Archive for the 'PA – Delay (Insured)' Category

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.)

NO BAD FAITH BASED ON: (1) COMPARISON OF OFFER AND RESERVES; (2) UIPA VIOLATIONS; (3) LOWER SETTLEMENT OFFER THAN INSURED DEMANDED; (4) FAILURE TO RAISE SETTLEMENT OFFER; (5) INSURED’S FAILURE TO NEGOTIATE; (6) TIMING OF PARTIAL PAYMENT; OR (7) CLAIM MANUAL (Western District)

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In Western District Magistrate Judge Dodge’s May 2020 opinion in this case, the court allowed this UIM bad faith claim to survive a motion to dismiss. That decision is summarized here.  Her present opinion addresses the insurer’s summary judgment motion on bad faith.

The stipulated facts show, among other things, the insured’s injuries, that the tortfeasor’s carrier paid $50,000, that the insured demanded full UIM policy limits of $500,000, that the insurer set a $25,000 reserve and offered $10,000 to settle the claim fully, and that there was a dispute among medical experts about the scope of future treatment.  The record showed that the insurer’s claim adjustor reviewed new information from the insured on a number of occasions and found no basis to revise his damage analysis behind the $25,000 reserve figure.

After a considerable time period, the insured’s counsel did demand partial payment of the $10,000, saying this was undisputed, but never provided a full counter demand to the $10,000 offer because the course of medical treatment remained open.  The insurer eventually agreed to pay the $10,000, but the record appears ambiguous as to how each side interpreted the conditions of that payment.

Although the earlier motion to dismiss resulted in dismissal of claims asserting a private right of action under the Unfair Insurance Practices Act (UIPA), the insured asserted there were technical violations of the UIPA that could be considered in ruling on a statutory bad faith claim.

The court identified the following bad faith claims:

  1. The insurer allegedly “failed to re-evaluate the UIM claim when presented with new information and then make a higher offer despite raising the amount of its reserves.”

  2. The insurer “failed to make a timely partial payment of $10,000 even though that amount was undisputed.

  3. The insurer “violated the UIPA and its own claims-handling policies in at least two respects—by failing to notify [the insured] of its position that his alleged contributory negligence reduced the value of his claim, and failing to respond to an offer within ten days.”

Poor Judgment is Not Bad Faith

Magistrate Judge Dodge stated that “neither an insured’s disagreement with the amount offered on a UIM claim nor a citation to negligent mistakes made by the insurer in handling the claim is sufficient to demonstrate bad faith.”

She looked to Judge Hornak’s recent Stewart decision, summarized here, granting the insurer summary judgment “where plaintiff pedestrian suffered injuries that he valued at $2 million but the insurer investigated, set the value of the claim at $125,000, set reserves at $55,000 and offered $25,000” and Judge McVerry’s 2013 Schifino decision, summarized here, where a “$10,000 initial offer on UIM claim valued at $60,000 did not constitute bad faith and although [the insurer’s] conduct was ‘not free from criticism in its initial handling of the claim … this conduct is more indicative of poor judgment than bad faith.’”

Setting Aside Reserves Cannot be used as a Cudgel

Magistrate Judge Dodge also addressed the law concerning reserves, stating that “setting aside reserves does not amount to an admission of liability.” “Reserves are merely amounts set aside by insurers to cover potential future liabilities,” and “the setting of reserves is an estimate of an insurer’s exposure under a claim …[but] the court is reluctant to fashion a rule requiring an insurer to make an offer reflecting the reserve as soon as it is set.” Thus, “bad faith does not hinge on whether an offer is less than the reserves….”

The Alleged Failure to Increase an Offer is Not Bad Faith

The court rejected the claim that the insurer had raised reserves while failing to reevaluate the claim. In fact, the claim handler had not raised reserves even after receiving new information from the insured, but kept the reserves at the same figure after evaluating that new information.

The adjustor’s claims notes omitted $45,000 in medical expenses at two different dates, which were in his original evaluation. The insured claimed this demonstrated bad faith in evaluating the claims. The adjustor testified “that this was simply a mistake ‘because if you look at the doctor’s notes there’s no difference in what I already knew.’ Thus, this evidence suggests that [the] adjustor made an error when he recorded or updated information in his notes. This would amount to negligence, not bad faith. Importantly, it is undisputed that [the adjustor] concluded in each evaluation that a reserve setting of $25,000 was appropriate and his assessment of the potential value of the UIM claim did not change.”

Further, simply because the $10,000 offer was lower than the reserves did not prove bad faith, nor was it even “evidence of bad faith.” There also was no evidence the adjustor concluded the UIM claim’s value “was far in excess of the amount he set as a reserve or that his offer was unreasonable.”

The court distinguished the well-known Boneberger case on grounds that case was about intentionally devious claim handling practices used to create artificially low values. It was not about simply making offers that were much lower than the claimed value.

