Archive for the 'PA – Settlement related issues' Category

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.)

DECEMBER 2017 BAD FAITH CASES: MEDIATION PRIVILEGE INAPPLICABLE TO MOST COMMUNICATIONS; REINSURANCE INFORMATION DISCOVERABLE EVEN IF NOT ULTIMATELY ADMISSIBLE (Western District)

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The insured was involved in a deadly motor vehicle accident. The insurer could have settled the case within the $11,000,000 policy limit, but declined to do so. The case was mediated before two different mediators and the judge held a settlement conference. The case went to trial and the jury awarded $32,000,000. The insured sued for breach of contract and bad faith.

During the bad faith litigation, the insured sought discovery concerning the mediations and reinsurance. The insurer asserted the mediation privilege and that the reinsurance documents were not relevant.

The insured argued that the purpose of Pennsylvania’s mediation privilege is to enable the parties to be frank and honest with the mediator and/or opposing parties without fear of reprisal in a subsequent bad faith lawsuit for doing so.” The insurer had the burden in asserting this privilege.

MEDIATION PRIVILEGE

As a practice point, the court observed the insurer “did not specify on its privilege log whether its decision to redact or withhold a document was because a portion of a document was ‘a mediation communication’ or a ‘mediation document’ as those terms are defined. Instead, [the insurer] merely opted to cite the statute and then let this Court attempt to discern what [it] meant by the following entry on its privilege log: ‘Mediation and/or settlement conference privilege pursuant to 42 Pa.C.S. §5949, F.R.E. 408, and/or applicable law.’”

The court then stated that the insurer had reciting the statutory definitions of mediation communication and mediation document and then argued that “‘[a]ll of the documents withheld and/or redacted … and submitted to the Court in camera qualify as mediation documents or mediation communications.’” The court went on to describe this as a lack of pointed argument.

Pertaining to documents redacted or withheld, the court found that “none of the redacted or withheld documents qualify as ‘a mediation document’ under the plain meaning of Pennsylvania’s mediation privilege statute except for” a single document. As to that document, it should only have been “redacted where the mediator … wrote an email ….”

Under 42 Pa.C.S. 5949, “mediation document” is defined as: “Written material, including copies, prepared for the purpose of, in the course of or pursuant to mediation. The term includes, but is not limited to, memoranda, notes, files, records and work product of a mediator, mediation program or party.”

The court then went on to address mediation communications within the documents, which the statute defines as: “A communication, verbal or nonverbal, oral or written, made by, between or among a party, mediator, mediation program or any other person present to further the mediation process when the communication occurs during a mediation session or outside a session when made to or by the mediator or mediation program.”

The court refused to apply the mediation privilege to statements made outside the mediation that did not in some way include the mediator.

The court did protect communication from the insured’s expert consultant relaying something the mediator said. However, it did not protect “redacted statements a mediator or a party may have said during the course of a mediation” in other circumstances.

Specifically, it did not protect these communications where the documents including those statements “are nothing more than reports and/or claims notes. These redacted documents contain statements which were made by a person who may have been present at the mediation session to someone (not the mediator) outside the mediation session.

Thus, they do not meet the plain meaning of the definition of ‘mediation communication’ and therefore, are not protected by Pennsylvania’s mediation privilege.” (Emphasis in original)

REINSURANCE DISCOVERY

On the reinsurance documents, the court observed that there “is no absolute exclusion of reinsurance information, as discovery of such information has been readily permitted,” citing at least one case on the issue of reserves being discoverable in bad faith litigation to support this position.

The court also quoted case law that “the purpose of permitting discovery of the existence of and content of any insurance agreement is to equalize the knowledge of both parties and give the plaintiff ‘assurance that there can be recovery in the event of a favorable verdict to justify the time, effort and expense of preparing for trial.’ … Although the discovered information may not be admissible at trial, it would allow parties to fairly evaluate settlement offers and foster a just, speedy and inexpensive determination.”

