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

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.)

 

INSURED SETS OUT BAD FAITH DELAY CLAIM, AS WELL AS CLAIM FOR ATTORNEY’S FEES (Philadelphia Federal)

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This UIM case involved a claim for full policy limits, amounting to $45,000. The insured alleged serious permanent injuries.

Over two years passed from the time the insured gave notice until the time of suit, with the claim neither paid nor denied. The insured filed suit for declaratory judgment, breach of contract, and bad faith. The insurer moved to dismiss the bad faith claim and attorney’s fee claim, and the court denied the motion.

Bad Faith Claim Based on Delay Adequately Pleaded

The court recognized at least two sources of statutory bad faith: (1) failure to pay and (2) delay in making payment. As to the first, “[w]here a claim of bad faith is based on a refusal to pay benefits under a policy, ‘the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.’” As to the second, “[t]o sufficiently plead bad faith by way of delay, ‘a plaintiff must allege that a defendant had no reasonable basis for the delay in coverage, and that the defendant delayed coverage with knowing or reckless disregard for the unreasonableness of its action.’”

The court found bad faith delay pleaded, based on the following factual allegations:

  1. The insurer “was put on notice of [the] underinsured motorist benefits claim in March 2017.”

  2. “In January 2018, [the insurer] waived its subrogation rights and consented to … settlement with the third-party insurance carrier.”

  3. “On March 30, 2018, [the insurer] advised [the insured] that her claim for underinsured motorist benefits was being evaluated.”

  4. “From April to July 2018, the parties communicated regarding scheduling an EUO, which took place on July 9, 2018.” As pleaded, it was the insurer that sought an EUO in July, and the insured asked to move it up.

  5. “On July 26, 2018, [the insurer] advised [the insured] that it would likely require her to undergo an IME, however, [the insurer] never moved forward with the IME.”

  6. “Between August 2018 and February 2019, [the insured] provided medical records to [the insurer], both unsolicited and at their request.”

  7. “Between February and June 2019, [the insurer] did not notify [the insured] as to the status of her claim, and at the time of the filing of the instant Complaint in September 2019, [the insurer] had neither paid [the] claim, nor denied it.”

The court summarized how these factual allegations made out a bad faith claim. The insured repeatedly tried to have her claim evaluated. She complied with requests for information, provided unsolicited information, and inquired as to the claim status. However, “despite having over two years to conduct its investigation, [the insurer] has unreasonably and without justification failed to approve or deny her claim.” Based on these factual allegations, there appears no reasonable basis to delay the claim evaluation, which the court equated with a failure to evaluate. The knowing/reckless bad faith element was met because the insured had given notice to the insurer through her inquiries and providing information that the claim had not been paid or rejected.

The court cited the Ridolfi, Kelly, and Smerdon cases concerning a delay-based bad faith analysis.

Clear and Convincing Evidence Standard Held Irrelevant at Pleading Stage

The court rejected the argument that the factual pleadings had to be measured against the clear and convincing evidence standard at the motion to dismiss stage. The court stated this standard is relevant, e.g., to trial, but not at the pleading stage. Rather, pleadings are governed by the plausibility standard. Thus, the insured “need not ‘establish’ anything at this early point in the proceedings, let alone ‘by clear and convincing evidence.’” “Whether sufficient facts will be discovered for [the insured] to survive a motion for summary judgment is unknown and may be addressed at a later date.”

Attorney’s Fees Possible under Bad Faith Statute or MVFRL

Finally, the court refused to dismiss the attorney’s fee claim based on both the bad faith statute, and the possibility that attorney’s fees might be permitted under section 1716 of the Motor Vehicle Financial Responsibility Law.

Date of Decision: January 24, 2020

Solano-Sanchez v. State Farm Mutual Auto Insurance Co., U. S. District Court Eastern District of Pennsylvania No. No. 5:19-cv-04016, 2020 U.S. Dist. LEXIS 11784 (E.D. Pa. Jan. 24, 2020) (Leeson, Jr., J.)

[UPDATED JANUARY 25, 2020] COURT ACCEPTS GENERAL ALLEGATIONS OF BAD FAITH CONDUCT AS ADEQUATE, BASED ON APPARENTLY LIMITED PLEADING OF UNDERLYING FACTS CONCERNING SEVERITY OF HARM AND LENGTH OF TIME WITH NO PAYMENT, AND LATER DENIES THE INSURER SUMMARY JUDGMENT ON SAME GROUNDS AND EXPERT REPORT ON DEVIATIONS FROM INDUSTRY CLAIM HANDLING STANDARDS (Western District)

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In this UIM breach of contract and bad faith case, the insureds were severely injured by a drunk driver. There was $600,000 in UIM coverage. No UIM payments were made for two years and the insured brought suit. The insurer moved to dismiss both counts.

