DECEMBER 2018 BAD FAITH CASES: REJECTING POLICY LIMITS DEMAND, STANDING ALONE, IS NOT EVIDENCE OF BAD FAITH ABSENT UNREASONABLE AND INTENTIONAL UNDERVALUATION (Middle District)

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In this UIM bad faith case, the insured asserted that (1) the insurer failed to provide a reasonable basis for its valuation of plaintiff’s claim, and (2) the insurer refused to negotiate in good faith. The court recited a detailed history of: medical examinations, medical history and treatment (or absence thereof); the parties’ negotiations – during which plaintiff never lowered its policy limits demand; and the details of a high/low arbitration that ultimately resulted in the insurer paying less than policy limits, but more than its valuation.

The court granted summary judgment to the insurer. The record demonstrated the insurer came forward “with sufficient evidence to establish an absence of any genuine dispute of material fact as to its conduct in pre-arbitration dealings” with the insured. The court found that in valuing the claim, the insurer relied upon expert reports and the absence of documentation from the insured showing any surgical history for which damages might be due.

As to claim handling, investigation, and valuation, the court observed that the essence of a bad faith claim is the unreasonable and intentional/reckless denial of a benefit. While the insurer’s settlement offers were lower than the policy limit demand and the ultimate arbitration award, this cannot create bad faith per se. Rather, a low but reasonable valuation is not bad faith. The court found the insurer’s valuations reasonable based on its investigation, and the sum it was willing to pay in setting the high/low arbitration parameters.

It was also significant to the court that the insured never lowered her policy limits settlement demand. Again, an insurer is not required to automatically submit to a policy limits demand or subject itself to bad faith liability. An insurer has a duty to investigate the claim fairly and objectively in coming to a valuation, and standing alone, a refusal to pay policy limits is not evidence of bad faith or unreasonable valuation. An insurer may even “aggressively investigate and protect its interests in the normal course of litigation” absent doing so in bad faith.

Finally, in finding an absence of bad faith, the court observed that the claim handler did in fact change her valuation over time.

Date of Decision: December 6, 2018

Rau v. Allstate Fire & Casualty Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:16-CV-0359, 2018 U.S. Dist. LEXIS 206343 (M.D. Pa. Dec. 6, 2018) (Mariani, J.)

Thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

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