NOVEMBER 2014 BAD FAITH CASES: CARRIER’S INVESTIGATION AND DENIAL OF UIM BENEFITS FOLLOWING PAYMENT OF FIRST PARTY MEDICAL CLAIM NOT BAD FAITH; NEITHER LENGTH OF INVESTIGATION ALONE NOR DISPUTING CAUSATION AFTER NOT MAKING IT AN ISSUE IN ORIGINAL CLAIM CREATE BAD FAITH PER SE (Middle District)
In Shaffer v. State Farm Mut. Auto. Ins. Co., plaintiff and his wife brought a bad faith claim against their carrier after being denied UIM coverage, following payment of medical coverage on a first party claim. The claim resulted from a motor vehicle accident in which the other driver was primarily at fault. After the collision, the carrier conducted an internal arbitration, but declined to award to damages to either party.
At that time, Plaintiff sought conservative medical treatment under his policy, but declined to file a UIM claim. Over the next year, the carrier repeatedly requested documentation from Plaintiff regarding his medical treatment, including a completed application for benefits, and medical record authorizations, but Plaintiff failed to return the application, authorization, or any medical records to the carrier.
Eventually, Plaintiff’s counsel informed the carrier Plaintiff required back surgery, and indicated the carrier would be sent a copy of the bill for the surgery, and requested he be advised if Plaintiff’s medical coverage was close to being exhausted. Shortly after the surgery, Plaintiff’s counsel and the carrier discussed the possibility of a UIM claim for the first time, but Plaintiffs’ counsel merely indicated he would contact the carrier in the future if he felt a UIM claim was necessary.
The carrier received a final treatment bill, and medical records indicating the back surgery’s success; thus, having received no contact in over six months from Plaintiff or his counsel, the carrier closed the file.
Five months later, Plaintiff settled his claim against the other driver for $72,500 of the driver’s $100,000 policy limit, and then filed a claim for UIM coverage under his own policy. Plaintiffs’ auto policy provided coverage for medical payments and $100,000 in UIM coverage, and allowed for “stacked” UIM coverage, yielding $200,000 in total UIM coverage.
Plaintiff presented the carrier with over 800 pages of medical records to the carrier both pre-dating and post-dating his treatment for the injuries related to the accident, and then provided the carrier with a $250,000 demand, requesting the carrier tender $100,000, the amount of one of the policy limits.
Two months later, plaintiff gave his statement under oath and finally provided all signed medical authorizations. The carrier then began collecting the medical records, which took another ten months, due in part to Plaintiff’s withdrawal of his initial demand to add additional injuries to his claim.
After compiling all the records, the carrier had its orthopedic expert review the records and write a report evaluating the claim. The expert concluded most of the injuries were chronic, and not materially or substantially changed by the accident, and that Plaintiff would have eventually needed the back surgery regardless of the crash.
Based on this report, the carrier set a reserve range of $0 to $40,000, and offered Plaintiff $10,000 to settle the claim. Plaintiff rejected the offer, and one year later filed a lawsuit alleging the carrier violated Pennsylvania’s bad faith statue through its delay in investigating and evaluating the UIM claim.
The court found Plaintiffs’ bad faith claim without merit and dismissed it on summary judgment. Although the carrier closed the file in December of 2010, it did not become aware of Plaintiffs’ intention to file a UIM claim until April of 2011. After receiving the claim, a UIM adjuster was immediately assigned, and the carrier spent two years collecting medical records, obtaining plaintiff’s statement under oath, and arranging for review of Plaintiff’s medical records by its expert.
The court conceded that two years was a long time for claim investigation, but noted a long investigation period does not in and of itself constitute bad faith, absent obfuscation, dishonesty, or malice on the part of the carrier.
Plaintiff also argued the carrier’s questioning of causation in the UIM claim was improper because it did not question causation in the first party claim; however, case law has established payment of first party benefits does not constitute an admission of causation in subsequent claims. Therefore, the carrier was free to investigate causation of the UIM claim.
Finally, no evidence existed that the carrier did not conduct its investigation in a reasonable manner, even if the carrier did not move as quickly as Plaintiffs would have liked, or anticipate the UIM claim even before Plaintiffs’ counsel notified the carrier of the claim.