Archive for the 'PA – Delay (Investigation/Claims handling)' Category

“SPARSE” FACTUAL ALLEGATIONS ENOUGH TO “NUDGE” CLAIM “ACROSS THE LINE FROM CONCEIVABLE TO PLAUSIBLE” (Middle District)

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For the second time in a week, Middle District Judge Mariani denied an insurer’s motion to dismiss a bad faith claim.  Judge Mariani’s June 3, 2021 decision in Signature Building Systems v. Motorist Mutual is summarized here.

This is a breach of contract and bad faith underinsured motorist action.  The complaint alleged the following.

The insured suffered significant injuries requiring ongoing treatment.  The tortfeasor had $15,000 in coverage, but the insured’s UIM limit on her own policy was $250,000.  The insured pursued underinsured motorist coverage against her carrier.

The insured “fully complied with all terms, conditions, and duties imposed upon her by her Auto Policy.” She “’continually’ provided medical records and reports to Defendant, ‘outlining her injuries, special damages, medical expenses, as well as evidencing her physical pain and suffering’ and has cooperated with Defendant ‘in every way throughout the life of her claims.’”

The insured made the following bad faith allegations:

  1. Failing to properly investigate [the] claim upon notification of same;

  2. Refusing to pay [the] claims without conducting a reasonable investigation based upon all available information;

  3. Failing to promptly and objectively evaluate [the] claims;

  4. Unreasonably delaying the objective and fair evaluation of [the] claim;

  5. Causing unreasonably [sic] delay in all aspects of the handling of [the] claim;

  6. Dilatory and abusive claims handling;

  7. Conducting an unfair, unreasonable and dilatory investigation of [the] claims;

  8. Failing to act in good faith to effectuate prompt, fair, and equitable settlement of [the] claim;

  9. Ignoring competent and overwhelming medical evidence substantiating [the insured’s] injuries and resulting disability;

  10. Ignoring competent and overwhelming medical evidence that injuries the [insured] sustained in the subject motor vehicle have not resolved.

The carrier moved to dismiss the bad faith claim, arguing the foregoing was mere boilerplate that did not meet federal plausible pleading standards.  Judge Mariani disagreed.

First he has no problem in finding the complaint sets out an underinsured motorist coverage claim, and the insured fully complied with the policy and her duties in cooperating with the insurer by “continually” providing medical records that laid out the details of her injuries.

Next, Judge Mariani finds the complaint alleges that despite the insured’s compliance, “Defendant failed to properly investigate her claim, refused to pay her but did not conduct a reasonable investigation, and failed to promptly and objectively evaluate her claim but instead delayed evaluating her claim. Plaintiff further alleges that Defendant’s investigation of her claim was ‘unfair, unreasonable and dilatory’ and that Defendant ignored the medical evidence substantiating her injuries and resulting disability.”

This was enough to state a plausible claim. Although the complaint was “sparse with respect to the bad faith claim, the Complaint contains sufficient well-pleaded factual allegations to ‘nudge[ ]’ Plaintiffs’ claim ‘across the line from conceivable to plausible….” [Note: Judge Mariani quotes this same language in his March 2021 Chuplis decision, summarized here.]

For anyone pleading a bad faith claim, or seeking to dismiss such a claim, it is worthwhile to compare this opinion with Judge Pratter’s Brown opinion, summarized yesterday, or the myriad other cases finding the pleading either lacked, or reached, plausibility.

Date of Decision:  June 10, 2021

Dougherty v. American States Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-2166, 2021 WL 2383229 (M.D. Pa. June 10, 2021) (Mariani, J.)

NO BAD FAITH BASED ON DELAY OR “LOW-BALL” OFFER; POLICY LIMIT IS NOT THE DE FACTO VALUE OF A CLAIM (Philadelphia Federal)

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Eastern District Judge Pratter provides a clear discussion on allegations of delay and valuation that do not make out a bad faith claim.

This underinsured motorist coverage breach of contract and bad faith case focused on a dispute over whether the insured was entitled to stacked benefits.  The insured had waived stacking, but asserted that the insurer’s failure to send new waiver forms when she added additional vehicles negated that waiver.  She pleaded serious personal injuries, and that the insurer only offered $4,500 on the claim.

First, Judge Pratter found the insured failed to plead a plausible claim for bad faith delay.  “Although this complaint alleges the accident took place in January 2020, it does not allege when [the insured] noticed her intent to seek UIM coverage or when [the insurer] transmitted its offer. So, the complaint fails to plead the length of the alleged delay, let alone whether it was unreasonable.”

There were no allegations the insured made a timely demand or that the insurer failed to investigate or conducted an unreasonable investigation. At best, the insured’s argument was that the insured offered $4,500, and when compared to her alleged injuries, this was facially unreasonable.  Judge Pratter did not accept this argument, observing that “the pleadings must provide sufficient allegations from which the Court can plausibly infer that [the insurer] knew or recklessly disregarded a lack of a reasonable basis to deny benefits.”

The complaint revealed “a “’normal dispute between an insured and insurer over the value of a UIM claim’ which is itself predicated on a dispute over [the insured’s] entitlement to stacked coverage limits.” Judge Pratter describes the coverage disagreement as a “live dispute that motivates both the declaratory judgment and breach of contract claims. An insurer’s refusal to pay the policy limit when it disputes that the insured is entitled to any such coverage at all is not evidence of unreasonable conduct that would support a bad faith claim.”

Finally, on bad faith, Judge Patter states that a “low-ball” offer by itself is not necessarily bad faith.  “The complaint contains no allegations that [the insured] submitted documentation of the extent of her injuries to support her position such that she is entitled to the policy limit. A policy limit is just that—the ultimate maximum that an insured could theoretically recover. It is not the de facto value of a claim.”

Judge Pratter did give leave to amend the bad faith claim, but only if the insured could plead within the parameters set out in the Court’s opinion.

Date of Decision:  June 7, 2021

Brown v. LM General Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 21-2134, 2021 WL 2333626 (E.D. Pa. June 7, 2021) (Pratter, J.)

