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McCullough filed a bad faith action against Northwestern after it denied his claim for disability benefits.  Northwestern moved for partial Motion for Summary Judgment on the basis that: (1) the  bad faith claim was barred by the two-year statute of limitations; and, (2) in the alternative, there was no evidence demonstrating that it did not have a reasonable basis to deny the disability claim.

Northwestern argued that McCullough’s cause of action arose on January 28, 2002, the date it denied the disability claim.  McCullough argued that because he utilized Northwestern’s two-tiered review process, and correspondingly his claim was reevaluated again in 2004, the bad faith cause of action did not accrue until Northwestern completed its second review and unequivocally denied his disability claim.

The Court held that McCullough’s bad faith claim was triggered by Northwestern’s  denial of coverage in 2002 and, therefore was barred by the two-year statute of limitations.  The Court explained that a bad faith claim under 42 Pa. Const. Stat. Ann. §8371 is governed by a two-year statute of limitations.

Further, citing Adamski v. Allstate Insurance Company, 1999 Pa. Super. 241, 738 A.2d 1033 (1999), the Court stated that, under Pennsylvania law, a bad faith claim under §8371 accrues when the insurer first provides definite notice of a refusal to indemnify or defend.  At that point, the statute of limitations begins to run even if the plaintiff does not know the full extent of the harm caused by the denial of coverage.

The Court held that dismissal of the claim was also warranted because McCullough failed to demonstrate that: (1) “Northwestern did not have a reasonable basis for denying benefits under the policy; and (2) Northwestern knew of or recklessly disregarded its lack of a reasonable basis in denying the claim, ” as required under Pennsylvania law.

The Court held that Northwestern had conducted a comprehensive review of McCullough’s medical records. Further, citing to surveillance tapes depicting McCullough playing golf, running and performing activities he was allegedly unable to perform, the Court found that Northwestern had produced evidence that McCullough had misrepresented and exaggerated his symptoms.

Consequently, the Court concluded that, in addition to bringing the claim after the statutory cut-off, McCullough had failed to prove his claim on the merits.

Date of Decision:  October 24, 2007

McCullough v. Northwestern Mutual Life Ins. Co., United States District Court for the Western District of PA, No. 2:05cv0105, 2007 U.S. Dist. LEXIS 95134 (W.D. Pa., Oct. 24, 2007) (Cercone, J.)