Archive for the 'PA – UTPCPL' Category

WESTERN DISTRICT JUDGE WIEGAND ISSUES TWO BAD FAITH OPINIONS: (1) BAD FAITH CLAIM PLAUSIBLE WHERE COVERAGE ISSUES REMAIN OPEN (2) NO BAD FAITH FOR PRE-CONTRACT CONDUCT (Western District)

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On April 16 and 21, 2021, Western District Judge Wiegand issued bad faith opinions.  In the first case, she allowed the claim to proceed, denying a motion to dismiss. In the second, the conduct at issue did not involve any benefit denial, but only alleged pre-contract deception, which is not subject to Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.

CASE 1: BAD FAITH CLAIM STATED

In Maronda Homes, LLC v. Motorists Mutual Insurance Company, Judge Wiegand allowed an additional insured’s statutory bad faith claim to proceed, denying the insurer’s motion to dismiss.

The insurer rejected additional insured coverage, asserting (1) that the additional insured endorsement was not triggered through any alleged conduct of the named insured, and (2) that even if triggered, an exclusion applied. The additional insured raised claims for breach of contract, contractual bad faith, and statutory bad faith. The insurer moved to dismiss all claims.

Judge Wiegand first rejected the insurer’s argument that the complaint did not allege any wrongdoing by the named insured that could trigger coverage under the additional insured endorsement.  She also found factual issues remained open as to whether coverage was excluded because the work was (1) completed or (2) put to its intended use. This could not be decided at the motion to dismiss state.

Judge Wiegand did dismiss the breach of the implied covenant of good faith and fair dealing count. “[U]nder Pennsylvania law, a ‘claim for breach of the implied covenant of good faith and fair dealing is subsumed in a breach of contract claim.’” Thus, “a claim for breach of the implied covenant of good faith and fair dealing ‘separate and distinct from a breach of contract claim’ cannot be maintained because ‘the covenant does nothing more than imply certain obligations into the contract itself.’”

By contrast, Judge Wiegand allowed the statutory bad faith claim to proceed. First, she observed that the policy exclusion at issue remained open and undecided, so the insurer could not argue the coverage denial was per se reasonable based on the policy exclusion language.  She then found the insured’s allegations that the insurer “failed to investigate Plaintiff’s tender of the claims, denied coverage despite cooperatively participating in attempts to settle the Underlying Actions, and rejected settlement offers … within the limits of the Policy … are sufficient at this stage to survive Defendant’s Motion.”

Date of Decision:  April 16, 2021

Maronda Homes, LLC v. Motorists Mutual Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-01526-CCW, 2021 WL 1518009 (W.D. Pa. Apr. 16, 2021) (Wiegand, J.)

CASE 2: NO STATUTORY BAD FAITH POSSIBLE FOR PRE-POLICY CONDUCT

The second case involved a first party property damage claim, where a swimming pool popped out of the ground due to subsurface water pressure. A policy exclusion clearly excluded coverage for subsurface water pressure causing damages, but the insureds still pursued the claim.  They alleged that prior to purchasing the policy, the insurer’s agent led them to believe the policy would cover them for damages to in-ground pools “from foreseeable types of harm,” which equated to a promise concerning subsurface water pressure damage being covered.

After the coverage denial, the insureds brought claims to reform the policy to cover “pool popping,” for statutory bad faith, and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer successfully moved to dismiss all claims.

First, Judge Wiegand found that the policy could not be reformed based on mutual mistake, unilateral mistake, or fraud.  She further found that this was not a case where the reasonable expectations doctrine would permit reformation of clear policy language.

Second, she dismissed the statutory bad faith claim.  As the Pennsylvania Supreme Court made clear in Toy v. Metropolitan Life, the bad faith statute only applies when the insurer had denied a policy benefit.  Deceptive practices used to induce an insured to enter an unfavorable insurance policy do not fall within the bad faith statute’s ambit.

Finally, because the insureds did not plead justifiable reliance, there could be no UTPCPL claim.

