Archive for the 'PA – Common Law Bad Faith (contractual or fiduciary basis)' Category

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

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

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

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

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

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

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

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

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

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

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

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

  1. The insured pleads a plausible bad faith claim.

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

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

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

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

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

Date of Decision: August 13, 2019

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

NEW JERSEY FEDERAL COURT WOULD ALLOW PA BAD FAITH CLAIM TO PROCEED ON BASIS THAT INSURER KNEW ITS REPRESENTATIVE MISREPRESENTED THE POLICY’S SCOPE PRIOR TO POLICY BEING ISSUED (New Jersey Federal)

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In this case, the insured alleged that promises made in selling a disability policy differed from the terms of the policy itself, to the insured’s detriment. Although a New Jersey federal action, the case involved Pennsylvania law, including the Pennsylvania bad faith statute. The insurer moved to dismiss the bad faith count, and well as claims for breach of the duty of good faith and fair dealing and fraud.

First, the court quickly dismissed the separate claim for breach of good faith and fair dealing as subsumed in the breach of contract claim.

As to the bad faith claim, the insured asserted in his brief the carrier was aware of prior misrepresentations by its sales representative about the scope of coverage. Therefore, the insurer could not in good faith enforce the terms of the policy that limited coverage more narrowly that the sales representative’s promises, which had induced the insured to purchase the policy.

The factual basis of these allegations was that the insurer had been sued before on the same basis, and the sales representative’s deposition had been taken where he admitted his conduct.

This was only included in the insured’s briefing on a motion to dismiss. The complaint itself made no reference to the prior suit or the deposition; nor did the insured plead that the carrier was aware of the sales representative’s misstatement before issuing the policy. Thus, this count was dismissed without prejudice, presumably to replead with these allegations included in an amended complaint.

[Note: There is case law indicating that pre-suit misrepresentations are addressed via Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, whereas statutory bad faith is based on post-policy conduct in the handling and disposition of claims made against the policy. An example can be found here.]

The court refused to dismiss a separate fraud count on the gist of the action theory, finding that the fraudulent inducement preceded the contract; however, again, the facts were not adequately set forth and dismissal was without prejudice.

Date of Decision: August 8, 2019

Javie v. Mass. Cas. Ins. Co., U. S. District Court District of New Jersey Civil Action No. 18-2748, 2019 U.S. Dist. LEXIS 133123 (D.N.J. Aug. 8, 2019) (Vazguez, J.)

INSURED CANNOT RELY ON (1) FACTS OUTSIDE THE COMPLAINT OR (2) CONCLUSORY ALLEGATIONS TO DEFEAT MOTION TO DISMISS; AND INSURER OWES NO FIDUCIARY DUTY IN UIM CONTEXT (Philadelphia Federal)

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This UIM case involved a dispute over the available amount of coverage under an auto policy.  The complaint included breach of contract, statutory bad faith, and breach of the duty of good faith and fair dealing claims. The insurer also believed a breach of fiduciary duty claim may have been alleged.  The insurer moved to dismiss all claims.

The insured argued facts outside the complaint in responding to the insurer’s motion to dismiss. These facts may have stated a cause of action for breach of contract had they been properly pleaded, but the court could not consider them in ruling on the motion to dismiss. Thus, the motion to dismiss the contract claim was granted, but without prejudice.

The court also found the insured failed to plead a UIM bad faith claim. As stated, in opposing the motion to dismiss the insured relied on facts not pleaded to argue the carrier improperly refused stacking. Unpleaded facts could not support a bad faith claim, though again, the insured was allowed to amend and presumably assert these factual allegations in a future pleading.

As to the bad faith allegations actually pleaded, these were conclusory and could not make out a plausible bad faith claim.

The conclusory averments included: “[the insurer] committed bad faith by acting with a dishonest purpose and knowingly breaching a duty because of its self-interest …; denying coverage …; collecting premiums and then denying coverage…; and [c]onspiring to create a defense for its own self-interest which its [sic] knows has no factual basis….”

The court further observed there is no fiduciary duty in the UIM context, and dismissed any such claims.

The court finally found the common law bad faith claim to be subsumed in the breach of contract claim, as there is no common law bad faith claim in Pennsylvania outside the contractual duty to act in good faith.