Relying on these cases, the court concluded that: “Given the nature of this case, and the allegations brought by Golon, this Court finds that all of [insurer’s] documents which were either withheld or redacted because the document either referenced or discussed reinsurance should be produced in their entirety.

However, this does not guarantee that these documents will be admissible at the time of trial. The Court is ordering them produced so that [the insured] can evaluate what [the insurer] did or did not do, and when [the insurer] took action with its own reinsurer, in relation to the underlying claim.”

The Court subsequently denied two emergency motions for reconsideration.

Date of Decision: December 7, 2017/December 14, 2017

Golon, Inc. v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 201792 (W.D. Pa. Dec. 7, 2017) (Schwab, J.)

Golon v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 213966 (W.D. Pa. Dec. 14, 2017) (Schwab, J.)

 

DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE: INSURER CONTINUALLY INVESTIGATED CLAIM; MADE LOW BUT REASONABLE SETTLEMENT OFFERS; DELAY IN ISSUING EXPERT REPORT WAS BASED ON POTENTIALLY IMMINENT SETTLEMENT; DISCOUNTING OFFER FOR TORTFEASOR PAYMENT FELL WITHIN TOTAL LIABILITY VALUATION (Philadelphia Court of Common Pleas)

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This is a UIM bad faith action that went to verdict in Philadelphia’s Court of Common Pleas, with the Court ruling for the insurer.

The injured insured settled a lawsuit with the tortfeasor’s insurer for $50,000 in March of 2012, and then filed a UIM claim with his own insurer. The insurer continually investigated the claim, and ultimately valued the insured’s injuries between $50,000 and $75,000. The insurer discounted the previously paid $50,000 amount from the March 2012 settlement in its own settlement offers.

The insurer initially offered $7,500, but increased its offer six times in a span of 10 months through a course of ongoing negotiations, upon receiving new information during that time. The insured refused to settle for any amount less than the $100,000 UIM policy limits. When the insured ultimately produced documentation that his injuries were regressing, and that he may never live pain free again, the insurer offered $100,000, which the insured accepted.

The insured then sued for bad faith, arguing that (1) the insurer had no reasonable basis for its negotiating position at any time during the ten-month period; and (2) the insurer acted in bad faith for its consistent undervaluation of the claim. After a six-day bench trial, the Court found in favor of the insurer.

The Court found that a ten-month claim window is inherently unreasonable, and the evidence suggested that the claim continually had ongoing developments complicating the evaluation process. The Court further found that “[e]ach step of the way, [the insurer] acknowledged and credited new information and responded accordingly,” and low but reasonable settlement offers do not amount to bad faith.

The Court further found that defense counsel instructing its IME expert to delay writing his report was not done to unreasonably prolong negotiations, but to control litigation costs when counsel believed the case was on the eve of settlement. Lastly, the Court found that, when discounting the March 2012 settlement, all of the insurer’s offers fell within “the total valuation for UIM liability.”

Date of Decision: November 2, 2017

Camiolo v. Erie Insurance Exchange, July Term 2015 Case No. 1750, (C.C.P. Phila. Nov. 2, 2017) (Colins, J.)

Our thanks to Dan Cummins of the wonderful Tort Talk Blog for bringing this case to our attention.

DECEMBER 2017 BAD FAITH CASES: APPLYING NEW YORK LAW OR PENNSYLVANIA LAW, MISTAKE DID NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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The tortfeasor struck the insured as he was riding his bicycle. USAA insured the tortfeasor under a policy containing a liability limit of $15,000. The insured held policies with Progressive (providing for $50,000 in UIM benefits) and State Farm (providing for $100,000 in UIM coverage). USAA tendered its policy limits to the insured in an attempt to settle the claim, which the insured accepted. The insured requested consent with Progressive to settle the claim, and while the insured’s attorney contacted State Farm to notify it of the claim, there was no mention made of the settlement offer. A second correspondence to State Farm also failed to notify it of the settlement.

