Archive for the 'PA – Delay (Investigation/Claims handling)' Category

NO BAD FAITH PLEADED: (1) 38 BAD FAITH ALLEGATIONS ALL CONCLUSORY; (2) ONLY A VALUATION DISPUTE; (3) INSURER DID NOT “CONSTRUCTIVELY IGNORE” RECORDS SUPPORTING CLAIM; (4) NO DILATORY CONDUCT SPECIFICALLY PLEADED; (5) “LOW BALL” OFFER ALLEGATION ISN’T SUFFICIENT IN ITSELF TO STATE A BAD FAITH CLAIM (Philadelphia Federal)

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“If at first you don’t succeed, try and try again.”  That didn’t work in this case, where a bad faith claim was dismissed with prejudice after Eastern District Judge Pratter had already given the plaintiff leave to replead. A summary of Judge Pratter’s original decision in this uninsured motorist bad faith case can be found here.

In her second decision, Judge Pratter finds, among other things:

  1. “All told, the Amended Complaint contains a list of 38 ways in which Liberty Mutual allegedly acted in bad faith. But this list is a list of conclusions—not facts.”

  2. “[T]here are no details that would describe what was supposedly unfair about the process, other than that [the insured] disputes the value of the settlement offer.”

  3. There is no plausible for “constructively ignoring” medical records because the reviewer was not “medically educated”. “[T]here is nothing pled that the claims adjusters are somehow ill-equipped to perform their job—which entails reviewing medical records in connection with a claim.”

  4. The Court’s first opinion signaled the insured needed to plead more specific facts to support an allegation of bad faith dilatory conduct, “i.e., the number of months between demand and settlement offer.” However, “[t]he Amended Complaint does not describe the course of the parties’ dealings, let alone whether Liberty Mutual delayed its offer of settlement.”

  5. “In the final analysis, the Amended Complaint reflects a disagreement over the amount of settlement of [the insured’s] claim. To state a bad faith claim, an insured must do more than call [the insurer’s] offers ‘low-ball.’” As the Court explained at length in its prior opinion, this appears to be a familiar dispute between parties over the entitlement to UM coverage as an initial matter as well as the value of a claim to UM benefits. Moreover, accepting the well-pleaded allegations as true that [the insured] is indeed entitled to UM benefits, it does not necessarily follow that she is entitled to the limit of that coverage. A policy limit—as its name suggests—is the theoretical maximum that an insured could recover. ‘It is not the de facto value of a claim.’”

Date of Decision:  August 26, 2021

Brown v. LM Gen. Ins. Co.,  U.S. District Court Eastern District of Pennsylvania 2021 No. CV 21-2134, WL 3809075 (E.D. Pa. Aug. 26, 2021) (Pratter, J.)

MERE EXISTENCE OF CONTINUING INVESTIGATION AND NEGOTIATION RATHER THAN AN ARBITRARY AND IMMEDIATE DENIAL IMPLIES REASONABLENESS ON THE PART OF THE INSURER (Philadelphia Federal)

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The insureds brought breach of contract and bad faith claims in connection with water damage to their home.  Eastern District Judge Tucker granted the insurer summary judgment on the bad faith claim.  She states

When Plaintiffs’ home was damaged by an overflowing toilet, [the insurer] inspected the loss and made payments on the dwelling damage and personal items it determined to be related to the loss. Later, when Plaintiffs submitted other estimates, [the insurer] reviewed those estimates to determine if payment was warranted, and that the scope of those estimates was in line with its own damage observations. When there were concerns on scope and pricing, [the insurer] asked for re-inspections and negotiated with Plaintiffs. Plaintiffs argue that the denial of payment is unreasonable because under a “replacement cost policy” like theirs, Defendant is to make payment on an actual cash value basis until the repairs are made, after which depreciation is payable to the policy holders. But Plaintiffs fail to present sufficient evidence of unreasonableness in their claim processing. While claim negotiations were ongoing at the time suit was initiated, and reimbursement or denial of depreciation costs may have eventually taken place, the mere existence of continuing investigation and negotiation rather than an arbitrary and immediate denial implies reasonableness on the part of Defendant.

Date of Decision:  August 13, 2021

Davis v. Safeco Insurance Company of Illinois, U.S. District Court Eastern District of Pennsylvania No. CV 19-3871, 2021 WL 3603037 (E.D. Pa. Aug. 13, 2021) (Tucker, J.)

