Archive for the 'PA – UIPA & UCSP' Category

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

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In this Opinion, Eastern District Judge Tucker addresses a wide range of fundamental legal issues in the context of ruling on a motion to dismiss the insured’s 11 count complaint. The complaint includes not only breach of contract and bad faith claims, but tort claims, UIPA claims, declaratory judgment claims, and injunctive relief claims, all arising out of the alleged failure to pay on an insurance claim. The court also addresses a motion to remand after removal.

We do not address all of the issues Judge Tucker discusses, but highlight a few of the key principles adduced in her opinion. Her full opinion can be found here.

  1. Motion to remand denied.  (i) In determining the jurisdictional minimum amount-in-controversy, the court may consider the possibility of punitive damages under the bad faith statute. (ii) Diversity of citizenship can be established by showing the defendant is not a citizen of plaintiff’s state, just as well as by affirmatively showing the state(s) in which defendant is a citizen.

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

  3. Violating the Unfair Insurance Practices Act (UIPA) (i) does not create a private right of action, and (ii) some courts hold it may not be used to establish violation of statutory bad faith.

As the court states: “Plaintiff’s claim is also barred to the extent that it relies on an alleged violation of the Pennsylvania Unfair Insurance Practices Act (‘UIPA’) because the UIPA does not permit private recovery for a violation of its provisions. Plaintiff advances a claim for damages based, in part, on a theory that [the insurer] was negligent having breached duties imposed upon it by the UIPA, 40 Pa Const. Stat. Ann. § 1171.1, et seq. ‘Courts within the Third Circuit and the Commonwealth of Pennsylvania continue to recognize [, however,] that the UIPA does not provide plaintiffs with a private cause of action.’ Tippett, 2015 U.S. Dist. LEXIS 37513, 2015 WL 1345442 at *2 (quoting Weinberg v. Nationwide Cas. and Ins. Co., 949 F. Supp. 2d 588, 598 (E.D. Pa. 2013)) (internal quotation marks omitted). Indeed, in Tippett, the district court not only rejected a plaintiff’s attempt to state a separate claim under the UIPA, but also rejected the plaintiff’s arguments that proof of a UIPA violation might otherwise provide support for the plaintiff’s independent bad faith claim. Id. Plaintiff’s claim under the UIPA in this case is similarly barred.”

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

  2. The Unfair Trade Practices and Consumer Protection Law applies to the sale of insurance policies, not claims handling.

As the court states: “While Plaintiff rightly notes that the ‘UTPCPL creates a private right of action in persons upon whom unfair methods of competition and/or unfair or deceptive acts or practices are employed and who, as a result, sustain an ascertainable loss,’ … Plaintiff fails to note that ‘the UTPCPL applies to the sale of an insurance policy [but] does not apply to the handling of insurance claims.’” Thus, as the alleged “wrongful conduct under the UTPCPL relate[s] solely to [the insurer’s] actions after the execution of the homeowner’s insurance policy,” the UTPCPL claim was dismissed.

  1. Declaratory judgment count not permitted in light of breach of contract claim.

The court states: “Federal courts routinely dismiss actions seeking declaratory judgment that, if entered, would be duplicative of a judgment on an underlying breach of contract claim.” Judge Tucker cites case law for the propositions that “granting a defendant’s motion to dismiss a plaintiff’s independent cause of action for declaratory judgment because the claim for declaratory judgment was duplicative of an underlying breach of contract claim,” and “dismissing a plaintiff’s duplicative claim for declaratory judgment in the face of an underlying breach of insurance contract claim and observing that ‘pursuant to discretionary declaratory judgment authority, district courts have dismissed declaratory judgment claims at the motion to dismiss stage when they duplicate breach of contract claims within the same action.’”

  1. The insured pleads a plausible bad faith claim.

Judge Tucker highlighted the following allegations in ruling that the bad faith claim could proceed:

i the insurer “attempted to close her insurance claim despite never having sent an adjuster or inspector to evaluate the damage to the Property.”;

ii the insurer “engaged in intentional ‘telephone tag’ to delay and deny Plaintiff coverage under the homeowner’s insurance policy.”;

iii. the insurer never “scheduled an inspection of the Property or otherwise [took] any action to deny or grant coverage under the homeowner’s insurance policy.”

Thus, at the end of the day, after reviewing all of the claims and motion to remand, the insured was allowed to proceed on the breach of contract and bad faith claims.

Date of Decision: August 13, 2019

Neri v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-0355, 2019 U.S. Dist. LEXIS 136820 (E.D. Pa. Aug. 13, 2019) (Tucker, J.)

IS THE UNFAIR INSURANCE PRACTICES ACT (UIPA) RELEVANT TO STATUTORY BAD FAITH CLAIMS, OR NOT?

