Archive for the 'PA – Federal Pleading Adequate' Category

COURT FINDS LOW OFFER IN FACE OF VERIFIED LOSSES SUFFICIENT TO STATE A BAD FAITH CLAIM (Middle District)

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Middle District Magistrate Judge Carlson’s Report and Recommendation, adopted by Judge Mariani, provides a lucid and detailed overview of the case law governing pleading standards in statutory bad faith cases. A copy of that R&R can be found here.

In this UIM case, Magistrate Judge Carlson found the insured pleaded enough to survive a motion to dismiss the bad faith claim, though it was a close case. He states:

“In reaching this conclusion, we find that [the] complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute. Rather, as we construe the complaint, it describes a scenario in which the plaintiff … suffered injuries that led to a confirmed and verifiable wage loss and out-of-pocket medical expense totaling $31,773.70. [The insured] recovered $30,000 from the under-insured motorist’s insurance carrier, but when he submitted proof of his losses to his own insurer … he was offered only $1,500, a sum which, when combined with the $30,000 payment from the tortfeasor’s insurance company, still fell below his verified wage and out-of-pocket medical expenses.”

[Note:  Although the discrepancy between the fixed damage claim and total insurance payments received and offered is only $223.70, in addition to the wage loss and medical expenses the insured pleaded “significant injuries to multiple levels of his neck and back which caused or aggravated herniated discs and required multiple pain injections.”]

Magistrate Judge Carlson continues:

“In our view, these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim. Rather, they allege a failure to pay the full, verified value of the insured’s claim. On this score, we recognize that a bad faith denial of an insurance claim may constitute a violation of § 8371, but in this setting, [i]n order to show bad faith, a claimant must ultimately establish by clear and convincing evidence both that: 1) the insurer lacked a reasonable basis for denying benefits; and 2) the insurer knew or recklessly disregarded its lack of reasonable basis.” (Internal quotation marks omitted)

“While this is an exacting burden of proof, these bad faith determinations are often fact-bound decisions that are not amenable to resolution on the pleadings alone. Instead, [i]n deciding whether an insurer had a reasonable basis for denying benefits, a court should examine what factors the insurer considered in evaluating a claim. ‘Bad faith claims are fact specific and depend on the conduct of the insurer vis à vis the insured.” (Internal quotation marks omitted)

“Thus, while [the insurer] vigorously disputes these averments of bad faith and argues that the facts alleged by the plaintiffs support a prudent effort on its part to thoroughly examine and resolve a potentially meritless claim, this argument invites us to go beyond the pleadings themselves and resolve essentially factual questions. This is a task which, in our view, may not be performed on consideration of a motion to dismiss, where we must simply assess the adequacy of the pleadings. Accordingly, we should decline this invitation to resolve this bad faith claim as a matter of law on the pleadings but deny this motion without prejudice to renewal of any summary judgment motion at the close of discovery.”

Dates of Decision: December 8, 2020 (Report and Recommendation), December 23, 2020 (Order Adopting Report and Recommendation)

Mertz v. Mid-Century Insurance Company, U.S. District Court for the Middle District of Pennsylvania No. 3:20-CV-690, 2020 WL 7647959 (M.D. Pa. Dec. 8, 2020) (Carlson, M.J.) (Report and Recommendation), adopted on December 23, 2020 (Mariani, J.)

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.)

PLAUSIBLE BAD FAITH WHERE INSURER’S POSITION RESULTS IN ILLUSORY COVERAGE; NO BAD FAITH WHERE NO COVERAGE DUE (Western District)

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This case centers on a dispute between the insureds and their homeowners carrier over whether the carrier had agreed to policy limit increases based on a multi-million dollar renovation.  The court details a series of alleged telephone communications between the insureds and the carrier, which the insureds claim committed the carrier to the policy limit increases.  This all occurred before the fire loss at issue.

