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

SUPERIOR COURT AFFIRMS TRIAL COURT’S BAD FAITH VERDICT, AND ITS REFUSAL TO AWARD PUNITIVE DAMAGES (Superior Court of Pennsylvania) (Non-precedential)

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After a non-jury trial, the Blair County Court of Common Pleas found the insurer violated the bad faith statute, and awarded statutory damages in the form of attorneys’ fees and super-interest. It declined, however, to award punitive damages under the statute.  The insurer appealed the bad faith verdict, and the insured appealed the decision not to award punitive damages.  The Superior Court rejected both appeals and affirmed the lower court.

Facts

This is another UIM bad faith case.

The accident occurred in 2000, and the driver’s carrier agreed with the insured that the other driver was 100% liable, and paid its full $100,000 UIM limits to the insured.  The tortfeasor’s carrier paid $50,000.

Over two years later, the insured sought UIM coverage from her mother’s carrier, the defendant insurer in this action. The defendant was affiliated with the driver’s own insurer, and had access to its investigation files.  Its UIM limit was $600,000. It valued the claim at $200,000 and offered $50,000 to settle the claim ($150,000 already having been paid by the tortfeasor’s carrier and the first UIM insurer).

The insured rejected the offer, and initiated a bad faith action in 2003, which it held in abeyance while the UIM case was pending. The insurer paid the undisputed $50,000.

Later in 2003, the insured received a PTSD diagnosis and send additional medical records to the insurer.  The insurer received the medical records, but denied having received them. The defendant insurer took the position that the diagnosis was unrelated to the 2000 accident, and its $200,000 remain unchanged, having failed to receive any medical records (which it in fact had received, however). It then initiated the UIM arbitration process in 2004.

The defendant carrier informed its arbitration defense counsel the other driver was 100% at fault.  Months later the carrier’s counsel said he had spoken to the other driver, based on that interview the accident could have been the insured’s fault, and the arbitrator might rule for the carrier on the UIM claim.  The attorney’s opinion was based solely on the other driver’s rendition of the facts, and not any expert report or investigation other than interviewing the other driver.  The carrier itself did not obtain a reconstruction expert report on the accident.

The carrier, however, was sufficiently persuaded. It took the position in late 2004 that the insured might have comparative negligence up to 50%, but not more. By early 2005, however, the carrier took the position that the accident was 100% the insured’s fault.

The carrier delayed the arbitration by filing a declaratory judgment action seeking to limit the range of damages the arbitrator could award. This case was dismissed on preliminary objections. The carrier further delayed the arbitration by seeking evidence of the insured’s post-accident motor vehicle record, fall-downs, alcoholism and depression.

Eight years later, in 2013, the case finally went to arbitration, i.e., over 13 years after the accident and 8-9 years after the UIM arbitration process began. The arbitrator valued the insured’s injuries at $599,000, and awarded her $399,000. The arbitrator found no comparative negligence. [This was the same position the carrier had taken before late 2004.]

Arguments at trial

The bad faith case went to a non-jury trial in 2018, with a claim handler and the insurer’s UIM arbitration counsel as the sole witnesses.

The insured argued the carrier acted in bad faith when changing its position on the drivers’ comparative negligence, based solely on defense counsel’s interview of the other driver. The insured asserted that the carrier should have known the other driver was not credible, and should not have relied on his rendition of the facts to change its position because the other driver contradicted his own earlier statements to the investigators as to the accident’s cause. In response, the carrier appears to have asserted an advice of counsel defense.

The insured also argued bad faith in the carrier’s blanket refusal to consider subsequent psychological treatments, failure to conduct a full investigation by interviewing the investigating police officer before the UIM arbitration, failing to hire an accident reconstruction expert, and prolonging the proceedings for years in order to selectively reevaluate the claim after it learned the insured had various substance abuse issues, and a history of fall-downs, after the date of the underlying accident.

The trial court’s verdict

The trial court “found [the insurer] had acted recklessly and without a reasonable basis in continually valuing [the] claim at $200,000.” Further, the insurer “had improperly failed to reevaluate the claim to consider [the insured’s] psychological damages.” It was significant to the court that the insurer refused to consider the psychological claims based on the insured’s failure to transmit PTSD related documents, but “admitted at trial that it had received the medical records.”

The court also ruled against the carrier based on its changing positions as to the insured’s responsibility, rejecting the advice of counsel defense because the other driver’s 2004 rendition of the facts to defense counsel should not have been deemed credible based on that driver’s initial statements after the accident.

For nearly four years, after its own investigation and earlier interviewing the other driver, the insurer took the position that the insured bore no responsibility for the accident. The defendant insurer only began altering its liability position after defense counsel interviewed the underlying tortfeasor, who had changed his story.  Then, over a period of months, the insurer went from no comparative negligence, to maybe 50% comparative negligence at most, to a 100% negligence on the insured, solely based on the other driver’s interview with defense counsel.