Magistrate Judge Dodge then discussed case law recognizing the principle that low but reasonable estimates cannot support bad faith claims. She looked to the Third Circuit’s 2019 Rau decision, summarized here. In addition, she looked to Judge Conti’s Katta opinion, summarized here, in observing factors weighing against bad faith, such as: the uncertainty of the claim’s value; “the offer was not unreasonably low because an initial offer below the alleged amount of loss does not constitute evidence of bad faith”; the insurer’s willingness to increase its offer and the insured’s refusal to negotiate down from a policy limit demand; and the insured’s failure to provide additional information to the insurer as to why its offer should be increased.

The court quoted Judge Conti at length: “It is troubling that plaintiff seeks to proceed with his bad faith claim despite having made no effort to engage in negotiations with defendant. Plaintiff was under no duty to negotiate, but courts have recognized that stonewalling negotiations is a relevant consideration in determining whether an insurer acted in bad faith. …. If plaintiff’s bad faith claim were to proceed, future plaintiffs could survive summary judgment on bad faith claims by simply filing suit after receiving an offer that the plaintiff believes is too low. The mere fact that defendant’s initial offer was lower than plaintiff’s unsubstantiated claim of lost wages, in absence of any other substantive evidence of bad faith, including unreasonable delay, intentional deception, or the like, is not sufficient to constitute clear and convincing evidence.”

In the present case, the insured never made a counter demand or attempted to negotiate after the $10,000 initial offer, and never came off of a policy limit demand.  Moreover, as set out above, the adjustor’s claim handling and claim evaluation were not unreasonable.

Partial Payment Issue not a Basis for Bad Faith

Magistrate Judge Dodge cited Third Circuit precedent that a failure to make partial payment could only reach the level of bad faith “where the evidence demonstrated that two conditions had been met. The first is that the insurance company conducted, or the insured requested but was denied, a separate assessment of some part of her claim (i.e., that there was an undisputed amount). The second is, at least until such a duty is clearly established in law (so that the duty is a known duty), that the insured made a request for partial payment.” She observed Pennsylvania’s Superior Court has followed this standard.

In the present case, there was no separate assessment of a partial claim, or any partial valuation carried out, resulting in an agreed upon undisputed partial sum due.  There was only an offer that the insured originally declined, but later demanded be paid without the insured admitting he either accepted or rejected that offer. Rather, the insured’s counsel asked the carrier to “issue a draft in the amount of the $10,000 as a partial payment of the UIM benefits until a counter can be made and the matter can be resolved in full.” Further, even when the $10,000 was paid, the parties disagreed over the meaning of the payment.

Magistrate Judge Dodge concluded the “agreement to pay to Plaintiffs the amount of its previous offer to settle the UIM claim does not represent evidence of bad faith.” While it might be generally correct to characterized the $10,000 as undisputed “there were no communications about this amount representing a separate assessment of some component of [the] claim.” Moreover, any delay in paying the $10,000 fell on the insured.

“Thus, to the extent that Plaintiffs continue to assert that the failure [] to make a more timely partial payment represents bad faith, any such claim fails as a matter of law. Plaintiffs cannot assert that [the insurer] acted in bad faith by offering to make a partial payment—which it was not required to do—and not offering it again sooner after Plaintiffs rejected it.”

UIPA Violations Cannot Form the Basis of a Bad Faith Claim

The parties agreed there is no private right of action under the UIPA. The insured, however, wanted to use UIPA violations as evidence of statutory bad faith. The court rejected that effort.

Magistrate Judge Dodge stated that since the seminal Terletsky opinion in 1994, “federal courts have uniformly rejected plaintiffs’ attempt to rely on UIPA violations to support bad faith claims.” Contrary to the insured’s arguments that some federal cases hold otherwise, she states that “for the past 26 years, case law in federal courts on this issue has been consistent.”  Magistrate Judge Dodge cites, among other cases, the Third Circuit’s opinion in Leach, Judge Gibson’s 2019 Horvath opinion, Judge Fisher’s 2014 Kelman decision (while sitting by designation in the Western District), Judge Kosik’s 2007 Oehlmann decision, and Judge Conti’s 2007 Loos opinion.

[Our May 2, 2019 post summarizes different approaches courts take in considering UIPA and Unfair Claim Settlement Practices regulations.]

No Bad Faith Based on Insurer’s Own Manuals

Magistrate Judge Dodge found this was not a case where the insurer’s manuals and guidelines recommended aggressive claims handling and litigation tactics to discourage an insured’s legitimate claims.  “In this case, there is no evidence in the record that [the insurer’s] manual promotes improper tactics or conduct; quite the contrary.”

The court also rejected the argument that the insurer acted in bad faith by violating its own claim handling policies. “The issue here is not whether [the insurer’s] claims handling policy is admissible, but whether it provides any support for Plaintiffs’ bad faith claim. It does not.”

