Archive for the 'PA – Estimates, Valuation or Appraisal' Category

LARGE DISCREPANCY IN OFFER AND DEMAND ALONE NOT BAD FAITH, WITHOUT MORE FACTS/DETAILS SHOWING HOW OFFER WAS MADE IN BAD FAITH (Middle District)

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The court granted summary judgment to the insurer in this uninsured motorist bad faith case where the settlement offer was a small fraction of the demand.  Middle District Judge Wilson ruled the record only showed a valuation dispute, and that the insurer had conducted a detailed and timely investigation before making its settlement offers, whatever their size.

The court cited in detail the insurer’s investigative efforts in evaluating the claim. The UM policy had a $300,000 limit.  The insured demanded policy limits, and the carrier offered a small fraction of that to settle, while stating the investigation was ongoing.  The insured sued for breach of contract and bad faith.

Middle District Judge Wilson recited the general bad faith standards governing section 8371.  She further observed that, “A dispute as to the value of an insured’s claim is not unusual and does not, without more, amount to bad faith.” Further, “the failure to immediately accede to a demand for the policy limit cannot, without more, amount to bad faith”.

As to bad faith in claim handling, the court observed the carrier opened a file within 9 days of the accident at issue, and the claim representative “conducted an initial review the following day and was in frequent contact with [the insured] regarding the accident and her injuries until this lawsuit was filed.” The court reiterated the representative’s ongoing investigative efforts, and that the claim valuation was delayed by the need to obtain final records on the insured’s treatment.

After receiving and reviewing those records, the carrier “immediately evaluated [the insured’s] claim and offered her $7,500 to settle the UM claim based on … medical treatment and the aggravation of her degenerative disc disease.” After considering the offer, the insured demanded $300,000, which demand the carrier reviewed. After a subsequent discussion, the insured lowered her demand to $100,000.  A month later, however, the demand was again at $300,000.

The carrier continued following up, and offered $9,000, which was rejected.  The insured gave carrier notice she was going for more medical treatment. The claim representative reviewed the notes of that treatment, once completed, and increased the settlement offer to $11,500.  The demand remained at $300,000, and more medical care followed which the claim representative reviewed.  There were no additional demands before suit was filed.

With no evidentiary support in the record, the insured asserted “there is ‘irrefutable proof’ that [the insurer] acted in bad faith due to the ‘nominal offers’ that ‘fail to align with Plaintiff’s injuries and/or damages.’” Without more, the argument failed on its face, Judge Wilson stating, “the Third Circuit and this court have made clear, a disagreement over the value of [the insured’s] claim and failing to merely offer the policy limits does not equate to bad faith, without more, on the part of [the insurer].

Judge Wilson relies on the Third Circuit’s oft-cited Smith decision, summarized here, and Middle District Judge Caputo’s 2010 Calestini opinion, summarized here.  In, sum, Judge Wilson finds that the insured “has not provided anything more that would cause the court to find that [the insurer] did not have a reasonable basis for denying benefits.

Among recent decisions, it is interesting to compare and contrast this decision  with Judge Pratter’s Brown opinion, summarized here, and Western District Judge Haines’ Professional, Inc. decision, summarized here, applying the same principles to reach a similar result; and Western District Magistrate Judge Kelly’s opinion in Faith, summarized here, where a large discrepancy between an expert report on medical damages ($388,000) and a refusal to pay policy limits ($50,000), combined with an alleged failure to investigate, was sufficient to state a bad faith claim.

Date of Decision:  September 22, 2021

DeLuca v. United Financial Casualty Company, U. S. District Court Middle District of Pennsylvania No. 3:19-CV-01661, 2021 WL 4306119 (M.D. Pa. Sept. 22, 2021) (Wilson, J.)

NO STANDING WHERE INSURER DID NOT ISSUE POLICIES; VALUATION DISPUTE IS NOT BAD FAITH (Western District)

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There were serious issues in this case as to whether the assignee of over 100 claims named the proper defendant/carrier, and whether the assignors even had insurance policies with the defendant carrier, with the exception of one assignment.  The court found that even if the plaintiff/assignee could bring claims, despite dispositive standing issues, no bad faith conduct was established on the record before the court on this summary judgment motion. Thus, the bad faith claims were rejected.