The trial court observed the arbitrator ruled the other driver was not credible. Further, “[t]he trial court stated that although the arbitrator’s decision did not bind it, it recognized that the arbitrator was a ‘neutral, detached fact-finder’ and had not found [the insured] comparatively negligent at all.” The arbitrator also found substantial injuries. Thus, the “change of position on liability ‘represents a significant failure by [the insurer] in their ongoing responsibility to investigate and reconsider [its] position during [its] entire management of the claim.’”

The trial court further found the refusal to go above its $200,000 valuation for over a decade “was done with a purpose motivated by self-interest.” For example, the carrier failed to consider the psychological medical records admittedly in its possession.  It also failed to carry out a proper investigation and follow-up by not contacting the investigating police officer until the arbitration hearing, or hiring a reconstruction expert. Finally, the trial court found the carrier prolonged the proceedings in filing the declaratory judgment action based on the insured’s substance abuse and fall-downs after the 2000 accident.

Damages

The trial court awarded $24,650 in attorneys’ fees for the bad faith litigation, $125,000 in attorneys’ fees in connection with the UIM claim, and $125,000 in interest. It refused to award punitive damages.

Bad faith legal standards where insurer delays in paying benefits due

The Superior Court observed the following legal principles in rendering its verdict:

  1. “Ultimately, ‘[w]hen an insured obtains a bad faith verdict in a bench trial, appellate courts should only reverse in the most egregious of cases when the trial court has committed reversible error.’”

  2. “’The analysis of an insurance bad faith claim ‘is dependent on the conduct of the insurer, not its insured.’”

  3. Because ‘bad faith’ in this context stems from the duty of good faith and fair dealing implied in every insurance contract, the plaintiff need not prove the insurer acted with self-interest or ill-will.”

  4. “In order to prevail under the bad faith statute, 42 Pa.C.S.A. § 8371, ‘the plaintiff must present clear and convincing evidence (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.’”

  5. “An action for bad faith is not restricted to the outright denial of a claim, but rather encompasses ‘all instances of bad faith conduct by an insurer.’”

[Note: The Court cited the Superior Court’s decision Rancosky v. Washington National Insurance Co., and not the Supreme Court’s Rancosky decision, to support this point.  As discussed many times on this Blog, there is a real issue as to whether section 8371 encompasses claims that do not involve the denial of a benefit actually due, i.e., is there any cognizable statutory bad faith cause of action when the insurer does not actually owe the insured any duty to pay first party benefits, or to defend or indemnify third party claims.  See, e.g., this post.]

  1. The Superior court then added examples of bad faith, where a claim was not outright denied: “This includes a lack of good faith investigation, as well as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.’”

[Note: In this case, there is no dispute that some benefit was due from the insurer, just a dispute of how much was due and when.  In effect, the insured is arguing that there was a decade plus delay in paying a benefit actually due; and the court’s bad faith verdict is made in light of the insurer actually owing a benefit substantially greater than what the insurer offered to pay.]

  1. “An insurer must make a timely investigation in response to the claim, and not just for arbitration.”

  2. “Indeed, an insurer must reevaluate a claim when presented with new information.”

  3. “An insurer’s mere negligence does not constitute bad faith, and an insurer may make a low estimate of an insured’s claim, so long as it has a reasonable basis.”

  4. “[A]n insurer has committed bad faith where it ‘acted in a dilatory manner, and forced the insured into arbitration by presenting an arbitrary ‘low-ball’ offer which bore no reasonable relationship to the insured’s reasonable medical expenses,’ particularly where the ‘low-ball’ offer proved to be significantly lower than the arbitration award.”

Facts supporting the bad faith verdict

The Superior Court held the following facts supported the trial court’s finding of bad faith:

The insurer never changed its claim valuation over a ten year period from the claim’s submission through a UIM arbitration, “despite mounting evidence that [the insured’s] damages surpassed [that] $200,000 [valuation].” The trial court properly rejected the insurer’s argument that there was no valuation change over time because the insurer went from taking the position that the insured had no responsibility for her own injury, to being partially responsible, and finally to being deemed wholly at fault for her own injury.  The Superior Court agreed that the evidence did not show the valuation claim ever hinged on the insured’s alleged comparative negligence.

Rather, the record demonstrated that as the insurer’s “position on liability evolved, its valuation of the claim did not change. Rather, it put a $200,000 value on [the] claim from the outset, failed to consider evidence of her psychological damages, refused to modify the valuation, and now cites subsequent developments to justify its failure to adjust the valuation in light of the information it disregarded. That it may not have failed to consider the evidence and adjust the valuation purposefully or because of ill will does not undermine the trial court’s conclusion, as [the insured] did not need to prove such states of mind.”

