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Plaintiffs asserted statutory bad faith and breach of contract claims against a doctor and the claims administrator for a co-defendant disability insurance carrier.  The claims administrator defendant was allegedly acted as the disability carrier’s agent and was allegedly involved in denying Plaintiff’s claim.  Defendants argued that the claims against them must be dismissed because they are not “insurers” and  Pennsylvania’s bad faith statute only applies to “insurers.”

The United States District Court for the Western District of Pennsylvania did an extensive analysis of the case law on the subject of defining “insurer”, as no controlling rule had issued from Pennsylvania’s Supreme Court.  The Court stated that the question is one of fact, to be decided first by assessing whether the defendant is an “insurer” as defined by the Insurance Act of 1921, as amended, 40 P.S. § 221.3.  The inquiry, however, should not stop there.

The Court opined that two additional factors must be considered: (1) the extent to which the company was identified as the insurer of the policy documents; and more important (2) the extent to which the company acted as an insurer.

The Court observed that prior case law provided for the concepts that (1) even a true insurance carrier might not be an “insurer” if it was not part of the contract of insurance; but that (2) it might assume a duty as an insurer by its conduct even though otherwise not a party.

Thus, the court found that there is no simple rule for determining who is an insurer for purposes of the Pennsylvania Bad Faith statute.  It ruled that dismissal of Plaintiffs’ claims against the claims administrator defendant allegedly acting as an agent, which was involved in a claim denial, was premature, as discovery was needed to determine whether it was an “insurer” based on the aforementioned analysis.

However, the Court did dismiss Plaintiff’s bad faith claim against one of the other defendants, Dr. Keller, because Plaintiffs never alleged that he was an insurer under the statute, or that he had made any decision with respect to their claims for benefits.

Date of Decision:  August 29, 2006

Chu v. Disability Reinsurance Mgmt. Servs., United States District Court for the Western District of Pennsylvania, No. 06-91E, 2006 U.S. Dist. LEXIS 61244 (W.D. Pa. Aug. 29, 2006) (Cohill, J.)

This case placed significant reliance on Brown v. Progressive Insurance Company, 860 A.2d 493 (Pa. Super. 2004), appeal den’d, 582 Pa. 714, 872 A.2d 1197 (2005) and SEPTA v. Holmes, 835 A.2d 851 (Pa. Commw. Nov. 13, 2003), appeal den’d, 577 Pa. 738, 848 A.2d 930 (2004)

Compare however, Kvaerner U.S. Inc. v. OneBeacon Insurance Company, April Term 2003, No. 940, 2003 Phila. Ct. Com. Pl. LEXIS 45 (Sept. 29, 2003) (Sheppard, J.) (“Bad faith claims against insurance agents, claims representatives, peer review physicians have been found to be impermissible under § 8371.”  In that case, a third party claims administrator was not an insurer under section 8371 and was not subject to such a claim.)