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

INSURED ADEQUATELY PLEADS BAD FAITH (Middle District)

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In this UIM breach of contract and bad faith case, the insured alleged a series of physical injuries after being rear-ended at a red light. The insurer denied the UIM claim. The insurer moved to dismiss the bad faith count on the basis that plaintiff only set forth conclusory boilerplate allegations without any supporting facts. Judge Munley disagreed and denied the motion.

In denying the motion, the court found the following sufficient to survive a motion to dismiss:

Plaintiff’s complaint pleads facts indicating that defendant’s actions were unreasonable. Plaintiff alleges that he was injured in an automobile accident that was covered by the insurance policy. He further asserts that he made a claim for benefits under the policy and defendant was dilatory and abusive in the handling of the claim. … Plaintiff additionally claims that defendant failed to reasonably and adequately investigate the claim and failed to reasonably evaluate or review the medical documents and/or photographs which were in its possession. … Defendant failed to make an honest, intelligent and objective settlement offer. … The defendant, thus, compelled plaintiff to file suit and engage in litigation, when a reasonable evaluation of the claim would have avoided suit. … Moreover, the defendant failed to follow its own manual with regard to the evaluation and payment of benefits-and even failed to pay the undisputed amount owed.

We have previously summarized Judge Munley’s recent decisions in Castillo and Deluca reaching similar results.

Date of Decision: November 19, 2019

Ranieli v. State Farm Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:19cv1176, 2019 U.S. Dist. LEXIS 200380 (M.D. Pa. Nov. 19, 2019) (Munley, J.)

GENERAL ALLEGATIONS OF KNOWLEDGE OR RECKLESSNESS SUFFICIENT, AND THE INSURER’S INTENT CAN BE PURSUED IN DISCOVERY (Middle District)

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In his second bad faith opinion this week, Middle District Judge James Munley found bad faith adequately pleaded, and denied a motion to dismiss. The case involved an uninsured motorist claim. The insured suffered injuries, the insurer had $300,000 on its policy, and it appears the insurer refused to pay policy limits or make a payment meeting the insured’s demands.

First, on the reasonableness prong of the bad faith test, Judge Munley stated: “Plaintiff’s complaint pleads facts indicating that defendant’s actions were unreasonable. Plaintiff alleges that she was injured in an automobile accident that was covered by the insurance policy. … She notified defendant of the damages and provide it with sufficient documentation to support her claim, including updating records for ongoing medical treatment. … Defendant refused to make a reasonable offer of settlement despite plaintiff trying to work with it and despite the ‘mountain of evidence’ that she had provided. … ‘[D]espite the results of any investigations performed by [defendant] and the clear medical documentation supporting their claim for UM benefits, [defendant] has blatantly ignored the evidence, has done no further investigation and has simply denied [plaintiff] the recovery of appropriate UM benefits without explaining its reason for the denial. … These allegations are sufficiently specific to make out a claim for bad faith — at least with respect to the first prong, that defendant lacked a reasonable basis for denying the benefits at issue.”

The court rejected the argument that these allegations were akin to the failed pleadings in the Third Circuit’s 2012 Smith v. State Farm case. By contrast to the “much more general” allegations in Smith, and the exhibits attached to the Smith Complaint indicating there was no bad faith, the instant allegations “are much more specific and no exhibits indicate that the defendant acted in good faith.”

As to the second prong, i.e., whether the benefit denial was known to be unreasonable or its unreasonableness was recklessly disregarded, Judge Munley states: “Additionally, we find that plaintiff has sufficiently pled the second element of a bad faith claim, that is, that defendant knew or recklessly disregarded its lack of reasonable basis to deny the benefits. Plaintiff’s complaint makes a general allegation that defendant knew it had no basis to deny the claim. … We find that at this stage of the proceedings, such an allegation is sufficient to survive a motion to dismiss. This element goes to the knowledge and state of mind of the defendant. Plaintiff will not be able to fully inquire into such matters until discovery occurs in the case. Accordingly, we find that the motion to dismiss should be denied.”

Date of Decision: November 6, 2019

Deluca v. Progressive Advanced Ins. Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv1661 (M.D. Pa. Nov. 6, 2019) (Munley, J.)

INSURED ADEQUATELY PLEADS BAD FAITH CLAIM AGAINST THIRD LAYER INSURER (Middle District)

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There were three policy layers in this uninsured motorist case, concerning an opinion issued yesterday by Middle District Judge James Munley. Plaintiff alleged significant and permanent injuries, and she sought payment from the third layer insurer. This insurer had $60,000 in potential coverage and offered $1,000 to settle. The insured brought claims for breach of contract and bad faith.

The insurer moved to dismiss the bad faith claim. Judge Munley denied the motion to dismiss, after examining the allegations against the two elements of statutory bad faith: (1) reasonableness of the insurer’s benefit denial and (2) knowing or reckless disregard of that denial’s unreasonable nature.

First, Judge Munley found the following allegations sufficient to set forth a claim that the settlement position and claims handling were unreasonable:

“An inadequate investigation by the insurance company may lead to a claim of bad faith. Smith v. Allstate Ins. Co., 904 F. Supp. 2d 515, 524 (W.D. Pa. 2012). Count II, of the complaint alleges that the defendant, inter alia, failed to properly investigate plaintiff’s claims, refused to pay plaintiff’s claims without conducting a prompt, reasonable investigation based upon all available information, denied the claim without conducting a completely independent review of plaintiff’s injuries and damages, and caused unreasonable delay in all aspects of the handling of plaintiff’s claim. … Plaintiff further avers that the defendant lacked a reasonable basis for underestimating the value of plaintiff’s UM claim and denying benefits. … We find that these factual allegations, which we must accept as true at this stage of the proceedings, are sufficient to meet the first element, that is, defendant lacked a reasonable basis to deny the benefits.”

Next, Judge Munley found the plaintiff met the knowing or reckless disregard element, concluding: “Plaintiff’s complaint makes a general allegation that defendant knew it had no basis to deny the claim. … We find that at this stage of the proceedings, such an allegation is sufficient to survive a motion to dismiss. This element goes to the knowledge and state of mind of the defendant. Plaintiff will not be able to fully inquire into such matters until discovery occurs in the case. Accordingly, we find that the motion to dismiss should be denied.”

Date of Decision: November 4, 2019

Castillo v. Progressive Insurance, U.S. District Court Middle District of Pennsylvania No. 3:19cv1628, 2019 U.S. Dist. LEXIS 190834 (M.D. Pa. Nov. 4, 2019) (Munley, J.)

COURT ACCEPTS GENERAL ALLEGATIONS OF BAD FAITH CONDUCT AS ADEQUATE, BASED ON APPARENTLY LIMITED PLEADING OF UNDERLYING FACTS CONCERNING SEVERITY OF HARM AND LENGTH OF TIME WITH NO PAYMENT (Western District)

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

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

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

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

Date of Decision: October 24, 2019

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

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.)

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.)