arguments that proof of a UIPA violation might otherwise provide support for the plaintiff’s independent bad faith claim. Id. Plaintiff’s claim under the UIPA in this case is similarly barred.”

  1. Breach of the common law duty of good faith and fair dealing is subsumed in the breach of contract claim.

  2. The Unfair Trade Practices and Consumer Protection Law applies to the sale of insurance policies, not claims handling.

As the court states: “While Plaintiff rightly notes that the ‘UTPCPL creates a private right of action in persons upon whom unfair methods of competition and/or unfair or deceptive acts or practices are employed and who, as a result, sustain an ascertainable loss,’ … Plaintiff fails to note that ‘the UTPCPL applies to the sale of an insurance policy [but] does not apply to the handling of insurance claims.’” Thus, as the alleged “wrongful conduct under the UTPCPL relate[s] solely to [the insurer’s] actions after the execution of the homeowner’s insurance policy,” the UTPCPL claim was dismissed.

  1. Declaratory judgment count not permitted in light of breach of contract claim.

The court states: “Federal courts routinely dismiss actions seeking declaratory judgment that, if entered, would be duplicative of a judgment on an underlying breach of contract claim.” Judge Tucker cites case law for the propositions that “granting a defendant’s motion to dismiss a plaintiff’s independent cause of action for declaratory judgment because the claim for declaratory judgment was duplicative of an underlying breach of contract claim,” and “dismissing a plaintiff’s duplicative claim for declaratory judgment in the face of an underlying breach of insurance contract claim and observing that ‘pursuant to discretionary declaratory judgment authority, district courts have dismissed declaratory judgment claims at the motion to dismiss stage when they duplicate breach of contract claims within the same action.’”

  1. The insured pleads a plausible bad faith claim.

Judge Tucker highlighted the following allegations in ruling that the bad faith claim could proceed:

i the insurer “attempted to close her insurance claim despite never having sent an adjuster or inspector to evaluate the damage to the Property.”;

ii the insurer “engaged in intentional ‘telephone tag’ to delay and deny Plaintiff coverage under the homeowner’s insurance policy.”;

iii. the insurer never “scheduled an inspection of the Property or otherwise [took] any action to deny or grant coverage under the homeowner’s insurance policy.”

Thus, at the end of the day, after reviewing all of the claims and motion to remand, the insured was allowed to proceed on the breach of contract and bad faith claims.

Date of Decision: August 13, 2019

Neri v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-0355, 2019 U.S. Dist. LEXIS 136820 (E.D. Pa. Aug. 13, 2019) (Tucker, J.)

TWO THIRD CIRCUIT OPINIONS ON PA BAD FAITH STATUTE : (1) NO BAD FAITH WHERE NO DUTY TO DEFEND; (2) BAD FAITH CLAIM CAN GO FORWARD WHERE JURY COULD FIND: (A) CONTRACT COVERAGE BREACH AND (B) UNREASONABLE CONDUCT IN INTERPRETING POLICY AND DETERMINING LENGTH OF COVERAGE OBLIGATIONS (Third Circuit)

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Case 1. No bad faith possible where no coverage or defense due.

In this title insurance case, the Third Circuit affirmed the district court’s grant of summary judgment to the insurer. A summary of the district court’s decision can be found here.

On the bad faith claim, after agreeing there was no coverage obligation and thus no duty to defend, the Third Circuit stated: “Moreover, since the [District] Court correctly concluded that [the insurer] had no duty to defend, there could be no bad faith claim against [the insurer].”

Date of Decision: July 26, 2019

631 N. Broad St. v. Commonwealth Land Title Ins. Co., U. S. Court of Appeals for the Third Circuit No. 18-3094, 2019 U.S. App. LEXIS 22319 (3d Cir July 26, 2019) (Fuentes, McKee, Schwartz, JJ.)

Case 2. After reversing on breach of contract claim, bad faith claim is found actionable based on insurer’s allegedly misrepresenting its contractual duties and failing to reasonably calculate length of its policy obligations, to the insureds’ detriment.        

