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

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 (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.)

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.)

BACK TO BASICS: SO WHAT IS BAD FAITH?

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We’ve recently posted summaries of five federal district court bad faith opinions, issued between May 15 and May 23, 2018. These opinions all include some discussion of what kind of conduct could constitute the basis for statutory bad faith under Pennsylvania law.

There is no question that denying benefits due may form the basis of a bad faith claim. Similarly, the strong consensus is that a delay in paying benefits due may lead to actionable bad faith claims. The interesting question is whether bad faith can exist when no benefit is due.

Take this example. The insured sues for breach of contract and bad faith. The bad faith claim is based on two theories: (1) the insurer unreasonably denied coverage based on a misinterpreted policy exclusion, and (2) unreasonable claim handling. The court finds the exclusion applies and dismisses the contract claim, as well as the bad faith claim based on benefit denial. Can the bad faith claim still proceed solely on the basis of poor claim handling, absent any indemnification or defense obligation? Or, in those circumstances, should any claim handling misconduct solely be subject to review by the Insurance Commissioner under the Unfair Insurance Practices Act or Unfair Claims Settlement Practices regulations?

We have posted on this subject in the past, but case law indicates that some courts will find actionable statutory bad faith for poor claim handling even in the absence of any benefit being due.

These five very recent cases, issued within 8 days of each other, appear to show that the range of bad faith standards currently used by courts includes viable bad faith actions where no benefit is due, along with claims for denial or delay in providing benefits. Whether or not these cases be reconciled into a single theory will have to be clarified by Pennsylvania’s Supreme Court, though it has been argued the Supreme Court already did so in the Toy case.

Here are links to our summaries of these five cases.

In this case, a Middle District Judge found a section 8371 claim handling bad faith case viable, even though no coverage was due.

In this case, an Eastern District Judge found no bad faith because no benefit had been denied.

In this case, another Middle District Judge found there could be no bad faith where there was no coverage due.

In these two opinions, issued on consecutive days by another Eastern District Judge, the court set out criteria for actionable statutory bad faith based on either (1) benefit denial (2) poor claims handling or (3) unreasonable delay.

 

 

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.)