Archive for the 'PA – Communication with insured' Category

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.)

AMENDED COMPLAINT STILL FAILS PLAUSIBILITY TEST WITHOUT REQUISITE PREDICATE FACTS (Philadelphia Federal)

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The original bad faith claim in this property damage case was dismissed. A summary of that decision can be found here.

The dismissal was without prejudice, and the insured filed an amended bad faith claim. The insurer moved to dismiss, and obtained another dismissal. Again, however, the dismissal was without prejudice; though any new amendment was limited to  facts learned during discovery, as the sole basis to seek amendment.

Prior to its detailed analysis, the court quoted its earlier admonition to the insureds that “‘[i]f Plaintiffs are unable to allege plausible facts underlying their various claims of bad faith, then the Complaint should not be amended.’”

The court adhered to the following process in reviewing the complaint’s plausiblity: “(1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.” In essence, “[a] plaintiff cannot merely say that an insurer acted unfairly, but instead must describe with specificity what was unfair.”

Despite amendment, the complaint still pleaded no facts “with respect to the timing of the investigation, the methods and procedures which Defendant employed during the investigation, and the length of the investigation.” Moreover, “[b]eyond the investigation-related allegations, all of the allegations in the original Complaint are simply restated [in the Amended Complaint], without any additional factual information, in the Amended Complaint.”

In addition to these “repackaged” allegations, there were purportedly 12 new allegations in the amended complaint. As with the first complaint, however, these were merely legal conclusions without “prerequisite factual support”.

By way of example, the insured alleged intentional and unreasonable delays in claim handling, but failed to allege any facts showing “(1) how Defendant’s action were purposeful, (2) what made Defendant’s actions unreasonable, or (3) the extent of Defendant’s ‘delay’ in adjusting their claim.” Similarly, “Plaintiffs also allege that Defendant acted in bad faith by failing to respond to their communications and requests for information. … But Plaintiffs never allege the dates of these communications, the number of communications in question, or the substance of these communications.”

In sum, the “added allegations are simply more of the same; they lack the required factual specificity and rely on impermissible legal conclusions….”

Leave to amend a second time was denied as “futile because Plaintiffs have already had an opportunity to cure the deficiencies of their bad faith claim in the original Complaint and have failed to do so. Given Plaintiffs’ failure to sufficiently amend their bad faith claim, the Court is satisfied that Plaintiffs are not entitled to a third proverbial bite of the apple.”

That being said, the court did allow for future amendment under limited circumstances. If new facts were uncovered during discovery that supported a bad faith claim, only then could the insureds file a motion for leave to amend. Thus, while the court would not permit another amendment at this time, dismissal was still without prejudice.

Date of Decision: August 6, 2019

MBMJ Props., LLC v. Millville Mut. Ins. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-5071, 2019 U.S. Dist. LEXIS 131217, 2019 WL 3562019 (E.D. Pa. Aug. 6, 2019) (Slomsky, 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.)

PLEADING MORE DETAILS FROM COMMUNICATIONS WITH THE INSURER IN AMENDED COMPLAINT STILL FAILS TO SET OUT PLAUSIBLE BAD FAITH CLAIM (Middle District)

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This opinion addresses the insurer’s motion to dismiss an amended complaint for failing to set out a plausible bad faith claim. The court dismissed the original complaint for failing to do so, but without prejudice to file an amended complaint. Applying the same reasoning in the first case, Judge Caputo dismissed the amended complaint with prejudice. A summary of the first opinion can be found here.

The insured charity operated a restaurant. It reported a theft, seeking coverage under a commercial liability policy. The coverage issue involved whether the thief was an officer or employee. The insured’s public adjuster and the insurer’s claim handler communicated on this issue over a three-month period, including specific communications about the treasurer’s bonding status. The insurer took the position the claim was not covered.

Judge Caputo had dismissed the previous complaint for pleading only conclusory allegations, and for only including factual allegations insufficient to support a plausible bad faith claim.

The amended complaint includes the same 12 conclusory allegations found in the original complaint. The only difference between the original and amended complaints “is that the later filed pleading details the substance of conversations between Plaintiff’s public adjuster and Defendants’ adjuster during a three week period in April 2017.” However, those additional allegations remained insufficient to set out a plausible bad faith claim. The court stated:

“What those allegations reveal, inter alia, is that Defendants considered the information provided by Plaintiff, requested additional information be provided to determine if there existed a basis to extend coverage, and explained their reasoning for initially determining why no coverage existed for the loss. … Ultimately, Defendants concluded that the loss was not covered. … While Defendants may ultimately be incorrect and the denial of coverage may constitute a breach of the parties’ insurance agreement, this alone does not state a plausible bad faith cause of action. Indeed, none of the allegations in the Amended Complaint support a plausible basis to find that Defendants engaged in bad faith with respect to Plaintiff’s theft claim.”