NO BAD FAITH FOR: (1) VALUATION DISPUTE (2) DELAY (3) DECISION MADE BASED ON UNCERTAIN LAW (Middle District)

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Middle District Judge Conner dismissed this UIM bad faith claim on three grounds.

First, the complaint relied upon conclusory averments, and lacked sufficient factual allegations to set forth a plausible bad faith claim.

No bad faith for not paying sum demanded.

Second, the carrier’s decision not to meet the insureds demand did not constitute bad faith. The complaint merely averred that the insureds issued a demand letter, the carrier’s claim handler reviewed the letter and a PIP medical file, and did not offer fair value. The insureds did not plead their demand amount, but only that the insurer refused to pay their demand.

Judge Conner observed that valuation disputes alone cannot create bad faith, citing Judge Caputo’s 2019 Moran decision, summarized here. Judge Conner further relies upon the Third Circuit’s oft-cited 2012 Smith decision, summarized here, for the proposition that “an insurer does not act in bad faith ‘merely because [it] makes a low but reasonable estimate of an insured’s damages….’”

Judge Conner also makes clear that “insurers need not blindly accede to an insured’s demand when the value of the insured’s potential recovery is in dispute.” Supporting this proposition, Judge Conner again cites Smith and his own Castillo v. Progressive, and Yohn v. Nationwide decisions. Applying these principles in the present case, the carrier’s refusal to accede to the insureds’ payment demand alone is not bad faith.

Judge Conner further found the insureds failed to explain how the declination constituted bad faith. The insureds “do not allege: whether or when [the insurer] actually extended an offer; what that offer was; when and whether plaintiffs reviewed, rejected, or countered [the] offer; or why that offer was unreasonable under the circumstances.” “Plaintiffs’ disagreement with an offer made by [an insurer] or its decision not to extend an offer, without more, does not establish a plausible claim.”

No bad faith delay

Third, the insureds could not establish bad faith delay.

An insured alleging bad faith delay must establish that “the delay is attributable to the defendant, that the defendant had no reasonable basis for the actions it undertook which resulted in the delay, and that the defendant knew or recklessly disregarded the fact that it had no reasonable basis to deny payment.”  Judge Conner relies on Eastern District Judge Kelly’s 2011 Thomer v. Allstate decision for this principle.

Judge Conner was “mindful that the process for resolving an insurance claim can be ‘slow and frustrating,’ … but a long claims-processing period does not constitute bad faith by itself….” “Furthermore, delay caused by a reasonable investigation or mere negligence in causing a delay does not amount to bad faith.”

Judge Conner observed that even long delays do not constitute bad faith where an investigation was necessary, citing Thomer (42 months) and Williams v. Hartford (15 months).  In the present case, the UIM claim was submitted only 9 months before suit was filed and a formal demand was only made 5 months before suit was filed.  Moreover, Judge Conner found the insureds themselves concede liability was not clear, and that more investigation was needed to determine the value of their claim. Further, the pleadings suggest “that the parties were engaged in a deliberative process—during which they both reviewed relevant documents, retained counsel, and participated in a negotiation process—shortly before this action was filed.” Some delay was also attributable to the insureds.

Finally, the insureds asserted it was bad faith to review the injured insured’s PIP file without his permission, as this violated “some rule of law.”   Judge Conner disagreed, stating, “an insurer’s reasonable legal conclusion in an uncertain area of law does not constitute bad faith. … Neither party has pointed the court to cases discussing whether or not an insurer’s unauthorized review of an insured’s PIP file is unlawful. Based on the court’s review, it appears that insureds can request to review PIP files, but it is unclear whether permission is required. … Given the apparent dearth of case law on this matter, we cannot conclude at this juncture that [the insurer’s] decision to review [the insured’s] PIP file was per se unreasonable or sufficient to state a plausible claim of bad faith.”

While doubting the pleading deficiencies could be cured, Judge Conner did give leave to file an amended bad faith claim.

Date of Decision: May 17, 2021

Green v. State Farm Mutual Automobile Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1534, 2021 WL 1964608 (M.D. Pa. May 17, 2021) (Conner, J.)

INSURER’S FAILURE TO FOLLOW UP ON ITS OWN INVESTIGATION IDENTIFYING AN ACTUAL LOSS, AND THEN REFUSING TO MAKE ANY PAYMENT, PLAUSIBLY ALLEGES BAD FAITH (Philadelphia Federal)

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Eastern District Judge Padova permitted this first party property damage bad faith claim to proceed, finding the complaint’s allegations were not merely conclusory.

The insureds pleaded the following facts. They reported property damage to their insurer. The carrier hired a construction company to inspect the property, determine needed repairs, and calculate the loss.  The contractor found the property’s foundation and structure were damaged, but “did not calculate the amount of the loss because [the insurer] needed to first determine ‘the extent of the corrective work conducted at or related to [a] neighboring property.’”

The insurer allegedly never made that determination, however, and then refused to pay for the plaintiffs’ known damages. The insureds retained their own expert who valued repairs at over $211,000.

Judge Padova found these allegations went beyond the kind of conclusory pleadings rejected by other courts.

He recognized the principle that: “Implicit in section 8371 is the requirement that the insurer properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.”

Here, the insurer allegedly “acted in bad faith by failing to investigate in good faith and disregarding its own expert’s determination that the structure and foundation of the property were damaged.” Specifically, the complaint alleged the insurer retained an expert to investigate the property damage and then disregarded that expert’s damage assessment, “failed to determine the extent of the corrective work conducted at the neighboring property, refused to investigate the loss to determine what it would cost to repair the foundation and building structure of Plaintiffs’ property, failed to ascertain the amount of the loss, and failed to pay Plaintiffs for the damage to the exterior, foundation, and building structure of their property.”

These factual allegations plausibly stated “a claim for bad faith stemming from [a] failure to properly investigate the damage to Plaintiffs’ property prior to denying coverage.”

Date of Decision:  April 22, 2021

Procoppio v. Foremost Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-5184, 2021 WL 1581487 (E.D. Pa. Apr. 22, 2021) (Padova, J.)