In sum, partial summary judgment was granted on the bad faith claim.

Date of Decision:  December 10, 2020

Kleinz v. Unitrin Auto and Home Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:19-CV-01426, 2020 WL 7263548 (W.D. Pa. Dec. 10, 2020) (Dodge, M.J.)

PENNSYLVANIA SUPERIOR COURT ADDRESSES CONCLUSORY BAD FAITH ALLEGATIONS IN SUMMARY JUDGMENT CONTEXT (Pennsylvania Superior Court) (Not Precedential)

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We do not often see Pennsylvania’s state courts addressing “conclusory” allegations in bad faith cases. In this case, the Superior Court makes clear that conclusory assertions cannot forestall summary judgment on a bad faith claim.

The employee plaintiffs/insureds demanded underinsured motorist coverage under the employer’s policy.  They asserted that there were $1,000,000 in UIM limits. The carrier countered that the employer had selected and signed off on a $35,000 UIM coverage limit, and the insurer ultimately paid the $35,000.  The trial court agreed with the carrier on the facts of record that coverage was only $35,000, and granted summary judgment on the breach of contract claim. The Superior Court affirmed, finding the employer’s UIM sign-down enforceable and effective.

As to the bad faith claim, the trial court found “there can be no dispute that [the insurer] had a reasonable basis for denying the … claim for coverage beyond $35,000, as we have already determined the trial court did not err in concluding that the UIM policy limit was $35,000.” The panel then looked at the bad faith claim based upon the insurer’s timeliness in dealing with the claim. This appears to be an argument there was a bad faith delay in paying the $35,000 admittedly due.

The insureds argued the insurer failed “to promptly offer any payment,” engaged “in dilatory and abusive claims handling,” acted “unreasonably and unfairly by withholding underinsured motorists benefits justly due and owing,” subordinated “the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interest,” and caused the insured to spend money in bringing their claims.

The Superior Court again affirmed the trial court’s granting the insurer summary judgment, favorably citing the trial court’s reasoning.

First, the trial court rejected the insureds’ Nanty-Glo argument. Further, the insureds “provided no evidence to support their Bad Faith claim beyond conclusory assertions.” The record showed the insureds made a $900,000 demand on what the insurer (correctly) believed was a $35,000 policy.  The record also revealed the insurer was attempting to get information from the insureds to resolve the claim, and that the carrier tendered the $35,000 limit multiple times, which offers were refused or ignored.

The Superior Court favorably quoted the trial court on how to address conclusory bad faith allegations in responding to a summary judgment motion. The trial court had relied on Pennsylvania Supreme Court precedent in reaching its conclusion:

“Allowing non-moving parties to avoid summary judgment where they have no evidence to support an issue on which they bear the burden of proof runs contrary to the spirit of [Pennsylvania Rules of Civil Procedure] 1035. We have stated that the mission of the summary judgment procedure is to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for a trial. We have a summary judgment rule in this Commonwealth in order to dispense with a trial of a case (or, in some matters, issues in a case) where the party lacks the beginnings of evidence to establish or contest a material issue…. Forcing parties to go to trial on a meritless claim under the guise of effectuating the summary judgment rule is a perversion of that rule. [Emphasis added]

Thus, we hold that a non-moving party must adduce sufficient evidence on an issue essential to his case and on which he bears the burden of proof such that a jury could return a verdict in his favor.”

In this case, the Superior Court found that plaintiffs’ “lacked ‘the beginnings of evidence’ concerning how [the insurer] engaged in dilatory and abusive claims handling, and subordinated the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interest.”  The insureds failed to adduce sufficient evidence of record concerning delays, or evidence that any delay in tendering settlement was unreasonable or done with knowing or reckless disregard that the delay was unreasonable.

The underlying dispute over whether coverage was $1,000,000 or $35,000, and the insureds insistence on pursuing large six figure demands, contributed to the circumstances of any delays.

Date of Decision:  September 11, 2020

Beach v. The Navigators Insurance Company, Superior Court of Pennsylvania No. 1550 MDA 2019, 2020 WL 5494530 (Pa. Super. Ct. Sept. 11, 2020) (Musmanno, Panella, Stabile, JJ.)

NO BAD FAITH POSSIBLE WHERE INSURER HAS ANY REASONABLE BASIS FOR ITS CONDUCT; UIPA AND UCSP REGULATIONS DO NOT CREATE BASIS FOR BAD FAITH CLAIMS (Philadelphia Federal)

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This UIM bad faith claim involved allegations of delayed investigation and settlement payment. The insurer moved for summary judgment, which Eastern District Judge Robreno granted.

The court observed that any reasonable basis to deny coverage defeats a bad faith claim, and consultation with counsel can establish a reasonable basis for the insurer’s actions. Negligence or poor judgment do not make out a bad faith case. Further, “[a]n insurer who investigates legitimate questions of insurance coverage is not acting in bad faith, and no insurer is required ‘to submerge its own interest in order that the insured’s interests may be made paramount.’”

