Archive for the 'PA – Negligence not bad faith' Category
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:
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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.
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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.”
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The doctrines of waiver or estoppel cannot “create an insurance contract where none existed.”
THERE IS NO BAD FAITH
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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.
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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.
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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.
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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
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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.”
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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:
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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.
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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.)
Published on
August 20, 2019 in
PA - Claims Handling (unreasonable), PA - Common Law Bad Faith (contractual or fiduciary basis), PA - Communication with insured, PA - Damages, PA - Declaratory Judgment, PA - Delay (Investigation/Claims handling), PA - Federal Pleading Adequate, PA - Negligence not bad faith, PA - Procedural Issues, PA - Punitive Damages, PA - Removal & Remand and PA - UIPA & UCSP.
In this Opinion, Eastern District Judge Tucker addresses a wide range of fundamental legal issues in the context of ruling on a motion to dismiss the insured’s 11 count complaint. The complaint includes not only breach of contract and bad faith claims, but tort claims, UIPA claims, declaratory judgment claims, and injunctive relief claims, all arising out of the alleged failure to pay on an insurance claim. The court also addresses a motion to remand after removal.
We do not address all of the issues Judge Tucker discusses, but highlight a few of the key principles adduced in her opinion. Her full opinion can be found here.
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Motion to remand denied. (i) In determining the jurisdictional minimum amount-in-controversy, the court may consider the possibility of punitive damages under the bad faith statute. (ii) Diversity of citizenship can be established by showing the defendant is not a citizen of plaintiff’s state, just as well as by affirmatively showing the state(s) in which defendant is a citizen.
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The gist of the action doctrine and/or the economic loss doctrine will typically bar tort claims based on violations of an insurance contract.
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Violating the Unfair Insurance Practices Act (UIPA) (i) does not create a private right of action, and (ii) some courts hold it may not be used to establish violation of statutory bad faith.
As the court states: “Plaintiff’s claim is also barred to the extent that it relies on an alleged violation of the Pennsylvania Unfair Insurance Practices Act (‘UIPA’) because the UIPA does not permit private recovery for a violation of its provisions. Plaintiff advances a claim for damages based, in part, on a theory that [the insurer] was negligent having breached duties imposed upon it by the UIPA, 40 Pa Const. Stat. Ann. § 1171.1, et seq. ‘Courts within the Third Circuit and the Commonwealth of Pennsylvania continue to recognize [, however,] that the UIPA does not provide plaintiffs with a private cause of action.’ Tippett, 2015 U.S. Dist. LEXIS 37513, 2015 WL 1345442 at *2 (quoting Weinberg v. Nationwide Cas. and Ins. Co., 949 F. Supp. 2d 588, 598 (E.D. Pa. 2013)) (internal quotation marks omitted). Indeed, in Tippett, the district court not only rejected a plaintiff’s attempt to state a separate claim under the UIPA, but also rejected the plaintiff’s arguments that proof of a UIPA violation might otherwise provide support for the plaintiff’s independent bad faith claim. Id. Plaintiff’s claim under the UIPA in this case is similarly barred.”
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Breach of the common law duty of good faith and fair dealing is subsumed in the breach of contract claim.
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The Unfair Trade Practices and Consumer Protection Law applies to the sale of insurance policies, not claims handling.
As the court states: “While Plaintiff rightly notes that the ‘UTPCPL creates a private right of action in persons upon whom unfair methods of competition and/or unfair or deceptive acts or practices are employed and who, as a result, sustain an ascertainable loss,’ … Plaintiff fails to note that ‘the UTPCPL applies to the sale of an insurance policy [but] does not apply to the handling of insurance claims.’” Thus, as the alleged “wrongful conduct under the UTPCPL relate[s] solely to [the insurer’s] actions after the execution of the homeowner’s insurance policy,” the UTPCPL claim was dismissed.
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Declaratory judgment count not permitted in light of breach of contract claim.
The court states: “Federal courts routinely dismiss actions seeking declaratory judgment that, if entered, would be duplicative of a judgment on an underlying breach of contract claim.” Judge Tucker cites case law for the propositions that “granting a defendant’s motion to dismiss a plaintiff’s independent cause of action for declaratory judgment because the claim for declaratory judgment was duplicative of an underlying breach of contract claim,” and “dismissing a plaintiff’s duplicative claim for declaratory judgment in the face of an underlying breach of insurance contract claim and observing that ‘pursuant to discretionary declaratory judgment authority, district courts have dismissed declaratory judgment claims at the motion to dismiss stage when they duplicate breach of contract claims within the same action.’”