BANKRUPTCY COURT PERMITS BAD FAITH CLAIM TO PROCEED, EVEN AFTER BREACH OF CONTRACT CLAIM DISMISSED (Philadelphia Bankruptcy Court)

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This is a rare bad faith case raised before a Bankruptcy Court in the context of an adversary proceeding.

The bankrupt/insureds brought a first party property damage claim against an excess insurer.  It is not fully clear from the record if the insureds were parties to the excess insurance agreement, which appears to be designed to protect a mortgage holder.  In any event, the court held there was nothing in the record that could establish excess coverage was triggered.  Thus, the court granted summary judgment on the breach of contract claim, finding no excess coverage possibly due that could have invoked the insurance contract’s coverage obligations.

The absence of any benefits being due, however, did not stop the court from analyzing the bad faith claim, and ultimately allowing that claim to proceed.

As discussed many times in this blog, there is a serious issue about whether a statutory bad faith claim can proceed if the insurer has not denied any benefit under an insurance policy, i.e., payment of a first party claim or defense and indemnification under a liability insurance policy. This limitation appears to be the required by the Pennsylvania Supreme Court’s 2007 decision in Toy v. Metropolitan Life.  An article addressing this issue can be found here.  See also this January 2020 post, this March 2021 post, and this January 2021 post questioning whether the non-precedential Third Circuit decision in Gallatin Fuels failed to consider Toy in reaching the conclusion that it was possible to pursue a bad faith claim when no policy was even in effect at the time of the loss.

In the present adversary proceeding, the court chiefly relied on Gallatin Fuels for the proposition that statutory bad faith claims can be pursued even where no benefits are due because there is no enforceable insurance contract, solely based on claims of poor investigation practices and possible misrepresentations during the investigation.

The court also relied on Pennsylvania’s Unfair Insurance Practices Act and Unfair Claim Settlement Practices regulations in finding a potential basis for bad faith. In particular, the court cites, 31 Pa. Code § 146.6 (providing “that every insurer shall complete investigation of a claim within thirty days after notification of the claim unless it cannot reasonably be completed in that time. It further provides that if the investigation cannot be completed within that timeframe, every forty-five days thereafter, the insurer shall provide the claimant with a reasonable explanation for the delay and state when a decision on the claim may be expected.”)

Courts approach violations of the UIPA and UCSP regulations differently, ranging from a complete prohibition on considering their violation in proving statutory bad faith cases, to using those violations as evidence of bad faith.  Our May 2, 2019 post summarizes different approaches courts take in considering UIPA and Unfair Claim Settlement Practices regulations.

Most recently on this Blog, we summarized Western District Magistrate Judge Dodge’s December 2020 Kleinz v. Unitrin opinion. Magistrate Judge Dodge found that since the seminal Terletsky opinion in 1994, “federal courts have uniformly rejected plaintiffs’ attempt to rely on UIPA violations to support bad faith claims.” She found that contrary to the insured’s arguments that some federal cases hold otherwise, “for the past 26 years, case law in federal courts on this issue has been consistent.”  Magistrate Judge Dodge cites, among other cases, the Third Circuit’s opinion in Leach, Judge Gibson’s 2019 Horvath opinion, Judge Fisher’s 2014 Kelman decision (while sitting by designation in the Western District), Judge Kosik’s 2007 Oehlmann decision, and Judge Conti’s 2007 Loos opinion.

Some other recent opinions look unfavorably toward using UIPA and UCSP violations to make the statutory bad faith case. See, e.g., Judge Quiñones Alejandro’s December 2020 White Opinion, and Judge Wolson’s April 2020 Live Face decision. In his March 2020 Clapps decision, Judge Darnell Jones notes that while there is no private right of action under the UIPA or UCSP regulations, there might be some circumstances where their violation might be the premise for a bad faith case.

All that being said, the bad faith claim was allowed to proceed in this case, in light of claim handling conduct that clearly troubled the court.

Date of Decision:  April 15, 2021

In Re Lena D. Lewis, Debtor, Lewis v. U.S. Bank National Association, U.S. Bankruptcy Court for the Eastern District of Pennsylvania No. AP 18-00240-AMC, 2021 WL 1424721 (Bankr. E.D. Pa. Apr. 15, 2021) (Chan, J.)

BAD FAITH CLAIM PLAUSIBLE BASED ON UNREASONABLY LOW SETTLEMENT OFFER MADE AFTER LONG DELAY (Philadelphia Federal)

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This UIM bad faith claim was allowed to proceed, after Eastern District Judge Pratter denied the insurer’s motion to dismiss.

The plaintiff pleaded that he suffered serious and permanent injuries, including severe disc injuries, post-concussion syndrome and traumatic brain injury.  The insured provided the carrier notice of these injuries and his intent to pursue underinsured motorist coverage.

The policy provided $900,000 in UIM benefits, which the court described as “heightened coverage in exchange for which [the insured] paid increased premiums.”

The complaint alleges the initial demand came in October 2018, accompanied by relevant medical records and reports. The insured alleged he later sent the carrier supplemental records and expert reports on the extent of his injuries, costs of care (nearly $290,000), and estimated lost earnings ($854,000).

The insurer allegedly promised to evaluate the claim by the end of May 2020, and to make an offer at that time.  The insured alleges, however, that “[n]either were provided to him despite repeated follow-ups. Instead, in September 2020—roughly 20 months after the initial demand—[the insurer] offered … $75,000.”

Judge Pratter then states the “wide disparity between [the] demand and [the] offer prompted this case.”

Judge Pratter found “[t]he allegations as currently pled are at least sufficient to support a bad faith claim.” She recognized the many cases dismissing bad faith claims for only pleading bare bones allegations, “[b]ut the Complaint in its present iteration alleges more than boilerplate legal conclusions and a ‘normal dispute’ between insurer and insured.”

Judge Pratter observes there was no dispute that (1) the policy provided $900,000 in benefits, as a result of the insured’s paying heightened premiums; and (2) the insured was not at fault in causing the accident. Further, the complaint alleges the insured suffered significant permanent injuries, will suffer $850,000 in lost earnings, and the cost of care damages alone were five times the insurer’s offer.