In addition, the policy included a provision for “Home Protection Coverage”. This provision provides for a 25% coverage extension on existing policy limits.  “Essentially, the Home Protector Coverage’s purpose is to provide extended coverage in the event a homeowner’s losses exceed the policy’s coverage limits.”  The insureds also they did everything necessary for the Home Protection Coverage to be in place at the time of their fire loss.

The carrier asserted to the contrary that there was both no evidence properly documenting an increase in policy limits, or that the insureds met the requirements needed to receive the Home Protection Coverage. The insurer rejected claims for the higher limits and the Home Protection Coverage, and the insureds sued for breach of contract, statutory bad faith, promissory estoppel, and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL).

Breach of Contract Claims Partially Survive

The court dismissed the breach of contract claim for extended policy limits, without prejudice. There was no plausible claim that a contract existed as such or through the reasonable expectations doctrine.

However, the court found the breach of contract claim for the “Home Protection Coverage” stated a plausible claim.  The court held that to find otherwise would make the relevant policy language illusory.

BAD FAITH

The court set forth various principles on statutory bad faith, though incorrectly stating that the insured must demonstrate some motive of self-interest or ill will.

Plausible Bad Faith Claim Stated for Pursuing Argument that would make Coverage Illusory

The court found the insureds stated a plausible bad faith claim as to the denial of Home Protection Coverage. The insureds alleged they paid their premiums, gave notice of renovations, and timely submitted their coverage claims. “Plaintiffs thus assert that Defendant ‘unreasonably denied the benefits’ and ‘had knowledge of their lack of reasonable basis for denying benefits.’”

More specifically, at the pleading stage, the Court had already “rejected carrier’s interpretation of the Home Protector Coverage … and thus cannot accept Defendant’s argument that its basis for denial of Home Protector Coverage was reasonable because Plaintiffs ‘could not show that their property was fully insured for replacement cost at policy inception.’ …. Such an interpretation would construct an illusory promise of coverage, which the Court has already determined it should not entertain.”

Failure to State Plausible Bad Faith Claim where no Coverage is Due

As to the bad faith claims concerning extending the policy limits, the Complaint did not set out a plausible claim.  As stated above, the court ruled the insureds failed to plead a plausible claim for breach of contract on extending policy limits through the various telephone communications or failing to reschedule an inspection. “As such, the Court agrees with Defendant that in ‘the absence of insurance coverage, there can be no bad faith by the insurer as a matter of law.’” As with the contract claim, dismissal was without prejudice.

Promissory Estoppel and UTPCPL

The court rejected that promissory estoppel could create or increase insurance coverage.  It allowed the claim to proceed, but solely as to amending allegations that could go to the breach of contract claims.

The court agreed that the UTPCPL could not create liability for claims handling. It was not clear to the court, however, whether the alleged deceptive conduct occurred at times other than during claims handling.

The court then carries out a fairly detailed analysis of significant UTPCPL concepts such as malfeasance vs. nonfeasance, pleading intent, pleading with particularity, and whether the gist of the action doctrine might apply.

The court concludes, “while Plaintiffs’ averments of deceptive conduct are not categorically barred by the UTPCPL to the extent set out above, Plaintiffs have not pled their claim with the level of particularity required by Pennsylvania law. Accordingly, the Court grants Defendant’s Motion to Dismiss … without prejudice and with leave to amend.”

Date of Decision: September 24, 2020

Luketich, v. USAA Casualty Insurance Company, U.S. District Court for the Western District of Pennsylvania No. 2:20-CV-00315, 2020 WL 5669017 (W.D. Pa. Sept. 24, 2020) (Hornak, 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.)

COMPLAINT ALLEGES SUFFICIENTLY DETAILED CHRONOLOGY OF FACTS TO SUPPORT PLAUSIBLE BAD FAITH CLAIM (Middle District)

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The UIM plaintiff brought breach of contract and statutory bad faith claims. The insurer moved to dismiss the bad faith claim.