Other factors collectively favoring bad faith were the insurer did not change its comparative liability position until preparing for the UIM arbitration; the insurer did not interview the police officer on the scene; and that the insurer “was unable hire a reconstruction expert for arbitration because too much time had passed is further indicative that it did not make adequate inquiry into the accident in a timely manner.”

The facts did not require the trial court to award punitive damages

The Superior Court ruled: “Although the [trial] court found [the insurer] acted in bad faith, and awarded attorneys’ fees and interest accordingly, we cannot say that it abused its discretion in not awarding punitive damages. The evidence was not such that we conclude that the court’s decision was manifestly unreasonable or the result of partiality, prejudice, bias, or ill will.”

The Superior Court made the point that section 8371 does not compel the Courts of Common Pleas to award punitive damages simply because there is a bad faith verdict.  Rather, punitive damages remain within the trial judge’s discretion.  Ill-will, reckless indifference, or some other sign of malign action might provide evidence in proving statutory bad faith, but this level of intent is not a required element of a statutory bad faith claim.
Thus, just an insured can make out a bad faith claim without having to prove the level of evil intent or outrageous conduct that forms the basis for punitive damages, a finding of bad faith does not automatically encompass conduct that would mandate a finding of punitive damages.   Here, the trial judge did not find the carrier’s intent was so outrageous that punitive damages were warranted, even though the court found the carrier knew or recklessly disregarded the fact that it was unreasonably denying the insured benefits due her.

No error in limiting discovery of “post-denial” conduct

Finally, the insurer appealed the trial court’s granting a protective order as to certain requests for admissions concerning “post-denial” conduct, covering a time period beginning with the April 2004 initiation of the UIM arbitration process.  The trial court found this conduct irrelevant to the insurer’s bad faith in denying the claim. The Superior Court affirmed, finding no abuse of discretion.

The insurer had the burden to show how it was prejudiced by the trial court’s excluding this evidence, but it never “specified what evidence it sought under the admissions requests that it did not receive, and how that alleged evidence would have affected its case.”

Date of Decision:  February 4, 2021

Sartain v. USAA, Superior Court of Pennsylvania No. 4 WDA 2020, 2021 WL 401954 (Pa. Super. Ct. Feb. 4, 2021) (Bender, McLaughlin, Musmanno, JJ.) (Non-precedential)

BAD FAITH CLAIM STATED WHERE COMPLAINT MAKES OUT CLAIM INSURER KNOWINGLY DENIED BENEFITS DUE (Philadelphia Federal)

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This case involves a discrepancy over whether an insured timely renewed his life insurance policy, two months before his death.  There was a dispute of fact over the date when the premium payment was mailed and received.

The carrier insisted the premium check was not mailed and received before the date necessary to maintain the policy. It deposited the insured’s payment check, but later returned the payment sum and deemed the policy lapsed on the basis the payment was outside the policy’s grace period. The beneficiary children, through their mother, alleged the check in fact was mailed and received within the grace period for premium payments. They sued for breach of contract and bad faith.

The insurer moved for judgment on the pleadings as to both counts.

First, the court denied judgment on the pleadings regarding the breach of contract claim. There was a dispute of fact over the mailing and receipt dates that could not be resolved via a motion for judgment on the pleadings.

Judge Slomsky then rejected the motion to dismiss the bad faith claim.

The plaintiffs alleged the insurer denied their claims without a reasonable basis, knowing that it had in fact received the insured’s premium payment during the grace period for continuing the policy. Further, the plaintiffs adequately alleged the insurer “knew of or recklessly disregarded the lack of reasonable basis because it knew [payment was timely] when it received and deposited the July Payment [from the deceased insured].”  Despite this knowledge, the insurer “refused to pay the Policy’s benefits and never issued a denial letter.”

In denying the motion, Judge Slomsky concluded that, “[a]t this stage, viewing the facts in the light most favorable to Plaintiffs, they are sufficient to raise an inference that [the insurer] refused to pay under the Policy in bad faith.”

Date of Decision: January 21, 2021

Mullin v. Reliastar Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1438, 2021 WL 210962 (E.D. Pa. Jan. 21, 2021) (Slomsky, J.)

NO BAD FAITH FOR EVEN NEGLIGENT CLAIM HANDLING, AND WHERE INSURER’S POSITION WAS SUPPORTED BY AN EXPERT (Philadelphia Federal)

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This UIM bad faith case had survived a motion to dismiss, but summary judgment ended the plaintiff’s bad faith claim.

Eastern District Judge Leeson had originally allowed the bad faith claim to proceed, as plaintiff had alleged more than a valuation dispute.  Our prior blog post can be found here.

The present bad faith summary judgment motion was before Magistrate Judge Perkin. His opinion goes through the claim handling history in minute detail.  Among other things, it shows nearly a year passed before the insured provided the claim handlers with all medical records and details on the specific injuries for which he was seeking full UIM policy limits.  The record shows the insurer assigned a specialist in medical resources (SMR) to review the medical file, and later had a medical examination performed by a physician. Discovery appeared to show potential errors in the SMR’s evaluation.