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Three April 2019 decisions out of Pennsylvania’s Eastern District bring up the ongoing issue of whether alleged Unfair Insurance Practices Act (UIPA) violations may be used in any manner to establish statutory bad faith claims under 42 Pa.C.S. § 8371. We also discussed this issue in a February 2019 post that can be found here.

Case holding UIPA violations may be used to prove bad faith

In the April 3, 2019 Blease decision, the court relied heavily on the UIPA in finding the insured adequately pleaded a statutory bad faith case. That opinion is summarized here.

In particular, the court looked to the UIPA code sections governing 45-day status notices when the claim is not resolved within 30 days. Relying on Pennsylvania Superior Court precedent, the Blease Court stated: “This Court further notes that a plaintiff seeking damages for an insurer’s bad faith conduct under 42 Pa. Cons. Stat. § 8371 may attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if they do not independently provide for private causes of action.”

It is not wholly clear whether this means a UIPA violation may be used as evidence of a statutory bad faith claim, or whether the violation constitutes definitive proof, in and of itself, to establish at least the first prong of the Terletsky/Rancosky bad faith test (unreasonableness).

Case holding UIPA provides an evidentiary yardstick for bad faith cases

On April 23, 2019, another Eastern District Court issued a detailed opinion granting partial summary judgment to the insured, by holding that the insurer acted in bad faith during a very specific period of time. The court left other issues of bad faith, and other time periods, to the jury.

In Shawnee Tabernacle Church v. GuideOne, the court carried out a close factual analysis showing no dispute of material fact that the claim adjusters acted unreasonably and in bad faith in delaying the claim handling process over a period of many months, where there was no excuse for denying coverage or promptly responding to the insured. Thus, the court stated: “As a matter of law, I find that [the insurer] acted in bad faith when it abandoned the investigation and resolution of Plaintiffs’ claim between June 16, 2015 and October 5, 2015, and then further delayed a determination of coverage until December 11, 2015, despite the fact that it possessed all relevant information about the vacancy provision once the EUOs were complete.”

Following Rancosky, the court observed that the insured need not prove ill-will or self-interest to establish statutory bad faith. Moreover, relying on Pennsylvania Superior Court precedent, the court found that “bad faith may include ‘lack of good faith investigation into fact[s], and failure to communicate with the claimant,’ both of which certainly occurred in this case between June and December. … ‘Similarly, a delay in investigation of a claim may constitute bad faith where it involves [i]nexcusable periods of inactivity, unreasonable assumptions, and inadequate communication.’ Here, [the insurer] has offered no excuse for the inactivity with respect to coverage between June 16 and December 11, and it engaged in little to no communication with Plaintiffs about the coverage issue during the same period.”

Getting to the UIPA, again citing Superior Court precedent, the court found that “[t]he lack of communication is a violation of Section 146.7(c)(1) of Title 31 of the Pennsylvania Code, which requires a report to the insured every 45 days explaining the reasons for delay in resolving a claim. Although such a violation does not establish bad faith per se, it constitutes relevant evidence. But Section 146.7(c)(1) has relevance beyond the obligation to communicate. By specifying the frequency with which a carrier must report to its insured, it provides an objective yardstick recognized by the Pennsylvania Insurance Department as to what constitutes a reasonable interval within which a carrier should be able to address the merits of a claim. From mid-June through mid-December, four full intervals elapsed without resolution or explanation, even as [the insured] faced financial peril. This further supports the conclusion that [the insurer’s] conduct was reckless during this period and constituted bad faith.”

UIPA violations cannot be used as evidence of statutory bad faith

By contrast, also on April 23, 2019, a third Eastern District Judge appears to deny any role for the UIPA in determining a statutory bad faith claim. The decision in Horn v. Minnesota Life Insurance Company can be found here. To quote that decision:

At Count IV, Plaintiff asserts that the handling of her claim under the Policy constituted bad faith, thus, entitling her to damages under 42 Pa. Cons. Stat. § 8371. Plaintiff contends that [the insurer] acted in bad faith by, inter alia, denying her claim, engaging in misleading marketing practices, failing to communicate regularly about its investigation, and acting in a manner prohibited by the Unfair Insurance Practices Act (“UIPA”), 40 Pa. Stat. § 1171.1 et seq. “To prevail on a bad faith claim, the insured must prove two elements: ‘(1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.'” U.S. Fire Ins. Co. v. Kelman Bottles, 538 F. App’x 175, 182 (3d Cir. 2013) (quoting Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005)). The insured must prove these elements by clear and convincing evidence, and “the insured’s burden in opposing a summary judgment motion brought by the insurer is commensurately high.” Babayan, 430 F.3d at 137 (internal quotations omitted). Here, this Court finds that [the insurer] had a reasonable basis for denying benefits; namely, [the insured’s] premium had not been paid, and the grace period described in the Policy had expired at the time of [the insured’s] death. As such, Plaintiff cannot prove the first element of her bad faith claim, and summary judgment is granted with respect to that claim.

