Archive for the 'PA – Negligence not bad faith' Category
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.)
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.)
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:
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“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.”
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“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.”
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“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.”
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“A reasonable basis is all that is required to defeat a claim of bad faith.”
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“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:
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“Courts have held that an insurer must ‘properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.’”
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“Bad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’”
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“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:
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“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.”
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“The plaintiff bears the burden of establishing delay by clear and convincing evidence.”
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“A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.”
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“[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.)
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.
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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.
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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.
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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.
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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.)
The insured resided with her long-time partner at her home in Philadelphia when it was damaged by a fire. No one but the insured was listed on the policy.
Following the fire, the insured and her partner sought benefits under the policy for personal property destroyed and for home repairs. The insurer paid the insured $115,125.40 for home repairs, $160,982.21 for damage to personal property, and $37,784.81 for additional living expenses. The insurer did not pay the insured’s partner any benefits, arguing that he was not an insured person under the terms of the policy.
In addition, the insured received home repair estimates that ranged from $310,000 to $341,000, and the insurer did not pay any additional benefits beyond its $115,125.40 payment. The insured and her partner sued for bad faith, among other claims. The insurer moved for judgment on the pleadings.
The insured and her partner supported their bad faith claim with three arguments: (1) the insurer acted in bad faith when it sent a letter containing erroneous information about the claim to the Pennsylvania Insurance Department; (2) the insurer failed to obtain an appraisal; and (3) the insurer failed to properly investigate, evaluate, and communicate with the insured about the claim. The Court rejected all three of these arguments.
The court generally observed that “Pennsylvania federal and state courts have defined ‘bad faith’ as ‘a frivolous or unfounded refusal to pay proceeds of a policy.’” Specifically, as to the three arguments:
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The Court held that, in sending the letter containing erroneous information to the PID, there’s no evidence that this was done with a “motive of self-interest or ill will[,]” and was likely mere negligence.
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The policy stated that if there is an appraisal dispute, any party may demand an appraisal. The insured failed to make this demand.
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The Court held that the insured’s third argument was too vague to constitute bad faith, as insureds “must ‘describe who, what, where, when, and how the alleged bad faith conduct occurred.”
The Court dismissed all of the claims, but declined to award the insurer judgment on the pleadings, because it granted the insured leave to amend her complaint.
Date of Decision: December 21, 2017
Elican v. Allstate Ins. Co., No. 17-03105, 2017 U.S. Dist. LEXIS 209901 (E.D. Pa. Dec. 21, 2017) (Pappert, J.)
This 95-page opinion granting the insurer summary judgment provides an extremely detailed review of the facts, and considerable exposition of bad faith case law concerning investigation and claims handling.
As set forth in the Opinion, the insured owned multiple rental properties that she leased out to college students. Beginning in 2005, she purchased landlord property insurance policies from the insurer. In 2014, tenants moved into the properties and alerted township police to deplorable conditions.
The police report catalogued broken windows, buckled hardwood floors, water damage, ceiling damage, removed and damaged fixtures and doors, detached ceiling lights and smoke alarms, peeling paint, an overgrown lawn, broken appliances, trash, and mice droppings. The tenants then broke their leases, citing a breach of the implied warranty of habitability.
A township code official inspected and photographed the properties and prepared a list of code violations. The official posted violation notices, and revoked the insured’s student rental licenses. The insured notified both the insurer and her insurance broker, and made a claim for the property damage and lost rent.
The insurer mistakenly filed the insured’s communication in a preexisting file related to another claim with the same insured. However, an employee of the insurance broker immediately called the insured to request more facts relevant to the claim. The insured did not pick up the call and did not return the voicemail.
The township later brought a code violation action against the insured in the Court of Common Pleas, as well as for the insured’s failure to allow mandated property inspections over several years. The insured then reached out to the insurer, and repeatedly claimed that her earlier communications went unanswered.
The insured’s story changed, however, after the insurer produced evidence of phone calls and emails from claims adjusters. The insured conceded that she did in fact speak to someone, but she only “sort of” recalled the conversation.
Even after the rental license revocations, the insured again rented properties to two other college students. Similar physical problems arose, and the new tenants were likewise unable to reside at the properties. The township locked the insured out of the properties.
Throughout this period, the insurer’s claims handlers continually attempted to communicate with the insured to gather more facts concerning the insured’s claim. The insured received an email stating “‘it is imperative that I make voice to voice contact with you to get accurate loss facts regarding the claim that you submitted’ since ‘the claims process is reliant on the information that is shared between ‘you’ the insured and ‘me’ the claims adjuster.’”
Several days after the insured received that email, the adjuster had a telephone call with the insured, but the insured said she could not speak with the adjuster due to ongoing litigation. The insured then hung up the phone.
The insurer took the position that the policy did not provide coverage for property damage, lost rents or the township’s suit against the insured.
The insured sued the insurer for breach of contract, bad faith, and alleged violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The Court granted the insurer’s motion for summary judgment on the breach of contract claim, stating that the insurance policies were not “all risk” policies whereby coverage is automatically triggered in the event of loss.
Furthermore, the insured failed to show that the losses occurred suddenly and accidentally, and the insured had no reasonable expectation of coverage. The court also found that the insurer had no duty to defend the insured in the state court action. Additionally, the court granted the insurer summary judgment on the UTPCPL claim, finding no fraud or misrepresentations to the insured with regard to the policies.
As to the bad faith claim, the insured alleged that the insurer intentionally delayed opening a claim, delayed commencing its investigation, and that it lacked a reasonable basis for refusing to pay the insured benefits under the policies.
The Court found that there existed no clear and convincing evidence that the insurer acted in bad faith. The Court stated that “the record makes clear that [the insurer’s] delays are attributable to mistake, possible confusion between [the insurer] and [the broker,] and [the insured’s] obfuscation and refusal to cooperate with [the claims] representatives.”
The Court further opined that the bad faith claim must fail because the evidence shows the insurer conducted an adequate investigation and had a reasonable basis for denying coverage. Any delays on the part of the insurer were attributable to the insured’s “repeated failures to provide the information necessary to open a claim….”
The Court granted the insurer’s motion for summary judgment in its entirety.
Date of Decision: April 6, 2017
Doherty v. Allstate Indem. Co., No. 15-05165, 2017 U.S. Dist. LEXIS 52795 (E.D. Pa. April 6, 2017) (Pappert, J.)
This decision was affirmed on appeal.
Doherty v. Allstate Indem. Co., U. S. Court of Appeals Third Circuit No. 17-1860, 2018 U.S. App. LEXIS 13900 (3d Cir. May 25, 2018) (Fuentes, Greenaway, Rendell, JJ.)