 

COURT ADDRESSES (1) COMMON LAW VS. STATUTORY BAD FAITH STANDARDS; (2) LACK OF CLARITY IN THE LAW AND BAD FAITH; (3) DELAYS IN CLAIM HANDLING AND SETTLEMENT OFFERS; (4) APPLYING THE UNFAIR INSURANCE PRACTICES ACT IN BAD FAITH CASES; (5) AGGRESSIVE DISCOVERY/CLAIM HANDLING DURING LITIGATION; and (6) LOW RANGE SETTLEMENT OFFERS (Philadelphia Federal)

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Eastern District Judge Tucker explains the similarities and differences between common law and statutory bad faith, in granting the insurer summary judgment on the statutory bad faith claim, but rejecting dismissal of the common law bad faith claims.  She observes both types of bad faith are subject to the clear and convincing evidence standard. However, common law bad faith only requires proof of negligent claim handling, while statutory bad faith requires a knowingly or recklessly unreasonable claim denial.

Judge Tucker cites Judge McLaughlin’s 2007 Dewalt case as authority on the negligence standard.  Judge Tucker does focus on the Cowden type of common law bad faith in discussing these standards, i.e., an insurer can avoid a common law bad faith claim for failure to settle within policy limits by showing “a bona fide belief … predicated on all the circumstances of the case, that it has a good possibility of winning the suit.”  This kind of third party insurance bad faith claim was not before the court.  Rather, the facts involved an underinsured motorist claim.

In an earlier decision, Judge Tucker entered judgment for the insurer on the basis the plaintiff did not qualify as an insured under the policy.  The Third Circuit reversed her decision.  While true the policy language did not provide the plaintiff UIM coverage, the Third Circuit found this limitation violated Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).

On remand, the insured argued that the policy was issued in bad faith because it included language violating the MVFRL.  Judge Tucker rejected the common law bad faith claim on this point.  There was no precedent or binding authority on point before the Third Circuit’s decision, and the carrier’s position, while ultimately incorrect, was not unreasonable. “This matters because an insurer making a reasonable judgment as to coverage in a situation where the law is not clear cannot be liable for bad faith.”

This did not end the common law bad faith inquiry. Once the Third Circuit ruled, making the law applied to the policy crystal clear, this changed the measure of the insurer’s behavior, i.e., at that point the carrier knew it had an obligation to provide UIM coverage. In determining the common law bad faith claim, Judge Tucker stated:

  1. Conduct that postdates the start of litigation can form the basis for a proper bad faith claim.

  2. After the Third Circuit ruled that the Nationwide policy violated the MVFRL, Nationwide did not extend a settlement offer for ten months after the decision.

  3. When Nationwide did present an offer … it was for just $500,000 of the UIM benefits—in exchange for releasing the bad faith and class action claims.

  4. This offer was doubled a week later to $1 million, but it was contingent on a broader release of all disputes related to coverage.

  5. A failure to “promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy” is considered an unfair insurance practice under Pennsylvania law. 40 Pa. Stat. Ann. § 1171.5(a)(10)(xiii).

  6. The [UIPA] also singles out a refusal to “effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear” as a similarly unfair insurance practice.

  7. While a violation of the Unfair Insurance Practice Act (UIPA) does not constitute a per se violation of the bad faith statute, it does point to a material fact that could support a common law bad faith claim. [Judge Tucker observes apparently contrasting case law on this point, quoting some cases to the effect that UIPA violations are not bad faith per se, and another that “the rules of statutory construction permit a trial court to consider … the alleged conduct constituting violations of the UIPA or the regulations in determining whether an insurer, like Nationwide, acted in ‘bad faith.”]

  8. Again citing Dewalt, Judge Tucker states: The fact that Nationwide offered a settlement is also not a safe harbor from a bad faith claim. “Although most Pennsylvania cases finding bad faith do so in situations where an insurer refuses to settle, no case suggests that such a refusal is a pre-requisite for a bad faith claim.”

  9. Judge Tucker concludes that: Given the resolution of the disputed terms in the Nationwide policy by the Third Circuit, Defendant’s refusal to provide an unconditioned settlement for a claim under those terms is enough evidence that a reasonable jury could find in favor of Plaintiff on the common law bad faith claim.

Thus, the common law bad faith was allowed to proceed. The statutory bad faith claim was not.

