Archive for the 'PA – Negligence not bad faith' Category
This UIM bad faith case had survived a motion to dismiss, but summary judgment ended the plaintiff’s bad faith claim.
Eastern District Judge Leeson had originally allowed the bad faith claim to proceed, as plaintiff had alleged more than a valuation dispute. Our prior blog post can be found here.
The present bad faith summary judgment motion was before Magistrate Judge Perkin. His opinion goes through the claim handling history in minute detail. Among other things, it shows nearly a year passed before the insured provided the claim handlers with all medical records and details on the specific injuries for which he was seeking full UIM policy limits. The record shows the insurer assigned a specialist in medical resources (SMR) to review the medical file, and later had a medical examination performed by a physician. Discovery appeared to show potential errors in the SMR’s evaluation.
Based on the medical reviews, the insurer had not paid its full UIM limits, as plaintiff demanded, at the time suit was filed. The insured challenged the conclusions of both the SMR and the physician on the origin and scope of his injuries in bringing the bad faith claim.
Magistrate Judge Perkin observed that an “insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.” Thus, “[e]ven if Defendant’s claims-handling processes were not ideal, there is no evidence in the record, let alone clear and convincing evidence, to indicate that Defendant’s purported mishandling of Plaintiff’s claim was motivated by a dishonest purpose or ill will.”
Citing older case law, the court states, “while under Pennsylvania law bad faith may extend to an insurer’s investigation and other conduct in handling the claim, that conduct must ‘import a dishonest purpose.’” “Invariably, this requires that the insurer lack a reasonable basis for denying coverage, as mere negligence or aggressive protection of an insurer’s interests is not bad faith.”
[Note: In 2017, Pennsylvania’s Supreme Court made clear in Rancosky that “we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” A link to our Rancosky summary can be found here.]
Applying this law to the facts, Magistrate Judge Perkin found that “[a]lthough the plaintiff disagrees with the conclusions of both [the SMR and the carrier’s physician], it is clear that [the carrier] had a reasonable basis to value the claim based, at a minimum, on [the physician’s] report.” Assuming that the SMR “performed an insufficient and incorrect medical review of Plaintiff’s case, Defendant did not deny Plaintiff’s claim based upon that review, but rather continued its investigation of Plaintiff’s claim. Moreover, it is not apparent on the record that Defendant has ever denied coverage to Plaintiff.”
As to how the insurer handled the various bodily injury claims, the plaintiff’s doctors had sourced these all to the auto accident at issue, while the carrier’s physician only identified some of these injuries as being caused by the accident. Thus, Magistrate Judge Perkin found:
“Similarly, the fact that the plaintiff’s experts relate all of the plaintiff’s right knee and left ankle complaints to the accident does not provide a basis for bad faith. Defendant retained [an] orthopedic surgeon … to perform an independent medical examination and records review. After completing same, [defendant’s surgeon] concluded that that only the plaintiff’s initial meniscal tear and resultant arthroscopic surgery were related to the accident. None of the plaintiff’s left ankle complaints/treatments, or additional right knee treatment, was accident-related. Accordingly, [the carrier] had a reasonable basis for its claim handling.”
Date of Decision: January 13, 2021
Perez-Garcia v. State Farm Mutual Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania, No. CV 18-3783, 2021 WL 131343 (E.D. Pa. Jan. 13, 2021) (Perkin, M.J.)
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:
-
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.”
-
The insurer “failed to make a timely partial payment of $10,000 even though that amount was undisputed.
-
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.)
Published on
December 15, 2020 in
PA - Bifurcate/Sever & Stays, PA - Claims Handling (unreasonable), PA - Communication with insured, PA - Delay (Investigation/Claims handling), PA - Delay (Payment), PA - Estimates, Valuation or Appraisal, PA - Federal Pleading Adequate, PA - Federal Pleading Inadequate, PA - Insurer wrong, but reasonable, PA - Negligence not bad faith, PA - UIM/UM Cases and PA - UIPA & UCSP.
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:
-
“failing to promptly and reasonably determine the applicability of benefits;”
-
“failing to pay benefits or settle her UIM claim;”
-
“unreasonably delaying payment;”
-
“failing to provide a copy of the … Policy when requested;”
-
“failing to respond to multiple attempts at communication;”
-
“unreasonably delaying evaluation of her claim;” and
-
“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.)
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.)
