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SUPERIOR COURT AFFIRMS TRIAL COURT’S BAD FAITH VERDICT, AND ITS REFUSAL TO AWARD PUNITIVE DAMAGES (Superior Court of Pennsylvania) (Non-precedential)

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After a non-jury trial, the Blair County Court of Common Pleas found the insurer violated the bad faith statute, and awarded statutory damages in the form of attorneys’ fees and super-interest. It declined, however, to award punitive damages under the statute.  The insurer appealed the bad faith verdict, and the insured appealed the decision not to award punitive damages.  The Superior Court rejected both appeals and affirmed the lower court.

Facts

This is another UIM bad faith case.

The accident occurred in 2000, and the driver’s carrier agreed with the insured that the other driver was 100% liable, and paid its full $100,000 UIM limits to the insured.  The tortfeasor’s carrier paid $50,000.

Over two years later, the insured sought UIM coverage from her mother’s carrier, the defendant insurer in this action. The defendant was affiliated with the driver’s own insurer, and had access to its investigation files.  Its UIM limit was $600,000. It valued the claim at $200,000 and offered $50,000 to settle the claim ($150,000 already having been paid by the tortfeasor’s carrier and the first UIM insurer).

The insured rejected the offer, and initiated a bad faith action in 2003, which it held in abeyance while the UIM case was pending. The insurer paid the undisputed $50,000.

Later in 2003, the insured received a PTSD diagnosis and send additional medical records to the insurer.  The insurer received the medical records, but denied having received them. The defendant insurer took the position that the diagnosis was unrelated to the 2000 accident, and its $200,000 remain unchanged, having failed to receive any medical records (which it in fact had received, however). It then initiated the UIM arbitration process in 2004.

The defendant carrier informed its arbitration defense counsel the other driver was 100% at fault.  Months later the carrier’s counsel said he had spoken to the other driver, based on that interview the accident could have been the insured’s fault, and the arbitrator might rule for the carrier on the UIM claim.  The attorney’s opinion was based solely on the other driver’s rendition of the facts, and not any expert report or investigation other than interviewing the other driver.  The carrier itself did not obtain a reconstruction expert report on the accident.

The carrier, however, was sufficiently persuaded. It took the position in late 2004 that the insured might have comparative negligence up to 50%, but not more. By early 2005, however, the carrier took the position that the accident was 100% the insured’s fault.

The carrier delayed the arbitration by filing a declaratory judgment action seeking to limit the range of damages the arbitrator could award. This case was dismissed on preliminary objections. The carrier further delayed the arbitration by seeking evidence of the insured’s post-accident motor vehicle record, fall-downs, alcoholism and depression.

Eight years later, in 2013, the case finally went to arbitration, i.e., over 13 years after the accident and 8-9 years after the UIM arbitration process began. The arbitrator valued the insured’s injuries at $599,000, and awarded her $399,000. The arbitrator found no comparative negligence. [This was the same position the carrier had taken before late 2004.]

Arguments at trial

The bad faith case went to a non-jury trial in 2018, with a claim handler and the insurer’s UIM arbitration counsel as the sole witnesses.

The insured argued the carrier acted in bad faith when changing its position on the drivers’ comparative negligence, based solely on defense counsel’s interview of the other driver. The insured asserted that the carrier should have known the other driver was not credible, and should not have relied on his rendition of the facts to change its position because the other driver contradicted his own earlier statements to the investigators as to the accident’s cause. In response, the carrier appears to have asserted an advice of counsel defense.

The insured also argued bad faith in the carrier’s blanket refusal to consider subsequent psychological treatments, failure to conduct a full investigation by interviewing the investigating police officer before the UIM arbitration, failing to hire an accident reconstruction expert, and prolonging the proceedings for years in order to selectively reevaluate the claim after it learned the insured had various substance abuse issues, and a history of fall-downs, after the date of the underlying accident.

The trial court’s verdict

The trial court “found [the insurer] had acted recklessly and without a reasonable basis in continually valuing [the] claim at $200,000.” Further, the insurer “had improperly failed to reevaluate the claim to consider [the insured’s] psychological damages.” It was significant to the court that the insurer refused to consider the psychological claims based on the insured’s failure to transmit PTSD related documents, but “admitted at trial that it had received the medical records.”

The court also ruled against the carrier based on its changing positions as to the insured’s responsibility, rejecting the advice of counsel defense because the other driver’s 2004 rendition of the facts to defense counsel should not have been deemed credible based on that driver’s initial statements after the accident.

For nearly four years, after its own investigation and earlier interviewing the other driver, the insurer took the position that the insured bore no responsibility for the accident. The defendant insurer only began altering its liability position after defense counsel interviewed the underlying tortfeasor, who had changed his story.  Then, over a period of months, the insurer went from no comparative negligence, to maybe 50% comparative negligence at most, to a 100% negligence on the insured, solely based on the other driver’s interview with defense counsel.

The trial court observed the arbitrator ruled the other driver was not credible. Further, “[t]he trial court stated that although the arbitrator’s decision did not bind it, it recognized that the arbitrator was a ‘neutral, detached fact-finder’ and had not found [the insured] comparatively negligent at all.” The arbitrator also found substantial injuries. Thus, the “change of position on liability ‘represents a significant failure by [the insurer] in their ongoing responsibility to investigate and reconsider [its] position during [its] entire management of the claim.’”

The trial court further found the refusal to go above its $200,000 valuation for over a decade “was done with a purpose motivated by self-interest.” For example, the carrier failed to consider the psychological medical records admittedly in its possession.  It also failed to carry out a proper investigation and follow-up by not contacting the investigating police officer until the arbitration hearing, or hiring a reconstruction expert. Finally, the trial court found the carrier prolonged the proceedings in filing the declaratory judgment action based on the insured’s substance abuse and fall-downs after the 2000 accident.

