Archive for the 'PA – Who is an Insurer?' Category
On July 19th, Judge Stickman held in Stegena v. Nationwide, that simply pleading the insured’s injuries are worth significantly more than the carrier’s valuation of the same injuries cannot, by itself, constitute bad faith. One week later, Judge Stickman opined in the Alexander v. Mid-Century, that an insured could not bring breach of contract or bad faith claims against a carrier’s claim adjuster.
Valuation dispute alone cannot constitute bad faith
In this undersinsured motorist breach of contract and bad faith case, the insured’s “argument in support of her statutory bad faith claim consists almost entirely of nothing more than a bare recitation of the materials and evidence submitted in support of her claim, together with monetary valuations included in the opinions of experts procured after the initiation of this litigation….”
Judge Stickman found the complaint alleged a claim handling history that did not make out a plausible bad faith claim, with the insured trying to meet her clear and convincing evidence burden by simply emphasizing the amount of damages her experts found due to compensate her damages, which the carrier would not pay. Judge Stickman states: “The problem with [the insured’s] argument is that, although she provides sizeable dollar amounts, which her experts claim represent prospective lost wages and medical expenses, her argument fails to address the present issues before the Court—why there was an absence of a reasonable basis, or how [the insurer] knew or recklessly disregarded that absence.”
He recognizes that “under the right circumstances, an unsupported low-ball offer may support a claim for insurance bad faith … [but] it remains [the insured’s] burden to scrutinize the relationship between [the insurer’s] considerations and determinations.” Here, the insured’s failure to “identify, with any specificity, factual deficiencies illustrating the unreasonableness of [the insurer’s] conduct, demonstrates that her claim is more properly characterized as an inappropriate, generalized grievance over the monetary valuation of her claim.” Moreover, the record showed the carrier’s “investigation and determinations, and, more specifically, the process that he used to evaluate and value the claim … cannot be characterized as anything other than reasonable, as that term applies in the bad faith context.”
Judge Stickman cites Judge Caputo’s 2019 Moran decision in support, summarized here, where the Middle District court collected cases on valuation discrepancies and bad faith.
Finally, in reciting case law detailing Pennsylvania’s statutory bad faith standards, we observe that Judge Stickman quoted the long-standing principle that “an insurance company is not required to demonstrate its investigation yielded the correct conclusion or even that its conclusion more likely than not was accurate. The insurance company also is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion. Rather, an insurance company simply must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”
Date of Decision: July 19, 2021
Stegena v. Nationwide Property & Casualty Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-428, 2021 WL 3038800 (W.D. Pa. July 19, 2021) (Stickman, J.)
No viable breach of contract or bad faith claim against individual adjuster
The insured brought breach of contract and bad faith claims against both his insurer and its claim adjuster. The defendants moved to dismiss, arguing there was no viable claim against the adjuster, and that the adjuster was joined to improperly destroy diversity jurisdiction and prevent removal to federal court.
Judge Stickman found Pennsylvania case law made clear that neither a breach of insurance contract or insurance bad faith claim could be pursued against an individual claim adjuster working for the insured’s carrier. He cites the 2017 Pennsylvania Superior Court decision in Brown v. Everett, summarized here, holding that “a statutory action for bad faith can only be brought against the insurer,” and not an adjuster.
Judge Stickman rejected the argument that the adjuster could be sued under the “participation theory,” finding that theory inapposite to the context of an insurance adjuster handling a claim for an insurance company. Thus, he dismissed the claims against the adjuster with prejudice, which further resulted in jurisdiction over the remaining claims against the insurer being proper in federal court.
Date of Decision: July 26, 2021
Alexander v. Mid-Century Insurance Company, No. 2:21-CV-392, U.S. District Court Western District of Pennsylvania 2021 WL 3173621 (W.D. Pa. July 26, 2021) (Stickman, J.)
A homeowner filed counterclaims against his lender in a foreclosure action. The counterclaims included an insurance bad faith claim. The Superior Court affirmed the trial court’s ruling that the bad faith statute only addresses the actions of insurance companies, and this was not such a case.
