Archive for the 'PA – Federal Pleading Inadequate' Category

BAD FAITH CLAIM DISMISSED FOR CONCLUSORY PLEADINGS; COURT REFUSES TO ALLOW AMENDMENT TO JOIN PARTIES THAT WOULD HAVE DESTROYED DIVERSITY (Western District)

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This UIM case was removed to federal court, and the insured moved to remand this procedurally complex matter.  The carrier opposed remand and moved to dismiss the insureds’ bad faith claims.

Court rejects amended complaint adding new parties that would destroy diversity

The plaintiffs’ initial UIM suit was against non-diverse defendants and the case was removed to federal court. After removal, the plaintiffs filed an Amended Complaint adding non-diverse parties from a separate auto accident. They moved to remand for lack of jurisdiction.  The court refused to allow the joinder and retained jurisdiction, per 28 U.S.C. sec. 1447(e).

The court observed there was no Third Circuit precedent on section 1447(e), and like other district courts in this Circuit, the court followed the Fifth Circuit in applying a four-factor test to scrutinize remand motions under these circumstances. This balance of equities test adds heightened standards for allowing amendment that would destroy diversity. (The factors to be considered include “[1] the extent to which the purpose of the amendment is to defeat federal jurisdiction, [2] whether plaintiff has been dilatory in asking for amendment, [3] whether plaintiff will be significantly injured if amendment is not allowed, and [4] any other factors bearing on the equities.”).

Bad faith claims dismissed for pleading conclusory allegations

Having retained jurisdiction, the court then addressed the insured’s breach of contract and bad faith claims.

The insureds never allege “the amount of liability insurance available to the tortfeasors for the accident, the status of her claim against the insured, and they do not aver whether the liability limits of the tortfeasor’s coverage has been exhausted.” Thus, the insurer argued the UIM claim was not ripe. The insurer also argued the insureds never set out “the nature of [the] injuries, damages, or specific conduct in support of the statutory bad faith claim.”

The court found both the breach of contract and bad faith claims consisted “only of conclusory and boilerplate statements … and therefore, the motion to dismiss these claims will be granted.” It was significant to the court that plaintiffs did not attach the policy. Plaintiffs claimed they could not locate the policy, and as the court allowed amendment it encouraged the parties to work together expeditiously to get plaintiffs a copy of the policy.

More significantly, the plaintiffs did not plead any specific facts about the carrier’s conduct. The “merely alleged legal conclusions, and because the legal conclusions pled in the [amended complaint] are not facts, they are not assumed to be true and do not meet the Twombly/Iqbal standard.”

Date of Decision: October 9, 2020

Pierchalski v. Pryor, U.S. District Court Western District of Pennsylvania No. 2:19-CV-01352-RJC, 2020 WL 5994981 (W.D. Pa. Oct. 9, 2020) (Colville, 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.)

PLAUSIBLE BAD FAITH WHERE INSURER’S POSITION RESULTS IN ILLUSORY COVERAGE; NO BAD FAITH WHERE NO COVERAGE DUE (Western District)

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This case centers on a dispute between the insureds and their homeowners carrier over whether the carrier had agreed to policy limit increases based on a multi-million dollar renovation.  The court details a series of alleged telephone communications between the insureds and the carrier, which the insureds claim committed the carrier to the policy limit increases.  This all occurred before the fire loss at issue.

In addition, the policy included a provision for “Home Protection Coverage”. This provision provides for a 25% coverage extension on existing policy limits.  “Essentially, the Home Protector Coverage’s purpose is to provide extended coverage in the event a homeowner’s losses exceed the policy’s coverage limits.”  The insureds also they did everything necessary for the Home Protection Coverage to be in place at the time of their fire loss.

The carrier asserted to the contrary that there was both no evidence properly documenting an increase in policy limits, or that the insureds met the requirements needed to receive the Home Protection Coverage. The insurer rejected claims for the higher limits and the Home Protection Coverage, and the insureds sued for breach of contract, statutory bad faith, promissory estoppel, and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL).

Breach of Contract Claims Partially Survive

The court dismissed the breach of contract claim for extended policy limits, without prejudice. There was no plausible claim that a contract existed as such or through the reasonable expectations doctrine.

