MAY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER REASONABLY RELIES ON CASE LAW, AND LAW IS IN FLUX (Middle District)

The insurance policy required insureds to submit to independent medical examinations after making a bodily injury claim for medical benefits arising out of auto accidents. The policy stated the insurer did not have to make any payments prior to that exam.

A federal judge in the Eastern District had ruled in 2009 that these kinds of policy terms were enforceable, and were not inconsistent with Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL), relying upon case law from Pennsylvania’s Superior Court. There has been no ruling from Pennsylvania’s Supreme Court on the issue; however, the judge in this 2017 Middle District case came to a different conclusion, finding the provision unenforceable.

The insured claimed that the requirement to have an IME, along with the refusal to pay medical benefits before the IME took place were violations of the bad faith statute. The court disagreed. The language of the policy permitted it, and there was prior case law from a court of co-ordinate jurisdiction finding that language enforceable. The court observed that reasonable but incorrect interpretations of the policy and law do not form the basis for bad faith. This is especially true where the law is in flux.

The court found that the insurer “clearly had a reasonable basis for denying … medical benefits” where the Supreme Court had not decided the issue and another court found that the policy language was enforceable. The court specifically stated it was reasonable for the insurer to have relied on the earlier opinion.

The court also dismissed the insured’s claim for breach of the implied duty of good faith and fair dealing because the implied covenant alleged conflicted with an express term of the policy.

Date of Decision: May 10, 2017

Sayles v. Allstate Ins. Co., No. 3:16-cv-01534, 2017 U.S. Dist. LEXIS 71760 (M.D. Pa. May 10, 2017) (Caputo, J.)