Based on the medical reviews, the insurer had not paid its full UIM limits, as plaintiff demanded, at the time suit was filed.  The insured challenged the conclusions of both the SMR and the physician on the origin and scope of his injuries in bringing the bad faith claim.

Magistrate Judge Perkin observed that an “insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”  Thus, “[e]ven if Defendant’s claims-handling processes were not ideal, there is no evidence in the record, let alone clear and convincing evidence, to indicate that Defendant’s purported mishandling of Plaintiff’s claim was motivated by a dishonest purpose or ill will.”

Citing older case law, the court states, “while under Pennsylvania law bad faith may extend to an insurer’s investigation and other conduct in handling the claim, that conduct must ‘import a dishonest purpose.’” “Invariably, this requires that the insurer lack a reasonable basis for denying coverage, as mere negligence or aggressive protection of an insurer’s interests is not bad faith.”

[Note: In 2017, Pennsylvania’s Supreme Court made clear in Rancosky that “we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” A link to our Rancosky summary can be found here.]

Applying this law to the facts, Magistrate Judge Perkin found that “[a]lthough the plaintiff disagrees with the conclusions of both [the SMR and the carrier’s physician], it is clear that [the carrier] had a reasonable basis to value the claim based, at a minimum, on [the physician’s] report.” Assuming that the SMR “performed an insufficient and incorrect medical review of Plaintiff’s case, Defendant did not deny Plaintiff’s claim based upon that review, but rather continued its investigation of Plaintiff’s claim. Moreover, it is not apparent on the record that Defendant has ever denied coverage to Plaintiff.”

As to how the insurer handled the various bodily injury claims, the plaintiff’s doctors had sourced these all to the auto accident at issue, while the carrier’s physician only identified some of these injuries as being caused by the accident. Thus, Magistrate Judge Perkin found:

“Similarly, the fact that the plaintiff’s experts relate all of the plaintiff’s right knee and left ankle complaints to the accident does not provide a basis for bad faith. Defendant retained [an] orthopedic surgeon … to perform an independent medical examination and records review. After completing same, [defendant’s surgeon] concluded that that only the plaintiff’s initial meniscal tear and resultant arthroscopic surgery were related to the accident. None of the plaintiff’s left ankle complaints/treatments, or additional right knee treatment, was accident-related. Accordingly, [the carrier] had a reasonable basis for its claim handling.”

Date of Decision:  January 13, 2021

Perez-Garcia v. State Farm Mutual Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania, No. CV 18-3783, 2021 WL 131343 (E.D. Pa. Jan. 13, 2021) (Perkin, M.J.)

COURT FINDS LOW OFFER IN FACE OF VERIFIED LOSSES SUFFICIENT TO STATE A BAD FAITH CLAIM (Middle District)

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Middle District Magistrate Judge Carlson’s Report and Recommendation, adopted by Judge Mariani, provides a lucid and detailed overview of the case law governing pleading standards in statutory bad faith cases. A copy of that R&R can be found here.

In this UIM case, Magistrate Judge Carlson found the insured pleaded enough to survive a motion to dismiss the bad faith claim, though it was a close case. He states:

“In reaching this conclusion, we find that [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 describes a scenario in which the plaintiff … suffered injuries that led to a confirmed and verifiable wage loss and out-of-pocket medical expense totaling $31,773.70. [The insured] recovered $30,000 from the under-insured motorist’s insurance carrier, but when he submitted proof of his losses to his own insurer … he was offered only $1,500, a sum which, when combined with the $30,000 payment from the tortfeasor’s insurance company, still fell below his verified wage and out-of-pocket medical expenses.”

[Note:  Although the discrepancy between the fixed damage claim and total insurance payments received and offered is only $223.70, in addition to the wage loss and medical expenses the insured pleaded “significant injuries to multiple levels of his neck and back which caused or aggravated herniated discs and required multiple pain injections.”]

Magistrate Judge Carlson continues:

“In our view, 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. Rather, they allege a failure to pay the full, verified value of the insured’s claim. On this score, we recognize that a bad faith denial of an insurance claim may constitute a violation of § 8371, but in this setting, [i]n order to show bad faith, a claimant must ultimately establish by clear and convincing evidence both that: 1) the insurer lacked a reasonable basis for denying benefits; and 2) the insurer knew or recklessly disregarded its lack of reasonable basis.” (Internal quotation marks omitted)

“While this is an exacting burden of proof, these bad faith determinations are often fact-bound decisions that are not amenable to resolution on the pleadings alone. Instead, [i]n deciding whether an insurer had a reasonable basis for denying benefits, a court should examine what factors the insurer considered in evaluating a claim. ‘Bad faith claims are fact specific and depend on the conduct of the insurer vis à vis the insured.” (Internal quotation marks omitted)

“Thus, while [the insurer] vigorously disputes these averments of bad faith and argues that the facts alleged by the plaintiffs support a prudent effort on its part to thoroughly examine and resolve a potentially meritless claim, 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. Accordingly, we should decline this invitation to resolve this bad faith claim as a matter of law on the pleadings but deny this motion without prejudice to renewal of any summary judgment motion at the close of discovery.”