However, the court found the breach of contract claim for the “Home Protection Coverage” stated a plausible claim.  The court held that to find otherwise would make the relevant policy language illusory.

BAD FAITH

The court set forth various principles on statutory bad faith, though incorrectly stating that the insured must demonstrate some motive of self-interest or ill will.

Plausible Bad Faith Claim Stated for Pursuing Argument that would make Coverage Illusory

The court found the insureds stated a plausible bad faith claim as to the denial of Home Protection Coverage. The insureds alleged they paid their premiums, gave notice of renovations, and timely submitted their coverage claims. “Plaintiffs thus assert that Defendant ‘unreasonably denied the benefits’ and ‘had knowledge of their lack of reasonable basis for denying benefits.’”

More specifically, at the pleading stage, the Court had already “rejected carrier’s interpretation of the Home Protector Coverage … and thus cannot accept Defendant’s argument that its basis for denial of Home Protector Coverage was reasonable because Plaintiffs ‘could not show that their property was fully insured for replacement cost at policy inception.’ …. Such an interpretation would construct an illusory promise of coverage, which the Court has already determined it should not entertain.”

Failure to State Plausible Bad Faith Claim where no Coverage is Due

As to the bad faith claims concerning extending the policy limits, the Complaint did not set out a plausible claim.  As stated above, the court ruled the insureds failed to plead a plausible claim for breach of contract on extending policy limits through the various telephone communications or failing to reschedule an inspection. “As such, the Court agrees with Defendant that in ‘the absence of insurance coverage, there can be no bad faith by the insurer as a matter of law.’” As with the contract claim, dismissal was without prejudice.

Promissory Estoppel and UTPCPL

The court rejected that promissory estoppel could create or increase insurance coverage.  It allowed the claim to proceed, but solely as to amending allegations that could go to the breach of contract claims.

The court agreed that the UTPCPL could not create liability for claims handling. It was not clear to the court, however, whether the alleged deceptive conduct occurred at times other than during claims handling.

The court then carries out a fairly detailed analysis of significant UTPCPL concepts such as malfeasance vs. nonfeasance, pleading intent, pleading with particularity, and whether the gist of the action doctrine might apply.

The court concludes, “while Plaintiffs’ averments of deceptive conduct are not categorically barred by the UTPCPL to the extent set out above, Plaintiffs have not pled their claim with the level of particularity required by Pennsylvania law. Accordingly, the Court grants Defendant’s Motion to Dismiss … without prejudice and with leave to amend.”

Date of Decision: September 24, 2020

Luketich, v. USAA Casualty Insurance Company, U.S. District Court for the Western District of Pennsylvania No. 2:20-CV-00315, 2020 WL 5669017 (W.D. Pa. Sept. 24, 2020) (Hornak, J.)

ARE THERE MANY KINDS OF STATUTORY BAD FAITH, EVEN WHEN NO COVERAGE IS DUE ? (Western District)

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This statutory bad faith opinion issued out of the Western District of Pennsylvania yesterday.

The court finds no coverage based on a one-year suit limitation provision and/or a policy exclusion. Thus, plaintiffs have no bad faith claim based on denial of coverage, as no coverage is due, and that claim is dismissed with prejudice.

The court expressly finds, however, that there are other forms of statutory bad faith cognizable under 42 Pa.C.S. § 8371, beyond coverage denials.  It identifies a commonly recognized exception that if the contract claim fails for a technical reason, like exceeding a limitation period, the bad faith claim can still proceed.  The court goes beyond this kind of technical exception to recognize further that poor claims handling may be actionable independently, e.g., knowing or recklessly inadequate investigation, even when no benefit is due under the policy.

On this distinct bad faith investigation claim, plaintiffs only plead (1) conclusory allegations, along with (2) a single fact that cannot constitute bad faith standing alone. Thus, the court dismisses the bad faith investigation claim, but without prejudice. Plaintiffs have leave to file an amended complaint on their investigation bad faith claim, even though no coverage is due under the policy.

