MARCH 2018 BAD FAITH CASES: THIRD CIRCUIT DID NOT HAVE TO REACH ISSUE OF WHAT LITIGATION CONDUCT COULD CONSTITUTE BAD FAITH, BECAUSE CONDUCT AT ISSUE WAS NOT BAD FAITH CONDUCT IN THE FIRST INSTANCE (Third Circuit, Pennsylvania law)

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The insured alleged bad faith based on the insurer’s introduction and reliance on allegedly biased expert testimony in this underinsured motorist case. The District Court had dismissed the claim, after an extensive analysis on when litigation conduct might constitute bad faith. The Third Circuit affirmed, but without addressing that issue.

The parties entered a high/low settlement agreement during the course of a jury trial, i.e., if the insured won he could get up to $300,000, but no less than $100,000 if he lost. The jury awarded $1.6 Million, but that sum was molded to $300,000. The agreement released all bad faith claims existing up to the date of the agreement, but did not release post-agreement bad faith claims.

The insurer relied upon two experts’ reports and testimony before the jury. The insured later brought a bad faith action based upon the insurer’s use of its expert reports and testimony during the trial process and after the date of the high/low agreement. He alleged that the insurer acted in bad faith by introducing and relying upon the biased testimony of its experts; by “failing to make an honest, intelligent settlement offer”; and by “seeking to have the bad faith claim dismissed with prejudice.”

The Third Circuit observed that bad faith is based upon the frivolous or unfounded refusal to pay proceeds under a policy, under a two criteria test: (1) that it was unreasonable to deny benefits; and (2) that the insurer knew or recklessly disregarded the absence of a reasonable basis to deny benefits. The big issue addressed at the District Court level was how to evaluate litigation conduct under the Bad Faith Statute. The Third Circuit found it did not have to reach that issue because the complaint’s allegations (including expert reports and depositions as exhibits) did “not identify any misconduct, much less bad faith” conduct.

It was alleged contradictions in the experts’ testimony that formed the basis of the bad faith claim. The Court found no inconsistencies in the first expert’s report and testimony, and found that the report was more limited in scope than the insured asserted. Similarly, the Court found no contradictions in the second expert’s report. Thus, “[b]ecause the statements made by [the medical experts] are not contradictory, [the insurer’s] introduction of and reliance on their testimony cannot rise to the level of bad faith, even under [insured’s] suggested legal standard.”

And again, after noting the absence of Pennsylvania Supreme Court precedent on when litigation conduct could be subject to the Bad Faith Statute — though it had been addressed to some degree in the Superior Court and the Third Circuit — the Court stated that it “need not reach this question because the facts alleged clearly do not amount to knowing presentation of biased expert testimony.”

Date of Decision: February 27, 2018

Homer v. Nationwide Mutual Insurance Co., U. S. Court of Appeals Third Circuit No. 16-3686, 2018 U.S. App. LEXIS 4859 (3d Cir. Feb. 27, 2018) (Fishman, Hardiman, Roth, JJ.)

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