Archive for the 'PA – UIM/UM Cases' Category
Published on
February 17, 2021 in
PA - Attorney's Fees, PA - Claims Handling (unreasonable), PA - Damages, PA - Declaratory Judgment, PA - Delay (Investigation/Claims handling), PA - Delay (Payment), PA - Discovery and Evidence, PA - Estimates, Valuation or Appraisal, PA - Experts, PA - Punitive Damages and PA - UIM/UM Cases.
After a non-jury trial, the Blair County Court of Common Pleas found the insurer violated the bad faith statute, and awarded statutory damages in the form of attorneys’ fees and super-interest. It declined, however, to award punitive damages under the statute. The insurer appealed the bad faith verdict, and the insured appealed the decision not to award punitive damages. The Superior Court rejected both appeals and affirmed the lower court.
Facts
This is another UIM bad faith case.
The accident occurred in 2000, and the driver’s carrier agreed with the insured that the other driver was 100% liable, and paid its full $100,000 UIM limits to the insured. The tortfeasor’s carrier paid $50,000.
Over two years later, the insured sought UIM coverage from her mother’s carrier, the defendant insurer in this action. The defendant was affiliated with the driver’s own insurer, and had access to its investigation files. Its UIM limit was $600,000. It valued the claim at $200,000 and offered $50,000 to settle the claim ($150,000 already having been paid by the tortfeasor’s carrier and the first UIM insurer).
The insured rejected the offer, and initiated a bad faith action in 2003, which it held in abeyance while the UIM case was pending. The insurer paid the undisputed $50,000.
Later in 2003, the insured received a PTSD diagnosis and send additional medical records to the insurer. The insurer received the medical records, but denied having received them. The defendant insurer took the position that the diagnosis was unrelated to the 2000 accident, and its $200,000 remain unchanged, having failed to receive any medical records (which it in fact had received, however). It then initiated the UIM arbitration process in 2004.
The defendant carrier informed its arbitration defense counsel the other driver was 100% at fault. Months later the carrier’s counsel said he had spoken to the other driver, based on that interview the accident could have been the insured’s fault, and the arbitrator might rule for the carrier on the UIM claim. The attorney’s opinion was based solely on the other driver’s rendition of the facts, and not any expert report or investigation other than interviewing the other driver. The carrier itself did not obtain a reconstruction expert report on the accident.
The carrier, however, was sufficiently persuaded. It took the position in late 2004 that the insured might have comparative negligence up to 50%, but not more. By early 2005, however, the carrier took the position that the accident was 100% the insured’s fault.
The carrier delayed the arbitration by filing a declaratory judgment action seeking to limit the range of damages the arbitrator could award. This case was dismissed on preliminary objections. The carrier further delayed the arbitration by seeking evidence of the insured’s post-accident motor vehicle record, fall-downs, alcoholism and depression.
Eight years later, in 2013, the case finally went to arbitration, i.e., over 13 years after the accident and 8-9 years after the UIM arbitration process began. The arbitrator valued the insured’s injuries at $599,000, and awarded her $399,000. The arbitrator found no comparative negligence. [This was the same position the carrier had taken before late 2004.]
Arguments at trial
The bad faith case went to a non-jury trial in 2018, with a claim handler and the insurer’s UIM arbitration counsel as the sole witnesses.
The insured argued the carrier acted in bad faith when changing its position on the drivers’ comparative negligence, based solely on defense counsel’s interview of the other driver. The insured asserted that the carrier should have known the other driver was not credible, and should not have relied on his rendition of the facts to change its position because the other driver contradicted his own earlier statements to the investigators as to the accident’s cause. In response, the carrier appears to have asserted an advice of counsel defense.
The insured also argued bad faith in the carrier’s blanket refusal to consider subsequent psychological treatments, failure to conduct a full investigation by interviewing the investigating police officer before the UIM arbitration, failing to hire an accident reconstruction expert, and prolonging the proceedings for years in order to selectively reevaluate the claim after it learned the insured had various substance abuse issues, and a history of fall-downs, after the date of the underlying accident.
The trial court’s verdict
The trial court “found [the insurer] had acted recklessly and without a reasonable basis in continually valuing [the] claim at $200,000.” Further, the insurer “had improperly failed to reevaluate the claim to consider [the insured’s] psychological damages.” It was significant to the court that the insurer refused to consider the psychological claims based on the insured’s failure to transmit PTSD related documents, but “admitted at trial that it had received the medical records.”
The court also ruled against the carrier based on its changing positions as to the insured’s responsibility, rejecting the advice of counsel defense because the other driver’s 2004 rendition of the facts to defense counsel should not have been deemed credible based on that driver’s initial statements after the accident.
For nearly four years, after its own investigation and earlier interviewing the other driver, the insurer took the position that the insured bore no responsibility for the accident. The defendant insurer only began altering its liability position after defense counsel interviewed the underlying tortfeasor, who had changed his story. Then, over a period of months, the insurer went from no comparative negligence, to maybe 50% comparative negligence at most, to a 100% negligence on the insured, solely based on the other driver’s interview with defense counsel.
The trial court observed the arbitrator ruled the other driver was not credible. Further, “[t]he trial court stated that although the arbitrator’s decision did not bind it, it recognized that the arbitrator was a ‘neutral, detached fact-finder’ and had not found [the insured] comparatively negligent at all.” The arbitrator also found substantial injuries. Thus, the “change of position on liability ‘represents a significant failure by [the insurer] in their ongoing responsibility to investigate and reconsider [its] position during [its] entire management of the claim.’”