The court found there was at most a dispute over how much the insurer should pay toward certain losses.  Western District Judge Haines states:

Plaintiff’s disagreements with Defendant’s estimates and testimony indicating additional estimates were required and Defendant paid the market labor rate does not show Defendant was acting in bad faith. See Clarke v. Liberty Mut. Ins. Co., … citing Smith v. State Farm Mut. Auto. Ins. Co., … (“Courts have consistently held that a dispute or discrepancy in the valuation of a claim between the insurer and the insured is not alone indicative of bad faith, nor is it sufficient by itself to state a bad faith claim.”); West v. State Farm Ins. Co., … (“A ‘low-ball’ offer alone does not suffice to support a claim for bad faith. ‘[B]ad faith is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages.’ ”); Pfister v. State Farm Fire & Cas. Co., … (discrepancy in parties’ valuation of claim “alone is not evidence of bad faith; Pennsylvania law generally does not treat as bad faith an insurer’s low but reasonable estimate of an insured’s losses”); Williams v. Hartford Cas. Ins. Co., 83 F. Supp. 2d 567, 576 (E.D. Pa. 2000) (“negotiating by offering a figure at the low end of the settlement range does not necessarily constitute bad faith, particularly when the valuation of the injuries and damages of a claim is difficult”). Plaintiff has failed to produce clear and convincing evidence that Defendant acted in bad faith in order to survive summary judgment, and Defendant is entitled to judgment on this claim.

Date of Decision:  September 20, 2021

Professional, Inc. v. Progressive Casualty Insurance Company, U.S. District Court Western District of Pennsylvania No. 3:17-CV-185, 2021 WL 4267497 (W.D. Pa. Sept. 20, 2021) (Haines, J.)

BAD FAITH CLAIM PLAUSIBLY STATED FOR INSURER FORCING A CLAIM INTO LITIGATION WHEN IT ALLEGEDLY KNEW POLICY LIMITS WERE DUE AND REFUSED TO PAY THEM (Western District)

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Plaintiff successfully stated a bad faith claim in this underinsured motorist case.

Plaintiff alleged serious injuries, lost earnings and earning capacity, and emotional injuries. The UIM policy limit was $50,000.  The insured submitted documented medical claims showing the severity of his injuries, and a life care plan indicating over $388,000 in future medical expenses.  More specifically, the insured “provided documentation and medical records for a period immediately following the accident through October 1, 2020 connecting cervical root compression and bilateral disc protrusion with surgical ablation to the motor vehicle accident on August 11, 2018, and reflecting that [the insured] will require $388,117 in future medical care and related expenses).”

In addition, the insured alleged the carrier “failed (and continues to fail) to investigate and process his claim given information showing the seriousness of his injuries and resulting economic loss stemming from the accident.  Moreover, [the insurer] allegedly is “[f]orcing the plaintiff … to proceed to litigate his claims to recover underinsured motorist benefits.”

The carrier refused to pay the $50,000 limit, and the insured brought claims for breach of contract and bad faith.  Magistrate Judge Kelly found the insured set out a plausible bad faith claim, based on these allegations over the severity of the injuries, the huge gap between the policy limit and the alleged medical damages, and the insurer’s forcing the insured to litigate the UIM claim instead of paying policy limits.

The court recited the usual bad faith standards, including the standards that statutory bad faith can exist in the absence of a benefit denial, solely for a variety of poor claims handling practices.  [As noted for the last 14 years on this Blog, poor claim handling in the absence of any duty to pay or provide a benefit, as opposed to delaying in paying a benefit owed, should very likely not be the basis of a bad faith claim under Toy v. Metropolitan.  One of our many posts on the subject can be found here.]

In addition, and of considerable interest, the court stated that:

As particularly relevant to the allegations here, “bad faith is actionable regardless of whether it occurs before, during or after litigation…. [Moreover], using litigation in a bad faith effort to evade a duty owed under a policy would be actionable under Section 8371.” Hart v. Progressive Preferred Ins. Co., No. 17-1158, 2017 WL 11485593, at *3 (W.D. Pa. Dec. 6, 2017) (quoting W.V. Realty, Inc. v. Northern Ins. Co., 334 F.3d 306, 313 (3d Cir. 2003)). The required inquiry is fact specific and “depend[s] on the conduct of the insurer vis à vis the insured.” Condio v. Erie Ins. Exch., 899 A.2d 1136, 1143 (Pa. Super. 2006).