Dates of Decision: December 8, 2020 (Report and Recommendation), December 23, 2020 (Order Adopting Report and Recommendation)

Mertz v. Mid-Century Insurance Company, U.S. District Court for the Middle District of Pennsylvania No. 3:20-CV-690, 2020 WL 7647959 (M.D. Pa. Dec. 8, 2020) (Carlson, M.J.) (Report and Recommendation), adopted on December 23, 2020 (Mariani, J.)

INSURED ADEQUATELY PLEADED UNREASONABLE DENIAL/DELAY, BUT NOT KNOWLEDGE OR RECKLESS DISREGARD; UIPA/UCSP NOT BASIS FOR BAD FAITH (Philadelphia Federal)

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The insurer successfully moved to dismiss a UIM bad faith claim. While the plaintiff pleaded sufficient facts to show the insurer’s conduct was unreasonable, plaintiff failed to sufficiently plead that the insurer’s conduct was knowing or reckless.

Factual Background

The complaint alleged that after settling with the tortfeasor, the insured demanded UIM policy limits from her own carrier. The demand was in writing, accompanied by medical documents, and requested a response in 30 days. There was no response in 30 days, and the insured sent another demand on the 32nd day, and again a month after that.  The carrier’s adjuster responded to the third demand, on the day it was sent, that the carrier did not agree with plaintiff’s valuation of her injuries. On that same day, the insured also requested a copy of the policy, which the carrier initially refused to provide, but eventually sent almost six weeks later. The Insured made more requests for documents she alleges were relevant, but received no response.

She pleads she was never provided “with (1) a written explanation for the delay in investigating her UIM claim, (2) any indication of when a decision on the claim might be reached, or (3) any written explanation on the status of her claim.” Instead, over six months after her original demand, the insurer made a written demand to arbitrate the UIM claim.

Thus, the only two communications in the six-month period were to dispute valuation and demand arbitration.

The insured sued for breach of contract and bad faith. The carrier moved to arbitrate the UIM claim, and to dismiss the bad faith claim. The court granted the motion to arbitrate, and stayed the insured’s coverage claim pending arbitration.  It dismissed the bad faith claim.

Alleged Bases for Bad Faith

The insured alleged seven bases for her bad faith claim:

  1. “failing to promptly and reasonably determine the applicability of benefits;”

  2. “failing to pay benefits or settle her UIM claim;”

  3. “unreasonably delaying payment;”

  4. “failing to provide a copy of the … Policy when requested;”

  5. “failing to respond to multiple attempts at communication;”

  6. “unreasonably delaying evaluation of her claim;” and

  7. “violating the Unfair Insurance Practices Act (“UIPA”), 40 P.S. § 1171.1 et seq., and the Unfair Claims Settlement Practice (“UCSP”) Guidelines, 31 Pa. Code § 146.1 et seq., by failing to complete claim investigation within thirty days or, if unreasonable, to provide a written explanation and an expected date of completion every forty-five days thereafter.”

Bad Faith Standards and First Element of Bad Faith

The court observed two factors are needed to prove bad faith, as approved in Rancosky: the insured must show “(1) 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.” Judge Quiñones Alejandro stated that the first element covers a range of insurer conduct, such as “an insurer’s lack of good faith investigation or failure to communicate with the claimant regarding UIM claims[, … or] where the insurer delayed in handling the insured’s claim.”

The insured pleaded enough to support a plausible claim for unreasonable conduct in denying the claim. She “alleged that during the nearly six months between Plaintiff initially filing her UIM claim and [the insurer] making a written arbitration demand, Plaintiff’s counsel attempted to communicate … on at least five separate occasions for any update on the status of Plaintiff’s claim.” The insurer only responded once to dispute valuation and then three months later to demand arbitration.  This was enough to make out a claim for “unreasonable delay to investigate and settle Plaintiff’s claim.”

Second Element of Bad Faith Not Met

Proving knowledge or reckless disregard goes beyond mere negligence or poor judgment. Pleading “the mere existence of the delay itself is insufficient.” “Rather, a court must look to facts from which it can infer the defendant insurer ‘knew it had no reason to deny a claim; if [the] delay is attributable to the need to investigate further or even simple negligence, no bad faith has occurred.’” “In cases involving delay or failure to investigate or communicate, courts have found the length of the delay relevant to an inference of knowledge or reckless disregard.” Judge Quiñones Alejandro cited examples of cases with more than one and two year investigation delays.