Date of Decision: April 21, 2021

Palek v. State Farm Fire & Casualty Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-00170-CCW, 2021 WL 1561507 (W.D. Pa. Apr. 21, 2021) (Wiegand, J.)

CATCH-ALL PROVISION OF UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW RULED A STRICT LIABILITY PRIVATE RIGHT OF ACTION (Pennsylvania Supreme Court)

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Yesterday, Pennsylvania’s Supreme Court ruled, 4-3, that the Unfair Trade Practices and Consumer Protection Law’s (UTPCPL) prohibition on deceptive conduct creates a private right of action based on strict liability.  Justice Wecht’s majority opinion in Gregg v. Ameriprise Financial, Inc., can be found here.

73 Pa. Stat. Ann. § 201-2 (4)(xxi), the UTPCPL’s catch-all provision, states: “Unfair methods of competition” and “unfair or deceptive acts or practices” mean any one or more of the following: … (xxi) Engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.” Section 201-9.2(a) gives consumers a private right of action to those harmed by deceptive conduct made unlawful by the catch-all provision.

The issue before the Supreme Court was whether actionable “deceptive conduct” had some sort of intent or due care requirement, or whether this was a strict liability statute.  The majority interpreted the statutory language to create a cause of action solely based on strict liability, regardless of the defendant’s intent.  A private plaintiff still needs to prove that the defendant’s conduct was deceptive and that the plaintiff justifiably relied on that conduct, but the intent or degree of carelessness behind that deceptive conduct, if any, is irrelevant.

The majority states:

The plain language of the current statute imposes liability on commercial vendors who engage in conduct that has the potential to deceive and which creates a likelihood of confusion or misunderstanding. That is all that is required. The legislature required neither carelessness nor intent when a cause of action is premised upon deceptive conduct. Had the General Assembly intended to limit the catch-all provision to cover only common law misrepresentation claims, it would have done so directly by, for example, barring only fraudulent or negligent conduct. By choosing instead to bar “deceptive conduct,” the General Assembly signaled its intent to dispense with consideration of the actor’s mental state.

Accordingly, under the plain meaning of the statute, deceptive conduct during a consumer transaction that creates a likelihood of confusion or misunderstanding and upon which the consumer relies to his or her financial detriment does not depend upon the actor’s state of mind. Liberally construing the CPL as we must, the amended language places the duty of compliance with the CPL on commercial vendors, without regard to their intent. Without a state of mind requirement, the amended catch-all provision fairly may be characterized as a strict liability offense. ….

Justice Todd’s dissent, joined by Justices Saylor and Baer, would have created a negligence standard.  Justice Todd states:

Critically, unlike the majority’s construction, my interpretation gives meaning to all of the words in Section xxi and allows a plaintiff to prevail whenever the vendor either intentionally engages in fraud with respect to a consumer transaction, or whenever the vendor negligently engages in conduct that creates a likelihood of the type of harm that the CPL was intended to prevent – that is, confusion or misunderstanding on the part of a consumer. Stated another way, in my view, a vendor may be liable under Section xxi for deceptive conduct only when he knows, or reasonably should know, that his conduct, be it his actions or statements, is likely to cause misunderstanding or confusion in a consumer regarding the goods or services the vendor is selling. This standard, in my view, effectuates the paramount goal of the CPL — to eliminate unfairness and deception in consumer transactions — by proscribing, in addition to the intentional deception of consumers, conduct which vendors should recognize is likely to deceive reasonable consumers. However, in contrast to the strict liability standard embraced by the majority, this negligence standard also protects honest businesspeople from incurring unforeseen penalties for statements or acts that no consumer would have been confused or misled by.

For those interested in reading the dissent, a copy is provided here.