A summary of Hart,  a Report and Recommendation issued by Western District Magistrate Judge Mitchell, can be found here. He has served in the capacity of a Magistrate Judge since 1972.  The 2017 Hart case was dismissed before the R&R was adopted, but as any seasoned Pennsylvania practitioner knows that even Magistrate Judge Mitchell’s Reports and Recommendations will be treated seriously.

Date of Decision:  September 8, 2021

Faith v. State Farm Mut. Auto. Ins. Co., U.S. District Court Western District of Pennsylvania No. 21-CV-0013, 2021 WL 4078658 (W.D. Pa. Sept. 8, 2021) (Kelly, M.J.)

NO BAD FAITH PLEADED: (1) 38 BAD FAITH ALLEGATIONS ALL CONCLUSORY; (2) ONLY A VALUATION DISPUTE; (3) INSURER DID NOT “CONSTRUCTIVELY IGNORE” RECORDS SUPPORTING CLAIM; (4) NO DILATORY CONDUCT SPECIFICALLY PLEADED; (5) “LOW BALL” OFFER ALLEGATION ISN’T SUFFICIENT IN ITSELF TO STATE A BAD FAITH CLAIM (Philadelphia Federal)

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“If at first you don’t succeed, try and try again.”  That didn’t work in this case, where a bad faith claim was dismissed with prejudice after Eastern District Judge Pratter had already given the plaintiff leave to replead. A summary of Judge Pratter’s original decision in this uninsured motorist bad faith case can be found here.

In her second decision, Judge Pratter finds, among other things:

  1. “All told, the Amended Complaint contains a list of 38 ways in which Liberty Mutual allegedly acted in bad faith. But this list is a list of conclusions—not facts.”

  2. “[T]here are no details that would describe what was supposedly unfair about the process, other than that [the insured] disputes the value of the settlement offer.”

  3. There is no plausible for “constructively ignoring” medical records because the reviewer was not “medically educated”. “[T]here is nothing pled that the claims adjusters are somehow ill-equipped to perform their job—which entails reviewing medical records in connection with a claim.”

  4. The Court’s first opinion signaled the insured needed to plead more specific facts to support an allegation of bad faith dilatory conduct, “i.e., the number of months between demand and settlement offer.” However, “[t]he Amended Complaint does not describe the course of the parties’ dealings, let alone whether Liberty Mutual delayed its offer of settlement.”

  5. “In the final analysis, the Amended Complaint reflects a disagreement over the amount of settlement of [the insured’s] claim. To state a bad faith claim, an insured must do more than call [the insurer’s] offers ‘low-ball.’” As the Court explained at length in its prior opinion, this appears to be a familiar dispute between parties over the entitlement to UM coverage as an initial matter as well as the value of a claim to UM benefits. Moreover, accepting the well-pleaded allegations as true that [the insured] is indeed entitled to UM benefits, it does not necessarily follow that she is entitled to the limit of that coverage. A policy limit—as its name suggests—is the theoretical maximum that an insured could recover. ‘It is not the de facto value of a claim.’”

Date of Decision:  August 26, 2021

Brown v. LM Gen. Ins. Co.,  U.S. District Court Eastern District of Pennsylvania 2021 No. CV 21-2134, WL 3809075 (E.D. Pa. Aug. 26, 2021) (Pratter, J.)

MERE EXISTENCE OF CONTINUING INVESTIGATION AND NEGOTIATION RATHER THAN AN ARBITRARY AND IMMEDIATE DENIAL IMPLIES REASONABLENESS ON THE PART OF THE INSURER (Philadelphia Federal)

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The insureds brought breach of contract and bad faith claims in connection with water damage to their home.  Eastern District Judge Tucker granted the insurer summary judgment on the bad faith claim.  She states

When Plaintiffs’ home was damaged by an overflowing toilet, [the insurer] inspected the loss and made payments on the dwelling damage and personal items it determined to be related to the loss. Later, when Plaintiffs submitted other estimates, [the insurer] reviewed those estimates to determine if payment was warranted, and that the scope of those estimates was in line with its own damage observations. When there were concerns on scope and pricing, [the insurer] asked for re-inspections and negotiated with Plaintiffs. Plaintiffs argue that the denial of payment is unreasonable because under a “replacement cost policy” like theirs, Defendant is to make payment on an actual cash value basis until the repairs are made, after which depreciation is payable to the policy holders. But Plaintiffs fail to present sufficient evidence of unreasonableness in their claim processing. While claim negotiations were ongoing at the time suit was initiated, and reimbursement or denial of depreciation costs may have eventually taken place, the mere existence of continuing investigation and negotiation rather than an arbitrary and immediate denial implies reasonableness on the part of Defendant.

