COURT (1) DISMISSES BAD FAITH CLAIM THAT DOES NOT ALLEGE FACTS SHOWING “HOW” THE PUTATIVE BAD FAITH OCCURRED, AND (2) OBSERVES THE INSURED FILED SUIT, WITHOUT NEGOTIATING OR COMMUNICATING WITH THE INSURER, AFTER THE INSURER MADE AN INITIAL OFFER ONLY ONE MONTH PRIOR TO SUIT (Philadelphia Federal)

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We first note that Eastern District Judge Kearney typically writes informative introductions as guides to his opinions, with summaries of the salient conclusions. We quote his introduction to this UIM bad faith case at length (in addition to summarizing the opinion):

“A car insurer’s verbal offer to pay approximately half of its insured’s alleged medical bills as underinsured motorist benefits may allow the insured to sue for breach of the insurance contract. But the verbal offer does not automatically equal bad faith under Pennsylvania’s insurance statutes. The insured must plead much more than her insurer did not offer her all she requested. The insured deciding to sue the insurer for statutory bad faith a month after the verbal offer instead of responding to the offer, opening discussions, or negotiating the import of submitted medical data may sue to obtain negotiating leverage. The tactic must include a complaint with specific facts or we will summarily dismiss this bad faith claim supported by conclusions rather than facts. Absent pleading more than a breach of contract, we today grant the insurer’s partial motion to dismiss the insured’s bad faith and punitive damages claims.”

The insured settled with the other driver, and submitted her medical bills to the insurer, seeking UIM coverage. The medical bills were approximately $14,000 and the insurer offered $7,000 in UIM benefits on February 7, 2019. Less than one month later, the insured sued for breach of contract and statutory bad faith.

Judge Kearney applied the Third Circuit’s decision in Smith v. State Farm in coming to his decision. Smith emphasizes that bad faith cases are fact specific, and must look at the insurer’s conduct vis-à-vis the insured for the matter at issue. Conclusory statements unsupported by factual allegations cannot survive a motion to dismiss.

First, Judge Kearney found the following allegations conclusory:

“[i]) failed to investigate and evaluate her claim in an objective and fair manner,

[ii] used invasive and improper investigative tactics,

[iii] engaged in dilatory claim’s handling,

[iv] failed to promptly offer payment,

[v] failed to provide contracted-for insurance coverage

[vi] subordinated her interest to its financial interest,

[vii] violated its fiduciary duty owed to her,

[viii] compelled her to sue,

[ix] caused her to spend money on litigation and endure anxiety associated with litigation.”

Beyond these patently conclusory allegations, the court further found that the following allegations, while somewhat more specific, still lacked any factual support, and were thus likewise conclusory:

  1. The insurer “acted in bad faith when it played a ‘cat and mouse’ game with her, [and] offered $7,000 on February 7, 2019 though it knew the amount did not ‘cover lawfully recoverable medical bills….” On this point, the court states asserted that the insurer “played a ‘cat and mouse’ game, caused her to spend money on litigation, or caused her anxiety associated with litigation does not plead … bad faith.”

  2. The insurer “failed to provide her with a calculation or summary of how it determined its offer.”

  3. The insurer “’ignored or acted with reckless indifference’ to the medical documents establishing her injuries and entitlement to underinsured motorist benefits.” However, Judge Kearney found the insured “alleges no facts showing how [the insurer] ignored or acted with reckless indifference to reviewing her medical records. To the contrary, [the] $7,000 verbal offer in February 2019 suggests it did review her medical records.”

  4. The insurer “did not have a doctor examine her immediately, [and therefore] it lacked refuting ‘medical evidence or documentation’ and refused to pay benefits without justification.”

The court found the complaint flawed for failing to allege how the insurer “failed to investigate and evaluate her claim in an objective and fair manner, subordinated her interest to its own, or violated its fiduciary duty owed to her.” Further, the insured did “not plead her communications with [the insurer] or [the insurer’s] conduct even though a claim for bad faith is based on [the insurer’s] conduct in handling her claim.” This included that she did “not plead calls or communications since the February 7, 2019 verbal offer of $7,000.”

The court also was concerned with contradictions in the pleadings. It noted the complaint alleged both that the insurer failed to promptly make a settlement offer and that the insurer offered the $7,000 one month after she submitted her medical records to the insurer. The court found these allegations contradictory.

The bad faith count was dismissed without prejudice for failing to allege facts supporting a plausible claim.

Finally, the court dismissed the punitive damages claim, again without prejudice, because the bad faith claim was dismissed. Judge Kearney found that a simple breach of contract, the only claim remaining, cannot be the basis for punitive damages.

Date of Decision: April 22, 2019

Hwang v. State Farm Mutual Automobile Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-927, 2019 U.S. Dist. LEXIS 67955, 2019 WL 1765938 (E.D. Pa. April 22, 2019) (Kearney, J.)

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