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AFFIRMS TRIAL COURT’S BAD FAITH VERDICT, AND ITS REFUSAL TO AWARD PUNITIVE DAMAGES (Superior Court of Pennsylvania) (Non-precedential)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

BAD FAITH CLAIM IS RIPE TO PROCEED; COURT REJECTS MOTION TO BIFURCATE OR SEVER (Philadelphia Federal)

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In this underinsured motorist bad faith case, Eastern District Judge DuBois denied both a motion to dismiss on ripeness grounds, and an alternative motion to server or bifurcate.

The complaint alleges the tortfeasor had $50,000 in coverage and the plaintiff/insured had $500,000 in UIM coverage. The tortfeasor agreed to settle at $47,000 and the UIM carrier consented. Plaintiffs alleged severe and permanent injuries and pursued a UIM claim.

Specifically, the insureds allege they complied with all policy terms and conditions; the insurer did not tender any UIM benefits or make any settlement offers; the insurer did not conduct any investigation into the claims; and the insurer played “cat and mouse” games by “continuously and systematically failing to communicate any offer of settlement or denial of benefits,” misleading plaintiffs as to potential settlement on at least nine occasions, and “purposefully ignoring [plaintiffs’] demand for underinsured motorist benefits.”

BAD FAITH CLAIM CAN PROCEED

First, Judge DuBois rejected the argument that the bad faith claim was not ripe until the breach of contract claim was actually decided. Among other things, the court stated: “Success on a statutory claim for bad faith does not necessarily depend on the success of the underlying breach of contract claim.” Relying on a 1996 Eastern District decision, the court quotes: “A claim for bad faith brought pursuant to § 8371 is a separate and distinct cause of action and is not contingent on the resolution of the underlying contract claim. A plaintiff may succeed on its bad faith claim even if it fails on the underlying breach of contract claim. Additionally, courts interpreting § 8371 have consistently entertained multi-count complaints containing both unresolved insurance contract disputes and bad faith claims.”

The court further relies on the unpublished Third Circuit decision, Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., in reasoning that “’[a] finding that the insured did not ultimately have a duty to cover the plaintiff’s claim does not per se make the insured’s actions reasonable’ in hindsight.” Judge DuBois concludes: “Therefore, so long as the underlying contract claim is ripe, the bad faith claim is also ripe.”

After finding the claim ripe, the court finds plaintiffs can proceed on their bad faith claim. “Plaintiffs allege defendant acted in bad faith by failing to properly investigate their insurance claim, engage in settlement discussions, and communicate with them. This is ‘a separate and distinct’ cause of action from plaintiff’s claim that defendant breached the terms of the policy in failing to pay UIM benefits. … As such, a finding that defendant does not owe plaintiffs UIM benefits would not mandate a finding that defendant did not act in bad faith in handling the insurance claim.”

[Note: This opinion does not address the impact of the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company in determining to what extend a statutory bad faith claim can proceed, if at all, when there is no duty to pay any benefits under the policy. Moreover, we have previously observed that Gallatin Fuels never addressed Toy. These issues have been discussed many times on the Blog, most recently here.

Of special note is Judge DuBois’ 2019 decision in Buck v. GEICO, which appears to emphasize, and confirm, the denial of a benefit as a predicate to statutory bad faith claims. Among other things, the Buck opinion looks to Toy as a leading authority, and not Gallatin Fuels. The Buck opinion includes language, in quotes below, stating:

“Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. ‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.’”

“Courts in Pennsylvania and the Third Circuit have consistently held that ‘[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.’”

The Buck plaintiff could not state a claim because “[n]one of the ‘benefits’ that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he ‘does not allege bad faith for refusal to pay benefits.’”

Buck observes that cases have held “’section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.’” This means, however, that bad faith claims “’need not be limited to the literal act of denying a claim.’”

Rather, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” “Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”]

In the present case, there seems to be no question that UIM coverage is provided, but only whether the plaintiff’s damages reach into the UIM coverage level or stop below $50,000. The insurer does not appear to challenge whether a plausible bad faith claim has been pleaded with adequate factual allegations, but only that the bad faith claim should not be allowed to proceed because it is not ripe. The court concludes that the UIM bad faith claim is ripe and can proceed.