Published on
October 19, 2020 in
PA - Claims Handling (reasonable), PA - Common Law Bad Faith (contractual or fiduciary basis), PA - Delay (Investigation/Claims handling), PA - Estimates, Valuation or Appraisal, PA - Experts, PA - Federal Pleading Inadequate, PA - MVFRL, PA - Negligence not bad faith, PA - Settlement related issues and PA - UIM/UM Cases.
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.)
Published on
April 14, 2020 in
PA - Agents and Administrators, PA - Bifurcate/Sever & Stays, PA - Claims Handling (reasonable), PA - Coverage Issues, PA - Delay (Investigation/Claims handling), PA - Insurer wrong, but reasonable, PA - Law unsettled, PA - Negligence not bad faith, PA - No coverage duty, no bad faith, PA - UIPA & UCSP and PA - Who is an Insurer?.
The court described this as the case of the missing email. The insurance policy at issue covered various cars. The insured emailed its broker to add another vehicle to the policy. The broker claims it never got the email, and thus never asked the insurer to issue an endorsement adding the new car to the policy. As things sometimes go in life, the new car was involved in a collision, damaging another vehicle as well as its own new car.
The insured reported the claim. However, the insured identified its vehicle as one of existing cars listed in the policy, rather than the new unlisted vehicle. The insurer accepted coverage, and even paid damages to the other driver. The insurer later reversed itself on coverage once its appraiser determined the insured’s vehicle was not the car identified in the claim form, and was not covered under the policy.
The police report did list the correct vehicle. The insurer had the police report at the time it initially provided coverage, and only reversed itself when its appraiser realized that the damaged car was not the car on the claim form and was not listed in the policy.
The insured sued for breach of contract and bad faith, among other claims against the insurer as well as the broker. The insurer moved for summary judgment, which the court granted.
There is no breach of contract, or estoppel under the UIPA or UCSP regulations
First, there was no breach of contract, as the vehicle at issue never became part of the policy. The insured argued, however, that the insured was estopped from denying coverage under the Unfair Insurance Practices Act (UIPA) and the Unfair Claims Settlement Practices (UCSP) regulations governing “Standards for prompt, fair and equitable settlements applicable to insurers”. The insured relied on 31 Pa. Code § 146.7(a)(1), which states that, “Within 15 working days after receipt by the insurer of properly executed proofs of loss, the first-party claimant shall be advised of the acceptance or denial of the claim by the insurer.”
Judge Wolson rejected the statutory/regulatory argument for three reasons:
-
There is no private right of action under the UIPA and UCSP regulations, and only Pennsylvania’s Insurance Commissioner can enforce the UIPA and UCSP regulations.
-
The policy itself did not incorporate the UIPA or UCSP obligations or impose those obligations on the insurer. “Absent the incorporation of these obligations into the Policy, their potential violation does not breach the Policy.”
-
The doctrines of waiver or estoppel cannot “create an insurance contract where none existed.”
THERE IS NO BAD FAITH
-
The broker is not an insurer subject to the bad faith statute
First, the court recognized that there was no sustainable statutory bad faith action against the broker because it was not an insurer.
-
There is no bad faith where no benefit is denied
Next, as to the insurer, “To prevail on a bad faith claim, a plaintiff must present clear and convincing evidence that, among other things, an insurer ‘did not have a reasonable basis for denying benefits under the policy’ or that an insurer committed a ‘frivolous or unfounded refusal to pay proceeds of a policy.’” Because the insurer had no contractual obligation to pay its refusal could not have been unreasonable, and the claim failed.
-
The UIPA and UCSP regulations do no prevent changing a coverage decision based on new information
The court rejected another argument based on the UIPA and UCSP regulations cited above. The insured argued the failure to pay was unreasonable once the insurer accepted coverage. The court found, however, the UCSP regulations did not “prevent an insurer from changing a coverage determination based on new information.”
More importantly to the court, the insured adduced no case law adding such a gloss to section 146.7, i.e. a mandate that once coverage was accepted it could never be denied under any circumstances. Thus, it was reasonable for the insurer to interpret that regulation to permit an insurer to revise a coverage decision based on new information.
-
A Delay based on an Oversight is not the Basis for Bad Faith
Finally, any delay in revising its coverage determination was likewise not bad faith. Citing the 2007 DeWalt decision, the court observed that an “insurer’s actions in allegedly delaying investigation did not constitute bad faith under Pennsylvania law [when] there was no evidence that such delay was deliberate or knowing, or was unreasonable.”
