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In Hampton v. GEICO General Insurance Company, the insured was operating her automobile when it was rear-ended by another driver.  She sustained personal injuries, and she sought medical attention immediately after the accident.  She was initially diagnosed with a cervical and lumbar strain and sprain with pain noted in her left shoulder and arm.  The pain did not subside quickly, however, and the insured proceeded to undergo many further tests and treatments to help manage her pain and injuries.  She underwent multiple therapy programs and took many medications over the next year.

Under an automobile insurance policy, the insurer provided the insured first party medical benefit coverage of $100,000 and extraordinary medical benefits for up to $1,000,000 in available medical coverage for injuries sustained in an automobile accident.  After the accident, the insurer paid for the insured’s medical expenses for approximately six months without questioning the reasonableness or medical necessity of the treatment.  Upon eventually requesting a peer review of the medical treatment and receiving the results (which indicated that the insured should have achieved maximum medical improvement by the time of the report), the insured notified the insurer’s medical providers that it would not be considering payment of any of their medical bills for future services rendered.  Despite receiving this notification, the insured continued to seek treatment and undergo physical therapy because her pain did not subside.

The insured filed a complaint against the insurer for breach of contract and bad faith in early 2009, two years after the insurer notified her that it would not be covering her medical expenses any longer.  The court outlined the relevant portions of the policy, which included procedures for using peer review organizations (“PROs”) to determine the insured’s need for further medical treatment.  It recognized that “clearly, the Policy requires [the insurer] to pay for all reasonable and necessary medical expenses, and by incorporation of the Motor Vehicle Financial Responsibility Law (“MVFRL”), such payment continues unless the medical treatment and rehabilitative services are determined to be unnecessary by a state approved PRO.”

It determined that because the insurer had clearly acted in compliance with the policy and the MVFRL, and the undisputed facts showed that the insurer had covered all payments to medical providers until receiving the results of the PRO, the insurer did not, as a matter of law, breach its duty to pay first party benefits to the insured.

The court then discussed the bad faith claim at length.  The insured had alleged that the insurer acted in bad faith by repeatedly selecting a specific organization that was biased in its favor to conduct the PROs.  It also argued that the insurer denied the insured payment of first party medical benefits without any reasonable basis.

The court first concluded that the insured’s statutory bad faith claim was neither precluded by the court’s grant of summary judgment on the breach of contract claim nor preempted by the MVFRL.  However, it still ruled in favor of the insurer.  It held that the insured’s bad faith allegation based on the denial of first party benefits without any reasonable basis was foreclosed by the court’s ruling that the insurer did not breach its contract with the insured.

Concerning the claims that the insurer repeatedly chose the same organization to conduct the PROs, the court first determined that these allegations fell under Pennsylvania’s Bad Faith statute, 42 Pa. Cons. Stat. §8371, and were not preempted by any provisions of the MVFRL.

It then held, however, that the insurer’s actions did not constitute bad faith as a matter of law.  The insured presented no evidence to support its allegations that the PRO had a financial incentive to provide a biased determination, that it continuously provided reports to the insurer, and that the insurer and the PRO were too closely associated for the PRO to conduct an objective evaluation.

Because the insured’s allegations lacked any supporting evidence, the court granted the insurer summary judgment on the bad faith claims against it in addition to the breach of contract claim.

Date of Decision:  November 26, 2010 (Report and Recommendation), adopted December 13, 2010

Hampton v. GEICO Gen. Ins. Co., Civil Action No. 09-327, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 131450, 759 F. Supp. 2d 632 (Nov. 26, 2010) (Lenihan, J.),

This Report and Recommendation was adopted by the District Court.