Date of Decision: August 7, 2020
Wells Fargo Bank, v. Pilchesky, Superior Court of Pennsylvania No. 1199 MDA 2019, 2020 WL 4558801 (Pa. Super. Ct. Aug. 7, 2020) (McLaughlin, Panella, Stevens, JJ.)
This case involved breach of contract and bad faith claims against the insurer based on its decision not to cover the alleged theft of jewelry. The insurer engaged an investigation firm to look into the theft. The individual investigator assigned to the claim raised questions about either the ownership of the jewelry, or whether it was actually stolen in a burglary.
The insurer was granted judgment on the pleadings as to the breach of insurance contract claim. The policy had a one-year limitations period for brining suit, and the insured failed to file her action within one year.
Even though there was no coverage due because of the contractual limitations period, however, the court denied summary judgment on the bad faith claim. The insurer argued that the insured’s “deposition testimony shows that she cannot meet her burden of establishing bad faith.” The court found this argument premature.
The case had been removed to federal court and immediately placed in the arbitration track. There were no formal discovery requests from any party. The court found that the “litigation that has ensued does not preclude full and fair discovery on fact-driven claims that remain on the bad-faith count.” Thus, summary judgment was premature, and the motion was dismissed without prejudice. Judge Rufe added a requirement that the parties had to report jointly regarding to the court on what discovery was being pursued, if any, heading into the arbitration.
[Note: The insurer apparently did not attempt to argue that if the contract claim was dismissed, then the bad faith claim necessarily failed. There is some case law holding if the contract claim is dismissed on the basis of a contractual limitations period, the bad faith claim can still proceed. See, e.g., Doylestown Electrical Supply Co. v. Maryland Casualty Ins. Co., 942 F. Supp. 1018 (E.D. Pa. 1996) and March v. Paradise Mutual Ins. Co., 646 A.2d 1254 (Pa. Super. 1994), appeal denied, 540 Pa. 613, 656 A.2d 118 (1995).]
Finally, the insured attempted to amend the complaint to add claims against the insurer’s claim adjustor, the company it hired to investigate the claim and the individual investigator. The court found these claims meritless and would not allow amendment.
An individual adjustor working for an insurer is not an insurer. Thus, the individual adjustor was not subject to (i) a breach of contract claim because he was not a party to the contract; or (ii) the bad faith claim because Pennsylvania’s bad faith statute only applies to insurers. The same reasoning applied to the investigators.
Date of Decision: April 30, 2020
Holden v. Homesite Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2167, 2020 U.S. Dist. LEXIS 75904 (E.D. Pa. April 30, 2020) (Rufe, J.)
Published on
April 14, 2020 in
PA - Agents and Administrators, PA - Bifurcate/Sever & Stays, PA - Claims Handling (reasonable), PA - Coverage Issues, PA - Delay (Investigation/Claims handling), PA - Insurer wrong, but reasonable, PA - Law unsettled, PA - Negligence not bad faith, PA - No coverage duty, no bad faith, PA - UIPA & UCSP and PA - Who is an Insurer?.
The court described this as the case of the missing email. The insurance policy at issue covered various cars. The insured emailed its broker to add another vehicle to the policy. The broker claims it never got the email, and thus never asked the insurer to issue an endorsement adding the new car to the policy. As things sometimes go in life, the new car was involved in a collision, damaging another vehicle as well as its own new car.
The insured reported the claim. However, the insured identified its vehicle as one of existing cars listed in the policy, rather than the new unlisted vehicle. The insurer accepted coverage, and even paid damages to the other driver. The insurer later reversed itself on coverage once its appraiser determined the insured’s vehicle was not the car identified in the claim form, and was not covered under the policy.
The police report did list the correct vehicle. The insurer had the police report at the time it initially provided coverage, and only reversed itself when its appraiser realized that the damaged car was not the car on the claim form and was not listed in the policy.
The insured sued for breach of contract and bad faith, among other claims against the insurer as well as the broker. The insurer moved for summary judgment, which the court granted.