Date of Decision:  February 17, 2021

Gregg v. Ameriprise Fin., Inc., No. 29 WAP 2019, 2021 WL 607486 (Pa. Feb. 17, 2021)

SIMPLE VALUATION DISPUTE CANNOT CREATE BAD FAITH; NO ACTIONABLE BAD FAITH AGAINST CLAIM HANDLER; MIXED RESULT UNDER UTPCPL (Philadelphia Federal)

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The insured brought suit over a $500 valuation dispute.  The carrier valued the insured’s car at $2,500 ($3,000 less at $500 deductible), and repairs were estimated in excess of $3,000. The car being a total loss, the insurer offered $2,500, but the insured wanted $3,000.  This led to a 10 count complaint against the insurer and its claim handler. We only address the two bad faith counts against the insurer and/or the claim handler, and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims against the insurer.

No statutory bad faith.

The court dismissed the statutory bad faith claim.  There were simply no allegations of fact that could support a plausible bad faith claim. The complaint itself showed the carrier appropriately investigated the claim, and gave a prompt damage assessment.  Plaintiff did not allege the repair cost estimate was incorrect, or the inspection faulty. There was no allegation that the insurer’s valuation was unreasonable. There was no claim denial, just a dispute over the sum due.

The court found this simply a “normal dispute” that did not amount to bad faith. “An insurer’s failure to honor its insured’s subjective value of his claim does not—without more—give rise to a bad faith claim.” The court, however, did allow leave to amend.

No common law bad faith against the insurer or the claim handler.

The insured brought common law bad faith claims against the insurer and claim handler. The court observed there is no tort common law bad faith cause of action; rather, in Pennsylvania common law bad faith is subsumed in the breach of contract claim. Thus, the common law claim against the insurer was dismissed with prejudice.

As to claim handler, Pennsylvania law (1) does not support a statutory bad faith claim against claim handlers; nor (2) does it recognize a bad faith claim in contract against adjusters (who are clearly not party to any contract). These claims were dismissed with prejudice.

A mixed result under the UTPCPL.

The court also dismissed one UTPCPL claim on the basis that it alleged poor claim handling, not deceptive inducement to enter the insurance contract.  However, the insured also alleged the carrier’s representative originally made false representations causing him to purchase the insurance in the first place.  This was sufficient to state a UTPCPL claim under its catch-all provision.

Date of Decision: December 14, 2020

Ke v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1591, 2020 WL 7353892 (E.D. Pa. Dec. 14, 2020) (Pratter, J.)

BAD FAITH CLAIM CAN PROCEED WHERE THE POLICY TERMS WERE IN DISPUTE, AND NO PARTY COULD PRODUCE THE ORIGINAL POLICY (Western District)

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This case involves a missing disability insurance policy.

The insured claimed he never received the original policy in 1990.  By the time of his disability claim 25 years later, the insurer likewise did not have an original, and could only produce “substitute” or “replica” policies.  The insured did have various application forms, which the court considered in ruling on the instant summary judgment motion.

Without going into painstaking detail here, the insured claimed he had a lifetime disability policy, and the carrier claimed the insured was only entitled to two years of payments after his disability.  The insured sued for breach of contract, tort, bad faith and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer moved for summary judgment on all counts.

The court first rejected the insurer’s breach of contract motion. While the substitute and/or replica policies could support the insurer’s position that it had paid all that was due, the insurer still had to prove that these policies accurately reflected the actual policy.  Thus, the insured’s testimony concerning the lifetime coverage he requested and was told he received vs. the insurer’s testimony that the substitute and/or replica policies were identical to the original policy all had to be decided by the trier of fact. Therefore, summary judgment on the contract action was denied. The court also considered the insured’s reasonable expectations under Tonkovic and Rempel to be open issues of fact.

As to the bad faith claim, the court first set out the pertinent legal principles and reiterated that the insured did not have to prove self-dealing or ill-will under Rancosky.  The court then denied the summary judgment motion on bad faith.

The insured raised numerous facts supporting bad faith.

  1. The insured alleged the carrier’s adjuster sarcastically commented that the insured claim conveniently fell just within the policy’s expiration limit.

