NO COVERAGE DUE = NO BAD FAITH (New Jersey Federal)

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This case involved multiple coverage disputes with different carriers over the same events. New Jersey District Court Judge Michael A. Shipp issued three opinions in this action on the same date (as well as a fourth opinion in a related action). This summary addresses the three coverage/bad faith opinions.

The insured provided services to a Medicare/Medicaid drug plan provider. The plan provider was sanctioned for improprieties with its plan, and was suspended from the program. In turn, the provider brought breach of contract and fraud claims against the insured for its alleged failures in providing services, and its misrepresentations in hiding its failures, all of which caused the sanctions and suspension. The insured ultimately settled the case with the Medicare provider and sought recovery from its various insurers for defense costs and/or indemnification.

The first opinion involves coverage claims against Travelers and ACE (the excess insurer to Travelers), and a bad faith claim against ACE. The court found that no coverage was due from Travelers or ACE under their polices, and thus no defense obligation existed.

On the issue of bad faith, the court applied the “fairly debatable” standard set out in Pickett v. Lloyd’s. If a bad faith plaintiff “could not have established as a matter of law a right to summary judgment on the substantive claim [it] would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.”

The court then set out the more detailed criteria to determine the issue.

Judge Shipp observed that “’[a] more difficult application of the standard arises when the issue involves not a denial or refusal to pay a claim but … inattention to payment of a valid, uncontested claim.” (Court’s emphasis). “’In the case of processing delay, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.’”

“’In either case (denial or delay), liability may be imposed for consequential economic losses that are fairly within the contemplation of the insurance company.’” “Whether arising under a denial of coverage or a delay in processing a claim, ‘the test appears to be essentially the same.’”

In the first opinion, the court found the insured was not entitled to coverage from Travelers or ACE under commercial general liability and umbrella policies. Thus, the insured could not “assert a claim for bad faith against ACE.”

The second opinion involved breach of contract and bad faith claims against Allied World Specialty Insurance Company, which had issued a D&O policy. Again, the court found no coverage due, and so no bad faith.

The third opinion addresses claims against Atlantic Specialty Insurance Company and RSUI Indemnity Company (the excess carrier). Breach of contract claims were raised against both carriers, involving D&O defense or coverage, as well as a bad faith claim against Atlantic Specialty. As in the other two opinions Judge Shipp found no coverage due under the Atlantic Specialty policy. Thus, “[b]ecause Atlantic Specialty’s Policy does not provide coverage for the [underlying] action, [the insured] cannot recover consequential damages for Atlantic Specialty’s alleged bad faith delay.”

Dates of Decision: May 31, 2020

Benecard Services, Inc. v. Allied World Specialty Insurance Co., U.S. District Court District of New Jersey Civil Action No. 15-8593 (MAS) (TJB), 2020 U.S. Dist. LEXIS 94806 (D.N.J. May 31, 2020) (Shipp, J.)

The opinion involving Travelers and ACE can be found here.

The opinion involving Allied can be found here.

The opinion involving Atlantic Specialty can be found here.

NO CONTRACTUAL BAD FAITH POSSIBLE WHERE POLICY’S EXPRESS LANGUAGE DID NOT REQUIRE THE ACTIONS PLACED AT ISSUE (Third Circuit – Pennsylvania Law)

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A policy lapsed for failure to make payments. Plaintiff brought an action for breach of the duty of good faith and fair dealing, alleging that the insurer by failed to notify him a premium was due. The trial court granted the insurer summary judgment and the Third Circuit affirmed.

This was a contract-based claim, not a statutory bad faith claim. As the Third Circuit observed, “Pennsylvania law implies a duty of good faith and fair dealing into every contract.” Contractual good faith means “[h]onesty in fact in the conduct or transaction concerned.” Examples of contractual bad faith include, e.g., “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.” However, “[t]he duty of good faith ‘is not divorced from the specific clauses of [a] contract and cannot be used to override an express contractual term.’”