The court first found the plaintiffs adequately pleaded a breach of the insurance contract. Next, the court drew inferences from the complaint’s averments in allowing the bad faith claim to proceed.

Specifically, plaintiffs pleaded severe injuries, through no fault of their own, that could not be fully compensated by the tortfeasor’s insurance. The complaint alleges that two years after the accident, the insurer “had failed to make any payments whatsoever to [the insureds] under the policy’s UIM coverage provision.” The insureds complied with the terms of the insurance policy at issue, giving reasonable notice of the accident and cooperating with the investigation.

“The complaint further alleges that, in addition to [the insurer’s] unreasonable delay in claims handling and its unreasonable failure to pay benefits, [the insurer] has failed to make a reasonable settlement offer, failed to reasonably and adequately investigate their claims, and failed to reasonably evaluate or review all pertinent documentation provided by the plaintiffs in support of their claim for UIM benefits. Accepting the facts alleged in the complaint as true and viewing them in the light most favorable to the plaintiffs, we find that the plaintiffs have stated a plausible statutory bad faith claim….”

Date of Decision: October 24, 2019

Golden v. Brethren Mutual Insurance Company, U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-cv-02425, 2019 U.S. Dist. LEXIS 183691 (M.D. Pa. Oct. 24, 2019) (Saporito, M.J.)

One month later, the court issued an opinion denying summary judgment on both breach of contract and statutory bad faith. On the contract claim, the court stated that the contractual duty of good faith can be breached through a delay in payment of an inordinate and unreasonable time period.  Within the breach of contract analysis, the court looked to such  issues as the insurer’s claims handling and investigation, the insureds cooperation, and the ultimate claim valuation.

On the statutory bad faith claim, the court identified documents produced by the parties concerning the years long claims handling process. The insurer produced a body of documents in support of its claim that it was in constant communication with the insureds, and the insureds submitted other communication documents including demands on the insurer and medical records to support their bad faith position. The court also considered the insureds expert’s testimony opining that “in the context of industry standard for claims handling, [the] investigation, evaluation and resolution of the plaintiffs UIM claims was unreasonable and intentionally dilatory.”

Taking the evidence in the light most favorable to the non-moving insured, the court found there remained a material dispute of fact concerning the alleged failure to reasonably investigate, evaluate, or pay the claim.

Date of Decision: November 25, 2019

Golden v. Brethren Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-cv-02425, 2019 U.S. Dist. LEXIS 183691 (M.D. Pa. Nov. 25, 2019) (Saporito, M.J.)

LONG INVESTIGATION REASONABLY FOLLOWING UP ON “RED FLAGS” IS NOT BAD FAITH DELAY (Western District)

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Plaintiff’s house burned down. Before ultimately paying full benefits, the insurer conducted a lengthy, detailed, and wide-ranging arson investigation. The insured brought a breach of contract action for the delayed payment, and a bad faith action alleging there was no evidence to support the arson investigation. The court granted the insurer summary judgment on both claims.

First, “where the insurance company has paid the benefits under the policy, the insured cannot maintain an action for breach of contract.” Payment “negates any breach of contract action,” where the insurer has paid full policy limits, and there is no evidence of a failure to compensate. Even if there was a payment delay, there were no damages from that delay in this case.

On the bad faith claim, the court recognized an insurer can conduct investigations of questionable claims without acting in bad faith. “Where an insurer sees ‘red flags’ that cause concern of insurance fraud and prompt an investigation, the insurer has a reasonable basis for investigation, and is therefore not liable for claims of bad faith.” Red flags can include, e.g., (1) an insured’s financial motive in seeking the insurance proceeds, such as debts exceeding income; (2) a fire marshal’s investigating for arson; and (3) an insurer’s investigation revealing that the fire could not have started as the fire department initially believed.

In this case, there were red flags sufficient to warrant the insurer’s lengthy and multi-faceted investigation, and there was no actionable bad faith.

