We have summarized well over 40 opinions issued by the Honorable Richard Caputo since this Blog’s inception in June of 2006. There is no question Judge Caputo is thoroughly familiar with Pennsylvania bad faith law.
He issued three new opinions last week, all addressing proper pleading in bad faith cases. In all three cases, Judge Caputo uses the phrases “stripped of these conclusory allegations” or “stripped of its conclusory allegations” within the context of carrying out his analysis of whether a complaint pleads plausible bad faith. Similarly, in two December 2018 opinions, Judge Caputo used the phrase “stripped of its conclusory statements” when analyzing dismissal of bad faith complaints under the federal rules. The blog summary of those two cases can be found here.
This stripping of conclusory allegations methodology is intended to reveal whether a pleading alleges actual facts that can plausibly support the bad faith elements of (1) unreasonableness and (2) knowing or reckless disregard of unreasonableness. It is clearly a best practice for plaintiffs to apply this methodology before filing a complaint, and for defendants to use in moving to dismiss bad faith claims.
In Judge Caputo’s three most recent opinions, two are dismissed with prejudice, and one is dismissed without prejudice and leave to amend. The two cases dismissed with prejudice, Clarke v. Liberty Mutual Insurance Co., and Moran v. USAA, were previously dismissed without prejudice and leave to amend. In fact, these are Judge Caputo’s two cases summarized in the December 2018 blog post. The Clarke and Moran plaintiffs’ failures to cure their pleadings are set out below, along with the third opinion where the plaintiff still retains an opportunity to plead a plausible complaint.
Clarke v. Liberty Mutual (discrepancy between alleged damages and insurer’s valuation alone is not bad faith)
In Clarke’s amended complaint, the original complaint’s conclusory allegations and most of the factual allegations remain unchanged. The only new factual allegations include further detail on the insured’s treatment for injuries and the cost of treatment. The insured pleads that “because these medical bills total over $39,000.00 and she may require additional injections in the future, Defendants are alleged to have engaged in bad faith in concluding that the claim fell within the $15,000.00 third-party settlement.”
These facts remain inadequate to support a bad faith claim. Judge Caputo relies upon Judge Darnell Jones’ opinion in West v. State Farm. Judge Jones had observed that so-called “low-ball” offers alone cannot state a claim for bad faith. Rather, the plaintiff must aver factual allegations as to why that the “low-ball” offer was actually unreasonable, and how the insurer knew or recklessly disregarded the fact that it was unreasonable.
Absent such allegations, the controlling principle is that low but reasonable estimates made in the ordinary course of negotiations do no constitute bad faith. As Judge Jones reasoned in West, at most “the argument that the valuation of $15,000.00 is facially insufficient in light of medical expenses of approximately $40,000.00 and the limits of Plaintiffs’ insurance policy does not alone show Defendants ‘acted in bad faith rather, it might have negligently failed to investigate and evaluate, leading to an unreasonable settlement offer.’” [Compare this to the similar result reached in Judge Leeson’s recent McDonough opinion, summarized here.]
Moran v. USAA (again, a discrepancy in valuation alone does not get around the conclusory pleading problem)
In Moran, the only additions in the amended complaint included facts supporting the value of the insured’s claim: “(1) [the insured] never had neck problems prior to the accident; (2) she makes $550.00 per week as a caregiver; (3) she may require surgery that would cause her to miss several months of work, which she believes will result in lost wages in excess of $10,000.00; and (4) if she has surgery, she will exhaust her remaining balance of $2,000.00 of medical benefits.” While these facts may have supported the insured’s valuation, there were no new facts pleaded as to why the insurer’s offer (a) was unreasonable and (b) how the insurer knew or recklessly disregarded that fact and/or how anything more than negligent valuation could be inferred. Again, following West, Judge Caputo found that bad faith cannot arise solely from discrepancies in valuation.
Wyoming Valley FOP v. Selective Insurance Co. (this is what the stripping method looks like)
In the third case, the insured sought first party benefits for theft under a CGL policy. The insurer refused to pay, and the insured brought bad faith claims. Judge Caputo found the following allegations conclusory:
The actions and inactions of Selective in adjusting, evaluating, and investigating Plaintiff’s claim constitutes bad faith as defined under 42 Pa. C.S.A. § 8371 and the Pennsylvania Unfair Insurance Practices Act, 40 P.S. § 1171, et seq. as follows:
Misrepresenting important facts or policy or contract provisions, namely, the prompt payment of losses;
Failing to acknowledge and act properly upon written communication with respect to Plaintiff’s claims arising under the policy;
Failing to adopt or implement reasonable standards for the prompt investigation of Plaintiff’s claims;
Refusing to pay Plaintiff’s claims without conducting a reasonable investigation based upon all available information;
Failing to affirm coverage of Plaintiff’s claims within a reasonable time after all information requested of Plaintiffs were provided to the Defendant or its representatives;
Not attempting in good faith to effectuate a prompt, fair and equitable settlement of Plaintiff’s claims in which the Defendant’s liability under the policy has become reasonably clear;
Compelling Plaintiff to institute litigation to recover [*7] amounts due under the insurance policy by denying or failing to act upon Plaintiff’s claims;
Continuing to investigate Plaintiff’s claims after receipt of all information necessary to the adjustment of the claims;
Failing to communicate with Plaintiff;
Subordinating the interest of its insured to their own financial monetary interest;
Failing promptly to offer payment to Plaintiff; and
Failing [to] objectively and fairly evaluate Plaintiff’s claim.
Stripping away these 12 conclusory allegations left only a few actual allegations of fact: (1) there was an insurance policy; (2) the policy covered theft; (3) a theft was reported; (4) the insured provided all information required under the policy; (5) the insured made repeated payment demands; and (6) the insurer denied the claim.
Such cursory allegations fail to state a plausible bad faith claim, which requires clear and convincing evidence that an insurer was (a) unreasonable in denying a benefit and (b) knew or recklessly disregarded the fact that its position was unreasonable. Even assuming these allegations amounted to a claim that there was no reasonable basis to deny a benefit, there were still no factual allegations from which to plausibly infer that the insurer knew or recklessly disregarded this lack of a reasonable basis.
Such threadbare assertions may suggest bad faith is possible, but only speculative inferences can take the claim to plausible, and speculation is impermissible to set out a plausible cause of action.
Judge Caputo did sua sponte give leave to amend, as it was not clear that amendment would be futile.
Clarke v. Liberty Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-1925, 2019 U.S. Dist. LEXIS 21507, 2019 WL 522473 (M.D. Pa. Feb. 11, 2019) (Caputo, J.)
Moran v. USAA, U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-2085, 2019 U.S. Dist. LEXIS 24080 (M.D. Pa. Feb. 14, 2019) (Caputo, J.)
Wyoming Valley FOP v. Selective Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-2270, 2019 U.S. Dist. LEXIS 24400 (M.D. Pa. Feb. 14, 2019) (Caputo, J.)