The insurance agreement did not require the insurer to give notice of premium lapses and the consequence of such lapses. The insurer had an internal business practice to give such notices, and attempted to do so in this case, but there was considerable complication concerning the correct address and the notices never reached plaintiff. This was of no moment, however, because the duty of good faith is “tied specifically to and is not separate from the duties a contract imposes of the parties,” and here, the policy did not include a requirement that the insurer remind plaintiff that premiums were due “or otherwise notify him before the policy lapses.”

Alternatively, under the facts at hand, even if such a duty was imposed there was still no bad faith. The insurer did mail non-payment notices to the address it had for plaintiff, which was not plaintiff’s actual address. However, it was plaintiff’s own lack of diligence in failing to provide the correct address leading to his never receiving the notices.

Thus, summary judgment for the insurer was affirmed.

Date of Decision: May 29, 2020

Power v. Erie Family Life Insurance Co., U.S. Court of Appeals for the Third Circuit No. 19-2994, 2020 U.S. App. LEXIS 17083 (3d Cir. May 29, 2020) (Ambro, Hardiman, Restrepo, JJ.)

 

COMPLAINT ALLEGES SUFFICIENT FACTS TO SET OUT A BAD FAITH “OBDURATE REFUSAL” TO CONSIDER THE INSUREDS’ CLAIM (Philadelphia Federal)

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The plaintiffs disputed the insurer’s payout on a fire loss, and brought breach of contract and bad faith claims. The carrier moved to dismiss the bad faith claim.

To plead bad faith, an insured must do more than generally allege the insurer acted unfairly. The insured “must describe with specificity what was unfair.” (Court’s emphasis). Eastern District Judge Pratter found the complaint reached that level of specificity, and denied the motion to dismiss.

The insureds generally allege their claim was undervalued, and that the insurer engaged in “’extreme low- ball/undervaluation tactics and significantly and punitively undervaluing Plaintiffs’ losses and claim.’” The complaint then offers more detailed support for this broad statement.

Plaintiffs allege “the insurance policy provided dwelling coverage up to a limit of $281,200, along with a dwelling extension limit of $28,100. Personal property losses were covered up to a limit of $210,900. Plaintiffs also invoke several estimates they contend they submitted … for the cost of repair and restoration, and, nonetheless [the insurer] failed to indemnify Plaintiffs completely.”

The insureds assert they provided “an estimate of repair for damages to the dwelling in the amount of $57,726.99,” “another estimate of repair for structural losses in the amount of $56,839.12,” “an estimate of personal property loss in the amount of $9,900.36,” “an estimate for cleaning and remediation emergency services in the amount of $4,126.63,” “and an estimate for dry cleaning services in the amount of $21,624.00.” The insurer alloted $255.08 for the dry cleaning, fully recognized the emergency cleaning and remediation costs, and estimated the structural damage at $6,321.45. No payments were offered for any personal property losses.

Taking out depreciation and the deductible, the insurer issued a check for 4,666.46.

In deciding the motion, Judge Pratter observed, “[a]rithmetically, the insurer’s payment was no more than approximately ten percent of the claim….” This “suggest[ed] a possible obdurate refusal to consider the homeowners’ claim.” (Emphasis added). Judge Pratter thus found the factual allegations sufficient to state a bad faith claim on this basis.

Date of Decision: May 28, 2020

Scott v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-5559, 2020 U.S. Dist. LEXIS 92960 (E.D. Pa. May 28, 2020) (Pratter, J.)

 

Institutional Discovery in Breach of Contract and Bad Faith Case (Lackawanna Common Pleas)

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The excellent Tort Talk Blog posted a Court of Common Pleas of Lackawanna County case summary today, addressing institutional discovery in a breach of contract/bad faith case.

NO BAD FAITH WHERE POLICY PROPERLY TERMINATED (Philadelphia Federal)

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This case centered on whether the insurer’s notices of lapse and termination were effective to terminate the policy. The policy required the carrier to “send” these notices. There was no dispute that the insurer caused the required notices to be mailed, but the insured denied ever receiving them.

