BAD FAITH CLAIM CAN PROCEED WHERE THE POLICY TERMS WERE IN DISPUTE, AND NO PARTY COULD PRODUCE THE ORIGINAL POLICY (Western District)

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This case involves a missing disability insurance policy.

The insured claimed he never received the original policy in 1990.  By the time of his disability claim 25 years later, the insurer likewise did not have an original, and could only produce “substitute” or “replica” policies.  The insured did have various application forms, which the court considered in ruling on the instant summary judgment motion.

Without going into painstaking detail here, the insured claimed he had a lifetime disability policy, and the carrier claimed the insured was only entitled to two years of payments after his disability.  The insured sued for breach of contract, tort, bad faith and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer moved for summary judgment on all counts.

The court first rejected the insurer’s breach of contract motion. While the substitute and/or replica policies could support the insurer’s position that it had paid all that was due, the insurer still had to prove that these policies accurately reflected the actual policy.  Thus, the insured’s testimony concerning the lifetime coverage he requested and was told he received vs. the insurer’s testimony that the substitute and/or replica policies were identical to the original policy all had to be decided by the trier of fact. Therefore, summary judgment on the contract action was denied. The court also considered the insured’s reasonable expectations under Tonkovic and Rempel to be open issues of fact.

As to the bad faith claim, the court first set out the pertinent legal principles and reiterated that the insured did not have to prove self-dealing or ill-will under Rancosky.  The court then denied the summary judgment motion on bad faith.

The insured raised numerous facts supporting bad faith.

  1. The insured alleged the carrier’s adjuster sarcastically commented that the insured claim conveniently fell just within the policy’s expiration limit.

  2. When asked for a copy of the policy, the insurer’s response was inconsistent. It first sent a “substitute policy” and then a “replica policy”. Both policies had missing pages and both were different than the policy he believed he had actually purchased.

  3. The insured contended the carrier’s “practice of not maintaining original copies of policies is further evidence of bad faith toward its insureds because this practice shifts the burden to the insureds to produce the terms of the policies.”

  4. The carrier “never informed [the insured] of the relevant limitations of the Policy, even when it offered the opportunity to purchase a new policy when he approached age 65.”

On the other hand, the carrier argued it had a reasonable basis to deny coverage, precluding bad faith.  The court responded that “while this may ultimately be proven, the Court cannot determine on a motion for summary judgment whether [the insurer] had a reasonable basis for its denial. Moreover, as [the insured] observes, [the insurer’s] behavior during the claim process constitutes evidence in support of his claim that it acted in bad faith.”

The court likewise denied summary judgment on the UTPCPL claim. The insured was successful in framing the argument as a case of deceptive conduct in issuing the policy, and not merely a failure to pay (which is not actionable under the UTPCPL).

The insured “indicated that representations were made by [the insurer’s] agent that he was purchasing a disability policy that provided ‘lifetime benefits up to age 65,’ that he justifiably relied on these representations and that he suffered damages because [the insurer] later took the position that the Policy did not provide this benefit because he did not become disabled until after he reached age 60. He has presented sufficient evidence to support a claim under the UTPCPL that must be weighed by the trier of fact.”

Summary judgment on the remaining claims was likewise denied.

Date of Decision: November 30, 2020

Falcon v. The Northwestern Mutual Life Insurance Company, U.S. District Court Western District of Pennsylvania No. CV 19-404, 2020 WL 7027482, (W.D. Pa. Nov. 30, 2020) (Dodge, M.J.)

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