Archive for the 'PA – UTPCPL' Category

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.

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.

NO BAD FAITH WHERE NO BENEFIT IS DENIED (Philadelphia Federal)

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In this property damage case, a policy endorsement placed defined limits on the scope of covered property damage. For example, the insured might have to pay for work covering 400 square feet to accomplish repairs needed to correct a problem, but the endorsement might only cover 200 square feet out of that 400. In this case, the insurer was only willing to pay for a portion of the insured’s overall repair costs, per the endorsement, but the insured wanted coverage for the entire amount. The insured brought breach of contract, bad faith, and unfair trade practices claims, and was now on his second amended complaint. The insurer moved to dismiss.

There is no breach of contract

Judge Kearney agreed that the insurer’s limited payment comported with the endorsement, and there was no breach of contract. He rejected the notion that the underlying policy could be kept in play, while striking off the endorsement on an unconscionability theory. Unconscionability is an affirmative defense and not a cause of action. Thus, the insured could not use this theory as a plaintiff. The court also rejected the insured’s reasonable expectations argument in refusing to rewrite the policy and strike the endorsement.

Although not pleaded in either the original complaint or two subsequent amendments, the insured argued against dismissal on the basis that a key word in the endorsement was ambiguous. Construing that ambiguity for the insured would purportedly allow for broader coverage. The court gave leave for another amendment, with the admonition to the insured and counsel that any amendment asserting this new position had to comply with Rule 11.

There is no actionable bad faith claim when there is no denial of a benefit

On the bad faith claim:

  1. The court could not infer the insurer lacked a reasonable basis to deny benefits, or acted with intent or reckless disregard in doing so. The insured himself alleged that benefits were not denied on the policy with the endorsement, only that the endorsement should be stripped from the policy, which would then allow additional benefits. As the court rejected that position, no benefits were denied under the policy as actually written.

The court noted that leave was given to replead the contract claim on the new ambiguity theory. Judge Kearney extended this possibility to re-pleading the bad faith on an ambiguity theory, if such a claim could be properly pleaded. He reminded the insured, however, that simply re-pleading the breach of contract on the basis of ambiguity “does not automatically equal statutory bad faith.”

  1. The court observed that “Pennsylvania’s bad faith statute does not extend to conduct unrelated to the denial of a claim for benefits.” To quote Judge Kearney at length:

Bad faith claims do not remedy an insurer’s allegedly insufficient performance of its contractual obligation or to indemnify losses. [citing Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 198-200 (Pa. 2007).] Our Court of Appeals has affirmed “legislative intent. . . makes clear that the [bad faith] statute was intended specifically to cover the actions of insurance companies in the denial of benefits.” [citing Wise v. Am. Gen. Life Ins. Co., No. 02-3711, 2005 U.S. Dist. LEXIS 4540, 2005 WL 670697 (E.D. Pa. Mar 22, 2005), aff’d, 459 F.3d 443 (3d Cir. 2006).] The General Assembly did not intend bad faith liability to extend to an insurer’s solicitation of customers or to regulate insurance policies generally. [Id.] For example, [the insured] argues [the insurer] acted in bad faith when it bargained with [the insured] for his insurance plan. We cannot recognize a bad faith claim for actions unrelated to the handling or denial of benefits. [The insured] also fails to plead a single fact evidencing delay or unreasonable treatment of his claim other than a disagreement over whether the Endorsement should govern. We cannot locate a fact suggesting a frivolous or unfounded refusal to pay the insurance proceeds. [The insured] does not plead a lack of good faith investigation into the facts or a failure to communicate. Instead, we must disregard conclusory allegations unsupported by facts, including the catch-all “acting unreasonably and unfairly.”

Finally, the court observed that any claim that the carrier interpreted an ambiguous policy term in bad faith would need many more facts than found in plaintiff’s current arguments.

Unfair Trade Practices and Consumer Protection Law (UTPCPL) claim dismissed, and insured admonished as to nature of any future amendment

As to the putative deceptive conduct in including the endorsement, the court found that the complaint failed to allege intent or justifiable reliance. Thus, the catch-all UTPCPL deceptive practices claim failed, lacking these two necessary elements. Moreover, the alleged claim constitutes nonfeasance (failure to pay), rather than misfeasance, and thus fails on this additional ground.

While leave to amend remained on the table, the court admonished the insured that any new UTPCPL claim based on misfeasance would be scrutinized in light of existing judicial admissions indicating the claim is only one for nonfeasance.

Date of Decision: August 9, 2019

Boring v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1833, 2019 U.S. Dist. LEXIS 134242 (E.D. Pa. Aug. 9, 2019) (Kearney, J.)