Date of Decision:  August 13, 2021

Davis v. Safeco Insurance Company of Illinois, U.S. District Court Eastern District of Pennsylvania No. CV 19-3871, 2021 WL 3603037 (E.D. Pa. Aug. 13, 2021) (Tucker, J.)

 

WESTERN DISTRICT JUDGE STICKMAN ISSUES TWO BAD FAITH OPINIONS: (1) DIFFERENCE IN VALUATION ALONE IS NOT BAD FAITH; (2) BAD FAITH CANNOT BE PURSUED AGAINST CARRIER’S CLAIM ADJUSTER (Western District)

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On July 19th, Judge Stickman held in Stegena v. Nationwide, that simply pleading the insured’s injuries are worth significantly more than the carrier’s valuation of the same injuries cannot, by itself, constitute bad faith.  One week later, Judge Stickman opined in the Alexander v. Mid-Century, that an insured could not bring breach of contract or bad faith claims against a carrier’s claim adjuster.

Valuation dispute alone cannot constitute bad faith

In this undersinsured motorist breach of contract and bad faith case, the insured’s “argument in support of her statutory bad faith claim consists almost entirely of nothing more than a bare recitation of the materials and evidence submitted in support of her claim, together with monetary valuations included in the opinions of experts procured after the initiation of this litigation….”

Judge Stickman found the complaint alleged a claim handling history that did not make out a plausible bad faith claim, with the insured trying to meet her clear and convincing evidence burden by simply emphasizing the amount of damages her experts found due to compensate her damages, which the carrier would not pay. Judge Stickman states: “The problem with [the insured’s] argument is that, although she provides sizeable dollar amounts, which her experts claim represent prospective lost wages and medical expenses, her argument fails to address the present issues before the Court—why there was an absence of a reasonable basis, or how [the insurer] knew or recklessly disregarded that absence.”

He recognizes that “under the right circumstances, an unsupported low-ball offer may support a claim for insurance bad faith … [but] it remains [the insured’s] burden to scrutinize the relationship between [the insurer’s] considerations and determinations.” Here, the insured’s failure to “identify, with any specificity, factual deficiencies illustrating the unreasonableness of [the insurer’s] conduct, demonstrates that her claim is more properly characterized as an inappropriate, generalized grievance over the monetary valuation of her claim.” Moreover, the record showed the carrier’s “investigation and determinations, and, more specifically, the process that he used to evaluate and value the claim … cannot be characterized as anything other than reasonable, as that term applies in the bad faith context.”

Judge Stickman cites Judge Caputo’s 2019 Moran decision in support, summarized here, where the Middle District court collected cases on valuation discrepancies and bad faith.

Finally, in reciting case law detailing Pennsylvania’s statutory bad faith standards, we observe that Judge Stickman quoted the long-standing principle that “an insurance company is not required to demonstrate its investigation yielded the correct conclusion or even that its conclusion more likely than not was accurate. The insurance company also is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion. Rather, an insurance company simply must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”

Date of Decision:  July 19, 2021

Stegena v. Nationwide Property & Casualty Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-428, 2021 WL 3038800 (W.D. Pa. July 19, 2021) (Stickman, J.)

No viable breach of contract or bad faith claim against individual adjuster

The insured brought  breach of contract and bad faith claims against both his insurer and its claim adjuster.  The defendants moved to dismiss, arguing there was no viable claim against the adjuster, and that the adjuster was joined to improperly destroy diversity jurisdiction and prevent removal to federal court.

Judge Stickman found Pennsylvania case law made clear that neither a breach of insurance contract or insurance bad faith claim could be pursued against an individual claim adjuster working for the insured’s carrier.  He cites the 2017 Pennsylvania Superior Court decision in Brown v. Everett, summarized here, holding that “a statutory action for bad faith can only be brought against the insurer,” and not an adjuster.