[Note: As those following this blog know, we have addressed the scope of cognizable claims under section 8371, and raised the question as to whether cognizable claims under section 8371 are limited to cases where first party benefits due have been denied, or where a defense and/or indemnification due have been refused on third party claims.  Our analysis always begins with the 2007 Supreme Court decision in Toy v. Metropolitan Life Insurance Company.  See, e.g., this post, and this article. The present opinion relies, in part, on the Third Circuit’s unpublished decision in Gallatin Fuels. As discussed in the linked article, Gallatin Fuels does not address Toy. We are also attaching a portion of a brief recently filed in a Philadelphia federal court, from attorney Lee Applebaum, as part of a motion that has now become moot.]

Date of Decision:  August 26, 2020

Palek v. State Farm Fire and Casualty Co., U.S. District Court Western District of Pennsylvania No. 20-170 (W.D. Pa. Aug. 26, 2020) (Flowers Conti, J.)

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

INSURED FAILS TO ADEQUATELY PLEAD BAD FAITH; CAN CONDIO BE USED TO DEFINE THE SCOPE OF THE BAD FAITH STATUTE AFTER TOY (Philadelphia Federal)

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The insured failed to plead a plausible bad faith claim in this first party property loss case.

We will address two things about this case.  First, the details in the court’s decision granting the motion to dismiss.  Second, the court’s finding that statutory bad faith can consist of more than the denial of first party benefits or the denial of a defense and indemnification in third party claims.

Failure to Plead a Plausible Bad Faith Claim

As discussed many times by the federal district courts addressing bad faith claims, conclusory allegations simply carry no weight in adequately pleading a bad faith claim. Courts will parse the complaint to determine what non-conclusory facts have actually been pleaded, what allegations are merely conclusory boilerplate and can be disregarded, and whether facts left standing after that process can support a plausible bad faith claim.

In this case, the facts pleaded only included the location of covered property, that a peril covered under the policy caused direct physical loss and damage to the property, that prompt and timely notice of loss was given to the carrier, and that the insured fully complied with all necessary policy terms and conditions.

The complaint went on to aver generically 13 forms of bad faith behavior, with no factual detail (listed below). The court readily found these allegations conclusory.

The court gave particular attention to a few of these conclusory allegations. For example, the complaint alleges the carrier “’misrepresent[ed] pertinent facts or policy provisions relating to coverages at issue’ and ‘sen[t] correspondence falsely representing’ that Plaintiff was not entitled to benefits under the Policy….” However, the complaint failed “to explain what those misrepresentations may have been.”

Plaintiff also averred that the insurer “’fail[ed] to fairly negotiate the amount of [Plaintiff’s] loss” … but provides no details describing what was unfair about the negotiations.”  Judge Padova added that “[t]he Complaint’s remaining bad faith allegations merely assert that [the insurer] was not prompt, thorough, fair, or reasonable in how it handled or denied the claim, but does not provide any facts explaining how [it] was not prompt, thorough, fair, or reasonable.”

The Complaint was dismissed with leave to amend.

Can Courts Rely on the Superior Court’s 2006 Condio Decision to Determine the Scope of the Bad Faith Statute after the 2007 Supreme Court Decision in Toy v. Metropolitan Life

Though not ultimately relevant to the court’s decision, the opinion states that:

“‘[S]ection 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may [also] extend to the insurer’s investigative practices.’” Greene v. United Servs. Auto. Ass’n, 936 A.2d 1178, 1187 (Pa. Super. Ct. 2007) (alterations in original) (quoting Condio, 899 A.2d at 1142). Indeed, the term bad faith “‘encompasses a wide variety of objectionable conduct’” including “‘lack of good faith investigation into facts, and failure to communicate with the claimant.’” Id. at 1188 (quoting Condio, 899 A.2d at 1142).

The Superior Court decided Condio in 2006.

In the 2007 Supreme Court Toy v. Metropolitan Life decision, Chief Justice Cappy, writing for the majority, observed that at the time of the Bad Faith Statute’s 1990 enactment, “the term ‘bad faith’ concerned the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first-party claim context.” “In other words, the term captured those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.”

Justice Eakin, writing in concurrence, found this reading too narrow. In their competing opinions, Justices Cappy and Eakin specifically debate the meaning and application of Condio in statutory bad faith actions. Justice Eakin cites Condio, among other Pennsylvania Superior Court cases, to argue the majority’s interpretation of the bad faith statute is too narrow.

