JUNE 2017 BAD FAITH CASES: REFUSING A POLICY LIMITS DEMAND, STANDING ALONE, CANNOT BE BAD FAITH (Philadelphia Federal)

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This is “another UIM bad faith case,” the most common scenario for bad faith cases. That being said, it remains important for all counsel and parties addressing bad faith law to study any broader principles to be found in these cases, rather than being lulled into a sense the case is unimportant once it becomes apparent to the reader that it is just “another UIM bad faith case.”

In this case, the insured alleged he sought the $15,000 policy limit and the insurer would not agree to pay that sum. The complaint included assertions that the insurer failed to “(1) act with reasonable promptness in evaluating and responding to his claim and reasonable fairness in paying the claim, (2) negotiate his claim, (3) properly investigate and evaluate his claim and (4) request a defense medical examination of him.” Without pleading facts regarding the insurer’s actual investigation, responses or offers, the insured still claimed “that the insurer lacked a reasonable basis for its conduct in handling his claim since there ‘is no dispute in this case that the accident was the fault of the underinsured driver and that [he] was entitled to underinsured motorist coverage under [his] policy.’”

The court observed the general principle that to “recover on a bad faith claim, a claimant is required to show by clear and convincing evidence that: (1) the defendant insurer did not have a reasonable basis for denying the policy benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis when it denied the claim.” It stated that “[v]arious other actions by an insurer can also rise to the level of bad faith, such as ‘lack of investigation into the facts[ ] or a failure to communicate with the insured.” The court noted “[b]ad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’” The court added, “[a]lthough an insurer’s conduct need not be fraudulent for an insured to recover pursuant to a ‘bad faith’ claim, mere negligence or bad judgment will not suffice.”

Finally, in its general statements concerning bad faith law, the court stated “[a] claimant must show that the insurer acted in bad faith based on some motive of self-interest or ill will.” This is an example of how a UIM case may reveal some point of broader interest. [In Rancosky v. Washington National Insurance Company, the Pennsylvania Supreme Court later decided that a “motive of self-interest or ill will” is not an element of statutory bad faith, but is only evidence relevant to proving the elements of reasonable basis and knowledge or reckless disregard.]

In this case, the court dismissed the bad faith claim, with leave to amend the complaint. The insured only alleged that he and the insurer failed to agree on the UIM sum to be paid, to which he claimed he was entitled. However, the law provides that an insurer’s decision not to immediately pay a policy limits demand, without more, does not constitute bad faith. Without more facts concerning the insured’s claim and the insurer’s investigations, negotiations, offers and communications, the court could not simply infer the presence of an actionable bad faith claim.

Date of Decision: June 19, 2017

Jones v. Allstate Insurance Company, No. 17-648, 2017 U.S. Dist. LEXIS 93673 (E.D. Pa. June 19, 2017) (Pappert, J.)

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