Judge Stickman rejected the argument that the adjuster could be sued under the “participation theory,” finding that theory inapposite to the context of an insurance adjuster handling a claim for an insurance company.  Thus, he dismissed the claims against the adjuster with prejudice, which further resulted in jurisdiction over the remaining claims against the insurer being proper in federal court.

Date of Decision:  July 26, 2021

Alexander v. Mid-Century Insurance Company, No. 2:21-CV-392, U.S. District Court Western District of Pennsylvania 2021 WL 3173621 (W.D. Pa. July 26, 2021) (Stickman, J.)

COURT ADDRESSES (1) COMMON LAW VS. STATUTORY BAD FAITH STANDARDS; (2) LACK OF CLARITY IN THE LAW AND BAD FAITH; (3) DELAYS IN CLAIM HANDLING AND SETTLEMENT OFFERS; (4) APPLYING THE UNFAIR INSURANCE PRACTICES ACT IN BAD FAITH CASES; (5) AGGRESSIVE DISCOVERY/CLAIM HANDLING DURING LITIGATION; and (6) LOW RANGE SETTLEMENT OFFERS (Philadelphia Federal)

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Eastern District Judge Tucker explains the similarities and differences between common law and statutory bad faith, in granting the insurer summary judgment on the statutory bad faith claim, but rejecting dismissal of the common law bad faith claims.  She observes both types of bad faith are subject to the clear and convincing evidence standard. However, common law bad faith only requires proof of negligent claim handling, while statutory bad faith requires a knowingly or recklessly unreasonable claim denial.

Judge Tucker cites Judge McLaughlin’s 2007 Dewalt case as authority on the negligence standard.  Judge Tucker does focus on the Cowden type of common law bad faith in discussing these standards, i.e., an insurer can avoid a common law bad faith claim for failure to settle within policy limits by showing “a bona fide belief … predicated on all the circumstances of the case, that it has a good possibility of winning the suit.”  This kind of third party insurance bad faith claim was not before the court.  Rather, the facts involved an underinsured motorist claim.

In an earlier decision, Judge Tucker entered judgment for the insurer on the basis the plaintiff did not qualify as an insured under the policy.  The Third Circuit reversed her decision.  While true the policy language did not provide the plaintiff UIM coverage, the Third Circuit found this limitation violated Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).

On remand, the insured argued that the policy was issued in bad faith because it included language violating the MVFRL.  Judge Tucker rejected the common law bad faith claim on this point.  There was no precedent or binding authority on point before the Third Circuit’s decision, and the carrier’s position, while ultimately incorrect, was not unreasonable. “This matters because an insurer making a reasonable judgment as to coverage in a situation where the law is not clear cannot be liable for bad faith.”

This did not end the common law bad faith inquiry. Once the Third Circuit ruled, making the law applied to the policy crystal clear, this changed the measure of the insurer’s behavior, i.e., at that point the carrier knew it had an obligation to provide UIM coverage. In determining the common law bad faith claim, Judge Tucker stated:

  1. Conduct that postdates the start of litigation can form the basis for a proper bad faith claim.

  2. After the Third Circuit ruled that the Nationwide policy violated the MVFRL, Nationwide did not extend a settlement offer for ten months after the decision.

  3. When Nationwide did present an offer … it was for just $500,000 of the UIM benefits—in exchange for releasing the bad faith and class action claims.

  4. This offer was doubled a week later to $1 million, but it was contingent on a broader release of all disputes related to coverage.

  5. A failure to “promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy” is considered an unfair insurance practice under Pennsylvania law. 40 Pa. Stat. Ann. § 1171.5(a)(10)(xiii).

  6. The [UIPA] also singles out a refusal to “effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear” as a similarly unfair insurance practice.

  7. While a violation of the Unfair Insurance Practice Act (UIPA) does not constitute a per se violation of the bad faith statute, it does point to a material fact that could support a common law bad faith claim. [Judge Tucker observes apparently contrasting case law on this point, quoting some cases to the effect that UIPA violations are not bad faith per se, and another that “the rules of statutory construction permit a trial court to consider … the alleged conduct constituting violations of the UIPA or the regulations in determining whether an insurer, like Nationwide, acted in ‘bad faith.”]