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The insured pleads a plausible bad faith claim.
Judge Tucker highlighted the following allegations in ruling that the bad faith claim could proceed:
i the insurer “attempted to close her insurance claim despite never having sent an adjuster or inspector to evaluate the damage to the Property.”;
ii the insurer “engaged in intentional ‘telephone tag’ to delay and deny Plaintiff coverage under the homeowner’s insurance policy.”;
iii. the insurer never “scheduled an inspection of the Property or otherwise [took] any action to deny or grant coverage under the homeowner’s insurance policy.”
Thus, at the end of the day, after reviewing all of the claims and motion to remand, the insured was allowed to proceed on the breach of contract and bad faith claims.
Date of Decision: August 13, 2019
Neri v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-0355, 2019 U.S. Dist. LEXIS 136820 (E.D. Pa. Aug. 13, 2019) (Tucker, J.)
In this UIM bad faith case, the court dismissed the bad faith count, but sua sponte allowed the insured to file an amended complaint. In setting out general bad faith law, among other things, the court observed that “[f]ailing to plead explanations or descriptions of what an insurer actually did, or why they did it, is fatal to a bad faith claim.”
In carrying out its analysis of whether the complaint could survive a motion to dismiss, the court first identified conclusory allegations that need not be considered in determining the issue. The court then took a close look at the complaint’s actual factual allegations to determine whether those allegations could support an actionable bad faith claim.
Paying first party medical benefits while not paying third party UIM claims is not in itself bad faith.
First, the court observed that an insurer’s paying first party medical benefits “without indicating any dispute regarding the causal relationship between the accident and Plaintiff’s medical bills or income loss,” while denying third party UIM benefits is insufficient, in itself, to make out a bad faith claim. Bad faith must go beyond “a mere inconsistency” in handling these two categories of claims.
A time gap between the insured’s demand and the insurer’s offer of payment alone is not sufficient to make out bad faith.
Second, the court rejected the argument that a seven month time period between here policy limit demand and the insurer’s offer in response does not by itself constitute bad faith “if the insurer had a reasonable basis for the delay.” Here, the plaintiff failed to allege “any facts indicating that Defendant’s delay of nearly seven months did not have a reasonable basis” and the mere calculation of time between demand and offer is not sufficient to make out a bad faith claim.
Alleging a bad faith failure to communicate requires pleading actual efforts to communicate to which the insurer failed to respond in good faith.
Third, if plaintiff wanted to plead failure to communicate as a basis for her bad faith claim, she needed to allege “specific facts regarding the plaintiffs’ unsuccessful attempts to elicit such information from the defendant insurers.” The complaint does not identify any communications attempting to get an explanation from the insurer about the basis for its offer (which was over $800,000 lower than the policy limits demand). Allegations that the insurer failed to support its offer with medical evidence or expert reports did not support the argument of an unreasonable failure to communicate with the insured.
Identifying difference between demand and offer alone cannot be the basis for bad faith, absent allegations that the insurer acted unreasonably and in bad faith in making the lower offer.
Fourth, the insured argued that the large difference between her $1,000,000 demand (which she further averred was lower than her actual damages), and the insurer’s $107,012 offer was alone sufficient to sustain a bad faith claim. The court likewise rejected this argument. A low but reasonable estimate will not be treated as bad faith, and the insured did not allege “facts from which a factfinder could plausibly conclude that Defendant’s offer was unreasonable and made in bad faith … rather than made as part of the ordinary course of negotiations between insurers and insureds.” Judge Kane cites Judge Caputo’s recent Clarke decision to support this conclusion.
She also cited Judge Caputo’s recent Moran decision for the proposition that even a facially unreasonable offer, without more pleaded, may not constitute bad faith, because “[e]ven if an offer is facially unreasonable, it must also be shown to have been made in bad faith.” The complaint must sufficiently allege conduct supporting the unreasonable offer was made in bad faith, rather than the result of a negligent failure to investigate and evaluate the claim.
Date of Decision: March 26, 2019
Rosenthal v. Am. States Ins. Co., U. S. District Court Middle District of Pennsylvania No. 1:18-cv-01755, 2019 U.S. Dist. LEXIS 50485, 2019 WL 1354141 (M.D. Pa. Mar. 26, 2019) (Kane, J.)
The insurer ceased making payments under a disability policy on the basis of two independent medical examinations, and its interpretation that the results of those examinations fell outside the policy’s coverage. The insured brought various claims, including bad faith. The court ruled in the insurer’s favor on summary judgment.