Judge Pratter, then states:

“Construing these allegations as true, as the Court must, [the insured’s] estimated damages are many orders of magnitude greater than [the insurer’s] offer. Taken together, the Complaint plausibly establishes a bona fide claim that [the insurer] lacked a reasonable basis to deny benefits.” She relies here on Judge Stengel’s 2017 Davis decision, summarized here, for the proposition that an unreasonably low settlement offer compared to value of lost wages and treatment cost can make out a plausible bad faith claim.

Judge Pratter added the complaint alleged “enough facts to plausibly infer that [the insurer] knew or recklessly disregarded a lack of a reasonable basis to deny benefits.” “Chief among them is the delay between [the insured’s] initial demand and [the insurer’s] onetime offer.”

She cited Judge Stengel’s 2014 Padilla opinion, summarized here, for the point that “’[d]elay is a relevant factor in determining whether bad faith has occurred.’” The complaint alleges “a delay of nearly two years from the initial demand and over three years from the injury.” Moreover, the insurer failed to fulfil its alleged promise to finish its analysis and make an offer in May 2020, and failed to explain this “nonfeasance”.

Date of Decision:  April 15, 2021

Volgraf v. Garrison Property and Casualty Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 21-1394, 2021 WL 1427337 (E.D. Pa. Apr. 15, 2021) (Pratter, J.)

BAD FAITH CLAIM BARELY STATED BASED ON ALLEGED FAILURES TO INVESTIGATE, DELAY, AND LOW VALUATION, TAKEN IN THEIR TOTALITY (Middle District)

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This is a breach of contract and bad faith first party property damage claim.  The court denied the insurer’s motion to dismiss the bad faith claim.

The insured suffered a furnace malfunction that she claimed led to $35,000-$40,000 in damages. She later suffered a second malfunction leading to a roughly equal amount of additional damages.

The insurer valued the first claim at $15,000, paid that sum less the deductible, and refused to pay any sum for the second claim.  This full denial was based on the insured’s alleged failure to clean after the first incident, and that the only odor in the house was from cigarettes, not soot from the furnace discharge.

Middle District Judge Mariani found that while the complaint included some conclusory allegations, and the facts alleged on bad faith were “sparse”, the complaint’s allegations were “enough to barely ‘nudge[ ] [the] claim[ ] across the line from conceivable to plausible….’”

Delay related bad faith

The relevant facts pleaded were that the insurer waited one month until after the first loss to send out an adjuster to investigate.  Further, the insurer did not pay anything for the first loss for seven months. The court observed that “’bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant.’”  Further, “[a]lthough delay ‘on its own [does not] necessarily constitute bad faith’, the delay between a demand for benefits and an insurer’s determination of whether to pay a claim is a relevant factor in determining whether an insurer has acted in bad faith.”

Applying these principles to the factual allegations, Judge Mariani found enough delay pleaded in both sending out an investigator, and in paying on the first claim, to survive dismissal.

Valuation related bad faith

The court next addressed whether the valuation differences could amount to bad faith.  As stated, the insured provided estimates ranging from $35,000 to $40,000 and the carrier’s expert valuation was $15,000.  After taking out the deductible, the payment was $10,400.

Judge Mariani observed that “[a]lthough bad faith ‘is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages,’ the disparity between the defendant insurer’s payment and the plaintiff’s estimates is a relevant consideration in bad faith claims.” He relied on Middle District Judge Mannion’s Meiser v. State Farm opinion for the proposition that an “extreme disparity” in the parties’ damage estimates can lend support to a bad faith claim, especially where exhibits are attached showing the extent of the damages. A link to our Meiser summary can be found here.

Judge Mariani found the $25,000 disparity, accompanied by exhibits explaining the damages, to be sufficient to support a bad faith claim. The opinion’s language indicates that the valuation allegations were read along with the delay allegations in evaluating the bad faith claim, and that it was the totality of these three factors (delayed investigation, delayed payment, and valuation disparity) that together made out a plausible bad faith claim.

[For a few examples of valuation disputes insufficient to state a bad faith claim, see this post.]

Failure to investigate related bad faith

As to totally denying the second claim, the complaint alleged denial was based on the insured’s alleged failure to clean the premises after the first loss. However, the insured allegedly informed the carrier that she and her daughter made a significant cleanup effort after the first malfunction and before the second, and the insurer knew this before denying the claim.  Thus, plaintiff alleged the carrier ignored the fact that she did clean, and then ignored her damage estimate transmitted to the carrier because of this putative failure to clean. The insured also alleged the carrier did not pay heed to her public adjuster “pointing out that the home was a forced, hot air system and that [the insurer] had agreed to clean the ducts on the second floor, but not the rooms that were contaminated with the soot/smoke….”

Judge Mariani found the totality of these factual allegations, taken in the light most favorable to plaintiff,  made out a bad faith claim for failure to conduct an adequate investigation, which in turn resulted in an unfounded claim denial. He added that, “[a]lthough discovery in this case may later reveal that Defendant did in fact have a reasonable basis to deny Plaintiff’s second claim, the Complaint states the minimum amount of facts necessary to allow Plaintiff’s bad faith claim to survive the motion to dismiss.”

After surveying the totality of the facts on both claims, Judge Mariani summarized as follows: “Though none of these factual allegations alone may be sufficient to state a claim under § 8371, taken together, Plaintiff has successfully, though barely, stated a plausible claim of bad faith.”

Date of Decision:  March 19, 2021

Chuplis v. State Farm Fire and Casualty Co., U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1757, 2021 WL 1080932 (M.D. Pa. Mar. 19, 2021) (Mariani, J.)

DEFENSE VERDICT FOR INSURER AFFIRMED; NO BAD FAITH BASED ON ALLEGED LOW-BALL OFFERS OR CLAIM HANDLING (Pennsylvania Superior Court) (Non-precedential)

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This fact-driver UIM bad faith case resulted in a non-jury verdict for the insurer.  Pennsylvania’s Superior Court affirmed.