The trial court further found the refusal to go above its $200,000 valuation for over a decade “was done with a purpose motivated by self-interest.” For example, the carrier failed to consider the psychological medical records admittedly in its possession. It also failed to carry out a proper investigation and follow-up by not contacting the investigating police officer until the arbitration hearing, or hiring a reconstruction expert. Finally, the trial court found the carrier prolonged the proceedings in filing the declaratory judgment action based on the insured’s substance abuse and fall-downs after the 2000 accident.
Damages
The trial court awarded $24,650 in attorneys’ fees for the bad faith litigation, $125,000 in attorneys’ fees in connection with the UIM claim, and $125,000 in interest. It refused to award punitive damages.
Bad faith legal standards where insurer delays in paying benefits due
The Superior Court observed the following legal principles in rendering its verdict:
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“Ultimately, ‘[w]hen an insured obtains a bad faith verdict in a bench trial, appellate courts should only reverse in the most egregious of cases when the trial court has committed reversible error.’”
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“’The analysis of an insurance bad faith claim ‘is dependent on the conduct of the insurer, not its insured.’”
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“Because ‘bad faith’ in this context stems from the duty of good faith and fair dealing implied in every insurance contract, the plaintiff need not prove the insurer acted with self-interest or ill-will.”
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“In order to prevail under the bad faith statute, 42 Pa.C.S.A. § 8371, ‘the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.’”
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“An action for bad faith is not restricted to the outright denial of a claim, but rather encompasses ‘all instances of bad faith conduct by an insurer.’”
[Note: The Court cited the Superior Court’s decision Rancosky v. Washington National Insurance Co., and not the Supreme Court’s Rancosky decision, to support this point. As discussed many times on this Blog, there is a real issue as to whether section 8371 encompasses claims that do not involve the denial of a benefit actually due, i.e., is there any cognizable statutory bad faith cause of action when the insurer does not actually owe the insured any duty to pay first party benefits, or to defend or indemnify third party claims. See, e.g., this post.]
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The Superior court then added examples of bad faith, where a claim was not outright denied: “This includes a lack of good faith investigation, as well as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.’”
[Note: In this case, there is no dispute that some benefit was due from the insurer, just a dispute of how much was due and when. In effect, the insured is arguing that there was a decade plus delay in paying a benefit actually due; and the court’s bad faith verdict is made in light of the insurer actually owing a benefit substantially greater than what the insurer offered to pay.]
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“An insurer must make a timely investigation in response to the claim, and not just for arbitration.”
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“Indeed, an insurer must reevaluate a claim when presented with new information.”
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“An insurer’s mere negligence does not constitute bad faith, and an insurer may make a low estimate of an insured’s claim, so long as it has a reasonable basis.”
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“[A]n insurer has committed bad faith where it ‘acted in a dilatory manner, and forced the insured into arbitration by presenting an arbitrary ‘low-ball’ offer which bore no reasonable relationship to the insured’s reasonable medical expenses,’ particularly where the ‘low-ball’ offer proved to be significantly lower than the arbitration award.”
Facts supporting the bad faith verdict
The Superior Court held the following facts supported the trial court’s finding of bad faith:
The insurer never changed its claim valuation over a ten year period from the claim’s submission through a UIM arbitration, “despite mounting evidence that [the insured’s] damages surpassed [that] $200,000 [valuation].” The trial court properly rejected the insurer’s argument that there was no valuation change over time because the insurer went from taking the position that the insured had no responsibility for her own injury, to being partially responsible, and finally to being deemed wholly at fault for her own injury. The Superior Court agreed that the evidence did not show the valuation claim ever hinged on the insured’s alleged comparative negligence.
Rather, the record demonstrated that as the insurer’s “position on liability evolved, its valuation of the claim did not change. Rather, it put a $200,000 value on [the] claim from the outset, failed to consider evidence of her psychological damages, refused to modify the valuation, and now cites subsequent developments to justify its failure to adjust the valuation in light of the information it disregarded. That it may not have failed to consider the evidence and adjust the valuation purposefully or because of ill will does not undermine the trial court’s conclusion, as [the insured] did not need to prove such states of mind.”
Other factors collectively favoring bad faith were the insurer did not change its comparative liability position until preparing for the UIM arbitration; the insurer did not interview the police officer on the scene; and that the insurer “was unable hire a reconstruction expert for arbitration because too much time had passed is further indicative that it did not make adequate inquiry into the accident in a timely manner.”
The facts did not require the trial court to award punitive damages
The Superior Court ruled: “Although the [trial] court found [the insurer] acted in bad faith, and awarded attorneys’ fees and interest accordingly, we cannot say that it abused its discretion in not awarding punitive damages. The evidence was not such that we conclude that the court’s decision was manifestly unreasonable or the result of partiality, prejudice, bias, or ill will.”
The Superior Court made the point that section 8371 does not compel the Courts of Common Pleas to award punitive damages simply because there is a bad faith verdict. Rather, punitive damages remain within the trial judge’s discretion. Ill-will, reckless indifference, or some other sign of malign action might provide evidence in proving statutory bad faith, but this level of intent is not a required element of a statutory bad faith claim.
Thus, just an insured can make out a bad faith claim without having to prove the level of evil intent or outrageous conduct that forms the basis for punitive damages, a finding of bad faith does not automatically encompass conduct that would mandate a finding of punitive damages. Here, the trial judge did not find the carrier’s intent was so outrageous that punitive damages were warranted, even though the court found the carrier knew or recklessly disregarded the fact that it was unreasonably denying the insured benefits due her.
