OCTOBER 2015 BAD FAITH CASES: INSURER’S ALLEGED FAILURE TO INVESTIGATE INSURED’S MENTAL COMPETENCY AT THE TIME HE ALTERED POLICY BENEFITS COULD BE BASIS FOR A BAD FAITH CLAIM (Western District)

In Hess v. Nationwide Life Insurance Company, the beneficiary of a life insurance policy pleaded that the insurer failed to pay full policy proceeds.  The insured’s husband had submitted a document to the insurer that reduced the benefit, but she argued that he was mentally incompetent when he did so, and thus the reduction was of no legal effect.  In bringing a bad faith claim, she pleaded that the insurer failed to conduct an investigation into her husband’s mental state in refusing to pay the sum originally due, absent his signing the document reducing her benefits.  The insurer moved to dismiss the claim.  The court denied the motion.

The insurer argued that the claim should be dismissed because it was based upon a violation of the Unfair Insurance Practices Act (UIPA), and the UIPA could not form the basis for bad faith claims under Third Circuit precedent.  The court noted that the Third Circuit and Pennsylvania federal courts do show some conflict on this point; however, because the complaint did not solely rely upon the UIPA violation, the court did not have to resolve the issue.

Rather, the court found that the complaint generally alleged a failure to investigate the husband’s mental state at all, in determining the validity of the beneficiary’s position. It focused on the contention that the insurer had been presented with medical evidence of incompetency, but refused to investigate the matter and reconsider the decision.” The court stated the proposition that “bad faith may occur before, during and after litigation and may include an insurer’s failure to investigate.” (citing Thomer v. Allstate Ins. Co.) Finally, the court rejected the argument that plaintiff could not make her case by showing clear and convincing evidence that the insurer lacked a reasonable basis to deny the claim. The analysis of this claim was premature at the motion to dismiss stage, under the circumstances of this case.  Such an analysis and determination could only be made after the record has been developed. Date of Decision:  September 17, 2015

Hess v. Nationwide Life Ins. Co., Civil Action No. 15-692, 2015 U.S. Dist. LEXIS 124339 (W.D. Pa. September 17, 2015) (Mitchell, U.S.M.J.)