Moreover, although bad faith can be proven through unreasonable delays in paying on a claim, “’a long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.’” For example, if the insurer’s delay is tied to its need for further investigation, this is not bad faith.

Judge Robreno’s opinion sets forth a meticulous recitation of the factual history. The key factual issues were the length of time in reaching a settlement and the investigation into what portion of the insured’s injuries were attributable to the accident at issue vs. a separate auto accident in the preceding year.

In analyzing these facts, the court observed that the insureds’ principal argument was that the insurer took 15 months to make a settlement offer. However, the court found this was “not a per se violation of § 8371, and courts have found no bad faith in cases where insurers took the same length of time to evaluate a claim.” (Emphasis in original)

Drilling down with specific calendar calculations by relevant event, Judge Robreno found the length of time attributable to the insurer’s own delay was around 9 months. This was only half of the nearly 18-month period between the first petition to open a UIM file and filing suit. Further, during its investigation, the insurer had “repeatedly asked … for additional medical documentation, repeatedly communicated with Plaintiffs’ Counsel, and provided updates on the progress of the investigation. In the light most favorable to Plaintiffs, no reasonable jury could find by clear and convincing evidence that Defendant lacked any reasonable basis in its investigation.” (Emphasis in original)

UIPA and UCSP regulations not a basis for bad faith here

In a closing footnote Judge Robreno rejects the insureds’ effort to create a claim from the Unfair Insurance Practices Act (UIPA) or Unfair Claims Settlement Practices (UCSP) regulations.

He states, “While recognizing that they do not provide private causes of action, Plaintiff also cites to the Pennsylvania Unfair Insurance Practices Act, 40 Pa. C.S. § 1171, and the Pennsylvania Unfair Claims Settlement Practices regulations, 31 Pa. Code § 146, which each require prompt and reasonable responses from insurers in response to a claim, as further evidence of Defendant’s bad faith conduct. … However, ‘a violation of the UIPA or UCSP is not a per se violation of the bad faith standard.’ …. Further, both statutes apply to behavior performed with such recurrence as to signify a general business practice. See 31 Pa. Code § 146.1; 40 Pa. C.S. § 1171.5(a)(10). Because Plaintiffs only identify an isolated instance of Defendant’s alleged bad faith conduct in their argument that Defendant violated both statutes, neither is persuasive in showing Defendant lacked any reasonable basis in delaying Plaintiffs’ claim.” (Emphasis in original)

Date of Decision: March 19, 2020

Bernstein v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1899, 2020 U.S. Dist. LEXIS 47798 (E.D. Pa. Mar. 19, 2020) (Robreno, J.)

 

NO BAD FAITH: (1) LOW BUT REASONABLE SETTLEMENT OFFER; (2) FAILURE TO PAY FULL RESERVES NOT BAD FAITH; (3) ADDITIONAL INVESTIGATION WOULD NOT HAVE CHANGED RESULT; (4) INSURED DELAYED CLAIMS HANDLING (Western District)

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In this UIM bad faith case, the court set out a detailed claims handling history. It shows an active claims handler, conflicting expert reports, and what appears to be a genuine dispute over the scope of the insured’s injury. The central discrepancy is between permanent disability vs. no medical record of serious injury.

The court granted summary judgment on bad faith, finding the insured could not meet the clear and convincing evidence standard. It specifically addressed four issues in reaching this conclusion.

  1. Was the Settlement Offer Unreasonably Low?

The insured claimed losses in excess of $2,000,000. The UIM insurer offered $25,000. As the tortfeasor’s carrier paid $100,000, this meant the UIM carrier valued the claim at $125,000.

The court set out the relevant law. Low but reasonable offers are not bad faith, but “low-ball offers which bear no reasonable relationship to an insured’s actual losses can constitute bad faith….” A carrier can reasonably rely on expert opinion when investigating claims. In this context, insurers “can rely on IMEs of qualified health professionals who examine claimants in a usual and customary manner.”

First, the court found the claims handler’s well documented file showed an IME was warranted. Next, the court examined the claims handler’s review of the insured’s economic expert’s report of over a $2,000,000. The court found that multiple medical reports provided the claims handler with a reasonable basis to question the economic expert’s critical assumption of permanent disabled. “Thus, with no other evidence to establish [the insured’s] economic losses other than [the economic expert’s] report that assumes total disability, no reasonable juror could find bad faith by clear and convincing evidence from [the] $25,000 settlement offer to [the insured].”

  1. Reserves

Reserves were set at $55,000. The insured asserted the insurer should have offered the $55,000, rather than $25,000. The court stated that an insurance company must set reserves aside when placed on notice of a possible loss arising under its policy. “However, the failure of a carrier to offer its full settlement authority does not constitute bad faith.” In the present case, “because the Court finds no sufficient evidence of bad faith as to the $25,000 settlement offer, there is likewise no bad faith in [the insurer’s] reserve for this UIM claim.”