Notwithstanding the foregoing, Plaintiff argues that Defendants’ bad faith is evidenced by their alleged violation of the UTPCPL and “insurance regulations” such as the UIPA and the Unfair Claims Settlement Practices regulations (“UCSP”), 31 Pa. Code §§ 146.1-146.10. However, Plaintiff is mistaken as these claims fail as a matter of law. See Leach v. Nw. Mut. Ins. Co., 262 F. App’x 455, 459 (3d Cir. 2008) (holding that “insofar as [plaintiff’s] claim for bad faith was based upon an alleged violation of the UIPA, it failed as a matter of law.”); Dinner v. U.S. Auto. Ass’n Cas. Ins. Co., 29 F. App’x 823, 827 (3d Cir. 2002); (“it is apparent from a comparison of bad faith standard [that the Pennsylvania Superior Court] adopted with the provisions of the UIPA and the UCSP that much of the conduct proscribed by the latter is wholly irrelevant” to the bad faith analysis); Watson v. Nationwide Mut. Ins. Co., 2011 U.S. Dist. LEXIS 118873, 2011 WL 4894073, at *4 (E.D. Pa. Oct. 12, 2011) (observing that, since the current bad faith standard was established in Terletsky, “courts in the [Third] circuit have . . . refused to consider UIPA violations as evidence of bad faith.”). Therefore, summary judgment is granted with respect to Plaintiff’s claim of bad faith.

A link to other UIPA cases summarized on this Blog can be found here.

Copies of these April 2019 opinions can be found here:

Blease v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3893, 2019 U.S. Dist. LEXIS 57145 (E.D. Pa. April 3, 2019) (Jones, II, J.)

Shawnee Tabernacle Church v. GuideOne Insurance, U. S. District Court Middle District of Pennsylvania CIVIL ACTION No. 16-5728, 2019 U.S. Dist. LEXIS 68442 (E.D. Pa. April 23, 2019) (McHugh, J.)

Horn v. Minnesota Life Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-238, 2019 U.S. Dist. LEXIS 69016 (E.D. Pa. April 23, 2019) (Quiñones Alejandro, J.)

COURT RELIES ON DELAYS IN FACT, AND DELAYS AS DEFINED IN THE UNFAIR INSURANCE PRACTICES ACT (UIPA), IN ALLOWING BAD FAITH CASE TO PROCEED (Philadelphia Federal)

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The common theme in today’s two posts is the plaintiffs’ adequately pleading bad faith in federal court.

In this first post, the carrier moved to dismiss the uninsured motorist bad faith claim. The insured alleged bad faith for the carrier’s failing to negotiate or offer adequate compensation for damage claims submitted, with an apparent policy limits ($300,000) demand in place.

The court found the complaint adequately pleaded a bad faith claim, focusing on delays in the claims handling process. Significantly, some of the facts the court relied upon were framed expressly as violations of the Unfair Insurance Practices Act (UIPA). [Note: Compare this decision to the Eastern District Horn case, decided three weeks later, where the court stated “that, since the current bad faith standard was established in Terletsky ‘courts in the [Third] circuit have … refused to consider UIPA violations as evidence of bad faith.'” The Terletsky standards have since been adopted by Pennsylvania’s Supreme Court in Rancosky.]

The following facts were considered sufficient to support a plausible claim: “Defendant unduly delayed the investigative insurance process, which is aptly illustrated by his allegations that: Defendant became aware of Plaintiff’s claim ‘nearly immediately’ after the accident; Defendant failed to conduct a Statement Under Oath until January 5, 2018—nearly 18 months after the accident; Defendant did not perform an Independent Medical Evaluation for the case until May 9, 2018—nearly 23 months after the accident; and, Defendant did not make a first claim offer until two years and nine months after the accident.”

“With that said, the statutory violation would not be found in the delay per se, but rather in Defendant’s alleged failure to send any periodic, statutorily mandated communications, in writing, explaining such delay, and informing Plaintiff of when a decision on the claim might be expected, in violation of 31 Pa. Code § 146.6. Beyond the alleged delay in the investigation of the disputed claim, Plaintiff further pleads Defendant’s complete failure to provide the required written notices in connection with Defendant’s acceptance (or denial) of the disputed insurance claim until 17 months after the accident, in violation of 31 Pa. Code § 146.7(c)(1).” [Note: The court’s footnotes citing these two codes sections are quoted at length below]

“The consistent lack of timely notices, if ultimately proven true, would be relevant in determining the nature of Defendant’s dealings with Plaintiff, particularly so when considering Plaintiff’s averment that he did not receive a settlement offer until two years and nine days after the claimed accident, and for $285,000.00 below [the $300,000.00] policy limits.”