  8. Again citing Dewalt, Judge Tucker states: The fact that Nationwide offered a settlement is also not a safe harbor from a bad faith claim. “Although most Pennsylvania cases finding bad faith do so in situations where an insurer refuses to settle, no case suggests that such a refusal is a pre-requisite for a bad faith claim.”

  9. Judge Tucker concludes that: Given the resolution of the disputed terms in the Nationwide policy by the Third Circuit, Defendant’s refusal to provide an unconditioned settlement for a claim under those terms is enough evidence that a reasonable jury could find in favor of Plaintiff on the common law bad faith claim.

Thus, the common law bad faith was allowed to proceed. The statutory bad faith claim was not.

The pre-suit conduct, i.e., drafting the policy with a clause violating the MVFRL, certainly could not be bad faith under the higher statutory standards if it did not constitute negligence under the common law standard.  Plaintiff could not show by clear and convincing evidence that the policy language and the carrier’s conduct in following that language was objectively unreasonable at the time, much less in knowing or reckless disregard of some unreasonable conduct.

As to litigation conduct after the Third Circuit had ruled, the insurer pursued aggressive discovery.  [This discovery was essentially the insurer’s claim handling at this point.]  Judge Tucker laid out the details of the insurer’s discovery/claim handling and specific events over the course of discovery/claim handling.  This included the insurer’s making a number of reasonable requests for information and the insured’s creating delays.  The carrier’s zealous, and maybe at times questionable, defense tactics did not equate to bad faith.

Judge Tucker also observed that offers on the low end of a settlement range for subjective damages such as pain and suffering do not constitute clear and convincing evidence that the insurer’s action were unreasonable, knowing or reckless.  These sorts of claims require investigation, and the carrier’s discovery on these issues amounted to standard claim handling.

Judge Tucker next stated that the insurer’s 10 month delay in making a settlement offer, absent other aggravating factors, was “well under periods of time that have been deemed acceptable for statutory bad faith purposes.”

Judge Tucker also found it significant that the insurer “communicated with Plaintiff during discovery, sending multiple document requests and communicating with Plaintiff’s counsel, which is arguably more responsive than the amount of communication Defendant received in response. This too weighs against whether a reasonable jury could rule that Nationwide had knowing or reckless disregard for the deficiency of its position.”

Thus, summary judgment was denied on the statutory bad faith claim.

Date of Decision:  July 14, 2021

Slupski v. Nationwide Mutual Insurance Company, U. S. District Court Eastern District Pennsylvania No. CV 18-3999, 2021 WL 2948829 (E.D. Pa. July 14, 2021) (Tucker, 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.)

BAD FAITH CLAIM PREMATURE IN LIGHT OF ONGOING APPRAISAL PROCESS; UTPCPL DOES NOT APPLY TO CLAIM HANDLING (Philadelphia Federal)

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This case involves a first party fire loss to the insured’s home.  The insured’s public adjuster estimated damages at over $300,000. The insurer’s adjuster issued a number of reports that consecutively lowered the damage estimate. The final report was less than a ¼ of the plaintiff’s estimate. These differences resulted in the carrier invoking the appraisal process, which was pending at the time this suit was filed.

The insured sued the insurer for breach of contract, bad faith, fraud, conspiracy to commit fraud and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL).  The last three claims also were made against the carrier’s independent adjuster.

The court dismissed the breach of contract claim because the matter was subject to the ongoing appraisal process.  Judge Padova observed that while there is some right of appeal from the completed appraisal process, the scope of appeal is limited.  Dismissal was without prejudice to pursue those limited appellate rights after the appraisal process ended.  Judge Padova rejected the insured’s argument that this was actually a coverage dispute, rather than a valuation dispute.

Next, Judge Padova stayed the bad faith claim as premature. Because the appraisal process was ongoing, the carrier had never actually denied the claim.  Judge Padova did appear to recognize, however, the insured had pleaded a potential bad faith claim. This was based on allegations concerning the insurer’s involvement in the various decreasing loss estimates, which it allegedly knew were incorrect.

The fraud and UTPCPL claims failed to allege justifiable reliance, and were dismissed.