The complaint sets out 28 paragraphs with factual allegations.  In his decision, Magistrate Judge Carlson recites 15 of those paragraphs verbatim, along with one lengthy paragraph including a litany of conclusory bad faith allegations.

In addressing the motion on the merits, Magistrate Judge Carlson describes the means to measure the adequacy of a complaint’s factual allegations in determining whether a plaintiff makes out a plausible claim:

In practice, consideration of the legal sufficiency of a complaint entails a three-step analysis: “First, the court must ‘tak[e] note of the elements a plaintiff must plead to state a claim.’ … Second, the court should identify allegations that, ‘because they are no more than conclusions, are not entitled to the assumption of truth.’ … Finally, ‘where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.’”

Assessing the complaint requires examining “the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss.” “Where a complaint’s § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was ‘unreasonable’ or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims.” On the other hand, “when a complaint couples general allegations of bad faith with well-pleaded assertions of unreasonable delay, unreasonable claims processing, and failures to communicate, a complaint adequately states a claim under § 8371 and is not subject to dismissal on the pleadings alone.”

In this “somewhat close case,” while one paragraph simply included a litany of conclusory bad faith allegations, “the complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute.” It provides a chronology detailing the insurer’s alleged “failure to honor this underinsured motorist claim….”

“First, the plaintiff alleges that: “On countless occasions since Plaintiff[’]s underinsured motorist claim has been established, Plaintiff provided … medical records and reports concerning her injuries, condition, treatment, prognosis and recommended treatment plan.” “According to [the insured], this ‘documentation provided to [the insurer] clearly establishes Plaintiff continues to suffer from severe injuries, including but not limited to, complex regional pain syndrome.’”

The insured describes “months of indifference, delay, and failure to investigate … stating that: On June 27, 2019, a formal written demand for available policy limit was mailed to [the insurer]. On July 18, 2019, a [carrier] representative … confirmed via telephone he had received the aforementioned demand package. On September 6, 2019, [that representative] admitted he had not reviewed the demand package, but would make a formal settlement offer by September 17, 2019. On November 5, 2019, [plaintiff’s counsel] provided [that representative] with notice of our arbitrator (as is customary with automobile insurance policies in the Commonwealth of Pennsylvania) and requested [the insurer] provide notice of their arbitrator. [Plaintiff’s counsel] followed-up via certified letter dated November 12, 2019 which was received by [the insurer] on November 18, 2019.”

The insured adds “this course of conduct continued for many months, until February of 2020 when [the insurer] made an offer which … ‘does not fairly compensate Plaintiff for the injuries she has sustained’ and ‘has forced her to file litigation pursuant to the policy, in an effort to further delay payment of underinsured motorist benefits under the policy to which Plaintiff is rightly owed.’”

Magistrate Judge Carlson concludes, “these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim.” “Moreover, fairly construed, the complaint alleges failures … to communicate and timely investigate this claim, coupled with allegations of unreasonable delay in claims processing and payment…. Such allegations as a matter of law are sufficient to state a bad faith claim under Pennsylvania law.”

Dates of Decision: July 27, 2020 (Report and Recommendation) and September 11, 2020 (Order adopting Report and Recommendation)

Yohn v. Selective Insurance Co. of America, U.S. District Court Middle District of Pennsylvania Civil No. 3:20-CV-565, 2020 U.S. Dist. LEXIS 133635 (M.D. Pa. July 27, 2020) (Carlson, M.J.) (Report and Recommendation), and District Court Order adopting Report and Recommendation (Sept. 11, 2020) (Mariani, J.)

INSURED SUCCESSFULLY PLEADS BAD FAITH CLAIM AFTER ORIGINAL COMPLAINT DISMISSED WITHOUT PREJUDICE (Philadelphia Federal)

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In Lopez v. Selective Insurance Company of South Carolina, Eastern District Judge Schiller dismissed plaintiff’s bad faith claim, without prejudice, for only pleading conclusory allegations.  Our summary of this June 2020 decision can be found here.