[This is the second non-precedential Superior Court opinion reviewing bad faith verdicts that we’ve summarized in last three weeks, demonstrating the increasing role these non-precedential appellate decisions may come to play in briefing bad faith issues.  Per Pennsylvania Rule of Appellate Procedure 126(b), such decisions issued after May 19, 2019 can be cited for their persuasive authority.  This decision is also noteworthy in reiterating that it is not the court’s job on appeal to flesh out arguments or find support in the record that is not adduced by a party in its briefing.]

Factual and procedural background

Plaintiff was injured as a bus passenger, when another vehicle hit the bus.  The plaintiff’s symptoms and treatment concluded six months after the collision.

The tortfeasor only had $15,000 in coverage, and plaintiff sought UIM benefits under his brother’s policy. Plaintiff did not seek this UIM coverage, however, until 19 months after the collision.

The brother’s carrier began its investigation the same month the claim was reported. Both brothers were interviewed and provided evidence that would lead to there being no coverage, but plaintiff provided other evidence favoring coverage. After two months, the insurer completed its investigation, and concluded it would provide UIM coverage.

Shortly after, the insured provided a document package. The carrier evaluated the information and soon offered $5,000, additionally telling plaintiff’s counsel the insurer needed proof that plaintiff’s work loss was due to the collision and not any other causes. Instead of replying, 17 days later plaintiff filed his bad faith suit.

The complaint alleged bad faith based only on “low ball offers and the investigation as being excessively long….” No loss of consortium claim was ever pleaded, though it was mentioned in some correspondence between counsel.

The arbitration award and the arbitrator’s doubts

The underlying claim went to binding arbitration, while the bad faith claim was pursued in court.  Before the arbitration hearing, the insurer offered $12,500, and then $30,000, to settle. Plaintiff never lowered his demand below the $100,000 policy limit.  The arbitrator’s award “was not far above the final offer of $30,000.00.”

Although the arbitrator awarded money damages, he expressed doubts about plaintiff’s case.  He observed the contradiction between plaintiff’s telling medical personnel in October 2013 that his medical issues had resolved, while later claiming they did not resolve but continued to get worse.  The arbitrator also expressed concern over apparent conflicts between the plaintiff’s claim he could not, and did not, work, compared to the actual work and medical history. Among other things, the arbitrator recited details as to the funds plaintiff alleged he and his wife lived on for years, and how it appeared highly unlikely they could actually have survived on this amount without plaintiff himself having also worked (despite his assertions that he could not work).

In later reviewing the arbitration award for loss of consortium, the court expressed concerned that while the arbitrator observed the complaint failed to actually include any claim for loss of consortium, he still awarded $15,000 in loss of consortium damages. The arbitrator did so because the wife’s name was in the caption and the policy provided for loss of consortium damages.

The Superior Court was also concerned that the arbitrator never explained the basis for its other damage awards. “While the arbitrator awarded [plaintiff] $21,905.00 for lost wages and $35,000 for pain and suffering, this Court is again unable to determine the bases for these figures.”

The trial court’s verdict and reasoning, and Superior Court’s affirmance

The trial court ruled against plaintiffs on the merits.  First, the passenger’s wife claimed bad faith for the carrier failing to pay on the loss of consortium claim. But the trial court only learned of this loss of consortium claim the day of trial, and it refused to consider that belated claim. The Superior Court ultimately found this issue waived on appeal.

As to the bad faith claims for delays in the investigation and low ball offers, the trial court observed that plaintiff and his wife did not even appear at trial to support their claims. Rather they relied on witnesses associated with the insured to focus on the allegedly improper claims handling, and apparently an expert witness (whose testimony or report was not persuasive to the trial court judge). The trial court found plaintiff failed to meet his burden by putting on clear and convincing evidence of bad faith.

The Superior Court affirmed.

The “low ball” offer claim fails

In addressing the “low ball offer” bad faith claim, the court contrasted the instant facts with those in the seminal Boneberger case.  In Boneberger, the trial court found the insurer’s witnesses lacked credibility, did not conduct at IME when challenging medical records, actively promoted unethical claim handling practices, and that the insureds only brought suit after long negotiations and an arbitration award. In the present case, there were no similar credibility rulings against the insurer, there was an IME, and there was no finding the carrier promoted an unethical philosophy. Further, instead of allowing the investigation to develop, the bad faith suit was filed in short order, without any prolonged negotiations and before the arbitration award.

The Superior Court also rejected the argument that the arbitration award was evidence of bad faith “low ball” offers. As the court observed, the arbitrator did not find plaintiff and his wife credible, found their medical and wage evidence unreliable, and failed to explain sufficiently the basis for his damage awards. “The fact that the arbitrator awarded damages which were less than those sought … but more than what [was] offered does not support a finding that [the insurer] acted in bad faith.”

The claim handling argument fails

The court then rejected the argument for bad faith in evaluating the information plaintiff provided to the insurer. In rejecting this argument, the court not only found it “scattershot, unsupported by legal authority and undeveloped[,]” but made clear what courts will not do in reviewing cases on appeal.

The Superior Court will not play the role of advocate

  1. “Arguments not appropriately developed include those where the party has failed to cite any authority in support of a contention. This Court will not act as counsel and will not develop arguments on behalf of an appellant. Moreover, we observe that the Commonwealth Court, our sister appellate court, has aptly noted that [m]ere issue spotting without analysis or legal citation to support an assertion precludes our appellate review of [a] matter.”

  2. “While the [insureds] complain that [the insurer] failed to properly evaluate certain medical and wage evidence they provided, they do not specify the evidence, explain its relevance, or state where it is in the record. … The certified record, including transcripts, is nearly 6000 pages. While we have undertaken careful review, it is not our responsibility to comb through the record seeking the factual underpinnings of a claim. Commonwealth v. Mulholland, 702 A.2d 1027, 1034 n.5 (Pa. Super. 1997) (‘In a record containing thousands of pages, this court will not search every page to substantiate a party’s incomplete argument’).”

Superior Court would not reverse trial court credibility determination on expert

The Superior Court also ruled plaintiff had waived the argument that the trial court failed to properly consider expert testimony, while still observing that the “trial court, as the finder of fact, is free to believe all, part or none of the evidence presented. Issues of credibility and conflicts in evidence are for the trial court to resolve; this Court is not permitted to reexamine the weight and credibility determination or substitute our judgment for that of the fact finder.”