  2. When asked for a copy of the policy, the insurer’s response was inconsistent. It first sent a “substitute policy” and then a “replica policy”. Both policies had missing pages and both were different than the policy he believed he had actually purchased.

  3. The insured contended the carrier’s “practice of not maintaining original copies of policies is further evidence of bad faith toward its insureds because this practice shifts the burden to the insureds to produce the terms of the policies.”

  4. The carrier “never informed [the insured] of the relevant limitations of the Policy, even when it offered the opportunity to purchase a new policy when he approached age 65.”

On the other hand, the carrier argued it had a reasonable basis to deny coverage, precluding bad faith.  The court responded that “while this may ultimately be proven, the Court cannot determine on a motion for summary judgment whether [the insurer] had a reasonable basis for its denial. Moreover, as [the insured] observes, [the insurer’s] behavior during the claim process constitutes evidence in support of his claim that it acted in bad faith.”

The court likewise denied summary judgment on the UTPCPL claim. The insured was successful in framing the argument as a case of deceptive conduct in issuing the policy, and not merely a failure to pay (which is not actionable under the UTPCPL).

The insured “indicated that representations were made by [the insurer’s] agent that he was purchasing a disability policy that provided ‘lifetime benefits up to age 65,’ that he justifiably relied on these representations and that he suffered damages because [the insurer] later took the position that the Policy did not provide this benefit because he did not become disabled until after he reached age 60. He has presented sufficient evidence to support a claim under the UTPCPL that must be weighed by the trier of fact.”

Summary judgment on the remaining claims was likewise denied.

Date of Decision: November 30, 2020

Falcon v. The Northwestern Mutual Life Insurance Company, U.S. District Court Western District of Pennsylvania No. CV 19-404, 2020 WL 7027482, (W.D. Pa. Nov. 30, 2020) (Dodge, M.J.)

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

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

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

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

Breach of Contract Claims Partially Survive

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

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

BAD FAITH

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

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

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

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

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

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

Promissory Estoppel and UTPCPL

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

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

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

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

Date of Decision: September 24, 2020

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

NO BAD FAITH BY DEFINITION IF COVERAGE DENIAL IS REASONABLE (Western District)

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“When an insurer’s coverage denial was reasonable ‘on the basis of the plain meaning of the Policy and relevant exclusions and definitions,’ there can be no ‘bad faith’ as a matter of law.”

Unlike the Eastern District’s recent decision in Smith v. AAA Interinsurance Exchange, the Pennsylvania Supreme Court’s decision in Gallagher v. Geico did not void the household exclusion under the facts of this case. The court thus found no UIM coverage due, and because the auto insurer “properly denied coverage, Plaintiffs’ tag-along claims for bad faith and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201-1, et seq., also fail.”

The insured was injured on a motorcycle she owned. The motorcycle was covered by Progressive. The insured owned two other vehicles covered by Mid-Century, the present defendant. The insured waived UIM coverage under the Progressive policy. She still sought coverage under the Mid-Century policy, relying on Gallagher, because she had not executed a stacking waiver in connection with the Mid-Century policy.

Gallagher does not apply where stacking is not at issue

The insured’s claim against Mid-Century failed. Gallagher stands for the proposition that the household exclusion cannot limit stacking without a stacking waiver. In this case, however, the insured had waived UIM coverage under her Progressive policy, so there was no stacking at issue. Rather, she was seeking primary UIM coverage against Mid-Century. Thus, Gallagher did not apply, and Mid-Century properly relied on the household exclusion to deny coverage.

No coverage due means no bad faith by definition

In dismissing the bad faith claim, the court found plaintiffs could not make out the first prong of the bad faith test, i.e., that the denial was unreasonable. “When an insurer’s coverage denial was reasonable ‘on the basis of the plain meaning of the Policy and relevant exclusions and definitions,’ there can be no ‘bad faith’ as a matter of law.” “Put differently, if Mid-Century properly denied coverage, which the Court finds it did, it could not, by definition, have acted in bad faith by denying coverage.”