She went on to find the insured did not plead a plausible claim of knowing or reckless disregard in denying or delaying payment. “In bad faith cases premised on an insurer’s delay and failure to communicate, courts have generally only inferred plausible knowledge or reckless disregard where the time periods of delay were much longer than six months.” She cites the Superior Court’s Grossi decision (one year delay), and Judge Leeson’s January 2020 Solano-Sanchez decision (two year delay) as other examples.

By contrast, “[h]ere, the time lapse before [the insurer] acted on Plaintiff’s claim by seeking arbitration was roughly six months. Further, nothing in Plaintiff’s complaint attributes this time period to [the insurer’s knowledge or reckless disregard of a reasonable basis for denying (or delaying) the claim, as opposed to ‘mere negligence’ or even an actual need to investigate. Without a longer delay more consistent with the delays established in the aforementioned precedent, or other factual allegations from which this Court could infer that Travelers acted with knowledge or reckless disregard of the unreasonableness of its actions, Plaintiff has not pled facts sufficient to plausibly allege the second element of her bad faith claim. Therefore, Plaintiff’s bad faith claim is dismissed.”

UIPA or UCSP Violations Cannot Form Basis for Bad Faith Claims

In addressing the bad faith claims, the Court observed, “alleged violations of the UIPA or UCSP cannot per se establish bad faith and have not been considered by Third Circuit courts.” Judge Quiñones Alejandro cites the Third Circuit’s decisions in Leach (“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.’”), and Dinner v. U.S. Auto. Ass’n Cas. Ins. Co., 29 F. App’x 823, 827 (3d Cir. 2002) (holding that alleged UIPA or UCSP violations are not relevant in evaluating bad faith claims), as well as the Eastern District decision in Watson (“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.’).”

Date of Decision: December 7, 2020

White v. Travelers Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2928, 2020 WL 7181217 (E.D. Pa. Dec. 7, 2020) (Quiñones Alejandro, J.)

Over One Million Dollars Awarded in Bad Faith Damages (Lehigh Common Pleas)

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The excellent Tort Talk Blog posted today on Judge Melissa T. Pavlack’s bad faith ruling in Unterberg v. Mercury Insurance Company. Judge Pavlack awarded $900,000 in punitive damages and $186,879.50 in attorneys’ fees, interest of $7,427.39, and costs of $3,595.35.  The underlying damages for breach of contract were $21,220.48. Thus, the total compensatory damages were $219,122.72, and punitive damages were based on this figure.

Our thanks to Tort Talk’s Daniel Cummins, Esquire for posting a summary of this case, and attaching a copy of Judge Pavlack’s opinion with her detailed reasoning.

PLAUSIBLE BAD FAITH WHERE INSURER’S POSITION RESULTS IN ILLUSORY COVERAGE; NO BAD FAITH WHERE NO COVERAGE DUE (Western District)

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This case centers on a dispute between the insureds and their homeowners carrier over whether the carrier had agreed to policy limit increases based on a multi-million dollar renovation.  The court details a series of alleged telephone communications between the insureds and the carrier, which the insureds claim committed the carrier to the policy limit increases.  This all occurred before the fire loss at issue.

In addition, the policy included a provision for “Home Protection Coverage”. This provision provides for a 25% coverage extension on existing policy limits.  “Essentially, the Home Protector Coverage’s purpose is to provide extended coverage in the event a homeowner’s losses exceed the policy’s coverage limits.”  The insureds also they did everything necessary for the Home Protection Coverage to be in place at the time of their fire loss.

The carrier asserted to the contrary that there was both no evidence properly documenting an increase in policy limits, or that the insureds met the requirements needed to receive the Home Protection Coverage. The insurer rejected claims for the higher limits and the Home Protection Coverage, and the insureds sued for breach of contract, statutory bad faith, promissory estoppel, and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL).

Breach of Contract Claims Partially Survive

The court dismissed the breach of contract claim for extended policy limits, without prejudice. There was no plausible claim that a contract existed as such or through the reasonable expectations doctrine.

However, the court found the breach of contract claim for the “Home Protection Coverage” stated a plausible claim.  The court held that to find otherwise would make the relevant policy language illusory.

BAD FAITH

The court set forth various principles on statutory bad faith, though incorrectly stating that the insured must demonstrate some motive of self-interest or ill will.

Plausible Bad Faith Claim Stated for Pursuing Argument that would make Coverage Illusory

The court found the insureds stated a plausible bad faith claim as to the denial of Home Protection Coverage. The insureds alleged they paid their premiums, gave notice of renovations, and timely submitted their coverage claims. “Plaintiffs thus assert that Defendant ‘unreasonably denied the benefits’ and ‘had knowledge of their lack of reasonable basis for denying benefits.’”