“This Court further notes that a plaintiff seeking damages for an insurer’s bad faith conduct under 42 Pa. Cons. Stat. § 8371 may attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if they do not independently provide for private causes of action. See Berg v. Nationwide Mut. Ins. Co., 2012 PA Super 88, 44 A.3d 1164, 1174 (Pa. Super. 2012).”

“This Court finds that the extended duration, coupled with the alleged statutory violations, speak to a plausible ‘reckless disregard’ by Defendant as to its duties relating to good faith and fair dealing.”

Date of Decision: April 3, 2019

Blease v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3893, 2019 U.S. Dist. LEXIS 57145 (E.D. Pa. April 3, 2019) (Jones, II, J.)

Footnote 5 states: Section 146.6 sets forth appropriate standards for prompt investigations of insurance claims, providing that “[e]very insurer shall complete investigation of a claim within 30 days after notification of claim, unless the investigation cannot reasonably be completed within the time. If the investigation cannot be completed within 30 days, and every 45 days thereafter, the insurer shall provide the claimant with a reasonable written explanation for the delay and state when a decision on the claim may be expected.” 31 Pa. Code § 146.6.

Footnote 6 states: 31 Pa. Code § 146.7(c)(1) sets forth standards for prompt, fair, and equitable settlements applicable to insurers: “If the insurer needs more time to determine whether a first-party claim should be accepted or denied, it shall so notify the first-party claimant within 15 working days after receipt of the proofs of loss giving the reasons more time is needed. If the investigation remains incomplete, the insurer shall, 30 days from the date of the initial notification and every 45 days thereafter, send to the claimant a letter setting forth the reasons additional time is needed for investigation and state when a decision on the claim may be expected.” 31 Pa. Code § 146.7(c)(1).

UIPA ALLEGATIONS PERMITTED IN PLEADING STATUTORY BAD FAITH (Philadelphia Federal)

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Plaintiff pleaded violations of six sections of the Unfair Insurance Practices Act (UIPA) in support of its statutory bad faith claims. The plaintiff specifically prefaced its recitation of these UIPA violations as being “evidence of bad faith”, and did not plead them as separately stated causes of action. The insurer moved to strike the UIPA averments as prejudicial, “confusing and immaterial”, and because proving a UIPA violation is irrelevant to proving a statutory bad faith claim.

The court denied the motion.

The court found that the alleged UIPA violations amounted to allegations that the insurer “made deceptive, misleading or untrue statements through advertising, misrepresented facts relating to contract provisions, refused to pay claims without conducting reasonable investigation, did not good faith attempts to effectuate equitable settlements, compelled persons to institute litigation to recover amounts due, and attempted to settle claims for less than the amount due.” It held these allegations were relevant to the bad faith claim. The court cited three Eastern District cases, from 1991, 1992, and 1993, in support of its conclusion that UIPA violations are permitted to support statutory bad faith claims.

Note: The case law is not uniform in accepting UIPA violations to support statutory bad faith cases.

(1) Some opinions rule that UIPA allegations are never relevant and must be stricken or dismissed. Under this theory, once the Superior Court’s Terletsky bad faith standards were adopted in 1994, it became unnecessary to reference the UIPA or the Unfair Claim Settlement Practices Regulations to provide standards for determining statutory bad faith. See the June 2018 Kunsman case, summarized here. (In its 2017 Rancosky decision, Pennsylvania’s Supreme Court adopted the Terletsky standards for determining statutory bad faith.)

(2) Other courts find UIPA violations can support statutory bad faith claims, but with some nuances as to what is permitted.

Some simply find UIPA violations relevant, as in today’s case described above. See the June 2014 Militello case, summarized here.

Some cases add that UIPA violations cannot constitute bad faith per se, however, such violations can be considered in evaluating bad faith. See the April 2017 Ridolfi case, summarized here.

This goes to the idea that a UIPA violation might be evidence of bad faith, while not itself constituting bad faith. See the 2017 Jack case, summarized here. As pointed out above, the plaintiff in the present case specifically prefaced its UIPA allegations with the qualification that the recited UIPA violations were “evidence of bad faith”.

Some courts, however, will dismiss UIPA allegations that simply recite the UIPA’s statutory language in tandem with conclusory language that violating these UIPA provisions constitutes bad faith. These cases require the plaintiff to additionally plead independent facts constituting the conduct that violates the UIPA and support a finding of statutory bad faith. See the October 2018 Higman case, summarized here.

A link to UIPA and Unfair Claim Settlement Practices Regulations related case summaries on this Blog can be found here.

Date of Decision: January 31, 2019

Penn-Dion Corp. v. Great American Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-4634, 2019 U.S. Dist. LEXIS 15334 (E.D. Pa. Jan. 31, 2019) (Slomsky, J.)