The court further observed that while payment delay can be the basis for bad faith, or a bad faith factor, such delay is only relevant to bad faith where the insurer “knew that it had no basis to deny the claimant.” In addition, “[w]hile delay in paying a claim is relevant to determining an insurer’s bad faith, it is not dispositive, and does not, on its own, ‘necessarily constitute bad faith.’” Moreover, “even if the insurer is solely responsible for the delay, as long as the delay is due to the insurer’s need to investigate further, or even to negligence, there is no bad faith.”

Here, the insured did not produce clear and convincing evidence to establish the insurer knew its payment delay was baseless. To the contrary, the record showed the insurer reasonably believed there were potential grounds to deny the insured’s claim warranting further investigation. The court found the insurer had a reasonable basis to conduct a lengthy investigation, and reasonably pursued all avenues of investigation as new information arose, until it decided to pay the claim after all of those road were finally traveled.

Date of Decision: October 21, 2019

Merrone v. Allstate Vehicle & Property Insurance Co., U. S. District Court Western District of Pennsylvania Case No. 3:18-cv-193, 2019 U.S. Dist. LEXIS 181450 (W. D. Pa. Oct. 21, 2019) (Gibson, J.)

A CLOSE CALL, BUT FACTUAL CHRONOLOGY TIED TO ALLEGATIONS OF UNREASONABLE DELAY SET OUT PLAUSIBLE BAD FAITH CLAIM (Middle District)

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Stating it was a close call, Middle District Magistrate Judge Carlson found the following well-pleaded allegations sufficient to set forth a plausible bad faith claim, and recommended denying a motion to dismiss without prejudice to later bringing a summary judgment motion. District Judge Mariani adopted this report and recommendation as the opinion of the court.

The Allegations

  1. Defendant … issued a policy of insurance No. K2495825 to Plaintiffs … covering their two automobiles ….

  2. Defendant … charged and collected a premium for underinsured motorist coverage on said policy.

  3. Plaintiffs … paid all premiums requested by Defendant….

  4. The same policy was in full force and effect [at the time of the auto accident at issue].

  5. On or about August 30, 2015, Plaintiff … was involved in a motor vehicle crash which directly caused him to sustain serious and severe life-threatening injuries some of which are permanent.

  6. On August 30, 2015, Plaintiff … was insured for underinsured coverage in the amount of $250,000.00, with stacking (two cars), by Defendant … under policy K2495828.

  7. As a result of the collision, Plaintiff … suffered severe and permanent injuries including, but not limited to, the following:

(a) neck sprain with severe pain and injuries to his cervical spine, more specifically identified as narrowing of disc space at the C4-C5, C5-C6 and C6-C7 with anterior and posterior osteophytes formation and narrowing of intervertebral foramina at the corresponding bilaterally with nerve root compression. Persistent multilevel degenerative spondylosis, degenerative bilateral facet edema at the C7-T1, bilateral foraminal stenosis at the C3-4, bilateral foraminal stenosis at the C4-5 and C5-6, bilateral foraminal stenosis with left foraminal disc protrusion at the C6-7, all of which pain radiates into his upper extremities;

(b) low back pain and injuries to his lumbar spine including degenerative disc disease with sharp shooting pain radiating into his left lower extremity and sciatica pain;

(c) radiculopathy and nerve injuries to the C8-T1 area;

(d) muscle spasms throughout his cervical, thoracic and lumbar spine;

(e) severe headaches;

(f) right hip pain;

(g) left ankle pain;

(h) right elbow pain; [*4]

(i) ongoing pain management, physical therapy and chiropractic treatment;

(j) ongoing and persistent pain aggravated by standing, sitting, walking, sexual activity, physical activities and elevating his arms;

(k) sleep disruption.

  1. Defendant .. was promptly notified of Plaintiff[’s] … injuries.

  2. As a result Defendant … after and only after litigation against its parent company … was initiated, began to pay and continues to pay medical payments to Plaintiff….

  3. As a result of the aforesaid incident, Plaintiff … was offered the policy limits by the operator of the 3rd party vehicle.

  4. Plaintiff … made a claim for underinsured motorist coverage with Defendant….

  5. Plaintiff …. submitted all the pertinent medical records and bills to Defendant…, indicating the serious physical and economic injuries that he sustained as a result of the crash.

  6. Defendant …refused payment to Plaintiff … of underinsured motorist benefits.

  7. Plaintiff … has performed everything required of him under the policy and is entitled to underinsured motorist benefits from Defendant….