Any other putative bad faith claims were dismissed for merely making conclusory allegations.

UTPCPL claim fails for variety of reasons

Lastly, the court dismissed plaintiffs’ Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims for a variety of reasons. First, there was no improper conduct. Next, even if there was misconduct, the UTPCPL only applies to conduct in connection with issuing the insurance policy, not the performance of the insurer’s obligations under the policy after it is issued. Third, even assuming arguendo the plaintiffs could have overcome these two hurdles, they solely pleaded nonfeasance, and the UTPCPL only applies to claims of malfeasance.

No leave to amend was given, and judgment on the pleadings was entered for the insurer.

Date of Decision: May 19, 2020

Dunleavy v. Mid-Century Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:19-cv-1304, 2020 U.S. Dist. LEXIS 88024 (W.D. Pa. May 19, 2020) (Ranjan, J.)

Our thanks to Attorney and Mediator Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

Judge Ranjan’s opinion was later affirmed on appeal, the Third Circuit solely focusing on the lack of coverage.

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.)

NO BAD FAITH WHERE NO BENEFITS DENIED; NO PRIVATE ACTION UNDER UIPA OR UCSP REGULATIONS; NO DECEPTIVE CONDUCT IN NOTICE OF NEW ENDORSEMENT (Philadelphia Federal)

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In this case, the court makes clear that “Bad faith claims cover a range of conduct relating to the improper denial of benefits under the applicable contract.” The court quotes the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007), to highlight the point that statutory bad faith claims must relate to a denial of benefits: “’In other words, the term [bad faith] captured those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.’”

This first party property damage case centered on a policy endorsement changing the scope of coverage for access work done to repair leakage.

In 2015, the insureds had a homeowners policy with the carrier. In August 2015, while the policy was in effect, the carrier provided the insureds with notice of a new endorsement that would take effect on September 27, 2015. The notice stated that the new endorsement would potentially reduce coverage, and that “[a]lthough not intended to change coverage, this change could potentially reduce or eliminate coverage depending on how it is interpreted and, in that regard, should be viewed as either an actual or potential reduction in or elimination of coverage.”

The insureds renewed their homeowners policies in the ensuing years, apparently without ever questioning this endorsement. The property damage at issue occurred in September 2018, when the insured homeowners had their plumber do certain repair work to fix a leak, including access work to get to damaged plumbing. The insureds allege that the carrier improperly refused to pay the full bill for the access work, while the carrier relied on the 2015 endorsement in justifying its lower than hoped for payment.

The homeowners brought individual and class action counts, seeking declaratory relief, as well as claims for breach of contract, violations of the Unfair Trade Practices and Consumer Protection Law (UTPCPL), the Unfair Insurance Practices Act (UIPA), Pennsylvania’s Unfair Claims Settlement Practices regulations (UCSP), and for statutory bad faith. The insurer moved to dismiss all claims.

Declaratory judgment and contract claims dismissed without prejudice

The insureds argued the 2015 endorsement was unconscionable and should be rendered void; but even if enforceable, it still required greater payment than the carrier made for the cost of the access work. The court, however, dismissed the declaratory judgment claim and breach of contract claim on these grounds, but without prejudice if plaintiffs could plead additional facts to support these claims.

Bad faith claim dismissed without prejudice

The essence of the insureds’ bad faith claims is that the notice accompanying the 2015 endorsement promised greater coverage, but gave less coverage. The court found this could not state a bad faith claim because these claims did not involve the denial of a benefit. “Section 8371 encompasses a variety of insurer conduct, but such conduct must be related to the denial of benefits.” Though “’the alleged bad faith need not be limited to the literal act of denying a claim, the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.’”