While the carrier “probably could have been more diligent” in determining which vehicle was involved in the collision by looking at the police report earlier, “an insurer ‘need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusion.’” There was nothing in the record to establish the insurer “acted with reckless disregard of its obligations or otherwise fell so short that it acted in bad faith.”
Date of Decision: April 1, 2020
Live Face on Web, LLC v. Merchants Insurance Group, U.S. District Court Eastern District of Pennsylvania Case No. 2:19-cv-00528-JDW, 2020 U.S. Dist. LEXIS 56852 (E.D. Pa. April 1, 2020) (Wolson, J.)
Our thanks to attorney Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention. We also note the Tort Talk Blog’s three recent posts on post-Koken motions to sever and stay bad faith claims in the Western District, York County, and Lancaster County.
This UIM bad faith claim involved allegations of delayed investigation and settlement payment. The insurer moved for summary judgment, which Eastern District Judge Robreno granted.
The court observed that any reasonable basis to deny coverage defeats a bad faith claim, and consultation with counsel can establish a reasonable basis for the insurer’s actions. Negligence or poor judgment do not make out a bad faith case. Further, “[a]n insurer who investigates legitimate questions of insurance coverage is not acting in bad faith, and no insurer is required ‘to submerge its own interest in order that the insured’s interests may be made paramount.’”
Moreover, although bad faith can be proven through unreasonable delays in paying on a claim, “’a long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.’” For example, if the insurer’s delay is tied to its need for further investigation, this is not bad faith.
Judge Robreno’s opinion sets forth a meticulous recitation of the factual history. The key factual issues were the length of time in reaching a settlement and the investigation into what portion of the insured’s injuries were attributable to the accident at issue vs. a separate auto accident in the preceding year.
In analyzing these facts, the court observed that the insureds’ principal argument was that the insurer took 15 months to make a settlement offer. However, the court found this was “not a per se violation of § 8371, and courts have found no bad faith in cases where insurers took the same length of time to evaluate a claim.” (Emphasis in original)
Drilling down with specific calendar calculations by relevant event, Judge Robreno found the length of time attributable to the insurer’s own delay was around 9 months. This was only half of the nearly 18-month period between the first petition to open a UIM file and filing suit. Further, during its investigation, the insurer had “repeatedly asked … for additional medical documentation, repeatedly communicated with Plaintiffs’ Counsel, and provided updates on the progress of the investigation. In the light most favorable to Plaintiffs, no reasonable jury could find by clear and convincing evidence that Defendant lacked any reasonable basis in its investigation.” (Emphasis in original)
UIPA and UCSP regulations not a basis for bad faith here
In a closing footnote Judge Robreno rejects the insureds’ effort to create a claim from the Unfair Insurance Practices Act (UIPA) or Unfair Claims Settlement Practices (UCSP) regulations.
He states, “While recognizing that they do not provide private causes of action, Plaintiff also cites to the Pennsylvania Unfair Insurance Practices Act, 40 Pa. C.S. § 1171, and the Pennsylvania Unfair Claims Settlement Practices regulations, 31 Pa. Code § 146, which each require prompt and reasonable responses from insurers in response to a claim, as further evidence of Defendant’s bad faith conduct. … However, ‘a violation of the UIPA or UCSP is not a per se violation of the bad faith standard.’ …. Further, both statutes apply to behavior performed with such recurrence as to signify a general business practice. See 31 Pa. Code § 146.1; 40 Pa. C.S. § 1171.5(a)(10). Because Plaintiffs only identify an isolated instance of Defendant’s alleged bad faith conduct in their argument that Defendant violated both statutes, neither is persuasive in showing Defendant lacked any reasonable basis in delaying Plaintiffs’ claim.” (Emphasis in original)
Date of Decision: March 19, 2020
Bernstein v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1899, 2020 U.S. Dist. LEXIS 47798 (E.D. Pa. Mar. 19, 2020) (Robreno, J.)
Published on
January 22, 2020 in
PA - Claims Handling (general), PA - Claims Handling (reasonable), PA - Claims Handling (unreasonable), PA - Discovery and Evidence, PA - Estimates, Valuation or Appraisal, PA - Experts, PA - General Bad Faith and Litigation Issues, PA - Insurer wrong, but reasonable, PA - Manuals, PA - Negligence not bad faith and PA - UTPCPL.
