Archive for the 'PA – Estimates, Valuation or Appraisal' Category

CONCLUSORY PLEADINGS INSUFFICIENT TO STATE BAD FAITH CLAIM; MERE REFUSAL TO PAY SUM DEMANDED IS NOT BAD FAITH PER SE (Philadelphia Federal)

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In this UIM case, the tortfeasor’s insurer settled for $15,000, and the injured insured demanded the $300,000 UIM policy limits from his own carrier. The insurer did not accede to that demand, and the husband and wife insureds sued for breach of contract and bad faith. Judge Schiller dismissed the bad faith claim with leave to amend, if a plausible claim could be pleaded.

Plaintiff failed to allege sufficient facts to state a plausible claim. The insureds’ conclusory allegations included “failing to evaluate Plaintiff’s claim objectively and fairly; failing to complete a prompt and thorough investigation of Plaintiff’s claim… [and] unreasonably withholding policy benefits[.]” There are, however, no specific facts pleaded supporting these conclusions. “Courts consistently hold that bare-bones allegations of bad faith such as these, without more, are insufficient to survive a motion to dismiss. Indeed, conclusory allegations that an insurer ‘unreasonably withheld the payment of [UIM] benefits under the policy…failed to engage in good faith negotiations… [and] failed to perform an adequate investigation’ are insufficient to state a claim for bad faith.”

Similarly, the complaint alleges the insurer “failed to conduct a fair and reasonable investigation into his claim but does not plead any facts related to that investigation.” The court further found the insured could not state a claim on the basis that the insurer “did not pay [the insured’s] claims even when he provided the same information that led [the tortfeasor’s insurer] to tender the limits of its policy.” The court observes that “the failure to immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.” [Though the court does not so state, there appears to be no explanation in the complaint why providing information leading to a $15,000 payment automatically requires an additional $300,000 payment.]

The court provided the insureds “may file an amended complaint to add a bad faith claim, but only if they can plausibly do so.” (Emphasis in original)

Date of Decision: October 4, 2019

Doyle v. Liberty Mutual Ins., U. S. District Court Eastern District of Pennsylvania No. 19-3460, 2019 U.S. Dist. LEXIS 172581, 2019 WL 4917123 (E.D. Pa. Oct. 4, 2019) (Schiller, J.)

(1) NOT ACCEDING TO INSURED’S DEMAND IS NOT BAD FAITH PER SE (2) THERE IS NO FIDUCIARY DUTY IN UIM CONTEXT AND (3) COMPENSATORY DAMAGES NOT AVAILABLE UNDER BAD FAITH STATUTE (Western District)

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In this UIM bad faith case, the court dismissed the bad faith count with leave to amend, struck all allegations referencing fiduciary duty, and dismissed the claim for compensatory damages under the Bad Faith Statute, 42 Pa.C.S. § 8371.

The insured was injured in a motor vehicle accident. The tortfeasor’s carrier paid his $25,000 policy limits. The insured sought additional recovery under the UIM provisions of his own policy.

The insured provided various medical records, economic reports, and other documents to the carrier, and ultimately demanded $250,000 in UIM policy limits. The insured’s carrier did not meet this demand, and the insured sued for breach of contract and bad faith, as well as loss of consortium for his wife.

The insurer moved to dismiss the bad faith count for failure to state a claim. It also moved to strike all averments concerning fiduciary duty, and to dismiss any claim for compensatory damages under the Bad Faith Statute.