In this case the “Plaintiffs’ allegations do not relate to the denial of coverage of the access bill, they relate to the Endorsement notice’s language and how Defendant engaged in alleged misrepresentation because of the purportedly confusing notice.” A “claim that the drafting of policy language was in bad faith is not actionable under Pennsylvania law….” In making this point, the court relied on Mitch’s Auto Service Center, Inc. v. State Automobile Mutual Insurance Co. As stated above, it relied on Toy v. Metropolitan Life for the fundamental point that statutory bad faith claims must include the denial of a benefit.

The court also specifically observed the complaint was “devoid of any facts indicating Defendant lacked a reasonable basis for denying benefits under the policy.” Likewise, there were no plausible allegations that the insurer “knew or recklessly disregarded its lack of reasonable basis.” The insureds argued that the 2015 notice language could be the basis of a bad faith claim. The court failed to see, however, “how that notice, provided to Plaintiffs three years prior to the water damage here, shows that Defendant knew or recklessly disregarded its alleged lack of reasonable basis in denying Plaintiffs’ entire costs for the plumber’s access bill.”

Still, the court dismissed without prejudice if the insureds could replead a plausible bad faith claim.

UIPA and UCSP regulations claims dismissed with prejudice

The insureds conceded that there is no private cause of action under Pennsylvania’s UIPA, 40 P.S. § 1171.1, or UCSPR, 31 Pa. Code §§ 146.1. The court cited Leach v. Northwestern Mut. Ins. Co., 262 F. App’x 455 (3d Cir. 2008), Swan Caterers, Inc. v. Nationwide Mut. Fire Ins. Co., No. 12-0024, 2012 U.S. Dist. LEXIS 162305, 2012 WL 5508371 (E.D. Pa. Nov. 13, 2012) and Connolly v. ReliaStar Life Ins. Co., No. 03-5444, 2006 U.S. Dist. LEXIS 83440, 2006 WL 3355184 (E.D. Pa. Nov. 13, 2006) for the proposition that there is no private cause of action under the UIPA or UCSP regulations, and the statute and regulations can only be enforced by the insurance commissioner.

UTPCPL claim dismissed without prejudice

The court dismissed the UTPCPL claim without prejudice, finding the 2015 notice did not constitute a deceptive act, because “the notice’s language explicitly states that the policyholder should treat the change as a reduction in coverage.” The court further found justifiable reliance was not pleaded, as there were no allegations that the insureds relied on any alleged misconduct causing them to purchase the policy.

Dates of Decision: March 27, 2020 (Report and Recommendation) and April 22, 2020 (District Court Order)

Velazquez v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-cv-3128, 2020 U.S. Dist. LEXIS 55854 (E.D. Pa. Mar. 27, 2020) (Sitarski, M.J.) (Report and Recommendation), approved and adopted by the District Court (April 22, 2020) (Quiñones Alejandro, J.)

 

BAD FAITH CLAIM FOR USING WRONG FEE SCHEDULE TO PAY FIRST PARTY MEDICAL BENEFITS PREEMPTED BY MVFRL; BUT CASE CAN PROCEED UNDER UTPCPL (Middle District)

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This class action complaint alleged the insurer underpaid on motor vehicle personal injury benefits claims by using an improper fee schedule, resulting in lower payments than were due.

The court held the statutory bad faith claims were pre-empted by the Motor Vehicle Financial Responsibility Law (MVFRL). The court extensively discussed case law addressing when 75 Pa.C.S. § 1797 preempted 42 Pa.C.S. § 8371. It held the MVFRL preempts section 8371 bad faith claims where the gravamen of the insured’s claim “is the denial of first party medical benefits and nothing more.” By contrast, e.g., abuse of the PRO process might not be preempted.

On the other hand, the court found the complaint adequately pleaded a claim under the Unfair Trade Practices and Consumer Protection Law, as paying an improper sum is more than mere nonfeasance.

Date of Decision: April 13, 2020

Banks v. Allstate Fire & Casualty Insurance Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:19-CV-01617, 2020 U.S. Dist. LEXIS 63863 (M.D. Pa. April 13, 2020) (Wilson, J.)