Judge Caputo dismissed the amended complaint with prejudice, since the insured already had an opportunity to cure the pleading defects.

Date of Decision: April 26, 2019

Wyoming Valley FOP v. Selective Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-2270, 2019 U.S. Dist. LEXIS 71036 (M.D. Pa. April 26, 2019) (Caputo, J.)

COURT (1) DISMISSES BAD FAITH CLAIM THAT DOES NOT ALLEGE FACTS SHOWING “HOW” THE PUTATIVE BAD FAITH OCCURRED, AND (2) OBSERVES THE INSURED FILED SUIT, WITHOUT NEGOTIATING OR COMMUNICATING WITH THE INSURER, AFTER THE INSURER MADE AN INITIAL OFFER ONLY ONE MONTH PRIOR TO SUIT (Philadelphia Federal)

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We first note that Eastern District Judge Kearney typically writes informative introductions as guides to his opinions, with summaries of the salient conclusions. We quote his introduction to this UIM bad faith case at length (in addition to summarizing the opinion):

“A car insurer’s verbal offer to pay approximately half of its insured’s alleged medical bills as underinsured motorist benefits may allow the insured to sue for breach of the insurance contract. But the verbal offer does not automatically equal bad faith under Pennsylvania’s insurance statutes. The insured must plead much more than her insurer did not offer her all she requested. The insured deciding to sue the insurer for statutory bad faith a month after the verbal offer instead of responding to the offer, opening discussions, or negotiating the import of submitted medical data may sue to obtain negotiating leverage. The tactic must include a complaint with specific facts or we will summarily dismiss this bad faith claim supported by conclusions rather than facts. Absent pleading more than a breach of contract, we today grant the insurer’s partial motion to dismiss the insured’s bad faith and punitive damages claims.”

The insured settled with the other driver, and submitted her medical bills to the insurer, seeking UIM coverage. The medical bills were approximately $14,000 and the insurer offered $7,000 in UIM benefits on February 7, 2019. Less than one month later, the insured sued for breach of contract and statutory bad faith.

Judge Kearney applied the Third Circuit’s decision in Smith v. State Farm in coming to his decision. Smith emphasizes that bad faith cases are fact specific, and must look at the insurer’s conduct vis-à-vis the insured for the matter at issue. Conclusory statements unsupported by factual allegations cannot survive a motion to dismiss.

First, Judge Kearney found the following allegations conclusory:

“[i]) failed to investigate and evaluate her claim in an objective and fair manner,

[ii] used invasive and improper investigative tactics,

[iii] engaged in dilatory claim’s handling,

[iv] failed to promptly offer payment,

[v] failed to provide contracted-for insurance coverage

[vi] subordinated her interest to its financial interest,

[vii] violated its fiduciary duty owed to her,

[viii] compelled her to sue,

[ix] caused her to spend money on litigation and endure anxiety associated with litigation.”

Beyond these patently conclusory allegations, the court further found that the following allegations, while somewhat more specific, still lacked any factual support, and were thus likewise conclusory:

  1. The insurer “acted in bad faith when it played a ‘cat and mouse’ game with her, [and] offered $7,000 on February 7, 2019 though it knew the amount did not ‘cover lawfully recoverable medical bills….” On this point, the court states asserted that the insurer “played a ‘cat and mouse’ game, caused her to spend money on litigation, or caused her anxiety associated with litigation does not plead … bad faith.”

  2. The insurer “failed to provide her with a calculation or summary of how it determined its offer.”

  3. The insurer “’ignored or acted with reckless indifference’ to the medical documents establishing her injuries and entitlement to underinsured motorist benefits.” However, Judge Kearney found the insured “alleges no facts showing how [the insurer] ignored or acted with reckless indifference to reviewing her medical records. To the contrary, [the] $7,000 verbal offer in February 2019 suggests it did review her medical records.”

  4. The insurer “did not have a doctor examine her immediately, [and therefore] it lacked refuting ‘medical evidence or documentation’ and refused to pay benefits without justification.”