 

OCTOBER 2018 BAD FAITH CASES: SUIT BROUGHT BEFORE INVESTIGATION COULD BE COMPLETED AND CLAIM COULD BE PROPERLY NEGOTIATED, SO NO BAD FAITH (Western District)

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In this UIM case, the court separated out the actual facts pleaded from the complaint’s conclusory legal allegations, to determine if those facts could plausibly support the legal conclusions. They could not.

After a few months of the insurer’s involvement with the plaintiff’s injury and treatment, the matter was not resolved. The insurer did pay certain medical benefits, but not all of the UIM injury claims. It took the position that the scope of injury investigation was ongoing, without denying the insured’s claims. The insured sued for breach of contract and bad faith, and the insurer moved to dismiss.

The court observed that it must first accept all well-pleaded facts as true, while disregarding legal conclusions, to determine if a plausible claim is pleaded. A court may consider the allegations in the complaint, attached exhibits, matters of public record, and the contents of documents identified in the complaint.

The court stated that an insurer has a right to investigate and evaluate UIM claims, and need not immediately accede to the insured’s policy limits demand. Delay is relevant, but even if lengthy, must be measured under the circumstances of each case to determine whether it is unreasonable and in bad faith.

In this case, the insurer responded to the insured’s demand package within 3 months, and suit was filed 2 months later. This did not indicate bad faith. Nor were there facts to show an unreasonable delay in payment. The court contrasted this 5-month period with cases where the delays went on for 10 months and 2 years.

The court granted the motion to dismiss, because the insurer “has not had a substantial amount of time to investigate the claim, unlike the insurer in the cases Plaintiff relies on; and (2) has not denied the claim, but has indicated it needs to further investigate.”

The court also found the following allegations to be legal conclusions, which it need not consider as setting out a plausible claim unless supported by independent factual allegations:

  1. Refused to engage in good faith settlement discussions with Plaintiff;

  2. Refused to offer an amount in settlement of Plaintiff’s UIM claim that was commensurate with the gravity of his injuries and damages;

  3. Failed to engage in reasonable and proper settlement practices or protect the interests of its insured;

  4. Making an unreasonably low/no settlement offer;

  5. Failing to act in good faith to effectuate a prompt, fair, and equitable settlement of Plaintiff’s claim in which the company’s liability was clear;

  6. Violated the Unfair Insurance Practices Act, 40 P.S. § 1171.5(a)(10);

  7. Failing and refusing to properly evaluate Plaintiff’s claim for settlement purposes;

  8. Failing to act in good faith and fair dealing in the handling of Plaintiff’s claim for UIM benefits; and

  9. Refusing to pay Plaintiff the amount he was legally entitled to recover from a driver of an underinsured vehicle.

The court rejected the argument that the complaint’s factual allegations redeemed this conclusory language. The court looked at the factual allegations closely, and concluded that the neither the insured or insurer could have known the extent of the insured’s injuries for some period of time after treatment. Thus, the insurer did not refuse to pay a known claim, and further investigation was reasonable.

While a court is obligated to draw reasonable inferences from the facts pleaded in favor of the insured, it is “not required to accept allegations that are belied by logic.” In sum, the alleged facts did not flesh out the legal conclusions that the insurer failed to properly evaluate or handle the claims.

The court also found the insured chose to file suit before the insurer fully investigated the claim, or even issued a denial. This choice precluded settlement discussions or offers. Thus, these facts undermined the legal conclusions of failure to engage in proper settlement practices and negotiations.

Finally, the court found the bare allegation that the insurer violated the Unfair Insurance Practices act was “not a factual allegation of bad faith conduct, but rather, an unsupported conclusion of law as to a claim not pled, and is completely lacking any factual support.”

The complaint was dismissed without prejudice, to allow plaintiff to set out sufficient facts to state a plausible claim (if possible).

Date of Decision: October 22, 2018

Higman v. State Farm Mutual Automobile Insurance Cos., U. S. District Court Western District of Pennsylvania Civil Action No. 2:18-cv-00662, 2018 U.S. Dist. LEXIS 180282 (W.D. Pa. Oct. 22, 2018) (Lenihan, M.J.)

JUNE 2018 BAD FAITH CASES: (1) UIPA VIOLATIONS IRRELEVANT TO PROVING BAD FAITH AND MUST BE STRICKEN; BUT (2) FACTS DETAILING INSURER’S CONDUCT DENYING CLAIM, INCLUDING FAILURE TO ABIDE BY INDUSTRY STANDARDS, MAKE OUT PLAUSIBLE BAD FAITH CASE (Philadelphia Federal )

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In this case, the court permitted the bad faith claim to proceed, however it struck all references to the Unfair Insurance Practices Act (UIPA) as “irrelevant” in determining violations of Pennsylvania’s Bad Faith Statute.

BAD FAITH PLAUSIBLY PLEADED

The insured alleged she “suffered ‘sudden and accidental direct physical loss’ to her insured premises.” She alleged the insurer “determined [the insured] suffered loss to property covered under the policy but did not completely indemnify [the insured] for the loss.”