Date of Decision:  February 26, 2021

Gavasto v. 21st Century Indem. Ins. Co., Superior Court of Pennsylvania No. 1625 WDA 2019, 2021 WL 754026 (Pa. Super. Ct. Feb. 26, 2021) (McCaffery, Murray, Olson, JJ.)

SUPERIOR COURT AFFIRMS TRIAL COURT’S BAD FAITH VERDICT, AND ITS REFUSAL TO AWARD PUNITIVE DAMAGES (Superior Court of Pennsylvania) (Non-precedential)

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After a non-jury trial, the Blair County Court of Common Pleas found the insurer violated the bad faith statute, and awarded statutory damages in the form of attorneys’ fees and super-interest. It declined, however, to award punitive damages under the statute.  The insurer appealed the bad faith verdict, and the insured appealed the decision not to award punitive damages.  The Superior Court rejected both appeals and affirmed the lower court.

Facts

This is another UIM bad faith case.

The accident occurred in 2000, and the driver’s carrier agreed with the insured that the other driver was 100% liable, and paid its full $100,000 UIM limits to the insured.  The tortfeasor’s carrier paid $50,000.

Over two years later, the insured sought UIM coverage from her mother’s carrier, the defendant insurer in this action. The defendant was affiliated with the driver’s own insurer, and had access to its investigation files.  Its UIM limit was $600,000. It valued the claim at $200,000 and offered $50,000 to settle the claim ($150,000 already having been paid by the tortfeasor’s carrier and the first UIM insurer).

The insured rejected the offer, and initiated a bad faith action in 2003, which it held in abeyance while the UIM case was pending. The insurer paid the undisputed $50,000.

Later in 2003, the insured received a PTSD diagnosis and send additional medical records to the insurer.  The insurer received the medical records, but denied having received them. The defendant insurer took the position that the diagnosis was unrelated to the 2000 accident, and its $200,000 remain unchanged, having failed to receive any medical records (which it in fact had received, however). It then initiated the UIM arbitration process in 2004.

The defendant carrier informed its arbitration defense counsel the other driver was 100% at fault.  Months later the carrier’s counsel said he had spoken to the other driver, based on that interview the accident could have been the insured’s fault, and the arbitrator might rule for the carrier on the UIM claim.  The attorney’s opinion was based solely on the other driver’s rendition of the facts, and not any expert report or investigation other than interviewing the other driver.  The carrier itself did not obtain a reconstruction expert report on the accident.

The carrier, however, was sufficiently persuaded. It took the position in late 2004 that the insured might have comparative negligence up to 50%, but not more. By early 2005, however, the carrier took the position that the accident was 100% the insured’s fault.

The carrier delayed the arbitration by filing a declaratory judgment action seeking to limit the range of damages the arbitrator could award. This case was dismissed on preliminary objections. The carrier further delayed the arbitration by seeking evidence of the insured’s post-accident motor vehicle record, fall-downs, alcoholism and depression.

Eight years later, in 2013, the case finally went to arbitration, i.e., over 13 years after the accident and 8-9 years after the UIM arbitration process began. The arbitrator valued the insured’s injuries at $599,000, and awarded her $399,000. The arbitrator found no comparative negligence. [This was the same position the carrier had taken before late 2004.]

Arguments at trial

The bad faith case went to a non-jury trial in 2018, with a claim handler and the insurer’s UIM arbitration counsel as the sole witnesses.

The insured argued the carrier acted in bad faith when changing its position on the drivers’ comparative negligence, based solely on defense counsel’s interview of the other driver. The insured asserted that the carrier should have known the other driver was not credible, and should not have relied on his rendition of the facts to change its position because the other driver contradicted his own earlier statements to the investigators as to the accident’s cause. In response, the carrier appears to have asserted an advice of counsel defense.

The insured also argued bad faith in the carrier’s blanket refusal to consider subsequent psychological treatments, failure to conduct a full investigation by interviewing the investigating police officer before the UIM arbitration, failing to hire an accident reconstruction expert, and prolonging the proceedings for years in order to selectively reevaluate the claim after it learned the insured had various substance abuse issues, and a history of fall-downs, after the date of the underlying accident.

The trial court’s verdict

The trial court “found [the insurer] had acted recklessly and without a reasonable basis in continually valuing [the] claim at $200,000.” Further, the insurer “had improperly failed to reevaluate the claim to consider [the insured’s] psychological damages.” It was significant to the court that the insurer refused to consider the psychological claims based on the insured’s failure to transmit PTSD related documents, but “admitted at trial that it had received the medical records.”

The court also ruled against the carrier based on its changing positions as to the insured’s responsibility, rejecting the advice of counsel defense because the other driver’s 2004 rendition of the facts to defense counsel should not have been deemed credible based on that driver’s initial statements after the accident.

For nearly four years, after its own investigation and earlier interviewing the other driver, the insurer took the position that the insured bore no responsibility for the accident. The defendant insurer only began altering its liability position after defense counsel interviewed the underlying tortfeasor, who had changed his story.  Then, over a period of months, the insurer went from no comparative negligence, to maybe 50% comparative negligence at most, to a 100% negligence on the insured, solely based on the other driver’s interview with defense counsel.

The trial court observed the arbitrator ruled the other driver was not credible. Further, “[t]he trial court stated that although the arbitrator’s decision did not bind it, it recognized that the arbitrator was a ‘neutral, detached fact-finder’ and had not found [the insured] comparatively negligent at all.” The arbitrator also found substantial injuries. Thus, the “change of position on liability ‘represents a significant failure by [the insurer] in their ongoing responsibility to investigate and reconsider [its] position during [its] entire management of the claim.’”

The trial court further found the refusal to go above its $200,000 valuation for over a decade “was done with a purpose motivated by self-interest.” For example, the carrier failed to consider the psychological medical records admittedly in its possession.  It also failed to carry out a proper investigation and follow-up by not contacting the investigating police officer until the arbitration hearing, or hiring a reconstruction expert. Finally, the trial court found the carrier prolonged the proceedings in filing the declaratory judgment action based on the insured’s substance abuse and fall-downs after the 2000 accident.