No error in limiting discovery of “post-denial” conduct
Finally, the insurer appealed the trial court’s granting a protective order as to certain requests for admissions concerning “post-denial” conduct, covering a time period beginning with the April 2004 initiation of the UIM arbitration process. The trial court found this conduct irrelevant to the insurer’s bad faith in denying the claim. The Superior Court affirmed, finding no abuse of discretion.
The insurer had the burden to show how it was prejudiced by the trial court’s excluding this evidence, but it never “specified what evidence it sought under the admissions requests that it did not receive, and how that alleged evidence would have affected its case.”
Date of Decision: February 4, 2021
Sartain v. USAA, Superior Court of Pennsylvania No. 4 WDA 2020, 2021 WL 401954 (Pa. Super. Ct. Feb. 4, 2021) (Bender, McLaughlin, Musmanno, JJ.) (Non-precedential)
The instant dispute involves the depositions of the claims handler and a corporate designee, as well as the scope of document discovery. The insurer made extensive objections to document requests accompanying the notices of deposition, and the any deposition of a corporate designee. These are described in detail below.
This UIM bad faith case survived an earlier motion to dismiss, and was now proceeding on the merits before Magistrate Judge Perkin. (Judge Leeson’s 2020 decision allowing the case to proceed is summarized here.)
General Discovery Principles
Magistrate Judge Perkin set out the basic principles guiding his decision:
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Rule 26 allows parties to “obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case[.]”
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“Relevance is a broad concept that encompass[es] any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.”
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“As an initial matter, therefore, all relevant material is discoverable unless an applicable evidentiary privilege is asserted. The presumption that such matter is discoverable, however, is defeasible.”
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“While the discovery rules are meant to be construed liberally, the responses sought [by a party] must comport with the traditional notions of relevancy and must not impose an undue burden on the responding party.”
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“To determine the scope of discoverable information under Rule 26(b)(1), the Court looks initially to the pleadings.”
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“In deciding which materials are discoverable and which are not, a district court must further distinguish between requests that ‘appear[ ] reasonably calculated to lead to the discovery of admissible evidence’ … and demands that are ‘overly broad and unduly burdensome.’”
Documents Requested in Connection with the Claim Handler’s Deposition
The insured did not object to the claim handler’s deposition, but did make multiple objections to the document requests accompanying the notice of deposition.
Manuals and Training Documents Subject to Limited Discovery
Plaintiff’s first request was for “[a]ny and all documents, policies, procedures, rules, regulations, manuals, training documents, or other documents or things relevant to the handling and/or evaluation of Underinsured Motorists claims during the period of 2015-2020.”
Plaintiff’s second request was for “[a] true and correct copy of the complete “Claims Manual/Claims Office Manual” or other such similar document(s) by whatever name or title used by Defendants for the handling of Underinsured Motorists benefits for the years 2015 through and including 2020.”
Plaintiff’s third request was for “[a] true and correct copy of the complete “Training Manual” or other such similar document(s) by whatever name or title used by Defendant for the purpose of training its employees in the handling of Underinsured Motorists benefits claims for the years 2015 through and including 2020.”
Plaintiff’s fourth request was for “[t]rue and correct copies of any and all claims bulletins, internal memoranda, letters, notices, or similar documents sent by management to the claims staff relating to the handling of Underinsured Motorists benefits claims for the years 2015 through and including 2020.”
The court found the first request relevant to both the breach of contract and bad faith claims, specifically ruling that manuals and other training materials are relevant to bad faith claims “where they contain instructions concerning procedures used by employees in processing claims.” Magistrate Judge Perkin added that “[t]raining materials ‘relevant to processing the claim in question’ are discoverable, as they may show, inter alia, ‘that agents of an insurance company recklessly disregarded standard interpretations of a particular contractual provision in denying coverage or deliberatively omitted certain investigatory steps.’”
However, Magistrate Judge Perkin agreed with the insurer that plaintiff’s requests were “overly broad in time, and should be limited to the period from when Defendant was first on notice of a UIM claim through the present.” First notice was when the insurer received correspondence from Plaintiff’s counsel informing Defendant of an anticipated underinsured motorist claim.
Magistrate Judge Perkin limited the geographic scope as well, “to those documents and materials governing underinsured motorist claims in Pennsylvania,” where the underlying accident occurred, where plaintiff resided, and the policy provided for UIM benefits under Pennsylvania law.
Magistrate Judge Perkin rejected the argument that the materials were trade secrets or proprietary in nature, pointing out there was no showing made to this effect but only “bare allegations that the information requested falls under this definition” which were insufficient “to protect such information from discovery.”
The court used the same analysis to address document requests 2-4.
Court Permits Discovery, with Limitations, of Claim Handling and Investigation Files
Plaintiff requested “[t]rue and correct copies of any and all letters, correspondence, documents, reports, or other records which relate to review, evaluation, and/or assessment of the causation or lack thereof of Plaintiff’s injuries following the underlying motor vehicle accident which was relied upon in the handling, assessment, investigation, and/or evaluation of Plaintiff’s UIM claim.”
Plaintiff also requested “[a]ny and all claims, notes, correspondence, records, recordings, documents, letters, phone logs, emails, or other communication writings or things pertaining to [the claim] from October 12, 2016 through present.”