The insured fails to plead a plausible bad faith claim

In reviewing the complaint, the court observed that while the list of 15 allegations in the bad faith count was long, it only pleaded “essentially conclusory acts and omissions,” which are insufficient to make out a plausible bad faith cause of action. These flawed allegations included:

a) “failing to objectively and fairly evaluate Plaintiffs’ claim”; b) “failing to objectively and fairly reevaluate Plaintiffs’ claim based on new information”; c) “engaging in dilatory and abusive claims handling”; d) “failing to adopt or implement reasonable standards in evaluating Plaintiffs’ claim”; e) “acting unreasonably and unfairly in response to Plaintiffs’ claim”; f) “not attempting in good faith to effectuate a fair, prompt, and equitable settlement of Plaintiffs’ claim in which the Defendant’s liability under the policy had become reasonably clear”; g) “subordinating the interests of its insured and those entitled under its insureds’ coverage to its own financial monetary interests”; h) “failing to promptly offer reasonable payment to the Plaintiffs”; i) “failing reasonably and adequately to investigate Plaintiffs’ claim”; j) “failing reasonably and adequately to evaluate or review the medical documentation in Defendant’s possession”; k) “violating the fiduciary duty owed to the Plaintiffs”; l) “acting unreasonably and unfairly by withholding underinsured motorist benefits justly due and owing to the Plaintiffs”; m) “failing to make an honest, intelligent, and objective settlement offer”; n) “causing Plaintiffs to expend money on the presentation of their claim”; and o) “causing the plaintiffs to bear the stress and anxiety associated with litigation.”

Beyond these conclusory allegations, the bad faith count was “devoid of facts explaining ‘who, what, where, when, and how’ Defendant failed to handle Plaintiffs’ UIM claim in good faith.”

The court did scour the complaint for facts. However, those facts did “not detail which of Defendant’s acts or omissions constitute bad faith, separately or in conjunction with others.” All those facts amounted to was that the insured was (1) injured in a motor vehicle accident, (2) the tortfeasor’s liability limit did not cover all of the insured’s injury claims, (3) the insured submitted his claim to his UIM carrier, and (4) the claim made has not been paid.

“While such facts might be sufficient to plead a claim for breach of contract, they are insufficient to support a claim of bad faith under the Pennsylvania statute. Simply put, requiring the Court to infer bad faith through Defendant’s ‘failure to immediately accede to a demand [under an insurance policy] cannot, without more, amount to bad faith.’”

Plaintiff’s citation to documents in his pleadings did not cure this problem. These documents simply show there may be some merit to the UIM claim, but do not show the “where, when and how” of a bad faith claim. These documents do not show how the denial was unreasonable or that that the allegedly unreasonable denial was knowing or reckless.

Again, the complaint simply amounted to an argument that bad faith should be inferred from the carrier’s refusing the insured’s demand. This is not enough.

There is no fiduciary duty in the UIM context

The court also struck all references in the complaint to breaches of fiduciary duty. The court rejected the notion that an insurer bears a fiduciary duty to the insured in all circumstances. Rather, while there may be a fiduciary duty in the context of third party claims against the insured, there is no such duty in first party claims, such as UIM claims.

Compensatory damages cannot be recovered under the Bad Faith Statute

Pennsylvania’s Bad Faith Statute only allows for recovery of punitive damages, interest, attorney’s fees, and costs. It essentially provides for additional remedies other than compensatory damages, which must be recovered under other theories, principally breach of contract.

Date of Decision: September 9, 2019

Ream v. Nationwide Property & Casualty Insurance Co., NAIC, U.S. District Court Western District of Pennsylvania No. 2:19-cv-00768, 2019 U.S. Dist. LEXIS 152870, 2019 WL 4254059 (W.D. Pa. Sept. 9, 2019) (Hornak, 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.)

BAD FAITH CLAIM SURVIVES SUMMARY JUDGMENT WHERE INSURER ALLEGEDLY DID NOT KNOW BASIS OF ITS EXPERT'S ESTIMATES (Middle District)

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In this property loss case arising from a home fire, the insurer’s public adjuster estimated personal property damages at over $220,000. The insurer’s various experts estimated the personal property losses at approximately $51,000.

The insurer’s claim handler relied upon two vendors, one to inventory the lost property and the other to value the items inventoried. The claim handler concluded that the public adjuster’s inventory and photographs did not justify the $220,000 claim, so he adhered to the results of the insurer’s expert vendors.

The insured brought claims for breach of contract and bad faith, and the insurer moved for summary judgment on the bad faith claim.