  8. Defendant[‘s] … denial of underinsured motorist benefits was made without any reasonable basis of fact.

  9. Defendant … acted in bad faith in that it did not have a reasonable basis for denying underinsured motorist benefits under the policy and the Defendant … knew and/or recklessly disregarded its lack of reasonable basis in denying that claim that Defendant:

(a) Failed to give equal consideration to paying the claim as to not paying the claim.

(b) Failed to objectively and fairly evaluate Plaintiff[‘s] … claim;

(c) Failed to raise a reasonable defense to not pay Plaintiff[‘s] … claim;

(d) Compelling Plaintiff … to institute arbitration to obtain underinsured motorist benefits;

(e) Defendant … engaged in dilatory and abusive claim’s handling;

(f) Unreasonably evaluating Plaintiff[‘s] … injuries and loss in the face of overwhelming evidence to the contrary;

(g) Failed to keep Plaintiff … fairly and adequately advised as to the status of the claim;

(h) Acting unreasonably and unfairly in response to Plaintiff[‘s] … claim;

(i) Failed to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff[‘s] … claim;

(j) Failed to conduct a fair and reasonable investigation and evaluation to Plaintiff[‘s] … claim;

(k) Defendant … violated the Unfair Claims Settlement Practice Act §146.5, 146.6, 146.7;

(l) Defendant … violated the Unfair Insurance Practice Act 40 P.S. §1171.5(a)(10) (ii) (iii) (iv) (v) (vi) (vii) (viii) (xi) (xii) (xiv).

The Analysis

The court found the complaint, “taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute.” These allegations provided a factual chronology, and that “[despite providing [the insurer] with all pertinent medical records and bills, and fulfilling all of their policy obligations, the plaintiffs assert that [the insurer] has unreasonably refused to honor its policy obligations.” The complaint further intertwines these allegations with other bad faith averments, i.e., “unreasonable delay … in beginning to make medical payments”, and only making medical payments after suit was initiated against the insurer’s parent company, despite prompt notice of injuries well prior to suit.

While the averments are “spare,” they “go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim.” Moreover, Magistrate Judge Carlson would not go beyond the pleadings to accept the insurer’s arguments for dismissal. The insurer asserted that the complaint should be interpreted as actually reflecting the insurer’s “prudent effort on its part to thoroughly examine and resolve a potentially meritless claim….” However, the court found “this argument invites us to go beyond the pleadings themselves and resolve essentially factual questions. This is a task which, in our view, may not be performed on consideration of a motion to dismiss, where we must simply assess the adequacy of the pleadings.”

Thus, the complaint could proceed, without prejudice to the insurer renewing its argument on summary judgment at the close of discovery.

Dates of Decision: July 19, 2019 and August 8, 2019

Vadella v. American States Ins. Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:19-CV-73, 2019 U.S. Dist. LEXIS 121606 (M.D. Pa. July 19, 2019) (Carlson, M.J.) (Report and Recommendation), adopted in Vadellla v. American States Ins. Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:19-CV-73, 2019 U.S. Dist. LEXIS 133764 (M.D. Pa. Aug. 8, 2019) (Mariani, J.)

PUNITIVE DAMAGES CLAIM PREVENTS REMAND; BAD FAITH PLEADED WHERE CASE IS NOT MERELY A VALUATION DISPUTE (Middle District)

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On July 1, 2019, Judge Munley issued two opinions in this UIM bad faith case: (1) finding removal proper; and (2) finding the insured pleaded a plausible bad faith case.

Removal was proper where potential punitive damages could take the case above the $75,000 jurisdictional minimum

Judge Munley ruled that the case would remain in federal court, after removal from state court. The insured allegedly suffered severe personal injuries, and the carrier refused to pay the $25,000 UIM policy limits. The state court complaint sought damages in excess of $50,000, punitive damages, interest, counsel fees and costs.

The court recognized that actual damages were limited to $25,000, and the punitive damage and attorney’s fees claims would have to exceed $50,000 to meet the $75,000 jurisdictional minimum. Judge Munley found that “[a] punitive damages award which is double the amount of the policy limit is reasonable and possible in such a case.” As remand is only proper when it appears to “a legal certainty that the plaintiff cannot recover, or was never entitled to recover, the jurisdictional amount [$75,000],” he denied the motion to remand.

The insured pleads a plausible bad faith claim where delays and refusal to pay the sum demanded are not mere disagreements over valuation

Judge Munley observed the insured alleged a severe injury, with damages beyond the tortfeasor’s coverage limits. The insured’s UIM coverage was $25,000, which the defendant carrier refused to pay. Judge Munley concluded the case, as pleaded, was not merely a disagreement over claim valuation, but made out a plausible bad faith claim.

