SEPTEMBER 2010 BAD FAITH CASES
NO STATUTORY BAD FAITH WHEN THE INSURER DOES NOT ACT UNREASONABLY, EVEN IF IT MAY HAVE BEEN INCORRECT IN INTERPRETING AN INSURANCE POLICY (Western District)

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In Chebatoris v. Monumental Life Insurance Company, the insured was an obese woman with diabetes who owned a group accidental death life insurance policy with the insurer for $100,000.  She suffered a laceration to her lower leg in an accident at an amusement park, an a subsequent infection required multiple hospitalizations and treatments.  In November, the insured’s treating doctor indicated that she was improving during a hospital admission, but four days after that report, she passed away.  Her death was attributed to natural causes.

The daughter of the insured filed claims for payment of the life insurance policy, but they were denied.  The insurer asserted as reasons for denial that (1) the information did not show that the insured’s death resulted from accidental injury independent of all other causes, and (2) a policy exclusion for loss caused by sickness or disease applied to this situation.  The parties disputed whether the accidental laceration from the amusement park accident is a but-for cause of the death, and the insured’s daughter filed suit against the insurer.  The Complaint included claims for breach of contract, breach of the implied duty of good faith, and a violation of the Pennsylvania Bad Faith Statute, 42 Pa.C.S.A. § 8371.

The court first noted that the claim for breach of implied duty to act in good faith was subsumed into the breach of contract claim because the implied duty to act in good faith was part of the contract itself.  It denied the insurer’s Motion for Summary Judgment with respect to the breach of contract claim because the insured’s daughter’s allegations did state a claim for breach of contract.

The court then noted that a violation of 42 Pa.C.S.A. § 8371 only occurs when a plaintiff shows that the insurer did not have a reasonable basis for its action and acted knowingly or recklessly nonetheless.  It also stated that “if the insurer has a reasonable basis for denying or delaying payment of a claim, even if the basis is ultimately determined to be erroneous, it is not liable for a breach of the duty of good faith.”

While the court acknowledged that the insurer’s interpretation of the insurance policy may have been incorrect, it held that the insurer did not act unreasonable enough to support an award of damages for bad faith.  Therefore, the court granted the insurer’s Motion for Summary Judgment with respect to the claim for statutory bad faith.

Date of Decision:  August 23, 2010

Chebatoris v. Monumental Life Ins. Co., Civil Action No. 09-224, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 86367, (W.D. Pa. Aug. 23, 2010) (Lenihan, U.S.M.J.)

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NO STATUTORY BAD FAITH WHEN THE INSURER DOES NOT ACT UNREASONABLY, EVEN IF IT MAY HAVE BEEN INCORRECT IN INTERPRETING AN INSURANCE POLICY (Western District)”


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