Magistrate Judge Perkin observed that “an insurer, is not permitted to shield the discovery of its entire claims handling and investigation under the attorney-client privilege and work-product doctrine by hiring an attorney to perform its services. As Plaintiff noted in her brief, a bad faith claim may include “evidence of the insurer’s bad faith that occurred after the filing of the complaint.” The court reviewed the insurer’s privilege log and redacted documents, but could not determine whether the attorney-client privilege or work product doctrine actually applied. Thus, Magistrate Judge Perkin ordered the insurer to make the full documents available for in camera review, including “internal file notes regarding communications with legal counsel … ; UIM strategy and evaluation; claim handling[;] Amount of reserves and legal expenses on the UIM and Medical Payment claims[;] … Evaluation Report for Plaintiff’s UIM claim [;] … internal emails regarding receipt of this lawsuit, and assignment to legal counsel … [;] ISO Claim Search report[; and] Asset report regarding [the tortfeasor driver], for consent to settle/waiver of UIM subrogation purposes[.]”
The second request quoted above was also subject to in camera review for the same reasons. The court added that “[t]o the extent that Defendant maintains any of the requested material outside of the web-based system, it shall produce such information immediately to Plaintiff unless it is appropriately protected by a privilege.”
These were limited to the time period from the date the insurer first had notice, as described above.
The insurer also requested “[a]ny and all claim files concerning Plaintiff’s claim for underinsured motorist benefits, in paper, electronic, and/or other available format.” Magistrate Judge Perkin ruled that “[a]s with the previous two requests, this Court will conduct an in camera review to determine if Defendant properly withheld documents related to this request. Defendant is not required to perform forensic investigation into its computing devices or systems to locate information – existing prior to when Defendant’s duty to preserve evidence arose – which is no longer accessible. Similarly, Defendant does not need to produce the same ESI in more than one form. Fed. R. Civ. P. 34(b)(2)(E)(iii). If Defendant maintains any information responsive to the above request in non-electronic forms, it shall produce such information immediately to Plaintiff unless it duplicative of what has already been produced or properly protected by a privilege.” [Emphasis in original]
Insurer not Compelled to Produce Personnel Files
The insured requested “[p]ersonnel file, including applications for employment, evaluations, awards, commendations, complaints, reprimands, resumes, attendance records for the period of 2016-2018, tests, performance appraisals, documents reflecting job performance and/or employee conduct, letters of commendation, reprimands, letters of termination, personnel action notices, investigative files and reports concerning or substantially concerning [the specific] Claims Specialist, only.”
Magistrate Judge Perkin ruled “[t]he request for personnel information implicates the strong public policy against disclosure of such materials.” Thus, “[w]hile information relating to [the claim handler’s] employment and job performance may be relevant to Plaintiff’s bad faith claim, Plaintiff may learn this information through less invasive means, such as by deposition or interrogatory. … Accordingly, while Plaintiff may obtain the employment information it seeks by deposing [the claim handler], or through interrogatories, Defendant is not compelled to produce the materials relating to the above request.”
Deposition of Corporate Designee Permitted
The court observed that corporate designees are called to testify about their personal knowledge only, but also to speak for the corporation “about matters to which the corporation has reasonable access.” In this case, the insured’s bad faith claim included allegations beyond valuation, “but also claims that defendant mishandled, failed to properly investigate and evaluate the claim and otherwise acted in bad faith.” Plaintiff wanted the 30(b)(6) designee “to represent the collective knowledge of the corporation and to present its positions on certain topics [,] including … “the manner and method of how Defendant instructs, advises, directs, and incentivizes its employees to handle claims is directly related to what, if anything, the adjuster(s) did in handling this claim and why.”
Magistrate Judge Perkin refused to quash the corporate designee’s deposition, finding the insured was “entitled to depose the corporate representative and obtain an official explanation of the claims-handling policies used by” the insurer.
He did not, however, stop there. Rather, Magistrate Judge Perkin addressed objections to individual matters designated for examination and individual document requests accompanying the subpoena.
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“1st Matter for Examination: The thoughts, analysis, evaluation(s), rationale(s), investigation, actions, research, review, and reasoning of the handling adjuster’s supervisor at Defendant insurance company who personally participated in the decision to offer $6,000 on or about October 25, 2019, to resolve Plaintiff’s claim. (The term “participated” as used in this paragraph includes, without limitation, reviewed any documents, analyzed and/or discussed the matter with anyone, approved the offer of compromise or provided any information or input whatsoever into the decision).”
Magistrate Judge Perkin reserved ruling on this area of examination until after he had conducted the in camera review described above.
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“2nd Matter for Examination: The existence and content of any writings, files, procedures, claims-handling procedures, guidelines, claims manuals, or documents of any kind including any material contained in any computer which existed at any time from 2015 to the present, applicable to the handling and adjustment of Plaintiff’s claim.”
Magistrate Judge Pekin permitted this area of examination, to allow for questioning on “[t]he existence and content of any writings, files, procedures, claims-handling procedures, guidelines, claims manuals, or documents of any kind which existed from March 16, 2017 through 2020, applicable to the handling and adjustment of Plaintiff’s claim.”
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“3rd Matter for Examination: Defendant’s claims handling manuals, guidelines, or any other documents used to instruct personnel on the claims handling and/or adjustment practice used by State Farm to instruct/train/educate/direct or otherwise teach its claims adjusters to adjust first-party Underinsured Motorists (“UIM”) claims as of October 1, 2015.”
The court found this area of questioning relevant, within time and geographic limits, stating “[d]efendant’s claims handling manuals, guidelines, or any other documents used to instruct personnel on the claims handling and/or adjustment practice used by [the insurer] to instruct/train/educate/direct or otherwise teach its claims adjusters to adjust first-party Underinsured Motorists (“UIM”) claims in Pennsylvania from March 16, 2017 through 2020.”
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“4th Matter for Examination: State Farm’s policy, practice and procedure for promotion of claims representatives and/or adjusters within State Farm as of October 1, 2015 through the present.”