Plaintiff took the opportunity to file an amended complaint, and the carrier again moved to dismiss the bad faith claim.  This time around, however, plaintiff defeated the motion to dismiss by alleging specific facts.

Judge Schiller relied on earlier case law for the principle that bad faith claims can stand if the “plaintiff’s factual allegations regarding the insurer’s intent, along with the chronology of events, support[] the inference that the defendant had no reasonable basis for denying the claim and knew or recklessly disregarded that lack of reasonable basis in denying the claim.”

In Lopez, plaintiff alleged the insured suffered a covered property loss and provided timely notice. The loss arose from a heating failure on the property.

Addressing the coverage issue, the complaint avers that under the controlling policy language, the insured only had to take reasonable steps to maintain heat on the property. The insured did so, but the heating system failed despite those reasonable steps.

The complaint further alleges the carrier initially took the position that it would cover a portion of the loss. Moreover, the carrier’s representative confirmed that the insured had taken reasonable steps to maintain heat at the property.  Once the carrier realized the size of the loss, however, the complaint alleges the insurer retreated from its original position that a portion of the loss was covered.

Judge Schiller found the specific facts pleaded “would suggest” the carrier both “lacked a reasonable basis for denying the claim; and … knew or recklessly disregarded its lack of a reasonable basis for denying the claim.”The complaint “contains specific factual allegations regarding … intent, and it identifies what actions [the insurer] took that were unreasonable.”

More specifically, “[t]he allegation that Defendant acted in bad faith ‘by unreasonably claiming that heat was not maintained when the policy does not require that heat be maintained, but simply that reasonable steps to maintain heat be taken, all with the intent to deceive Plaintiff about what the policy requires and deny coverage’ is not conclusory.” Likewise, the allegation that the insurer accepted coverage and agreed to pay a portion of the loss, only changing its position when discovering the loss’s magnitude, is not conclusory. It was also significant that the insurer’s representative allegedly conceded that the insured took reasonable steps to maintain the heat.

Thus, “[t]hese specific allegations allow the Court to infer what [the insurer] did, why it was unreasonable, and how [the insurer] knew or should have known it was unreasonable.” [Judge Schiller’s emphases]  In sum, “[b]y accepting these allegations as true, the Court can reasonably infer that [the insurer] knew Plaintiff’s claim was covered under the policy, indicated the claim would be covered, and then, once all of the damage was assessed, denied the claim because it was too expensive. Thus, Plaintiff’s Amended Complaint is well pleaded and survives a motion to dismiss.”

Date of Decision:  August 31, 2020

Lopez v. Selective Insurance Co. of South Carolina, U.S. District Court Eastern District of Pennsylvania No. CV 20-1260, 2020 WL 5121281 (E.D. Pa. Aug. 31, 2020) (Schiller, J.)

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.)

 

COMPLAINT ALLEGES SUFFICIENT FACTS TO SET OUT A BAD FAITH “OBDURATE REFUSAL” TO CONSIDER THE INSUREDS’ CLAIM (Philadelphia Federal)

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The plaintiffs disputed the insurer’s payout on a fire loss, and brought breach of contract and bad faith claims. The carrier moved to dismiss the bad faith claim.

To plead bad faith, an insured must do more than generally allege the insurer acted unfairly. The insured “must describe with specificity what was unfair.” (Court’s emphasis). Eastern District Judge Pratter found the complaint reached that level of specificity, and denied the motion to dismiss.

The insureds generally allege their claim was undervalued, and that the insurer engaged in “’extreme low- ball/undervaluation tactics and significantly and punitively undervaluing Plaintiffs’ losses and claim.’” The complaint then offers more detailed support for this broad statement.

Plaintiffs allege “the insurance policy provided dwelling coverage up to a limit of $281,200, along with a dwelling extension limit of $28,100. Personal property losses were covered up to a limit of $210,900. Plaintiffs also invoke several estimates they contend they submitted … for the cost of repair and restoration, and, nonetheless [the insurer] failed to indemnify Plaintiffs completely.”

