The insured, as an administrator of the estate of his son, filed suit against the insurer. His son was injured by a drunk driver, and later died of an accidental heroin overdose. The father alleged that the injuries suffered in the accident led his son into a downward spiral, eventually resulting in the son’s death.
Initially, the insured settled for the $10,000 limit of his medical payments coverage, and submitted a claim for underinsured motorist (“UIM”) coverage. The insurer set reserves at $30,000. During the lengthy claim process, the insured sought to settle for the $400,000 policy limit, relying on his son’s history of medical treatment, and the effect of the accident on the insured’s mental and physical health. The insurer never made a settlement offer.
The court went through the detailed history of the claim process in its 77 page opinion, reciting the back and forth between the insured’s counsel and the insurer’s agents and various counsel, identifying gaps in insurance activity, among other things, and identifying questions concerning communications among the insurer’s agents and counsel. The court also considered the conduct of the litigation at hand when eventually evaluating the bad faith claims.
The matter did not resolve, and the insured brought breach of contract and bad faith claims. The insurer asserted an affirmative defense that the claims were barred because the son intentionally misrepresented or concealed material facts concerning his illegal drug use during the claim investigation.
The insured filed for summary judgement on its breach of contract claim and bad faith claims. The insurer filed a cross motion for summary judgment: claiming the son violated the policy’s fraud provision, failure to cooperate, heroin use should bar recovery as a matter of public policy, death was not proximately caused by the accident, and the record did not reach the clear and convincing evidence standard on bad faith.
In addressing the insurer’s claim that the son violated the concealment or fraud provision, the court stated that “in the context of an insurer’s post-loss investigation, the materiality requirement is satisfied if the false statement concerns a subject relevant and germane to the insurer’s investigation as it was then proceeding.”
However, even though the son misrepresented his drug use and criminal record, at the time of the misrepresentations drug use was not part of the UIM claim. Thus, it “could not have been germane to the investigation as it was then proceeding.”
The court also rejected the duty to cooperate argument, and that heroin use should bar recovery as a matter of public policy. Additionally, the court held proximate cause was an issue for trial.
In addressing the insured’s bad faith claims, the court relied on Terletsky, and the current state of the law that self-interest and ill-will are not elements of the claim (a matter now pending before Pennsylvania’s Supreme Court). Under the applicable standards, genuine issues of fact existed precluding summary judgment for either side, which the court went through seriatim.
Among other issues, the fact-finder had to determine the reasonableness of the insurer’s refraining from making a settlement offer, and whether there was an intent to delay the claim process. In addition, there was an issue concerning the level of investigation of the son’s living situation in relation to the insured father as to whether the policy extended to the son, and the propriety of the carrier’s determining he was not covered.
Further, there was an issue as to whether simply mailing a copy of the policy to the insured’s attorney qualified as meeting the carrier’s obligation to inform the insured about available coverage under a policy. The court also left open the possibility that the insurer’s pursuing the concealment and fraud defense was unreasonable and done in bad faith.
Moreover, the court discussed the investigation conduct of the insurer’s attorneys and agents in the claim handling process, including both conduct toward the insured and his attorney, and communications internally among each other.
Date of Decision: September 28, 2016
Paul v. State Farm Mut. Auto. Ins. Co., No. CV 14-1382, 2016 U.S. Dist. LEXIS 133699 (W.D. Pa. Sept. 28, 2016) (Conti, J.)