NO BAD FAITH BASED ON: (1) COMPARISON OF OFFER AND RESERVES; (2) UIPA VIOLATIONS; (3) LOWER SETTLEMENT OFFER THAN INSURED DEMANDED; (4) FAILURE TO RAISE SETTLEMENT OFFER; (5) INSURED’S FAILURE TO NEGOTIATE; (6) TIMING OF PARTIAL PAYMENT; OR (7) CLAIM MANUAL (Western District)

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In Western District Magistrate Judge Dodge’s May 2020 opinion in this case, the court allowed this UIM bad faith claim to survive a motion to dismiss. That decision is summarized here.  Her present opinion addresses the insurer’s summary judgment motion on bad faith.

The stipulated facts show, among other things, the insured’s injuries, that the tortfeasor’s carrier paid $50,000, that the insured demanded full UIM policy limits of $500,000, that the insurer set a $25,000 reserve and offered $10,000 to settle the claim fully, and that there was a dispute among medical experts about the scope of future treatment.  The record showed that the insurer’s claim adjustor reviewed new information from the insured on a number of occasions and found no basis to revise his damage analysis behind the $25,000 reserve figure.

After a considerable time period, the insured’s counsel did demand partial payment of the $10,000, saying this was undisputed, but never provided a full counter demand to the $10,000 offer because the course of medical treatment remained open.  The insurer eventually agreed to pay the $10,000, but the record appears ambiguous as to how each side interpreted the conditions of that payment.

Although the earlier motion to dismiss resulted in dismissal of claims asserting a private right of action under the Unfair Insurance Practices Act (UIPA), the insured asserted there were technical violations of the UIPA that could be considered in ruling on a statutory bad faith claim.

The court identified the following bad faith claims:

  1. The insurer allegedly “failed to re-evaluate the UIM claim when presented with new information and then make a higher offer despite raising the amount of its reserves.”

  2. The insurer “failed to make a timely partial payment of $10,000 even though that amount was undisputed.

  3. The insurer “violated the UIPA and its own claims-handling policies in at least two respects—by failing to notify [the insured] of its position that his alleged contributory negligence reduced the value of his claim, and failing to respond to an offer within ten days.”

Poor Judgment is Not Bad Faith

Magistrate Judge Dodge stated that “neither an insured’s disagreement with the amount offered on a UIM claim nor a citation to negligent mistakes made by the insurer in handling the claim is sufficient to demonstrate bad faith.”

She looked to Judge Hornak’s recent Stewart decision, summarized here, granting the insurer summary judgment “where plaintiff pedestrian suffered injuries that he valued at $2 million but the insurer investigated, set the value of the claim at $125,000, set reserves at $55,000 and offered $25,000” and Judge McVerry’s 2013 Schifino decision, summarized here, where a “$10,000 initial offer on UIM claim valued at $60,000 did not constitute bad faith and although [the insurer’s] conduct was ‘not free from criticism in its initial handling of the claim … this conduct is more indicative of poor judgment than bad faith.’”

Setting Aside Reserves Cannot be used as a Cudgel

Magistrate Judge Dodge also addressed the law concerning reserves, stating that “setting aside reserves does not amount to an admission of liability.” “Reserves are merely amounts set aside by insurers to cover potential future liabilities,” and “the setting of reserves is an estimate of an insurer’s exposure under a claim …[but] the court is reluctant to fashion a rule requiring an insurer to make an offer reflecting the reserve as soon as it is set.” Thus, “bad faith does not hinge on whether an offer is less than the reserves….”

The Alleged Failure to Increase an Offer is Not Bad Faith

The court rejected the claim that the insurer had raised reserves while failing to reevaluate the claim. In fact, the claim handler had not raised reserves even after receiving new information from the insured, but kept the reserves at the same figure after evaluating that new information.

The adjustor’s claims notes omitted $45,000 in medical expenses at two different dates, which were in his original evaluation. The insured claimed this demonstrated bad faith in evaluating the claims. The adjustor testified “that this was simply a mistake ‘because if you look at the doctor’s notes there’s no difference in what I already knew.’ Thus, this evidence suggests that [the] adjustor made an error when he recorded or updated information in his notes. This would amount to negligence, not bad faith. Importantly, it is undisputed that [the adjustor] concluded in each evaluation that a reserve setting of $25,000 was appropriate and his assessment of the potential value of the UIM claim did not change.”

Further, simply because the $10,000 offer was lower than the reserves did not prove bad faith, nor was it even “evidence of bad faith.” There also was no evidence the adjustor concluded the UIM claim’s value “was far in excess of the amount he set as a reserve or that his offer was unreasonable.”

The court distinguished the well-known Boneberger case on grounds that case was about intentionally devious claim handling practices used to create artificially low values. It was not about simply making offers that were much lower than the claimed value.