Damages

The trial court awarded $24,650 in attorneys’ fees for the bad faith litigation, $125,000 in attorneys’ fees in connection with the UIM claim, and $125,000 in interest. It refused to award punitive damages.

Bad faith legal standards where insurer delays in paying benefits due

The Superior Court observed the following legal principles in rendering its verdict:

  1. “Ultimately, ‘[w]hen an insured obtains a bad faith verdict in a bench trial, appellate courts should only reverse in the most egregious of cases when the trial court has committed reversible error.’”

  2. “’The analysis of an insurance bad faith claim ‘is dependent on the conduct of the insurer, not its insured.’”

  3. Because ‘bad faith’ in this context stems from the duty of good faith and fair dealing implied in every insurance contract, the plaintiff need not prove the insurer acted with self-interest or ill-will.”

  4. “In order to prevail under the bad faith statute, 42 Pa.C.S.A. § 8371, ‘the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.’”

  5. “An action for bad faith is not restricted to the outright denial of a claim, but rather encompasses ‘all instances of bad faith conduct by an insurer.’”

[Note: The Court cited the Superior Court’s decision Rancosky v. Washington National Insurance Co., and not the Supreme Court’s Rancosky decision, to support this point.  As discussed many times on this Blog, there is a real issue as to whether section 8371 encompasses claims that do not involve the denial of a benefit actually due, i.e., is there any cognizable statutory bad faith cause of action when the insurer does not actually owe the insured any duty to pay first party benefits, or to defend or indemnify third party claims.  See, e.g., this post.]

  1. The Superior court then added examples of bad faith, where a claim was not outright denied: “This includes a lack of good faith investigation, as well as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.’”

[Note: In this case, there is no dispute that some benefit was due from the insurer, just a dispute of how much was due and when.  In effect, the insured is arguing that there was a decade plus delay in paying a benefit actually due; and the court’s bad faith verdict is made in light of the insurer actually owing a benefit substantially greater than what the insurer offered to pay.]

  1. “An insurer must make a timely investigation in response to the claim, and not just for arbitration.”

  2. “Indeed, an insurer must reevaluate a claim when presented with new information.”

  3. “An insurer’s mere negligence does not constitute bad faith, and an insurer may make a low estimate of an insured’s claim, so long as it has a reasonable basis.”

  4. “[A]n insurer has committed bad faith where it ‘acted in a dilatory manner, and forced the insured into arbitration by presenting an arbitrary ‘low-ball’ offer which bore no reasonable relationship to the insured’s reasonable medical expenses,’ particularly where the ‘low-ball’ offer proved to be significantly lower than the arbitration award.”

Facts supporting the bad faith verdict

The Superior Court held the following facts supported the trial court’s finding of bad faith:

The insurer never changed its claim valuation over a ten year period from the claim’s submission through a UIM arbitration, “despite mounting evidence that [the insured’s] damages surpassed [that] $200,000 [valuation].” The trial court properly rejected the insurer’s argument that there was no valuation change over time because the insurer went from taking the position that the insured had no responsibility for her own injury, to being partially responsible, and finally to being deemed wholly at fault for her own injury.  The Superior Court agreed that the evidence did not show the valuation claim ever hinged on the insured’s alleged comparative negligence.

Rather, the record demonstrated that as the insurer’s “position on liability evolved, its valuation of the claim did not change. Rather, it put a $200,000 value on [the] claim from the outset, failed to consider evidence of her psychological damages, refused to modify the valuation, and now cites subsequent developments to justify its failure to adjust the valuation in light of the information it disregarded. That it may not have failed to consider the evidence and adjust the valuation purposefully or because of ill will does not undermine the trial court’s conclusion, as [the insured] did not need to prove such states of mind.”

Other factors collectively favoring bad faith were the insurer did not change its comparative liability position until preparing for the UIM arbitration; the insurer did not interview the police officer on the scene; and that the insurer “was unable hire a reconstruction expert for arbitration because too much time had passed is further indicative that it did not make adequate inquiry into the accident in a timely manner.”

The facts did not require the trial court to award punitive damages

The Superior Court ruled: “Although the [trial] court found [the insurer] acted in bad faith, and awarded attorneys’ fees and interest accordingly, we cannot say that it abused its discretion in not awarding punitive damages. The evidence was not such that we conclude that the court’s decision was manifestly unreasonable or the result of partiality, prejudice, bias, or ill will.”

The Superior Court made the point that section 8371 does not compel the Courts of Common Pleas to award punitive damages simply because there is a bad faith verdict.  Rather, punitive damages remain within the trial judge’s discretion.  Ill-will, reckless indifference, or some other sign of malign action might provide evidence in proving statutory bad faith, but this level of intent is not a required element of a statutory bad faith claim.
Thus, just an insured can make out a bad faith claim without having to prove the level of evil intent or outrageous conduct that forms the basis for punitive damages, a finding of bad faith does not automatically encompass conduct that would mandate a finding of punitive damages.   Here, the trial judge did not find the carrier’s intent was so outrageous that punitive damages were warranted, even though the court found the carrier knew or recklessly disregarded the fact that it was unreasonably denying the insured benefits due her.

No error in limiting discovery of “post-denial” conduct

Finally, the insurer appealed the trial court’s granting a protective order as to certain requests for admissions concerning “post-denial” conduct, covering a time period beginning with the April 2004 initiation of the UIM arbitration process.  The trial court found this conduct irrelevant to the insurer’s bad faith in denying the claim. The Superior Court affirmed, finding no abuse of discretion.

The insurer had the burden to show how it was prejudiced by the trial court’s excluding this evidence, but it never “specified what evidence it sought under the admissions requests that it did not receive, and how that alleged evidence would have affected its case.”