The court denied summary judgment. It found the following facts in the record supported a potential bad faith claim:

  1. The insureds offered evidence the insurer’s claim handler did not know how his valuation expert obtained the price and depreciation schedules in the lower estimate.

  2. The insurer’s proof of loss requirements for the burned items was “significantly burdensome.”

  3. The insurer’s adjuster failed to send a proof of loss.

Taking these facts in the light most favorable to the insureds, the court concluded they may show the insurer knew there was no reasonable basis for failing to increase its value estimate, or recklessly disregarded the absence of a reasonable basis to do so.

Date of Decision: June 20, 2019

Obelkevich v. Safeco Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:18cv1111, 2019 U.S. Dist. LEXIS 103177 (M.D. Pa. June 20, 2019) (Munley, J.)

(1) NO BAD FAITH POSSIBLE WHERE NO COVERAGE DUE; (2) INSURER’S REASONABLE RELIANCE ON ENGINEERING EXPERT’S REPORT FOR A COVERAGE DECISION DOES NOT CONSTITUTE BAD FAITH (Western District)

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There were two bad faith claims arising out of a building’s wall collapse case. The first was over whether any coverage was due in connection with building walls that had not collapsed, for which the insured sought replacement to match restoration of the collapsed wall. The second had to do with whether the carrier owed additional damage payments for claims more directly related to the collapse.

The court determined no coverage was due for the other walls, and granted summary judgment on that coverage issue. Because no coverage was due, the court necessarily found “no basis for a bad faith claim based upon an unreasonable denial of coverage.”

Second, the court observed the parties’ experts disagreed on the scope of damages and amount due concerning the wall collapse. The court granted summary judgment on bad faith on this claim as well, finding insurer reasonably relied on its experts in determining the amount of damages it would pay.

The court stated:

As regards additional payment of damages, [the insured] argues that disagreements between the parties’ experts precludes the entry of summary judgment on the bad faith claim. Courts have held that “an insurer’s reasonable reliance on an engineering expert’s report for a coverage decision does not constitute bad faith.” Hamm v. Allstate Prop. & Cas. Ins. Co., 908 F.Supp.2d 656, 673 (W.D.Pa.2012) (citing El Bor Corp. v. Fireman’s Fund Ins. Co., 787 F.Supp.2d 341, 349 (E.D.Pa.2011) (insurance company’s reliance on engineer’s findings as a basis for denial of coverage provides reasonable grounds to deny benefits)) “Moreover, even if the expert incorrectly assessed the cause of damage, this is not evidence that his conclusions were unreasonable or that Defendant acted unreasonably in relying upon them.” Totty v. Chubb Corp., 455 F.Supp.2d 376, 390 (W.D.Pa.2006) (citing Pirino v. Allstate Ins. Co., No. 3:04CV698, 2005 U.S. Dist. LEXIS 27519, 2005 WL 2709014, at *5 (M.D.Pa. Oct. 21, 2005)).

Here, [the insured] only identifies conflicts amongst the expert’s opinions on causation and damages and not the reasonableness of [the carrier’s] expert opinions. The conflict between experts may preclude summary judgment on other claims, but not for bad faith. Based upon the reasonableness standard in the bad faith statute coupled with the high burden of proof of clear and convincing evidence, the Court concludes that a reasonable juror could not find bad faith in [the insured’s] favor. …

Date of Decision: May 14, 2019

Keyser v. State Farm Fire & Casualty Co., U. S. District Court Western District of Pennsylvania 2:18-CV-00226-MJH, 2019 U.S. Dist. LEXIS 81194 (W.D. Pa. May 14, 2019) (Horan, J.)