The insureds assert they provided “an estimate of repair for damages to the dwelling in the amount of $57,726.99,” “another estimate of repair for structural losses in the amount of $56,839.12,” “an estimate of personal property loss in the amount of $9,900.36,” “an estimate for cleaning and remediation emergency services in the amount of $4,126.63,” “and an estimate for dry cleaning services in the amount of $21,624.00.” The insurer alloted $255.08 for the dry cleaning, fully recognized the emergency cleaning and remediation costs, and estimated the structural damage at $6,321.45. No payments were offered for any personal property losses.

Taking out depreciation and the deductible, the insurer issued a check for 4,666.46.

In deciding the motion, Judge Pratter observed, “[a]rithmetically, the insurer’s payment was no more than approximately ten percent of the claim….” This “suggest[ed] a possible obdurate refusal to consider the homeowners’ claim.” (Emphasis added). Judge Pratter thus found the factual allegations sufficient to state a bad faith claim on this basis.

Date of Decision: May 28, 2020

Scott v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-5559, 2020 U.S. Dist. LEXIS 92960 (E.D. Pa. May 28, 2020) (Pratter, J.)

 

BAD FAITH PLAUSIBLE WHERE INSURER DENIED COVERAGE 11 DAYS AFTER CLAIM MADE SOLELY BASED ON A POLICY EXCLUSION IT KNEW OR SHOULD HAVE KNOWN HAD BEEN VOIDED BY PENNSYLVANIA’S SUPREME COURT (Philadelphia Federal)

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The insurer denied a UIM claim 11 days after it was submitted. Denial was based solely on the policy’s household exclusion. Many months earlier, however, Pennsylvania’s Supreme Court had generally voided the household exclusion’s application under Pennsylvania law in similar circumstances. Gallagher v. GEICO Indemnity Co.   Thus, the exclusion was an invalid basis to deny coverage.

The insured brought breach of contract and bad faith claims, and the carrier moved to dismiss the bad faith claim for inadequate pleading. The court denied the motion, and found a plausible bad faith claim stated.

First, the court found that the insurer was fully on notice that the household exclusion was invalid in Pennsylvania in these circumstances. Even if the carrier somehow was otherwise unaware of the case, the insured’s counsel brought it to the carrier’s attention in making the claim for coverage. Thus, the household exclusion was a plainly invalid basis to deny coverage, but the carrier denied coverage anyway.

The insurer attempted to argue the Supreme Court’s Gallagher decision only applied to Gallagher’s unique facts. Magistrate Judge Wells found this argument patently incorrect on the face of the Gallagher opinion itself.

Second, the court reasonably inferred from the facts pleaded that the carrier did nothing to investigate the claim before denying coverage. Specifically, the court inferred that the defendant carrier did not even know what the other insurers would be paying the insured toward her injuries for purposes of evaluating its own potential share due to the insured. Moreover, she found the defendant insurer made no effort to evaluate the case itself. Thus, at the time it denied the claim, the carrier could not have known if the insured was fairly compensated or was due further payment.

The facts pleaded supporting these conclusions are that the carrier did not require a medical examination, nor did it produce any contrary medical documents; that it denied the claim in only 11 days; and the insured had not even settled yet with the other insurers at the time the claim was denied.

In sum, the court stated the claim denial “was based solely upon a patently false statement of Pennsylvania law, hence, it is plausible that a jury could find [the denial] decision frivolous and issued in bad faith. …. Furthermore, since it can be inferred that [it] made no effort to value the case, it is plausible that [the insurer] violated its duty of good faith and to deal fairly with Plaintiff, its insured.”

Decision: May 6, 2020

Smith v. AAA Interinsurance Exchange of the Automobile Club, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-768, 2020 U.S. Dist. LEXIS 79489 (E.D. Pa. May 6, 2020) (Moore Wells, M.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.)