The State Farm policy contained language denying coverage if the insured settles any lawsuit “without our written consent.” State Farm denied coverage because it believed that the USAA policy provided benefits “equal to or exceeding” the benefits provided under the State Farm policy. This mistake “occurred after [the insured] had extinguished State Farm’s right of subrogation, and nothing [the insured] did was the result of State Farm’s initial mistake.” State Farm acknowledged its claim handling mistake, but then denied UIM coverage because the insured “never [gave] notice and sought consent to accept USAA’s tender of liability limits available under the [tortfeasor’s] policy.”

The insured sued for bad faith, and State Farm moved for summary judgment. The court previously decided that New York law controls. The court ruled that the insureds failed to show that (1) the USAA settlement did not prejudice State Farm’s subrogation rights; and (2) State Farm did not waive the insured’s obligation to provide it with advance notice of settlement of the claim.

As to the bad faith claim, the Court held that “State Farm had a valid basis for denying benefits under New York law.” The Court reasoned that State Farm’s initial claims handling error does not rise to the level of bad faith, because the error was not only corrected, but it was “not causally related to the legitimate basis on which it denied the [UIM] claim.” The Court further held that even if Pennsylvania law controlled, nothing in this case would be sufficient to support a bad faith claim. The Court granted State Farm’s motion for summary judgment.

Date of Decision: November 30, 2017

Bennett v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 15-5170, 2017 U.S. Dist. LEXIS 197515 (E.D. Pa. Nov. 30, 2017) (McHugh, J.)

NOVEMBER 2017 BAD FAITH CASES: PLAUSIBLE BAD FAITH CLAIM BASED ON ALLEGED DILATORY CONDUCT AND UNDER-EVALUATION (Middle District)

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This UIM bad faith case was previously dismissed for failure to set out a plausible claim. Given leave to amend, the insured successfully defeated a second motion to dismiss, now adequately alleging bad faith investigation and claim evaluation. The insured alleged the following.

The insured gave notice of his uninsured motorist claim, supplying the insurer with a police report and requesting copies of property damage photos in the insured’s files. One month later the insured provided treatment information and medical records, and a workers’ compensation decision finding the insured was entitled to benefits. Very shortly after that, the insured submitted to an orthopedic IME, with the doctor concluding the insured was in guarded condition and injured in the accident at issue. Three months later, the insurer provided updated treatment records.

Eight months after initial notice the insured provided a “specific and detailed liability and damages package, including hundreds of pages of Plaintiff’s medical records, which went without a response.” One month later the insured asked for a status report, which was promised but was not provided. Another request was made an ignored later that same month, and the following month, the insured gave the insurer permission to obtain investigation records.

Status was again requested, and the adjuster promised to get back to the insured, but did not do so with an actual report on the status. Additional status requests were made without any definitive responses, though the insurer did supply a copy of its investigative file over one year after the notice of claim was first made.

The insured went to the adjuster’s supervisor to ask for a settlement offer, which was made in the amount of $225,000. The existing medical lien and wage loss claims at the time were $122,000 and increasing. The insurer increased its settlement offer and ultimately retained counsel, who arranged for 3 additional medical examinations. These occurred over the following month.

The insured made a policy limits demand, and alleged that the insurer wrote back “setting forth falsities designed to devalue Plaintiff’s claim, including that he delayed in reporting the accident, that Plaintiff had a ‘significant medical history’, that there was only ‘minor property damage’, and that there were ‘other relevant factors’ that Defendant failed to identify.” The insured alleges that a response rebutting these errors was made the next day, “and to request a more reasonable offer in light of Plaintiff’s injuries.”

The court refused to dismiss the statutory bad faith claim, finding these allegations went beyond the bare bones and conclusory averments in the original complaint. Rather, “the Amended Complaint sets forth factual support pertaining to Defendant’s alleged refusal to promptly communicate with Plaintiff, its repeated misrepresentations to Plaintiff, and its failure to comply with various insurance regulations.”

The court then found that the averments could constitute bad faith. “With respect to the claimed lack of prompt communication with Defendant, Plaintiff pleads with specificity numerous instances where he contacted Defendant regarding the status of his uninsured motorist claim and his inquiries were either ignored or dealt with in a cursory, non-responsive manner.”

