Archive for the 'PA – UIM/UM Cases' Category

TWO SHORT EASTERN DISTRICT SUMMARIES: TAKING CONTRARY POSITIONS IN SUBROGATION AND UIM CLAIMS NOT BAD FAITH; ESTATE HAS STANDING TO PURSUE BAD FAITH CLAIM (Philadelphia Federal)

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Here are quick summaries of two recent Pennsylvania Eastern District bad faith cases.

TAKING CONTRARY POSITIONS IN SUBROGATION AND UNINSURED MOTORIST CASES ON INSURED’S CULPABILITY NOT BAD FAITH PER SE

The carrier denied the insured’s uninsured motorist claim on the basis that the insured was at fault.  However, the carrier brought a property damage subrogation action against the other driver, claiming the other driver was solely at fault.

The insured brought breach of contract and bad faith claims on the basis the carrier admitted or conceded via the subrogation action that the other driver was wholly at fault, and could not now argue its insured was at fault. The insured moved for summary judgment on this basis.  Eastern District Judge Younge denied the motion.

Judge Younge rejected the idea that either judicial estoppel or collateral estoppel applied to bind the carrier to its legal assertions in the subrogation action.  Absent their application, he found summary judgment inappropriate as the insured had not met the clear and convincing evidence standard of proof for bad faith.

Finally, Judge Younge rejected the argument that the carrier breached its contract or acted in bad faith by not making a partial payment. “Plaintiff also failed to establish that he is entitled to an advance of proceeds under policy provisions. Under Pennsylvania law, the Court is not aware of any duty on the part of an insurer to make a partial payment on a UIM claim in the absence of a contractual provision requiring a partial payment or an agreement between the parties as to the value of a UIM claim.”

Date of Decision:  June 29, 2021

Marrone v. Geico Insurance Company, U.S. District Court Eastern District of Pennsylvania No. 20-CV-4405-JMY, 2021 WL 2681388 (E.D. Pa. June 29, 2021) (Younge, J.)

ESTATE HAS STANDING TO PURSUE LIFE INSURANCE BAD FAITH CLAIM

In this life insurance bad faith case, Eastern District Judge Surrick held that the estate has standing to bring the bad faith claim, even though the decedent was not a beneficiary.

Date of Decision:  July 6, 2021

Hudson v. Columbia Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5252, 2021 WL 2823074 (E.D. Pa. July 6, 2021) (Surrick, J.)

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

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

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

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

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

The insured made the following bad faith allegations:

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

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

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

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

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

  6. Dilatory and abusive claims handling;

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

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

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

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

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

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

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

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

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

Date of Decision:  June 10, 2021

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

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

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

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

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

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

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

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

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

Date of Decision:  June 7, 2021

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

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

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

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

Reserves discoverable in bad faith valuation dispute

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

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

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

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

ISO claim search report discoverable

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Date of Decision:  May 27, 2021

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

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

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

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

No bad faith for not paying sum demanded.

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

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

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

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

No bad faith delay

Third, the insureds could not establish bad faith delay.

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

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

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

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

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

Date of Decision: May 17, 2021

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

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

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

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

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

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

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

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

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

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

Judge Pratter, then states:

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

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

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

Date of Decision:  April 15, 2021

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

NO BAD FAITH WHERE INSURER’S POSITION ON COVERAGE WAS CORRECT, AND OTHER ISSUES WERE BELATEDLY RAISED POST-TRIAL (Third Circuit)

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The Third Circuit’s precedential decision focused primarily on what constitutes a sufficient writing to request lower underinsured motorist limits under 75 Pa. C.S. § 1734. That statute only provides there must be a “request in writing”.  After close analysis, the panel determined that such a request can effectively be made in the insurance application itself, without the need for using a specialized form.

“The statute says little beyond that [there must be a request in writing]. But that silence speaks volumes. As we reiterate today, the statute means what it says: an insured can make that choice ‘in writing’ in any writing as long as the choice is clear.”

In this case, the insured requested lower than the maximum UIM limits in her written insurance application.  After suffering a serious injury, and despite the application asking for lower limits and the policy being issued with those lower limits, the insured demanded the maximum UIM limits allowed by statute.

She argued the application request was not binding because she had not filled out a separate form the insurer itself provided, which was designed for the insured to expressly acknowledge she was accepting these lower limits.  The insurer took the position that even without the insurer filling out the acknowledgment form, the written request in the application was sufficient to set lower limits for UIM coverage, and refused to pay full limits allowed by the statute.

The insured sued for breach of contract and bad faith.  The district court agreed with the insured on the policy limit issued, but dismissed the bad faith claim. The case proceeded to trial and jury awarded $1.75 million, which the trial judge molded to $750,000 to meet the UIM maximum, rather than the lower sum requested in the application.