The court found the insurer’s “policies, practices, and procedures for promotions of claims representatives and adjusters is relevant to its claim of bad faith. To the extent that there are employee incentives to close out insureds’ claims, or handle claims in a particular manner, such information could reveal facts relevant to the motivations of the employees who handled Plaintiff’s claim.” Discovery was thus allowed, within a limited time frame.
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“5th Matter for Examination: Defendant’s training materials, practices, and procedures for claims adjusters handling UIM claims as of October 1, 2015 through the present.”
The court permitted discovery within time and geographic limits, “Defendant’s training materials, practices, and procedures for claims adjusters handling UIM claims in Pennsylvania as of March 16, 2017 through 2020.”
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“6th Matter for Examination: Defendant’s methods, policies, procedures, and practices used to calculate the value of damages in a UIM claim as of October 1, 2015 through the present.”
Again, the court permitted discovery within time and geographic limits, “Defendant’s methods, policies, procedures, and practices used to calculate the value of damages in a UIM claim in Pennsylvania as of March 16, 2017 through 2020.”
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“7th Matter for Examination: Any and all materials provided to claims adjusters handling UIM claims for the purpose of training claims adjusters and/or representatives as to calculating, evaluation, assessing, and determining value of damages as of October 1, 2015 through the present.”
Again, the court permitted discovery within time and geographic limits, “Any and all materials provided to claims adjusters handling UIM claims in Pennsylvania for the purpose of training claims adjusters and/or representatives as to calculating, evaluation, assessing, and determining value of damages as of March 16, 2017 through 2020.”
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“8th Matter for Examination: The policies and procedures for evaluating, assessing, and investigating personal injuries to an insured in a UIM claim as of October 1, 2015 through the present.”
Again, the court permitted discovery within time and geographic limits, “The policies and procedures for evaluating, assessing, and investigating personal injuries to an insured in a UIM claim in Pennsylvania as of March 16, 2017 through 2020.”
The court next addressed the document requests accompanying the corporate designee’s notice of deposition.
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“Request 1: Any and all claims manuals, reference materials, training manuals, and/or guidelines for interpretation of the relevant insurance policy.”
Following his analysis in addressing the document requests accompanying the claim handler’s notice of deposition, Magistrate Judge Perkin found the request relevant to the bad faith claim, within the limited time period. To the extent the response would be identical to the other request, however, he would not require a separate production; rather, the defendant could cross reference that earlier production to bates numbers.
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“Request 2: Any and all documents, materials, manuals, guides, claims manuals, handbooks, training materials or other items relating to the topics set forth above.”
Again following the same request to the claim handler, the documents were relevant to the bad faith claim within a limited time period, and the same process of cross-referencing to bates numbers could be followed.
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“Request 3: The personnel files of all company employees who worked on Plaintiff’s UIM claim.”
Again following the earlier analysis, the insurer was not required to produce written materials, leaving the insured to pursue that employment information through the deposition or interrogatories.
Date of Decision: January 22, 2021
SOLANO-SANCHEZ v. STATE FARM MUTUAL AUTO INSURANCE COMPANY, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 229400 (E.D. Pa. Jan. 22, 2021) (Perkin, M.J.)
In this case, like many others in the recent past, the UIM bad faith claims are dismissed with leave to amend.
The tortfeasor’s carrier payed the injured insured its $15,000 policy. The insured had $100,000 in UIM coverage from her own carrier. In seeking UIM coverage, the insured provided her carrier with “documentation of her losses including medical bills and other economic losses totaling more than $34,263.47.” In bringing breach of contract and bad faith claims, she alleges her carrier refused to make any “bona-fide good faith offers of settlement to the Plaintiff that contemplate those substantiated and verified losses and to the contrary, has made no offer for purposes of resolving Plaintiff’s Underinsured Motorist’s Claim.”
The insurer moved to dismiss the statutory bad faith claim on the basis the insured only pleaded conclusory allegations. In response, the insured argued her complaint included allegations “that (1) she promptly provided Defendant with proof of the amount of her damages, (2) Defendant has refused to make a settlement offer, (3) Plaintiff provided additional medical documentation at Defendant’s request, and that (4) Defendant has had “ample time to properly evaluate Plaintiff’s claim.” As he has in other cases, Eastern District Judge Baylson dismissed the bad faith claim, without prejudice.
Judge Baylson cited his prior opinions in Eley (2011) and Kelly (2019) in holding the instant allegations merely conclusory, lacking in the kind of factual detail that could support a plausible bad faith claim. He finds the insured did not provide “any explanation of how Defendant responded to her claim, or what facts, beyond its failure to pay her claim, indicate bad faith. The fact that she provided Defendant with supporting documents regarding her claim does not alone indicate bad faith. Plaintiff has not provided any information regarding Defendant’s response to her claim. She has simply stated that she considers any response on its part to be unsatisfactory.”
In granting the motion to dismiss without prejudice, Judge Baylson observed that the insurer only sought dismissal of the insured’s statutory bad faith claim. Thus, this dismissal did not affect any other portions of the complaint.
Date of Decision: January 15, 2021
Baxley v. State Farm Mutual Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5512, 2021 WL 149256 (E.D. Pa. Jan. 15, 2021) (Baylson, J.)
Note: It is only the beginning of the fourth full week in January, but this is our fifth UIM case posted to date this year.
This UIM bad faith case had survived a motion to dismiss, but summary judgment ended the plaintiff’s bad faith claim.
Eastern District Judge Leeson had originally allowed the bad faith claim to proceed, as plaintiff had alleged more than a valuation dispute. Our prior blog post can be found here.
