Archive for the 'PA – Negligence not bad faith' Category

A LOW BUT REASONABLE ESTIMATE IS NOT BAD FAITH (Third Circuit)

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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.)

1. POSSIBLE BAD FAITH FOR IMPROPER RESCISSION AND UNREASONABLY INADEQUATE INVESTIGATION, BUT 2. NO BAD FAITH FOR ALLEGED VIOLATIONS OF THE UIPA OR UCSP REGULATIONS, OR FOR ALLEGEDLY SWITCHING DENIAL THEORIES (Western District)

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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:

  1. 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.

  1. 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.)

POTPOURRI OF ISSUES ADDRESSED IN RESPONSE TO 11 COUNT COMPLAINT: (1) REMAND (2) GIST OF THE ACTION/ECONOMIC LOSS (3) UIPA; (4) DUTY OF GOOD FAITH AND FAIR DEALING; (5) UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (6) DECLARATORY JUDGMENT ACTIONS BY BREACH OF CONTRACT PLAINTIFFS AND (7) ADEQUATELY PLEADING BAD FAITH (Philadelphia Federal)

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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.

  1. 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.

  2. The gist of the action doctrine and/or the economic loss doctrine will typically bar tort claims based on violations of an insurance contract.

  3. 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.”

  1. Breach of the common law duty of good faith and fair dealing is subsumed in the breach of contract claim.

  2. 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.

  1. 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.’”

  1. 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.)

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

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

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

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

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

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

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

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

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

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

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

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

Summaries of Clarke and Moran can be found here.

Date of Decision: March 26, 2019

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

NOVEMBER 2018 BAD FAITH CASES: CLAIMS HANDLING REASONABLE WHEN INSURER RELIES ON EXPERTS AND CONDUCTS THOROUGH INVESTIGATION; INSINUATION OF BAD INTENT IS NOT PROOF OF BAD FAITH (Middle District)

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This decision was later reversed when the insurer’s expert was found unqualified.

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.)

OCTOBER 2018 BAD FAITH CASES: ALLEGED DISPARITY IN PROPERTY DAMAGE ESTIMATES WENT BEYOND THE ARGUMENT THAT THE INSURER’S ESTIMATE WAS LOW BUT REASONABLE; ALLEGATIONS IN COMPLAINT NOT CONCLUSORY AND NEEDED TO BE EXPLORED IN DISCOVERY (Middle District)

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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.)

 

2018 BAD FAITH CASES: NO COMMON LAW BAD FAITH IN SURETY’S PAYING ON PERFORMANCE BOND AND SEEKING REIMBURSEMENT FROM CONTRACTOR/INDEMNITORS (Philadelphia Federal)

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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.)

OCTOBER 2018 BAD FAITH CASES: (1) NO BAD FAITH FOR ASSERTING FAILED LEGAL THEORY AS A DEFENSE; (2) NO BAD FAITH DELAY IN CLAIM HANDLING WHERE INSURER IS ACTIVELY INVESTIGATING CLAIM (Middle District)

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In this UIM bad faith case, the insured was injured during the pursuit of a robber. The insured and others chased after the robber, pursuing him to his getaway car. While two of the pursuers attempted to subdue him, the insured reached into the car while attempting to remove the car keys. The robber drove off and caused serious injury to the insured.

The insurer asserted an affirmative defense that the insured assumed the risk. The insured argued this ultimately unsuccessful defense, was asserted in bad faith. Further, the insured alleged there was a bad faith delay in handling her claim.

A failed legal theory is not bad faith per se

Even though the insurer erred in relying on an assumption of the risk defense, the court held the insurer “had a reasonable basis to question coverage because assumption of the risk remains a valid defense under Pennsylvania law.” Moreover, “the presence or absence of bad faith does not turn on the legal correctness of the basis for an insurer’s denial of an insured’s claim.”

Assuming arguendo the insurer lacked a reasonable basis to assert this defense, the insured still could not meet her substantial burden and “point to clear and convincing evidence that [the insurer] knew or recklessly disregarded that lack of a reasonable basis.” The court observed the insured’s apparent insinuation that changing from comparative negligence defense to an assumption of the risk defense was bad faith. The court stated that such “insinuations alone do not permit her to surmount the high burden she faces.”

Finally, as to the argument that an “erroneous legal determination alone amounted to recklessness, Pennsylvania courts have made clear that bad judgment does not equate to bad faith.”

There was no delay in claim handling amounting to bad faith

The court recognized that “[u]nreasonable delay amounts to bad faith if an insurer knows of or recklessly disregards the lack of any reasonable basis for its delay.” There was no unreasonable delay based on the facts of this case. The parties were in communication for months in an effort to resolve the dispute. The insured told the insured it needed a police report and surveillance video to evaluate the claim. She filed the complaint before receiving the police report. As a matter of law, a jury could not find this to be an unreasonable delay, and summary judgment was granted for the insurer.