She allegedly suffered water damage containing human waste. The complaint asserted that the public adjuster told the carrier it was not handling the claim according to the Institute of Inspection Clearing and Restoration Certification (IICRC) protocols, which required removing all porous material.

The insurer’s repair estimate did not include payment for removal and replacement of all porous material in contact with the contaminated water.

The insured alleged the insurer “knew that its estimate of repairs and ultimate payment did not comply with the insurance and construction industries for damage caused by contaminated water,” and that the insurer grossly underestimated the damage and grossly underpaid the claim. Additionally, she claimed the insurer “engaged in a pattern of behavior intended to delay and frustrate the adjustment process.”

To establish statutory bad faith, an insured must prove “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” The insurer sought dismissal, citing earlier federal case law on inadequately pleading Pennsylvania bad faith claims. The court found, however, that the insured’s allegations were not purely conclusory legal statements made without factual support, lacking any description of the insurer’s behavior. Moreover, the court observed that an insured need not “prove her case at the pleading stage.”

The court concluded “the facts alleged by [the insured] . . . are sufficient to make out a claim for bad faith as the facts address the reasonableness of [insurer’s] actions.” The “Complaint contained numerous explanations and descriptions of the alleged bad faith conduct,” including, “notice of contaminated waste; violation of IICRC protocols; and knowledge that estimated repairs and ultimate payment was not in compliance with IICRC.” The insured set out sufficient facts to make out a plausible right to relief.

UIPA VIOLATIONS IRRELEVANT TO PROVING BAD FAITH CLAIMS

The court next considered the insured’s attempt to plead UIPA violations as evidence of bad faith. The court summarized the history of such efforts. It concluded that prior to Terletsky’s establishing the two-part bad faith test —recently adopted by the Pennsylvania Supreme Court — courts did look to the UIPA and Unfair Claim Settlement Practices (UCSP) regulations as bases to prove bad faith. However, once the two part bad faith test (quoted above), became the law, “[T]his two-pronged test effectively replaced the court’s analysis of UIPA or UCSP to determine bad faith.” Thus, all UIPA references in the complaint were stricken.

[Note: There are courts that will consider UIPA violations in evaluating statutory bad faith claims, as well as those recognizing UIPA violations do not themselves constitute bad faith.]

Date of Decision: June 21, 2018

Kunsman v. Metro. Direct Property & Casualty Insurance Co., U. S. District Court, Eastern District of Pennsylvania, NO. 17-4619, 2018 U.S. Dist. LEXIS 104621 (E.D. Pa. June 21, 2018) (Schmehl, J.)

 

 

BACK TO BASICS: SO WHAT IS BAD FAITH?

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We’ve recently posted summaries of five federal district court bad faith opinions, issued between May 15 and May 23, 2018. These opinions all include some discussion of what kind of conduct could constitute the basis for statutory bad faith under Pennsylvania law.

There is no question that denying benefits due may form the basis of a bad faith claim. Similarly, the strong consensus is that a delay in paying benefits due may lead to actionable bad faith claims. The interesting question is whether bad faith can exist when no benefit is due.

Take this example. The insured sues for breach of contract and bad faith. The bad faith claim is based on two theories: (1) the insurer unreasonably denied coverage based on a misinterpreted policy exclusion, and (2) unreasonable claim handling. The court finds the exclusion applies and dismisses the contract claim, as well as the bad faith claim based on benefit denial. Can the bad faith claim still proceed solely on the basis of poor claim handling, absent any indemnification or defense obligation? Or, in those circumstances, should any claim handling misconduct solely be subject to review by the Insurance Commissioner under the Unfair Insurance Practices Act or Unfair Claims Settlement Practices regulations?

We have posted on this subject in the past, but case law indicates that some courts will find actionable statutory bad faith for poor claim handling even in the absence of any benefit being due.

These five very recent cases, issued within 8 days of each other, appear to show that the range of bad faith standards currently used by courts includes viable bad faith actions where no benefit is due, along with claims for denial or delay in providing benefits. Whether or not these cases be reconciled into a single theory will have to be clarified by Pennsylvania’s Supreme Court, though it has been argued the Supreme Court already did so in the Toy case.

Here are links to our summaries of these five cases.

In this case, a Middle District Judge found a section 8371 claim handling bad faith case viable, even though no coverage was due.

In this case, an Eastern District Judge found no bad faith because no benefit had been denied.

In this case, another Middle District Judge found there could be no bad faith where there was no coverage due.

In these two opinions, issued on consecutive days by another Eastern District Judge, the court set out criteria for actionable statutory bad faith based on either (1) benefit denial (2) poor claims handling or (3) unreasonable delay.

