APRIL 2015 BAD FAITH CASES: INSURED DENIED SUMMARY JUDGMENT WHERE CLAIMS HANDLING ISSUES AND BAD FAITH TO BE RESOLVED BY JURY (Middle District)

In Scheirer v. Nationwide Insurance Company of America, the insured pleaded bad faith, among other claims, for an alleged inordinate delay in handling her claim. The claim involved alleged uninsured motorist (“UM”) benefits owed as a result of an injury the insured suffered in a bus accident. Both the insured and insurer brought motions for summary judgment.

The insured claimed the insurer acted in bad faith “by failing to properly and promptly evaluate and investigate her UM claim, by failing to timely respond to her demands, by failing to promptly resolve her claim within the policy limits, by failing to act promptly upon communication regarding her claim, by failing to have reasonable standards with respect to her claim, by failing to pay her claim when it had all of the necessary information, by failing to provide a fair and equitable settlement of her claim, by failing to negotiate with her counsel, by forcing her to commence litigation to recover her rightful amount due under her policy, and by offering her substantially less than the amounts due on her claim.”

The court cited to general bad faith principles in applying section 8371, and added, citing earlier cases, that “’Pennsylvania law does not limit bad faith claims to unreasonable denials of coverage[]’ and, ‘[a] bad faith can have various other bases, including an insurer’s lack of investigation, lack of adequate legal research concerning coverage, or failure to communicate with the insured.’”  The cases cited stood for the proposition that “a bad faith claim includes ‘a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured.’”

In this case, the insured based “in large part, her bad faith claim on the above stated alternative grounds. As stated, bad faith is not limited to the insurance company’s bad faith in denying its insured’s claim and can include the company’s investigative practices.”

The court found that “disputes exist as to whether defendant conducted a prompt investigation of plaintiff’s UM claim, as to whether defendant promptly evaluated and investigated plaintiff’s UM claim, as to whether defendant failed to timely respond to plaintiff’s demands, as to whether defendant failed to promptly resolve plaintiff’s claim within the $100,000 policy limits, as to whether defendant failed to act promptly upon communication regarding plaintiff’s claim, as to whether defendant failed to have reasonable standards with respect to plaintiff’s UM claim, and as to whether defendant failed to timely pay plaintiff’s UM claim when it had all of the necessary information.”

The court held that “a reasonable trier of fact could find that the defendant failed to make a good faith and timely payment on plaintiff’s UM claim.” The open issues included the insurer’s position that it acted reasonably in light of not having all necessary information, or whether it had the necessary information; the timeliness of compensating the insured; the time between the incident and an IME; whether a deposition was unduly delayed; and the timing of responses to letters from the insured’s counsel and a monetary demand.

The court stated: “In short, the record is not clear if defendant breached its duty of good faith regarding its handling of plaintiff’s UM claim and, if so, whether this breach was through a motive of self-interest or ill will as opposed to mere negligence.”

Thus, both summary judgment motions were denied.

Date of Decision: March 9, 2015

Scheirer v. Nationwide Insurance Company of America, Civil Action No. 3:13-CV-1397, 2015 U.S. Dist. LEXIS 28286 (M.D. Pa. March 9, 2015) (Mannion, J.)

Note: As reported over the years throughout this Blog, there is some question whether bad conduct in claims handling, without a denial of any benefit, can be a basis for statutory bad faith.  This is most notable in the context where it turns out no coverage was ever due under the policy, e.g., because of any exclusion.

Poor conduct that leads to delay in payment of a benefit (or provision of a defense in a third party case) can be seen as a denial of a benefit (“a delay in payment of a third party claim, if of inordinate and unreasonable length, effectively becomes a denial of the claim.”).  However, to the extent that a benefit is neither denied nor delayed, whether there is a cause of action under section 8371 for, e.g., failures to communicate or poor investigation practices alone, remains open to challenge.  By way of comparison some courts find that violations of the Unfair Insurance Practices Act, in and of themselves, cannot be the basis for a statutory bad faith claim or even be considered as evidence of bad faith, following D’Ambrosio; whereas some courts would allow this as evidence of bad faith, but not bad faith per se. Even here, however, there seem to be some decisions indicating UIPA violations can be the basis of a bad faith claim. In light of D’Ambrosio, this may simply be that the same conduct violating the UIPA simultaneously creates the basis for section 8371 bad faith, and it is not the UIPA violation as such that creates bad faith, but the conduct itself.  Additionally, there is the issue of whether there can be bad faith if no coverage was ever due, because the reasonable basis prong of the bad faith test is objectively met.