MOTION TO BIFURCATE OR SEVER DENIED

The Procedures and Standards Governing Contract and Bad Faith Claims do not Favor Bifurcation or Severance.

Judge Dubois first rejected the argument that the claims should be severed or bifurcated because they will be governed by different procedures and standards. First, the carrier incorrectly argued that the contract and loss of consortium claims go to a jury while bad faith is decided by the judge. While true in Pennsylvania state court actions, bad faith claims can go to the jury in federal court cases. Next the court rejected the notion that the jury would be confused in applying the preponderance of the evidence standard to the contract claim and clear and convincing evidence standard to the bad faith claim. Judge Dubois also rejected the argument that the facts at issue on the two claims were entirely distinct.

“For example, one of plaintiffs’ assertions in the bad faith claim is that defendant failed to conduct an adequate investigation into plaintiffs’ injuries. This requires inquiry into two facts (1) the extent of plaintiffs’ injuries, and (2) the extent of defendant’s investigation into those injuries. The breach of contract claim also requires inquiry into the extent of plaintiffs’ injuries. A separate trial on the bad faith claim would require plaintiffs to present much of the same evidence to the second jury, ‘duplicating in many respects the presentation to the first jury.’ This would be expensive and time-consuming for all parties. Because of the factual overlap between the claims, it would be more convenient to have a single trial in this case. Accordingly, the convenience factor weighs against severance or bifurcation.”

There is no Prejudice Because the Work Product Doctrine Remains Functional.

As to prejudice, the insurer focused on protecting work product. Judge Dubois states: “On this factor, defendant contends that allowing discovery and trial for the claims to proceed simultaneously would prejudice defendant because discovery in the bad faith claim would require defendant to disclose the claim adjustor’s mental impressions, conclusions, and opinions as to the merits of the case, evidence that is not discoverable in the breach of contract case. … To the extent that the claim adjustor’s work product is protected, defendant’s argument is unconvincing.”

Judge Dubois joins the vast majority of opinions finding the attorney client privilege and work product doctrine do not fall by the wayside simply because an insured brings a bad faith claim: “The Federal Rules of Civil Procedure and longstanding judicial precedent protect work product from disclosure—protections that do not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim. Allowing the claims to proceed simultaneously simply means [defendant] will be called upon to prove its entitlement to work product protection….”

Judicial Economy Favors a Single Action

As to judicial economy:

“Defendant’s argument as to this factor is that, should plaintiffs fail on their breach of contract claim, the bad faith claim will be moot. As explained above, that is an incorrect statement of the law. Plaintiffs’ bad faith claim is based, in part, on defendant’s failure to investigate plaintiff’s insurance claims and communicate with plaintiffs regarding their claims. ‘A finding that the [insurer] did not ultimately have a duty to cover the plaintiff’s claim does not per se make the [insurer’s] actions reasonable’ in hindsight. Gallatin Fuels, Inc., 244 F. App’x at 434-35. Whether defendant ultimately owes plaintiff benefits under the policy is distinct from whether defendant appropriately handled the claims.” [See Note above re Toy v. Metropolitan and Buck v. GEICO.]

“To the contrary, a single trial promotes judicial economy because it avoids duplication of effort by the parties across multiple trials. Although the contractual and bad faith claims present distinct legal issues, the underlying facts overlap. Therefore, “[b]ifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pretrial motions, and a completely separate trial,” much of which would concern the same factual basis. … Accordingly, the judicial economy factor weighs against severance or bifurcation.”

Date of Decision: September 11, 2020

Dunleavy v. Encompass Home & Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1030, 2020 WL 5501200 (E.D. Pa. Sept. 11, 2020) (DuBois, J.)

PENNSYLVANIA SUPERIOR COURT ADDRESSES CONCLUSORY BAD FAITH ALLEGATIONS IN SUMMARY JUDGMENT CONTEXT (Pennsylvania Superior Court) (Not Precedential)

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We do not often see Pennsylvania’s state courts addressing “conclusory” allegations in bad faith cases. In this case, the Superior Court makes clear that conclusory assertions cannot forestall summary judgment on a bad faith claim.