Date of Decision:  February 4, 2021

Sartain v. USAA, Superior Court of Pennsylvania No. 4 WDA 2020, 2021 WL 401954 (Pa. Super. Ct. Feb. 4, 2021) (Bender, McLaughlin, Musmanno, JJ.) (Non-precedential)

NO PLAUSIBLE BAD FAITH CLAIM WHERE THERE IS SIMPLY A VALUATION DISPUTE OR REFUSAL TO IMMEDIATELY PAY POLICY LIMIT DEMAND (Middle District)

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The insured failed to plead a plausible claim in this UM bad faith case.

The 18-year old insured was rear-ended by an uninsured motorist, and suffered a long list of injuries. She had $100,000 in UM coverage.  The carrier offered $11,300 to settle her claims, and rejected a policy limit demand.  The insured brought breach of contract and statutory bad faith claims, and the insurer moved to dismiss the bad faith claim.

In determining whether a plaintiff states a plausible bad faith claim, a court must separate conclusory allegations from factual allegations, because conclusory allegations are not entitled to an assumption of truth for Rule 12(b)(6) purposes.

Here, the complaint alleges at least 16 bases for bad faith (listed below). Magistrate Judge Schwab found, however, the complaint “contains mostly conclusory statements that are not supported by factual allegations.” Thus, “[a]lthough long, [the insured’s] list of how the defendant allegedly acted in bad faith contains conclusions, rather than facts.”

Magistrate Judge Schwab cites a number of cases finding these sorts of allegations to be conclusory, including Middle District Judge Caputo’s 2019 Peters decision, 2017 Meyers decision, and 2012 Sypeck decision, Middle District Judge Rambo’s 2018 Rickell decision, Middle District Judge Caldwell’s 2010 Muth decision, as well as the Third Circuit’s frequently cited 2012 Smith decision.

Next, in looking at the factual allegations, the insured merely alleges she was diagnosed with certain injuries, went through physical therapy, gave the insurer notice of her claim, and forwarded various records for the insurer’s review. The insured’s counsel spoke with the insurer’s claims department, and made the carrier aware the insured was 18 at the time of the accident, continued to suffer from visual impairment and post-traumatic headaches, among other injuries, as a result of the head trauma she suffered, and that the insurer offered $11,300 to settle.

“These factual allegations, however, are not enough to state a bad faith claim upon which relief can be granted.”

A disagreement over a claim’s value, without the facts needed to show bad faith, cannot alone create bad faith. Here, the insured did not allege “facts to support an inference that the defendant did not have a reasonable basis for its settlement offer or that the defendant knew or recklessly disregarded any lack of a reasonable basis for such an offer.” Citing the Third Circuit’s Smith decision (above), Judge Caputo’s 2019 Clarke decision and 2019 Moran decision, Eastern District Judge Baylson’s June 2020 Dietz decision, Middle District Judge Kane’s 2019 Rosenthal decision, and the 2009 Superior Court Johnson decision, Magistrate Judge Schwab observes that low but reasonable settlement offers do not constitute bad faith, and that a “low-ball” offer, standing alone, cannot make out a bad faith claim.

Nor can refusing immediately to pay a policy limit demand by itself constitute bad faith. “Indeed, courts have consistently held that a dispute or discrepancy in the valuation of a claim between the insurer and the insured is not alone indicative of bad faith.” The insured simply did not plead facts “from which it can plausibly be inferred that the 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.” (internal quotation marks omitted)

Magistrate Judge Schwab dismissed the bad faith claim, but with leave to amend. This allowed for a second amended complaint to be filed “if appropriate, to state a bad faith claim upon which relief can be granted.”

Durdach v. LM General Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-00926, 2021 WL 84174 (M.D. Pa. Jan. 11, 2021) (Schwab, M.J.)

The litany of conclusory allegations referenced above, include:

  1. unreasonably delay[ing] the processing of a valid claim;

  2. kn[owingly] or recklessly disregard[ing] the fact that the delay was unreasonable;

  3. failing to objectively and fairly evaluate Plaintiff’s claim;

  4. engaging in dilatory and abusive claims handling;

  5. failing to adopt or implement reasonable standards in evaluating Plaintiff’s claim;

  6. acting unreasonably and unfairly in response to Plaintiff’s claim;

  7. not attempting in good faith to effectuate a fair, prompt, and equitable settlement of Plaintiff’s claim in which the Defendant’s liability under the policy had become reasonably clear;

  8. subordinating the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interests;

  9. failing to promptly offer reasonable payment to the Plaintiff;

  10. failing to reasonably and adequately investigate Plaintiff’s claim; k. failing to reasonably and adequately evaluate or review the medical documentation in Defendant’s possession;

  11. violating the fiduciary duty owed to the Plaintiff;

  12. acting unreasonably and unfairly by withholding underinsured motorist benefits justly due and owing to the Plaintiff;

  13. failing to make an honest, intelligent, and objective settlement offer;

  14. causing Plaintiff to expend money on the presentation of her claim; and

  15. failing to make a reasonable settlement offer despite knowing the severity of a visual injury and post-traumatic headaches in an 18-year old.

[The insured] also alleges that the defendant failed to act in good faith and “engaged in wanton and reckless conduct….”

COURT FINDS LOW OFFER IN FACE OF VERIFIED LOSSES SUFFICIENT TO STATE A BAD FAITH CLAIM (Middle District)

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Middle District Magistrate Judge Carlson’s Report and Recommendation, adopted by Judge Mariani, provides a lucid and detailed overview of the case law governing pleading standards in statutory bad faith cases. A copy of that R&R can be found here.

In this UIM case, Magistrate Judge Carlson found the insured pleaded enough to survive a motion to dismiss the bad faith claim, though it was a close case. He states:

“In reaching this conclusion, we find that [the] complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute. Rather, as we construe the complaint, it describes a scenario in which the plaintiff … suffered injuries that led to a confirmed and verifiable wage loss and out-of-pocket medical expense totaling $31,773.70. [The insured] recovered $30,000 from the under-insured motorist’s insurance carrier, but when he submitted proof of his losses to his own insurer … he was offered only $1,500, a sum which, when combined with the $30,000 payment from the tortfeasor’s insurance company, still fell below his verified wage and out-of-pocket medical expenses.”