More specifically, at the pleading stage, the Court had already “rejected carrier’s interpretation of the Home Protector Coverage … and thus cannot accept Defendant’s argument that its basis for denial of Home Protector Coverage was reasonable because Plaintiffs ‘could not show that their property was fully insured for replacement cost at policy inception.’ …. Such an interpretation would construct an illusory promise of coverage, which the Court has already determined it should not entertain.”

Failure to State Plausible Bad Faith Claim where no Coverage is Due

As to the bad faith claims concerning extending the policy limits, the Complaint did not set out a plausible claim.  As stated above, the court ruled the insureds failed to plead a plausible claim for breach of contract on extending policy limits through the various telephone communications or failing to reschedule an inspection. “As such, the Court agrees with Defendant that in ‘the absence of insurance coverage, there can be no bad faith by the insurer as a matter of law.’” As with the contract claim, dismissal was without prejudice.

Promissory Estoppel and UTPCPL

The court rejected that promissory estoppel could create or increase insurance coverage.  It allowed the claim to proceed, but solely as to amending allegations that could go to the breach of contract claims.

The court agreed that the UTPCPL could not create liability for claims handling. It was not clear to the court, however, whether the alleged deceptive conduct occurred at times other than during claims handling.

The court then carries out a fairly detailed analysis of significant UTPCPL concepts such as malfeasance vs. nonfeasance, pleading intent, pleading with particularity, and whether the gist of the action doctrine might apply.

The court concludes, “while Plaintiffs’ averments of deceptive conduct are not categorically barred by the UTPCPL to the extent set out above, Plaintiffs have not pled their claim with the level of particularity required by Pennsylvania law. Accordingly, the Court grants Defendant’s Motion to Dismiss … without prejudice and with leave to amend.”

Date of Decision: September 24, 2020

Luketich, v. USAA Casualty Insurance Company, U.S. District Court for the Western District of Pennsylvania No. 2:20-CV-00315, 2020 WL 5669017 (W.D. Pa. Sept. 24, 2020) (Hornak, J.)

BAD FAITH CLAIM IS RIPE TO PROCEED; COURT REJECTS MOTION TO BIFURCATE OR SEVER (Philadelphia Federal)

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In this underinsured motorist bad faith case, Eastern District Judge DuBois denied both a motion to dismiss on ripeness grounds, and an alternative motion to server or bifurcate.

The complaint alleges the tortfeasor had $50,000 in coverage and the plaintiff/insured had $500,000 in UIM coverage. The tortfeasor agreed to settle at $47,000 and the UIM carrier consented. Plaintiffs alleged severe and permanent injuries and pursued a UIM claim.

Specifically, the insureds allege they complied with all policy terms and conditions; the insurer did not tender any UIM benefits or make any settlement offers; the insurer did not conduct any investigation into the claims; and the insurer played “cat and mouse” games by “continuously and systematically failing to communicate any offer of settlement or denial of benefits,” misleading plaintiffs as to potential settlement on at least nine occasions, and “purposefully ignoring [plaintiffs’] demand for underinsured motorist benefits.”

BAD FAITH CLAIM CAN PROCEED

First, Judge DuBois rejected the argument that the bad faith claim was not ripe until the breach of contract claim was actually decided. Among other things, the court stated: “Success on a statutory claim for bad faith does not necessarily depend on the success of the underlying breach of contract claim.” Relying on a 1996 Eastern District decision, the court quotes: “A claim for bad faith brought pursuant to § 8371 is a separate and distinct cause of action and is not contingent on the resolution of the underlying contract claim. A plaintiff may succeed on its bad faith claim even if it fails on the underlying breach of contract claim. Additionally, courts interpreting § 8371 have consistently entertained multi-count complaints containing both unresolved insurance contract disputes and bad faith claims.”

The court further relies on the unpublished Third Circuit decision, Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., in reasoning that “’[a] finding that the insured did not ultimately have a duty to cover the plaintiff’s claim does not per se make the insured’s actions reasonable’ in hindsight.” Judge DuBois concludes: “Therefore, so long as the underlying contract claim is ripe, the bad faith claim is also ripe.”

After finding the claim ripe, the court finds plaintiffs can proceed on their bad faith claim. “Plaintiffs allege defendant acted in bad faith by failing to properly investigate their insurance claim, engage in settlement discussions, and communicate with them. This is ‘a separate and distinct’ cause of action from plaintiff’s claim that defendant breached the terms of the policy in failing to pay UIM benefits. … As such, a finding that defendant does not owe plaintiffs UIM benefits would not mandate a finding that defendant did not act in bad faith in handling the insurance claim.”

[Note: This opinion does not address the impact of the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company in determining to what extend a statutory bad faith claim can proceed, if at all, when there is no duty to pay any benefits under the policy. Moreover, we have previously observed that Gallatin Fuels never addressed Toy. These issues have been discussed many times on the Blog, most recently here.