Damages

The trial court awarded $24,650 in attorneys’ fees for the bad faith litigation, $125,000 in attorneys’ fees in connection with the UIM claim, and $125,000 in interest. It refused to award punitive damages.

Bad faith legal standards where insurer delays in paying benefits due

The Superior Court observed the following legal principles in rendering its verdict:

  1. “Ultimately, ‘[w]hen an insured obtains a bad faith verdict in a bench trial, appellate courts should only reverse in the most egregious of cases when the trial court has committed reversible error.’”

  2. “’The analysis of an insurance bad faith claim ‘is dependent on the conduct of the insurer, not its insured.’”

  3. Because ‘bad faith’ in this context stems from the duty of good faith and fair dealing implied in every insurance contract, the plaintiff need not prove the insurer acted with self-interest or ill-will.”

  4. “In order to prevail under the bad faith statute, 42 Pa.C.S.A. § 8371, ‘the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.’”

  5. “An action for bad faith is not restricted to the outright denial of a claim, but rather encompasses ‘all instances of bad faith conduct by an insurer.’”

[Note: The Court cited the Superior Court’s decision Rancosky v. Washington National Insurance Co., and not the Supreme Court’s Rancosky decision, to support this point.  As discussed many times on this Blog, there is a real issue as to whether section 8371 encompasses claims that do not involve the denial of a benefit actually due, i.e., is there any cognizable statutory bad faith cause of action when the insurer does not actually owe the insured any duty to pay first party benefits, or to defend or indemnify third party claims.  See, e.g., this post.]

  1. The Superior court then added examples of bad faith, where a claim was not outright denied: “This includes a lack of good faith investigation, as well as ‘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.’”

[Note: In this case, there is no dispute that some benefit was due from the insurer, just a dispute of how much was due and when.  In effect, the insured is arguing that there was a decade plus delay in paying a benefit actually due; and the court’s bad faith verdict is made in light of the insurer actually owing a benefit substantially greater than what the insurer offered to pay.]

  1. “An insurer must make a timely investigation in response to the claim, and not just for arbitration.”

  2. “Indeed, an insurer must reevaluate a claim when presented with new information.”

  3. “An insurer’s mere negligence does not constitute bad faith, and an insurer may make a low estimate of an insured’s claim, so long as it has a reasonable basis.”

  4. “[A]n insurer has committed bad faith where it ‘acted in a dilatory manner, and forced the insured into arbitration by presenting an arbitrary ‘low-ball’ offer which bore no reasonable relationship to the insured’s reasonable medical expenses,’ particularly where the ‘low-ball’ offer proved to be significantly lower than the arbitration award.”

Facts supporting the bad faith verdict

The Superior Court held the following facts supported the trial court’s finding of bad faith:

The insurer never changed its claim valuation over a ten year period from the claim’s submission through a UIM arbitration, “despite mounting evidence that [the insured’s] damages surpassed [that] $200,000 [valuation].” The trial court properly rejected the insurer’s argument that there was no valuation change over time because the insurer went from taking the position that the insured had no responsibility for her own injury, to being partially responsible, and finally to being deemed wholly at fault for her own injury.  The Superior Court agreed that the evidence did not show the valuation claim ever hinged on the insured’s alleged comparative negligence.

Rather, the record demonstrated that as the insurer’s “position on liability evolved, its valuation of the claim did not change. Rather, it put a $200,000 value on [the] claim from the outset, failed to consider evidence of her psychological damages, refused to modify the valuation, and now cites subsequent developments to justify its failure to adjust the valuation in light of the information it disregarded. That it may not have failed to consider the evidence and adjust the valuation purposefully or because of ill will does not undermine the trial court’s conclusion, as [the insured] did not need to prove such states of mind.”

Other factors collectively favoring bad faith were the insurer did not change its comparative liability position until preparing for the UIM arbitration; the insurer did not interview the police officer on the scene; and that the insurer “was unable hire a reconstruction expert for arbitration because too much time had passed is further indicative that it did not make adequate inquiry into the accident in a timely manner.”

The facts did not require the trial court to award punitive damages

The Superior Court ruled: “Although the [trial] court found [the insurer] acted in bad faith, and awarded attorneys’ fees and interest accordingly, we cannot say that it abused its discretion in not awarding punitive damages. The evidence was not such that we conclude that the court’s decision was manifestly unreasonable or the result of partiality, prejudice, bias, or ill will.”

The Superior Court made the point that section 8371 does not compel the Courts of Common Pleas to award punitive damages simply because there is a bad faith verdict.  Rather, punitive damages remain within the trial judge’s discretion.  Ill-will, reckless indifference, or some other sign of malign action might provide evidence in proving statutory bad faith, but this level of intent is not a required element of a statutory bad faith claim.
Thus, just an insured can make out a bad faith claim without having to prove the level of evil intent or outrageous conduct that forms the basis for punitive damages, a finding of bad faith does not automatically encompass conduct that would mandate a finding of punitive damages.   Here, the trial judge did not find the carrier’s intent was so outrageous that punitive damages were warranted, even though the court found the carrier knew or recklessly disregarded the fact that it was unreasonably denying the insured benefits due her.

No error in limiting discovery of “post-denial” conduct

Finally, the insurer appealed the trial court’s granting a protective order as to certain requests for admissions concerning “post-denial” conduct, covering a time period beginning with the April 2004 initiation of the UIM arbitration process.  The trial court found this conduct irrelevant to the insurer’s bad faith in denying the claim. The Superior Court affirmed, finding no abuse of discretion.

The insurer had the burden to show how it was prejudiced by the trial court’s excluding this evidence, but it never “specified what evidence it sought under the admissions requests that it did not receive, and how that alleged evidence would have affected its case.”