Magistrate Judge Dodge then discussed case law recognizing the principle that low but reasonable estimates cannot support bad faith claims. She looked to the Third Circuit’s 2019 Rau decision, summarized here. In addition, she looked to Judge Conti’s Katta opinion, summarized here, in observing factors weighing against bad faith, such as: the uncertainty of the claim’s value; “the offer was not unreasonably low because an initial offer below the alleged amount of loss does not constitute evidence of bad faith”; the insurer’s willingness to increase its offer and the insured’s refusal to negotiate down from a policy limit demand; and the insured’s failure to provide additional information to the insurer as to why its offer should be increased.

The court quoted Judge Conti at length: “It is troubling that plaintiff seeks to proceed with his bad faith claim despite having made no effort to engage in negotiations with defendant. Plaintiff was under no duty to negotiate, but courts have recognized that stonewalling negotiations is a relevant consideration in determining whether an insurer acted in bad faith. …. If plaintiff’s bad faith claim were to proceed, future plaintiffs could survive summary judgment on bad faith claims by simply filing suit after receiving an offer that the plaintiff believes is too low. The mere fact that defendant’s initial offer was lower than plaintiff’s unsubstantiated claim of lost wages, in absence of any other substantive evidence of bad faith, including unreasonable delay, intentional deception, or the like, is not sufficient to constitute clear and convincing evidence.”

In the present case, the insured never made a counter demand or attempted to negotiate after the $10,000 initial offer, and never came off of a policy limit demand.  Moreover, as set out above, the adjustor’s claim handling and claim evaluation were not unreasonable.

Partial Payment Issue not a Basis for Bad Faith

Magistrate Judge Dodge cited Third Circuit precedent that a failure to make partial payment could only reach the level of bad faith “where the evidence demonstrated that two conditions had been met. The first is that the insurance company conducted, or the insured requested but was denied, a separate assessment of some part of her claim (i.e., that there was an undisputed amount). The second is, at least until such a duty is clearly established in law (so that the duty is a known duty), that the insured made a request for partial payment.” She observed Pennsylvania’s Superior Court has followed this standard.

In the present case, there was no separate assessment of a partial claim, or any partial valuation carried out, resulting in an agreed upon undisputed partial sum due.  There was only an offer that the insured originally declined, but later demanded be paid without the insured admitting he either accepted or rejected that offer. Rather, the insured’s counsel asked the carrier to “issue a draft in the amount of the $10,000 as a partial payment of the UIM benefits until a counter can be made and the matter can be resolved in full.” Further, even when the $10,000 was paid, the parties disagreed over the meaning of the payment.

Magistrate Judge Dodge concluded the “agreement to pay to Plaintiffs the amount of its previous offer to settle the UIM claim does not represent evidence of bad faith.” While it might be generally correct to characterized the $10,000 as undisputed “there were no communications about this amount representing a separate assessment of some component of [the] claim.” Moreover, any delay in paying the $10,000 fell on the insured.

“Thus, to the extent that Plaintiffs continue to assert that the failure [] to make a more timely partial payment represents bad faith, any such claim fails as a matter of law. Plaintiffs cannot assert that [the insurer] acted in bad faith by offering to make a partial payment—which it was not required to do—and not offering it again sooner after Plaintiffs rejected it.”

UIPA Violations Cannot Form the Basis of a Bad Faith Claim

The parties agreed there is no private right of action under the UIPA. The insured, however, wanted to use UIPA violations as evidence of statutory bad faith. The court rejected that effort.

Magistrate Judge Dodge stated that since the seminal Terletsky opinion in 1994, “federal courts have uniformly rejected plaintiffs’ attempt to rely on UIPA violations to support bad faith claims.” Contrary to the insured’s arguments that some federal cases hold otherwise, she states that “for the past 26 years, case law in federal courts on this issue has been consistent.”  Magistrate Judge Dodge cites, among other cases, the Third Circuit’s opinion in Leach, Judge Gibson’s 2019 Horvath opinion, Judge Fisher’s 2014 Kelman decision (while sitting by designation in the Western District), Judge Kosik’s 2007 Oehlmann decision, and Judge Conti’s 2007 Loos opinion.

[Our May 2, 2019 post summarizes different approaches courts take in considering UIPA and Unfair Claim Settlement Practices regulations.]

No Bad Faith Based on Insurer’s Own Manuals

Magistrate Judge Dodge found this was not a case where the insurer’s manuals and guidelines recommended aggressive claims handling and litigation tactics to discourage an insured’s legitimate claims.  “In this case, there is no evidence in the record that [the insurer’s] manual promotes improper tactics or conduct; quite the contrary.”

The court also rejected the argument that the insurer acted in bad faith by violating its own claim handling policies. “The issue here is not whether [the insurer’s] claims handling policy is admissible, but whether it provides any support for Plaintiffs’ bad faith claim. It does not.”

In sum, partial summary judgment was granted on the bad faith claim.

Date of Decision:  December 10, 2020

Kleinz v. Unitrin Auto and Home Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:19-CV-01426, 2020 WL 7263548 (W.D. Pa. Dec. 10, 2020) (Dodge, M.J.)

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