In response, Chief Justice Cappy does not reject the Condio opinion, but states that Condio is addressing a different aspect of “bad faith” than what the court had to decide that day.

Justice Cappy finds there are two aspects to “bad faith” in the context of section 8371.  “As we observe in footnotes 17 and 18, we do not consider what actions amount to bad faith [conduct], what actions of an insurer may be admitted as proof of its bad faith, whether an insurer’s violations of the UIPA are relevant to proving a bad faith claim or whether the standard of conduct the Superior Court has applied to assess an insurer’s performance of contractual obligations in bad faith cases is the correct one.”  Rather, “[i]n this area, the term ‘bad faith’ refers not only to [1] the claim an insured brings against his insurer under the bad faith statute, but also, [2] to the conduct an insured asserts his insurer exhibited and establishes that it is liable. These matters although related, are nonetheless, separate and distinct. We write to the former.  The concurrence appears to write to the latter.”

Justice Cappy specifically describes the issue in Condio, and other Superior Court cases cited by Justice Eakin, as “whether the evidence offered at trial by the insured as to the insurer’s behavior was sufficient to prove the bad faith claim and/or admissible in a § 8371 action.” Thus, it appears, Condio does not address the scope of what claims are cognizable under the Bad Faith Statute in the first instance, but addresses the adequacy of evidence in proving bad faith.

In light of (1) this distinction raised by the Toy Majority between the two uses of the term “bad faith”, (2) in direct response to Justice Eakin’s argument that statutory bad faith claims should broadly encompass the kind of behavior identified in Condio, and that such claims not be limited to “the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first-party claim context,” then (3) it is questionable that Condio, and other pre-Toy Superior Court cases, can expand the category of cognizable claims under the Bad Faith Statute to include conduct beyond “the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first-party claim context….”

See this article for a more detailed discussion.

Date of Decision: August 4, 2020

HARRIS v. ALLSTATE VEHICLE AND PROPERTY INSURANCE COMPANY, U.S. District Court Eastern District of Pennsylvania No. CV 20-1285, 2020 WL 4470402 (E.D. Pa. Aug. 4, 2020) (Padova, J.)

Conclusory allegations in the Complaint

  1. by sending correspondence falsely representing that Plaintiff’s loss [was not] caused by a peril insured against under the Policy [and that Plaintiff] was not entitled to benefits due and owing under the Policy;

  2. in failing to complete a prompt and thorough investigation of Plaintiff’s claim before representing that such claim is not covered under the Policy;

  3. in failing to pay Plaintiff’s covered loss in a prompt and timely manner;

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

  5. in conducting an unfair and unreasonable investigation of Plaintiff’s claim;

  6. in asserting Policy defenses without a reasonable basis in fact;

  7. in flatly misrepresenting pertinent facts or policy provisions relating to coverages at issue and placing unduly restrictive interpretations on the Policy and/or claim forms;

  8. in failing to keep Plaintiff or [her] representatives fairly and adequately advised as to the status of the claim;

  9. in unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiff or [her] representatives;

  10. in failing to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claim;

  11. in unreasonably withholding policy benefits;

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

m. in unnecessarily and unreasonably compelling Plaintiff to institute this lawsuit to obtain policy benefits for a covered loss, that Defendant should have paid promptly and without the necessity of litigation.

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.

COURT WOULD NOT REMAND BAD FAITH CASE EVEN THOUGH INSURED PLEADED CLAIM WAS WORTH LESS THAN $75,000; BAD FAITH CLAIM DISMISSED FOR MAKING BOILERPLATE ALLEGATIONS (Philadelphia Federal)

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This property damage bad faith case was removed to federal court, and plaintiff wanted a remand.

Judge Jones observed that once the amount in controversy is challenged, the removing defendant has the burden to prove by a preponderance of the evidence that the case value exceeds $75,000, the jurisdictional minimum.  In a bad faith case, the court can consider punitive damages and potential attorney’s fees in making this calculation.

The property damage claim was in excess of $65,200, and it would appear that with punitive damages and attorney’s fees the bad faith claim would easily exceed the $75,000 minimum.  However, plaintiff apparently pleaded in his ad damnum clause that the damages exceeded $50,000 (avoiding arbitration), but were not in excess of $75,000 (attempting to avoid removal).  Judge Jones found this language in the ad damnum clause did not prevent removal.

