FEBRUARY 2015 BAD FAITH CASES: BAD FAITH CLAIM DISMISSED DUE TO LACK OF FACTUAL SUPPORT TO MAKE OUT A PLAUSIBLE CLAIM; PUTATIVE DISCOVERY VIOLATIONS DURING LITIGATION CANNOT CONSTITUTE BASIS FOR INSURANCE BAD FAITH CLAIM (Philadelphia Federal)
In Morrissey v. State Farm Fire & Cas. Co., plaintiffs’ home was damaged by a fire, making it uninhabitable. Their homeowners’ insurance policy provided coverage limits of $220,000 for the house, $165,000 for personal property, and the actual value of the loss of use sustained. Plaintiffs filed claims for the damage to the home, damage to their personal property, and costs for alternative housing while the home was being repaired.
The insurer filed a motion to dismiss the bad faith (and consumer protection law) count, which the court granted, without prejudice to amend, though the court noted amendment would appear to be futile.
The insurer investigated the claims and obtained sworn statements from the plaintiffs. After completing its investigation, the insurer extended coverage for the claim on damage to the home itself. The check was made payable to plaintiffs, their attorney, and plaintiffs’ former bank. Plaintiffs made repeated requests for the bank to endorse the check so repair work could begin on the home, but the bank refused because it no longer held the mortgage. Eventually, plaintiffs’ counsel returned the check to the defendant and requested it be re-issued to the plaintiffs, plaintiffs’ counsel, and the plaintiffs’ current mortgage holder.
The insurer refused to do so based on an internal policy which required checks to be made to the bank that held the mortgage at the time of the loss. Ultimately, a second settlement check was issued and processed four months after the original check was issued. The insurer then provided notice it would only cover four more months of alternative housing.
Plaintiffs brought suit alleging the insurer violated the bad faith statute by: 1) issuing the settlement check over one year after the fire occurred; 2) delaying reissuing the check for three and a half months “for no valid reason”; 3) filing boilerplate objections to Plaintiff’s discovery to gain an advantage in the litigation; 4) arbitrarily refusing to settle their claims; and 5) breaching fiduciary duties and other state laws. The Court, however, dismissed the claims.
Plaintiffs failed to set forth factual information to show that the defendant lacked a reasonable basis for delaying payment of their benefits, and also failed to offer information about the alleged repeated attempts to negotiate with the carrier. They provided no facts to explain why the delay in settlement was arbitrary, or that the investigation was unwarranted or inadequate. Rather, the insureds simply asserted the delay represented bad faith; however, a delay in payments of claims alone cannot constitute bad faith.
Finally, even if the delay was unreasonable, plaintiffs failed to show the insurer knew or disregarded a lack of a reasonable basis.
Allegations that the insurer acted in bad faith during the litigation by filing “boilerplate objections to Plaintiff’s discovery … for the purpose of preventing the drafting of a Complaint to get an advantage in this case” did not show bad faith. The court observed that “bad faith may extend to the misconduct of the insurer during the pendency of litigation. …. However, the defendant’s objections to the plaintiff’s request for pre-complaint discovery were not unreasonable.
The plaintiffs’ allegation that these objections were meant to give the defendant an advantage are unsupported and merely conclusory. The court noted: “This is especially true given that the state court judge accepted the defendant’s argument that this request was a ‘fishing expedition’ and was unnecessary for the plaintiffs to file their complaint.”
Further, boilerplate discovery objections do not constitute a basis for an insurance bad faith claim.
In sum, the court found that the insureds’ “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to state a valid cause of action. …. [and that the insureds] failed to assert a plausible bad faith claim under Pennsylvania law.”