MAY 2012 BAD FAITH CASES: COURT RULES THAT BAD FAITH DOES NOT EXIST IF CARRIER PREMISES DENIAL OF CLAIMS ON A LAPSE IN PAYMENT OF POLICY PREMIUMS, BUT LATER PAYS THE LIMITS OF THE POLICY PLUS INTEREST (Philadelphia Federal)

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In Sicherman v. Nationwide Life Insurance Company, the court granted the carrier’s motion to dismiss the insured’s suit for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), bad faith and breach of contract. The suit stemmed from the carrier’s initial denial of life insurance benefits under a policy held by the insured.

In 2010, the insured began to receive letters from the carrier informing him that his life insurance premium would be increasing. The insured paid this amount along with other amounts owed on his auto and homeowner’s policies. The carrier sent a letter back notifying the insured that money was still owed on the life insurance policy and that it would not accept partial premiums. Months later, the carrier returned the insured’s check because the remainder of the balance had not been paid. Shortly after, the insured was diagnosed with cancer and passed away.

While the insured was sick, the carrier sent him a letter stating that “[y]our policy has lapsed. If you want to reinstate this coverage, please hurry. . . . If you act now and are still insurable, you may have this policy reinstated.” Neither the decedent-insured nor his wife received the letter regarding the policy’s lapse prior to the decedent’s death. When the insured’s wife requested payment of benefits under the policy, her request was denied.

The insured’s wife hired legal counsel, who requested that the denial of payment be reversed. The carrier obliged, awarding the insured’s wife $408,991.27, representing the face amount of the policy plus interest.
In the instant case, the insured’s wife alleged that the carrier misrepresented the terms of the policy and failed to conduct a reasonable investigation into the merits of its life insurance claim. However, the court ruled that the complaint failed to allege facts that demonstrate which terms of the policy were misrepresented or what information should have been considered in making its determination about life insurance benefits.

Moreover, the court reasoned that her claim that the carrier “refused to effectuate a prompt and fair settlement of [her] claim” is belied by the evidence that, upon challenge to the initial decision to deny her claim, the carrier immediately paid the policy limits in full with interest.

The carrier merely premised its initial denial of claims on a lapse in the payment of policy premiums, but ultimately paid the proceeds of the policy at issue in full when that denial was challenged. Because such conduct does not constitute bad faith, the court granted the carrier’s motion to dismiss the complaint.

Date of Decision: April 3, 2012

Sicherman v. Nationwide Life Ins. Co., NO. 11-7227, 2012 U.S. Dist. LEXIS 47630, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 3, 2012) (McLaughlin, J.)

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