Specifically, after discussing prior case law and pleading standards under Pennsylvania’s Rules of Civil Procedure, Judge Jones (who sat for many years as a Court of Common Pleas judge) found that the insured’s “attempt to artificially cap the amount in controversy ‘as less than $75,000.00’ through an ad damnum clause is inconsistent with Pennsylvania’s pleading rules.”  The opinion cites numerous cases where the punitive damage and attorney fees claims pushed an actual damage claim otherwise below the $75,000 minimum over the jurisdictional threshold.

Judge Jones next addressed the insurer’s motion to dismiss the bad faith claim. The insurer argued that the bad faith count failed to set forth a single fact, relying solely on boilerplate generic allegations. The court agreed, observing “[t]he allegations in Plaintiff’s Complaint purporting to state a claim for bad faith are in fact identical to the allegations from a prior complaint filed by Plaintiff’s counsel in another case, which this Court found to be insufficient to state a claim in … Clapps v. State Farm Ins. Cos….” The court did grant leave to file an amended complaint.
Date of Decision: July 10, 2020

Thach v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5050, 2020 U.S. Dist. LEXIS 121758 (E.D. Pa. July 10, 2020) (Jones II, J.)

SIMPLY DENYING CLAIM OR REFUSING TO PRODUCE UNDERWRITING FILE NOT BAD FAITH; UIPA VIOLATIONS MUST BE A REGULAR BUSINESS PRACTICE TO BE CONSIDERED AS EVIDENCE (Philadelphia Federal)

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This UIM bad faith opinion includes instructive points on factual allegations that only create possible, but not plausible, claims and on the use of alleged Unfair Insurance Practices Act (UIPA) violations as evidence. The opinion also includes the more common observations admonishing against conclusory pleading.

The bad faith claims in this case concern alleged misrepresentations of UIM coverage in connection with stacking, a refusal to provide the underwriting file, and a claim that the insurer forced the insured to file suit just to obtain documents. The court dismissed the bad faith claims, but with leave to amend.

ADEQUATE PLEADING STANDARDS

As with many other cases issuing out of the Eastern District this year, the court made clear that conclusory allegations are given no regard in supporting a bad faith pleading. Like many of those courts, Judge Baylson cited the Third Circuit’s Smith opinion on this point, as well as his own opinions in Eley and Robbins.

There were three factual allegations that went beyond mere conclusory pleading, though still not adequate to state a claim because they only made bad faith possible, not plausible.

Refusal to Pay Not Enough

  1. “Defendant denied Plaintiff’s claim for UIM stacking of benefits for five vehicles….” As to this allegation, Judge Baylson found that “a plaintiff cannot base a bad faith claim on the defendant’s refusal to pay. A disagreement over the amount of a UIM claim is not unusual, and the existence of such disagreement cannot by itself state a viable bad faith claim.” He relied on Johnson v. Progressive Ins. Co., for the proposition that “[t]he underlying facts involve nothing more than a normal dispute between an insured and insurer over the value of an UIM claim. The scenario under consideration occurs routinely in the processing of an insurance claim.”

Refusal to Turn Over Underwriting File

  1. “Defendant refused to provide the underwriting file upon request….” Judge Baylson found the insurer’s alleged “refusal to provide the underwriting document is comparable to the allegation of parallel conduct in Twombly, which ‘gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of entitlement to relief.’” He added that “[i]n insurance coverage disputes, underwriting files often contain an insurer’s evaluation of the risks presented on an insurance application, along with other confidential business information. Although a showing of Defendant’s refusal to disclose the underwriting file may be consistent with bad faith, it is also as much in line with ‘a wide swath of rational and competitive business strategy.’”

Don’t Make the Court Speculate that an Alleged Fact Might Possibly be Bad Faith

       3. “Defendant required Plaintiff to file a lawsuit in order to obtain the documents that will confirm the coverage.” Although not addressed separately, this allegation fell under the general concept the court will not infer bad faith because a possibility of bad faith exists. Rather, the factual allegations must stand by themselves as a plausible basis for a bad faith claim. Plausibility means the court does not have to speculate on what the allegation might imply.