Date of Decision: June 3, 2019

Pommells v. State Farm Insurance, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-5143, 2019 U.S. Dist. LEXIS 92435, 2019 WL 2339992 (E.D. Pa. June 3, 2019) (Kelly, J.)

BAD FAITH CLAIM BROUGHT MORE THAN TWO YEARS AFTER NOTICE OF DENIAL DISMISSED ON STATUTE OF LIMITATIONS GROUNDS (Philadelphia Federal)

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A property loss coverage claim was dismissed under the policy’s two-year suit limitation provision, requiring that any suit be brought within two years of the date of loss. In dismissing this breach of contract claim, the court reiterated the Third Circuit’s holding that an insurer does not have to show prejudice in enforcing a suit limitation provision.

The insured also brought a statutory bad faith claim, and a breach of the covenant of good faith and fair dealing count. The insurer moved to dismiss the bad faith claim on statute of limitations grounds, arguing that the policy benefit was denied more than two years prior to suit. (It is well established that the bad faith limitations period is two years).

The insurer relied on a notice of denial, attached to its answer, in moving to dismiss. The insured asserted because this document was not attached to the complaint, it could not be considered on a motion to dismiss. Under the circumstances of this case, the court disagreed.

The court observed that courts handling motions to dismiss “may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff’s claims are based on the document.” Absent this exception, plaintiffs with legally deficient claims could simply omit attaching a document to avoid dismissal of claims that should be dismissed.

The court found the denial referenced in the complaint to be based on this notice of denial  document, and so considered it on the motion to dismiss.  The notice of denial was issued over two years before suit. Thus, the bad faith claim was independently time barred, and was dismissed on that basis.

[Note: This court ruled two weeks earlier that a bad faith claim could proceed even when the underlying breach of contract was dismissed because of a suit limitations provision, i.e., the bad faith claim could proceed even though no coverage was due. A link summarizing that opinion, and the viability of bad faith claims when no coverage is due, can be found here.]

Finally, the court dismissed the breach of the covenant of good faith and fair dealing as being subsumed within the breach of contract claim.

Date of Decision: May 23, 2019

Mail Quip, Inc. v. Allstate Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-223, 2019 U.S. Dist. LEXIS 87923 (E.D. Pa. May 23, 2019) (Kenney, J.)

DECEMBER 2018 BAD FAITH CASES: BAD FAITH CLAIMS STATED BASED ON UNREASONABLE INTERPRETATION OF POLICY EXCLUSIONS, AND PURSUIT OF DECLARATORY JUDGMENT PROCESS BEFORE ULTIMATELY SETTLING (Western District)

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The underlying suit involved negligence claims concerning a sexual assault by the insured’s father against others. The insurer defended under a reservation of rights, and brought a federal declaratory judgment action against the insured. The insured brought a declaratory judgment action in state court, and successfully had the federal claim dismissed on procedural grounds.

The insurer counterclaimed for declaratory judgment in state court, and filed a motion for judgment on the pleadings, which was denied. The insurer appealed to the Superior Court of Pennsylvania, and the appeal was quashed as interlocutory. The underlying action subsequently settled, and the declaratory judgment action was dismissed as moot.

The insured sued for common law contractual bad faith and statutory bad faith, and the insurer’s motion for judgment on the pleadings was denied.

The insured argued the reservation of rights letters were “manipulative”, that the insurer delayed settling the underlying action to improve its negotiating position, and that the insured suffered emotional distress and the expenses of having to bring and defend the declaratory judgment actions. The insured alleged the coverage positions were reckless or unwarranted, the appeal was unwarranted, and claim handling concerning coverage was unreasonable, inadequate, and was in conflict with the insured’s interests.

CONTRACTUAL BAD FAITH

The court first addressed the contractual bad faith claims. It observed that issuing reservation of rights letters is accepted practice, and that courts encourage the use of declaratory judgment actions.

However, bad faith allegations may be sufficient, even if policy limits are ultimately paid, where delaying resolution prejudiced the insured, and the insured pleads the insurer: (i) failed to conduct a complete and thorough factual or legal investigation; (ii) refused to enter good faith settlement negotiations; (iii) conducted “surface” settlement negotiations with no intent to settle; (iv) rejected settlement demands without counterproposals; or (v) pursued declaratory judgment actions with no reasonable basis, for an unreasonable time period.