In this case, the Third Circuit reversed the grant of summary judgment to the insurer. A summary of the district court’s opinion can be found here.

The matter involved car rental rights under a policy, in the event the insureds’ vehicle was totaled. The Third Circuit reviewed the facts, and recited the following.

The insureds’ vehicle was totaled. Their policy provided up to 30 days for car rental, unless the carrier reasonably determined alternative transportation could be had earlier. However, in practice, the carrier’s conduct allegedly led the insureds to believe that the carrier could cut off the right to rent a car after only 5 days, in the carrier’s discretion, unless the rental was renewed for ensuing 5-day spans. Fearing they would lose their car rental through the carrier, the insureds entered a two-year car lease prematurely; leasing an inferior car due to the carrier’s pressuring them into thinking their rental would end. This, they claimed, resulted in damages to them both in paying more for the lease, and in obtaining a car that was worth less than their totaled vehicle.

The Third Circuit found this conduct arguably constituted a breach of the policy’s express 30-day provision, both in terms of: (1) the carrier’s internal guidelines to its adjusters in setting 5-day rental periods, and (2) the adjuster’s actual conduct toward the insureds in following the 5-day practice instead of the policy’s 30-day language.

The Third Circuit rejected the district court’s finding that the 5-day notices were merely mistakes and miscommunications rather than a breach, concluding this was a matter for the factfinder. The Third Circuit also concluded discrepancies between the 30-day language in the policy, and the 5-day rule used internally by the carrier, should go to the fact finder.

On the bad faith claim, the Third Circuit stated: “While the District Court focused on the fact that the [the insureds] technically received the full 30 days of coverage of the policy, the appropriate inquiry under §8371 is the “manner in which insurers discharge their duties of good faith and fair dealing during the pendency of an insurance claim, not whether the claim is eventually paid.”

The bad faith claim was based on alleged “misrepresentation of … benefits” in correspondence from the carrier, and in the carrier’s “failing to conduct the analysis needed to determine the amount of time its insureds reasonably required to replace their vehicle without terminating [rental] benefits as required by [the] insurance policy.”

In reversing summary judgment on the bad faith claim, the appellate court found that “[a] reasonable fact finder could conclude on this record that the manner in which the claim was handled evidenced … bad faith. However, that conclusion is not mandated by this evidence and there is therefore a genuine issue of material fact as to [the insurer’s] liability under 42 Pa C.S.A. § 8371.”

Date of Decision: August 2, 2019

Stechert v. Travelers Home and Marine Insurance Co., U. S. Court of Appeals for the Third Circuit No. 18-2305, 2019 U.S. App. LEXIS 23243 (3d Cir. Aug. 2, 2019) (Fuentes, McKee, Roth, JJ.)

A CLOSE CALL, BUT FACTUAL CHRONOLOGY TIED TO ALLEGATIONS OF UNREASONABLE DELAY SET OUT PLAUSIBLE BAD FAITH CLAIM (Middle District)

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Stating it was a close call, Middle District Magistrate Judge Carlson found the following well-pleaded allegations sufficient to set forth a plausible bad faith claim, and recommended denying a motion to dismiss without prejudice to later bringing a summary judgment motion. District Judge Mariani adopted this report and recommendation as the opinion of the court.

The Allegations

  1. Defendant … issued a policy of insurance No. K2495825 to Plaintiffs … covering their two automobiles ….

  2. Defendant … charged and collected a premium for underinsured motorist coverage on said policy.

  3. Plaintiffs … paid all premiums requested by Defendant….

  4. The same policy was in full force and effect [at the time of the auto accident at issue].

  5. On or about August 30, 2015, Plaintiff … was involved in a motor vehicle crash which directly caused him to sustain serious and severe life-threatening injuries some of which are permanent.

  6. On August 30, 2015, Plaintiff … was insured for underinsured coverage in the amount of $250,000.00, with stacking (two cars), by Defendant … under policy K2495828.