There is no breach of contract, or estoppel under the UIPA or UCSP regulations
First, there was no breach of contract, as the vehicle at issue never became part of the policy. The insured argued, however, that the insured was estopped from denying coverage under the Unfair Insurance Practices Act (UIPA) and the Unfair Claims Settlement Practices (UCSP) regulations governing “Standards for prompt, fair and equitable settlements applicable to insurers”. The insured relied on 31 Pa. Code § 146.7(a)(1), which states that, “Within 15 working days after receipt by the insurer of properly executed proofs of loss, the first-party claimant shall be advised of the acceptance or denial of the claim by the insurer.”
Judge Wolson rejected the statutory/regulatory argument for three reasons:
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There is no private right of action under the UIPA and UCSP regulations, and only Pennsylvania’s Insurance Commissioner can enforce the UIPA and UCSP regulations.
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The policy itself did not incorporate the UIPA or UCSP obligations or impose those obligations on the insurer. “Absent the incorporation of these obligations into the Policy, their potential violation does not breach the Policy.”
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The doctrines of waiver or estoppel cannot “create an insurance contract where none existed.”
THERE IS NO BAD FAITH
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The broker is not an insurer subject to the bad faith statute
First, the court recognized that there was no sustainable statutory bad faith action against the broker because it was not an insurer.
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There is no bad faith where no benefit is denied
Next, as to the insurer, “To prevail on a bad faith claim, a plaintiff must present clear and convincing evidence that, among other things, an insurer ‘did not have a reasonable basis for denying benefits under the policy’ or that an insurer committed a ‘frivolous or unfounded refusal to pay proceeds of a policy.’” Because the insurer had no contractual obligation to pay its refusal could not have been unreasonable, and the claim failed.
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The UIPA and UCSP regulations do no prevent changing a coverage decision based on new information
The court rejected another argument based on the UIPA and UCSP regulations cited above. The insured argued the failure to pay was unreasonable once the insurer accepted coverage. The court found, however, the UCSP regulations did not “prevent an insurer from changing a coverage determination based on new information.”
More importantly to the court, the insured adduced no case law adding such a gloss to section 146.7, i.e. a mandate that once coverage was accepted it could never be denied under any circumstances. Thus, it was reasonable for the insurer to interpret that regulation to permit an insurer to revise a coverage decision based on new information.
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A Delay based on an Oversight is not the Basis for Bad Faith
Finally, any delay in revising its coverage determination was likewise not bad faith. Citing the 2007 DeWalt decision, the court observed that an “insurer’s actions in allegedly delaying investigation did not constitute bad faith under Pennsylvania law [when] there was no evidence that such delay was deliberate or knowing, or was unreasonable.”
While the carrier “probably could have been more diligent” in determining which vehicle was involved in the collision by looking at the police report earlier, “an insurer ‘need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusion.’” There was nothing in the record to establish the insurer “acted with reckless disregard of its obligations or otherwise fell so short that it acted in bad faith.”
Date of Decision: April 1, 2020
Live Face on Web, LLC v. Merchants Insurance Group, U.S. District Court Eastern District of Pennsylvania Case No. 2:19-cv-00528-JDW, 2020 U.S. Dist. LEXIS 56852 (E.D. Pa. April 1, 2020) (Wolson, J.)
Our thanks to attorney Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention. We also note the Tort Talk Blog’s three recent posts on post-Koken motions to sever and stay bad faith claims in the Western District, York County, and Lancaster County.
This is Magistrate Judge Eddy’s Report and Recommendation on the issue of whether certain statutory bad faith defendants were insurers subject to the bad faith statute. The case was voluntarily dismissed the same day the R&R was issued, and it was never reviewed by the District Court.
Two sets of the defendants moved to dismiss the bad faith claim on the basis they were not insurers. Magistrate Judge Eddy observed that insurers are entities that issue policies, collect premiums, or agree to accept others’ liability in exchange for consideration. Further, insurers are also defined “as the underwriter or insurance company with whom a contract of insurance is made.”