[Note:  Although the discrepancy between the fixed damage claim and total insurance payments received and offered is only $223.70, in addition to the wage loss and medical expenses the insured pleaded “significant injuries to multiple levels of his neck and back which caused or aggravated herniated discs and required multiple pain injections.”]

Magistrate Judge Carlson continues:

“In our view, these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim. Rather, they allege a failure to pay the full, verified value of the insured’s claim. On this score, we recognize that a bad faith denial of an insurance claim may constitute a violation of § 8371, but in this setting, [i]n order to show bad faith, a claimant must ultimately establish by clear and convincing evidence both that: 1) the insurer lacked a reasonable basis for denying benefits; and 2) the insurer knew or recklessly disregarded its lack of reasonable basis.” (Internal quotation marks omitted)

“While this is an exacting burden of proof, these bad faith determinations are often fact-bound decisions that are not amenable to resolution on the pleadings alone. Instead, [i]n deciding whether an insurer had a reasonable basis for denying benefits, a court should examine what factors the insurer considered in evaluating a claim. ‘Bad faith claims are fact specific and depend on the conduct of the insurer vis à vis the insured.” (Internal quotation marks omitted)

“Thus, while [the insurer] vigorously disputes these averments of bad faith and argues that the facts alleged by the plaintiffs support a prudent effort on its part to thoroughly examine and resolve a potentially meritless claim, 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. Accordingly, we should decline this invitation to resolve this bad faith claim as a matter of law on the pleadings but deny this motion without prejudice to renewal of any summary judgment motion at the close of discovery.”

Dates of Decision: December 8, 2020 (Report and Recommendation), December 23, 2020 (Order Adopting Report and Recommendation)

Mertz v. Mid-Century Insurance Company, U.S. District Court for the Middle District of Pennsylvania No. 3:20-CV-690, 2020 WL 7647959 (M.D. Pa. Dec. 8, 2020) (Carlson, M.J.) (Report and Recommendation), adopted on December 23, 2020 (Mariani, J.)

SIMPLE VALUATION DISPUTE CANNOT CREATE BAD FAITH; NO ACTIONABLE BAD FAITH AGAINST CLAIM HANDLER; MIXED RESULT UNDER UTPCPL (Philadelphia Federal)

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The insured brought suit over a $500 valuation dispute.  The carrier valued the insured’s car at $2,500 ($3,000 less at $500 deductible), and repairs were estimated in excess of $3,000. The car being a total loss, the insurer offered $2,500, but the insured wanted $3,000.  This led to a 10 count complaint against the insurer and its claim handler. We only address the two bad faith counts against the insurer and/or the claim handler, and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims against the insurer.

No statutory bad faith.

The court dismissed the statutory bad faith claim.  There were simply no allegations of fact that could support a plausible bad faith claim. The complaint itself showed the carrier appropriately investigated the claim, and gave a prompt damage assessment.  Plaintiff did not allege the repair cost estimate was incorrect, or the inspection faulty. There was no allegation that the insurer’s valuation was unreasonable. There was no claim denial, just a dispute over the sum due.

The court found this simply a “normal dispute” that did not amount to bad faith. “An insurer’s failure to honor its insured’s subjective value of his claim does not—without more—give rise to a bad faith claim.” The court, however, did allow leave to amend.

No common law bad faith against the insurer or the claim handler.

The insured brought common law bad faith claims against the insurer and claim handler. The court observed there is no tort common law bad faith cause of action; rather, in Pennsylvania common law bad faith is subsumed in the breach of contract claim. Thus, the common law claim against the insurer was dismissed with prejudice.

As to claim handler, Pennsylvania law (1) does not support a statutory bad faith claim against claim handlers; nor (2) does it recognize a bad faith claim in contract against adjusters (who are clearly not party to any contract). These claims were dismissed with prejudice.

A mixed result under the UTPCPL.

The court also dismissed one UTPCPL claim on the basis that it alleged poor claim handling, not deceptive inducement to enter the insurance contract.  However, the insured also alleged the carrier’s representative originally made false representations causing him to purchase the insurance in the first place.  This was sufficient to state a UTPCPL claim under its catch-all provision.

Date of Decision: December 14, 2020

Ke v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1591, 2020 WL 7353892 (E.D. Pa. Dec. 14, 2020) (Pratter, J.)

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

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

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

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

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

The court identified the following bad faith claims:

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

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

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

Poor Judgment is Not Bad Faith

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

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

Setting Aside Reserves Cannot be used as a Cudgel

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

The Alleged Failure to Increase an Offer is Not Bad Faith

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

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

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

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

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

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

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

Partial Payment Issue not a Basis for Bad Faith

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

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

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

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

UIPA Violations Cannot Form the Basis of a Bad Faith Claim

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

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

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

No Bad Faith Based on Insurer’s Own Manuals

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

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

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

Date of Decision:  December 10, 2020

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

BAD FAITH CLAIM DISMISSED FOR FAILURE TO PLEAD SUFFICIENT FACTS (THE FIVE Ws) TO ESTABLISH KNOWLEDGE OR RECKLESS DISREGARD (Philadelphia Federal)

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This is the latest of many 2020 bad faith cases dismissed for failing to allege more than conclusory allegations. It is the second opinion this month finding a bad faith plaintiff failed to plead the necessary scientir element, even if unreasonableness in denying a benefit was alleged sufficiently.

In this UIM breach of contract and bad faith case, the insured alleged “that (1) she provided notice of the loss and her intent to pursue underinsured motorist benefits from [the insurer], (2) she demanded payment and submitted medical records to substantiate that demand, (3) [the insurer] failed to investigate thoroughly and fairly, (4) [the insurer] failed to communicate with [the insured], (5) [the insurer] has refused to pay the demand, and (6) as a result, [the insured] has and continues to suffer loss and damages.”