Date of Decision:  February 4, 2021

Sartain v. USAA, Superior Court of Pennsylvania No. 4 WDA 2020, 2021 WL 401954 (Pa. Super. Ct. Feb. 4, 2021) (Bender, McLaughlin, Musmanno, JJ.) (Non-precedential)

INSURED ADEQUATELY PLEADED UNREASONABLE DENIAL/DELAY, BUT NOT KNOWLEDGE OR RECKLESS DISREGARD; UIPA/UCSP NOT BASIS FOR BAD FAITH (Philadelphia Federal)

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The insurer successfully moved to dismiss a UIM bad faith claim. While the plaintiff pleaded sufficient facts to show the insurer’s conduct was unreasonable, plaintiff failed to sufficiently plead that the insurer’s conduct was knowing or reckless.

Factual Background

The complaint alleged that after settling with the tortfeasor, the insured demanded UIM policy limits from her own carrier. The demand was in writing, accompanied by medical documents, and requested a response in 30 days. There was no response in 30 days, and the insured sent another demand on the 32nd day, and again a month after that.  The carrier’s adjuster responded to the third demand, on the day it was sent, that the carrier did not agree with plaintiff’s valuation of her injuries. On that same day, the insured also requested a copy of the policy, which the carrier initially refused to provide, but eventually sent almost six weeks later. The Insured made more requests for documents she alleges were relevant, but received no response.

She pleads she was never provided “with (1) a written explanation for the delay in investigating her UIM claim, (2) any indication of when a decision on the claim might be reached, or (3) any written explanation on the status of her claim.” Instead, over six months after her original demand, the insurer made a written demand to arbitrate the UIM claim.

Thus, the only two communications in the six-month period were to dispute valuation and demand arbitration.

The insured sued for breach of contract and bad faith. The carrier moved to arbitrate the UIM claim, and to dismiss the bad faith claim. The court granted the motion to arbitrate, and stayed the insured’s coverage claim pending arbitration.  It dismissed the bad faith claim.

Alleged Bases for Bad Faith

The insured alleged seven bases for her bad faith claim:

  1. “failing to promptly and reasonably determine the applicability of benefits;”

  2. “failing to pay benefits or settle her UIM claim;”

  3. “unreasonably delaying payment;”

  4. “failing to provide a copy of the … Policy when requested;”

  5. “failing to respond to multiple attempts at communication;”

  6. “unreasonably delaying evaluation of her claim;” and

  7. “violating the Unfair Insurance Practices Act (“UIPA”), 40 P.S. § 1171.1 et seq., and the Unfair Claims Settlement Practice (“UCSP”) Guidelines, 31 Pa. Code § 146.1 et seq., by failing to complete claim investigation within thirty days or, if unreasonable, to provide a written explanation and an expected date of completion every forty-five days thereafter.”

Bad Faith Standards and First Element of Bad Faith

The court observed two factors are needed to prove bad faith, as approved in Rancosky: the insured must show “(1) the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.” Judge Quiñones Alejandro stated that the first element covers a range of insurer conduct, such as “an insurer’s lack of good faith investigation or failure to communicate with the claimant regarding UIM claims[, … or] where the insurer delayed in handling the insured’s claim.”

The insured pleaded enough to support a plausible claim for unreasonable conduct in denying the claim. She “alleged that during the nearly six months between Plaintiff initially filing her UIM claim and [the insurer] making a written arbitration demand, Plaintiff’s counsel attempted to communicate … on at least five separate occasions for any update on the status of Plaintiff’s claim.” The insurer only responded once to dispute valuation and then three months later to demand arbitration.  This was enough to make out a claim for “unreasonable delay to investigate and settle Plaintiff’s claim.”

Second Element of Bad Faith Not Met

Proving knowledge or reckless disregard goes beyond mere negligence or poor judgment. Pleading “the mere existence of the delay itself is insufficient.” “Rather, a court must look to facts from which it can infer the defendant insurer ‘knew it had no reason to deny a claim; if [the] delay is attributable to the need to investigate further or even simple negligence, no bad faith has occurred.’” “In cases involving delay or failure to investigate or communicate, courts have found the length of the delay relevant to an inference of knowledge or reckless disregard.” Judge Quiñones Alejandro cited examples of cases with more than one and two year investigation delays.

She went on to find the insured did not plead a plausible claim of knowing or reckless disregard in denying or delaying payment. “In bad faith cases premised on an insurer’s delay and failure to communicate, courts have generally only inferred plausible knowledge or reckless disregard where the time periods of delay were much longer than six months.” She cites the Superior Court’s Grossi decision (one year delay), and Judge Leeson’s January 2020 Solano-Sanchez decision (two year delay) as other examples.

By contrast, “[h]ere, the time lapse before [the insurer] acted on Plaintiff’s claim by seeking arbitration was roughly six months. Further, nothing in Plaintiff’s complaint attributes this time period to [the insurer’s knowledge or reckless disregard of a reasonable basis for denying (or delaying) the claim, as opposed to ‘mere negligence’ or even an actual need to investigate. Without a longer delay more consistent with the delays established in the aforementioned precedent, or other factual allegations from which this Court could infer that Travelers acted with knowledge or reckless disregard of the unreasonableness of its actions, Plaintiff has not pled facts sufficient to plausibly allege the second element of her bad faith claim. Therefore, Plaintiff’s bad faith claim is dismissed.”

UIPA or UCSP Violations Cannot Form Basis for Bad Faith Claims

In addressing the bad faith claims, the Court observed, “alleged violations of the UIPA or UCSP cannot per se establish bad faith and have not been considered by Third Circuit courts.” Judge Quiñones Alejandro cites the Third Circuit’s decisions in Leach (“holding that ‘insofar as [plaintiff’s] claim for bad faith was based upon an alleged violation of the UIPA, it failed as a matter of law.’”), and Dinner v. U.S. Auto. Ass’n Cas. Ins. Co., 29 F. App’x 823, 827 (3d Cir. 2002) (holding that alleged UIPA or UCSP violations are not relevant in evaluating bad faith claims), as well as the Eastern District decision in Watson (“observing that, since the current bad faith standard was established in Terletsky, ‘courts in the [Third] circuit have … refused to consider UIPA violations as evidence of bad faith.’).”

Date of Decision: December 7, 2020

White v. Travelers Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2928, 2020 WL 7181217 (E.D. Pa. Dec. 7, 2020) (Quiñones Alejandro, J.)