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In Strausser v. Merchants Insurance Group, the insured brought a claim for breach of contract and bad faith on a UIM claim. The insured had received payment from the tortfeasor’s carrier.

The insured asserted that the insurer complicated the settlement process by requesting 33 separate authorizations and tax returns in piecemeal fashion over a period of many months; that one of his medical providers, a psychologist who could not assemble her treatment records because of a computer malfunction, was unreasonably subjected to a lawsuit by the insurer that resulted in further significant and unnecessary delay in arbitrating the UIM claim; and that despite an exhaustive investigation spanning 4½ years, the insurer never obtained any evidence to support its position that the insured had been disabled before the accident at issue.

The insurer contended that it investigated the UIM claim and discovered red flags in the form of a prior accident history and pre-existent financial and psychological problems; but ultimately agreed to arbitrate the UIM claim, promptly paid the award once rendered. The insurer contended that the 43 month delay between the insured’s filing the UIM claim and the award was largely the result of the refusal of one of the insured’s medical providers to respond to a subpoena.

The insurer also asserted that there was delay beyond its control because of a mediator’s personal issues. Finally, the insurer described the parties’ impasse of resolving the matter as a disagreement over the claim’s value.

The court observed that the arbitration award was almost four times the carrier’s best offer, which the insurer explained as one of the vagaries inherent in predicting how a factfinder will respond to a complex set of evidentiary factors. The court stated that assessing the bad faith claimed required its review of the various communications that passed back and forth between the insurer and the insured’s counsel during the negotiations that preceded the filing of the complaint.

The court defined the ultimate question as whether at some point before the date of the arbitrator’s award, did the insurer have enough information to appreciate that its final settlement offer was unreasonably low.

The court generally acknowledged the following positions as correct: (1) that the mere negotiation of a disputed claim does not qualify as bad faith; (2) that the fact of a substantial discrepancy between an insurer’s settlement offer and the amount the insurer ultimately pays on a claim does not, in every such instance, indicate bad faith; (3) that it is not always bad faith for an insurer to rely on the results of an independent medical examination; (4) that the mere fact that there is a substantial delay between the time the claim is filed and the time it is ultimately resolved does not necessarily indicate bad faith; and (5) that insurers are not bound by decisions of the Social Security Administration concerning the scope or cause of a claimant’s physical disabilities.

However, the court found itself compelled to observe, on this motion for summary judgment, that award approached four times the insurer’s best offer and there was evidence that the insurer may have unreasonably delayed its investigation and/or disregarded evidence that should have promoted a higher offer in settlement.

Thus, only the finder of fact should pass on the relative credibility of the parties’ arguments, as the court could not unequivocally say that the parties’ submissions are such that reasonable jurors could conclude only that the insurer had a reasonable basis for conducting itself as it did.

Thus, the court found on the record before it that reasonable jurors could conclude that it was unreasonable for the insurer to refuse to submit the matter to mediation before obtaining a psychologist’s records in the context of a claim predicated predominately on physical injuries.

Similarly, reasonable jurors could conclude that the insurer acted unreasonably in relying upon the opinions of an independent medical examiner who never saw the insured until some 57 months after the accident in question.

Finally, reasonable jurors could conclude that the insurer’s piecemeal requests for 33 authorizations over a period of more than one year constituted an effort to pressure the insured into accepting a settlement that bore no resemblance to his actual damages.

The court made clear that its denying summary judgment should not be seen as an indication that the court thought it likely that the plaintiff will prevail at trial, reiterating the standard that the insured would be required to demonstrate the carrier’s bad faith by a heightened clear and convincing evidentiary standard and the insurer would have the benefit of that charge at trial.

Date of Decision: April 7, 2014

Strausser v. Merchs. Ins. Group, Case No. 3:12-CV-1551, 2014 U.S. Dist. LEXIS 47718, (M. D. PA. April 7, 2014) (Conaboy, J.)