The employee plaintiffs/insureds demanded underinsured motorist coverage under the employer’s policy.  They asserted that there were $1,000,000 in UIM limits. The carrier countered that the employer had selected and signed off on a $35,000 UIM coverage limit, and the insurer ultimately paid the $35,000.  The trial court agreed with the carrier on the facts of record that coverage was only $35,000, and granted summary judgment on the breach of contract claim. The Superior Court affirmed, finding the employer’s UIM sign-down enforceable and effective.

As to the bad faith claim, the trial court found “there can be no dispute that [the insurer] had a reasonable basis for denying the … claim for coverage beyond $35,000, as we have already determined the trial court did not err in concluding that the UIM policy limit was $35,000.” The panel then looked at the bad faith claim based upon the insurer’s timeliness in dealing with the claim. This appears to be an argument there was a bad faith delay in paying the $35,000 admittedly due.

The insureds argued the insurer failed “to promptly offer any payment,” engaged “in dilatory and abusive claims handling,” acted “unreasonably and unfairly by withholding underinsured motorists benefits justly due and owing,” subordinated “the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interest,” and caused the insured to spend money in bringing their claims.

The Superior Court again affirmed the trial court’s granting the insurer summary judgment, favorably citing the trial court’s reasoning.

First, the trial court rejected the insureds’ Nanty-Glo argument. Further, the insureds “provided no evidence to support their Bad Faith claim beyond conclusory assertions.” The record showed the insureds made a $900,000 demand on what the insurer (correctly) believed was a $35,000 policy.  The record also revealed the insurer was attempting to get information from the insureds to resolve the claim, and that the carrier tendered the $35,000 limit multiple times, which offers were refused or ignored.

The Superior Court favorably quoted the trial court on how to address conclusory bad faith allegations in responding to a summary judgment motion. The trial court had relied on Pennsylvania Supreme Court precedent in reaching its conclusion:

“Allowing non-moving parties to avoid summary judgment where they have no evidence to support an issue on which they bear the burden of proof runs contrary to the spirit of [Pennsylvania Rules of Civil Procedure] 1035. We have stated that the mission of the summary judgment procedure is to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for a trial. We have a summary judgment rule in this Commonwealth in order to dispense with a trial of a case (or, in some matters, issues in a case) where the party lacks the beginnings of evidence to establish or contest a material issue…. Forcing parties to go to trial on a meritless claim under the guise of effectuating the summary judgment rule is a perversion of that rule. [Emphasis added]

Thus, we hold that a non-moving party must adduce sufficient evidence on an issue essential to his case and on which he bears the burden of proof such that a jury could return a verdict in his favor.”

In this case, the Superior Court found that plaintiffs’ “lacked ‘the beginnings of evidence’ concerning how [the insurer] engaged in dilatory and abusive claims handling, and subordinated the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interest.”  The insureds failed to adduce sufficient evidence of record concerning delays, or evidence that any delay in tendering settlement was unreasonable or done with knowing or reckless disregard that the delay was unreasonable.

The underlying dispute over whether coverage was $1,000,000 or $35,000, and the insureds insistence on pursuing large six figure demands, contributed to the circumstances of any delays.

Date of Decision:  September 11, 2020

Beach v. The Navigators Insurance Company, Superior Court of Pennsylvania No. 1550 MDA 2019, 2020 WL 5494530 (Pa. Super. Ct. Sept. 11, 2020) (Musmanno, Panella, Stabile, JJ.)

DENYING COVERAGE AFTER REPRESENTATIVES CONFIRMED COVERAGE IS BASIS FOR BAD FAITH (Western District)

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In this case, the insured made a water damage claim, as well as claims for roof damages. She hired a public adjuster to pursue the claims. The insured alleged her public adjuster met with the carrier’s adjuster, and the carrier’s adjuster authorized the insured to proceed with remediating the water damage. Five months later, the carrier sent out its own contractor to inspect the insured’s roof, and that contractor informed the public adjuster that the insured’s roof claims were covered.

The carrier subsequently denied all coverage and refused to pay on any claims. Once the insured retained counsel, however, the carrier agreed to pay part of the claim (for water damage).

