NO BAD FAITH: (1) NO BENEFIT DUE; (2) NO ESTOPPEL UNDER THE UIPA OR UCSP REGULATIONS; (3) AN OVERSIGHT CAUSING DELAY IS NOT BAD FAITH (Philadelphia Federal)
The court described this as the case of the missing email. The insurance policy at issue covered various cars. The insured emailed its broker to add another vehicle to the policy. The broker claims it never got the email, and thus never asked the insurer to issue an endorsement adding the new car to the policy. As things sometimes go in life, the new car was involved in a collision, damaging another vehicle as well as its own new car.
The insured reported the claim. However, the insured identified its vehicle as one of existing cars listed in the policy, rather than the new unlisted vehicle. The insurer accepted coverage, and even paid damages to the other driver. The insurer later reversed itself on coverage once its appraiser determined the insured’s vehicle was not the car identified in the claim form, and was not covered under the policy.
The police report did list the correct vehicle. The insurer had the police report at the time it initially provided coverage, and only reversed itself when its appraiser realized that the damaged car was not the car on the claim form and was not listed in the policy.
The insured sued for breach of contract and bad faith, among other claims against the insurer as well as the broker. The insurer moved for summary judgment, which the court granted.
There is no breach of contract, or estoppel under the UIPA or UCSP regulations
First, there was no breach of contract, as the vehicle at issue never became part of the policy. The insured argued, however, that the insured was estopped from denying coverage under the Unfair Insurance Practices Act (UIPA) and the Unfair Claims Settlement Practices (UCSP) regulations governing “Standards for prompt, fair and equitable settlements applicable to insurers”. The insured relied on 31 Pa. Code § 146.7(a)(1), which states that, “Within 15 working days after receipt by the insurer of properly executed proofs of loss, the first-party claimant shall be advised of the acceptance or denial of the claim by the insurer.”
Judge Wolson rejected the statutory/regulatory argument for three reasons:
There is no private right of action under the UIPA and UCSP regulations, and only Pennsylvania’s Insurance Commissioner can enforce the UIPA and UCSP regulations.
The policy itself did not incorporate the UIPA or UCSP obligations or impose those obligations on the insurer. “Absent the incorporation of these obligations into the Policy, their potential violation does not breach the Policy.”
The doctrines of waiver or estoppel cannot “create an insurance contract where none existed.”
THERE IS NO BAD FAITH
The broker is not an insurer subject to the bad faith statute
First, the court recognized that there was no sustainable statutory bad faith action against the broker because it was not an insurer.
There is no bad faith where no benefit is denied
Next, as to the insurer, “To prevail on a bad faith claim, a plaintiff must present clear and convincing evidence that, among other things, an insurer ‘did not have a reasonable basis for denying benefits under the policy’ or that an insurer committed a ‘frivolous or unfounded refusal to pay proceeds of a policy.’” Because the insurer had no contractual obligation to pay its refusal could not have been unreasonable, and the claim failed.
The UIPA and UCSP regulations do no prevent changing a coverage decision based on new information
The court rejected another argument based on the UIPA and UCSP regulations cited above. The insured argued the failure to pay was unreasonable once the insurer accepted coverage. The court found, however, the UCSP regulations did not “prevent an insurer from changing a coverage determination based on new information.”
More importantly to the court, the insured adduced no case law adding such a gloss to section 146.7, i.e. a mandate that once coverage was accepted it could never be denied under any circumstances. Thus, it was reasonable for the insurer to interpret that regulation to permit an insurer to revise a coverage decision based on new information.
A Delay based on an Oversight is not the Basis for Bad Faith
Finally, any delay in revising its coverage determination was likewise not bad faith. Citing the 2007 DeWalt decision, the court observed that an “insurer’s actions in allegedly delaying investigation did not constitute bad faith under Pennsylvania law [when] there was no evidence that such delay was deliberate or knowing, or was unreasonable.”
While the carrier “probably could have been more diligent” in determining which vehicle was involved in the collision by looking at the police report earlier, “an insurer ‘need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusion.’” There was nothing in the record to establish the insurer “acted with reckless disregard of its obligations or otherwise fell so short that it acted in bad faith.”