Archive for the 'PA – Settlement related issues' Category

(1) NO WANTON CONDUCT UNDER MVFRL INVOKING TREBLE DAMAGES AND SUPER INTEREST; (2) NO STATUTORY BAD FAITH WHERE (i) MVFRL PREEMPTS BAD FAITH STATUTE; (ii) THERE IS ONLY A VALUATION DISPUTE; (iii) INVESTIGATION REASONABLE; (4) BIAS CLAIMS ARE MERELY SUBJECTIVE (Philadelphia Federal)

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Plaintiff was injured in an auto accident and made both PIP claims and underinsured motorist (UIM) claims. She found the carrier’s settlement offers and negotiations wholly inadequate, and brought statutory bad faith claims, and claims for damages under the Motor Vehicle Financial Responsibility Law (MVFRL) seeking treble damages and super interest for the insurer’s allegedly “wanton” conduct concerning her medical benefit claims.

MVFRL Claims

The court found the insured could proceed on her PIP claim under a breach of contract theory. However, the MVFRL claim for treble damages and 12% interest, under 75 Pa. C.S. § 1797(b)(4), was dismissed without prejudice. Judge Pappert held plaintiff had not pleaded “wanton” conduct, a predicate for gaining the extraordinary remedies under this statute.

The insurer also asserted the MVFRL count actually alleged a breach of the duty of good fair dealing, and moreover constituted an improper effort to get relief under the Bad Faith Statute. It asked the court to strike certain averments related to this putative backdoor bad faith claim.

The court rejected this argument: “Although Count II appears to assert a claim under the MVFRL … it also appears to assert a claim for … alleged breach of the implied contractual duty to act in good faith related to her PIP coverage. …  Because [the insured] may pursue a claim for breach of her policy’s PIP coverage obligations and because motions to strike are ‘not favored and usually will be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties,’ the Court will not strike her allegations regarding the duty of good faith and fair dealing in Count II.”

MVFRL Claims and the Bad Faith Statute

The court then addressed the statutory bad faith claim.

The court first observed that unless the insurer’s “conduct falls outside of the scope of § 1797 of the MVFRL, 75 Pa. C.S. § 1797, and involves a bad faith abuse of the process challenging more than just the insurer’s denial of first party benefits, the MVFRL preempts any statutory bad faith claim concerning … PIP benefits.” The court made clear, “To the extent that the gravamen of [the] bad faith claim is the denial of first party medical benefits and nothing more, [the insurer’s] alleged conduct is within the scope of § 1797 of the MVFRL and therefore [she] is precluded from bringing such a claim.”

However, “[s]ection 8371 bad faith claims remain cognizable when the basis of a benefits denial does not relate to the reasonableness and necessity of treatment, or when an insurer’s conduct is obviously not amenable to resolution by the procedures set forth in Section 1797(b).”

Dispute Over Valuation not Bad Faith

The insured alleged the insurer delayed her claim and denied its value. The court found these allegations did not equate to allegations that the insurer actually deny the UIM or PIP. Rather, there was a dispute over valuation.

Analyzing the matter as a valuation dispute, Judge Pappert found the insured did not allege “facts sufficient to show [the insurer’s] valuation is unreasonable.” The insured’s subjective beliefs as to her claim’s value “is not indicative of bad faith because … subjective belief as to the value of the claim may reasonably, and permissibly, differ.”

Rather, “[t]o state a bad faith claim, [an insured] must do more than call [the insurer’s] offers low-ball.” These kind of conclusory and subjective allegations “suggest nothing more than a normal dispute between an insured and insurer.”

Low but Reasonable Offers Not Bad Faith

Bad faith does not exist “merely because an insurer makes a low but reasonable estimate of an insured’s damages.” Nor does a refusal “to immediately accede to a demand for the policy limit … without more, amount to bad faith.”