UIPA Violations Must Show the Actions at Issue Occurred on a Regular Basis as a General Business Practice

The insured argued that he should be allowed to use UIPA violations as evidence of bad faith. The carrier countered that UIPA violations might only be evidence of bad faith “when the actions in question were a general business practice,” and the insured did not make any allegations to this effect. Judge Baylson found the complaint was devoid of specific factual allegations concerning putative UIPA violations.

Judge Baylson stated that “31 Pa. Code § 146.1 (1978) provides that such violations ‘will be deemed to constitute unfair claims settlement practices’ if they occur with “a frequency that indicates a general business practice.’” Judge Baylson relied on his 2017 Jack decision, to support his conclusion that the insured “pleaded no factual allegations showing that Defendant’s actions occur on a regular basis that constitutes a general business practice.”

Date of Decision: June 22, 2020

Dietz v. Liberty Mutual Insurance Co., U.S. District Court Eastern District of Pennsylvania No. 2:20-cv-1239-MMB, 2020 U.S. Dist. LEXIS 108559 (E.D. Pa. June 22, 2020) (Baylson, J.)

NO UM BAD FAITH CLAIM PLEADED; FIDUCIARY DUTY ALLEGATIONS STRICKEN FROM COMPLAINT (Middle District)

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As in the two Eastern District cases summarized earlier this week, Middle District Judge Jennifer P. Wilson dismissed a bad faith claim with leave to amend. Judge Wilson also struck fiduciary duty allegations from the complaint in this uninsured motorist case.

The complaint fails to allege bad faith

The insured alleged the insurer was “supplied with documentation sufficient to fully and fairly evaluate the uninsured motorist claim, but [the insurer] failed to do so.” Judge Wilson found the insured failed to plead specific facts as to what might qualify as bad faith conduct. Plaintiff simply alleges the bad faith elements, and “does not lay out ‘any facts that describe who, what, where, when, and how the alleged bad faith conduct occurred.’” Judge Wilson cited Western District Judge Bissoon’s Mondron opinion to support her conclusion, though she did allow plaintiff leave to amend.

No fiduciary duty in UM/UIM context

The insurer also successfully moved to strike allegations that it owed a fiduciary duty.

The court observed that the insured’s breach of contract claim was based on the UM policy benefits. In Pennsylvania, there is no fiduciary duty arising out of insurance contracts that goes beyond the duty of good faith and fair dealing “until an insurer asserts a stated right under the policy to handle all claims asserted against the insured. … These are not the circumstances in an uninsured motorist claim.”

Rather, the Pennsylvania Supreme Court makes clear in the UM/UIM context “an insurance company’s duty to its insured is one of good faith and fair dealing. It goes without saying that this duty does not allow an insurer to protect its own interests at the expense of its insured’s interests. Nor does it require an insurer to sacrifice its own interests by blindly paying each and every claim submitted by an insured in order to avoid a bad faith lawsuit.”

Thus, plaintiff’s allegations of a fiduciary duty were “not pertinent to her breach of contract claim, which only requires an insurer to act in good faith and fair dealing towards the insured.” As allowing the fiduciary duty allegations would only confuse the actual issues in the case, the motion to strike those allegations was granted.

Date of Decision: June 17, 2020

Miller v. State Farm Mutual Automobile Insurance Co., U.S. District Court Middle District of Pennsylvania Civil No. 1:20-CV-00367, 2020 U.S. Dist. LEXIS 105766 (M.D. Pa. June 17, 2020) (Wilson, J.)

TWO BAD FAITH CLAIMS DISMISSED FOR EITHER MAKING CONCLUSORY ALLEGATIONS OR ALLEGING FACTS THAT DO NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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In these two Philadelphia federal opinions issued last week, bad faith claims were dismissed without prejudice. In one case, this was based on a set of pleadings that has been repeatedly held conclusory in nature. In the other, after stripping away the conclusory allegations, the court found that the remaining factual allegations simply did not make out a bad faith case.

There have been at least 10 prior opinions out of Pennsylvania’s Eastern District this year similarly dismissing bad faith claims for inadequate pleading.