THERE IS NO PRIVATE CAUSE OF ACTION UNDER THE UIPA OR UCSP REGULATIONS (Philadelphia Federal)

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Last week, we summarized Judge Jones decision in this case regarding whether the insured adequately pleaded bad faith. In this post, we address his ruling on whether violations of Pennsylvania’s Unfair Claims Settlement Practices (UCSP) regulations and Unfair Insurance Practices Act (UIPA) can state a private cause of action.

Judge Jones found the applicable case law clear that there is no private right of action under the UIPA or UCSP regulations. Rather, these laws and regulations can only be enforced by the insurance commissioner.

The court cites numerous opinions supporting this conclusion, including, e.g., the Third Circuit’s Leach opinion, Judge Dalzell’s opinion in Upper Pottsgrove v. International Fidelity, Judge Tucker’s decision in Weinberg v. Nationwide, and Judge Kosik’s decision in Oehlhmann v. Metropolitan Life, among the many cases cited.

The court did appear to recognize, however, that under some circumstances a bad faith claim could be premised on a UIPA or UCSP violation, citing Judge Conaboy’s Aldsworth decision, and Judge Rambo’s 2014 Militello decision.

[Note:  Last May, we posted a breakdown of how various courts have addressed the extent of the relationship between the UIPA and UCSP regulations and statutory bad faith claims.]

Finally, the court dismissed the insured’s Unfair Trade Practices and Consumer Protection Law claim, solely under the economic loss doctrine.

Date of Decision: March 19, 2020

Clapps v. State Farm Insurance Cos., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 19-3745, 2020 U.S. Dist. LEXIS 47800 (E.D. Pa. Mar. 19, 2020) (Jones II, J.)

 

THERE IS NO CAUSE OF ACTION FOR “INSTITUTIONAL BAD FAITH” (Pennsylvania Superior Court) (Non-Precedential)

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In this unpublished opinion, Pennsylvania’s Superior Court addressed whether “institutional bad faith” states a private cause of action under Pennsylvania law. Much like yesterday’s post, the Superior Court emphasized that Pennsylvania bad faith law requires focusing on the case and parties at hand, and not the insurer’s conduct toward other parties or its alleged universal practices. The court also addressed other issues concerning statutory bad faith and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL), among other matters. In this post, we only address all the bad faith and  UTPCPL claims against the insurer.

Factual Background and Trial Court Rulings

The case begins with a home remodeler’s attempt to destroy a bee’s nest in one small section of a house. This unfortunate effort only caused larger problems, contaminating and damaging the house. The chain of misfortune continued when remediation efforts led to more damage, with the home allegedly becoming uninhabitable. At a minimum, all sides agreed some level of reconstruction work was now needed.

The homeowners’ insurer engaged a contractor to fix the original problem. The homeowners eventually challenged the quality of that contractor’s work, which they contended added to the damage. They eventually refused to allow that contractor on site, and unilaterally hired a second contractor to take over. Both the insured and insurer retained their own engineers, who disagreed on the scope of the damage and reconstruction work required.

The second contractor was owned by the insured husband’s parents. The husband himself was the second company’s project manager on the job. The trial court stated that the husband agreed with the position that he “negotiated an oral contract on behalf of … himself and his wife… with himself, as project manager of and on behalf of [the second contractor]” for the reconstruction work. The insurer and first contractor disputed the necessity and cost of the work carried out by the second contractor, as well as other costs.

The trial court ruled for the insurer on breach of warranty, emotional distress, UTPCPL, and bad faith claims, but in favor of the insureds on their breach of contract claim.

There is no Cause of Action in Pennsylvania for Institutional Bad Faith

The insureds argued that institutional bad faith could be the basis for asserting statutory bad faith. Under this theory, a claim can be based solely on an insurer’s policies, practices, and procedures as applied universally to all insureds. The present plaintiffs wanted to introduce evidence to support such institutionalized bad faith conduct. Both the trial and appellate courts rejected this theory.