  7. As a result of the collision, Plaintiff … suffered severe and permanent injuries including, but not limited to, the following:

(a) neck sprain with severe pain and injuries to his cervical spine, more specifically identified as narrowing of disc space at the C4-C5, C5-C6 and C6-C7 with anterior and posterior osteophytes formation and narrowing of intervertebral foramina at the corresponding bilaterally with nerve root compression. Persistent multilevel degenerative spondylosis, degenerative bilateral facet edema at the C7-T1, bilateral foraminal stenosis at the C3-4, bilateral foraminal stenosis at the C4-5 and C5-6, bilateral foraminal stenosis with left foraminal disc protrusion at the C6-7, all of which pain radiates into his upper extremities;

(b) low back pain and injuries to his lumbar spine including degenerative disc disease with sharp shooting pain radiating into his left lower extremity and sciatica pain;

(c) radiculopathy and nerve injuries to the C8-T1 area;

(d) muscle spasms throughout his cervical, thoracic and lumbar spine;

(e) severe headaches;

(f) right hip pain;

(g) left ankle pain;

(h) right elbow pain; [*4]

(i) ongoing pain management, physical therapy and chiropractic treatment;

(j) ongoing and persistent pain aggravated by standing, sitting, walking, sexual activity, physical activities and elevating his arms;

(k) sleep disruption.

  1. Defendant .. was promptly notified of Plaintiff[’s] … injuries.

  2. As a result Defendant … after and only after litigation against its parent company … was initiated, began to pay and continues to pay medical payments to Plaintiff….

  3. As a result of the aforesaid incident, Plaintiff … was offered the policy limits by the operator of the 3rd party vehicle.

  4. Plaintiff … made a claim for underinsured motorist coverage with Defendant….

  5. Plaintiff …. submitted all the pertinent medical records and bills to Defendant…, indicating the serious physical and economic injuries that he sustained as a result of the crash.

  6. Defendant …refused payment to Plaintiff … of underinsured motorist benefits.

  7. Plaintiff … has performed everything required of him under the policy and is entitled to underinsured motorist benefits from Defendant….

  8. Defendant[‘s] … denial of underinsured motorist benefits was made without any reasonable basis of fact.

  9. Defendant … acted in bad faith in that it did not have a reasonable basis for denying underinsured motorist benefits under the policy and the Defendant … knew and/or recklessly disregarded its lack of reasonable basis in denying that claim that Defendant:

(a) Failed to give equal consideration to paying the claim as to not paying the claim.

(b) Failed to objectively and fairly evaluate Plaintiff[‘s] … claim;

(c) Failed to raise a reasonable defense to not pay Plaintiff[‘s] … claim;

(d) Compelling Plaintiff … to institute arbitration to obtain underinsured motorist benefits;

(e) Defendant … engaged in dilatory and abusive claim’s handling;

(f) Unreasonably evaluating Plaintiff[‘s] … injuries and loss in the face of overwhelming evidence to the contrary;

(g) Failed to keep Plaintiff … fairly and adequately advised as to the status of the claim;

(h) Acting unreasonably and unfairly in response to Plaintiff[‘s] … claim;

(i) Failed to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff[‘s] … claim;

(j) Failed to conduct a fair and reasonable investigation and evaluation to Plaintiff[‘s] … claim;

(k) Defendant … violated the Unfair Claims Settlement Practice Act §146.5, 146.6, 146.7;

(l) Defendant … violated the Unfair Insurance Practice Act 40 P.S. §1171.5(a)(10) (ii) (iii) (iv) (v) (vi) (vii) (viii) (xi) (xii) (xiv).

The Analysis

The court found the complaint, “taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute.” These allegations provided a factual chronology, and that “[despite providing [the insurer] with all pertinent medical records and bills, and fulfilling all of their policy obligations, the plaintiffs assert that [the insurer] has unreasonably refused to honor its policy obligations.” The complaint further intertwines these allegations with other bad faith averments, i.e., “unreasonable delay … in beginning to make medical payments”, and only making medical payments after suit was initiated against the insurer’s parent company, despite prompt notice of injuries well prior to suit.

