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Two underinsured motorist plaintiffs agreed to a high-low arbitration with their carrier.  One agreed to a $5,000 – $65,000 range and the other to a $5,000 – $85,000 range. These ranges encompassed sums owed by the UIM carrier, not total damages.  The carrier paid the $5,000 minimum up front, and later offered each insured an additional $5,000 prior to the arbitration to end the matter. They refused. The arbitrator awarded considerably more than $5,000 to each insured; however, the sums ultimately awarded fell within the high-low ranges to which the insureds and insurer agreed.

The insureds brought breach of contract and bad faith claims based on the insurer’s “low-ball” $5,000 settlement offer compared to the ultimate awards, poor claim handling and demanding a release of bad faith claims to reach a settlement.

The insurer moved to dismiss both claims, resulting in dismissal without prejudice for both claims.

Breach of Contract Claims Dismissed without Prejudice

The contract count asserted breach of an alleged duty to investigate and breach of an alleged duty to make a reasonable settlement offer.  Plaintiffs failed to attach the insurance contract and failed to allege more than conclusory allegations.

Moreover, the insureds failed to allege any damages, an essential element to state a breach of contract claim.  An action “for breach of an insurance contract does not lie when the policy proceeds have been paid. … Here, [the insureds] were paid proceeds within the terms of their insurance contract. Because the proceeds were paid, there are no damages and can be no actionable claim for breach of contract.”

Thus, the insureds failed to adequately plead plausible breach of contract claims, or the derivative breach of duty of good faith and fair dealing claims.  The breach of contract claims were dismissed without prejudice, the court observing plaintiffs might “attempt to replead this with more specific factual allegations or perhaps a different legal theory.”

Bad Faith Claims

Eastern District Judge Pratter then addressed the bad faith claims.

The insureds alleged a failure to investigate the extent of their injuries, and that both were made the same arbitrary lowball $5,000 settlement offer, even though their injuries significantly differed.  The insureds also allege the carrier included a demand that settlement required them to release any future bad faith claims, itself an additional act of bad faith.

The carrier moved to dismiss on two grounds: (1) in entering the arbitration agreement, the insureds expressly waived the right to bring any bad faith claims; and (2) there was no plausible bad faith claim in any event.

Judge Pratter found that the arbitration agreement undermined a portion of plaintiffs’ assertion that it was bad faith to require them to release any bad faith claims, though not future bad faith claims.  The arbitration agreement required a general release after the arbitrator’s decision, which would have eliminated any bad faith claims in any event; but the contract language was only clear as to present or past bad faith claims, not future bad faith claims arising after the parties entered that agreement.

Demand to Release Bad Faith Claims as Potential Bad Faith

Judge Pratter states:

In relevant part, the Arbitration Agreement states that the parties “agreed that [the insureds] will withdraw any claims for bad faith or extra contractual damages … with prejudice. The sole neutral arbitrator will decide the amount of any damages to be awarded to your respective clients.” … In addition, the Arbitration Agreement stated that there would be “no effort to file any type of claim for bad faith or extra contractual damages in the event that the pre-molded ADR award exceeds the high limits as to either plaintiff.” … [The insurer] argues that this language means [the insureds] could not file any future claim for bad faith as well. The Court is not so convinced.

Neither clause that [the insurer] points to is as airtight as it argues. First, the clause stating that [the insureds] “will withdraw any claims for bad faith or extra contractual damages” plainly contemplates claims existing at the time of the Arbitration Agreement. It makes no mention of any future claims. Second, the clause stating that [the insureds] will make “no effort” to file any type of claim for bad faith or extra contractual damages in the event that the premolded ADR award exceeds the high limits as to either plaintiff is conditional. It does not state that [the insureds] will never file any bad faith claim, it states that they will make “no effort” to do so if the ADR award exceeded the agreed-upon high limit of the arbitration. And that condition precedent did not happen here; neither [insured’s] award at ADR exceeded the agreed-upon high. Third, the clause stating, “[t]he sole neutral arbitrator will decide the amount of any damages to be awarded to your respective clients” does not clearly foreclose future claims. True, it could be read to mean that “any damages” encompass any and all future claims, but it could also just mean “any damages” related to their insurance claim with Allstate, bad faith claims not included. Thus, the Court cannot dismiss the claim based on this language alone. If [the insurer] meant to foreclose all past, present, and future suits for bad faith stemming from a claim under an insurance policy, it should have ensured the Arbitration Agreement—a contract—said so.

Bad Faith Claim Dismissed Anyway for Failing to Plead Plausible Action

Alleged Low-Ball Offer does not Constitute Bad Faith

Despite the foregoing, the bad faith claims were dismissed for inadequate pleading. As Judge Pratter observes, bad faith plaintiff must do more than call an insurer’s offer “low-ball” to make out a plausible claim.  Judge Pratter cites her August 2021 Brown decision, summarized here, which in turn cited Judge Pappert’s 2020 Canfield decision, summarized here, which in turn relies on the Pennsylvania Superior Court’s 2009 Johnson v. Progressive decision, summarized here. Thus, “Courts have routinely recognized that similar allegations ‘suggest ‘nothing more than a normal dispute between an insured and insurer [as to value].”

Judge Pratter cited the appropriate standard to measure such “low-ball” bad faith claims, from Western District Judge McVerry’s 2012 Seto v. State Farm decision, summarize here:

For an insurance company to show that it had a reasonable basis, an insurance company is not required to demonstrate its investigation yielded the correct conclusion or even that its conclusion more likely than not was accurate. The insurance company also is not required to show the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion. Rather an insurance company simply must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.

In the present case, under that standard, the insurer’s claim handling was reasonable.  The insurer offered to settle the case for precisely a sum that met the value it placed on the insured’s injuries (inclusive of payment by the tortfeasor’s carrier and partial payment by the insurer). That the insured valued the case higher, and the arbitrator awarded a higher sum, does not equate to bad faith, as “[a] low, but reasonable offer, is simply not evidence of bad faith.”

No Bad Faith Delay Adequately Alleged

As to bad faith allegations that the insurer “dragged its feet in its investigation and failed to investigate … To allege dilatory tactics and/or a failure to investigate … a plaintiff must put forth more than conclusory allegations. The plaintiff must include specific factual matter, such as “the number of months between [the] demand and settlement offer” or “describe the course of the parties’ dealings.”

Here, the relevant factual allegations “do not suggest any delay, and certainly not a delay reaching the level of ‘bad faith.’” Judge Pratter identified the dates of the accident, suit, arbitration agreement and arbitration itself, the date of the award and the date the instant suit was filed. She observed that the wheels of justice can grind slowly; however, the insureds “have pled no facts to suggest that [the insurer] acted to deliberately slow the process, and certainly not to any level amounting to ‘bad faith.’”

As with the breach of contract claim, the bad faith claim was dismissed without prejudice.

[Note:  In reciting the bad faith elements, the court states: “To support a finding of bad faith, the plaintiff must show that the insurer breached its duty of good faith through some motive of self-interest or ill will.”  (internal quotation marks omitted) As discussed at some length in our Friday April 8, 2022 post, found here, this is not an element required to prove statutory bad faith in Pennsylvania.]

Date of Decision:  April 1, 2022

LAUF v. ALLSTATE INSURANCE COMPANY, U.S. District Court Eastern District of Pennsylvania No. CV 22-65, 2022 WL 991381 (E.D. Pa. Apr. 1, 2022) (Pratter, J.)