  1. Adequacy of Investigation

To prove bad faith investigation, the insured “must show that the outcome of the case would have been different if the insurer had done what the insured wanted done.” The putative investigative failures here would not have changed the result.

Thus, even if the claims handler had reviewed the economic loss reports with her own economic experts, sought medical authorizations, or spoken to treating physicians or the tortfeasor’s lawyer, this additional investigation would not have altered the IME opinions that there was no permanent injury, and that any injuries had resolved. These IMEs provided a reasonable basis to contest value. “Therefore, [the insured] cannot meet his burden to show that a reasonable juror could find by clear and convincing evidence that [the insurer] would have evaluated [the] claim differently had it conducted an earlier or different investigation as argued by plaintiff’s counsel.”

  1. Unnecessary Delay in Investigation

“In order for an insured to recover for bad faith from delay, an insured must demonstrate that ‘the delay is attributable to the defendant, that the defendant had no reasonable basis for the actions it undertook which resulted in the delay, and that the defendant knew or recklessly disregarded the fact that it had no reasonable basis to deny payment.’”

The court first observed that much of the delay in this matter was caused by the insured. There were delays in providing information and producing documents to the insurer. The insured also changed his damage theory during the claims handling process, which led to insurer to require additional evaluations. Thus, “no reasonable juror could conclude by clear and convincing evidence that [the insurer] acted in bad faith in the timeline of its investigation….”

Date of Decision: February 19, 2020

Stewart v. GEICO Insurance, U.S. District Court Western District of Pennsylvania 2:18-CV-00791-MJH, 2020 U.S. Dist. LEXIS 28459 (W.D. Pa. Feb. 19, 2020) (Horan, J.)

Our thanks to Attorney Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

 

MAY 2018 BAD FAITH CASES: (1) DENIAL OF BENEFITS (2) INADEQUATE INVESTIGATION AND (3) UNREASONABLE DELAY AS POTENTIAL BASES FOR STATUTORY BAD FAITH (Philadelphia Federal)

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This post includes two opinions from consecutive days issued by the same judge in the Eastern District. In these two opinions, the court sets forth various standards for pursuing potential statutory bad faith claims, including (1) benefit denial; or (2) unreasonable investigations; or (3) delays in either (a) the claim handling process or (b) paying benefits due. As noted before on this blog, there is an issue whether statutory bad faith can exist for poor investigation or claim handling practices where no benefit was due.

CASE 1

In the first case, the insurer denied disability benefits. The insured sued for breach of contract and bad faith. The bad faith claim was based on two theories: (1) unreasonable denial of benefits and (2) improper claim handling during the investigation. The court denied the motion to dismiss the coverage based bad faith claim for denying benefits, but granted the motion to dismiss the bad faith claim based on an inadequate investigation.

DENIAL OF BENEFIT BAD FAITH

The court’s bad faith analysis began with basic statements of statutory bad faith law:

  1. “To establish bad faith under 42 Pa.C.S. § 8371, a plaintiff must demonstrate that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis.”

  2. “In the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing.”

  3. “To defeat a claim of bad faith an insurer need not show that the insurer was correct; rather, an insurer must demonstrate that it had a reasonable basis for its decision to deny benefits.”

  4. “A reasonable basis is all that is required to defeat a claim of bad faith.”

  5. “On the other hand, ‘an unreasonable interpretation of the policy provisions as well as a blatant misrepresentation of the facts or policy provisions will support a bad faith claim.’”

INADEQUATE INVESTIGATION BAD FAITH

These principles, however, were not the sole means to define bad faith. The court cited case law for potential bad faith conduct that went beyond these basic parameters, beginning with the proposition that “[s]ection 8371 also encompasses a broad range of other conduct including inadequate investigations.”

Concerning “inadequate investigation” bad faith, the court stated the following:

  1. “Courts have held that an insurer must ‘properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.’”

  2. “Bad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’”

  3. An insurer, however, need not demonstrate that its investigation resulted in the correct conclusion or that its investigation was perfect; rather it must simply show that its investigation was ‘sufficiently thorough to justify its decision to deny the claim.’”

The insured’s amended complaint based her bad faith claims on two distinct theories: “(1) a denial of benefits predicated either on an unreasonable interpretation of the terms and conditions of the Policy or on imposition of requirements that do not exist in the Policy; and (2) a failure to conduct a reasonable or adequate investigation into the nature and extent of either Plaintiff’s physical condition or Plaintiff’s occupation.”

The court refused to dismiss under the first theory, finding that factual issues remained on the coverage questions. However, it did dismiss the bad faith claim under the second theory. Although the plaintiff had added some allegations to support her inadequate investigation claim, “[t]hese additional allegations fail to successfully move Plaintiff’s bad faith claim from the realm of mere possibility to that of plausibility.”