The insured sued for breach of contract and bad faith, along with a variety of other claims. (The court allowed a negligent misrepresentation claim to stand against the carrier, rejecting the carrier’s gist of the action argument, on the basis that duties outside the contract were assumed and potentially violated.)

The carrier moved to dismiss the bad faith claim. It asserted that its contractor had no power to bind on coverage, and that it offered to pay the insured’s water damage losses after the insured retained counsel. The court rejected these arguments and allowed the bad faith claims to proceed.

The insured first pleaded coverage was due and her claim was denied. She then specifically alleged that two of the carrier’s representatives agreed coverage was due, establishing that the insurer was without a reasonable basis to deny coverage. This met the first bad faith element.

Next, as to proving the second element concerning the insurer’s intent, plaintiff had alleged the carrier’s two “representatives, upon reviewing [the] insurance claim and/or observing the Property, determined that the damage at issue was covered under the Policy. … These facts, if true, support a finding that [the insurer] knew or recklessly disregarded that it lacked a reasonable basis to deny [the] insurance claim, i.e. that [it] knew, through its representatives, that the damage at issue was covered under the Policy but still chose to deny benefits.”

Eventually offering to pay part of the insured’s claim did not eliminate potential bad faith, as the insured pleaded there was no reasonable basis to deny the entire claim.

The court did agree that the insured could not recover compensatory damages for unpaid insurance benefits under the bad faith statute, but this relief was available under other counts.

Date of Decision: June 3, 2020

Nelson v. State Farm Fire & Casualty Co., U.S. District Court Western District of Pennsylvania 2:19-cv-01382-RJC, 2020 U.S. Dist. LEXIS 97239 (W.D. Pa. June 3, 2020) (Colville, 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.)

 

PLAINTIFFS ADEQUATELY PLEAD DELAY, INADEQUATE INVESTIGATION, AND LACK OF COMMUNICATION TO SUPPORT BAD FAITH CLAIM (Philadelphia Federal)

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This is one of the few recent cases finding that a bad faith plaintiff met federal pleading standards, surviving a motion to dismiss.

In this UIM case, the plaintiffs alleged the insured husband suffered serious and permanent bodily injuries, requiring ongoing treatment. The tortfeasor’s carrier paid $250,000, and the insureds sought the full UIM coverage limit, $1,000,000, from the insurer. The insurer’s highest offer was $200,000, only made nearly three years after the original claim. The insureds brought breach of contract and bad faith claims.

The complaint alleged the insureds cooperated with the carrier, providing information over a 32-month period, “with the necessary liquidated and unliquidated damages information from which Defendant could fairly evaluate and make a timely and reasonable offer on the claim.” The insureds estimated their damages in excess of $1,000,000, “based on Plaintiffs’ unchallenged medical records, narrative reports, and vocational loss and medical prognosis reports, which they provided to Defendant.” They further alleged the carrier “failed to timely respond or comply with Plaintiffs’ counsel’s request for Defendant to fairly evaluate the underinsured motorist claim.”

The insureds focused their bad faith arguments on the insurer’s alleged conduct over the 32-month time period. They alleged the carrier failed to properly respond to the claim and/or failed to evaluate the UIM claim; failed to offer a payment or to pay in good faith; and failed to inform the insureds of its evaluation of their claim. The insureds asserted the carrier “did not have a reasonable basis for delaying and/or denying underinsured motorist benefits or a partial tender of such under the policy” for nearly three years. The insureds labeled the refusal to pay policy limits as frivolous and unfounded, adding that the insurer “lacked a legal and factual basis” for its valuation of the claim.

The insurer moved to dismiss for failing to adequately plead a bad faith claim.

The court first focused on delay. Delay is a bad faith factor, but standing alone does not make out an automatic case for bad faith. In evaluating whether delay might constitute bad faith, “’[t]he primary consideration is the degree to which a defendant insurer knew it had no basis to deny the claimant: if delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’” (Court’s emphasis)

In beginning his analysis, Judge Jones took cognizance of the potential negative impact of a 32-month window between the claim’s submission and the carrier’s first offer, though again, standing alone this could not prove bad faith. However, as pleaded in the complaint, there were additional factual allegations fleshing out the bad faith delay argument. These included the absence of any facts suggesting the husband was at fault, or that there was any question the UIM policy limit was $1,000,000. The insureds further pleaded: (i) the husband suffered multiple injuries with ongoing expenses; (ii) they provided medical records, reports, vocational loss information and medical prognoses over the 32-month period; and (3) their liquidated and unliquidated damage estimates to the insurer exceeded the $1,000,000 policy limit.