In addition, as to the UTPCPL claims, Judge Padova states:

Moreover, we note that recent Pennsylvania caselaw has stated that “[t]he UTPCPL applies to consumer transactions, which are statutorily defined[, and] the handling of an insurance claim does not meet the statutory definition.” … Under this authority, “[t]he UTPCPL applies to the sale of an insurance policy, it does not apply to the handling of insurance claims,” and the bad faith statute, 42 Pa. Cons. Stat. § 8371, “provides the exclusive statutory remedy applicable to claims handling.” … Accordingly, for this reason as well, we conclude that Plaintiff’s UTPCPL claim, which is grounded on deceptive conduct in the handling of her insurance claim, cannot state a claim upon which relief can be granted.

Date of Decision:  June 1, 2021

Bussie v. American Security Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-3519, 2021 WL 2206282 (E.D. Pa. June 1, 2021) (Padova, J.)

OUR 1800TH POST: (1) RESERVES DISCOVERABLE; (2) COMMUNICATIONS RETAINING COUNSEL NOT DISCOVERABLE; (3) ISO CLAIM HISTORY REPORT DISCOVERABLE; (4) ASSET REPORT ON TORTFEASOR NOT DISCOVERABLE; (5) CLAIM EVALUATION REPORT ONLY HAS LIMITED WORK PRODUCT PROTECTION; (6) INTERNAL NOTES FULLY PROTECTED ON ATTORNEY COMMUNICATIONS, BUT LIMITED WORK PRODUCT PROTECTION; (7) DEPOSITIONS MAY INQUIRE INTO AREAS WITH ONLY LIMITED WORK PRODUCT PROTECTION (Philadelphia Federal)

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It has been nearly 15 years since our first bad faith blog post, summarizing an opinion by the late Judge Albert Sheppard.  Today’s summary is our 1,800th post

This Eastern District opinion addresses discovery issues in a UIM bad faith case, including document production and issues arising out of plaintiff seeking to depose the insurer’s claim adjuster and corporate designee.  Magistrate Judge Perkin had already addressed numerous discovery issues in this case in an earlier opinion, summarized here, and now addresses the remaining issues after conducting an in camera review of certain documents on the insurer’s privilege log.

Reserves discoverable in bad faith valuation dispute

Magistrate Judge Perkin observed, “District Courts within the Third Circuit are split on the question of whether reserves are discoverable in bad faith cases.”  He relied on Middle District Magistrate Judge Carlson’s Barnard decision, summarized here, holding that in bad faith cases, reserves are discoverable if the bad faith claim is based on a valuation dispute, rather than outright coverage denial.  As the present case involved a valuation dispute, reserves were discoverable.

Magistrate Judge Perkin further rejected the argument that the reserves were protected work product.  Applying the Federal Rules of Civil Procedure, he found that the insurer did “not argue that its reserves were prepared in anticipation of litigation or other than in the normal course of business.”

Internal emails regarding receipt of this lawsuit and assignment to legal counsel not discoverable

The insurer “withheld internal emails regarding receipt of the lawsuit and assignment to its legal counsel. Defendant’s privilege log indicates that these documents were withheld on the grounds that the information is ‘work product, mental impression, confidential, and post litigation.’ After in camera review, this Court finds that the documents have been appropriately withheld. These documents, dated after the lawsuit was filed, are protected by both attorney-client privilege and the work-product doctrine as the communications were made with the purpose of seeking legal advice and discuss litigation strategy.”

ISO claim search report discoverable

“[T]he ISO Claims Search Database is a nationwide database utilized by insurance companies to track claims history and detect fraud. Defendant withheld the report on Plaintiff’s claims history on the basis that it is not relevant.” The court found the information “relevant to Plaintiff’s bad faith claim to the extent that it is a factor Defendant considered in evaluating Plaintiff’s Underinsured Motorist Claim.”

Asset report for consent to settle/waiver of UIM subrogation purposes not discoverable

Defendant withheld the asset search of the tortfeasor in the underlying motor vehicle accident action, on the basis of irrelevance and confidentiality. The court agreed it was irrelevant to the bad faith claim at issue

Insurer’s evaluation report for plaintiff’s UIM claim: no attorney-client privilege protection and limited work product protection

The insurer withheld its evaluation report on the UIM claim based on “work product, mental impression, attorney-client, confidential, and post litigation.” Magistrate Judge Perkin found “these documents consist of not only the final evaluation of Plaintiff’s claim prepared by claims personnel … but also a detailed history of all updates made by claims adjusters to the report beginning on … the date Plaintiff settled with the tortfeasor.”