The insurer moved to dismiss the bad faith claim.

“A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. To provide a defendant with fair notice, a plaintiff must provide ‘more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.’ Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Third Circuit instructs the reviewing court to conduct a two-part analysis. First, any legal conclusions are separated from the well-pleaded factual allegations and disregarded. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). Second, the court determines whether the facts alleged establish a plausible claim for relief.”

The present complaint “fails to include specific facts regarding [the insurer’s] actions, including those which would support a bad faith claim. District courts in this circuit ‘have routinely dismissed bad faith claims reciting only ‘bare-bones’ conclusory allegations unsupported by facts sufficient to raise the claims to a level of plausibility.’”

In support, Judge Pratter cites Judge Pappert’s Elican decision, Judge Slomsky’s Toner decision, and Judge Buckwalter’s Pasqualino decision.

The insured failed to plead the “Five Ws”, i.e., “the who, what, where, when, why,” “and how [the insurer’s] conduct plausibly constitutes bad faith.” Even where cursory claims might be sufficient to plausibly plead an unreasonable benefit denial, there still have to be sufficient allegations for a court to “plausibly infer that the insurer knew or recklessly disregarded a lack of a reasonable basis to deny benefits.” This split between adequately alleging unreasonableness and knowledge was present in, e.g., Pasqualino.

More recently, just one day before Judge Pratter’s opinion issued in this case, Judge Quiñones Alejandro issued her opinion in White v. Travelers, summarized earlier this week. Just as in Judge Pratter’s opinion and Pasqualino, Judge Quiñones Alejandro found the insured failed to get beyond conclusory allegations in asserting the insurer acted knowingly or recklessly in denying a benefit.

Finally, Judge Pratter cited to the Third Circuit’s Smith opinion, summarized here, reminding parties and the courts that “the mere ‘failure to immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.’”

Judge Pratter did give the insured leave to amend, rather than dismissing the bad faith claim with prejudice.

Date of Decision:  December 8, 2020

Satterfield v. GEICO, U.S. District Court Eastern District of Pennsylvania No. CV 20-1400, 2020 WL 7229763 (E.D. Pa. Dec. 8, 2020) (Pratter, J.)

INSURED ADEQUATELY PLEADED UNREASONABLE DENIAL/DELAY, BUT NOT KNOWLEDGE OR RECKLESS DISREGARD; UIPA/UCSP NOT BASIS FOR BAD FAITH (Philadelphia Federal)

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The insurer successfully moved to dismiss a UIM bad faith claim. While the plaintiff pleaded sufficient facts to show the insurer’s conduct was unreasonable, plaintiff failed to sufficiently plead that the insurer’s conduct was knowing or reckless.

Factual Background

The complaint alleged that after settling with the tortfeasor, the insured demanded UIM policy limits from her own carrier. The demand was in writing, accompanied by medical documents, and requested a response in 30 days. There was no response in 30 days, and the insured sent another demand on the 32nd day, and again a month after that.  The carrier’s adjuster responded to the third demand, on the day it was sent, that the carrier did not agree with plaintiff’s valuation of her injuries. On that same day, the insured also requested a copy of the policy, which the carrier initially refused to provide, but eventually sent almost six weeks later. The Insured made more requests for documents she alleges were relevant, but received no response.

She pleads she was never provided “with (1) a written explanation for the delay in investigating her UIM claim, (2) any indication of when a decision on the claim might be reached, or (3) any written explanation on the status of her claim.” Instead, over six months after her original demand, the insurer made a written demand to arbitrate the UIM claim.

Thus, the only two communications in the six-month period were to dispute valuation and demand arbitration.

The insured sued for breach of contract and bad faith. The carrier moved to arbitrate the UIM claim, and to dismiss the bad faith claim. The court granted the motion to arbitrate, and stayed the insured’s coverage claim pending arbitration.  It dismissed the bad faith claim.

Alleged Bases for Bad Faith

The insured alleged seven bases for her bad faith claim:

  1. “failing to promptly and reasonably determine the applicability of benefits;”

  2. “failing to pay benefits or settle her UIM claim;”

  3. “unreasonably delaying payment;”

  4. “failing to provide a copy of the … Policy when requested;”

  5. “failing to respond to multiple attempts at communication;”

  6. “unreasonably delaying evaluation of her claim;” and

  7. “violating the Unfair Insurance Practices Act (“UIPA”), 40 P.S. § 1171.1 et seq., and the Unfair Claims Settlement Practice (“UCSP”) Guidelines, 31 Pa. Code § 146.1 et seq., by failing to complete claim investigation within thirty days or, if unreasonable, to provide a written explanation and an expected date of completion every forty-five days thereafter.”

Bad Faith Standards and First Element of Bad Faith

The court observed two factors are needed to prove bad faith, as approved in Rancosky: the insured must show “(1) the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.” Judge Quiñones Alejandro stated that the first element covers a range of insurer conduct, such as “an insurer’s lack of good faith investigation or failure to communicate with the claimant regarding UIM claims[, … or] where the insurer delayed in handling the insured’s claim.”

The insured pleaded enough to support a plausible claim for unreasonable conduct in denying the claim. She “alleged that during the nearly six months between Plaintiff initially filing her UIM claim and [the insurer] making a written arbitration demand, Plaintiff’s counsel attempted to communicate … on at least five separate occasions for any update on the status of Plaintiff’s claim.” The insurer only responded once to dispute valuation and then three months later to demand arbitration.  This was enough to make out a claim for “unreasonable delay to investigate and settle Plaintiff’s claim.”