Exhibits to the amended complaint showed, among other things, that the insurer had considered the insured’s medical information as well as statements regarding her occupational duties. Further, the insured failed to report her disability for years, with this delay and its consequences solely her responsibility. As the court summed up its dismissal: “Although Defendant’s investigation may not have been perfect, the allegations of the Amended Complaint do not raise a plausible inference that it was so deficient as to rise to the level of bad faith.”

Date of Decision: May 22, 2018

Wiessmann v. Northwestern Mutual Life Ins. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 16-6261, 2018 U.S. Dist. LEXIS 86103 (E.D. Pa. May 22, 2018) (Goldberg, J.)

CASE 2

The second case involved UIM breach of contract and bad faith claims. The insurer moved for summary judgment on the bad faith claim. In carrying out its bad faith analysis, the court observes the same principles quoted above concerning denial of benefits, burden of proof, and inadequate investigation, but also adds more detailed principles concerning delay as a basis for bad faith.

Similar to the first decision, the court initially observes basic bad faith principles: “In Pennsylvania, ‘bad faith’ in insurance cases is defined as ‘any frivolous or unfounded refusal to pay proceeds of a policy. … Bad faith must be demonstrated by clear and convincing evidence, ‘a burden that applies even on summary judgment.’ … To establish bad faith under 42 Pa.C.S. § 8371, a plaintiff must demonstrate that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis. … In the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing. … While mere negligence or bad judgment are insufficient, a showing of reckless disregard will suffice to establish bad faith.”

UNREASONABLE DELAY BAD FAITH

Next, as in the first case, the court states “Section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may extend to the insurer’s investigative practices.” The court then observes standards for another measure of bad faith not detailed in the first opinion: “A bad faith insurance practice can also include an unreasonable delay in handling or paying claims. … Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

The court sets forth the following principles concerning bad faith delay claims:

  1. “To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.”

  2. The plaintiff bears the burden of establishing delay by clear and convincing evidence.”

  3. A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.”

  4. “[I]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.”

The court uses examples from prior case law to show specific time periods that did not constitute bad faith delays. In one precedent, “a delay of fifteen months to resolve a claim—during which the insurer took the insured’s deposition nine months after notification of the claim, waited one year before taking the insured’s deposition and waited fourteen months to obtain a vocational assessment—was not an unreasonable length of time so as to rise to the level of bad faith, even though the insurer could have completed its investigation with greater speed”. In another, “even if all delay were attributable to the insurer, a period of approximately thirteen months between notification of UIM claim and resolution of claim through arbitration would not, without more, be sufficient to establish bad faith”.

In applying these principles, the court lays out a detailed factual history of the insurer’s claim handling during the adjuster’s investigation, including the history of communications between the adjuster and the insured’s attorney and requests for various documents and records. Despite this detailed factual record, however, the insured solely relied on his complaint’s averments to oppose summary judgment. These amounted to conclusory allegations that could not meet the clear and convincing evidence standard.

Independently, the court found “the undisputed evidence reveal[ed] no bad faith investigation or delay on Defendant’s part.” In conclusion, the court observed that “any delay was attributable to both Defendant’s well-founded need to investigate the claim and Plaintiff’s own delays in providing the requested information. Based on this undisputed record, no reasonable factfinder could determine that Defendant acted in bad faith in investigating and/or evaluating Plaintiff’s UIM claim.” Thus, the court granted summary judgment on the bad faith claim.

Date of Decision: May 23, 2018

Williams v. Liberty Mutual Insurance, U. S. District Court, Eastern District of Pennsylvania CIVIL ACTION No. 17-3862, 2018 U.S. Dist. LEXIS 86356 (E.D. Pa. May 23, 2018) (Goldberg, J.)

 

 

MARCH 2018 BAD FAITH CASES: NEGLIGENCE IS NOT BAD FAITH; SUMMARY JUDGMENT CANNOT BE DEFEATED WHERE RECORD CONTRADICTS BALD ALLEGATIONS OF BAD FAITH (Philadelphia Federal)

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In this UIM case, the actual record warranted summary judgment for the insurer, despite allegations of bad faith to the contrary.

The insured submitted a UIM claim for injuries sustained to his elbow. The insured recovered $100,000 from the tortfeasor’s insurer, and then requested maximum UIM benefits of $200,000. Three weeks before the accident, the insured had injured the elbow when he fell at his home.

The insured’s counsel initially attempted to contact a claims specialist who no longer worked for insurer. Nearly four months later, the insurer responded that that this adjuster no longer worked there, but the UIM claim was being transferred to another claims specialist immediately. The insurer did immediately begin processing the claim, and continually requested additional medical records from the insured, to no avail.

The insured filed suit for bad faith and breach of contract, and the insurer moved for summary judgment on the bad faith claim, which was granted for the following reasons:

Negligence is not bad faith.

