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The insured was involved in a serious motor vehicle accident in December 2001.  The driver of the other vehicle was uninsured, as his auto insurance had expired months before the accident.  The accident caused trauma to both of the insured’s knees, and the total medical costs to treat her injuries were $41,269.  She reported the to accident to her insurer the day after it occurred.  Initially, the claims manager assigned to the claim documented it to be under the insured’s personal auto policy with $5,000 in first party medical benefits.

When completing her initial application for benefits, the insured had not indicated that she would have lost wages as a result of the injury.  However, once her first party medical benefits under the policy were eventually exhausted, her counsel indicated that it would be pursuing an income loss benefits claim.  In a second application for benefits, the insured alleged that she was employed by the United States Postal Service at the time of the accident, and she earned $776 weekly.  The insurer and the insured’s counsel corresponded for months about this claim, as there were issues relating to the production of documents such as medical records and documentation from the insured’s employer.  The insured also eventually notified the insurer that it also would be pursuing an uninsured motorist claim because the driver of the other vehicle had no insurance.

In February 2004, the insurer reassigned the claims to a more experienced adjuster, who identified the policy limits to be $50,000.  She requested extensive medical records again, and she made settlement offer of $9,000, an increase of $2,000 from the initial offer.  The insured changed counsel during this time, and eventually she filed suit against the insurer, as the accident had occurred four years prior and the claim still not been decided.

An issue then arose concerning the stacking of the uninsured motorist claims.  The parties eventually agreed that the coverage could be stacked, and therefore the policy limit was $100,000, but the insurer had not recognized that the claims could be stacked until the insured’s counsel mentioned it.  The insurer’s attorney recognized that its client had overlooked the stacking issue for a considerable length of time, and therefore the arbitration panel would be more likely to accept the insured’s arguments.  The insured also notified the insurer that it would initiate a bad faith claim within 21 days if the insurer did not increase its settlement offer to the policy limits of $100,000.

The insurer proceeded to increase its settlement offer to $100,000, and the parties agreed to settle based on that figure.  The insured still proceeded to file a claim for bad faith, alleging that the insurer acted in bad faith in its handling of her income loss and uninsured motorist claims.  Concerning the income loss claim, the court noted that the insured indicated on her initial application that she did not have lost wages, and once she amended her application, the insurer proceeded to request proper documentation before verifying the claimed losses.  The insurer also learned that the insured had not been working for a year prior to the accident and was on Social Security Disability Income, and therefore it reasonably could have denied the claim.  The court therefore granted the insurer summary judgment on the bad faith claim concerning the first party income loss.

With respect to the uninsured motorist claim, the court was less sympathetic to the insurer.  It determined that the insurer’s conduct in failing to acknowledge the stacking of benefits under the policy until the insured brought the matter to its attention was unreasonable and done either intentionally or recklessly, and therefore constituted bad faith as a matter of law.  It also determined that because it was clear that either party could request arbitration, the insurer’s initial refusal to arbitrate upon the insured’s request constituted bad faith.  The insurer’s counsel had advised the insurer that it did not have to accept arbitration, but the court noted that the insurer did not provide its counsel with the correct policy before asking him for his opinion.  The insurer had hired an attorney with little experience handling auto insurance claims in Pennsylvania, and it notified him that it wished to avoid arbitration before asking for his opinion.

Finally, concerning the various settlement offers the insurer had offered, the court determined that the insurer’s conduct in “proposing unreasonably low settlement offers, in falsely threatening to appeal an arbitration award, and its unreasonable post-settlement demands” supported a finding of bad faith as a matter of law.  Before finally reaching the $100,000 figure for the uninsured motorist claim, the insurer had made two prior offers, each for less than $10,000.

In sum, the while court determined that the insurer’s conduct in handling the insured’s first party loss claim did not involve bad faith, it did find that the insurer acted in bad faith when handling the uninsured motorist claim as a matter of law.  Therefore, it granted the insured’s motion for summary judgment on her allegations that the insurer acted in bad faith by refusing to acknowledge the stacking issue until it was brought up late in the process and by refusing to arbitrate the claims when the insurer demanded it.  The court granted the insurer summary judgment for the remainder of the claims, including the bad faith allegation with respect to the first party loss claim.

Date of Decision:  January 4, 2011

Wisinski v. Am. Commerce Group, Inc., Civil No. 07-346 Erie, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 320, (Jan. 4, 2011) (Cohill, Jr., J.)