A summary of the trial court’s decision can be found here.

For the reasons stated above, the Third Circuit reversed and found the lower limit requested in the application controlling. It ordered the trial court to mold the verdict to $300,000.

The Third Circuit did affirm the trial court’s dismissal of the insured’s bad faith claim.  The insured tried to attack the bad faith claim’s dismissal, post-verdict, via a motion for reconsideration.

  1. First, the appellate panel agreed with the trial court that the jury verdict was irrelevant to bad faith, and that the trial court should solely look “at the actions and omissions of [the insurer] to evaluate [the insured’s] claim when it was submitted and then processed. [Note:  We recently posted on a New Jersey federal decision similarly rejecting this type of “hindsight” bad faith analysis.]

  2. As the arguments were presented by motion for reconsideration, there had to be some new facts that did not exist or could not have been discovered at the time of the original decision. The Third Circuit agreed with the district court that the insured’s efforts in this regard failed, as the facts she wanted to adduce were not new.

  3. The insured failed to request certain documents in discovery, e.g., the insurer’s Best Practices Manual, and gave no justification. Further, the Rule 26(f) report revealed early on the insurer’s position about the lower limit in the application controlling the UIM policy limits.  Thus, there was no basis for reconsideration involving discovery activities.

  4. In bringing and pursuing her case, the insured did not argue the insurer acted in bad faith on the basis of misrepresenting the scope of coverage, even though she had information allegedly supporting such a claim before trial. Rather, she “chose instead to base [the] bad faith claim on an alleged failure … to investigate the [insured’s] claim.” The court would not allow the insured belatedly to bring up the misrepresentation based claim, finding there should be no second bite at the apple.

  5. The Third Circuit observed that an insurer can defeat a bad faith claim if there “is evidence of a reasonable basis for the insurer’s actions or inaction.” In this case, the insurer believed the application constituted a sufficient writing under section 1734 to reduce UIM coverage limits. The Third Circuit found the insurer’s belief, “not only reasonable but correct.” Thus, its “reliance on the lower UM/UIM coverage limits in informing its investigation and settlement offers was therefore not deceptive.”

Date of Decision:  April 8, 2021

Gibson v. State Farm Mutual Automobile Insurance Company, U.S. Court of Appeals for the Third Circuit No. 20-1589, 2021 WL 1310777 (3d Cir. Apr. 8, 2021) (Hardiman, Pratter, Roth, JJ.)

NO BAD FAITH WHERE “RED FLAGS” EXISTED THAT COULD UNDERMINE COVERAGE; RULE TO FILE COMPLAINT NOT BAD FAITH (Middle District)

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This case involved an auto accident death, and whether the deceased was an insured “family member” under his stepfather’s auto policy.  Coverage depends on whether the deceased resided with the named insured/step-father at the time of the accident.  The stepfather brought breach of contract and bad faith claims, on behalf of his stepson’s estate.

The court denied summary judgment to both parties on the coverage issues, as material facts remained open on the coverage issued.  As Judge Mannion states, “[i]n short, there exist too many disputed material facts as to whether [the stepson] was a ‘family member’ of plaintiff’s household at the time of the accident.”

The court did grant the insurer summary judgment on the bad faith claim, as plaintiff could not meet the clear and convincing evidence standard necessary to prove bad faith.

Judge Mannion observed that during its investigation, the insurer discovered that the stepson might not have met the definition of “family member” under the policy.  There were statements from two people that the stepson with living with his girlfriend and her mother, not the stepfather; that the stepfather had removed the stepson from the policy at issue; and that the deceased had purchased his own vehicle with its own insurance policy, and that policy had an address other than the stepfather’s address at the time of the accident.

While the stepson’s driver’s license and tax returns did indicate he resided with his stepfather, the insurer “certainly had sufficient evidence that showed [the stepson’s] physical residence was at [the girlfriend’s] house.”

Red flags oblige the insurer to investigate thoroughly

Looking at all the circumstances, Judge Mannion observed that “[u]nder Pennsylvania law, insurers are permitted to ‘conduct a thorough investigation’ of a questionable claim without acting in bad faith”, and “[w]here an insurer sees red flags’ that cause concern of insurance fraud and prompt an investigation, the insurer has a reasonable basis for investigation, and is therefore not liable for claims of bad faith.”  Here, the insurer “had more than a reasonable basis to investigate where [the stepson] was really residing at the time of the accident since it had ample evidence to show that he may have moved out of plaintiff’s house months before the accident.”