Insurer had Reasonable Basis to Deny Claim/No Adequate Claim of Bias

Next, Judge Pappert rejected the argument that the insured adequately pleaded the insurer lacked a reasonable basis to deny the claim’s value.  The insurer requested medical records and had an IME performed. It assessed the insured’s injuries based on that information.

The court did not give weight to conclusory allegations the doctor performing the IME was “a biased IME doctor” and “well-known as [someone] who provides so-called Independent Medical Examinations exclusively for and apparently to the liking of insurance companies….”  Further, that the plaintiff’s own doctor said she needed surgery did not, by itself, support a bad faith claim. The insurer was not unreasonable in relying  on the IME doctor’s assessment that the symptoms requiring surgery were unrelated to the accident at issue.

“In the absence of any supporting facts from which it might be inferred that [the] investigation was biased or unreasonable, this type of disagreement in an insurance case is not unusual, and cannot, without more, amount to bad faith.”

The court, however, permitted plaintiff to amend the statutory bad faith claim “to the extent it is not preempted by the MVFRL and to the extent she is able to allege facts stating a plausible claim for relief.”

Date of Decision: October 2, 2020

Canfield v. Amica Mutual Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2794, 2020 WL 5878261 (E.D. Pa. Oct. 2, 2020) (Pappert, J.)

BAD FAITH CLAIM IS RIPE TO PROCEED; COURT REJECTS MOTION TO BIFURCATE OR SEVER (Philadelphia Federal)

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In this underinsured motorist bad faith case, Eastern District Judge DuBois denied both a motion to dismiss on ripeness grounds, and an alternative motion to server or bifurcate.

The complaint alleges the tortfeasor had $50,000 in coverage and the plaintiff/insured had $500,000 in UIM coverage. The tortfeasor agreed to settle at $47,000 and the UIM carrier consented. Plaintiffs alleged severe and permanent injuries and pursued a UIM claim.

Specifically, the insureds allege they complied with all policy terms and conditions; the insurer did not tender any UIM benefits or make any settlement offers; the insurer did not conduct any investigation into the claims; and the insurer played “cat and mouse” games by “continuously and systematically failing to communicate any offer of settlement or denial of benefits,” misleading plaintiffs as to potential settlement on at least nine occasions, and “purposefully ignoring [plaintiffs’] demand for underinsured motorist benefits.”

BAD FAITH CLAIM CAN PROCEED

First, Judge DuBois rejected the argument that the bad faith claim was not ripe until the breach of contract claim was actually decided. Among other things, the court stated: “Success on a statutory claim for bad faith does not necessarily depend on the success of the underlying breach of contract claim.” Relying on a 1996 Eastern District decision, the court quotes: “A claim for bad faith brought pursuant to § 8371 is a separate and distinct cause of action and is not contingent on the resolution of the underlying contract claim. A plaintiff may succeed on its bad faith claim even if it fails on the underlying breach of contract claim. Additionally, courts interpreting § 8371 have consistently entertained multi-count complaints containing both unresolved insurance contract disputes and bad faith claims.”

The court further relies on the unpublished Third Circuit decision, Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., in reasoning that “’[a] finding that the insured did not ultimately have a duty to cover the plaintiff’s claim does not per se make the insured’s actions reasonable’ in hindsight.” Judge DuBois concludes: “Therefore, so long as the underlying contract claim is ripe, the bad faith claim is also ripe.”

After finding the claim ripe, the court finds plaintiffs can proceed on their bad faith claim. “Plaintiffs allege defendant acted in bad faith by failing to properly investigate their insurance claim, engage in settlement discussions, and communicate with them. This is ‘a separate and distinct’ cause of action from plaintiff’s claim that defendant breached the terms of the policy in failing to pay UIM benefits. … As such, a finding that defendant does not owe plaintiffs UIM benefits would not mandate a finding that defendant did not act in bad faith in handling the insurance claim.”