First, the court found these documents were not subject to the attorney-client privilege. “[T]he privilege bars discovery of confidential communications made between attorneys and clients for the purpose of obtaining or providing legal assistance to the client. …  The privilege does not apply to the ‘disclosure of the underlying facts by those who communicated with the attorney.’” “The evaluation report contains no communications between Defendant and its counsel. Rather, the report contains a series of notations regarding the claim by the claims adjuster….”

Next, Magistrate Judge Perkin dove deep into an analysis of the work product doctrine, addressing the difficult question of when the normal duty to investigate a claim turned into a period where the insurer reasonably anticipated litigation.

Thus, to determine the work-product doctrine’s applicability:

  1. A court must “first establish when Defendant reasonably anticipated litigation.”

  2. “The party asserting work product protection must demonstrate that it subjectively anticipated litigation, and that the anticipation was objectively reasonable.”

  3. “While the court must initially focus on the state of mind of the party preparing, or ordering preparation, of the document, that person’s anticipation of litigation must be objectively reasonable for the work product protection to apply.”

  4. “A party’s anticipation of litigation is objectively reasonable if ‘there existed an identifiable specific claim or impending litigation when the materials were prepared.’”

Magistrate Judge Perkin looked for guidance in Judge Sanchez’s 2014 Borgia opinion, summarized here, and Judge Leeson’s 2016 Wagner decision, summarized here.

In the present case, plaintiff’s counsel first demanded policy limits on January 12, 2018, and the insurer engaged counsel to investigate and evaluate the claim on April 19, 2018.  After being retained, the insurer’s counsel conducted a statement under oath, subpoenaed medical records and assisted in obtaining an IME.

“On July 20, 2018, after the Statement Under Oath was completed, Plaintiff’s counsel again made a demand for policy limits, though she made no threat or mention of litigation. Reviewing the e-mails between counsel, it appears that, from July 20, 2018 through February 27, 2019, the communications involved only requests for authorization of medical records and scheduling of the independent medical examination. On August 26, 2019, the independent medical examination occurred. Shortly after, on September 3, 2019, Plaintiff filed this lawsuit.”

Counsel’s communications indicated plaintiff sought full UIM limits but never threatened litigation. Further, “the communications between counsel from July 20, 2018 through February 7, 2019 concerned continued requests for medical records and authorizations to fully assess Plaintiff’s claim.”

Further, this was not a case where insurer’s claim valuation and the policy limit demand were so far apart that a reasonable insurer would believe litigation could arise, until the August 26, 2019 IME. Magistrate Judge Perkin found it was only at the time the IME concluded in August 2019 that it was “likely that Defendant had determined Plaintiff’s demand for payment in the amount of the policy limit exceeded its expected offer for settlement.” Thus, he held the insurer reasonably anticipated litigation no later than the date the IME concluded, and ordered production of unredacted claim handling entries on the evaluation reports prior to that date.

Internal file notes reflecting communications with counsel protected, but those based on work product are only partially protected

The insurer redacted all information in its internal file notes concerning communications with legal counsel, UIM strategy and evaluation, and claim handling on the basis of “work product, attorney-client, confidential, mental impression, not relevant, and post litigation.” The redactions “appear to be an account of all updates made on the handling of Plaintiff’s claim by the claims adjuster….” Based on the earlier work product analysis, “any entries made prior to August 26, 2019 redacted on the basis of the work-product doctrine are discoverable and must be produced.”

This included the adjuster’s summary of the insured’s statement under oath.

“Any redactions made due to the attorney-client privilege are appropriately redacted, and need not be produced, as they are summaries of communications between the claims adjuster, in-house counsel, and outside counsel.”

Scope of permissible subjects for inquiry at deposition of corporate designee and adjuster

As stated above, plaintiff could not direct questions to either deponent about attorney-client communications.  Plaintiff could ask about underlying facts, even if those facts were also communicated to counsel for counsel’s consideration in evaluating the matter, regarding what facts were considered in not offering policy limits.

As to work product, per the above reasoning, “Plaintiff’s counsel must limit any questions under this matter for examination to the time period before August 26, 2019.”

Date of Decision:  May 27, 2021

Sanchez v. State Farm Mutual Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 2156367 (E.D. Pa. May 27, 2021) (Perkin, M.J.)