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

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

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

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

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

First, Judge Kearney found the following allegations conclusory:

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

[ii] used invasive and improper investigative tactics,

[iii] engaged in dilatory claim’s handling,

[iv] failed to promptly offer payment,

[v] failed to provide contracted-for insurance coverage

[vi] subordinated her interest to its financial interest,

[vii] violated its fiduciary duty owed to her,

[viii] compelled her to sue,

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

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

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

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

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

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

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

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

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

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

Date of Decision: April 22, 2019

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

BAD FAITH CLAIM CAN NOT BE USED TO SUPPLANT REVIEW OF APPRAISAL PROCESS IN THE COURTS (Pennsylvania Superior Court) (non-precedential)

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In this case, a property damage dispute was handled through an appraisal process where each side selected an appraiser, and the two appraisers selected an umpire. The two appraisers disagreed over the scope of necessary replacement vs. repairs, and thus the damage valuation. The umpire ultimately agreed with the insurer’s appraiser on value, and adopted that appraiser’s report and valuation.

The insured brought suit for breach of contract and bad faith, in addition to filing a petition to set aside the appraisal. The insured alleged bad faith on the basis that the insurer “purposefully underestimated and misrepresented the scope of the damage and conspired with [its appraiser] and [the umpire] during the appraisal process.”

The Court of Common Pleas denied the petition to set aside the appraisal, and granted the petition to enforce the appraisal award. In the separate bad faith litigation, the trial court granted summary judgment on the breach of contract and bad faith claims. On appeal, the Superior Court affirmed the trial court’s decision on both the appraisal and the litigation.

The insured’s principle bad faith argument focused on the umpire adopting the insurance company appraiser’s report, claiming this amounted to some sort of fraud or collusion. The Superior Court rejected this bad faith claim, describing it as an improper attempt to challenge the appraisal award. If fraud or collusion existed, then these matters had to be raised in the petition process challenging the appraisal award, not via separate litigation. Thus, the Superior Court stated that “a bad faith claim premised on the actions of appraisers cannot supplant the settled standard of review for setting aside an appraisal award, which provides relief for fraud and misconduct.”

In dicta, the Superior Court further stated the insured “failed to set forth how [the umpire’s] alleged violations of his proposal [for fulfilling his duties as umpire] meets the high threshold required of evidence to prove that [the insurer] acted in bad faith in resolving the insurance claim.” Rather, the evidence showed the umpire reviewed both sides’ valuations, limited his methodology by agreement of both appraisers, and did not find it necessary to write a separate report (for which did not charge the parties).

Date of Decision: April 16, 2019

Mews at Byers Station Condominium Association v. Greater New York Mutual Insurance Co., Superior Court of Pennsylvania No. 1047 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 1434 (Pa. Super. Ct. April 16, 2019) (Bowes, McLaughlin, Stabile, JJ.)

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

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

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

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

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

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

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

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

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

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

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

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

Summaries of Clarke and Moran can be found here.

Date of Decision: March 26, 2019

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

NO BAD FAITH WHERE REFUSAL TO MEET INSURED’S PAYMENT DEMAND IS JUSTIFIED BY EXPRESS POLICY LANGUAGE (Philadelphia Federal)

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The insurer successfully obtained summary judgment despite its continued refusal to reimburse its insured the sum actually paid to repair property damage.

The policy covered fire damage to the insured’s motel. However, coverage was limited to the least expensive of the following three options: “(1) the applicable insurance limit; (2) the cost to replace with property ‘[o]f comparable material and quality’ and ‘used for the same purpose;’ or, (3) ‘[t]he amount actually spent that is necessary to repair or replace the lost or damaged property.’” The building’s coverage limit was $2.25 Million.

Fire damaged the hotel, and the insurer paid approximately $1.6 Million. The insured claimed the loss exceeded $2.25 million, and that the insurer acted in bad faith by not reimbursing sums actually paid to repair the motel. The insured’s argument boiled down to: (a) the loss was covered; (b) the insured actually paid more than $2.25 Million to contractors, which could be proven through invoices, etc.; (c) and the insurer only paid $1.6 Million to the insured even though the insured demonstrably paid more than $2.25 Million.

The insurer offered evidence from third party contractors that the repair work could have been done at less expense, and used that as its basis to pay less than what the insured actually paid. The court found that the insurer’s payment theory comported with one of the three permissible options in the policy, i.e., the cost to replace with property of comparable material and quality. The insured’s unqualified demand for full reimbursement misread the policy.