The plaintiffs alleged that the moving defendants were brokers or insurance agents. They argued, however, that the moving defendants were “insurers of some form,” because these defendants “failed to make reasonable efforts to identify the policies of insurance and account for the premium payments made by Plaintiffs to Defendants….” Specifically, plaintiffs alleged these agents or brokers became insurers by telling the insured the claim could not be submitted to insurance, by denying aid to plaintiffs, by unreasonably failing to identify plaintiffs’ insurance policies, and by failing to account for premiums.
The reality was that the defendants at most sold the plaintiffs insurance as agents or brokers. “An entity that only sells an insurance policy is not an insurer pursuant to the statute.” There are no allegations “that these entities collected their insurance premiums in exchange for assuming the risks associated with the policy.” Further, there were no allegations these defendants were underwriters or insurers, but all allegations and documents indicated they were brokers or agents.
Thus, Magistrate Judge Eddy recommended the motion to dismiss be granted. As stated above, the case was dismissed that same day and thus the issue was never finally resolved by the District Court.
Date of Decision: March 5, 2020
McKinney v. Boser, U.S. District Court Western District of Pennsylvania 2:19-CV-00771, 2020 U.S. Dist. LEXIS 39001 (W.D. Pa. Mar. 5, 2020) (Eddy, M.J.) (Report and Recommendation)
The insured failed to plead adequately on two levels in this case.
First, the insured attempted to plead in the alternative that the defendant was either an insurer or an HMO. HMOs are not subject to the bad faith statute, so the difference is significant. Moreover, there were facts over which the court could take judicial notice indicating defendant was an HMO.
The court concluded that alternatively alleging the defendant was an insurer or an HMO amounted to mere legal conclusions. Without any supporting facts, the bare bones legal allegation that defendant might be an HMO was inadequate, resulting in dismissal on that basis.
Next, even assuming defendant was an insurer subject to the bad faith statute, plaintiff again only pleaded conclusory legal statements with no factual support. These inadequate allegations included:
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Defendant denied plaintiff’s “appeal of a denial of payment of certain benefits, thereby first communicating the results of its inadequate investigation . . . follow[ing] presentation of new evidence and persuasion that [defendant] should have paid coverage for certain benefits”.
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Defendant’s “inadequate investigation included a … determination that an appeal was untimely, when [defendant] [k]new that the appeal had been timely submitted”.
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Plaintiff was an insured of defendant.
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“[A]ll of the aforementioned acts, omissions, and malfeasance were motivated by [defendant’s] self-interest and ill will toward [plaintiff] and those similarly situated, and constitute bad faith”, and
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“[A]ll of the aforementioned acts, omissions, and malfeasance are outrageous.”
The court stated that “[e]ach of these assertions constitute unsupported conclusions that need not be credited on a motion to dismiss.”
In its order dismissing the case, the court did not provide the plaintiff with leave to amend the complaint, and directed that the case be closed.
Date of Decision: December 27, 2019
Brown v. Kaiser Found. Health Plan of the Mid-Atlantic States, Inc., U.S. District Court Middle District of Pennsylvania No. 1:19-CV-1190, 2019 U.S. Dist. LEXIS 221471 (M.D. Pa. Dec. 27, 2019) (Jones, III, J.)
The plaintiff obtained insurance against its tenants failing to pay rent. It allegedly entered a relationship with two entities licensed to provide that insurance. One of those entities denied being an insurer, and moved to dismiss a bad faith claim against it.
The court observed:
“The Insurance Department Act of 1921, as amended, 40 P.S. § 221.3, defines ‘insurer’ as ‘any person who is doing, has done, purports to do, or is licensed to do an insurance business, and is or has been subject to the authority of . . . any insurance commissioner.'” … A party will be deemed to be “doing [an insurance] business” if it engages in any of the following acts:
(1) the issuance or delivery of contracts or certificates of insurance to persons resident in this Commonwealth;
(2) the solicitation of applications for such contracts, or other negotiations preliminary to the execution of such contracts;
(3) the collection of premiums, membership fees, assessments or other consideration for such contracts; or
(4) the transaction of matters subsequent to execution of such contracts and arising out of them.