Date of Decision: September 21, 2018

Smerdon v. Geico Casualty Company, U. S. District Court Middle District of Pennsylvania No. 4:16-CV-02122, 2018 U.S. Dist. LEXIS 161344 (M.D. Pa. Sept. 21, 2018) (Brann, J.)

MAY 2018 BAD FAITH CASES: (1) DENIAL OF BENEFITS (2) INADEQUATE INVESTIGATION AND (3) UNREASONABLE DELAY AS POTENTIAL BASES FOR STATUTORY BAD FAITH (Philadelphia Federal)

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This post includes two opinions from consecutive days issued by the same judge in the Eastern District. In these two opinions, the court sets forth various standards for pursuing potential statutory bad faith claims, including (1) benefit denial; or (2) unreasonable investigations; or (3) delays in either (a) the claim handling process or (b) paying benefits due. As noted before on this blog, there is an issue whether statutory bad faith can exist for poor investigation or claim handling practices where no benefit was due.

CASE 1

In the first case, the insurer denied disability benefits. The insured sued for breach of contract and bad faith. The bad faith claim was based on two theories: (1) unreasonable denial of benefits and (2) improper claim handling during the investigation. The court denied the motion to dismiss the coverage based bad faith claim for denying benefits, but granted the motion to dismiss the bad faith claim based on an inadequate investigation.

DENIAL OF BENEFIT BAD FAITH

The court’s bad faith analysis began with basic statements of statutory bad faith law:

  1. “To establish bad faith under 42 Pa.C.S. § 8371, a plaintiff must demonstrate that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis.”

  2. “In the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing.”

  3. “To defeat a claim of bad faith an insurer need not show that the insurer was correct; rather, an insurer must demonstrate that it had a reasonable basis for its decision to deny benefits.”

  4. “A reasonable basis is all that is required to defeat a claim of bad faith.”

  5. “On the other hand, ‘an unreasonable interpretation of the policy provisions as well as a blatant misrepresentation of the facts or policy provisions will support a bad faith claim.’”

INADEQUATE INVESTIGATION BAD FAITH

These principles, however, were not the sole means to define bad faith. The court cited case law for potential bad faith conduct that went beyond these basic parameters, beginning with the proposition that “[s]ection 8371 also encompasses a broad range of other conduct including inadequate investigations.”

Concerning “inadequate investigation” bad faith, the court stated the following:

  1. “Courts have held that an insurer must ‘properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.’”

  2. “Bad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’”

  3. An insurer, however, need not demonstrate that its investigation resulted in the correct conclusion or that its investigation was perfect; rather it must simply show that its investigation was ‘sufficiently thorough to justify its decision to deny the claim.’”

The insured’s amended complaint based her bad faith claims on two distinct theories: “(1) a denial of benefits predicated either on an unreasonable interpretation of the terms and conditions of the Policy or on imposition of requirements that do not exist in the Policy; and (2) a failure to conduct a reasonable or adequate investigation into the nature and extent of either Plaintiff’s physical condition or Plaintiff’s occupation.”

The court refused to dismiss under the first theory, finding that factual issues remained on the coverage questions. However, it did dismiss the bad faith claim under the second theory. Although the plaintiff had added some allegations to support her inadequate investigation claim, “[t]hese additional allegations fail to successfully move Plaintiff’s bad faith claim from the realm of mere possibility to that of plausibility.”

Exhibits to the amended complaint showed, among other things, that the insurer had considered the insured’s medical information as well as statements regarding her occupational duties. Further, the insured failed to report her disability for years, with this delay and its consequences solely her responsibility. As the court summed up its dismissal: “Although Defendant’s investigation may not have been perfect, the allegations of the Amended Complaint do not raise a plausible inference that it was so deficient as to rise to the level of bad faith.”

Date of Decision: May 22, 2018

Wiessmann v. Northwestern Mutual Life Ins. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 16-6261, 2018 U.S. Dist. LEXIS 86103 (E.D. Pa. May 22, 2018) (Goldberg, J.)

CASE 2

The second case involved UIM breach of contract and bad faith claims. The insurer moved for summary judgment on the bad faith claim. In carrying out its bad faith analysis, the court observes the same principles quoted above concerning denial of benefits, burden of proof, and inadequate investigation, but also adds more detailed principles concerning delay as a basis for bad faith.