Thus, “the Policy allows room for disagreement between the parties as to whether the invoices Plaintiff submitted were more than the ‘cost to replace’ with property of ‘comparable material and quality’—and as a result [the insurer’s] failure to fully compensate the claimed loss is not evidence of bad faith.”

Further, the insured failed to present any evidence beyond the payment invoices. Those invoices did not create any issues of material fact as to the insurer’s bad faith. Simply failing to pay what an insured demands is not bad faith where express policy language allows for a different standard of payment.

Date of Decision: February 12, 2019

Purvi, LLC v. National Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-822, 2019 U.S. Dist. LEXIS 22774, 2019 WL 558195 (E.D. Pa. Feb. 12, 2019) (Beetlestone, J.)

JUDGE CAPUTO DISMISSES THREE BAD FAITH CASES AFTER STRIPPING AWAY CONCLUSORY ALLEGATIONS (Middle District)

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We have summarized well over 40 opinions issued by the Honorable Richard Caputo since this Blog’s inception in June of 2006. There is no question Judge Caputo is thoroughly familiar with Pennsylvania bad faith law.

He issued three new opinions last week, all addressing proper pleading in bad faith cases. In all three cases, Judge Caputo uses the phrases “stripped of these conclusory allegations” or “stripped of its conclusory allegations” within the context of carrying out his analysis of whether a complaint pleads plausible bad faith. Similarly, in two December 2018 opinions, Judge Caputo used the phrase “stripped of its conclusory statements” when analyzing dismissal of bad faith complaints under the federal rules. The blog summary of those two cases can be found here.

This stripping of conclusory allegations methodology is intended to reveal whether a pleading alleges actual facts that can plausibly support the bad faith elements of (1) unreasonableness and (2) knowing or reckless disregard of unreasonableness. It is clearly a best practice for plaintiffs to apply this methodology before filing a complaint, and for defendants to use in moving to dismiss bad faith claims.

In Judge Caputo’s three most recent opinions, two are dismissed with prejudice, and one is dismissed without prejudice and leave to amend. The two cases dismissed with prejudice, Clarke v. Liberty Mutual Insurance Co., and Moran v. USAA, were previously dismissed without prejudice and leave to amend. In fact, these are Judge Caputo’s two cases summarized in the December 2018 blog post. The Clarke and Moran plaintiffs’ failures to cure their pleadings are set out below, along with the third opinion where the plaintiff still retains an opportunity to plead a plausible complaint.

Clarke v. Liberty Mutual (discrepancy between alleged damages and insurer’s valuation alone is not bad faith)

In Clarke’s amended complaint, the original complaint’s conclusory allegations and most of the factual allegations remain unchanged. The only new factual allegations include further detail on the insured’s treatment for injuries and the cost of treatment. The insured pleads that “because these medical bills total over $39,000.00 and she may require additional injections in the future, Defendants are alleged to have engaged in bad faith in concluding that the claim fell within the $15,000.00 third-party settlement.”

These facts remain inadequate to support a bad faith claim. Judge Caputo relies upon Judge Darnell Jones’ opinion in West v. State Farm. Judge Jones had observed that so-called “low-ball” offers alone cannot state a claim for bad faith. Rather, the plaintiff must aver factual allegations as to why that the “low-ball” offer was actually unreasonable, and how the insurer knew or recklessly disregarded the fact that it was unreasonable.

Absent such allegations, the controlling principle is that low but reasonable estimates made in the ordinary course of negotiations do no constitute bad faith. As Judge Jones reasoned in West, at most “the argument that the valuation of $15,000.00 is facially insufficient in light of medical expenses of approximately $40,000.00 and the limits of Plaintiffs’ insurance policy does not alone show Defendants ‘acted in bad faith rather, it might have negligently failed to investigate and evaluate, leading to an unreasonable settlement offer.’” [Compare this to the similar result reached in Judge Leeson’s recent McDonough opinion, summarized here.]