The insurer argued mailing alone was sufficient to meet the “send” requirement, but the insured argued the policy further required that the notices actually be received. The term “send” was not defined in the policy. Judge Wolson looked to dictionary meaning of “send,” along with case law on mailing required documents. He concluded that “send” did not mean sent and received. Thus, the insurer’s mailings alone were sufficient to terminate the policy, whether or not the insured received the notices.

The insured also alleged bad faith in terminating the policy. Judge Wolson rejected this claim on the simple ground that there was a reasonable basis to terminate the policy, stating:

Pennsylvania’s law creates a cause of action against an insurance company “if the court finds that the insurer has acted in bad faith toward the insured.” 42 Pa.C.S. § 8371. Pennsylvania courts have defined “bad faith” as “any frivolous or unfounded refusal to pay proceeds of a policy.” Rancosky v. Washington National Ins. Co., 642 Pa. 153, 170 A.3d 364, 365 (Pa. 2017) (quotation omitted). A threshold question in a bad faith action is whether the employer had a reasonable basis for denying benefits under the policy. See Condio v. Erie Ins. Exch., 2006 PA Super 92, 899 A.2d 1136, 1143 (Pa. Super. Ct. 2006). As discussed above, [the insurer] had a reasonable basis for denying benefits. Thus, [the insured’s] bad faith claim fails.

Date of Decision: May 20, 2020

Wetty v. AXA Equitable Life Insurance Co., U.S. District Court Eastern District of Pennsylvania Case No. 2:18-cv-04756-JDW, 2020 U.S. Dist. LEXIS 88550 (E.D. Pa. May 20, 2020) (Wolson, J.)

NO BAD FAITH BY DEFINITION IF COVERAGE DENIAL IS REASONABLE (Western District)

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“When an insurer’s coverage denial was reasonable ‘on the basis of the plain meaning of the Policy and relevant exclusions and definitions,’ there can be no ‘bad faith’ as a matter of law.”

Unlike the Eastern District’s recent decision in Smith v. AAA Interinsurance Exchange, the Pennsylvania Supreme Court’s decision in Gallagher v. Geico did not void the household exclusion under the facts of this case. The court thus found no UIM coverage due, and because the auto insurer “properly denied coverage, Plaintiffs’ tag-along claims for bad faith and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201-1, et seq., also fail.”

The insured was injured on a motorcycle she owned. The motorcycle was covered by Progressive. The insured owned two other vehicles covered by Mid-Century, the present defendant. The insured waived UIM coverage under the Progressive policy. She still sought coverage under the Mid-Century policy, relying on Gallagher, because she had not executed a stacking waiver in connection with the Mid-Century policy.

Gallagher does not apply where stacking is not at issue

The insured’s claim against Mid-Century failed. Gallagher stands for the proposition that the household exclusion cannot limit stacking without a stacking waiver. In this case, however, the insured had waived UIM coverage under her Progressive policy, so there was no stacking at issue. Rather, she was seeking primary UIM coverage against Mid-Century. Thus, Gallagher did not apply, and Mid-Century properly relied on the household exclusion to deny coverage.

No coverage due means no bad faith by definition

In dismissing the bad faith claim, the court found plaintiffs could not make out the first prong of the bad faith test, i.e., that the denial was unreasonable. “When an insurer’s coverage denial was reasonable ‘on the basis of the plain meaning of the Policy and relevant exclusions and definitions,’ there can be no ‘bad faith’ as a matter of law.” “Put differently, if Mid-Century properly denied coverage, which the Court finds it did, it could not, by definition, have acted in bad faith by denying coverage.”

Any other putative bad faith claims were dismissed for merely making conclusory allegations.

UTPCPL claim fails for variety of reasons

Lastly, the court dismissed plaintiffs’ Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims for a variety of reasons. First, there was no improper conduct. Next, even if there was misconduct, the UTPCPL only applies to conduct in connection with issuing the insurance policy, not the performance of the insurer’s obligations under the policy after it is issued. Third, even assuming arguendo the plaintiffs could have overcome these two hurdles, they solely pleaded nonfeasance, and the UTPCPL only applies to claims of malfeasance.

No leave to amend was given, and judgment on the pleadings was entered for the insurer.