Similar to the first decision, the court initially observes basic bad faith principles: “In Pennsylvania, ‘bad faith’ in insurance cases is defined as ‘any frivolous or unfounded refusal to pay proceeds of a policy. … Bad faith must be demonstrated by clear and convincing evidence, ‘a burden that applies even on summary judgment.’ … To establish bad faith under 42 Pa.C.S. § 8371, a plaintiff must demonstrate that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis. … In the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing. … While mere negligence or bad judgment are insufficient, a showing of reckless disregard will suffice to establish bad faith.”

UNREASONABLE DELAY BAD FAITH

Next, as in the first case, the court states “Section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may extend to the insurer’s investigative practices.” The court then observes standards for another measure of bad faith not detailed in the first opinion: “A bad faith insurance practice can also include an unreasonable delay in handling or paying claims. … Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

The court sets forth the following principles concerning bad faith delay claims:

  1. “To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.”

  2. The plaintiff bears the burden of establishing delay by clear and convincing evidence.”

  3. A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.”

  4. “[I]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.”

The court uses examples from prior case law to show specific time periods that did not constitute bad faith delays. In one precedent, “a delay of fifteen months to resolve a claim—during which the insurer took the insured’s deposition nine months after notification of the claim, waited one year before taking the insured’s deposition and waited fourteen months to obtain a vocational assessment—was not an unreasonable length of time so as to rise to the level of bad faith, even though the insurer could have completed its investigation with greater speed”. In another, “even if all delay were attributable to the insurer, a period of approximately thirteen months between notification of UIM claim and resolution of claim through arbitration would not, without more, be sufficient to establish bad faith”.

In applying these principles, the court lays out a detailed factual history of the insurer’s claim handling during the adjuster’s investigation, including the history of communications between the adjuster and the insured’s attorney and requests for various documents and records. Despite this detailed factual record, however, the insured solely relied on his complaint’s averments to oppose summary judgment. These amounted to conclusory allegations that could not meet the clear and convincing evidence standard.

Independently, the court found “the undisputed evidence reveal[ed] no bad faith investigation or delay on Defendant’s part.” In conclusion, the court observed that “any delay was attributable to both Defendant’s well-founded need to investigate the claim and Plaintiff’s own delays in providing the requested information. Based on this undisputed record, no reasonable factfinder could determine that Defendant acted in bad faith in investigating and/or evaluating Plaintiff’s UIM claim.” Thus, the court granted summary judgment on the bad faith claim.

Date of Decision: May 23, 2018

Williams v. Liberty Mutual Insurance, U. S. District Court, Eastern District of Pennsylvania CIVIL ACTION No. 17-3862, 2018 U.S. Dist. LEXIS 86356 (E.D. Pa. May 23, 2018) (Goldberg, J.)

 

 

MARCH 2018 BAD FAITH CASES: NEGLIGENCE IS NOT BAD FAITH; SUMMARY JUDGMENT CANNOT BE DEFEATED WHERE RECORD CONTRADICTS BALD ALLEGATIONS OF BAD FAITH (Philadelphia Federal)

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In this UIM case, the actual record warranted summary judgment for the insurer, despite allegations of bad faith to the contrary.

The insured submitted a UIM claim for injuries sustained to his elbow. The insured recovered $100,000 from the tortfeasor’s insurer, and then requested maximum UIM benefits of $200,000. Three weeks before the accident, the insured had injured the elbow when he fell at his home.

The insured’s counsel initially attempted to contact a claims specialist who no longer worked for insurer. Nearly four months later, the insurer responded that that this adjuster no longer worked there, but the UIM claim was being transferred to another claims specialist immediately. The insurer did immediately begin processing the claim, and continually requested additional medical records from the insured, to no avail.

The insured filed suit for bad faith and breach of contract, and the insurer moved for summary judgment on the bad faith claim, which was granted for the following reasons:

Negligence is not bad faith.

  1. The insured argued bad faith in delaying the UIM investigation for four months. The Court ruled that in light of the fact that the initial demand letter was sent to the wrong person, the delay in opening the claim amounted to mere negligence, not bad faith.

The record contradicts the insured’s alleged bases for bad faith.

  1. The insured argued a failure to tender reasonable UIM benefits. The Court rejected this argument, stating that a partial valuation of the claim had neither been made nor requested by the insured.

  2. The insured argued the insurer used dilatory tactics and failed to investigate the claim. The Court found this “patently false,” because the record showed the insurer continually communicated with the insured and retained three separate physicians who all concluded the insured suffered no additional elbow injury due to the auto accident.

  3. The insured argued the claim was frivolously denied. The Court rejected this argument, citing the thorough investigation conducted by the insurer.

Date of Decision: March 6, 2018

Smith v. LM General Insurance Co., CIVIL ACTION NO. 17-02310, 2018 U.S. Dist. LEXIS 35773 (E.D. Pa. Mar. 6, 2018) (Pappert, J.)