Under these circumstances, the insurer was “entitled to conduct its own investigation and its finding that [the stepson] was not residing with plaintiff and was not a covered family member as defined in plaintiff’s Policy was reasonably based on evidence it uncovered. Thus, defendant’s denial [of] plaintiff’s UIM claim made on behalf of [the stepson’s] Estate was not an act in reckless disregard of its obligations under plaintiff’s Policy.”

Rule to file a complaint not bad faith

The court also rejected the notion that the insurer acted “outrageously” in filing a rule to file a complaint, after plaintiff had initiated the action by way of writ of summons.  The insurer sought to have a complaint filed because it lacked information, and “instructed plaintiff to file a complaint so that it could develop the facts as to [the stepson’s] residence.” Judge Mannion added, “[i]ndeed, as defendant points out, the court held in Fabrikant v. State Farm Fire and Cas. Co., [a summary of which can be found here] …. that ‘an insurer’s exercising its procedural right to serve a Rule to File Complaint is not bad faith, absent a showing of clear and convincing evidence that such action was taken in bad faith.’” Here the insurer “was obliged to investigate where [the deceased] was physically residing at the time of the accident in order to properly consider plaintiff’s UIM claim, especially since there was evidence that his residence was at [another] house.” [Emphasis added]

Date of Decision:  April 1, 2021

Fuentes v. USAA General Indemnity Co., U.S. District Court Middle District of Pennsylvania, No. CV 3:19-1111, 2021 WL 1225934 (M.D. Pa. Apr. 1, 2021) (Mannion, J.)

THIRD CIRCUIT AFFIRMS IN CASE WHERE DISTRICT COURT FOUND NO BAD FAITH WHERE NO COVERAGE DUE (Third Circuit)

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The Third Circuit affirmed a Western District decision finding no UIM coverage due because the insured rejected stacking.  While not discussed in the appellate opinion, the trial court observed there could be no bad faith case if no coverage was due.  This point is not expressly addressed by the Third Circuit, but it did affirm on all claims, including bad faith.

A summary of the lower court’s decision can be found here.

Dunleavy v. Mid-Century Ins. Co., U.S. Court of Appeals for the Third Circuit No. 20-2100, 2021 WL 1042981 (3d Cir. Mar. 18, 2021) (Matey, Schwartz, Traxler, JJ.)

CLAIM HANDLING REASONABLE + NO CLEAR AND CONVINCING EVIDENCE ON INTENT = NO BAD FAITH (Middle District)

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Middle District Judge Conner closely examined the claims handling history before granting the insurer summary judgment on plaintiff’s bad faith uninsured motorist claim.

The record’s details show the claims handler actively investigating the claim and injuries, communicating with the insured’s counsel, and discussing the case with two other involved insurers as to their valuation before making a settlement offer.  The settlement offer was a small fraction of the policy limit demand, but that could not create bad faith under the circumstances.

As the court stated,

At bottom, the record establishes nothing more than a legitimate disagreement over causation of [plaintiff’s] injuries and valuation of her claim. It is well settled that genuinely disputing causation and value is not tantamount to bad faith. That [the insurer] did not “immediately accede to” [a] demand for policy limits also is not, by itself, evidence of bad faith. … Nor does [the insured’s] belief that the preliminary offer was too low, without more, establish that [the insurer] acted unreasonably. … “[O]ur Courts have not recognized bad faith where the insurer makes a low but reasonable estimate of the insured’s losses.” … This is particularly true given that [the insurer] articulated legitimate reasons for doubting causation; reasonably concluded the claim would not pierce the limited-tort threshold; had not been advised of any wage-loss claim by [plaintiff’s] legal team; and, perhaps most importantly, made clear that its offer was not final.”

Judge Conner concluded that the insured “failed to identify any evidence—much less clear and convincing evidence—from which a reasonable juror could find that [the insurer] lacked a reasonable basis for its preliminary settlement offer.” Thus, the insured could not establish that the insurer’s conduct was unreasonable.  Summary judgment was warranted for failing to meet this first element of statutory bad faith.

Judge Connor also addressed the knowing or reckless disregard element as well.  The insured offered no clear and convincing evidence on intent to take an unreasonable position.  The insured argued, in conclusory language, that “critical information” was withheld and “irrefutable proof” existed to prove intent; but there were no facts adduced from the record to support these assertions. The documents referenced that purportedly provided clear and convincing proof did not even exist at the time of the insurer’s purported bad faith settlement offer.

Thus, summary judgment also was warranted for this failure to make out the second bad faith element.

Date of Decision: March 15, 2021

Castillo v. Progressive Insurance, U.S. District Court Middle District of Pennsylvania No. 3:19-CV-1628, 2021 WL 963478 (M.D. Pa. Mar. 15, 2021) (Conner, J.)