Date of Decision: May 19, 2020

Dunleavy v. Mid-Century Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:19-cv-1304, 2020 U.S. Dist. LEXIS 88024 (W.D. Pa. May 19, 2020) (Ranjan, J.)

Our thanks to Attorney and Mediator Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

EASTERN DISTRICT JUDGE MARSTON GIVES OVERVIEW ON HOW TO PLEAD STATUTORY BAD FAITH IN FEDERAL COURT (Philadelphia Federal)

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Courts in this Circuit regularly dismiss bad faith claims when the complaint is devoid of specific factual allegations of bad faith conduct and is merely comprised of bare-bones, conclusory allegations.

This property damage coverage and bad faith complaint included one of these regularly dismissed bad faith claims.

Judge Marston cited numerous Eastern District cases where the court found bad faith claims inadequately pleaded, including Shallow (2020, Judge Pappert), Clapps (2020, Judge Darnell Jones), Shetayh (2020, Judge Leeson), MBMJ Properties (2019, Judge Slomsky), Myers (2017, Judge Surrick), Toner (2017, Judge Slomsky), Soldrich (2015, Judge Leeson), and the 2012 Third Circuit decision in Smith. The pleading flaws in these cases all fundamentally involve a failure to explain or describe with any details what the insurer actually did, e.g., in purportedly failing to investigate, causing unreasonable delays, failing to negotiate or offer a reasonable settlement, etc.

The complaint in the present case alleged the following conduct constituted bad faith:

  1. by sending correspondence falsely representing that Plaintiffs’ loss caused by a peril insured against under the Policy was not entitled to benefits due and owing under the Policy;

  2. in failing to complete a prompt and thorough investigation of Plaintiffs’ claim before representing that such claim is not covered under the Policy;

  3. in failing to pay Plaintiffs’ covered loss in a prompt and timely manner;

  4. in failing to objectively and fairly evaluate Plaintiffs’ claim;

  5. in conducting an unfair and unreasonable investigation [*3]  of Plaintiffs’ claim;

  6. in asserting Policy defenses without a reasonable basis in fact;

  7. in flatly misrepresenting pertinent facts or policy provisions relating to coverages at issue and placing unduly restrictive interpretations on the Policy and/or claim forms;

  8. in failing to keep Plaintiff or their representatives fairly and adequately advised as to the status of the claim;

  9. in unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiff or their representatives;

  10. in failing to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claim;

  11. in unreasonably withholding policy benefits;

  12. in acting unreasonably and unfairly in response to Plaintiffs’ claim;

  13. in unnecessarily and unreasonably compelling Plaintiff to institute this lawsuit to obtain policy benefits for a covered loss, that Defendant should have paid promptly and without the necessity of litigation.

Judge Marston found these allegations were virtually identical to the allegations in MBMJ, where Judge Slomsky found the bad faith claims entirely conclusory. For example, MBMJ highlighted that while pleading a failure to promptly and thoroughly investigate, there were no allegations of any underlying facts supporting those general averments of bad faith. “For instance, the plaintiffs did not plead ‘the timing of the alleged investigation in relation to when Plaintiffs submitted their claim’ or ‘the length of the investigation from start to finish.’”

Judge Marston added, “[l]ikewise, in Clapps v. State Farm Insurance Cos., the plaintiff pled identical bad faith allegations as those the [the insureds] raise here. … The [Clapps] court concluded that ‘Plaintiff’s bad faith allegations [were] nothing more than conclusory statements devoid of any factual detail.’”

In the 1009 Clinton Properties case, relied on by the insureds, the court had found similar allegations to those plead here sufficient under the circumstances of that case to withstand a motion to dismiss. Judge Marston, however, agreed with the observation in Shetayh and Clapps that 1009 Clinton properties was an outlier.