The Complaint alleged the moving defendant acted in concert with another entity to provide plaintiff with insurance coverage. Specifically, plaintiff claims that both entities “entered into insurance policies pursuant to which Defendants agreed to ‘insure and protect … against tenants failing to pay rent or failing to vacate properties after defaulting on rent or the expiration of their lease.’” Plaintiff also “alleges that Defendants marketed the policies to [plaintiff], that [plaintiff] made thousands of dollars of premium payments under the policies, and that Defendants subsequently sent termination notices as to the policies.” Drawing all reasonable inferences, the complaint alleged the moving defendant solicited the application for an insurance contract, entered into an insurance contract, collected fees and premiums, and “’transact[ed] [in] matters subsequent to execution of [the] contracts and arising out of [it].’”
The moving defendant argued that its contracts with plaintiff do not use the word insurance, that in a related document the moving defendant itself is described as a “named insured,” and that a search of the Pennsylvania Insurance Department’s web site did not include the moving defendant as an insurer. The court rejected all of these arguments.
First, taking all reasonable inferences in plaintiff’s favor, the court found the language in the parties’ agreement sufficient to be considered an insurance agreement, in referencing payment of fees in return for coverage. Second, that the moving defendant was a “named insured” itself in relation to a reinsurer did not define the relationship between the moving defendant and plaintiff. Third, the moving defendant’s absence from the Pennsylvania Insurance Department’s website “does not preclude a reasonable inference that [it] was doing . . . [or] purport[ing] to do . . ., an insurance business and, in that capacity, was subject to the authority of . . . an[] insurance commissioner, even if the insurance commissioner was not actively exercising that authority.” (internal quotations omitted).
While the court denied the motion to dismiss, however, it did not rule on the ultimate issue of fact as to whether the moving defendant was an insurer for statutory bad faith purposes. It simply allowed the case to proceed.
On a final point, the court recognized, but did not resolve, the issue of whether the insuring agreement could expressly limit recovery of attorney’s fees and punitive damages that are otherwise expressly permitted by the bad faith statute.
Date of Decision: December 17, 2019
ABC Capital Invs., LLC v. Nationwide Rentsure, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-4980, 2019 U.S. Dist. LEXIS 216129 (E.D. Pa. Dec. 17, 2019) (Padova, J.)
A UIM insured brought a breach of contract, loss of consortium, and bad faith action against both the claim representative and the insurer. The insurer argued that the claim representative was “fraudulently joined” to defeat diversity. The insurer asserted that bad faith actions against claim representatives are impermissible.
The court noted that the “removing party has a heavy burden of persuading a court that joinder is fraudulent.” However, “[t]he claims against [the claim representative] are wholly insubstantial and frivolous.” The court concluded as a matter of law “there is no basis to support a contract” against the claim representative because “only the principal, [insurer], may be held liable.” The claim representative was only an agent, who did not have a separate contract with the insured.
Further, the court concluded the insured could not state a bad faith claim against a claim representative. “The bad faith statute applies only to insurance companies.” The claim representative was not an insurer because she identified as an insurer in the policy, and the insured did not plead that claim representative acted as an insurer.
Thus, the court concluded the insured improperly joined the claim representative.
Date of Decision: August 8, 2018
Reto v. Liberty Mutual Insurance, U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-2483, 2018 U.S. Dist. LEXIS 133336 (E.D. Pa. Aug., 8, 2018) (Savage, J.)
The excellent Tort Talk Blog has posted an opinion from Judge Nealon in Lackawanna County reiterating that the bad faith statute does not apply to insurance agents.
This case involves the existence of a fiduciary duty between financial advisor and his clients. The facts include recommendations to buy certain life insurance policies, which the insureds later claimed were fraudulently represented to them. They brought various claims, including breach of fiduciary duty claims.