[Note: This opinion does not address the impact of the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company in determining to what extend a statutory bad faith claim can proceed, if at all, when there is no duty to pay any benefits under the policy. Moreover, we have previously observed that Gallatin Fuels never addressed Toy. These issues have been discussed many times on the Blog, most recently here.

Of special note is Judge DuBois’ 2019 decision in Buck v. GEICO, which appears to emphasize, and confirm, the denial of a benefit as a predicate to statutory bad faith claims. Among other things, the Buck opinion looks to Toy as a leading authority, and not Gallatin Fuels. The Buck opinion includes language, in quotes below, stating:

“Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. ‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.’”

“Courts in Pennsylvania and the Third Circuit have consistently held that ‘[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.’”

The Buck plaintiff could not state a claim because “[n]one of the ‘benefits’ that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he ‘does not allege bad faith for refusal to pay benefits.’”

Buck observes that cases have held “’section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.’” This means, however, that bad faith claims “’need not be limited to the literal act of denying a claim.’”

Rather, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” “Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”]

In the present case, there seems to be no question that UIM coverage is provided, but only whether the plaintiff’s damages reach into the UIM coverage level or stop below $50,000. The insurer does not appear to challenge whether a plausible bad faith claim has been pleaded with adequate factual allegations, but only that the bad faith claim should not be allowed to proceed because it is not ripe. The court concludes that the UIM bad faith claim is ripe and can proceed.

MOTION TO BIFURCATE OR SEVER DENIED

The Procedures and Standards Governing Contract and Bad Faith Claims do not Favor Bifurcation or Severance.

Judge Dubois first rejected the argument that the claims should be severed or bifurcated because they will be governed by different procedures and standards. First, the carrier incorrectly argued that the contract and loss of consortium claims go to a jury while bad faith is decided by the judge. While true in Pennsylvania state court actions, bad faith claims can go to the jury in federal court cases. Next the court rejected the notion that the jury would be confused in applying the preponderance of the evidence standard to the contract claim and clear and convincing evidence standard to the bad faith claim. Judge Dubois also rejected the argument that the facts at issue on the two claims were entirely distinct.

“For example, one of plaintiffs’ assertions in the bad faith claim is that defendant failed to conduct an adequate investigation into plaintiffs’ injuries. This requires inquiry into two facts (1) the extent of plaintiffs’ injuries, and (2) the extent of defendant’s investigation into those injuries. The breach of contract claim also requires inquiry into the extent of plaintiffs’ injuries. A separate trial on the bad faith claim would require plaintiffs to present much of the same evidence to the second jury, ‘duplicating in many respects the presentation to the first jury.’ This would be expensive and time-consuming for all parties. Because of the factual overlap between the claims, it would be more convenient to have a single trial in this case. Accordingly, the convenience factor weighs against severance or bifurcation.”

There is no Prejudice Because the Work Product Doctrine Remains Functional.

As to prejudice, the insurer focused on protecting work product. Judge Dubois states: “On this factor, defendant contends that allowing discovery and trial for the claims to proceed simultaneously would prejudice defendant because discovery in the bad faith claim would require defendant to disclose the claim adjustor’s mental impressions, conclusions, and opinions as to the merits of the case, evidence that is not discoverable in the breach of contract case. … To the extent that the claim adjustor’s work product is protected, defendant’s argument is unconvincing.”

Judge Dubois joins the vast majority of opinions finding the attorney client privilege and work product doctrine do not fall by the wayside simply because an insured brings a bad faith claim: “The Federal Rules of Civil Procedure and longstanding judicial precedent protect work product from disclosure—protections that do not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim. Allowing the claims to proceed simultaneously simply means [defendant] will be called upon to prove its entitlement to work product protection….”