 

 

OCTOBER 2017 BAD FAITH CASES: PLEADING UIPA VIOLATIONS NOT FATAL WHERE THEY ARE NOT THE SOLE BASIS FOR STATUTORY BAD FAITH CLAIMS; COMPENSATORY AND CONSEQUENTIAL DAMAGES NOT WITHIN BAD FAITH STATUTE (Middle District of Pennsylvania)

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This bad faith case asserting common law and statutory bad faith, as well as regulatory violations, alleged the following.

The insured owned property covered under a homeowner’s insurance policy. In June of 2014, the insured entered into a listing contract with a real estate agent for the sale of the property. The insured relocated out of state two months later. In October of 2014, the insured accepted an offer to sell the property for $275,000. Before the sale, the real estate agent discovered that water pipes had burst, causing significant damage.

It was alleged that an adjuster for the insurer estimated the damage at $80,000, and suggested that the insured may have sabotaged the property. The insured asserted there was no reason to sabotage the property because the $275,000 sale price far exceeded the amount left on the mortgage, and the buyer remained willing to purchase the property so long as repairs were made. The insurer wrote to the insured regarding coverage obligations and requesting further documentation. The insured timely responded to insurer’s request and provided the requested information.

The insurer referred the claim to its fraud unit. The insured provided requested information to the fraud unit, and sat for multiple examinations under oath. The insurer also requested phone records, financial information, and utility records.

The sale of the property fell through, and the property entered foreclosure proceedings. Counsel for the insured requested documentation from the insurer. The insurer allegedly failed to provide all of the requested documentation, but maintained its request for the insured’s cell phone records and financial information.

The insurer ultimately forwarded benefits totaling $110,510.20 to the insured. However, the insured estimated her damages at $155,785, and filed suit for breach of contract and bad faith, among other claims.

The insurer responded by filing a motion to dismiss the insured’s breach of contract claim. The Court refused to dismiss this claim, holding that the complaint “sufficiently sets forth the damages [the insured] purportedly suffered as a result of [the insurer’s] conduct.”

The insurer also filed a motion to strike the insured’s allegations of violations of the Unfair Insurance Practices Act (“UIPA”) and of Unfair Claims Settlement Practices Regulations (“UCSP”), arguing that these alleged violations cannot serve as the basis for private statutory bad faith claims. The Court stated that violations of the UIPA or UCSP are not per se violations of the bad faith statute, and added that the “Third Circuit and this Court have held that alleged violations of the Unfair Insurance Practices Act do not, in and of themselves, constitute bad faith….”

The Court refused to strike those allegations, however, because the insured’s “bad faith claim does not rest solely on alleged UIPA or UCSP violations.”

The insured’s breach of contract claim included an alleged a breach of the implied covenant of good faith and fair dealing. The insurer also moved to strike this claim, arguing that the breach of contract claim subsumed it. The Court ruled that “as [the insured] has not pled a separate breach of contract claim, [the reference] may properly remain in the Complaint.”

Lastly, the Court struck the insured’s claims for compensatory and consequential damages, holding that such damages are not available under the Pennsylvania bad faith statute.

Date of Decision: September 19, 2017

Pratts v. State Farm Fire & Cas. Co., No. 16-2385, 2017 U.S. Dist. LEXIS 151650 (M.D. Pa. Sept. 19, 2017) (Caputo, J.)

MAY 2017 BAD FAITH CASES: DELAY ALONE IS NOT SYNONYMOUS WITH BAD FAITH; SWORN STATEMENT NOT PROHIBITED SIMPLY BECAUSE OF PRIOR DEPOSITION IN UNDERLYING CASE; TECHNICAL REGULATORY VIOLATIONS NOT BAD FAITH PER SE (Middle District)

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A UIM claimant alleged bad faith based upon: “misstatement of … coverage limits, alleged delay in claims processing, insistence upon a sworn statement under oath …, persistence in collecting medical records and failure to comply with insurances regulations regarding periodic status notices to insureds as evidence of bad faith.”

The insurer wanted summary judgment on the bad faith claim, which the court granted, stating: “that, while both parties indulged in occasional missteps in the process of reviewing and litigating this claim, the essentially uncontested evidence does not meet the demanding, precise and exacting legal standards prescribed under Pennsylvania law for a bad faith insurance processing claim.”

The court observed the “well-established” principle “that it is not bad faith for an insurance company to ‘conduct a thorough investigation into a questionable claim.’” Insurers can be successful in defending against bad faith claim by showing that there were “red flags” warranting further investigation.

Thus, delay alone does not equate to bad faith: “the mere passage of time does not define bad faith. Rather, an inference of bad faith only arises when time passes as part of a pattern of knowing or reckless delay in processing a meritorious insurance claim.”

The court observed that insurers in UIM cases need to deal with the claim against the underlying tortfeasor, which in this case went on for a number of years. Further, the insured did not place the insurer on notice of the UIM claim until nearly 5 years after the accident. Once the claim was made, the parties engaged in an ongoing process to attempt to resolve the dispute.