Second Element of Bad Faith Not Met

Proving knowledge or reckless disregard goes beyond mere negligence or poor judgment. Pleading “the mere existence of the delay itself is insufficient.” “Rather, a court must look to facts from which it can infer the defendant insurer ‘knew it had no reason to deny a claim; if [the] delay is attributable to the need to investigate further or even simple negligence, no bad faith has occurred.’” “In cases involving delay or failure to investigate or communicate, courts have found the length of the delay relevant to an inference of knowledge or reckless disregard.” Judge Quiñones Alejandro cited examples of cases with more than one and two year investigation delays.

She went on to find the insured did not plead a plausible claim of knowing or reckless disregard in denying or delaying payment. “In bad faith cases premised on an insurer’s delay and failure to communicate, courts have generally only inferred plausible knowledge or reckless disregard where the time periods of delay were much longer than six months.” She cites the Superior Court’s Grossi decision (one year delay), and Judge Leeson’s January 2020 Solano-Sanchez decision (two year delay) as other examples.

By contrast, “[h]ere, the time lapse before [the insurer] acted on Plaintiff’s claim by seeking arbitration was roughly six months. Further, nothing in Plaintiff’s complaint attributes this time period to [the insurer’s knowledge or reckless disregard of a reasonable basis for denying (or delaying) the claim, as opposed to ‘mere negligence’ or even an actual need to investigate. Without a longer delay more consistent with the delays established in the aforementioned precedent, or other factual allegations from which this Court could infer that Travelers acted with knowledge or reckless disregard of the unreasonableness of its actions, Plaintiff has not pled facts sufficient to plausibly allege the second element of her bad faith claim. Therefore, Plaintiff’s bad faith claim is dismissed.”

UIPA or UCSP Violations Cannot Form Basis for Bad Faith Claims

In addressing the bad faith claims, the Court observed, “alleged violations of the UIPA or UCSP cannot per se establish bad faith and have not been considered by Third Circuit courts.” Judge Quiñones Alejandro cites the Third Circuit’s decisions in Leach (“holding that ‘insofar as [plaintiff’s] claim for bad faith was based upon an alleged violation of the UIPA, it failed as a matter of law.’”), and Dinner v. U.S. Auto. Ass’n Cas. Ins. Co., 29 F. App’x 823, 827 (3d Cir. 2002) (holding that alleged UIPA or UCSP violations are not relevant in evaluating bad faith claims), as well as the Eastern District decision in Watson (“observing that, since the current bad faith standard was established in Terletsky, ‘courts in the [Third] circuit have … refused to consider UIPA violations as evidence of bad faith.’).”

Date of Decision: December 7, 2020

White v. Travelers Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2928, 2020 WL 7181217 (E.D. Pa. Dec. 7, 2020) (Quiñones Alejandro, J.)

NO BAD FAITH FOR FAILURE TO LEARN ABOUT OTHER INSURANCE COVERAGE NOT DISCLOSED BY THE INSURED, OR IN ACTIVE CLAIM HANDLING THAT ONLY RESULTED IN A VALUATION DISPUTE (Western District)

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The injured plaintiff had UIM insurance stacked for four vehicles. With stacking, this UIM coverage amounted to $60,000. The insured agreed to settle his claim for $50,000.

After that settlement, the plaintiff brought to the carrier’s attention that his stepson also had an auto policy with the same carrier. Plaintiff took the position that he was an insured under the stepson’s policy as they resided in the same household. If true, this would considerably increase potential UIM coverage from $60,000 to $160,000.

The stepson’s policy, however, listed a different home address. The stepfather told this carrier this was not accurate and an investigation into the stepson’s address ensued.  The carrier ultimately agreed to the additional $100,000 in available UIM coverage, but did not find a factual basis to increase the $50,000 paid to settle the case.

The Insurer’s Claim Handling Concerning Valuation

The court accepted the carrier’s factual recitations from the record. The insured twice agreed with the carrier on the claim’s value, only later to change course and increase his demand.  Instead of arguing over these reversals, the carrier “re-opened, re-evaluated and continued to negotiate with Plaintiff in a prompt and reasonable manner.” Moreover, the carrier did so “despite [the plaintiff’s] repeated refusal for over a year to participate in an SUO [statement under oath], and resistance to providing authorizations for the release of medical records, both of which are investigative tools to which [the insurer] is contractually entitled.”

The court also agreed the insured only gave the carrier “unreasonably small windows of time to respond to his demands, and refused to grant any extensions. … Nevertheless, [the insurer] continued to work with Plaintiff and to explain to him what [the insurer] needed, why [the insurer] needed it, and the basis for [its] determinations regarding his claim.”

The insurer obtained an independent medical examination, years after the injury, from which it concluded there was no basis to increase the settlement sum.  This evaluation was done at a time when the insured repeatedly said he was going in for additional surgery, and this was a basis to increase the claim’s value. As of the time the record was created in the case, however, this surgery had not taken place.

Judge Cercone stated the insurer “reasonably valued Plaintiffs UIM claim … and reasonably took the position that, if Plaintiff did in fact undergo surgery, the claim could be again be re-evaluated at that time.”

Alleged Failure to Determine the Stepson’s Address

The bad faith claim focused on the insurer’s alleged failure to disclose the insured was also covered under the stepson’s policy, as well as his own policy. This in turn boiled down to where the stepson actually resided at the time of the accident at issue, and what information the insurer had about the stepson’s residence in underwriting the stepson’s auto policy.

The record shows the stepson used his biological’s father’s home address in applying for insurance, not his stepfather’s address. Further, there was nothing on the face of the stepson’s underwriting file to indicate the stepson resided with plaintiff and not his biological father. After considerable investigation, the insurer did agree plaintiff was an insured under the stepson’s policy, thus accepting that the stepson in fact resided with plaintiff and not his biological father.  As stated above, however, the insurer refused to increase its settlement sum pending any actual additional surgery and an evaluation thereof.