Judicial Economy Favors a Single Action

As to judicial economy:

“Defendant’s argument as to this factor is that, should plaintiffs fail on their breach of contract claim, the bad faith claim will be moot. As explained above, that is an incorrect statement of the law. Plaintiffs’ bad faith claim is based, in part, on defendant’s failure to investigate plaintiff’s insurance claims and communicate with plaintiffs regarding their claims. ‘A finding that the [insurer] did not ultimately have a duty to cover the plaintiff’s claim does not per se make the [insurer’s] actions reasonable’ in hindsight. Gallatin Fuels, Inc., 244 F. App’x at 434-35. Whether defendant ultimately owes plaintiff benefits under the policy is distinct from whether defendant appropriately handled the claims.” [See Note above re Toy v. Metropolitan and Buck v. GEICO.]

“To the contrary, a single trial promotes judicial economy because it avoids duplication of effort by the parties across multiple trials. Although the contractual and bad faith claims present distinct legal issues, the underlying facts overlap. Therefore, “[b]ifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pretrial motions, and a completely separate trial,” much of which would concern the same factual basis. … Accordingly, the judicial economy factor weighs against severance or bifurcation.”

Date of Decision: September 11, 2020

Dunleavy v. Encompass Home & Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1030, 2020 WL 5501200 (E.D. Pa. Sept. 11, 2020) (DuBois, J.)

“DEEMS EXPEDIENT” CLAUSE UNDERMINES BAD FAITH SETTLEMENT CLAIM; 4 YEAR STATUTE OF LIMITATIONS APPLIES TO CONTRACT BASED BAD FAITH CLAIMS (Philadelphia Federal)

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The essence of the insured’s case is the insurer settled claims against the insured without the insured’s knowledge or permission, and without adequate investigation.  The insurer paid $995,000 out of a $1 Million policy to the person injured in the insured’s ambulance. The insured asserts the carrier overpaid to settle, resulting in $200,000 in damages from increased premiums.

The complaint did not include any reference to statutory bad faith, 42 Pa.C.S. § 8371. Thus, the court found that the sole “bad faith” claim at issue was a breach of the contractual duty of good faith and fair dealing.

The insurer moved to dismiss based on section 8371’s two-year statute of limitations. Since this is a contract based bad faith claim, however, the statute of limitations is four years, and that argument was rejected.

As to the merits, the carrier asserts the policy language expressly provides it can settle any claim or suit as it considers appropriate. Thus, it has complete authority to settle within policy limits at any amount.  The insured argues this is “absurd,” but offers no authority to support its position.

The court ruled for the insurer, observing: “Pennsylvania law disfavors bad faith claims where a policy grants the insurer discretion to settle and where such settlement is within policy limits. However, ‘in limited circumstances,’ ‘a claim for bad faith may … be asserted against the insurance company notwithstanding a ‘deems expedient’ provision … if such settlement was contrary to the intent and expectation of the parties.’” Here, the court found the “settle when appropriate” language to be the equivalent of a deems expedient provision.

The court cited two precedents where a deems expedient provision undermined the possibility of a bad faith claim. In the first, there was no evidence the parties did not freely negotiate policy terms. As to the second, the Third Circuit interpreted “’deems expedient’ clauses broadly—so broadly as to allow insurers to settle claims subject to such clauses ‘for nuisance value of the claim’ or even where a ‘suit … presents no valid claim against the defendants.’”

In the present case, the insured does not contend the deems expedient clause was not freely negotiated. Moreover, even if the insurer could have done more to investigate the underlying claim, “the ‘deems expedient’ clause in its policy afforded [the insurer] the option of settling … simply because it preferred settlement over further investigation of his claim.”

Thus, the bad faith claim was dismissed with prejudice.

Date of Decision: July 22, 2020

Healthfleet Ambulance, Inc. v. Markel Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-2250, 2020 U.S. Dist. LEXIS 129185 (E.D. Pa. July 22, 2020) (Beetlestone, J.)