The present bad faith summary judgment motion was before Magistrate Judge Perkin. His opinion goes through the claim handling history in minute detail. Among other things, it shows nearly a year passed before the insured provided the claim handlers with all medical records and details on the specific injuries for which he was seeking full UIM policy limits. The record shows the insurer assigned a specialist in medical resources (SMR) to review the medical file, and later had a medical examination performed by a physician. Discovery appeared to show potential errors in the SMR’s evaluation.
Based on the medical reviews, the insurer had not paid its full UIM limits, as plaintiff demanded, at the time suit was filed. The insured challenged the conclusions of both the SMR and the physician on the origin and scope of his injuries in bringing the bad faith claim.
Magistrate Judge Perkin observed that an “insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.” Thus, “[e]ven if Defendant’s claims-handling processes were not ideal, there is no evidence in the record, let alone clear and convincing evidence, to indicate that Defendant’s purported mishandling of Plaintiff’s claim was motivated by a dishonest purpose or ill will.”
Citing older case law, the court states, “while under Pennsylvania law bad faith may extend to an insurer’s investigation and other conduct in handling the claim, that conduct must ‘import a dishonest purpose.’” “Invariably, this requires that the insurer lack a reasonable basis for denying coverage, as mere negligence or aggressive protection of an insurer’s interests is not bad faith.”
[Note: In 2017, Pennsylvania’s Supreme Court made clear in Rancosky that “we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.” A link to our Rancosky summary can be found here.]
Applying this law to the facts, Magistrate Judge Perkin found that “[a]lthough the plaintiff disagrees with the conclusions of both [the SMR and the carrier’s physician], it is clear that [the carrier] had a reasonable basis to value the claim based, at a minimum, on [the physician’s] report.” Assuming that the SMR “performed an insufficient and incorrect medical review of Plaintiff’s case, Defendant did not deny Plaintiff’s claim based upon that review, but rather continued its investigation of Plaintiff’s claim. Moreover, it is not apparent on the record that Defendant has ever denied coverage to Plaintiff.”
As to how the insurer handled the various bodily injury claims, the plaintiff’s doctors had sourced these all to the auto accident at issue, while the carrier’s physician only identified some of these injuries as being caused by the accident. Thus, Magistrate Judge Perkin found:
“Similarly, the fact that the plaintiff’s experts relate all of the plaintiff’s right knee and left ankle complaints to the accident does not provide a basis for bad faith. Defendant retained [an] orthopedic surgeon … to perform an independent medical examination and records review. After completing same, [defendant’s surgeon] concluded that that only the plaintiff’s initial meniscal tear and resultant arthroscopic surgery were related to the accident. None of the plaintiff’s left ankle complaints/treatments, or additional right knee treatment, was accident-related. Accordingly, [the carrier] had a reasonable basis for its claim handling.”
Date of Decision: January 13, 2021
Perez-Garcia v. State Farm Mutual Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania, No. CV 18-3783, 2021 WL 131343 (E.D. Pa. Jan. 13, 2021) (Perkin, M.J.)
The insured failed to plead a plausible claim in this UM bad faith case.
The 18-year old insured was rear-ended by an uninsured motorist, and suffered a long list of injuries. She had $100,000 in UM coverage. The carrier offered $11,300 to settle her claims, and rejected a policy limit demand. The insured brought breach of contract and statutory bad faith claims, and the insurer moved to dismiss the bad faith claim.
In determining whether a plaintiff states a plausible bad faith claim, a court must separate conclusory allegations from factual allegations, because conclusory allegations are not entitled to an assumption of truth for Rule 12(b)(6) purposes.
Here, the complaint alleges at least 16 bases for bad faith (listed below). Magistrate Judge Schwab found, however, the complaint “contains mostly conclusory statements that are not supported by factual allegations.” Thus, “[a]lthough long, [the insured’s] list of how the defendant allegedly acted in bad faith contains conclusions, rather than facts.”
Next, in looking at the factual allegations, the insured merely alleges she was diagnosed with certain injuries, went through physical therapy, gave the insurer notice of her claim, and forwarded various records for the insurer’s review. The insured’s counsel spoke with the insurer’s claims department, and made the carrier aware the insured was 18 at the time of the accident, continued to suffer from visual impairment and post-traumatic headaches, among other injuries, as a result of the head trauma she suffered, and that the insurer offered $11,300 to settle.
“These factual allegations, however, are not enough to state a bad faith claim upon which relief can be granted.”
A disagreement over a claim’s value, without the facts needed to show bad faith, cannot alone create bad faith. Here, the insured did not allege “facts to support an inference that the defendant did not have a reasonable basis for its settlement offer or that the defendant knew or recklessly disregarded any lack of a reasonable basis for such an offer.” Citing the Third Circuit’s Smith decision (above), Judge Caputo’s 2019 Clarke decision and 2019 Moran decision, Eastern District Judge Baylson’s June 2020 Dietz decision, Middle District Judge Kane’s 2019 Rosenthal decision, and the 2009 Superior Court Johnson decision, Magistrate Judge Schwab observes that low but reasonable settlement offers do not constitute bad faith, and that a “low-ball” offer, standing alone, cannot make out a bad faith claim.
Nor can refusing immediately to pay a policy limit demand by itself constitute bad faith. “Indeed, 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.” The insured simply did not plead facts “from which it can plausibly be inferred that the defendant’s offer was unreasonable and made in bad faith, rather than made as part of the ordinary course of negotiations between insurers and insureds.” (internal quotation marks omitted)
Magistrate Judge Schwab dismissed the bad faith claim, but with leave to amend. This allowed for a second amended complaint to be filed “if appropriate, to state a bad faith claim upon which relief can be granted.”