Bad Faith Analysis

The insured sued for breach of contract and bad faith. The bad faith claim was based on the notion that it was the carrier, not the stepfather, that had a duty to disclose the additional $100,000 in coverage under the stepson’s policy. Thus, the plaintiff alleged the carrier misled the stepfather-insured into thinking there was only $60,000 in coverage, and this created a basis for a statutory bad faith recovery.

The insurer successfully moved for summary judgment on this bad faith claim.

Judge Cercone found “[t]he matter presented to defendant and this court falls far short on the showing needed to permit the finder of fact to arrive at a finding of bad faith.” The stepfather did nothing more than insinuate the carrier: (1) should have been more astute in determining the stepson’s actual address, (2) questioned the stepson on his address, (3) discovered inconsistencies in his address, which (4) “would have and should have detected that [stepson] lived with plaintiffs,” and then (5) would have necessarily resulted in the carrier realizing that the stepson’s policy should have been added to the stepfather’s applicable policy limits.

The court rejected this speculative narrative as falling far short of the kind of reckless or intentional misconduct needed to prove bad faith. The putative failure to uncover the extra $100,000 in coverage was at most negligent, and “an insurer’s mere negligence or bad judgment is not bad faith.”

Moreover, the court clearly did not believe there was even negligence in this case. Judge Cercone described plaintiff’s effort to convert the stepson’s underwriting history “into an unfounded and unreasonable basis for failing to detect [stepson’s] actual residence [as] nothing more than an attempt to insinuate an evidentiary basis for a finding of bad faith.” The plaintiff failed to identify any procedure the carrier failed to follow in concluding the stepson’s address to be with his biological father, which was the address submitted by the stepson and his biological father when originally obtaining the policy, and the address used on the policy.

The court described the case as actually boiling down to a valuation dispute.

As described above, the insurer’s claims handling was reasonable. It considered multiple demands to reevaluate the claim, even after settlement. It also agreed to the additional $100,000 in coverage limits “without meaningful delay once [stepson’s] actual address … was made known … and it verified…”

Judge Cercone states, “[a]gainst this backdrop it is rank speculation to infer that the [insurer’s] principals involved here engaged in a course of conduct with the intent to promote [the insurer’s] financial interest over its fiduciary obligations to plaintiffs, or that they recklessly pursued a course of conduct that had the ability to do so. As noted above, plaintiffs’ attempts to establish the lack of good faith fall woefully short of the mark and are insufficient.” Nothing was identified in the insurer’s claim handling that “even remotely raises a specter of self-dealing.”

Judge Cercone found “no evidence whatsoever that defendant did not investigate, valuate and negotiate with plaintiffs in good faith or stopped doing so during the adjustment process.”

In summing up, Judge Cercone states:

In short, plaintiffs have failed to advance sufficient evidence to permit a finding in their favor on a bad faith insurance practices claim. Plaintiffs’ evidence pertaining to defendant’s failure to uncover [stepson’s] policy during a search for household policy holders in conjunction with [plaintiff’s] UIM claim cannot bear the weight plaintiffs seek to have it shoulder. [The insurer] straightforwardly requested plaintiffs to identify the automobiles owed by any family member residing in their household. They did not identify or even allude to [stepson] and his motor vehicle when so requested. The evidence reflecting the address used in issuing [stepson’s] policy has every appearance of being consistent with honoring the representations and billing requests of its insureds and does not in any event supply clear and convincing evidence that defendant engaged in self-dealing or other similar measures in order to thwart its good faith obligations in adjusting and negotiating [plaintiff’s] UIM claim.”

Date of Decision: November 30, 2020

Bogats v. State Farm Mutual Automobile Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:18CV708, 2020 WL 7027480 (W.D. Pa. Nov. 30, 2020) (Cercone, J.)

(1) NO WANTON CONDUCT UNDER MVFRL INVOKING TREBLE DAMAGES AND SUPER INTEREST; (2) NO STATUTORY BAD FAITH WHERE (i) MVFRL PREEMPTS BAD FAITH STATUTE; (ii) THERE IS ONLY A VALUATION DISPUTE; (iii) INVESTIGATION REASONABLE; (4) BIAS CLAIMS ARE MERELY SUBJECTIVE (Philadelphia Federal)

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Plaintiff was injured in an auto accident and made both PIP claims and underinsured motorist (UIM) claims. She found the carrier’s settlement offers and negotiations wholly inadequate, and brought statutory bad faith claims, and claims for damages under the Motor Vehicle Financial Responsibility Law (MVFRL) seeking treble damages and super interest for the insurer’s allegedly “wanton” conduct concerning her medical benefit claims.

MVFRL Claims

The court found the insured could proceed on her PIP claim under a breach of contract theory. However, the MVFRL claim for treble damages and 12% interest, under 75 Pa. C.S. § 1797(b)(4), was dismissed without prejudice. Judge Pappert held plaintiff had not pleaded “wanton” conduct, a predicate for gaining the extraordinary remedies under this statute.

The insurer also asserted the MVFRL count actually alleged a breach of the duty of good fair dealing, and moreover constituted an improper effort to get relief under the Bad Faith Statute. It asked the court to strike certain averments related to this putative backdoor bad faith claim.

The court rejected this argument: “Although Count II appears to assert a claim under the MVFRL … it also appears to assert a claim for … alleged breach of the implied contractual duty to act in good faith related to her PIP coverage. …  Because [the insured] may pursue a claim for breach of her policy’s PIP coverage obligations and because motions to strike are ‘not favored and usually will be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties,’ the Court will not strike her allegations regarding the duty of good faith and fair dealing in Count II.”

MVFRL Claims and the Bad Faith Statute

The court then addressed the statutory bad faith claim.