DOES TOY V. METROPOLITAN LIFE PROVIDE BINDING PRECEDENT REQUIRING A DENIAL OF BENEFITS FOR COURTS APPLYING PENNSYLVANIA LAW ON THE SCOPE OF STATUTORY BAD FAITH (Western District)

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Like the recent Middle District Ferguson decision, the opinion in this case involves good news and bad news. First, the court addresses head on whether statutory bad faith must be predicated on a denial of benefits, or can be independently sustained based upon a variety of poor claims handling practices. That’s good for those seeking clarity on this issue. The bad news is that, like Ferguson, this opinion never addresses head on the 2007 Pennsylvania Supreme Court decision in Toy v. Metropolitan Life Insurance Company.

As we have set forth many times on this Blog, the Toy decision strongly appears to require the denial of a benefit as a predicate to bringing a statutory bad faith claim, meaning a refusal to pay proceeds due under the policy, unreasonably delaying payment of proceeds due under the policy, or refusing to pay for a defense due under the policy. Under Toy, other types of poor conduct in claims handling go to evidence of statutory bad faith, without being actionable bad faith standing alone. See this 2014 article for a more detailed discussion.

In the present case, an excess carrier paid $19,000,000 to settle a malpractice suit, contingent on its right to recoup that payment. The insured objected. The insurer brought suit to recover the money, and the insured counterclaimed for breach of contract, common law contractual bad faith, statutory bad faith, and for a declaratory judgment.

The court denied the insurer’s motion to dismiss the counterclaims, and the insurer brought a motion for reconsideration on whether the bad faith claim was adequately pleaded, and whether the damage claims were too speculative and contingent to stand. Both motions were unsuccessful. [We only address the bad faith claim.]

The court focused on the Pennsylvania Supreme Court’s 2017 Rancosky decision to address the issue of whether an actionable statutory bad faith claims requires “the plaintiff must allege that the insurer has denied benefits under the policy. … [and] that only either a refusal to pay benefits or a delay in paying benefits that becomes an effective denial can constitute a denial of benefits sufficient to state a claim under § 8371.” The court points out that the Rancosky majority did not address that issue, but Justice Wecht’s Rancosky concurrence “listed several types of conduct, including poor claims-handling, a failure to respond to the insured, and other similar conduct, which could give rise to a § 8371 claim and that list is broader than a refusal or delay in paying benefits.” Although the majority had not adopted that concurrence, because the majority did not expressly refute the concurrence, the District Court “remain[ed] convinced that the Pennsylvania Supreme Court, if confronted with the issue … would hold that [the insured] had stated a claim.”

[Note: Per the above comment, however, it strongly appears that the Pennsylvania Supreme Court did address the issue in 2007. A review of the carrier’s brief indicates that it argued Toy stood for the proposition “that ‘bad faith’ under § 8371 is strictly limited to ‘those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss.’” The carrier further argued that Rancosky did not overrule or limit this principle, and if anything reaffirmed it. The District Court clearly rejected the notion that Rancosky limited statutory bad faith claims to the denial of benefits, but never addressed whether Toy did so.]

Thus, the motion for reconsideration was denied. The court held that the insured stated a claim by alleging “poor claims-handling, a failure to respond to the insured, and other similar conduct, which could give rise to a § 8371 claim,” wholly independent of any refusal to pay or delay in paying benefits.

Date of Decision: January 23, 2020

Ironshore Specialty Insurance Co. v. Conemaugh Health System, U. S. District Court Western District of Pennsylvania CASE NO. 3:18-cv-153, 2020 U.S. Dist. LEXIS 11060 (W.D. Pa. Jan. 23, 2020) (Gibson, J.)

Two recent examples of cases finding that statutory bad faith claims must be based upon a denial of benefits are Judge Dubois’ 2019 Buck decision, and Judge Kearney’s 2019 Boring decision. In her 2019 Purvi decision, Judge Beetlestone states that, with limited exceptions, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” (Emphasis in original).