As to the carrier’s conduct, the insureds alleged that during the 32-month period the insurer did not seek an independent medical examination, and did not conduct a records review to properly evaluate the claim. The insureds added that the carrier’s motion to dismiss did not include any argument that the “delay was attributable to the need to investigate further or even to simple negligence.”

On these facts, Judge Jones found the plaintiffs set forth a plausible bad faith claim, focusing on a lack of investigation and failure to communicate. He distinguished this pleading from numerous other cases dismissing conclusory bad faith claims. He stated, “[i]n particular, it is wholly plausible that Defendant did not have a reasonable basis for denying Plaintiffs’ monies owed based upon the information Plaintiffs provided Defendant. Additionally, viewing the time lapse in conjunction with the lack of an independent medical evaluation by Defendant, it is plausible that Defendant knew of, or recklessly disregarded, its lack of a reasonable basis for denying Plaintiffs’ benefits of the policy.”

Judge Jones also rejected the argument that this was merely a disagreement over fair valuation. On a motion to dismiss, the court had to assume the truth of the plaintiffs’ factual allegations. The allegations set out a plausible case the insurer made an unreasonably low offer, or no offer, potentially constituting bad faith conduct. Judge Jones looked to Judge Stengel’s 2017 Davis decision to support this finding.

Date of Decision: April 17, 2020

Lowndes v. Travelers Property Casualty Co. of America, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5823, 2020 U.S. Dist. LEXIS 67620 (E.D. Pa. April 17, 2020) (Jones, II, J.)

 

NO BAD FAITH POSSIBLE WHERE INSURER HAS ANY REASONABLE BASIS FOR ITS CONDUCT; UIPA AND UCSP REGULATIONS DO NOT CREATE BASIS FOR BAD FAITH CLAIMS (Philadelphia Federal)

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This UIM bad faith claim involved allegations of delayed investigation and settlement payment. The insurer moved for summary judgment, which Eastern District Judge Robreno granted.

The court observed that any reasonable basis to deny coverage defeats a bad faith claim, and consultation with counsel can establish a reasonable basis for the insurer’s actions. Negligence or poor judgment do not make out a bad faith case. Further, “[a]n insurer who investigates legitimate questions of insurance coverage is not acting in bad faith, and no insurer is required ‘to submerge its own interest in order that the insured’s interests may be made paramount.’”

Moreover, although bad faith can be proven through unreasonable delays in paying on a claim, “’a long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.’” For example, if the insurer’s delay is tied to its need for further investigation, this is not bad faith.

Judge Robreno’s opinion sets forth a meticulous recitation of the factual history. The key factual issues were the length of time in reaching a settlement and the investigation into what portion of the insured’s injuries were attributable to the accident at issue vs. a separate auto accident in the preceding year.

In analyzing these facts, the court observed that the insureds’ principal argument was that the insurer took 15 months to make a settlement offer. However, the court found this was “not a per se violation of § 8371, and courts have found no bad faith in cases where insurers took the same length of time to evaluate a claim.” (Emphasis in original)

Drilling down with specific calendar calculations by relevant event, Judge Robreno found the length of time attributable to the insurer’s own delay was around 9 months. This was only half of the nearly 18-month period between the first petition to open a UIM file and filing suit. Further, during its investigation, the insurer had “repeatedly asked … for additional medical documentation, repeatedly communicated with Plaintiffs’ Counsel, and provided updates on the progress of the investigation. In the light most favorable to Plaintiffs, no reasonable jury could find by clear and convincing evidence that Defendant lacked any reasonable basis in its investigation.” (Emphasis in original)

UIPA and UCSP regulations not a basis for bad faith here

In a closing footnote Judge Robreno rejects the insureds’ effort to create a claim from the Unfair Insurance Practices Act (UIPA) or Unfair Claims Settlement Practices (UCSP) regulations.