“Third, the Amended Complaint supplies additional facts regarding Defendant’s bad faith in connection with its initial settlement offer by alleging that, at the time the offer was made, Defendant knew Plaintiff, nearly thirty (30) months after the hit-in-run accident, was still unable to work and undergoing continued medical treatment. As a result, Defendant knew that Plaintiff’s medical and wage loss liens were rapidly increasing. Viewing these facts in the light most favorable to Plaintiff, he alleges plausible bad faith claims.”

“Fourth, the Amended Complaint contains adequate allegations calling into question the sufficiency and timeliness of Defendant’s investigation and evaluation of Plaintiff’s uninsured motorist claim. In particular, despite repeated requests from Plaintiff to evaluate his claim and consider the claim for review, Defendant’s adjuster seemingly ignored those requests and did not get the claim scheduled for review for over two (2) months. These allegations provide further factual support of plausible bad faith conduct.”

“Finally, where, as here, bad faith claims are based on ‘an entire course of alleged dilatory conduct, rather than on a particular incident or denial of a claim, the finder of fact will have to consider the entire course of conduct in order to determine whether the Defendant’s handling of [Plaintiff’s uninsured motorist] claim was conducted in bad faith.’”

Date of Decision: October 10, 2017

Meyers v. Protective Ins. Co., NO. 3:16-CV-01821, 2017 U.S. Dist. LEXIS 166955 (M.D. Pa. Oct. 10, 2017) (Caputo, J.)

OCTOBER 2017 BAD FAITH CASES: BREACH OF DUTY OF GOOD FAITH CLAIM SUBSUMED IN BREACH OF CONTRACT CLAIM; NO BAD FAITH WHERE PARTIES SIMPLY DISAGREE OVER AMOUNT OF RECOVERABLE DAMAGES (Middle District)

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The insured filed a UIM action against her insurer. Initially, the insured settled with the tortfeasor’s insurer for $85,000.

At the beginning of the litigation, the parties disputed the UIM coverage limits. The insured requested and paid for a policy of $50,000 per person and $100,000 per accident, yet some of the insurer’s documents indicated coverage limits of $100,000/$300,000. The insured’s counsel demanded $700,000 and threatened to bring a statutory bad faith claim against the insurer.

The insurer declined to settle, but clarified that the UIM coverage limits for the insured were $100,000 per person or $300,000 per accident. The parties then engaged in several efforts to clarify the coverage limits, and the insured produced requested medical records. The insured contended that material gaps existed in the disclosed medical records, however, and the insurer further attempted to obtain complete records. The insured sued for breach of contract and statutory bad faith.

The insurer successfully brought a partial summary judgment motion on the statutory bad faith claim. Nevertheless, the insured argued that the facts of the case allow her to bring a claim for breach of the common law contractual duty of good faith and fair dealing.

The insurer argued that such a claim is improper, and the Court agreed. “Pennsylvania law does not recognize a separate breach of contractual duty of good faith and fair dealing where said claim is subsumed by a separately pled breach of contract claim.” The Court reasoned that, for first-party claims of insurance benefits, a claim for breach of the duty of good faith and fair dealing merges with a separately pled breach of contract claim, where both claims arise out of the same facts.

Furthermore, the Court stated that the insured’s argument would lose on the merits. The insurer reasonably investigated the claim and offered coverage in excess of premiums charged to the insured. A disagreement between the parties on the amount of recoverable damages does not constituted bad faith. “[The] bad faith claim should be dismissed because the uncontested facts simply do not permit a reasonable inference of bad faith on the part of [the insurer] in this case.”

As such, the Court ruled that the insurer did not breach its contractual duty of good faith in a way that would support an independent contractual bad faith claim.

Date of Decision: October 5, 2017

Ridolfi v. State Farm Mut. Auto. Ins. Co., 2017 U.S. Dist. LEXIS 165013 (M.D. Pa. Oct. 5, 2017) (Carlson, J.)