The court found the complaint flawed for failing to allege how the insurer “failed to investigate and evaluate her claim in an objective and fair manner, subordinated her interest to its own, or violated its fiduciary duty owed to her.” Further, the insured did “not plead her communications with [the insurer] or [the insurer’s] conduct even though a claim for bad faith is based on [the insurer’s] conduct in handling her claim.” This included that she did “not plead calls or communications since the February 7, 2019 verbal offer of $7,000.”

The court also was concerned with contradictions in the pleadings. It noted the complaint alleged both that the insurer failed to promptly make a settlement offer and that the insurer offered the $7,000 one month after she submitted her medical records to the insurer. The court found these allegations contradictory.

The bad faith count was dismissed without prejudice for failing to allege facts supporting a plausible claim.

Finally, the court dismissed the punitive damages claim, again without prejudice, because the bad faith claim was dismissed. Judge Kearney found that a simple breach of contract, the only claim remaining, cannot be the basis for punitive damages.

Date of Decision: April 22, 2019

Hwang v. State Farm Mutual Automobile Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-927, 2019 U.S. Dist. LEXIS 67955, 2019 WL 1765938 (E.D. Pa. April 22, 2019) (Kearney, J.)

SUPERIOR COURT AFFIRMS DEFENSE VERDICT THAT 10 MONTH NEGOTIATION/INVESTIGATION PERIOD DID NOT AMOUNT TO BAD FAITH (Pennsylvania Superior Court) (non-precedential)

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In this UIM case, the insured settled with the other driver for $50,000. The insurer initially determined the injury at issue did not arise from the accident, based on an IME. The insured later aggravated the injury, and his doctor determined the original injury was from the first accident.

The insured demanded the full UIM policy limits ($100,000). The insurer offered $7,500(considering $50,000 had already been paid). Over the next ten months, the insurer increased the offer six times, ultimately paying the $100,000 policy limit.

The insured sued for bad faith. After a six-day bench trial, the trial court found no bad faith under the Pennsylvania statute. The Superior Court of Pennsylvania affirmed.

The appellate court relied upon the following trial court findings in upholding the defense verdict:

  1. “In this case, the trial court found that [the insurer] never denied Appellant’s claim.”

  2. “Instead, it determined that ‘[b]y all accounts … [the] investigation was vigorous; [the insurer] sought and received numerous medical records, ordered independent medical examinations and sought to reconcile often conflicting or changing information, all the time communicating with [the insured] and his attorney.’”

  3. “It further opined that ‘the ten-month negotiation period under examination cannot be deemed unreasonable’ where it was ‘undisputed that [the insured’s] treatment was off-again and on-again throughout this period, substantiating [the insurer’s] observation that [the insured’s] claim, from a medical standpoint, was a ‘fluid file’ with ongoing developments that complicated the evaluation process.’”

  4. “As such, the trial court concluded that at ‘[e]ach step of the way, [the insurer] acknowledged and credited new information and responded accordingly [during the tenth month period].”

  5. “The trial court also methodically details the procedural timeline of [the insurer’s] six increasing offers based upon the information as it became available … over the 10-month time period involved.”

Date of Decision: April 18, 2019

Camiolo v. Erie Insurance Exchange, Superior Court of Pennsylvania No. 478 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 1456 (Pa. Super. Ct. April 18, 2019) (Dubow, Olson, Stevens, JJ.)

COURT RELIES ON DELAYS IN FACT, AND DELAYS AS DEFINED IN THE UNFAIR INSURANCE PRACTICES ACT (UIPA), IN ALLOWING BAD FAITH CASE TO PROCEED (Philadelphia Federal)

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The common theme in today’s two posts is the plaintiffs’ adequately pleading bad faith in federal court.

In this first post, the carrier moved to dismiss the uninsured motorist bad faith claim. The insured alleged bad faith for the carrier’s failing to negotiate or offer adequate compensation for damage claims submitted, with an apparent policy limits ($300,000) demand in place.

The court found the complaint adequately pleaded a bad faith claim, focusing on delays in the claims handling process. Significantly, some of the facts the court relied upon were framed expressly as violations of the Unfair Insurance Practices Act (UIPA). [Note: Compare this decision to the Eastern District Horn case, decided three weeks later, where the court stated “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.'” The Terletsky standards have since been adopted by Pennsylvania’s Supreme Court in Rancosky.]