Durdach v. LM General Insurance Company, U.S. District Court Middle District of Pennsylvania No. 3:20-CV-00926, 2021 WL 84174 (M.D. Pa. Jan. 11, 2021) (Schwab, M.J.)
The litany of conclusory allegations referenced above, include:
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unreasonably delay[ing] the processing of a valid claim;
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kn[owingly] or recklessly disregard[ing] the fact that the delay was unreasonable;
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failing to objectively and fairly evaluate Plaintiff’s claim;
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engaging in dilatory and abusive claims handling;
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failing to adopt or implement reasonable standards in evaluating Plaintiff’s claim;
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acting unreasonably and unfairly in response to Plaintiff’s claim;
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not attempting in good faith to effectuate a fair, prompt, and equitable settlement of Plaintiff’s claim in which the Defendant’s liability under the policy had become reasonably clear;
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subordinating the interests of its insured and those entitled under its insured’s coverage to its own financial monetary interests;
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failing to promptly offer reasonable payment to the Plaintiff;
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failing to reasonably and adequately investigate Plaintiff’s claim; k. failing to reasonably and adequately evaluate or review the medical documentation in Defendant’s possession;
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violating the fiduciary duty owed to the Plaintiff;
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acting unreasonably and unfairly by withholding underinsured motorist benefits justly due and owing to the Plaintiff;
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failing to make an honest, intelligent, and objective settlement offer;
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causing Plaintiff to expend money on the presentation of her claim; and
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failing to make a reasonable settlement offer despite knowing the severity of a visual injury and post-traumatic headaches in an 18-year old.
[The insured] also alleges that the defendant failed to act in good faith and “engaged in wanton and reckless conduct….”
Judge Baylson had previously dismissed in this matter, summarized here, but allowed the insured leave to amend. The insured filed an amended complaint, and the carrier moved again to dismiss the bad faith claim.
The carrier had taken the position that there was no stacking available to the insured. Before suit, the insured asked the carrier for its underwriting file to confirm there were no UIM stacking benefits. The insurer refused to produce that file absent a court order.
The insured argued his bad faith claims were not premised on UIM coverage disputes, “but rather upon Defendant’s misrepresentation of that coverage and refusal to disclose the underwriting agreement.” The insured alleged the carrier refused to produce the underwriting file “because it contained information that would demonstrate Defendant falsely represented the coverage amount.” This alleged “concealment and misrepresentation by the Defendant constitute[d] an act of bad faith.” Judge Baylson disagreed and dismissed the bad faith claim with prejudice.
A bad faith claim requires plaintiff showing by clear and convincing evidence that a benefit denial was unreasonable, and that the insurer knew it was unreasonable or recklessly disregarded that fact. A bad faith claim cannot meet the plausible pleading standard, however, by simply pleading the insurer denied a coverage request. Rather, an insured-plaintiff must plead “factual specifics as to the ‘who, what, where, when, and how’ of the denial,” to make a cases for reckless indifference.
Judge Baylson found the insured plaintiff here alleged “no factual content indicating that Defendant (1) lacked a reasonable basis to deny coverage or (2) that Defendant knew or recklessly disregarded the lack of reasonable basis. Rather, Plaintiff essentially asks the Court to infer—without providing any supporting facts—that Defendant’s sole motivation in withholding the underwriting file was to deceive Plaintiff.”
In Judge Baylson’s first decision, he had “addressed reasons other than bad faith that might explain why Defendant refused to provide the underwriting document.” Specifically, he observes that “underwriting files often contain an insurer’s evaluation of the risks along with other confidential business information, to be in line with a wide swath of rational and competitive business strategy.” (Internal quotation marks omitted.) The amended complaint fails to allege “any facts that plausibly suggest Defendant had no reasonable basis to deny Plaintiff stacked coverage, nor that Defendant knew or disregarded the lack of any such basis.”
Date of Decision: December 30, 2020
Dietz v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. 20-1239, 2020 WL 7769933 (E.D. Pa. Dec. 30, 2020) (Baylson, J.)
The insured denied coverage in this UIM case, and the insured sued for breach of contract and bad faith. The case centered on whether the household exclusion barred coverage. The insurer took the position the household exclusion applied and the insured disputed the insurer’s interpretation of Gallagher v. GEICO in taking that position. [Note: This 2019 Pennsylvania Supreme Court case held the household exclusion was void as a matter of law. The breadth of Gallagher’s application to other factual contexts is hotly debated in courts across Pennsylvania.]
The insurer successfully moved to bifurcate and stay discovery on the bad faith claim.
The court distinguished between bad faith actions based on claim handling failures and those based on coverage denials. In this case, most of the bad faith allegations went to coverage, not claim handling. The court observed that “[t]hese allegations will become moot if it is determined that the Household Vehicle Exclusion applies and [the insurer] was not required to provide coverage to [the insured] under the Policy.”
Magistrate Judge Rice cited Magistrate Judge Carlson’s recent Dunleavy decision for the proposition “if an insurer properly denies coverage in accordance with the policy, then it could not have acted in bad faith by denying coverage,” and Judge Wolson’s decision in Live Face on Web, LLC for the principle that once the court concludes there is no contractual obligations to pay benefits under an insurance policy, the refusal to provide coverage “cannot have been unreasonable”.
In the same way, “if it is determined that the Household Vehicle Exclusion did not apply and [the insurer] breached the Policy by failing to provide coverage, the trier of fact on the bad faith claims can focus solely on [the insurer’s] motivations and intent in denying coverage. Thus, trying the breach of contract count first will narrow the issues to be decided in the bad faith count and result in efficiency and judicial economy.”