While the averments are “spare,” they “go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim.” Moreover, Magistrate Judge Carlson would not go beyond the pleadings to accept the insurer’s arguments for dismissal. The insurer asserted that the complaint should be interpreted as actually reflecting the insurer’s “prudent effort on its part to thoroughly examine and resolve a potentially meritless claim….” However, the court found “this argument invites us to go beyond the pleadings themselves and resolve essentially factual questions. This is a task which, in our view, may not be performed on consideration of a motion to dismiss, where we must simply assess the adequacy of the pleadings.”

Thus, the complaint could proceed, without prejudice to the insurer renewing its argument on summary judgment at the close of discovery.

Dates of Decision: July 19, 2019 and August 8, 2019

Vadella v. American States Ins. Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:19-CV-73, 2019 U.S. Dist. LEXIS 121606 (M.D. Pa. July 19, 2019) (Carlson, M.J.) (Report and Recommendation), adopted in Vadellla v. American States Ins. Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:19-CV-73, 2019 U.S. Dist. LEXIS 133764 (M.D. Pa. Aug. 8, 2019) (Mariani, J.)

BAD FAITH CLAIM STATED WHERE INSURER TELLS INSURED TO “SUE US” AS A MEANS TO GET A MORE COMPLETE RECORD (Middle District)

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In this case, Judge Caputo found plaintiff pleaded a plausible bad faith claim.

The case involved a fatal auto injury, and the issue of whether the deceased’s father, owner of the car at issue, had an applicable policy covering the accident. The other driver was uninsured.

The carrier asked for additional information after demand was made under the father’s policy. The father sent additional information, but the carrier told him to file a complaint, so it could take discovery. The father brought UM claims, as well as breach of contract and bad faith claims.

The complaint alleged the key issue was the deceased son’s residence. The father provided numerous documents showing the son resided with him; but the carrier still declined coverage on the basis that proof of residency was lacking.

Judge Caputo rejected the carrier’s argument that the complaint amounted to boilerplate conclusory allegations of bad faith. Rather, the complaint alleged sufficient “factual matter to withstand a 12(b)(6) motion.” Specifically, “the Complaint indicate[s] that [the insurer’s] coverage decision under the Policy hinged on a determination of whether [son] resided with [father] at the time of the accident. And, upon request, [father] alleges that he provided more than ample documentation to establish that both he and [his son] resided at [the father’s home] at that time.” This included copies of a driver’s license and tax forms.

Allegedly, instead of asking for more information to fill putative gaps in this information, the carrier told father “sue us”. “Although such conduct may ultimately not amount to bad faith, it is plausible based on the factual assertions in the Complaint that [the carrier] acted in reckless disregard of its obligations under the Policy.”

Date of Decision: July 22, 2019

Fuentes v. USAA General Indemnity Co., U. S. District Court Middle District of Pennsylvania NO. 19-CV-1111, 2019 U.S. Dist. LEXIS 121362, 2019 WL 3288156 (M.D. Pa. July 22, 2019) (Caputo, J.)

PUNITIVE DAMAGES CLAIM PREVENTS REMAND; BAD FAITH PLEADED WHERE CASE IS NOT MERELY A VALUATION DISPUTE (Middle District)

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On July 1, 2019, Judge Munley issued two opinions in this UIM bad faith case: (1) finding removal proper; and (2) finding the insured pleaded a plausible bad faith case.

Removal was proper where potential punitive damages could take the case above the $75,000 jurisdictional minimum

Judge Munley ruled that the case would remain in federal court, after removal from state court. The insured allegedly suffered severe personal injuries, and the carrier refused to pay the $25,000 UIM policy limits. The state court complaint sought damages in excess of $50,000, punitive damages, interest, counsel fees and costs.