Moran v. USAA (again, a discrepancy in valuation alone does not get around the conclusory pleading problem)

In Moran, the only additions in the amended complaint included facts supporting the value of the insured’s claim: “(1) [the insured] never had neck problems prior to the accident; (2) she makes $550.00 per week as a caregiver; (3) she may require surgery that would cause her to miss several months of work, which she believes will result in lost wages in excess of $10,000.00; and (4) if she has surgery, she will exhaust her remaining balance of $2,000.00 of medical benefits.” While these facts may have supported the insured’s valuation, there were no new facts pleaded as to why the insurer’s offer (a) was unreasonable and (b) how the insurer knew or recklessly disregarded that fact and/or how anything more than negligent valuation could be inferred. Again, following West, Judge Caputo found that bad faith cannot arise solely from discrepancies in valuation.

Wyoming Valley FOP v. Selective Insurance Co. (this is what the stripping method looks like)

In the third case, the insured sought first party benefits for theft under a CGL policy. The insurer refused to pay, and the insured brought bad faith claims. Judge Caputo found the following allegations conclusory:

The actions and inactions of Selective in adjusting, evaluating, and investigating Plaintiff’s claim constitutes bad faith as defined under 42 Pa. C.S.A. § 8371 and the Pennsylvania Unfair Insurance Practices Act, 40 P.S. § 1171, et seq. as follows:

  1. Misrepresenting important facts or policy or contract provisions, namely, the prompt payment of losses;

  2. Failing to acknowledge and act properly upon written communication with respect to Plaintiff’s claims arising under the policy;

  3. Failing to adopt or implement reasonable standards for the prompt investigation of Plaintiff’s claims;

  4. Refusing to pay Plaintiff’s claims without conducting a reasonable investigation based upon all available information;

  5. Failing to affirm coverage of Plaintiff’s claims within a reasonable time after all information requested of Plaintiffs were provided to the Defendant or its representatives;

  6. Not attempting in good faith to effectuate a prompt, fair and equitable settlement of Plaintiff’s claims in which the Defendant’s liability under the policy has become reasonably clear;

  7. Compelling Plaintiff to institute litigation to recover [*7]  amounts due under the insurance policy by denying or failing to act upon Plaintiff’s claims;

  8. Continuing to investigate Plaintiff’s claims after receipt of all information necessary to the adjustment of the claims;

  9. Failing to communicate with Plaintiff;

  10. Subordinating the interest of its insured to their own financial monetary interest;

  11. Failing promptly to offer payment to Plaintiff; and

  12. Failing [to] objectively and fairly evaluate Plaintiff’s claim.

Stripping away these 12 conclusory allegations left only a few actual allegations of fact: (1) there was an insurance policy; (2) the policy covered theft; (3) a theft was reported; (4) the insured provided all information required under the policy; (5) the insured made repeated payment demands; and (6) the insurer denied the claim.

Such cursory allegations fail to state a plausible bad faith claim, which requires clear and convincing evidence that an insurer was (a) unreasonable in denying a benefit and (b) knew or recklessly disregarded the fact that its position was unreasonable. Even assuming these allegations amounted to a claim that there was no reasonable basis to deny a benefit, there were still no factual allegations from which to plausibly infer that the insurer knew or recklessly disregarded this lack of a reasonable basis.

Such threadbare assertions may suggest bad faith is possible, but only speculative inferences can take the claim to plausible, and speculation is impermissible to set out a plausible cause of action.

Judge Caputo did sua sponte give leave to amend, as it was not clear that amendment would be futile.

Clarke v. Liberty Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-1925, 2019 U.S. Dist. LEXIS 21507, 2019 WL 522473 (M.D. Pa. Feb. 11, 2019) (Caputo, J.)

Moran v. USAA, U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-2085, 2019 U.S. Dist. LEXIS 24080 (M.D. Pa. Feb. 14, 2019) (Caputo, J.)

Wyoming Valley FOP v. Selective Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-2270, 2019 U.S. Dist. LEXIS 24400 (M.D. Pa. Feb. 14, 2019) (Caputo, J.)