In this unpublished opinion, Pennsylvania’s Superior Court addressed whether “institutional bad faith” states a private cause of action under Pennsylvania law. Much like yesterday’s post, the Superior Court emphasized that Pennsylvania bad faith law requires focusing on the case and parties at hand, and not the insurer’s conduct toward other parties or its alleged universal practices. The court also addressed other issues concerning statutory bad faith and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL), among other matters. In this post, we only address all the bad faith and UTPCPL claims against the insurer.
Factual Background and Trial Court Rulings
The case begins with a home remodeler’s attempt to destroy a bee’s nest in one small section of a house. This unfortunate effort only caused larger problems, contaminating and damaging the house. The chain of misfortune continued when remediation efforts led to more damage, with the home allegedly becoming uninhabitable. At a minimum, all sides agreed some level of reconstruction work was now needed.
The homeowners’ insurer engaged a contractor to fix the original problem. The homeowners eventually challenged the quality of that contractor’s work, which they contended added to the damage. They eventually refused to allow that contractor on site, and unilaterally hired a second contractor to take over. Both the insured and insurer retained their own engineers, who disagreed on the scope of the damage and reconstruction work required.
The second contractor was owned by the insured husband’s parents. The husband himself was the second company’s project manager on the job. The trial court stated that the husband agreed with the position that he “negotiated an oral contract on behalf of … himself and his wife… with himself, as project manager of and on behalf of [the second contractor]” for the reconstruction work. The insurer and first contractor disputed the necessity and cost of the work carried out by the second contractor, as well as other costs.
The trial court ruled for the insurer on breach of warranty, emotional distress, UTPCPL, and bad faith claims, but in favor of the insureds on their breach of contract claim.
There is no Cause of Action in Pennsylvania for Institutional Bad Faith
The insureds argued that institutional bad faith could be the basis for asserting statutory bad faith. Under this theory, a claim can be based solely on an insurer’s policies, practices, and procedures as applied universally to all insureds. The present plaintiffs wanted to introduce evidence to support such institutionalized bad faith conduct. Both the trial and appellate courts rejected this theory.
The Superior Court emphasized that a bad faith action is limited to “the company’s conduct toward the insured asserting the claim.” Thus, “’bad faith claims are fact specific and depend on the conduct of the insurer vis-à-vis the insured.’” The Superior Court agreed with the trial court “that there is no separate cause of action of institutional bad faith.” It stated, that the bad faith statute “authorizes specified actions by the trial court ‘if the court finds that the insurer has acted in bad faith toward the insured . . . ,’ not to the world at large.” (Court’s emphasis).
The Insurer did not Act in Bad Faith
-
The policy and procedure manual/guideline arguments failed on the merits.
The Superior Court ruled that the trial court’s findings did not result in a refusal to consider evidence relating to the insurer’s conduct and practices. In fact, the insurer’s manuals, guidelines, and procedures were admitted as evidence, all of which were considered by the trial court. This evidence, however, was not considered as part of an institutional bad faith case. Rather, it was only relevant to determining if the insurer acted in bad faith toward the specific plaintiff-insureds, and not to the universe of all insureds.
In deciding the bad faith issue, when the trial court was presented with evidence of the insurer’s policies and procedures, it “did not find them to be improper when applied to the [insureds’] claim, although not a separate claim concerning ‘institutional bad faith.’” (Court’s emphasis) Thus, the actual plaintiffs could not make out a case for themselves on this evidence because they “failed to establish a nexus between [the insurer’s] business policies and the specific claims … asserted in support of bad faith.”
-
The insureds could not meet the clear and convincing evidence standard.
The trial court found the insurer had not acted in bad faith on other facts of record, and the Superior Court found no abuse of discretion in this ruling. Both courts emphasized the insured’s burden of proof is clear and convincing evidence. Thus, the trial court stated, “[i]cannot be reasonably said, given the facts and evidence adduced at trial, that [the insurer] lacked a reasonable basis for denying benefits and/or that [it] knew or recklessly disregarded its lack of a reasonable basis to deny benefits…. Mere negligence or bad judgment in failing to pay a claim does not constitute bad faith. An insurer may always aggressively investigate and protect its interests. Particularly in light of the higher burden of proof, specifically the requirement that [insureds] must prove a bad faith claim by ‘clear and convincing’ evidence, the record in this case does not support the assertion of statutory bad faith….”
Specifically, the court focused on alleged (i) failures to pay engineering fees, (ii) delays in hiring engineers, (iii) unduly restricting the engineer’s ability to opine, and (iv) instructions that the first contractor and its engineer disregard building codes.