The Superior Court emphasized that a bad faith action is limited to “the company’s conduct toward the insured asserting the claim.” Thus, “’bad faith claims are fact specific and depend on the conduct of the insurer vis-à-vis the insured.’” The Superior Court agreed with the trial court “that there is no separate cause of action of institutional bad faith.” It stated, that the bad faith statute “authorizes specified actions by the trial court ‘if the court finds that the insurer has acted in bad faith toward the insured . . . ,’ not to the world at large.” (Court’s emphasis).

The Insurer did not Act in Bad Faith

  1. The policy and procedure manual/guideline arguments failed on the merits.

The Superior Court ruled that the trial court’s findings did not result in a refusal to consider evidence relating to the insurer’s conduct and practices. In fact, the insurer’s manuals, guidelines, and procedures were admitted as evidence, all of which were considered by the trial court. This evidence, however, was not considered as part of an institutional bad faith case. Rather, it was only relevant to determining if the insurer acted in bad faith toward the specific plaintiff-insureds, and not to the universe of all insureds.

In deciding the bad faith issue, when the trial court was presented with evidence of the insurer’s policies and procedures, it “did not find them to be improper when applied to the [insureds’] claim, although not a separate claim concerning ‘institutional bad faith.’” (Court’s emphasis) Thus, the actual plaintiffs could not make out a case for themselves on this evidence because they “failed to establish a nexus between [the insurer’s] business policies and the specific claims … asserted in support of bad faith.”

  1. The insureds could not meet the clear and convincing evidence standard.

The trial court found the insurer had not acted in bad faith on other facts of record, and the Superior Court found no abuse of discretion in this ruling. Both courts emphasized the insured’s burden of proof is clear and convincing evidence. Thus, the trial court stated, “[i]cannot be reasonably said, given the facts and evidence adduced at trial, that [the insurer] lacked a reasonable basis for denying benefits and/or that [it] knew or recklessly disregarded its lack of a reasonable basis to deny benefits…. Mere negligence or bad judgment in failing to pay a claim does not constitute bad faith. An insurer may always aggressively investigate and protect its interests. Particularly in light of the higher burden of proof, specifically the requirement that [insureds] must prove a bad faith claim by ‘clear and convincing’ evidence, the record in this case does not support the assertion of statutory bad faith….”

Specifically, the court focused on alleged (i) failures to pay engineering fees, (ii) delays in hiring engineers, (iii) unduly restricting the engineer’s ability to opine, and (iv) instructions that the first contractor and its engineer disregard building codes.

The insurer adduced evidence that (i) it paid engineering fees, (ii) its original decision not to hire an engineer was done based on information provided by the first contractor and a building code officer, (iii) it did agree to hire an engineer once the insureds provided their list of concerns, and (iv) the engineer opined the home was not uninhabitable. The insurer also put on evidence that its adjuster never told the first contractor to ignore the building code, but rather expected the contractor to comply with existing code requirements.

On these facts, the Superior Court found that the trial court did not abuse its discretion in finding the insureds failed to meet the clear and convincing evidence standard.

The UTPCPL does not Apply to Claim Handling

Both the trial court and Superior Court concluded that the UTPCPL does not apply to insurer claim handling cases.

Date of Decision: January 14, 2020

Wenk v. State Farm Fire & Cas. Co., Superior Court of Pennsylvania No. 1284 WDA 2018, No. 1287 WDA 2018, No. 1288 WDA 2018, 2020 Pa. Super. Unpub. LEXIS 178 (Pa. Super. Ct. Jan. 14, 2020) (Lazarus, Olson, Shogan, JJ.) (non-precedential)

The January 14, 2020 decision was not a final disposition, and a subsequent opinion was filed on February 7, 2020, attached here, which appears to be identical to the January 14, 2020 opinion.

Our thanks to Daniel Cummins of the excellent Tort Talk blog for brining this case to our attention.