BAD FAITH REQUIRES DENIAL OF A BENEFIT, EXCEPT IN LIMITED CIRCUMSTANCES; NO SEPARATE BREACH OF GOOD FAITH ACTION (Philadelphia federal)

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To paraphrase from the summary below: Though courts have extended the concept of bad faith beyond an insured’s denial of a claim in several limited areas, the essence of a bad faith claim must be the unreasonable and intentional or reckless denial of benefits.

A dispute between the insured and insurer settled for $237,000. During the post-settlement drafting process, the insurer included a term in the settlement agreement making the insured’s mortgagee a payee on the settlement check. The insured objected, but the carrier responded the policy required it to include the payee. It refused to issue the settlement check without the mortgagee and the parties were at loggerheads.

The insured filed a new action against the carrier, seeking to enforce the settlement agreement without the mortgagee’s inclusion. The insured brought a breach of contract claim, as well as a separate breach of the duty of good faith and fair dealing in connection with the settlement agreement. The carrier moved to dismiss the good faith and fair dealing count.

The court dismissed that count, following the principle a breach of the covenant of good faith and fair dealing is subsumed within the contract claim, and cannot state a distinct cause of action. “Such subsuming occurs when ‘the actions forming the basis of the breach of contract claim are essentially the same as the actions forming the basis of the bad faith claim.’” Here, both counts arose out of the refusal to remove the mortgagee from the settlement payment.

The court also noted there was no separate tort claim for bad faith in Pennsylvania.

Finally, the court rejected the notion that the good faith count could survive if treated as a statutory bad faith claim. It observed that the case arose from an alleged breach of a settlement agreement, not a violation of the insurance policy. The issue here was the insurer’s including the mortgagee on the payment check, not the denial of a benefit, i.e., the carrier was ready and willing to make a payment under the policy.

As the court states:

Critically, while Plaintiff does claim that [the carrier] “refus[ed] to make payment of a settlement amount within 60 days as required by the policy of insurance,” it is clear from Plaintiff’s own recitation of the facts that what Plaintiff means by “refus[al] to make payment” amounts to Plaintiff’s refusal to accept a settlement check naming the mortgagee as a payee, rather than a denial of benefits under the policy. Though “Courts have extended the concept of ‘bad faith’ beyond an insured’s denial of a claim in several limited areas,” … “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” [Emphasis in original] As such, Section 8371 “do[es] not apply to [mere] disputes over contract terms.” … Tellingly, Plaintiff identifies no case in which a Pennsylvania court or a court interpreting Pennsylvania law has found that Section 8371 encompasses the type of settlement dispute at issue here. Count II of Plaintiff’s Amended Complaint is therefore dismissed for failure to state a claim.

Date of Decision: November 18, 2019

Purvi, LLC v. Nat’l Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-4250, 2019 U.S. Dist. LEXIS 199469 (E.D. Pa. Nov. 18, 2019) (Beetlestone, 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.)

 

 

MAY 2018 BAD FAITH CASES: ISSUES OF MATERIAL FACT ON UIM CLAIMS HANDLING AND SETTLEMENT NEGOTIATIONS PREVENT SUMMARY JUDGMENT FOR EITHER PARTY (Western District of Pennsylvania)

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This UIM action began after the insured suffered a serious head injury in an auto accident. The claims-handling process spanned a two-and-a-half year period. The insured demanded the $100,000 policy limits, and insurer initially offered to settle for $17,000. Eventually, the insurer paid policy limits.

The insured sued for bad faith, among other claims. The insured alleged bad faith in the delay of payment of benefits. Both parties moved for summary judgment on bad faith. The Court found genuine issues of material fact existed on bad faith, precluded relief to either party.

The Court reasoned that the insured’s attorney did not demand settlement of the claim for nearly two years after its filing, and once he did, the insurer acted promptly. The Court further reasoned that a jury could conclude that the initial $17,000 offer was reasonable, because the insured admitted that her special damages were only $15,000 at one point during the claims handling process, and testimony was given stating “head injuries are particularly difficult to evaluate. . . .”