He states, “While recognizing that they do not provide private causes of action, Plaintiff also cites to the Pennsylvania Unfair Insurance Practices Act, 40 Pa. C.S. § 1171, and the Pennsylvania Unfair Claims Settlement Practices regulations, 31 Pa. Code § 146, which each require prompt and reasonable responses from insurers in response to a claim, as further evidence of Defendant’s bad faith conduct. … However, ‘a violation of the UIPA or UCSP is not a per se violation of the bad faith standard.’ …. Further, both statutes apply to behavior performed with such recurrence as to signify a general business practice. See 31 Pa. Code § 146.1; 40 Pa. C.S. § 1171.5(a)(10). Because Plaintiffs only identify an isolated instance of Defendant’s alleged bad faith conduct in their argument that Defendant violated both statutes, neither is persuasive in showing Defendant lacked any reasonable basis in delaying Plaintiffs’ claim.” (Emphasis in original)

Date of Decision: March 19, 2020

Bernstein v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1899, 2020 U.S. Dist. LEXIS 47798 (E.D. Pa. Mar. 19, 2020) (Robreno, J.)

 

INSURED SETS OUT BAD FAITH DELAY CLAIM, AS WELL AS CLAIM FOR ATTORNEY’S FEES (Philadelphia Federal)

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This UIM case involved a claim for full policy limits, amounting to $45,000. The insured alleged serious permanent injuries.

Over two years passed from the time the insured gave notice until the time of suit, with the claim neither paid nor denied. The insured filed suit for declaratory judgment, breach of contract, and bad faith. The insurer moved to dismiss the bad faith claim and attorney’s fee claim, and the court denied the motion.

Bad Faith Claim Based on Delay Adequately Pleaded

The court recognized at least two sources of statutory bad faith: (1) failure to pay and (2) delay in making payment. As to the first, “[w]here a claim of bad faith is based on a refusal to pay benefits under a policy, ‘the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.’” As to the second, “[t]o sufficiently plead bad faith by way of delay, ‘a plaintiff must allege that a defendant had no reasonable basis for the delay in coverage, and that the defendant delayed coverage with knowing or reckless disregard for the unreasonableness of its action.’”

The court found bad faith delay pleaded, based on the following factual allegations:

  1. The insurer “was put on notice of [the] underinsured motorist benefits claim in March 2017.”

  2. “In January 2018, [the insurer] waived its subrogation rights and consented to … settlement with the third-party insurance carrier.”

  3. “On March 30, 2018, [the insurer] advised [the insured] that her claim for underinsured motorist benefits was being evaluated.”

  4. “From April to July 2018, the parties communicated regarding scheduling an EUO, which took place on July 9, 2018.” As pleaded, it was the insurer that sought an EUO in July, and the insured asked to move it up.

  5. “On July 26, 2018, [the insurer] advised [the insured] that it would likely require her to undergo an IME, however, [the insurer] never moved forward with the IME.”

  6. “Between August 2018 and February 2019, [the insured] provided medical records to [the insurer], both unsolicited and at their request.”

  7. “Between February and June 2019, [the insurer] did not notify [the insured] as to the status of her claim, and at the time of the filing of the instant Complaint in September 2019, [the insurer] had neither paid [the] claim, nor denied it.”

The court summarized how these factual allegations made out a bad faith claim. The insured repeatedly tried to have her claim evaluated. She complied with requests for information, provided unsolicited information, and inquired as to the claim status. However, “despite having over two years to conduct its investigation, [the insurer] has unreasonably and without justification failed to approve or deny her claim.” Based on these factual allegations, there appears no reasonable basis to delay the claim evaluation, which the court equated with a failure to evaluate. The knowing/reckless bad faith element was met because the insured had given notice to the insurer through her inquiries and providing information that the claim had not been paid or rejected.

The court cited the Ridolfi, Kelly, and Smerdon cases concerning a delay-based bad faith analysis.

Clear and Convincing Evidence Standard Held Irrelevant at Pleading Stage

The court rejected the argument that the factual pleadings had to be measured against the clear and convincing evidence standard at the motion to dismiss stage. The court stated this standard is relevant, e.g., to trial, but not at the pleading stage. Rather, pleadings are governed by the plausibility standard. Thus, the insured “need not ‘establish’ anything at this early point in the proceedings, let alone ‘by clear and convincing evidence.’” “Whether sufficient facts will be discovered for [the insured] to survive a motion for summary judgment is unknown and may be addressed at a later date.”