The pre-suit conduct, i.e., drafting the policy with a clause violating the MVFRL, certainly could not be bad faith under the higher statutory standards if it did not constitute negligence under the common law standard.  Plaintiff could not show by clear and convincing evidence that the policy language and the carrier’s conduct in following that language was objectively unreasonable at the time, much less in knowing or reckless disregard of some unreasonable conduct.

As to litigation conduct after the Third Circuit had ruled, the insurer pursued aggressive discovery.  [This discovery was essentially the insurer’s claim handling at this point.]  Judge Tucker laid out the details of the insurer’s discovery/claim handling and specific events over the course of discovery/claim handling.  This included the insurer’s making a number of reasonable requests for information and the insured’s creating delays.  The carrier’s zealous, and maybe at times questionable, defense tactics did not equate to bad faith.

Judge Tucker also observed that offers on the low end of a settlement range for subjective damages such as pain and suffering do not constitute clear and convincing evidence that the insurer’s action were unreasonable, knowing or reckless.  These sorts of claims require investigation, and the carrier’s discovery on these issues amounted to standard claim handling.

Judge Tucker next stated that the insurer’s 10 month delay in making a settlement offer, absent other aggravating factors, was “well under periods of time that have been deemed acceptable for statutory bad faith purposes.”

Judge Tucker also found it significant that the insurer “communicated with Plaintiff during discovery, sending multiple document requests and communicating with Plaintiff’s counsel, which is arguably more responsive than the amount of communication Defendant received in response. This too weighs against whether a reasonable jury could rule that Nationwide had knowing or reckless disregard for the deficiency of its position.”

Thus, summary judgment was denied on the statutory bad faith claim.

Date of Decision:  July 14, 2021

Slupski v. Nationwide Mutual Insurance Company, U. S. District Court Eastern District Pennsylvania No. CV 18-3999, 2021 WL 2948829 (E.D. Pa. July 14, 2021) (Tucker, J.)

NO BAD FAITH CLAIM HANDLING OR DELAY IN UIM BAD FAITH CASE (C.C.P. Monroe)

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The excellent, and important, TortTalk blog has posted a summary of Monroe County Judge Williamson’s decision in Sabajo v. Allstate, granting summary judgment to the insurer on a UIM bad faith claim.  After reviewing the record, Judge Williamson could not find clear and convincing evidence of bad faith conduct in claim handling, or any delay that amounted to bad faith.  A copy of the opinion can be found here, Sabajo v. Allstate Fire and Casualty Insurance Co., Court of Common Pleas Monroe County, No. 7703 Civil 2019 (June 22, 2021) (Williamson, J.)

Our thanks to Attorney Daniel Cummins for bringing this case to our attention.

ASSIGNEE LACKS STANDING IF NOT THE INJURED PARTY; BAD FAITH BASED ON LACK OF COMMUNICATION POSSIBLE; 9-10 MONTH DELAY ALONE CANNOT CREATE BAD FAITH (Philadelphia Federal)

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This first party fire loss case sets out some significant legal propositions:

  1. A plaintiff has no standing as a section 8371 assignee unless that plaintiff is both (a) a party injured by the insured and (b) a judgment creditor of the insured. In this case, the plaintiff lacked standing because he did not meet those two requirements.

  2. A bad faith claim can be based on the insurer’s failure to communicate with the insured. As we have repeatedly stated on this blog, see for example this January 2020 post and this August 2020 post, it is questionable whether a failure to communicate, or any other standalone claim handling failure, can be the basis for an independently cognizable bad faith claim; or whether poor claim handling is merely a matter of evidence that can be used to prove bad faith where a benefit actually has been denied.  This post from April 2021 has additional discussion on the issue of whether bad faith can exist if no coverage obligation is due, i.e., it addresses the idea that poor claims handling cannot create a statutory bad faith claim in the absence of any actual denial of benefits.

  1. Delay, standing alone, may not constitute bad faith. The court, as a matter of law, citing earlier case examples, found a 9-10 month claim handling delay in itself could not constitute bad faith. Thus, the court states: “Assuming arguendo that the entirety of this delay was attributable to [the insurer], a period of nine or ten months, without more, is insufficient to establish bad faith.”

Date of Decision:  June 29, 2021

Williams v. State Farm, No. 5:21-CV-00058, 2021 WL 2661615 (E.D. Pa. June 29, 2021) (Leeson, J.)