 

NEW JERSEY FEDERAL COURT WOULD ALLOW PA BAD FAITH CLAIM TO PROCEED ON BASIS THAT INSURER KNEW ITS REPRESENTATIVE MISREPRESENTED THE POLICY’S SCOPE PRIOR TO POLICY BEING ISSUED (New Jersey Federal)

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In this case, the insured alleged that promises made in selling a disability policy differed from the terms of the policy itself, to the insured’s detriment. Although a New Jersey federal action, the case involved Pennsylvania law, including the Pennsylvania bad faith statute. The insurer moved to dismiss the bad faith count, and well as claims for breach of the duty of good faith and fair dealing and fraud.

First, the court quickly dismissed the separate claim for breach of good faith and fair dealing as subsumed in the breach of contract claim.

As to the bad faith claim, the insured asserted in his brief the carrier was aware of prior misrepresentations by its sales representative about the scope of coverage. Therefore, the insurer could not in good faith enforce the terms of the policy that limited coverage more narrowly that the sales representative’s promises, which had induced the insured to purchase the policy.

The factual basis of these allegations was that the insurer had been sued before on the same basis, and the sales representative’s deposition had been taken where he admitted his conduct.

This was only included in the insured’s briefing on a motion to dismiss. The complaint itself made no reference to the prior suit or the deposition; nor did the insured plead that the carrier was aware of the sales representative’s misstatement before issuing the policy. Thus, this count was dismissed without prejudice, presumably to replead with these allegations included in an amended complaint.

[Note: There is case law indicating that pre-suit misrepresentations are addressed via Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, whereas statutory bad faith is based on post-policy conduct in the handling and disposition of claims made against the policy. An example can be found here.]

The court refused to dismiss a separate fraud count on the gist of the action theory, finding that the fraudulent inducement preceded the contract; however, again, the facts were not adequately set forth and dismissal was without prejudice.

Date of Decision: August 8, 2019

Javie v. Mass. Cas. Ins. Co., U. S. District Court District of New Jersey Civil Action No. 18-2748, 2019 U.S. Dist. LEXIS 133123 (D.N.J. Aug. 8, 2019) (Vazguez, J.)

DISTRICT JUDGE LEESON ISSUES TWO OPINIONS DEMONSTRATING THE DIFFERENCE BETWEEN WELL-PLEADED vs. CONCLUSORY BAD FAITH COMPLAINTS (Philadelphia Federal)

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In these two UIM cases, Eastern District Judge Joseph F. Leeson, Jr. addressed motions to dismiss bad faith claims. In Krantz v. Peerless, he dismissed the bad faith claim and remanded the action to state court, but in Perez-Garcia v. State Farm, the bad faith claim survived a motion to dismiss. The pleading differences in these two cases are described below.

Failure to plead to supporting facts results in dismissal of bad faith claim.

In Krantz, the UIM bad faith plaintiff argued that the insurer improperly interpreted the policy in refusing to pay full policy limits. The complaint alleged the insurer relied upon an invalid and unlawful setoff provision in withholding $37,500 out of the $100,000 policy limit. Judge Leeson found, however, the insured failed to plead facts showing the setoff provision was invalid, “or, more importantly, that [the insurer] knew or should have known that it was denying the full amount of benefits based on an invalid provision.”

In granting the motion to dismiss the bad faith claim, Judge Leeson also found the following allegations conclusory because the complaint lacked any other supporting factual allegations that could make these statement plausible:

(1) the insurer did not make any good faith offers to settle despite repeated demands;

(2) the insurer “failed to objectively and fairly evaluate his claim”;

(3) the insurer “failed to promptly tender payment of the fair value of the claim”; and

(4) the insurer failed to reasonably investigate the claim.

Judge Leeson gave examples of the kind of facts needed to support these sorts of conclusory allegations, but such facts were absent from the complaint. He concluded:  “’Essentially, Plaintiff’s cursory allegations assert that Defendant lacked a reasonable basis for denying Plaintiff’s claim for benefits, but do not provide any factual allegations from which the Court could make a plausible inference that Defendant knew or recklessly disregarded its lack of a reasonable basis for denying benefits.’”

The case had been removed from the Court of Common Pleas of Lancaster County. After dismissing the bad faith count, plaintiff’s damage claims no longer exceeded $75,000. Thus, Judge Leeson remanded the case.

Date of Decision: March 11, 2019

Krantz v. Peerless Indemnity Insurance Co., U. S. District Court Eastern District of Pennsylvania No. 18-cv-3450, 2019 U.S. Dist. LEXIS 38923, 2019 WL 1123150 (E.D. Pa. Mar. 11, 2019) (Leeson, Jr., J.)

Factual details support the bad faith claim, but UTPCPL claim dismissed.

In Perez-Garcia, the insured alleged he “incurred medical bills and wage loss following an automobile accident caused by an underinsured driver….” The complaint alleged the insured provided “medical documentation clearly setting forth injuries to [his] right knee and injuries to the left ankle caused by the motor vehicle accident….” [Emphasis added.]

