Print Friendly, PDF & Email

This is one of the few cases directly to take on the issue of whether statutory bad faith can exist where the insurer has not denied a benefit.

As observed numerous times in this Blog over the years, the Pennsylvania Supreme Court’s Toy v. Metropolitan decision requires the denial of a benefit as a predicate for making a statutory bad faith claim. Yet, numerous courts have repeated language from older case law that bad faith might exist outside of that context, e.g., solely for poor claims handling or failures to communicate. These courts have not directly addressed the argument that Toy rejected this concept, and that such conduct may be evidence of bad faith, but not bad faith in itself where no benefit is denied. [There is little dispute that a delay in paying a benefit due may be deemed a denial of a benefit, so it is assumed in the foregoing discussion that there has been no delay that could constitute a statutory denial.]

In this case, the insured argued “that § 8371 does not require a denial of benefits in order to state a cause of action and contends that [the insurer’s] investigative practices and faulty conclusions based on egregious investigative inaction provide a cause of action under § 8371.”

In rejecting this position, Judge DuBois states:

The Court concludes plaintiff misstates the law. Plaintiff relies exclusively on O’Donnell ex rel. Mitro v. Allstate Ins. Co, which states that “[S]ection 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.” 1999 PA Super 161, 734 A.2d 901, 904 (Pa. Super. Ct. 1999). As the Third Circuit subsequently explained, O’Donnell merely clarified that “the alleged bad faith need not be limited to the literal act of denying a claim.” UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497, 506 (3d Cir. 2004). However, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” Id.; see also Duda v. Standard Ins. Co., No. 12-1082, 2015 U.S. Dist. LEXIS 56606, 2015 WL 1961170, at *26 (E.D. Pa. Apr. 30, 2015), aff’d, 649 F. App’x 230 (3d Cir. 2016) (“Pennsylvania law makes clear that claim denial is essential to a bad faith claim.” (internal citations omitted)). Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”

The insured attempted to argue that benefit denial includes failure to provide fair and reasonable treatment after submitting a claim, the insurance company’s failing to stand behind the insured in his time of need, and failing to pursue deductibles from the party at fault. Again rejecting these arguments, Judge DuBois found that:

Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None of the “benefits” that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he “does not allege bad faith for refusal to pay benefits.”

Date of Decision: January 23, 2019

Buck v. Geico Advantage Insurance Company, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-5148, 2019 U.S. Dist. LEXIS 11968 (E.D. Pa. Jan. 23, 2019) (DuBois, J.)

By contrast, e.g., this 2018 case finds statutory bad faith may still exist even when no coverage is due, meaning the court believed there could be bad faith even if no benefit was withheld or even due.