COVERAGE DUE, BUT NO BAD FAITH WHERE (1) REASONABLE INVESTIGATION AND (2) REASONABLY DEBATABLE BASIS TO DECLINE COVERAGE (Philadelphia Federal)

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The case centered on a dispute over whether the plaintiff had an insurable interest in its tenant’s property improvements.  The carrier denied coverage for damage to those improvements, asserting the policy did not cover tenant improvements.  The insured sued for breach of contract and bad faith.

The court found the policy did provide coverage, and ruled for the insured on its breach of contract claim.

On bad faith, the insured alleged the insurer both failed to investigate and that it unreasonably denied coverage.  Magistrate Judge Rice disagreed, finding the insured “lacks clear and convincing evidence that [the insurer] investigated and handled the claim in bad faith or denied coverage without a reasonable basis.”

First, a seven-month delay in the claim handling process was reasonable in light of the insurer’s very detailed and active investigation into the claim.

Second, even though the insurer incorrectly denied coverage, “[b]ecause Pennsylvania courts have held that insurable interest is generally decided by the jury … and there was testimony … contradicting [the insured’] expectation of benefit from the improvements, [the insurer] had sufficient reasonable basis to support its coverage decision.” The court’s own “analysis demonstrates … the existence of an insurable interest as a matter of law is a close question subject to reasonable debate.”

Date of Decision:  June 11, 2021

Greentree Properties Corp. v. Aspen Specialty Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-4646, 2021 WL 2400727 (E.D. Pa. June 11, 2021) (Rice, M.J.)

“SPARSE” FACTUAL ALLEGATIONS ENOUGH TO “NUDGE” CLAIM “ACROSS THE LINE FROM CONCEIVABLE TO PLAUSIBLE” (Middle District)

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For the second time in a week, Middle District Judge Mariani denied an insurer’s motion to dismiss a bad faith claim.  Judge Mariani’s June 3, 2021 decision in Signature Building Systems v. Motorist Mutual is summarized here.

This is a breach of contract and bad faith underinsured motorist action.  The complaint alleged the following.

The insured suffered significant injuries requiring ongoing treatment.  The tortfeasor had $15,000 in coverage, but the insured’s UIM limit on her own policy was $250,000.  The insured pursued underinsured motorist coverage against her carrier.

The insured “fully complied with all terms, conditions, and duties imposed upon her by her Auto Policy.” She “’continually’ provided medical records and reports to Defendant, ‘outlining her injuries, special damages, medical expenses, as well as evidencing her physical pain and suffering’ and has cooperated with Defendant ‘in every way throughout the life of her claims.’”

The insured made the following bad faith allegations:

  1. Failing to properly investigate [the] claim upon notification of same;

  2. Refusing to pay [the] claims without conducting a reasonable investigation based upon all available information;

  3. Failing to promptly and objectively evaluate [the] claims;

  4. Unreasonably delaying the objective and fair evaluation of [the] claim;

  5. Causing unreasonably [sic] delay in all aspects of the handling of [the] claim;

  6. Dilatory and abusive claims handling;

  7. Conducting an unfair, unreasonable and dilatory investigation of [the] claims;

  8. Failing to act in good faith to effectuate prompt, fair, and equitable settlement of [the] claim;

  9. Ignoring competent and overwhelming medical evidence substantiating [the insured’s] injuries and resulting disability;

  10. Ignoring competent and overwhelming medical evidence that injuries the [insured] sustained in the subject motor vehicle have not resolved.

The carrier moved to dismiss the bad faith claim, arguing the foregoing was mere boilerplate that did not meet federal plausible pleading standards.  Judge Mariani disagreed.

First he has no problem in finding the complaint sets out an underinsured motorist coverage claim, and the insured fully complied with the policy and her duties in cooperating with the insurer by “continually” providing medical records that laid out the details of her injuries.

Next, Judge Mariani finds the complaint alleges that despite the insured’s compliance, “Defendant failed to properly investigate her claim, refused to pay her but did not conduct a reasonable investigation, and failed to promptly and objectively evaluate her claim but instead delayed evaluating her claim. Plaintiff further alleges that Defendant’s investigation of her claim was ‘unfair, unreasonable and dilatory’ and that Defendant ignored the medical evidence substantiating her injuries and resulting disability.”

This was enough to state a plausible claim. Although the complaint was “sparse with respect to the bad faith claim, the Complaint contains sufficient well-pleaded factual allegations to ‘nudge[ ]’ Plaintiffs’ claim ‘across the line from conceivable to plausible….” [Note: Judge Mariani quotes this same language in his March 2021 Chuplis decision, summarized here.]