  1. Lopez v. Selective Insurance Co. of South Carolina (Judge Schiller, Eastern District)

In Lopez v. Selective Insurance, Judge Schiller found the complaint set out only conclusory allegations, and that these allegations “did not logically follow from any facts alleged in the Complaint.” These included the following 13 separate allegations, all of which failed:

“[S]ending correspondence falsely representing that Plaintiff’s loss caused by a peril insured against under the Policy was not entitled to benefits due and owing under the policy . . . failing to complete a prompt and thorough investigation of Plaintiff’s claim before representing that such claim is not covered under the Policy . . . failing to pay Plaintiff’s covered loss in a prompt and timely manner . . . failing to objectively and fairly evaluate Plaintiff’s claim . . . conducting an unfair and unreasonable investigation of Plaintiff’s claim . . . asserting Policy defenses without a reasonable basis in fact . . . flatly misrepresenting pertinent facts or policy provisions relating to coverages at issue and placing unduly restrictive interpretations on the Policy and/or claim forms . . . failing to keep Plaintiff or their representatives fairly and adequately advised as to the status of the claim . . . unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiff or their representatives . . . failing to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claim . . . unreasonably withholding policy benefits . . . acting unreasonably and unfairly in response to Plaintiff’s claim . . . unnecessarily and unreasonably compelling Plaintiff to institute this lawsuit to obtain policy benefits for a covered loss, that Defendant should have paid promptly and without the necessity of litigation.”

In describing what the complaint lacked, Judge Schiller observed, “[t]he Complaint does not contain any factual allegations that relate to why or how Defendant’s basis for denying the claim was unreasonable. Indeed, the Complaint does not include any facts related to Defendant’s purported basis for denying the claim or Defendant’s actions or omissions in conducting an investigation. Plaintiff’s Complaint does not describe the cause or extent of the alleged loss, the provisions of the insurance policy at issue, the date on which Plaintiff made Defendant aware of the loss, or the date on which Defendant initially denied the claim. Plaintiff’s conclusory allegations are not supported by specific facts sufficient to state a plausible claim for relief. Courts consistently hold that bare-bones allegations of bad faith such as these, without more, are insufficient to survive a motion to dismiss.”

As with a number of other recent opinions, including his own opinion in Park v. Evanston, Judge Schiller relies on the Third Circuit’s Smith decision, as well as Judge Leeson’s McDonough decision, and Judge Gardner’s Atiyeh decision.

Plaintiffs relied on the 1009 Clinton Properties opinion, but consistent with a number of other recent decisions, Judge Schiller found Clinton Properties to be an “outlier” and rejected the insureds’ argument. Clinton Properties has similarly been deemed an outlier by Judge Marston in her Cappuccio decision, Judge Darnell Jones in Clapps, and Judge Leeson in Shetayh. These cases rejected very similar allegations in each instance.

Date of Decision: June 17, 2020

Lopez v. Selective Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 20-1260, 2020 U.S. Dist. LEXIS 105733 (E.D. Pa. June 17, 2020) (Schiller, J.)

  1. Graves v. USAA General Indemnity Co. (Judge Gallagher, Eastern District)

The insureds brought UIM breach of contract and bad faith claims. The court dismissed for failing to plead anything other than conclusory allegations or facts that could not constitute bad faith.

After stripping away the conclusory allegations, the court found the following factual allegations, even assuming their truth, failed “to support a claim that Defendant adjusted the UIM claim in bad faith.”

“1) Plaintiff was operating a motor vehicle which was insured under a USAA insurance contract and which provided for UIM benefits; 2) the accident was caused by the third party; 3) Plaintiff suffered severe injuries as a result of the accident; 4) Plaintiff submitted a claim for UIM benefits; 5) Plaintiff complied with the policy’s requirement to obtain Defendant’s consent to settle her claim against the third party; 6) Plaintiff forwarded her medical documentation to Defendant; and 7) Defendant has not paid the UIM claim.”

Graves v. USAA General Indemnity Co., U.S. District Court Eastern District of Pennsylvania Civil No. 2:20-cv-00786-JMG, 2020 U.S. Dist. LEXIS 105123 (June 16, 2020) (Gallagher, J.)