The following averments were sufficient to survive the insurer’s motion to dismiss:

  1. “The amended complaint avers that defendant failed to effectuate a prompt fair and equitable settlement of plaintiff’s claim and compelled her to seek legal redress and commence litigation to recover the benefits to which she was entitled.”

  2. “Further, defendant ignored and discounted the severity of plaintiff’s injuries.”

  3. “Also, defendant did not promptly evaluate the claim, but rather engaged in dilatory and abusive claims handling by delaying the valuation of plaintiff’s claim and failing to pay the claim.”

  4. “The amended complaint also suggests that defendant failed to timely investigate or to make a reasonable settlement offer.”

  5. “Defendant further delayed by asking for authorization to receive medical records which were already in its possession.”

The court also refused to dismiss an attorney’s fee demand under the breach of contract count, as such fees might prove permissible under the Motor Vehicle Financial Responsibility Act (MVFRL).

Dates of Decision: July 1, 2019

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109378 (M.D. Pa. July 1, 2019) (Munley, J.)

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109377 (M.D. Pa. July 1, 2019) (Munley, 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.)

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

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

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

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

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

CONTRACTUAL BAD FAITH

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

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

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

STATUTORY BAD FAITH

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

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

Date of Decision: November 27, 2018

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

OCTOBER 2018 BAD FAITH CASES: SUIT BROUGHT BEFORE INVESTIGATION COULD BE COMPLETED AND CLAIM COULD BE PROPERLY NEGOTIATED, SO NO BAD FAITH (Western District)

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In this UIM case, the court separated out the actual facts pleaded from the complaint’s conclusory legal allegations, to determine if those facts could plausibly support the legal conclusions. They could not.

After a few months of the insurer’s involvement with the plaintiff’s injury and treatment, the matter was not resolved. The insurer did pay certain medical benefits, but not all of the UIM injury claims. It took the position that the scope of injury investigation was ongoing, without denying the insured’s claims. The insured sued for breach of contract and bad faith, and the insurer moved to dismiss.

The court observed that it must first accept all well-pleaded facts as true, while disregarding legal conclusions, to determine if a plausible claim is pleaded. A court may consider the allegations in the complaint, attached exhibits, matters of public record, and the contents of documents identified in the complaint.

The court stated that an insurer has a right to investigate and evaluate UIM claims, and need not immediately accede to the insured’s policy limits demand. Delay is relevant, but even if lengthy, must be measured under the circumstances of each case to determine whether it is unreasonable and in bad faith.

In this case, the insurer responded to the insured’s demand package within 3 months, and suit was filed 2 months later. This did not indicate bad faith. Nor were there facts to show an unreasonable delay in payment. The court contrasted this 5-month period with cases where the delays went on for 10 months and 2 years.

The court granted the motion to dismiss, because the insurer “has not had a substantial amount of time to investigate the claim, unlike the insurer in the cases Plaintiff relies on; and (2) has not denied the claim, but has indicated it needs to further investigate.”

The court also found the following allegations to be legal conclusions, which it need not consider as setting out a plausible claim unless supported by independent factual allegations:

  1. Refused to engage in good faith settlement discussions with Plaintiff;

  2. Refused to offer an amount in settlement of Plaintiff’s UIM claim that was commensurate with the gravity of his injuries and damages;

  3. Failed to engage in reasonable and proper settlement practices or protect the interests of its insured;

  4. Making an unreasonably low/no settlement offer;

  5. Failing to act in good faith to effectuate a prompt, fair, and equitable settlement of Plaintiff’s claim in which the company’s liability was clear;

  6. Violated the Unfair Insurance Practices Act, 40 P.S. § 1171.5(a)(10);

  7. Failing and refusing to properly evaluate Plaintiff’s claim for settlement purposes;

  8. Failing to act in good faith and fair dealing in the handling of Plaintiff’s claim for UIM benefits; and

  9. Refusing to pay Plaintiff the amount he was legally entitled to recover from a driver of an underinsured vehicle.

The court rejected the argument that the complaint’s factual allegations redeemed this conclusory language. The court looked at the factual allegations closely, and concluded that the neither the insured or insurer could have known the extent of the insured’s injuries for some period of time after treatment. Thus, the insurer did not refuse to pay a known claim, and further investigation was reasonable.