For anyone pleading a bad faith claim, or seeking to dismiss such a claim, it is worthwhile to compare this opinion with Judge Pratter’s Brown opinion, summarized yesterday, or the myriad other cases finding the pleading either lacked, or reached, plausibility.

Date of Decision:  June 10, 2021

Dougherty v. American States Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-2166, 2021 WL 2383229 (M.D. Pa. June 10, 2021) (Mariani, J.)

NO BAD FAITH BASED ON DELAY OR “LOW-BALL” OFFER; POLICY LIMIT IS NOT THE DE FACTO VALUE OF A CLAIM (Philadelphia Federal)

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Eastern District Judge Pratter provides a clear discussion on allegations of delay and valuation that do not make out a bad faith claim.

This underinsured motorist coverage breach of contract and bad faith case focused on a dispute over whether the insured was entitled to stacked benefits.  The insured had waived stacking, but asserted that the insurer’s failure to send new waiver forms when she added additional vehicles negated that waiver.  She pleaded serious personal injuries, and that the insurer only offered $4,500 on the claim.

First, Judge Pratter found the insured failed to plead a plausible claim for bad faith delay.  “Although this complaint alleges the accident took place in January 2020, it does not allege when [the insured] noticed her intent to seek UIM coverage or when [the insurer] transmitted its offer. So, the complaint fails to plead the length of the alleged delay, let alone whether it was unreasonable.”

There were no allegations the insured made a timely demand or that the insurer failed to investigate or conducted an unreasonable investigation. At best, the insured’s argument was that the insured offered $4,500, and when compared to her alleged injuries, this was facially unreasonable.  Judge Pratter did not accept this argument, observing that “the pleadings must provide sufficient allegations from which the Court can plausibly infer that [the insurer] knew or recklessly disregarded a lack of a reasonable basis to deny benefits.”

The complaint revealed “a “’normal dispute between an insured and insurer over the value of a UIM claim’ which is itself predicated on a dispute over [the insured’s] entitlement to stacked coverage limits.” Judge Pratter describes the coverage disagreement as a “live dispute that motivates both the declaratory judgment and breach of contract claims. An insurer’s refusal to pay the policy limit when it disputes that the insured is entitled to any such coverage at all is not evidence of unreasonable conduct that would support a bad faith claim.”

Finally, on bad faith, Judge Patter states that a “low-ball” offer by itself is not necessarily bad faith.  “The complaint contains no allegations that [the insured] submitted documentation of the extent of her injuries to support her position such that she is entitled to the policy limit. A policy limit is just that—the ultimate maximum that an insured could theoretically recover. It is not the de facto value of a claim.”

Judge Pratter did give leave to amend the bad faith claim, but only if the insured could plead within the parameters set out in the Court’s opinion.

Date of Decision:  June 7, 2021

Brown v. LM General Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 21-2134, 2021 WL 2333626 (E.D. Pa. June 7, 2021) (Pratter, J.)

NO BAD FAITH FOR: (1) VALUATION DISPUTE (2) DELAY (3) DECISION MADE BASED ON UNCERTAIN LAW (Middle District)

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Middle District Judge Conner dismissed this UIM bad faith claim on three grounds.

First, the complaint relied upon conclusory averments, and lacked sufficient factual allegations to set forth a plausible bad faith claim.

No bad faith for not paying sum demanded.

Second, the carrier’s decision not to meet the insureds demand did not constitute bad faith. The complaint merely averred that the insureds issued a demand letter, the carrier’s claim handler reviewed the letter and a PIP medical file, and did not offer fair value. The insureds did not plead their demand amount, but only that the insurer refused to pay their demand.

Judge Conner observed that valuation disputes alone cannot create bad faith, citing Judge Caputo’s 2019 Moran decision, summarized here. Judge Conner further relies upon the Third Circuit’s oft-cited 2012 Smith decision, summarized here, for the proposition that “an insurer does not act in bad faith ‘merely because [it] makes a low but reasonable estimate of an insured’s damages….’”

Judge Conner also makes clear that “insurers need not blindly accede to an insured’s demand when the value of the insured’s potential recovery is in dispute.” Supporting this proposition, Judge Conner again cites Smith and his own Castillo v. Progressive, and Yohn v. Nationwide decisions. Applying these principles in the present case, the carrier’s refusal to accede to the insureds’ payment demand alone is not bad faith.

