SEPTEMBER 2014 BAD FAITH CASES: INSURER’S ARGUMENTS THAT BAD FAITH STATUTE DID NOT ENCOMPASS POLICY SOLICITATION CONDUCT OR POST-CLAIMS UNDERWRITING WERE INAPPOSITE WHERE INSURED ALLEGED THAT INSURER USED ALLEGEDLY FRAUDULENT APPLICATION FORMS AS A BASIS TO DENY COVERAGE (Western District)
In Fields v. Gerber Life Insurance Company, the case involved an out-of-state insurer licensed to sell endowment life insurance policies, marketed as college savings plans, through the internet and telephone. Plaintiff obtained a policy for her seriously infirm infant grandson. She was forthcoming on the telephone about the child’s condition, but was allegedly not asked to put anything in writing, which would have been electronically under the circumstances.
The insurer issued a $50,000 life insurance policy for the baby, attaching unsigned and unverified application forms prepared by and/or on behalf of the insurer. The grandmother alleged that she never agreed in writing to the answers placed on the medical questionnaire which had been completed by the insurer’s representative after the follow-up telephone call.
Unfortunately, the child died. The grandmother notified the insurer, and completed all forms required by the insurer to obtain the death benefits due under the policy. Upon receiving notice, the insurer obtained the child’s medical records and began to investigate whether the grandmother made a material misrepresentation in the application process. She allegedly cooperated fully at all times in this process. The carrier denied coverage and canceled the life insurance policy allegedly “based upon information contained on the application forms attached to the policy, knowing that the forms were bogus and should never have been used in denying payment for the loss.”
The grandmother brought various claims, including a bad faith claim. The insurer sought to dismiss the claim. It alleged that plaintiff was seeking relief for improper solicitation and/or post-claims practices, neither of which is encompassed within the bad faith statute under controlling Pennsylvania Supreme Court and Third Circuit precedent; the former on the basis that there could have been no denial of benefits prior to there being a policy in place and the statute was not aimed at deceptive or fraudulent solicitations, and the later because an insurer can investigate a questionable claim.
The court concluded, however, that the grandmother’s claim was not premised solely on the theory that the insurer engaged in improper solicitation or post-claim underwriting practices. By way of one example, she averred that the insurer attached improper and illegal documentation to the insurance policy, and used that documentation to deny coverage. Thus, the bad faith claim could not be dismissed.