First, the insurer had a reasonable basis to deny the claim. Insurers “may reasonably rely on the findings of an independent medical examination—even in the face of contrary medical opinions.” The insured argued the insurer unfairly favored its physician/expert opinion over the treating physicians’ opinions, however, “an insurer is not required to give greater credence to opinions of treating medical providers.”
Second, the record did not yield an inference that there was a frivolous or unfounded refusal to pay. The record showed a thorough investigation, with reviews by medical experts, and requests and reviews of relevant documents. This created a reasonable basis for denial.
Finally, “an insurer has a right to evaluate legitimate coverage issues and does not act in bad faith by aggressively protecting its interests.” Merely insinuating a pre-determined intent to deny a claim is not sufficient to meet the burden of actually establishing bad faith. Plaintiff’s claims handling examples adduced to discredit the insurer, did not actually evidence improper claims handling, “or that their methods otherwise went beyond mere negligence and constituted conduct amounting to bad faith.”
Date of Decision: November 2, 2018
Brugler v. Unum Group & Provident Life & Accident Ins. Co., U. S. District Court Middle District of Pennsylvania No. 4:15-CV-01031, 2018 U.S. Dist. LEXIS 187836 (M.D. Pa. Nov. 2, 2018) (Brann, J.)
Negligent driving resulted in a truck crashing into the insured’s home. Her carrier evaluated the damage at less than $2,500, which came to less than $600 after deductibles. The tortfeasor’s carrier evaluated the damages at $60,000 based on a finding of structural damage, and the plaintiff’s public adjuster and another entity came in at $40,000. The insurer did not revise its estimate, and the insured brought suit for breach of contract and bad faith. The insurer unsuccessfully moved to dismiss the bad faith claim.
The case provides an overview of: the elements of statutory bad faith; that negligence does not constitute bad faith; the demanding heights of the clear and convincing evidence standard; and some types of conduct that may constitute bad faith, e.g., “a frivolous or unfounded refusal to pay, failure to investigate the facts, failure to communicate with the insured, failure to engage in settlement negotiations, and unreasonable delay.”
The carrier had a representative and engineer inspect the house, and argued that its number was the result of these inspections. It argued that it was willing to pay the claim, and that simply because the insured disagrees with the number offered this does not constitute bad faith. The insurer relied on the principle that low but reasonable offers cannot constitute bad faith. The insurer also argued that the complaint contained only conclusory allegations of bad faith, and should be dismissed on those grounds as well.
The court disagreed, finding the facts pleaded sufficient to state a claim. Further, the court did not characterize the pleadings as supporting the conclusion the insurer’s estimate was low but reasonable. Rather, plaintiff alleged that the extreme disparity between the insurer’s estimate and the other estimates “suggests much more than mere negligence.” The insured also attached exhibits “to show the extent of her damages and the total amount of her damages based on her estimates.”
The court also recognized that other allegations require discovery to determine if they can be substantiated, e.g., her allegation that the insurer “initially misrepresented pertinent facts of her policy provisions regarding coverage and that [the insurer] mislead her.” The issue of whether the house suffered structural damage, as stated in the $60,000 estimate, also requires discovery, as such evidence “would support plaintiff’s bad faith allegation that [the insurer] was unreasonable in failing to reinvestigate and reevaluate her damages.”
Date of Decision: September 28, 2018
Meiser v. State Farm Fire & Cas. Co., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:17-2366, 2018 U.S. Dist. LEXIS 167991 (M.D. Pa. Sept. 28, 2018) (Mannion, J.)
This case involves indemnification claims for payment made under a surety (performance) bond. Sureties are not subject to Pennsylvania’s Bad Faith Statute. The surety paid millions of dollars in connection with a construction contract, and sought reimbursement from the parties entering an indemnification agreement in connection with the bond issued.
The indemnity agreement required indemnification for payments made in good faith. If the payments were fraudulently made no indemnification would be required. The court found the contract itself did not set a good faith standard. Thus, it looked to the common law defining good faith conduct in analyzing the facts.
The indemnitors had to show an “improper motive” or “dishonest purpose” behind the surety payments. “Bad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity.” It “is more than ‘a lack of diligence or negligence,’ and ‘even gross negligence cannot support a finding of bad faith.’”
The indemnitors put on no evidence of bad faith and summary judgment was entered for the surety.
Date of Decision: September 25, 2018
Allied World Insurance Co. v. Perdomo Industrial, LLC, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-3027, 2018 U.S. Dist. LEXIS 163906 (E.D. Pa. Sept. 25, 2018) (Kearney, J.)