The following facts were considered sufficient to support a plausible claim: “Defendant unduly delayed the investigative insurance process, which is aptly illustrated by his allegations that: Defendant became aware of Plaintiff’s claim ‘nearly immediately’ after the accident; Defendant failed to conduct a Statement Under Oath until January 5, 2018—nearly 18 months after the accident; Defendant did not perform an Independent Medical Evaluation for the case until May 9, 2018—nearly 23 months after the accident; and, Defendant did not make a first claim offer until two years and nine months after the accident.”

“With that said, the statutory violation would not be found in the delay per se, but rather in Defendant’s alleged failure to send any periodic, statutorily mandated communications, in writing, explaining such delay, and informing Plaintiff of when a decision on the claim might be expected, in violation of 31 Pa. Code § 146.6. Beyond the alleged delay in the investigation of the disputed claim, Plaintiff further pleads Defendant’s complete failure to provide the required written notices in connection with Defendant’s acceptance (or denial) of the disputed insurance claim until 17 months after the accident, in violation of 31 Pa. Code § 146.7(c)(1).” [Note: The court’s footnotes citing these two codes sections are quoted at length below]

“The consistent lack of timely notices, if ultimately proven true, would be relevant in determining the nature of Defendant’s dealings with Plaintiff, particularly so when considering Plaintiff’s averment that he did not receive a settlement offer until two years and nine days after the claimed accident, and for $285,000.00 below [the $300,000.00] policy limits.”

“This Court further notes that a plaintiff seeking damages for an insurer’s bad faith conduct under 42 Pa. Cons. Stat. § 8371 may attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if they do not independently provide for private causes of action. See Berg v. Nationwide Mut. Ins. Co., 2012 PA Super 88, 44 A.3d 1164, 1174 (Pa. Super. 2012).”

“This Court finds that the extended duration, coupled with the alleged statutory violations, speak to a plausible ‘reckless disregard’ by Defendant as to its duties relating to good faith and fair dealing.”

Date of Decision: April 3, 2019

Blease v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3893, 2019 U.S. Dist. LEXIS 57145 (E.D. Pa. April 3, 2019) (Jones, II, J.)

Footnote 5 states: Section 146.6 sets forth appropriate standards for prompt investigations of insurance claims, providing that “[e]very insurer shall complete investigation of a claim within 30 days after notification of claim, unless the investigation cannot reasonably be completed within the time. If the investigation cannot be completed within 30 days, and every 45 days thereafter, the insurer shall provide the claimant with a reasonable written explanation for the delay and state when a decision on the claim may be expected.” 31 Pa. Code § 146.6.

Footnote 6 states: 31 Pa. Code § 146.7(c)(1) sets forth standards for prompt, fair, and equitable settlements applicable to insurers: “If the insurer needs more time to determine whether a first-party claim should be accepted or denied, it shall so notify the first-party claimant within 15 working days after receipt of the proofs of loss giving the reasons more time is needed. If the investigation remains incomplete, the insurer shall, 30 days from the date of the initial notification and every 45 days thereafter, send to the claimant a letter setting forth the reasons additional time is needed for investigation and state when a decision on the claim may be expected.” 31 Pa. Code § 146.7(c)(1).

NO BAD FAITH WHERE (1) REASONABLE AND TIMELY INVESTIGATION AND (2) INSURED FAILED TO MEET CONTRACTUAL BURDEN TO SHOW CONNECTION BETWEEN CLAIM AND PROPERTY DAMAGE (Philadelphia Federal)

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In this homeowner’s case, the insured attempted to tie a fallen tree to water pipe damage. The court laid out a detailed history of the insurer’s responses to the insured’s claims and communications, demonstrating the insurer’s active role in investigating the claim. The court also detailed the carriers’ review of documents and information from the insured’s contractors. The court found the insured’s communications and investigation timely and reasonable.

Further, the insured was contractually obligated to show property damage resulting from a covered event, but failed to do so, e.g., there were no photographs of the fallen tree, nor sufficient evidence of how the tree could have damaged concrete encased pipes. Under the circumstances, the insured “had to retain a contractor to provide a report making the connection.”

Moreover, the insured’s “plumbing and heating contractors both testified the fallen tree did not cause the pipe damage, rather, the pipes needed to be replaced because of their age.” On these facts, the carrier could not be expected to “make payments on claims devoid of some evidence linking damage to an event.”

In light of the delineated efforts by the insurer to investigate the claim, and the insured’s failure to produce evidence of the necessary connection between the fallen tree and the pipe damage, the court granted summary judgment on the bad faith claim.