Judge Conner further found the insureds failed to explain how the declination constituted bad faith. The insureds “do not allege: whether or when [the insurer] actually extended an offer; what that offer was; when and whether plaintiffs reviewed, rejected, or countered [the] offer; or why that offer was unreasonable under the circumstances.” “Plaintiffs’ disagreement with an offer made by [an insurer] or its decision not to extend an offer, without more, does not establish a plausible claim.”

No bad faith delay

Third, the insureds could not establish bad faith delay.

An insured alleging bad faith delay must establish 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.”  Judge Conner relies on Eastern District Judge Kelly’s 2011 Thomer v. Allstate decision for this principle.

Judge Conner was “mindful that the process for resolving an insurance claim can be ‘slow and frustrating,’ … but a long claims-processing period does not constitute bad faith by itself….” “Furthermore, delay caused by a reasonable investigation or mere negligence in causing a delay does not amount to bad faith.”

Judge Conner observed that even long delays do not constitute bad faith where an investigation was necessary, citing Thomer (42 months) and Williams v. Hartford (15 months).  In the present case, the UIM claim was submitted only 9 months before suit was filed and a formal demand was only made 5 months before suit was filed.  Moreover, Judge Conner found the insureds themselves concede liability was not clear, and that more investigation was needed to determine the value of their claim. Further, the pleadings suggest “that the parties were engaged in a deliberative process—during which they both reviewed relevant documents, retained counsel, and participated in a negotiation process—shortly before this action was filed.” Some delay was also attributable to the insureds.

Finally, the insureds asserted it was bad faith to review the injured insured’s PIP file without his permission, as this violated “some rule of law.”   Judge Conner disagreed, stating, “an insurer’s reasonable legal conclusion in an uncertain area of law does not constitute bad faith. … Neither party has pointed the court to cases discussing whether or not an insurer’s unauthorized review of an insured’s PIP file is unlawful. Based on the court’s review, it appears that insureds can request to review PIP files, but it is unclear whether permission is required. … Given the apparent dearth of case law on this matter, we cannot conclude at this juncture that [the insurer’s] decision to review [the insured’s] PIP file was per se unreasonable or sufficient to state a plausible claim of bad faith.”

While doubting the pleading deficiencies could be cured, Judge Conner did give leave to file an amended bad faith claim.

Date of Decision: May 17, 2021

Green v. State Farm Mutual Automobile Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1534, 2021 WL 1964608 (M.D. Pa. May 17, 2021) (Conner, J.)

INSURER’S FAILURE TO FOLLOW UP ON ITS OWN INVESTIGATION IDENTIFYING AN ACTUAL LOSS, AND THEN REFUSING TO MAKE ANY PAYMENT, PLAUSIBLY ALLEGES BAD FAITH (Philadelphia Federal)

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Eastern District Judge Padova permitted this first party property damage bad faith claim to proceed, finding the complaint’s allegations were not merely conclusory.

The insureds pleaded the following facts. They reported property damage to their insurer. The carrier hired a construction company to inspect the property, determine needed repairs, and calculate the loss.  The contractor found the property’s foundation and structure were damaged, but “did not calculate the amount of the loss because [the insurer] needed to first determine ‘the extent of the corrective work conducted at or related to [a] neighboring property.’”

The insurer allegedly never made that determination, however, and then refused to pay for the plaintiffs’ known damages. The insureds retained their own expert who valued repairs at over $211,000.

Judge Padova found these allegations went beyond the kind of conclusory pleadings rejected by other courts.

He recognized the principle that: “Implicit in section 8371 is the requirement that the insurer properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.”

Here, the insurer allegedly “acted in bad faith by failing to investigate in good faith and disregarding its own expert’s determination that the structure and foundation of the property were damaged.” Specifically, the complaint alleged the insurer retained an expert to investigate the property damage and then disregarded that expert’s damage assessment, “failed to determine the extent of the corrective work conducted at the neighboring property, refused to investigate the loss to determine what it would cost to repair the foundation and building structure of Plaintiffs’ property, failed to ascertain the amount of the loss, and failed to pay Plaintiffs for the damage to the exterior, foundation, and building structure of their property.”

These factual allegations plausibly stated “a claim for bad faith stemming from [a] failure to properly investigate the damage to Plaintiffs’ property prior to denying coverage.”

Date of Decision:  April 22, 2021

Procoppio v. Foremost Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-5184, 2021 WL 1581487 (E.D. Pa. Apr. 22, 2021) (Padova, J.)