However, the Court also denied insurer summary judgment because a jury could conclude there was an unreasonable delay in paying benefits, and that the $17,000 offer was a low-ball offer. A jury could find the insurer failed to conduct a meaningful investigation or attempted settlement between the time of filing and the time when the insured’s attorney demanded settlement 18 months later. Further, an argument could be made that the $17,000 was a low-ball offer because the insurer had valued the claim between $46,800 and $61,800.

[It is interesting to compare this result to New Jersey’s fairly debatable standard on bad faith, where an insured’s inability to obtain summary judgment on bad faith means there can be no bad faith.]

Date of Decision: May 7, 2018

Parisi v. State Farm Mut. Auto. Ins. Co., United States District Court, Western District of Pennsylvania, Civil Action No. 16-179, 2018 U.S. Dist. LEXIS 76246 (W.D. Pa. May 7, 2018) (Gibson, J.)

APRIL 2018 BAD FAITH CASES: NO BAD FAITH WHERE INSURER HAD REASONABLE BASIS FOR INITIAL SETTLEMENT OFFERS (Philadelphia Common Pleas affirmed by Pennsylvania Superior Court)

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The insured submitted a UIM claim to insurer following an auto accident. After an initial review of the evidence on the accident, and the insured’s medical records, the insurer offered $15,000 to settle the claim. Insurer later increased its offer to $20,000 then $25,000. The insurer’s final valuation was $28,000, but the insurer did not contact the insured about the final increased valuation because the insured unambiguously stated he would not settle for less than $50,000.

An arbitration panel awarded the insured $45,000, and he sued for bad faith. The insured argued the insurer acted in bad faith because its final settlement offer was only about 50% of the arbitration award, and because the insurer failed to notify him of the last increased $28,000 valuation.

The trial court awarded summary judgment to the insurer, holding these facts insufficient to prove the insurer’s offers lacked a reasonable basis. The court found the insurer’s “offers were not arbitrary low-ball offers but rather were the result of a considered analysis of the relevant information regarding [the] claim.”

In an unpublished decision, the Superior Court affirmed on the basis of the trial court’s well-reasoned opinion.

Dates of Decision: August 17, 2017 and April 4, 2018

Boleslavsky v. Travco Ins. Co., Court of Common Pleas of Philadelphia, October Term 2015, No. 886 (Aug. 17, 2017) (Anders, J.),

Affirmed by

Boleslavsky v. Travco Ins. Co., Pennsylvania Superior Court, No. 1227 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 1065 (Pa. Super. Ct. April 4, 2018) (Gantman, McLaughlin, Platt, JJ.)

MARCH 2018 BAD FAITH CASES: THIRD CIRCUIT DID NOT HAVE TO REACH ISSUE OF WHAT LITIGATION CONDUCT COULD CONSTITUTE BAD FAITH, BECAUSE CONDUCT AT ISSUE WAS NOT BAD FAITH CONDUCT IN THE FIRST INSTANCE (Third Circuit, Pennsylvania law)

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The insured alleged bad faith based on the insurer’s introduction and reliance on allegedly biased expert testimony in this underinsured motorist case. The District Court had dismissed the claim, after an extensive analysis on when litigation conduct might constitute bad faith. The Third Circuit affirmed, but without addressing that issue.

The parties entered a high/low settlement agreement during the course of a jury trial, i.e., if the insured won he could get up to $300,000, but no less than $100,000 if he lost. The jury awarded $1.6 Million, but that sum was molded to $300,000. The agreement released all bad faith claims existing up to the date of the agreement, but did not release post-agreement bad faith claims.