After observing that the insureds in this case failed to plead any facts concerning dates, length of time to denial, or details of other interactions, communications negotiations and alleged misrepresentations, Judge Marston concludes: “As we repeatedly noted above, the … bad faith allegations are identical to those in numerous other cases. The [insureds] cannot “simply parrot” the same allegations pled in 1009 Clinton Properties, Clapps, Shetayh, and MBMJ Properties and expect this Court to find that they alleged enough factual content to render their bad faith claim plausible. Indeed, doing so would turn federal pleading standards on their head.” (Court’s emphasis)

That being said, Judge Marston did grant leave to amend the bad faith claim, quoting Shetayh to the effect that the amendment must be “consistent with this Memorandum and ‘must specifically include facts to address who, what, where, when, and how the alleged bad faith conduct occurred.’”

Date of Decision: May 8, 2020

Cappuccio v. State Farm Fire & Casualty Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-3025-KSM, 2020 U.S. Dist. LEXIS 81751 (E.D. Pa. May 8, 2020) (Marston, J.)

 

BAD FAITH PLAUSIBLE WHERE INSURER DENIED COVERAGE 11 DAYS AFTER CLAIM MADE SOLELY BASED ON A POLICY EXCLUSION IT KNEW OR SHOULD HAVE KNOWN HAD BEEN VOIDED BY PENNSYLVANIA’S SUPREME COURT (Philadelphia Federal)

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The insurer denied a UIM claim 11 days after it was submitted. Denial was based solely on the policy’s household exclusion. Many months earlier, however, Pennsylvania’s Supreme Court had generally voided the household exclusion’s application under Pennsylvania law in similar circumstances. Gallagher v. GEICO Indemnity Co.   Thus, the exclusion was an invalid basis to deny coverage.

The insured brought breach of contract and bad faith claims, and the carrier moved to dismiss the bad faith claim for inadequate pleading. The court denied the motion, and found a plausible bad faith claim stated.

First, the court found that the insurer was fully on notice that the household exclusion was invalid in Pennsylvania in these circumstances. Even if the carrier somehow was otherwise unaware of the case, the insured’s counsel brought it to the carrier’s attention in making the claim for coverage. Thus, the household exclusion was a plainly invalid basis to deny coverage, but the carrier denied coverage anyway.

The insurer attempted to argue the Supreme Court’s Gallagher decision only applied to Gallagher’s unique facts. Magistrate Judge Wells found this argument patently incorrect on the face of the Gallagher opinion itself.

Second, the court reasonably inferred from the facts pleaded that the carrier did nothing to investigate the claim before denying coverage. Specifically, the court inferred that the defendant carrier did not even know what the other insurers would be paying the insured toward her injuries for purposes of evaluating its own potential share due to the insured. Moreover, she found the defendant insurer made no effort to evaluate the case itself. Thus, at the time it denied the claim, the carrier could not have known if the insured was fairly compensated or was due further payment.

The facts pleaded supporting these conclusions are that the carrier did not require a medical examination, nor did it produce any contrary medical documents; that it denied the claim in only 11 days; and the insured had not even settled yet with the other insurers at the time the claim was denied.

In sum, the court stated the claim denial “was based solely upon a patently false statement of Pennsylvania law, hence, it is plausible that a jury could find [the denial] decision frivolous and issued in bad faith. …. Furthermore, since it can be inferred that [it] made no effort to value the case, it is plausible that [the insurer] violated its duty of good faith and to deal fairly with Plaintiff, its insured.”

Decision: May 6, 2020

Smith v. AAA Interinsurance Exchange of the Automobile Club, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-768, 2020 U.S. Dist. LEXIS 79489 (E.D. Pa. May 6, 2020) (Moore Wells, M.J.)

(1) FAILURE TO MAKE PARTIAL PAYMENT NOT BAD FAITH; (2) BAD FAITH POSSIBLE WHERE INSURER ALLEGEDLY KNEW CLAIM WAS WORTH MORE THAN ITS OFFER, AND THAT IT FAILED TO RE-EVALUATE THE CLAIM AFTER RECEIVING ADDITIONAL INFORMATION (Western District)

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The insureds’ complaint alleged husband-insured was riding a bicycle when hit by the tortfeasor’s car. The driver’s carrier offered to pay $50,000 towards the injuries, but the complaint alleged this was insufficient in light of the severity of the injuries, and the insureds sought UIM coverage from a set of insurers (though we will treat the claim as against one carrier for purposes of this post). The insureds allege they had $250,000 in UIM coverage, per person, and that both insureds were entitled to coverage.