Of special note is Judge DuBois’ 2019 decision in Buck v. GEICO, which appears to emphasize, and confirm, the denial of a benefit as a predicate to statutory bad faith claims. Among other things, the Buck opinion looks to Toy as a leading authority, and not Gallatin Fuels. The Buck opinion includes language, in quotes below, stating:

“Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. ‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.’”

“Courts in Pennsylvania and the Third Circuit have consistently held that ‘[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.’”

The Buck plaintiff could not state a claim because “[n]one of the ‘benefits’ that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he ‘does not allege bad faith for refusal to pay benefits.’”

Buck observes that cases have held “’section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.’” This means, however, that bad faith claims “’need not be limited to the literal act of denying a claim.’”

Rather, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” “Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”]

In the present case, there seems to be no question that UIM coverage is provided, but only whether the plaintiff’s damages reach into the UIM coverage level or stop below $50,000. The insurer does not appear to challenge whether a plausible bad faith claim has been pleaded with adequate factual allegations, but only that the bad faith claim should not be allowed to proceed because it is not ripe. The court concludes that the UIM bad faith claim is ripe and can proceed.

MOTION TO BIFURCATE OR SEVER DENIED

The Procedures and Standards Governing Contract and Bad Faith Claims do not Favor Bifurcation or Severance.

Judge Dubois first rejected the argument that the claims should be severed or bifurcated because they will be governed by different procedures and standards. First, the carrier incorrectly argued that the contract and loss of consortium claims go to a jury while bad faith is decided by the judge. While true in Pennsylvania state court actions, bad faith claims can go to the jury in federal court cases. Next the court rejected the notion that the jury would be confused in applying the preponderance of the evidence standard to the contract claim and clear and convincing evidence standard to the bad faith claim. Judge Dubois also rejected the argument that the facts at issue on the two claims were entirely distinct.

“For example, one of plaintiffs’ assertions in the bad faith claim is that defendant failed to conduct an adequate investigation into plaintiffs’ injuries. This requires inquiry into two facts (1) the extent of plaintiffs’ injuries, and (2) the extent of defendant’s investigation into those injuries. The breach of contract claim also requires inquiry into the extent of plaintiffs’ injuries. A separate trial on the bad faith claim would require plaintiffs to present much of the same evidence to the second jury, ‘duplicating in many respects the presentation to the first jury.’ This would be expensive and time-consuming for all parties. Because of the factual overlap between the claims, it would be more convenient to have a single trial in this case. Accordingly, the convenience factor weighs against severance or bifurcation.”

There is no Prejudice Because the Work Product Doctrine Remains Functional.

As to prejudice, the insurer focused on protecting work product. Judge Dubois states: “On this factor, defendant contends that allowing discovery and trial for the claims to proceed simultaneously would prejudice defendant because discovery in the bad faith claim would require defendant to disclose the claim adjustor’s mental impressions, conclusions, and opinions as to the merits of the case, evidence that is not discoverable in the breach of contract case. … To the extent that the claim adjustor’s work product is protected, defendant’s argument is unconvincing.”

Judge Dubois joins the vast majority of opinions finding the attorney client privilege and work product doctrine do not fall by the wayside simply because an insured brings a bad faith claim: “The Federal Rules of Civil Procedure and longstanding judicial precedent protect work product from disclosure—protections that do not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim. Allowing the claims to proceed simultaneously simply means [defendant] will be called upon to prove its entitlement to work product protection….”

Judicial Economy Favors a Single Action

As to judicial economy:

“Defendant’s argument as to this factor is that, should plaintiffs fail on their breach of contract claim, the bad faith claim will be moot. As explained above, that is an incorrect statement of the law. Plaintiffs’ bad faith claim is based, in part, on defendant’s failure to investigate plaintiff’s insurance claims and communicate with plaintiffs regarding their claims. ‘A finding that the [insurer] did not ultimately have a duty to cover the plaintiff’s claim does not per se make the [insurer’s] actions reasonable’ in hindsight. Gallatin Fuels, Inc., 244 F. App’x at 434-35. Whether defendant ultimately owes plaintiff benefits under the policy is distinct from whether defendant appropriately handled the claims.” [See Note above re Toy v. Metropolitan and Buck v. GEICO.]

“To the contrary, a single trial promotes judicial economy because it avoids duplication of effort by the parties across multiple trials. Although the contractual and bad faith claims present distinct legal issues, the underlying facts overlap. Therefore, “[b]ifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pretrial motions, and a completely separate trial,” much of which would concern the same factual basis. … Accordingly, the judicial economy factor weighs against severance or bifurcation.”

Date of Decision: September 11, 2020

Dunleavy v. Encompass Home & Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1030, 2020 WL 5501200 (E.D. Pa. Sept. 11, 2020) (DuBois, J.)

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.)