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.)

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