The court recognized that actual damages were limited to $25,000, and the punitive damage and attorney’s fees claims would have to exceed $50,000 to meet the $75,000 jurisdictional minimum. Judge Munley found that “[a] punitive damages award which is double the amount of the policy limit is reasonable and possible in such a case.” As remand is only proper when it appears to “a legal certainty that the plaintiff cannot recover, or was never entitled to recover, the jurisdictional amount [$75,000],” he denied the motion to remand.

The insured pleads a plausible bad faith claim where delays and refusal to pay the sum demanded are not mere disagreements over valuation

Judge Munley observed the insured alleged a severe injury, with damages beyond the tortfeasor’s coverage limits. The insured’s UIM coverage was $25,000, which the defendant carrier refused to pay. Judge Munley concluded the case, as pleaded, was not merely a disagreement over claim valuation, but made out a plausible bad faith claim.

The following averments were sufficient to survive the insurer’s motion to dismiss:

  1. “The amended complaint avers that defendant failed to effectuate a prompt fair and equitable settlement of plaintiff’s claim and compelled her to seek legal redress and commence litigation to recover the benefits to which she was entitled.”

  2. “Further, defendant ignored and discounted the severity of plaintiff’s injuries.”

  3. “Also, defendant did not promptly evaluate the claim, but rather engaged in dilatory and abusive claims handling by delaying the valuation of plaintiff’s claim and failing to pay the claim.”

  4. “The amended complaint also suggests that defendant failed to timely investigate or to make a reasonable settlement offer.”

  5. “Defendant further delayed by asking for authorization to receive medical records which were already in its possession.”

The court also refused to dismiss an attorney’s fee demand under the breach of contract count, as such fees might prove permissible under the Motor Vehicle Financial Responsibility Act (MVFRL).

Dates of Decision: July 1, 2019

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109378 (M.D. Pa. July 1, 2019) (Munley, J.)

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109377 (M.D. Pa. July 1, 2019) (Munley, J.)

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

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

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

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

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

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

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

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

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

Date of Decision: June 20, 2019

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

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.)

BAD FAITH CLAIM CAN PROCEED AFTER COVERAGE CLAIM DISMISSED AS UNTIMELY; PRO SE PLEADING ADEQUATE TO AVOID DISMISSAL (Philadelphia Federal)

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As we have discussed on this Blog for many years, case law is divided on whether statutory bad faith can exist if no coverage is due. We addressed this in some detail within this October 2018 post, summarizing a federal case where the court stated that Pennsylvania law allows for statutory bad faith even in the absence of any coverage obligation. In that October 2018 post, we additionally noted the presence of case law that would allow a bad faith claim to proceed where coverage is not due for procedural reasons, e.g., an otherwise covered claim is barred by a contractual limitations period. By contrast, this even more recent post summarizes an opinion, from the same federal court, finding there can be no bad faith if no coverage is due.

Linked here is a detailed article addressing whether Pennsylvania’s bad faith statute only addresses bad faith coverage denials and refusals to defend, and does not provide relief for poor claims handling or the like when these underlying benefits are not due. Under this view, poor claims handling or communications failures are evidence of statutory bad faith in denying benefits, but such conduct is not actionable (cognizable) statutory bad faith in itself.

BAD FAITH CLAIM CAN PROCEED EVEN IF COVERAGE NOT DUE UNDER CONTRACTUAL LIMITATIONS PROVISION

In the present case, arising out of the very same federal court as the aforementioned cases, the insured’s breach of contract claim was dismissed as time-barred by the policy’s suit limitation clause. The court, however, permitted the bad faith action to proceed. Specifically, the court stated: “Because Plaintiff asserts bad faith as to conduct beyond [the carrier’s] denial of coverage, the Court must consider the sufficiency of Plaintiff’s bad faith claim even though Plaintiff’s breach of contract claim is time-barred.”

The court quoted from footnote 3 of the 2017 Dagit case: “It is well established that a claim for bad faith brought against an insurer 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.”