Further, though the carrier did originally misstate the scope of coverage, this was an understandable mistake and was corrected, resulting only in a brief delay.

In addition, there was nothing untoward in seeking a sworn statement in light of multiple circumstances, including, e.g., incomplete medical information. The court did not accept the argument that no sworn statement was needed because the insured had been deposed two years earlier in the underlying litigation. Further, as stated, each party engaged in some missteps in exchanging medical information, and the insurer was justified in seeking further medical information after having obtained some records.

Next, in evaluating the claim the underlying tortfeasor only settled years after the accident, and for a sum less than policy limits; a factor going to the UIM insurer’s ability to evaluate the claim. The insured had originally demanded over double the UIM policy limits to settle, and then policy limits.

The final argument involved alleged violations of Pennsylvania’s Unfair Claims Settlement Practices Act and the Unfair Insurance Practices Act, specifically concerning the regulatory requirement to provide 45 day updates on the status of insurance claims.

The court recognized that a “violation of these insurance rules can be considered when examining a bad faith claim under §8371.” The court then went on: “However, it is also clear beyond peradventure ‘that a violation of the UIPA or the UCSP is not a per se violation of the bad faith standard.’”

Applying these principles, the court concluded: “This case aptly illustrates why technical violations of these state insurance regulations cannot be equated with bad faith. The record before us amply reveals active, extensive and on-going communications …. Our review of the substance of these multiple communications … reveals that even when the communications are viewed in a light most favorable to [the insured], these communications do not support a claim of bad faith shown by clear and convincing evidence.”

The court then observed: “Given that the communications, in their substance, do not allow for a finding of bad faith here, it would be anomalous to conclude that the fact that the communications did not meet the technical frequency requirements mandated by insurance regulations, standing alone, established a bad faith claim in this case.”

Date of Decision: April 10, 2017

Ridolfi v. State Farm Mut. Auto. Ins. Co., No. 15-859, 2017 U.S. Dist. LEXIS 54267 (M.D. Pa. Apr. 10, 2017) (Carlson, M.J.)

 

MARCH 2017 BAD FAITH CASES: TYING PAYMENT TO RELEASE OF BAD FAITH CLAIMS IS ONLY BAD FAITH IF THAT REQUEST IS PART OF INSURER’S REGULAR PRACTICE; REFUSAL TO EXTEND ONE-YEAR SUIT PERIOD WAS NOT BAD FAITH (Philadelphia Federal)

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The homeowner’s policy at issue provided a one-year period in which to bring suit. Some repair work was identified and paid, but the repairs needed on other sections of the home would go beyond the one-year period. The insured attempted to negotiate an extension or tolling of the one-year period, pending the repairs. As the one-year term was approaching, the insured filed a writ of summons to toll the period and the insurer filed a Rule to File a Complaint.

In response to the insured’s counsel continuing to seek a tolling agreement, the insurer’s “counsel responded that Plaintiff would have to release any bad faith claim … in order for [the insurer] to consider entering into a tolling agreement.” “Plaintiff’s counsel offered to waive any claims of past bad faith in exchange for a tolling agreement which would give Plaintiff an additional year to complete any necessary repairs.” In response, the insurer “sent a status letter reiterating the one-year suit limitation provision and did not respond to Plaintiff’s offer.” Plaintiff then filed a breach of contract and bad faith complaint.

The focus of the bad faith claim was the alleged unreasonable refusal to enter a tolling agreement. However, the pleading did not meet Twombly/Iqbal standards, and was dismissed without prejudice. The most the complaint said was that the insured had a homeowner’s policy, suffered a covered loss for which he received some benefits, and was refused an extension of the one-year suit period. The complaint did not offer any basis from which the court could conclude that the refusal to extend was not made on a reasonable basis.

More interestingly, the court then addressed the issue of the insurer’s tying a release of bad faith claims to its entering a tolling agreement. The insured argued that this violated Pennsylvania’s Unfair Insurance Practices Act (UIPA). The court accepted the Superior Court of Pennsylvania’s view that UIPA violations can be evidence of bad faith.

The regulation at issue “forbids insurers from ‘request[ing] a first-party claimant to sign a release that extends beyond the subject matter that gave rise to the claim payment,’ where it is shown that the insurer makes such requests ‘with a frequency that indicates a general business practice.’” Even though plaintiff alleged that the insurer conditioned its agreement on releasing bad faith claims, he “alleges no facts showing that [the insurer] had a regular practice of forcing insureds to release claims in this way….” Thus, the court could not “consider the potential violation of the regulation as a factor swaying against dismissal.”

Date of Decision: March 3, 2017

Jack v. State Farm Fire & Cas. Co., No. 16-5771, 2017 U.S. Dist. LEXIS 30136 (E.D. Pa. Mar. 3, 2017) (Baylson, J.)