The insurer adduced evidence that (i) it paid engineering fees, (ii) its original decision not to hire an engineer was done based on information provided by the first contractor and a building code officer, (iii) it did agree to hire an engineer once the insureds provided their list of concerns, and (iv) the engineer opined the home was not uninhabitable. The insurer also put on evidence that its adjuster never told the first contractor to ignore the building code, but rather expected the contractor to comply with existing code requirements.
On these facts, the Superior Court found that the trial court did not abuse its discretion in finding the insureds failed to meet the clear and convincing evidence standard.
The UTPCPL does not Apply to Claim Handling
Both the trial court and Superior Court concluded that the UTPCPL does not apply to insurer claim handling cases.
Date of Decision: January 14, 2020
Wenk v. State Farm Fire & Cas. Co., Superior Court of Pennsylvania No. 1284 WDA 2018, No. 1287 WDA 2018, No. 1288 WDA 2018, 2020 Pa. Super. Unpub. LEXIS 178 (Pa. Super. Ct. Jan. 14, 2020) (Lazarus, Olson, Shogan, JJ.) (non-precedential)
The January 14, 2020 decision was not a final disposition, and a subsequent opinion was filed on February 7, 2020, attached here, which appears to be identical to the January 14, 2020 opinion.
Our thanks to Daniel Cummins of the excellent Tort Talk blog for brining this case to our attention.
The Third Circuit affirmed Middle District Judge Robert Mariani’s grant of summary judgment to the insurer on a bad faith claim. A summary of the trial court opinion can be found here.
In this UIM case, the tortfeasor paid $95,000 out of a $100,000 policy. The insurer initially valued the claim at $110,000 to $115,000 and offered $10,000 to settle (after deducting the $100,000 for the tortfeasor’s policy). The insured demanded the full $200,000 UIM policy limits, and filed suit when her demand was not met. The insurer upped its offer to $50,000, and the parties finally agreed to a high low arbitration ($200,000/$10,000). The arbitrator found the “total claim was worth $306,345, and calculated [the insurer’s] responsibility under the UIM policy to be $160,786.78.”
Insured’s Responses to Undisputed Facts Found Inadequate
First, the appeals court rejected the argument that the trial court improperly accepted certain of the insurer’s statements of undisputed fact as undisputed. The insured failed to set forth detailed facts contradicting the insurer’s specifically described undisputed facts. Rather, she generally denied the insurer’s undisputed facts and responded with facts that did not actually go to the issues presented in the insurer’s statements of fact. The Third Circuit found these failings amounted to admissions.
[This is a clear warning to parties opposing summary judgment that simply denying an alleged undisputed fact, without also setting out specific facts of record directly casting doubt on the putative undisputed facts, will result in an admission.]
Next, the appellate court affirmed the trial court’s discretion to disregard an additional 289 counterstatements of fact that went beyond the insured’s responsive paragraphs to the insurer’s allegations of undisputed facts. Under local district court rules, the trial court had broad discretion in reviewing such supplementary counterstatements of fact, and determined they were outside the scope of the evidentiary issues presented in the insurer’s statement of undisputed facts.
Low but Reasonable Estimate not Bad Faith
Finally, the Third Circuit observed that “[w]hile successful bad faith claims do not need to show fraudulent behavior, negligence or bad judgment will not support a bad faith claim. … Nor will ‘a low but reasonable estimate of the insured’s losses.’”
The Third Circuit found “[t]he District Court properly applied this standard and granted summary judgment because the undisputed facts in the record show that [the insurer] had a reasonable basis for contesting [the insured’s] UIM claim. The record shows that (1) a large portion of [the insured’s] valuation of her claim was attributable to potential future surgery, (2) an independent medical examination disputed [her] claim that she needed the future surgery, (3) [she] had additional health coverage that would defray the cost of future surgery, and (4) [the carrier] believed [the insured] was exaggerating her symptoms in her deposition during the underlying UIM litigation.”
Even taking any remaining factual disputes in the insured’s favor, she could not demonstrate the absence of a reasonable basis to deny benefits. As there was a reasonable basis to deny benefits, the court did not have to address the second bad faith element of knowing or reckless disregard.
Date of Decision: November 27, 2019
Rau v. Allstate Fire & Casualty Insurance Co., U. S. Court of Appeals for the Third Circuit No. 19-1078, 2019 U.S. App. LEXIS 35560 (3d Cir. Nov. 27, 2019) (Chagares, Jordan, Restrepo, JJ.)