They also allege they made demand on their UIM carrier. The demand package included information as to liability and damages, and was allegedly provided to a UIM adjuster. The package included the $50,000 offer from the tortfeasor’s carrier. The UIM adjuster made an “initial offer” of $10,000. The complaint alleges the adjuster was aware when making the $10,000 offer that the UIM part of the claim was worth “at least $10,000.00” and that Plaintiffs were unable to respond to this initial offer because Plaintiff [husband] was still receiving medical treatment.”

The complaint alleges that after the initial demand and response, plaintiffs’ counsel provided medical records and lien information addressing the husband’s injuries, condition, treatment and prognosis. Counsel also provided various written and oral demands on the carrier to tender UIM benefits. The demands exceeded $10,000 generally, but at some point did include a request for partial payment of the $10,000. Plaintiffs allege the carrier originally refused to pay the $10,000, but later paid that $10,000 without making any additional offers or payments “despite concluding that the value of the UIM claim exceeded this amount [$10,000].”

The insureds brought breach of contract claims, and a bad faith claim under 42 Pa. C.S.A. § 8371. The complaint also references the Unfair Insurance Practices Act (UIPA), 40 P.S. § 1171.5. The carrier moved to dismiss the bad faith claims as well as any claims based on the UIPA.

Three counts alleged identical language for bad faith claims handling, e.g. the complaint included subparagraphs alleging failure “to evaluate and re-evaluate Plaintiffs’ claim on a timely basis, failing to offer a reasonable payment to Plaintiffs, failing to effectuate an equitable settlement of Plaintiffs’ claim, failing to reasonably investigate Plaintiffs’ claim and engaging in ‘dilatory and abusive’ claims handling.”

In opposing the motion to dismiss the claims, the insureds argued that the “bad faith stems from [the insurer’s] untimely and unreasonable offer … failure to properly investigate the claim; and initially refusing to make the partial payment Plaintiffs requested from the adjustor.” The insureds asserted “that upon receipt and review of the settlement package and documentation provided, Defendants recognized that [husband’s] injuries were far in excess of $60,000 (the $50,000 limits paid by [the driver’s] insurance carrier, plus the $10,000 offered by Defendants).” They also argued bad faith because the carrier initially refused to make the partial $10,000 payment, and, for ultimately offering a minimal sum in an untimely manner while knowing the claim was worth far more than the $10,000 offer.

Refusing to Make Partial Payment Not Bad Faith

The court cited Third Circuit precedent for the proposition that “if Pennsylvania were to recognize a cause of action for bad faith for an insurance company’s refusal to pay unconditionally the undisputed amount of a UIM claim, it would do so only where the evidence demonstrated that two conditions had been met. The first is that the insurance company conducted, or the insured requested but was denied, a separate assessment of some part of her claim (i.e., that there was an undisputed amount). The second is, at least until such a duty is clearly established in law (so that the duty is a known duty), that the insured made a request for partial payment.” Pennsylvania Superior Court case law also required that a bad faith plaintiff plead that both parties agreed that the partial valuation was an undisputed amount.

In this case, the plaintiffs did not plead that the insureds requested an assessment of a part of their claim and were denied that assessment. Nor did they allege that “the parties had undertaken a partial valuation and agreed that the amount of $10,000 was an undisputed amount of benefits owed.” All they allege is the insurer made an initial offer, and the insureds initially declined that offer and later requested it be paid. The court found that an “’initial offer’ indicates that an insurer is willing to negotiate, and does not in itself represent evidence of bad faith,” citing Judge Flowers Conti’s 2013 Katta decision. Thus, “to the extent that Plaintiffs attempt to assert that the failure by Defendants to make a more timely partial payment represents bad faith, any such claim fails as a matter of law.”