[Note: Dagit relies on cases such as Doylestown Electric Supply Co. v. Maryland Casualty Insurance Co., 942 F. Supp. 1018 (E.D. Pa. 1996), March v. Paradise Mutual Insurance Co., 646 A.2d 1254 (Pa. Super. Ct. 1994), and the Third Circuit’s unpublished opinion in Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 244 F. App’x 424 (3d Cir. 2007). As in the present case, Doylestown Electrical and March involved contractual suit limitations provisions barring coverage, and not lack of coverage under substantive policy provisions. Gallatin Fuels addressed the extraordinary situation where the policy was not in effect at the relevant time, but the court held the bad faith statute still applied because the insurer believed it had a policy in effect and acted poorly while holding that belief. These cases are addressed in the article linked here and above.]

INSURED ADEQUATELY PLEADS BAD FAITH

After finding the bad faith claim could proceed, the court still had to address the complaint’s adequacy. It found the bad faith claim adequately pleaded, stating:

[The insurer] argues that [the insured] does not provide any facts to support his allegation that [the insurer] acted in bad faith by denying him coverage under the insurance policy for the damage sustained to his home by the snowstorm. … To the contrary, [the insured] sets forth a myriad of facts to support his claim. For example, [the insured] alleges he was given contradictory information by [the insurer’s] agents as to the coverage of his policy and how he could collect under his policy and subsequently appeal [the insurer’s] denial of that coverage, which he relied upon to his detriment. … [The insured] also alleges that he was instructed to file multiple claims, which caused him to pay multiple deductibles and which ultimately discredited his claim. … In holding [the insured’s] Second Amended Complaint to a “less stringent standard,” as required of the Court in light of [his] pro se representation, the Court finds that [the insured] sufficiently alleged a claim for bad faith and Defendant’s Motion to Dismiss is denied as to this claim.

Date of Decision: May 10, 2019

Nguyen v. Allstate Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-5019, 2019 U.S. Dist. LEXIS 79822 (E.D. Pa. May 10, 2019) (Kenney, J.)

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.)

BAD FAITH ADEQUATELY PLEADED IN RAISING BIAS ON PART OF INSURER’S EXPERT (Middle District)

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As we posted earlier today, the theme is plaintiffs adequately pleading bad faith claims in federal court.

In this second post, the insured set out plausible bad faith claims in this property damage case by making specific factual allegations. The key assertions were that the insurer improperly “hired, retained and relied upon the opinion of an engineer or other professional knowing that such opinion would be favorable to [the insurer] on a financial incentive basis; and (2) disregarded information provided to it from the Plaintiffs that [the insurer’s] inspection and engineering report was inadequate, flawed, and erroneous.”

The court found the “complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute. Rather, as we construe the complaint, it provides a chronology detailing alleged failures … to evaluate this claim in good faith. Instead, according to the plaintiffs [the insurer] relied upon false justifications to deny their claim; under-valuated their property; failed to account for the loss of use of the property; and demonstrated bad faith in its investigation of this insurance claim in 14 different ways, including specific allegations that [the insurer]: (1) hired, retained and relied upon the opinion of an engineer or other professional knowing that such opinion would be favorable to Allstate on a financial incentive basis; and (2) disregarded information provided to it from the Plaintiffs that Allstate’s inspection and engineering report was inadequate, flawed, and erroneous.”

The issue of the expert’s alleged financial bias could not be resolved in a judgment on the pleadings. “Thus, the plaintiffs’ complaint raises questions of motivation and bias which cannot be resolved on the pleadings alone. Therefore, the task of determining whether this expert report provides a defense as a matter of law to the bad faith claim in this case, in our view, may not be performed on consideration of a motion for judgment on the pleadings, where we must simply assess the adequacy of the pleadings. Instead, assessment of any such defense must await a properly documented motion for summary judgment.”

Date of Decisions: January 8, 2019 (Report and Recommendation), adopted by District Court on April 25, 2019

Flower v. Allstate Property & Casualty Insurance Co., U.S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-1321, 2019 U.S. Dist. LEXIS 4096 (M.D. Pa. Jan. 8, 2019) (Carlson, M.J.) (Report and Recommendation), adopted by District Judge Mariani on April 25, 2019