Attorney’s Fees Possible under Bad Faith Statute or MVFRL

Finally, the court refused to dismiss the attorney’s fee claim based on both the bad faith statute, and the possibility that attorney’s fees might be permitted under section 1716 of the Motor Vehicle Financial Responsibility Law.

Date of Decision: January 24, 2020

Solano-Sanchez v. State Farm Mutual Auto Insurance Co., U. S. District Court Eastern District of Pennsylvania No. No. 5:19-cv-04016, 2020 U.S. Dist. LEXIS 11784 (E.D. Pa. Jan. 24, 2020) (Leeson, Jr., J.)

[UPDATED JANUARY 25, 2020] COURT ACCEPTS GENERAL ALLEGATIONS OF BAD FAITH CONDUCT AS ADEQUATE, BASED ON APPARENTLY LIMITED PLEADING OF UNDERLYING FACTS CONCERNING SEVERITY OF HARM AND LENGTH OF TIME WITH NO PAYMENT, AND LATER DENIES THE INSURER SUMMARY JUDGMENT ON SAME GROUNDS AND EXPERT REPORT ON DEVIATIONS FROM INDUSTRY CLAIM HANDLING STANDARDS (Western District)

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In this UIM breach of contract and bad faith case, the insureds were severely injured by a drunk driver. There was $600,000 in UIM coverage. No UIM payments were made for two years and the insured brought suit. The insurer moved to dismiss both counts.

The court first found the plaintiffs adequately pleaded a breach of the insurance contract. Next, the court drew inferences from the complaint’s averments in allowing the bad faith claim to proceed.

Specifically, plaintiffs pleaded severe injuries, through no fault of their own, that could not be fully compensated by the tortfeasor’s insurance. The complaint alleges that two years after the accident, the insurer “had failed to make any payments whatsoever to [the insureds] under the policy’s UIM coverage provision.” The insureds complied with the terms of the insurance policy at issue, giving reasonable notice of the accident and cooperating with the investigation.

“The complaint further alleges that, in addition to [the insurer’s] unreasonable delay in claims handling and its unreasonable failure to pay benefits, [the insurer] has failed to make a reasonable settlement offer, failed to reasonably and adequately investigate their claims, and failed to reasonably evaluate or review all pertinent documentation provided by the plaintiffs in support of their claim for UIM benefits. Accepting the facts alleged in the complaint as true and viewing them in the light most favorable to the plaintiffs, we find that the plaintiffs have stated a plausible statutory bad faith claim….”

Date of Decision: October 24, 2019

Golden v. Brethren Mutual Insurance Company, U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-cv-02425, 2019 U.S. Dist. LEXIS 183691 (M.D. Pa. Oct. 24, 2019) (Saporito, M.J.)

One month later, the court issued an opinion denying summary judgment on both breach of contract and statutory bad faith. On the contract claim, the court stated that the contractual duty of good faith can be breached through a delay in payment of an inordinate and unreasonable time period.  Within the breach of contract analysis, the court looked to such  issues as the insurer’s claims handling and investigation, the insureds cooperation, and the ultimate claim valuation.

On the statutory bad faith claim, the court identified documents produced by the parties concerning the years long claims handling process. The insurer produced a body of documents in support of its claim that it was in constant communication with the insureds, and the insureds submitted other communication documents including demands on the insurer and medical records to support their bad faith position. The court also considered the insureds expert’s testimony opining that “in the context of industry standard for claims handling, [the] investigation, evaluation and resolution of the plaintiffs UIM claims was unreasonable and intentionally dilatory.”

Taking the evidence in the light most favorable to the non-moving insured, the court found there remained a material dispute of fact concerning the alleged failure to reasonably investigate, evaluate, or pay the claim.

Date of Decision: November 25, 2019

Golden v. Brethren Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-cv-02425, 2019 U.S. Dist. LEXIS 183691 (M.D. Pa. Nov. 25, 2019) (Saporito, M.J.)