The court first observed that unless the insurer’s “conduct falls outside of the scope of § 1797 of the MVFRL, 75 Pa. C.S. § 1797, and involves a bad faith abuse of the process challenging more than just the insurer’s denial of first party benefits, the MVFRL preempts any statutory bad faith claim concerning … PIP benefits.” The court made clear, “To the extent that the gravamen of [the] bad faith claim is the denial of first party medical benefits and nothing more, [the insurer’s] alleged conduct is within the scope of § 1797 of the MVFRL and therefore [she] is precluded from bringing such a claim.”

However, “[s]ection 8371 bad faith claims remain cognizable when the basis of a benefits denial does not relate to the reasonableness and necessity of treatment, or when an insurer’s conduct is obviously not amenable to resolution by the procedures set forth in Section 1797(b).”

Dispute Over Valuation not Bad Faith

The insured alleged the insurer delayed her claim and denied its value. The court found these allegations did not equate to allegations that the insurer actually deny the UIM or PIP. Rather, there was a dispute over valuation.

Analyzing the matter as a valuation dispute, Judge Pappert found the insured did not allege “facts sufficient to show [the insurer’s] valuation is unreasonable.” The insured’s subjective beliefs as to her claim’s value “is not indicative of bad faith because … subjective belief as to the value of the claim may reasonably, and permissibly, differ.”

Rather, “[t]o state a bad faith claim, [an insured] must do more than call [the insurer’s] offers low-ball.” These kind of conclusory and subjective allegations “suggest nothing more than a normal dispute between an insured and insurer.”

Low but Reasonable Offers Not Bad Faith

Bad faith does not exist “merely because an insurer makes a low but reasonable estimate of an insured’s damages.” Nor does a refusal “to immediately accede to a demand for the policy limit … without more, amount to bad faith.”

Insurer had Reasonable Basis to Deny Claim/No Adequate Claim of Bias

Next, Judge Pappert rejected the argument that the insured adequately pleaded the insurer lacked a reasonable basis to deny the claim’s value.  The insurer requested medical records and had an IME performed. It assessed the insured’s injuries based on that information.

The court did not give weight to conclusory allegations the doctor performing the IME was “a biased IME doctor” and “well-known as [someone] who provides so-called Independent Medical Examinations exclusively for and apparently to the liking of insurance companies….”  Further, that the plaintiff’s own doctor said she needed surgery did not, by itself, support a bad faith claim. The insurer was not unreasonable in relying  on the IME doctor’s assessment that the symptoms requiring surgery were unrelated to the accident at issue.

“In the absence of any supporting facts from which it might be inferred that [the] investigation was biased or unreasonable, this type of disagreement in an insurance case is not unusual, and cannot, without more, amount to bad faith.”

The court, however, permitted plaintiff to amend the statutory bad faith claim “to the extent it is not preempted by the MVFRL and to the extent she is able to allege facts stating a plausible claim for relief.”

Date of Decision: October 2, 2020

Canfield v. Amica Mutual Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2794, 2020 WL 5878261 (E.D. Pa. Oct. 2, 2020) (Pappert, J.)

PLEADING A DISPUTE OVER VALUE AND SUBMITTING MEDICAL RECORDS TO SUPPORT ONE VALUE DOES NOT MAKE OUT A BAD FAITH CLAIM (Western District)

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This Western District UM bad faith decision aligns with recent Eastern and Middle District cases in finding that the insureds failed to plead a plausible bad faith claim.

Pleading Standards, General

Among other things, the court observed:

  1. Although a complaint does not need to allege detailed factual allegations to survive a Rule 12(b)(6) motion, a complaint must provide more than labels and conclusions.

  2. A “formulaic recitation of the elements of a cause of action will not do.”

  3. “Factual allegations must be enough to raise a right to relief above the speculative level” and be “sufficient to state a claim for relief that is plausible on its face.”

  4. Facial plausibility exists “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

  5. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. [ ] Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.’”

Pleading Principles in Bad Faith Cases

The court also looked at prior case law in adducing pleading principles applied in insurance bad faith cases:

  1. In the bad faith context, district courts have required more than “conclusory” or “bare-bones” allegations that an insurance company acted in bad faith by listing a number of generalized accusations without sufficient factual support.

  2. Thus, the assessment of the sufficiency of a particular complaint often turns on the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss.

  3. Where a complaint’s § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was “unreasonable” or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims.

  4. A motion to dismiss will be granted where the “[p]laintiff’s generic invocation of statutory language is insufficient to satisfy his federal pleading burden.”

  5. There is no plausible claim stated in a statutory bad faith case where the complaint is devoid of “any facts that describe who, what, where, when, and how the alleged bad faith conduct occurred.”

Application of Law to Facts Pleaded Leads to Dismissal with Leave to Amend

The complaint alleges plaintiffs were injured by an uninsured motorist and sought UM coverage from the carrier. The policy had $100,000/$300,000 limits. Plaintiffs submitted a demand package, including relevant medical records.  The carrier offered a total of $23,000 to both plaintiffs. One plaintiff later submitted a lost wages claim of $18,000. The insurer increased the offer by another $3,000, but made clear it would not evaluate the lost wage claim.

Plaintiffs’ bad faith count relied on these factual allegations, which the court described as “breach of contract allegations,” and then added “a laundry list of generic allegations that may amount to bad faith….” This was not enough.

First, the court pointed out that plaintiffs failed to attach any exhibits to the complaint. Further, they did not plead “any facts to explain how or why the offer made by [the insurer] is nothing more than a legitimate dispute over the value of the claim.” The court made clear that disputes over value do “not necessarily give rise to bad faith; rather, a plaintiff must allege ‘factual content indicating that [the insurance company] lacked a reasonable basis for its tendered offer or that it knew or recklessly disregarded a lack of reasonable basis for the offer.”

The court dismissed the bad faith claim, with leave to amend.

Date of Decision: August 4, 2020

TAYLOR v. GEICO CHOICE INSURANCE COMPANY, No. 2:20-CV-00729-CRE, 2020 WL 4474926 (W.D. Pa. Aug. 4, 2020) (Reed Eddy, M.J.)

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