Date of Decision: March 29, 2019

Mitchell v. Allstate Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1806, 2019 U.S. Dist. LEXIS 55613, 2019 WL 1440043 (E.D. Pa. Mar. 29, 2019) (Kearney, J.)

BAD FAITH INADEQUATELY PLEADED: (1) NO BAD FAITH SOLELY BECAUSE THIRD PARTY UIM CLAIMS WERE NOT PAID WHILE FIRST PARTY BENEFITS WERE PAID; (2) TIME GAP BETWEEN DEMAND AND OFFER ALONE DOES NOT SUPPORT BAD FAITH; (3) ABSENCE OF COMMUNICATIONS WITHOUT ALLEGING EXPLANATION WAS SOUGHT BY THE INSURED NOT BAD FAITH; AND (4) WIDE DIFFERENCE IN VALUE BETWEEN DEMAND VALUE AND AN INSURER’S LOWER VALUATION ALONE IS NOT BAD FAITH ABSENT ADDITIONAL ALLEGATIONS OFFER WAS UNREASONABLE AND MADE IN BAD FAITH (Middle District)

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In this UIM bad faith case, the court dismissed the bad faith count, but sua sponte allowed the insured to file an amended complaint. In setting out general bad faith law, among other things, the court observed that “[f]ailing to plead explanations or descriptions of what an insurer actually did, or why they did it, is fatal to a bad faith claim.”

In carrying out its analysis of whether the complaint could survive a motion to dismiss, the court first identified conclusory allegations that need not be considered in determining the issue. The court then took a close look at the complaint’s actual factual allegations to determine whether those allegations could support an actionable bad faith claim.

Paying first party medical benefits while not paying third party UIM claims is not in itself bad faith.

First, the court observed that an insurer’s paying first party medical benefits “without indicating any dispute regarding the causal relationship between the accident and Plaintiff’s medical bills or income loss,” while denying third party UIM benefits is insufficient, in itself, to make out a bad faith claim. Bad faith must go beyond “a mere inconsistency” in handling these two categories of claims.

A time gap between the insured’s demand and the insurer’s offer of payment alone is not sufficient to make out bad faith.

Second, the court rejected the argument that a seven month time period between here policy limit demand and the insurer’s offer in response does not by itself constitute bad faith “if the insurer had a reasonable basis for the delay.” Here, the plaintiff failed to allege “any facts indicating that Defendant’s delay of nearly seven months did not have a reasonable basis” and the mere calculation of time between demand and offer is not sufficient to make out a bad faith claim.

Alleging a bad faith failure to communicate requires pleading actual efforts to communicate to which the insurer failed to respond in good faith.

Third, if plaintiff wanted to plead failure to communicate as a basis for her bad faith claim, she needed to allege “specific facts regarding the plaintiffs’ unsuccessful attempts to elicit such information from the defendant insurers.” The complaint does not identify any communications attempting to get an explanation from the insurer about the basis for its offer (which was over $800,000 lower than the policy limits demand). Allegations that the insurer failed to support its offer with medical evidence or expert reports did not support the argument of an unreasonable failure to communicate with the insured.

Identifying difference between demand and offer alone cannot be the basis for bad faith, absent allegations that the insurer acted unreasonably and in bad faith in making the lower offer.

Fourth, the insured argued that the large difference between her $1,000,000 demand (which she further averred was lower than her actual damages), and the insurer’s $107,012 offer was alone sufficient to sustain a bad faith claim. The court likewise rejected this argument. A low but reasonable estimate will not be treated as bad faith, and the insured did not allege “facts from which a factfinder could plausibly conclude that Defendant’s offer was unreasonable and made in bad faith … rather than made as part of the ordinary course of negotiations between insurers and insureds.” Judge Kane cites Judge Caputo’s recent Clarke decision to support this conclusion.

She also cited Judge Caputo’s recent Moran decision for the proposition that even a facially unreasonable offer, without more pleaded, may not constitute bad faith, because “[e]ven if an offer is facially unreasonable, it must also be shown to have been made in bad faith.” The complaint must sufficiently allege conduct supporting the unreasonable offer was made in bad faith, rather than the result of a negligent failure to investigate and evaluate the claim.

Summaries of Clarke and Moran can be found here.

Date of Decision: March 26, 2019

Rosenthal v. Am. States Ins. Co., U. S. District Court Middle District of Pennsylvania No. 1:18-cv-01755, 2019 U.S. Dist. LEXIS 50485, 2019 WL 1354141 (M.D. Pa. Mar. 26, 2019) (Kane, J.)