The Bad Faith Claim Survived on Factual Allegations that the Insurer Knew the Claim was Worth More than it Offered, and the Insurer Failed to Re-evaluate the Claim after Receiving Additional Information

Taking the factual allegations in the complaint in plaintiffs’ favor, the court would not dismiss the bad faith claims. The insureds alleged that the carrier knew and was aware the claim value exceed $60,000 (the tortfeasor payment plus the $10,000 offer). From the subsequent $10,000 partial payment, the court had to infer on the pleadings that the carrier had concluded the claim was worth more than $10,000, and had therefore “refused to effectuate an equitable settlement.” The court stated that “[w]hile this may or may not ultimately support a bad faith claim, it is sufficient for now to defeat Defendants’ motion to dismiss.”

Further, the complaint alleges that the carrier refused to do additional investigation or re-evaluate the claim even after receiving additional information from counsel about the insured’s injuries. The insurer argued on the motion to dismiss this conduct was reasonable because there was an “understanding” with the insureds that negotiations would be put on hold pending the husband’s medical treatment. The court could not consider this argument, however, as it relied on facts and a defense outside the pleadings. Rather, it could only consider the allegations that there was a lack of good faith investigation into the facts, and the insurer failed to re-evaluate the claim even after receiving new information that merited re-evaluation.

Finally, the insureds confirmed to the court they were not asserting any claims under the UIPA, and that UIPA references in the complaint could be stricken.

Date of Decision: May 4, 2020

Kleinz v. Unitrin Auto & Home Insurance Co., U.S. District Court Western District of Pennsylvania No. 2:19-CV-01426-PLD, 2020 U.S. Dist. LEXIS 78400 (W.D. Pa. May 4, 2020) (Dodge, M.J.)

 

BAD FAITH CLAIM CAN PROCEED EVEN THOUGHT CONTRACT CLAIM DISMISSED AS UNTIMELY; ADJUSTOR AND INVESTIGATOR NOT SUBJECT TO BAD FAITH STATUTE (Philadelphia Federal)

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This case involved breach of contract and bad faith claims against the insurer based on its decision not to cover the alleged theft of jewelry. The insurer engaged an investigation firm to look into the theft. The individual investigator assigned to the claim raised questions about either the ownership of the jewelry, or whether it was actually stolen in a burglary.

The insurer was granted judgment on the pleadings as to the breach of insurance contract claim. The policy had a one-year limitations period for brining suit, and the insured failed to file her action within one year.

Even though there was no coverage due because of the contractual limitations period, however, the court denied summary judgment on the bad faith claim. The insurer argued that the insured’s “deposition testimony shows that she cannot meet her burden of establishing bad faith.” The court found this argument premature.

The case had been removed to federal court and immediately placed in the arbitration track. There were no formal discovery requests from any party. The court found that the “litigation that has ensued does not preclude full and fair discovery on fact-driven claims that remain on the bad-faith count.” Thus, summary judgment was premature, and the motion was dismissed without prejudice. Judge Rufe added a requirement that the parties had to report jointly regarding to the court on what discovery was being pursued, if any, heading into the arbitration.

[Note: The insurer apparently did not attempt to argue that if the contract claim was dismissed, then the bad faith claim necessarily failed. There is some case law holding if the contract claim is dismissed on the basis of a contractual limitations period, the bad faith claim can still proceed. See, e.g., Doylestown Electrical Supply Co. v. Maryland Casualty Ins. Co., 942 F. Supp. 1018 (E.D. Pa. 1996) and March v. Paradise Mutual Ins. Co., 646 A.2d 1254 (Pa. Super. 1994), appeal denied, 540 Pa. 613, 656 A.2d 118 (1995).]

Finally, the insured attempted to amend the complaint to add claims against the insurer’s claim adjustor, the company it hired to investigate the claim and the individual investigator. The court found these claims meritless and would not allow amendment.

An individual adjustor working for an insurer is not an insurer. Thus, the individual adjustor was not subject to (i) a breach of contract claim because he was not a party to the contract; or (ii) the bad faith claim because Pennsylvania’s bad faith statute only applies to insurers. The same reasoning applied to the investigators.

Date of Decision: April 30, 2020

Holden v. Homesite Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2167, 2020 U.S. Dist. LEXIS 75904 (E.D. Pa. April 30, 2020) (Rufe, J.)