NO BAD FAITH WHERE INSURER’S POSITION ON COVERAGE WAS CORRECT, AND OTHER ISSUES WERE BELATEDLY RAISED POST-TRIAL (Third Circuit)
The Third Circuit’s precedential decision focused primarily on what constitutes a sufficient writing to request lower underinsured motorist limits under 75 Pa. C.S. § 1734. That statute only provides there must be a “request in writing”. After close analysis, the panel determined that such a request can effectively be made in the insurance application itself, without the need for using a specialized form.
“The statute says little beyond that [there must be a request in writing]. But that silence speaks volumes. As we reiterate today, the statute means what it says: an insured can make that choice ‘in writing’ in any writing as long as the choice is clear.”
In this case, the insured requested lower than the maximum UIM limits in her written insurance application. After suffering a serious injury, and despite the application asking for lower limits and the policy being issued with those lower limits, the insured demanded the maximum UIM limits allowed by statute.
She argued the application request was not binding because she had not filled out a separate form the insurer itself provided, which was designed for the insured to expressly acknowledge she was accepting these lower limits. The insurer took the position that even without the insurer filling out the acknowledgment form, the written request in the application was sufficient to set lower limits for UIM coverage, and refused to pay full limits allowed by the statute.
The insured sued for breach of contract and bad faith. The district court agreed with the insured on the policy limit issued, but dismissed the bad faith claim. The case proceeded to trial and jury awarded $1.75 million, which the trial judge molded to $750,000 to meet the UIM maximum, rather than the lower sum requested in the application.
As the arguments were presented by motion for reconsideration, there had to be some new facts that did not exist or could not have been discovered at the time of the original decision. The Third Circuit agreed with the district court that the insured’s efforts in this regard failed, as the facts she wanted to adduce were not new.
The insured failed to request certain documents in discovery, e.g., the insurer’s Best Practices Manual, and gave no justification. Further, the Rule 26(f) report revealed early on the insurer’s position about the lower limit in the application controlling the UIM policy limits. Thus, there was no basis for reconsideration involving discovery activities.
In bringing and pursuing her case, the insured did not argue the insurer acted in bad faith on the basis of misrepresenting the scope of coverage, even though she had information allegedly supporting such a claim before trial. Rather, she “chose instead to base [the] bad faith claim on an alleged failure … to investigate the [insured’s] claim.” The court would not allow the insured belatedly to bring up the misrepresentation based claim, finding there should be no second bite at the apple.
The Third Circuit observed that an insurer can defeat a bad faith claim if there “is evidence of a reasonable basis for the insurer’s actions or inaction.” In this case, the insurer believed the application constituted a sufficient writing under section 1734 to reduce UIM coverage limits. The Third Circuit found the insurer’s belief, “not only reasonable but correct.” Thus, its “reliance on the lower UM/UIM coverage limits in informing its investigation and settlement offers was therefore not deceptive.”