In this case, the insured’s complaint put the investigation’s thoroughness at issue. Likewise, the exclusions the insurer relied upon, and propriety of settling the underlying case only after two years of actively pursuing the declaratory judgment action, were “unsettled questions of fact” on the bad faith claim. The court concluded: “Viewing the evidence in the light most favorable to [plaintiff], a reasonable jury could find that [the insurer’s] actions, in the aggregate, constituted a bad faith breach of its contractual duties … and could lead that jury to return a verdict in [plaintiff’s] favor.”

STATUTORY BAD FAITH

The court observed that statutory bad faith is not measured by whether an insurer ultimately fulfills its obligations. If payment is due and ultimately made, bad faith during the claim handling process in delaying that payment may be actionable. This is similar to a contractual bad faith claim where the court looks at the manner in which an insurer discharges its duties to the insured when payment is due, but that payment is delayed.

As the court was obliged to take the pleadings in the light most favorable to the insured in deciding a judgment on the pleadings, the complaint was sufficient. On the facts pleaded, a reasonable jury could conclude the alleged failures in investigation and claims handling were motivated by self-interest, despite the insurer’s ultimately settling the underlying case.

Date of Decision: November 27, 2018

Higginbotham v. Liberty Ins. Corp., U.S. District Court Western District of Pennsylvania Civil Action No. 18-747, 2018 U.S. Dist. LEXIS 199836, 2018 WL 6179024 (W.D. Pa. Nov. 27, 2018) (Mitchell, M.J.)

2018 BAD FAITH CASES: NO COMMON LAW BAD FAITH IN SURETY’S PAYING ON PERFORMANCE BOND AND SEEKING REIMBURSEMENT FROM CONTRACTOR/INDEMNITORS (Philadelphia Federal)

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This case involves indemnification claims for payment made under a surety (performance) bond. Sureties are not subject to Pennsylvania’s Bad Faith Statute. The surety paid millions of dollars in connection with a construction contract, and sought reimbursement from the parties entering an indemnification agreement in connection with the bond issued.

The indemnity agreement required indemnification for payments made in good faith. If the payments were fraudulently made no indemnification would be required. The court found the contract itself did not set a good faith standard. Thus, it looked to the common law defining good faith conduct in analyzing the facts.

The indemnitors had to show an “improper motive” or “dishonest purpose” behind the surety payments. “Bad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity.” It “is more than ‘a lack of diligence or negligence,’ and ‘even gross negligence cannot support a finding of bad faith.’”

The indemnitors put on no evidence of bad faith and summary judgment was entered for the surety.

Date of Decision: September 25, 2018

Allied World Insurance Co. v. Perdomo Industrial, LLC, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-3027, 2018 U.S. Dist. LEXIS 163906 (E.D. Pa. Sept. 25, 2018) (Kearney, J.)

SEPTEMBER 2018 BAD FAITH CASES: NO COMMON LAW BAD FAITH WHERE NO BREACH OF CONTRACT (Philadelphia Federal)

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In this disability insurance case, the court held that because the insurer did not breach the policy terms, “it cannot be liable for [common law] bad faith based on the alleged breach thereof.”

Date of Decision: September 21, 2018

Arya v. Provident Life & Accident Ins. Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 15-4362, 2018 U.S. Dist. LEXIS 161604 (E.D. Pa. Sept. 21, 2018) (Robreno, J.)

SEPTEMBER 2018 BAD FAITH CASES: INSURED’S FRAUD ON SMALL FRACTION OF TOTAL CLAIM RESULTS IN FORFEITURE OF ALL SUMS PAID, UNDER BOTH PENNSYLVANIA COMMON LAW AND NEW JERSEY STATUTORY LAW (Philadelphia Federal)

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The insurer sought damages and rescission under Pennsylvania common law and New Jersey’s Insurance Fraud Prevention Act. There was a fire at the insured’s New Jersey shore home, and allegedly subsequent theft of personal property from the home. The insured made a claim for lost personal property and submitted photographs of the lost items.

After investigation, the insurer concluded that the photographs were taken after the fire loss at issue, at a different home owned by the insured in Philadelphia. Thus, contrary to the insured’s sworn statement, these items were not lost or stolen from her shore home.

The policy provided there was no coverage “if, whether before or after a loss, an ‘insured’ has: 1. intentionally concealed or misrepresented any material fact or circumstance; 2. engaged in fraudulent conduct; or 3. made false statements relating to this insurance.”