Those claims were rejected by the trial court, which found no fiduciary duty existed in the absence of the financial advisor having control over the insureds’ decisionmaking. The Superior Court reversed, finding the existence of a fiduciary duty based on the facts concerning the relationship between the advisor and his clients, rather than as a matter of law. The Supreme Court reversed that decision. It ruled, along the lines of the trial court, that in the absence of a traditional type of controlling and overmastering relationship, there is no fiduciary duty simply because the financial advisor has greater expertise where the clients made the ultimate investment decisions.
Among other things, the Supreme Court stated:
“While cases involving fiduciary relationships are necessarily fact specific, they usually involve some special vulnerability in one person that creates a unique opportunity for another person to take advantage to their benefit.”
“The Superior Court, in the case before us, erred in relying on our case law involving undue influence to support its conclusion that a fiduciary relationship can be established without evidence that decision-making power was effectively ceded to another. Its view misses the point that the exercise of undue influence, at its core, indicates that an individual so influenced has lost the ability to make an independent decision.”
“We conclude that the … summary judgment evidentiary record falls far short of establishing a fiduciary …. Fiduciary duties do not arise ‘merely because one party relies on and pays for the specialized skill of the other party.’ …. If this were the law in Pennsylvania, ‘a fiduciary relationship could arise whenever one party had any marginal greater level of skill and expertise in a particular area than another party.”
“The superior knowledge or expertise of a party does not impose a fiduciary duty on that party or otherwise convert an arm’s-length transaction into a confidential relationship. In this regard, the analysis is no different in a consumer transaction than in other fiduciary duty cases decided by this Court.”
“’[T]he critical question is whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on one side or ‘weakness, dependence, or trust, justifiably reposed’ on the other side,” which results in the effective ceding of control over decisionmaking by the party whose property is being taken.”
“A fiduciary duty may arise in the context of consumer transactions only if one party cedes decision-making control to the other party.” Thus, “’a business transaction may be the basis of a confidential relationship only if one party surrenders substantial control over some portion of his affairs to the other.’”
The case before the court did not fall into these categories. Rather, it presented “an arm’s-length consumer transaction in which the [clients/insureds] accepted [the financial advisor’s] advice with respect to the purchase of the … whole life insurance policy[, and they] made the decision to purchase this policy, but also decided to reject other proffered products and services.” The complicated nature of the premium structure did not change the character of the transaction between the parties. The clients “purchased an insurance product from a captive financial advisor with whom they had a business relationship for a little more than a year, initiated by a cold-call. [Their] lack of post-secondary high school educations is not indicative of a weakness, dependence, or trust, justifiably reposed, nor is [the advisor’s] advanced training sufficient to establish an overmastering influence.”
“The record here establishes that [they] made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that [they] may have become comfortable with the Appellants’ expertise before deciding to purchase the … whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It does not, however, establish a fiduciary relationship.”
“There is no evidence to establish that [they] were overpowered, dominated or unduly influenced in their judgment….” “[They] never ceded any decision-making authority….” Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that [they] did not purchase.”
It was of some significance to the Court that under appropriate circumstances, consumers “have various common law tort remedies (with burdens of proof less stringent than those required in fiduciary duty cases), as well as claims for common law fraud and the statutory relief provided by the current version of the UTPCPL, which provides a remedy for deceptive conduct. 73 P.S. § 201-2(4)(xxi).”
The majority “decline[d] to modify the law of fiduciary duty to encompass the particular pitfalls involved in the sale of insurance products by commissioned agents or financial advisors to less savvy customers. Moreover, we do not hold that a fiduciary duty cannot arise in a case with facts not present here, but absent evidence that a consumer of financial services and goods cedes control over the decision to purchase, either explicitly or implicitly because of over-mastering or undue influence, no fiduciary relationship arises.”
Date of Decision: June 20, 2017
Yenchi v. Ameriprise Financial, Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405 (Pa. June 20, 2017) (Pennsylvania Supreme Court)
The dissenting opinion can be found here.
