OCTOBER 2014 BAD FAITH CASES: NO BAD FAITH IN UIM CASE WHERE INSURER CORRECTLY DETERMINED COVERAGE BASED ON INSUREDS’ CONTRACTUAL CHOICE TO LIMIT UIM AMOUNTS, AND WHERE NO OTHER FORM OF BAD FAITH ASIDE FROM COVERAGE DENIAL WAS PLEADED (Philadelphia Federal)
In Davis v. Allstate Property & Casualty Company, the UIM plaintiff brought claims for breach of contract and bad faith, based upon an alleged failure to pay $600,000 in connection with a fatal car accident.
The court found, however, that the insureds had complied with all the requirements necessary under Pennsylvania’s Motor Vehicle Financial Responsibility Act to reduce their policy’s underinsured motorist coverage to $15,000 per person and $30,000 per accident, and thus the insurer correctly denied claims in excess of the contractually agreed upon coverage amount.
The claim for breach of an implied covenant of good faith and fair dealing was likewise dismissed, because Pennsylvania law precludes that claim from proceeding independently of the contract claim on which it is based.
Further, there could be no statutory bad faith for denying coverage in these circumstances. The court stated: “When an insurer makes a correct determination of the amount owed under a policy, it has a reasonable basis for denying an insured’s claims for a higher amount,” and “plaintiff’s bad faith claim fails as a matter of law because a correct determination of coverage precludes a bad faith claim predicated on a theory that the insurer unreasonably denied coverage.”
Nor, was any other form of bad faith pleaded. The court stated that “Pennsylvania law does not limit bad faith claims to unreasonable denials of coverage. A bad faith [claim] can have various other bases, including an insurer’s lack of investigation, lack of adequate legal research concerning coverage, or failure to communicate with the insured.” However, no factual averments were pleaded to support even the inference that the insurer did not conduct an investigation, failed to conduct adequate legal research, or did not communicate with the insured.
That being said, the bad faith claims were dismissed without prejudice for plaintiff to file a second amended complaint which adequately sets forth her bad faith claims.
Comment: This latter point raises the debated issue of whether a poor claims handling practice that may even be a violation of the UIPA, but which in no way results in, or is connected to, the actual delay or denial of a benefit because no benefit is owed under the policy, can constitute statutory bad faith. See, e.g., Berks Mut. Leasing Corp. v. Travelers Prop. Cas., NO. 01-CV-6784,2002 U.S. Dist. LEXIS 23749, footnote 8 (E.D. Pa. Dec. 9, 2002) (Yohn, J.) (“Accordingly, I find plaintiff’s interpretation of the statute unpersuasive. Instead, I conclude that Section 8371 is limited to causes of actions arising out of the bad faith handling or payment of claims and does not apply to conduct unrelated to the denial of a claim. In so holding, I join other courts that have expressly embraced this interpretation of Section 8371.”); Focht v. State Farm (“In this regard, it is relevant that the District Court for the Eastern District of Pennsylvania has held that, in determining whether a defendant had a “reasonable basis” for denying an insurance claim, the test elucidated in Terletsky “is an objective one” and that as long as “a” reasonable basis exists to deny the claim, “there cannot, as a matter of law, be bad faith.”); but see Shannon v. New York Cent. Mut. Ins. Co. (“Given the remedial purpose underpinning the Bad Faith Statute, we are not persuaded that permitting an insurer to evade its statutory obligation due to some fortuitous fact to which it was oblivious is consistent with the legislature’s intent.”).