The insurer denied the claims for the personal property in the photos on the basis that the insured “intentionally concealed and/or misrepresented material facts concerning [her] claim for personal property, and made false statements regarding the items that were allegedly lost due to the fire or theft.”

The insured brought breach of contract and bad faith claims, which were dismissed for lack of prosecution. The insurer’s fraud claims were raised as counterclaims. The insured did not file any opposition, and by the time the insurer moved for summary judgment, the insured was pro se.

On the Pennsylvania common law fraud claims, the court observed: “It follows, as the night follows the day, that [the insured] has suffered no personal property loss for the items photographed since she still had possession of those undamaged items after the fire and alleged theft.”

The court not only granted relief on the personal property damage claims for the allegedly lost items, but as to the entire loss, including the sum paid for the value of the home. The court stated:

“The record is clear that [the insurer] made payments … in reliance on what it believed at the time to be her truthful representations about her losses as a result of the fire and alleged theft. [The insurer paid] $351,767.17 in dwelling coverage and $10,000 in personal property coverage. As it turned out, there is no genuine dispute about the fact that [the insured] made materially false representations … in an effort to mislead it into paying her for personal property which she did not lose. … Under the terms of the insurance policy, no coverage is provided if the insured either before or after the loss intentionally concealed or misrepresented any material fact, engaged in fraudulent conduct, or made a false statement relating to their insurance. Clearly, [the insured] breached these provisions of the policy.”

Accordingly, we will enter summary judgment … against [the insured] on the counterclaim of common law fraud for $361,767.16, the amount …paid to her.”

The court also granted equitable rescission under Pennsylvania common law fraud principles, and granted relief under New Jersey’s Insurance Fraud Prevention Act. The court noted that the New Jersey statute includes recovery of reasonable investigation expenses, costs of suit and attorney’s fees. However, the court did not appear to award damages for investigation, costs or legal fees.

The Act itself provides for relief against an insured who “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy . . . knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or . . . (3) Conceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.] N.J.S.A. § 17:33A-4(a).(1, 3).”

The same facts supporting the common law fraud finding supported this statutory relief.

Finally, the court also awarded over $45,000 in prejudgment interest on the Pennsylvania claims.

Date of Decision: August 21, 2018

Pallante v. Certain Underwriters at Lloyd’s, London, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1142, 2018 U.S. Dist. LEXIS 141427 (E.D. Pa. Aug. 21, 2018) (Bartle, J.)

AUGUST 2018 BAD FAITH CASES: ERISA PREEMPTS GOOD FAITH AND FAIR DEALING CLAIM (Philadelphia Federal)

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The court analogized a breach of the implied covenant of good faith and fair dealing to a bad faith claim, in finding such claims preempted by ERISA.

Date of Decision: August 3, 2018

D’Antuono v. Temple University Health System, U.S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-1518, 2018 U.S. Dist. LEXIS 130492, 2018 WL 3707853 (E.D. Pa. Aug. 3, 2018) (Baylson, J.)

 

JULY 2018 BAD FAITH CASES: (1) BREACH OF IMPLIED COVENANT OF GOOD FAITH AND BREACH OF CONTRACT CLAIM NOT SEPARATE CAUSES OF ACTION; (2) STATUTORY BAD FAITH CLAIM FAILS WHERE INSURED MERELY ARGUES INSURER’S POLICY INTERPRETATION FAVORS INSURER (Middle District)

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The insured had a life insurance policy with a $25,000 coverage amount. The original policy included a two-year suicide exclusion. Two other insurers acquired the original policy. The insured later increased her coverage under that policy to $100,000. Twelve years later, she obtained a replacement policy, also with a coverage amount of $100,000.

In connection with the replacement policy, the insured received a “Notice” which informed her, in pertinent part, that in switching to the replacement policy: “You should recognize that a policy that has been in existence for a period of time may have certain advantages to you over a new policy….Under your existing policy, the period of time during which the issuing company … deny coverage for death caused by suicide, may have expired or may expire earlier than it will under the proposed policy.”

After the insured’s death by suicide, her husband, on behalf of his children, filed a death benefit claim for the full $100,000, but the insurers refused under the suicide exclusion, and instead offered to pay a refund of $285.12 plus interest, representing the premiums paid on the policy.