The insurer relied upon two experts’ reports and testimony before the jury. The insured later brought a bad faith action based upon the insurer’s use of its expert reports and testimony during the trial process and after the date of the high/low agreement. He alleged that the insurer acted in bad faith by introducing and relying upon the biased testimony of its experts; by “failing to make an honest, intelligent settlement offer”; and by “seeking to have the bad faith claim dismissed with prejudice.”

The Third Circuit observed that bad faith is based upon the frivolous or unfounded refusal to pay proceeds under a policy, under a two criteria test: (1) that it was unreasonable to deny benefits; and (2) that the insurer knew or recklessly disregarded the absence of a reasonable basis to deny benefits. The big issue addressed at the District Court level was how to evaluate litigation conduct under the Bad Faith Statute. The Third Circuit found it did not have to reach that issue because the complaint’s allegations (including expert reports and depositions as exhibits) did “not identify any misconduct, much less bad faith” conduct.

It was alleged contradictions in the experts’ testimony that formed the basis of the bad faith claim. The Court found no inconsistencies in the first expert’s report and testimony, and found that the report was more limited in scope than the insured asserted. Similarly, the Court found no contradictions in the second expert’s report. Thus, “[b]ecause the statements made by [the medical experts] are not contradictory, [the insurer’s] introduction of and reliance on their testimony cannot rise to the level of bad faith, even under [insured’s] suggested legal standard.”

And again, after noting the absence of Pennsylvania Supreme Court precedent on when litigation conduct could be subject to the Bad Faith Statute — though it had been addressed to some degree in the Superior Court and the Third Circuit — the Court stated that it “need not reach this question because the facts alleged clearly do not amount to knowing presentation of biased expert testimony.”

Date of Decision: February 27, 2018

Homer v. Nationwide Mutual Insurance Co., U. S. Court of Appeals Third Circuit No. 16-3686, 2018 U.S. App. LEXIS 4859 (3d Cir. Feb. 27, 2018) (Fishman, Hardiman, Roth, JJ.)

DECEMBER 2017 BAD FAITH CASES: MOTION TO DISMISS DENIED WHERE ALLEGATIONS CONCERNING LACK OF SETTELEMENT OFFERS ARE SPECIFIC ENOUGH AND SUFFICIENT TO SUPPORT BAD FAITH CLAIM (Western District)

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This is a report and recommendation written by the U.S. Magistrate Judge. Final determination on the issues is subject to future rulings by the District Court Judge.

The insured suffered numerous injuries after being hit head-on by a drunk and underinsured driver. The insured allegedly suffered facial scarring, facial lacerations, a cervical strain, head injuries, headaches, a broken finger, and ligament tears, among other injuries. The insured settled the underlying action with the tortfeasor’s insurer for the maximum policy limits of $15,000.

Arguing that his damages exceeded that amount, the insured filed a UIM claim under his own policy, which contained UIM benefits up to $250,000. The complaint alleges that despite providing the insurer with reasonable proofs of damages, the insurer has failed to offer any amount and has failed to offer an explanation as to why it has not made an offer.

The action was then removed to federal court. The insurer filed a motion to dismiss the bad faith claim, arguing that there exists a genuine dispute as to the value of the insured’s UIM claim. The insured argued the motion to dismiss should be denied, because the insurer’s refusal to make any offer or provide an explanation constitutes bad faith.

In construing a motion to dismiss under Rule 12(b)(6), the Magistrate Judge stated that “when there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.”

The magistrate recommended that the motion to dismiss be denied, because the insured’s allegations that “[the insurer] has failed to make any offers of payment on the UIM claim or any evaluations of it” are specific and sufficient to constitute bad faith at this stage of the litigation.

Lastly, the magistrate judge wrote that whether the bad faith claim survives a motion for summary judgment is a completely separate matter, which would need to be decided with a more developed discovery record.

Date of Decision: December 6, 2017

Hart v. Progressive Preferred Insurance Co., Civil Action No. 17-1158, (W.D. Pa. Dec. 6, 2017) (Mitchell, M.J.)