While a court is obligated to draw reasonable inferences from the facts pleaded in favor of the insured, it is “not required to accept allegations that are belied by logic.” In sum, the alleged facts did not flesh out the legal conclusions that the insurer failed to properly evaluate or handle the claims.

The court also found the insured chose to file suit before the insurer fully investigated the claim, or even issued a denial. This choice precluded settlement discussions or offers. Thus, these facts undermined the legal conclusions of failure to engage in proper settlement practices and negotiations.

Finally, the court found the bare allegation that the insurer violated the Unfair Insurance Practices act was “not a factual allegation of bad faith conduct, but rather, an unsupported conclusion of law as to a claim not pled, and is completely lacking any factual support.”

The complaint was dismissed without prejudice, to allow plaintiff to set out sufficient facts to state a plausible claim (if possible).

Date of Decision: October 22, 2018

Higman v. State Farm Mutual Automobile Insurance Cos., U. S. District Court Western District of Pennsylvania Civil Action No. 2:18-cv-00662, 2018 U.S. Dist. LEXIS 180282 (W.D. Pa. Oct. 22, 2018) (Lenihan, M.J.)

JUNE 2018 BAD FAITH CASES: IN AN OPINION THAT BRINGS OUT THE VALUE OF KEEPING A THOROUGH AND DETAILED CLAIMS FILE, THE INSURED FAILED TO PRESENT CLEAR AND CONVINCING EVIDENCE THAT (1) THE INSURER LACKED A REASONABLE BASIS FOR ITS ESTIMATES, AND (2) THAT DELAY AMOUNTED TO BAD FAITH (Philadelphia Federal)

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After a fire damaged insured’s property, six inspections of the property occurred due to the adjusters’ differing opinions on demolition and construction costs. Time also passed to address the tenant insurance carrier’s payment responsibilities. The insured sued for breach of contract and bad faith, alleging that the insurer improperly delayed in claims handling and payment, and refused to pay “sufficient insurance benefits” under the policy.

Under Pennsylvania law, a bad faith claim can be asserted if the insurer lacks a reasonable basis for denying coverage or in causing improper delay of payment. The insured alleged “that [the insurer] acted without a reasonable basis by (1) only releasing funds far below the amount due and owed under the policy, and (2) purposely delaying payment.” At the core of a delay bad faith claim, “[t]he plaintiff bears the burden of establishing delay by clear and convincing evidence.”

BAD FAITH DENIAL OF FUNDS

The insured argued that the insurer lacked a reasonable basis for the sum it chose to pay because the insurer waivered from its initial damage estimate, questioned the insured’s damage estimates, inspected the property six times, and relied on the tenant’s insurance carrier to determine final damage estimates.

The court ruled the insured’s evidence “fails, as a matter of Pennsylvania law, to reach the clear and convincing standard required for bad faith claims.” The evidence was not clear and convincing because it did not reflect a “frivolous or unfounded refusal to pay proceeds of the policy,” and because the evidence was “likely immaterial to whether [the insurer] lacked a reasonable basis for the eventual insurance payment.”

BAD FAITH DELAY OF PAYMENT

The court further ruled that the insurer did not exhibit bad faith in delaying payment, because the insured failed “as a matter of law to reach the clear and convincing standard.” The insured relied on the evidence referenced above, and “the undisputed fact that the time between the initial claim and the filing of the lawsuit was more than eleven months.”

First, the court concluded that the insurer provided the final payment four months after the initial claim. Next, the court determined that “continuous questioning” concerning the claim was not clear and convincing evidence of delay because the insured’s “submissions to [the insurer] always received a timely response, and the ‘questioning’ was consistent throughout.”

The court then concluded that when “delay is attributable to the need to investigate further . . . no bad faith has occurred.” The court found that “[e]ach of the six inspections had a reasonable basis,” as represented in “[e]xtensive, contemporaneous documentation, attached to [insurer’s] undisputed statement of facts.” The court ruled that the statement of facts reflected the necessity of the six inspections. Finally, the court concluded the insured did not provide sufficient evidence to prove “that [insurer’s] ‘obligations [to pay insured] are not contingent on the policy of insurance between [the tenant] and [tenant’s insurer] or payments made thereunder.’”

Summary judgment was granted for the insurer.

Date of Decision: June 29, 2018

LMT Associates, LLC v. Ohio Casualty Insurance Co., U. S. District Court, Eastern District of Pennsylvania NO. 17-3565, 2018 U.S. Dist. LEXIS 109643 (E.D. Pa. June 29, 2018) (Baylson, J.)