AMBIGUITIES AND REASONABLE EXPECTATIONS FAVOR INSURED

The insured sued for the $100,000 policy coverage, and also brought a statutory bad faith claim, and claim for breach of implied covenant of good faith and fair dealing. The court ultimately granted the Plaintiffs summary judgment on the breach of contract claim.

Working under contra proferentem principles, the court did an extensive latent and patent ambiguity analysis of the policy language, and whether the insured’s long history of making payments for the same $100,000 was the applicable time period, rather than the replacement policy’s inception date.

The court also separately ruled summary judgment should be entered for the Plaintiffs under a reasonable expectations theory.

The replacement policy’s suicide exclusion language presented a “latent ambiguity,” and the above-quoted Notice did not alleviate that ambiguity because it did not “conclusively compel the reading that the suicide exclusion period started anew… [with the replacement policy’s inception].”

The court also determined the insured “could have reasonably believed that the suicide exclusion expired two years after she first began paying premiums on a life insurance policy . . . worth $100,000,” which started 12 years before the replacement policy, thus providing her with a reasonable expectation of coverage.

The replacement policy’s suicide exclusion was only two sentences long: “If the insured dies by suicide … we will not pay any death proceed[s] payable on amounts of insurance which have been in effect for less than 2 years. If the suicide … is within the first 2 contract years, we will pay as death proceeds the premiums you paid.”

The court’s analysis was lengthy, but the outcome basically hinged on the idea that the insured had been paying on the same “amounts of insurance” for over ten years, and that even what constituted “the first 2 contract years” was unclear when reading the policy as a whole.

With respect to the bad faith claims, the court made a distinction concerning insurance contract interpretation and bad faith claims. Thus, while the “[discovery] ambiguity should be resolved in favor of the Plaintiffs because of Pennsylvania’s judicially constructed principles favoring the insured in the specific context of insurance contracts,” “no such principle applies to the breach of implied covenant of good faith or the statutory bad faith claim.”

IMPLIED COVENANT CLAIM NOT DISTINCT FROM CONTRACT CLAIM

The court also recognized that “a claim for breach of the implied covenant of good faith and fair dealing is a breach of contract action, not an independent action for breach of a duty of good faith and fair dealing.”

“Pennsylvania law does not recognize a separate breach of contractual duty of good faith and fair dealing.” Thus, “a plaintiff would be barred from proceeding on both claims if they are based on the same conduct.” While Plaintiffs earlier alleged that the insurers made a “promise” to the insured regarding her benefit amount, “after the benefit of full discovery” they “failed to adduce any additional evidence” that the insurer’s conduct is separate “from Defendants’ denial of coverage based on their interpretation of the contract.”

Additionally, Plaintiffs only evidence on this issue is the insurer’s denial letter based on its “interpretation of the suicide exclusion—i.e. the same conduct that forms the basis of Plaintiff’s breach of contract claim.”

POLICY INTERPRETATION FAVORING INSURER, BY ITSELF, IS NOT BAD FAITH

Lastly, the court granted summary judgment on the statutory bad faith claim. The court stated that “’bad faith’ means ‘any frivolous or unfounded refusal to pay proceeds of a policy.’” Moreover, “knowledge or reckless disregard of a lack of a reasonable basis for denial of coverage is necessary.” Thus, “[a] reasonable basis is all that is required to defeat a claim of bad faith.”

In granting summary judgment, the court explained: “Plaintiffs openly acknowledge that their cause of action is founded upon [the insurer’s] refusal to pay the insurance claim in light of the language of the [suicide] exclusion … instead of presenting any evidence of bad faith obtained in discovery.” Further, “Plaintiffs do not challenge or even mention Defendants’ investigative process before denying the claim.”

Plaintiffs only argued, that the insurers “acted in bad faith because they relied on an interpretation more favorable to themselves when interpreting an ambiguous exclusion,” without the requisite proof by clear and convincing evidence that this interpretation was unreasonable and made in knowing or reckless disregard of that fact. The court could not conclude on the record “that [the insurers’] denial of the benefits based on their interpretation of the exclusion was so unreasonable that it amounts to bad faith.”

Date of Decision: June 28, 2018

Lomma v. Ohio National Life Assurance Corp., U. S. District Court, Middle District of Pennsylvania No. 3:16-CV-2396, 2018 U.S. Dist. LEXIS 108705 (M.D. Pa. June 28, 2018) (Mariani, J.)