The insured purchased various life insurance coverages for her son. She answered no to questions about whether he had any chronic health problems requiring periodic medical care. The terms chronic and periodic were undefined, as to, e.g., what kinds of illness fell under this question and what constituted “periodic” treatment. She answered no. Medical records subsequently showed the son some had gastric issues, lymph issues, and had been in rehab for marijuana dependency on two occasions.
The son was shot in the head and killed. The insurer denied coverage and invoked rescission. The insurer took the position that the mother had failed to disclose that he had chronic conditions that required periodic medical care.
The mother brought claims for breach of contract and bad faith. The insurer sought summary judgment on the bad faith claims. During discovery, the insurer took the position that the marijuana use, along with lymph and gastric problems met the definition of chronic illnesses needing periodic treatment, though later appeared to back off this position on the lymph and gastric allegations on periodic treatment grounds.
The court observed that the first bad faith element, concerning the reasonableness or unreasonableness of the insurer’s benefit denial, is objective. Thus, if a reasonable basis exists for an insurer’s decision, even if the insurer did not rely on that reason, there is no bad faith as a matter of law. It then described the other bad faith elements, and the burden of proof requiring clear and convincing evidence.
There were four types of bad faith claims at issue in the case:
-
Refusal to pay insurance proceeds and rescission of the Policies.
The court found that the jury could conclude rescission was unreasonable in determining the son’s marijuana, lymph, and gastric allegations, were reasonable bases to rescind. The court further found that rescinding based on the lymph or gastric issues could go to the jury on intent/recklessness because there was apparently no periodic treatment in the record.
As to the marijuana issue, the mother explained to the insurer why she did not think the son’s stints in rehab constituted periodic treatment. Rescission required a knowing misrepresentation. A jury could find it reckless to conclude that this was a knowing misrepresentation on the mother’s part.
In sum, the bad faith claims could proceed on the rescission issue.
-
Lack of investigation into the facts regarding the son’s alleged medical conditions.
The court allowed a bad faith claim for an unreasonably inadequate investigation to proceed as well. First, the court stated that an unreasonably inadequate investigation could be a separate ground for bad faith. It noted, however, while the law does require a thorough investigation, that investigation need not be flawless.
The insurer took the position that obtaining medical records was sufficient. The mother argued this was not enough. She set out six detailed steps the insurer failed to take in further drilling down beyond the medical records to get full answers. “While the Court agree[d] that not all the disputed facts identified by Plaintiff suggest bad faith, there is enough evidence from which a jury could reasonably conclude that Defendant failed to conduct a reasonable investigation into the factual circumstances underlying Plaintiff’s insurance claims.”
3. Failure to comply with a Pennsylvania statute and regulation.
The mother also cited failure to comply with specific sections of the Unfair Insurance Practices Act and Unfair Claims Settlement Practices regulations in connection with the manner of rescission. Assuming arguendo these sections were applicable, the court found the insurer’s claim handling, in how it formally went about rescinding the policies, did not violate those sections.
Moreover, even assuming the UIPA and UCSP were violated, “a violation of the UIPA does not constitute per se bad faith under section 8371.” In this case, “the rescission letter’s language is not sufficient for a reasonable jury to find statutory bad faith, as the letter does not suggest unreasonable behavior on the part of Defendant and there is no evidence that Defendant knew of or recklessly disregarded any unreasonable behavior. At most, any violations of these provisions suggest that Defendant may have been negligent in the preparation of the rescission letter.”
4. No bad faith for alleged theory switching.
“Finally, Plaintiff argues that Defendant’s constantly changing bases for rescinding the Policies, as well as Defendant’s failure to reference gastroenteritis and lymphadenopathy in its affirmative defenses, are evidence of Defendant’s bad faith. The Court disagrees. There is no evidence that Defendant has constantly changed its basis for rescission—instead, Defendant has asserted since it sent the rescission letter that the rescission was based on misrepresentations about [the son’s] medical history in the applications. And the fact that the specific medical conditions that Defendant claims Plaintiff omitted have changed as the parties engaged in discovery, without more, is simply not evidence of bad faith.”
Thus, the motion was granted in part and denied in part.
Date of Decision: August 27, 2019
Horvath v. Globe Life & Accident Insurance Co., U. S. District Court Western District of Pennsylvania Case No. 3:18-cv-84, 2019 U.S. Dist. LEXIS 144933 (W.D. Pa. Aug. 27, 2019) (Gibson, J.)