Magistrate Judge Rice also observed that the breach of contract claim centers on coverage and an exclusion that “will depend primarily on the terms of the policy, Pennsylvania law, causation, and … damages.” By contrast, “the bad faith claim concerns ‘more elusive concepts’ such as [the insurer’s] evaluation and investigation of the claim, motive, and response to [the insured]. … This evidence is irrelevant to the breach of contract count.” He observed that “’information concerning how an insurer investigated and evaluated a claim is simply immaterial to the issue of whether coverage is required under the policy.’”
In addition, “[b]ecause bad faith involves allegations of unreasonable and reckless behavior and requires a higher burden of proof, it also could confuse the jury and cause prejudice to [the insurer].”
Date of Decision: December 22, 2020
Eastern District Judge Pappert previously dismissed the insured’s UIM bad faith claim. A summary of that decision can be found here.
Presently, Judge Pappert denied the insured’s motion for reconsideration. He cited case law making clear that motions for reconsideration are not second bites at the apple, but must show either: “(1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court granted the motion … or (3) the need to correct a clear error of law or fact or to prevent manifest injustice.”
None of these factors existed. Thus, while the insured “may disagree with the Court’s determination, nothing in her motion shows that her bad faith claim was dismissed because of a clear error of law or that its dismissal amounts to manifest injustice.”
In his earlier decision, Judge Pappert also dismissed plaintiff’s claims for treble damages under the Motor Vehicle Financial Responsibility Law (MVFRL), on the basis the insured did not allege wanton conduct against the insurer. That dismissal, however, was without prejudice. The insured raised the same claim in its second amended complaint, but Judge Pappert found this amendment “still lacks sufficient allegations of wanton conduct, as she has not alleged ‘any new facts at all.’”
Rather than dismissing the claim under Rule 12(b)(6), consistent with the insurer’s motion Judge Pappert struck the treble damages claim per Rule 12(f).
Date of Decision: December 18, 2020
Canfield v. Amica Mut. Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2794, 2020 WL 7479615 (E.D. Pa. Dec. 18, 2020) (Pappert, J.)
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.)
In this case, Western District Magistrate Judge Kelly ordered production of the insurer’s claim handling guidelines.
The insurer denied UIM coverage, claiming the insureds waived their benefits. The carrier conceded its UIM waiver forms did not comply with Pennsylvania law, but took the position it still properly denied the claim under the circumstances. The insureds sued for breach of contract and bad faith.
The insured’s document requests sought “all written policies, claims and manuals, company manuals, operational guidelines, and/or any other policies, procedures, guidelines, manuals, and/or instructional/educational material pertaining to the handling of underinsured motorist claims ….” The insurer objected on the basis that these documents were confidential and proprietary, but that “if plaintiffs’ counsel will agree to sign a confidentiality order, [the insurer] will produce a copy of the Table of Contents for its claims manual and the plaintiffs can identify which chapter or chapters they believe they need to review.”
The carrier later stated there were no claim manuals, but rather the insurer maintained a “Best Practices” guide. The insurer produced part of its Best Practices guide, with redactions and removed pages, regarding liability, subrogation, and first party medical benefits. The redactions were not specifically identified and there was no privilege log.
The insured moved to compel greater production.
The carrier responded that “evidence of claims handling is irrelevant to this proceeding because the … claim was ‘never ‘handled’ since [the carrier] concluded there was nothing to handle.” It also took the position that neither liability nor the nature and extent of the injuries were in dispute, and the only issue was whether coverage was properly denied.
Separately, the carrier objected to production because such “production would otherwise cause it harm based on the nature of the plaintiffs’ counsel’s law firm; that is, a well-advertised law firm that represents ‘injured people.’” Apparently, the carrier was concerned that plaintiffs’ counsel would use its manual in future lawsuits, brought by different plaintiffs against the insurer.
In addressing the insureds’ motion to compel, the court first observed that claims manuals and training materials are “relevant [in bad faith cases] because the manuals contain instructions concerning procedures used by insurance company employees in handling UIM claims, like Plaintiffs’ claims herein. Though departures from established standards in handling a UIM claim would not alone establish bad faith, such information ‘is probative evidence for plaintiff to demonstrate bad faith.’”
The court rejected the insurer’s argument that it did not have to produce these materials because there had been no claim handling. “That [the insurer] failed to process the claim at all does not necessarily render guidelines as to how claims are ordinarily processed irrelevant and, at this stage of the proceedings, it cannot be said that the information sought is unrelated to the facts at issue.” The insureds had agreed that discovery could have some limits, and the insurer did not have to produce materials in the Best Practices guide “pertaining to rental vehicles, property damage, vehicle theft, and other sections unrelated to the evaluat[ion] and/or handling of an injury claim….”
Thus, the insureds “met their initial burden to establish the relevance of the requested material within the broad scope of permissible discovery and [the insurer] failed to adequately show that the information, limited to the handling of UIM claims for bodily injury, is irrelevant simply because it denied the claim.”
As to the second objection, the court found nothing in the Federal Rules of Civil Procedure imposing a discovery “limitation based on a law firm’s advertising budget or the nature of its legal representation of injured persons….” Any concern that these materials might be used in some future litigation could be addressed with plaintiff’s counsel in negotiating and drafting an appropriate confidentiality agreement.
Thus, the insurer had to produce the Best Practices guide, with only the redactions and limitations described above.
Date of Decision: December 9, 2020
Keeler v. Esurance Insurance Services, Inc., U.S. District Court Western District of Pennsylvania No. CV 20-271, 2020 WL 7239568 (W.D. Pa. Dec. 9, 2020) (Kelly, M.J.)