  1. The insured argued bad faith in delaying the UIM investigation for four months. The Court ruled that in light of the fact that the initial demand letter was sent to the wrong person, the delay in opening the claim amounted to mere negligence, not bad faith.

The record contradicts the insured’s alleged bases for bad faith.

  1. The insured argued a failure to tender reasonable UIM benefits. The Court rejected this argument, stating that a partial valuation of the claim had neither been made nor requested by the insured.

  2. The insured argued the insurer used dilatory tactics and failed to investigate the claim. The Court found this “patently false,” because the record showed the insurer continually communicated with the insured and retained three separate physicians who all concluded the insured suffered no additional elbow injury due to the auto accident.

  3. The insured argued the claim was frivolously denied. The Court rejected this argument, citing the thorough investigation conducted by the insurer.

Date of Decision: March 6, 2018

Smith v. LM General Insurance Co., CIVIL ACTION NO. 17-02310, 2018 U.S. Dist. LEXIS 35773 (E.D. Pa. Mar. 6, 2018) (Pappert, J.)

AUGUST 2017 BAD FAITH CASES: NO BAD FAITH WHERE THE INSURED OBFUSCATED THE CLAIMS HANDLING PROCESS AND REFUSED TO COOPERATE WITH INSURER (Philadelphia Federal)

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This 95-page opinion granting the insurer summary judgment provides an extremely detailed review of the facts, and considerable exposition of bad faith case law concerning investigation and claims handling.

As set forth in the Opinion, the insured owned multiple rental properties that she leased out to college students. Beginning in 2005, she purchased landlord property insurance policies from the insurer. In 2014, tenants moved into the properties and alerted township police to deplorable conditions.

The police report catalogued broken windows, buckled hardwood floors, water damage, ceiling damage, removed and damaged fixtures and doors, detached ceiling lights and smoke alarms, peeling paint, an overgrown lawn, broken appliances, trash, and mice droppings. The tenants then broke their leases, citing a breach of the implied warranty of habitability.

A township code official inspected and photographed the properties and prepared a list of code violations. The official posted violation notices, and revoked the insured’s student rental licenses. The insured notified both the insurer and her insurance broker, and made a claim for the property damage and lost rent.

The insurer mistakenly filed the insured’s communication in a preexisting file related to another claim with the same insured. However, an employee of the insurance broker immediately called the insured to request more facts relevant to the claim. The insured did not pick up the call and did not return the voicemail.

The township later brought a code violation action against the insured in the Court of Common Pleas, as well as for the insured’s failure to allow mandated property inspections over several years. The insured then reached out to the insurer, and repeatedly claimed that her earlier communications went unanswered.

The insured’s story changed, however, after the insurer produced evidence of phone calls and emails from claims adjusters. The insured conceded that she did in fact speak to someone, but she only “sort of” recalled the conversation.

Even after the rental license revocations, the insured again rented properties to two other college students. Similar physical problems arose, and the new tenants were likewise unable to reside at the properties. The township locked the insured out of the properties.

Throughout this period, the insurer’s claims handlers continually attempted to communicate with the insured to gather more facts concerning the insured’s claim. The insured received an email stating “‘it is imperative that I make voice to voice contact with you to get accurate loss facts regarding the claim that you submitted’ since ‘the claims process is reliant on the information that is shared between ‘you’ the insured and ‘me’ the claims adjuster.’”

Several days after the insured received that email, the adjuster had a telephone call with the insured, but the insured said she could not speak with the adjuster due to ongoing litigation. The insured then hung up the phone.

The insurer took the position that the policy did not provide coverage for property damage, lost rents or the township’s suit against the insured.

The insured sued the insurer for breach of contract, bad faith, and alleged violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The Court granted the insurer’s motion for summary judgment on the breach of contract claim, stating that the insurance policies were not “all risk” policies whereby coverage is automatically triggered in the event of loss.

Furthermore, the insured failed to show that the losses occurred suddenly and accidentally, and the insured had no reasonable expectation of coverage. The court also found that the insurer had no duty to defend the insured in the state court action. Additionally, the court granted the insurer summary judgment on the UTPCPL claim, finding no fraud or misrepresentations to the insured with regard to the policies.

As to the bad faith claim, the insured alleged that the insurer intentionally delayed opening a claim, delayed commencing its investigation, and that it lacked a reasonable basis for refusing to pay the insured benefits under the policies.

The Court found that there existed no clear and convincing evidence that the insurer acted in bad faith. The Court stated that “the record makes clear that [the insurer’s] delays are attributable to mistake, possible confusion between [the insurer] and [the broker,] and [the insured’s] obfuscation and refusal to cooperate with [the claims] representatives.”

