PHILADELPHIA, May 10 – The U.S. Court of Appeals for the Third Circuit has affirmed the dismissal of a disability insurance breach of contract and bad faith case, ruling in part that the insurer’s discovery practices in the case could not serve as the basis for a valid claim under the Pennsylvania Bad Faith Statute.
Dr. John Duda sued Standard Insurance, his disability insurer, claiming a wrist injury prevented him from performing the functions of his job as an orthopedic surgeon. Duda conceded that he could still perform many functions, such as minor surgeries, office consults, and serving as an independent medical examiner. He also failed to produce sufficient medical documentation, claiming that he was either self-treating for the injury, or treated by partners in his medical practice as a professional courtesy.
The Third Circuit affirmed the District Court’s dismissal of Duda’s breach of contract and bad faith claims. Regarding the latter claim the Court held:
Duda attempts to prop up his insurance-based bad faith claim under 42 Pa. Cons. Stat. § 8371 by claiming that Lincoln engaged in bad faith during the discovery stage of the instant litigation. However, Pennsylvania courts have held that § 8371 “clearly does not contemplate actions for bad faith based upon allegation of discovery violations.” O’Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901, 908 (Pa. Super. Ct. 1999). Although the Hollock v. Erie Insurance Exchange case, upon which Duda relies, allowed for the possibility that an insurer’s actions during litigation, at least in some circumstances, may be admissible evidence in support of the underlying bad faith claim, 842 A.2d 409, 414-15 (Pa. Super. Ct. 2004), it also emphasized that a bad faith claim is still established upon a showing that the insurer “refused to pay the proceeds of [the] policy” because of “a frivolous or unfounded reason,” id. at 416.
The three judge panel concluded that Standard had a reasonable basis to deny Duda’s claims for coverage.