To support his bad faith claims, plaintiff further alleged the insurer’s claim specialist “asserted, without medical support, that none of the injuries that Plaintiff sustained were the result of the motor vehicle accident” at issue. The complaint alleged the insurer refused to pay any benefits on the basis on this adjuster’s medical conclusions, despite medical reports to the contrary which had been provided to the adjuster.

The insurer unsuccessfully moved to dismiss the bad faith claim. Judge Leeson first rejected the notion that this was merely a bald claim that the insurer refused to pay UIM benefits after having paid first-party benefits. Rather, the complaint specifically alleged that the insurer had medical documentation in hand that supported the insured’s version of events, but rejected that evidence without any medical evidence to the contrary.

The complaint alleged the insurer did not conduct a proper investigation into the medical history. Rather, the insurer allowed its own claim adjuster — described as “a non-medical reviewer” — to substitute the adjuster’s medical judgment for the judgment of actual medical professionals. These facts were sufficient to state a bad faith claim.

Judge Leeson did dismiss plaintiff’s Unfair Trade Practices and Consumer Protection Law (UTPCPL) claim on two bases: (1) there were no allegations that plaintiff relied upon the conduct at issue in suffering any damages; and (2) the UTPCPL can only address claims surrounding formation of the insurance contract, not post-contract claim denial.

Date of Decision: March 15, 2019

Perez-Garcia v. State Farm Mutual Automobile Insurance Co., U. S. District Court Eastern District of Pennsylvania No. 5:18-cv-03783, 2019 U.S. Dist. LEXIS 42327 (E.D. Pa. Mar. 15, 2019) (Leeson, Jr., J.)

(1) LARGE DISCREPANCY BETWEEN INSURED’S SETTLEMENT DEMAND AND INSURER’S OFFER OR (2) REFUSING POLICY LIMITS DEMAND, DO NOT BY THEMSELVES CONSTITUTE BAD FAITH (Philadelphia Federal)

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This UIM case involved breach of contract, common law bad faith, statutory bad faith, and Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims. The seriously injured insured received the other driver’s $100,000 limits in settlement, and demanded the $300,000 UIM limits from his carrier. The insured’s expert placed lost income over $600,000, in addition to the serious personal injuries. The UIM insurer offered less than $12,500 to settle, and the insured brought suit.

The insurer successfully moved to dismiss the bad faith and UTPCPL claims, but the insured was given leave to amend on two of those claims.

STATUTORY BAD FAITH CLAIM NOT SUPPORTED BY FACTS

The statutory bad faith claim was not supported by any “factual content” in the complaint. Plaintiff only pleaded “conclusory statements that [the insurer] unreasonably withheld the payment of underinsured motorist benefits under the policy, failed to make a reasonable offer of settlement, presented a low offer of settlement, failed to engage in good faith negotiations, presented an offer of less than the amount due in an attempt to compel him to institute litigation, and failed to perform an adequate investigation of the value of his claim for underinsured motorist benefits.”

The court addressed the implied argument that a large discrepancy between demand and offer standing alone is sufficient to state a bad faith claim, even without pleading any other supporting facts as to why the insurer’s offer was unreasonable and made in reckless disregard of a benefit due. The court disagreed.  In rejecting this notion, the court made two key points: (1) “a disagreement over the settlement amount is not unusual[,]” and (2) “failure to immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.”

Dismissal was without prejudice, with leave to file an amended complaint.

COMMON LAW BAD FAITH/BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING CLAIMS ARE NOT A SEPARATE CAUSE OF ACTION IF BREACH OF CONTRACT IS PLEADED

The court found the common law bad faith claim subsumed in the breach of contract claim, and dismissed it with prejudice.

UNFAIR TRADE PRACTICES CLAIM NOT PLAUSIBLE

As to the UTPCPL claim, the court refused to dismiss on the basis of the economic loss doctrine. However, it did dismiss the UTPCPL count for failing to set out a plausible claim.

Plaintiff failed to allege sufficient facts to support (1) the existence of deceptive conduct, (2) justifiable reliance on any misleading conduct, or (3) damages flowing from reliance on such conduct. As with the statutory bad faith claim, however, plaintiff was given leave to re-plead this count.

[Note: This opinion does not address the line of case law holding that the UTPCPL does not apply to claims handling, as recently outlined in the Western District’s Neustein case.]

Date of Decision: February 7, 2019

McDonough v. State Farm Fire & Casualty Co., U. S. District Court Eastern District of Pennsylvania No. 5:18-cv-02247, 2019 U.S. Dist. LEXIS 19806 (E.D. Pa. Feb. 7, 2019) (Leeson, Jr., J.)