The Court further opined that the bad faith claim must fail because the evidence shows the insurer conducted an adequate investigation and had a reasonable basis for denying coverage. Any delays on the part of the insurer were attributable to the insured’s “repeated failures to provide the information necessary to open a claim….”

The Court granted the insurer’s motion for summary judgment in its entirety.

Date of Decision: April 6, 2017

Doherty v. Allstate Indem. Co., No. 15-05165, 2017 U.S. Dist. LEXIS 52795 (E.D. Pa. April 6, 2017) (Pappert, J.)

This decision was affirmed on appeal.

Doherty v. Allstate Indem. Co., U. S. Court of Appeals Third Circuit No. 17-1860, 2018 U.S. App. LEXIS 13900 (3d Cir. May 25, 2018) (Fuentes, Greenaway, Rendell, JJ.)

 

JUNE 2017 BAD FAITH CASES: NO BAD FAITH DELAY IN CLAIMS HANDLING PROCESS (Philadelphia Federal)

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This summary judgment opinion involved a bad faith dispute based on alleged delay in claims handling in the course of an appraisal process valuing property loss. The court had earlier dismissed the insureds’ breach of contract claim, but had allowed the bad faith claim to proceed.

The court first observed that in its earlier decision, the dispute over the claim value was not the basis for a breach of contract claim, where the insureds could not show the actual breach of a contractual duty.

In allowing the bad faith claim to proceed, the court had “expressly found that the amended complaint limited the bad faith claim to the delay in the appraisal process,” not value. Thus, it rejected the insureds’ current effort to assert bad faith for undervaluing of the claim, which the court found “irrelevant.”

The court summarized the law concerning delay and bad faith. “[A] bad faith insurance practice can include an unreasonable delay in handling or paying claims.” “Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.”

It is “[t]he plaintiff [who] bears the burden of establishing delay by clear and convincing evidence.” “A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.” Further, “’[i]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’”

The court closely analyzed the history of the parties’ conduct of the appraisal process. The court found the first alleged delay of 5 weeks in acknowledging the appraisal demand was de minimis, and could not lead a reasonable jury to find bad faith.

Moreover, after acknowledging the demand, the insurer’s appraiser reached out to the insureds’ appraiser, but the insureds’ appraiser stated he could not begin work until he had a signed agreement with the insureds. Once he had that signed agreement, the two appraisers then executed a joint declaration and began their inspections. This could not be the basis for a bad faith claim.

The court also rejected the argument for bad faith during a subsequent 5-month period during the appraisal process. Both appraisers carried out investigations during the first three months of this period. The insurer’s appraiser also had lab tests done regarding asbestos remediation, investigated the HVAC system, and conducted extensive research in response to the insureds’ claim for engineering and architectural fees, which involved multiple interviews with the plaintiffs’ engineer and architect.

Part of a month-long time lapse thereafter included deference by the insurer to the insureds’ appraiser traveling to Florida for his mother’s funeral. Once he returned, both appraisers spoke again, and submitted the claim to an umpire.

In sum, plaintiffs could not meet their burden to establish that the putative “delay was unreasonable, that it was solely attributable to [the insurer] or that [the insurer] had no reasonable basis for causing any such delay.” Any alleged delays were “an ordinary part of legal and insurance work.”

The eight months at issue from the time of demand to the time of the umpire’s meeting was “relatively minimal,” and during “that period, both parties’ appraisers were actively conducting investigations, with much of the actual delay attributable to plaintiffs’ own adjuster.”

The court granted summary judgment for the insurer.

Date of Decision: June 8, 2017

Dagit v. Allstate Property & Casualty Insurance Company, No. 16-3843, 2017 U.S. Dist. LEXIS 87971 (E.D. Pa. June 8, 2017) (O’Neill, Jr., J.)

JUNE 2017 BAD FAITH CASES: INSURED CANNOT PROFIT BY BRINGING A BAD FAITH CASE DUE TO THEIR OWN LACK OF ACTION DURING CLAIM HANDLING (Middle District)

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This property loss case provides a good summary of basic bad faith law leading into its analysis of the facts, and then some strong language on bringing a bad faith claim where the insured’s own conduct led to the delays at issue.

Quoting the Court:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that “the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. “The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith.'” J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004).”

In this case, the insurer paid “no less than $347,000” for real and personal property loss from fire, with a remaining dispute over $17,000 for landscaping issues. That contract dispute could not be resolved on summary judgment. However, the bad faith claim was resolved on summary judgment, where the court found it “unthinkable” on the facts that a jury could find bad faith.

The bad faith claim centered on the timing of making payments for personal property loss (which had been ultimately paid to the policy limits). The court observed that the analytic framework for measuring claims of delay in making such payments began with the terms of the insurance policy itself. Unambiguous policy language placed most responsibility for the timing and amount of payments on actions required of the insureds. In this case, the insureds did not provide required documentation for over a year.

The court analyzed the history and concluded: “In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Date of Decision: May 30, 2017

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)