There was a genuine issue of material fact as to whether the insurer acted in bad faith in initially denying benefits even though the denial was reversed. In this case, the insurer through its administrator Princeton Corporation issued a group policy of accident insurance to AAA. AAA advised the insured that since the insured was a member for six or more years, he was eligible to receive recuperation and accident hospital indemnity benefits; he could either enroll in a basic plan which provided $300 a day hospital benefits or a best plan which provided $600 per day hospital benefits.
The insured selected and remitted the premium for the basic plan. Some time thereafter, the insured was involved in a single motor vehicle accident in which he sustained serious injuries. The insurer initially denied the claim when it reviewed the toxicology report and erroneously calculated the insured’s blood alcohol level. When the insured’s counsel advised that the insured was not intoxicated and an error must have been made in calculated the insured’s blood alcohol level, the insured re-examined the report and found that an error was made.
The insurer, thereafter, reversed the denial of benefits. The insurer paid $300 daily benefits, however, it initially denied benefits for the insured’s stay at Healthsouth Harmarville. The insurer, during its investigation, found that Healthsouth Harmarville did not have surgical treatment and, therefore, was not a “hospital”.
The insurer thereafter reinvestigated and found that although Healthsouth Harmarville did not provide surgical treatment on site, it is an institution that operates facilities for surgical treatment.
Based on this new evidence, the insurer reversed its decision and deemed Healthsouth Harmarville a hospital. The insured filed suit contending that the insurer acted in bad faith for, inter alia, initially denying benefits based on intoxication and initially denying benefits for the insured’s stay at Healthsouth Harmarville.
The Court, finding that the insurer’s representative was taught how to read toxicology reports and had a nurse available to consult, concluded that there was a genuine issue of material fact as to whether the insurer was merely negligent or acted in reckless disregard in initially denying benefits based on intoxication.
With regard to the initial denial of benefits for the insured’s stay at Healthsouth Harmarville, the evidence revealed that the insurer initially reviewed the information in the claim file and researched the facility on the internet. Based on the research, the insurer determined that Healthsouth Harmarville was not a hospital
However, upon reinvestigation, the insurer was told that Healthsouth Harmarville is an institution that operates facilities for surgical treatment. As such, the insurer determined that Healthsouth Harmarville was a hospital and reversed its decision to deny coverage. The Court ruled that there was a genuine issue of material fact as to whether the insurer performed an adequate investigation to have a reasonable basis for denying benefits under the policy and if it knew of or recklessly disregarded its lack of a reasonable basis in denying benefits.
Date of Decision: May 17, 2007
George Pittas v. Hartford Life Insurance Company, United States District Court for the Western District of Pennsylvania, No. 06-65, 2007 U.S. Dist. LEXIS 36165 (E.D. Pa. 2007) (Ambrose, J.).