Category: Bad Faith

The Fine Art Of Deciding Not To Settle Within Policy Limits: Part One

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The Problem

You are defending your insured in a motor vehicle case with a $300,000.00 policy limit.  The Plaintiff’s injuries are fairly severe (several fractures and a hospital stay) and there is some work loss and other consequential damages.   The case is venued in a middle-of-the-road jurisdiction, and liability for the accident is questionable — a jury may well apportion some fault to both parties.

Until now, the Plaintiff’s only settlement demand has been $650,000.00.  But in today’s mail you receive a 30 day time limit settlement demand for the $300,000.00 policy limit, after which, the letter continues, the Plaintiff’s lawyer is going to take the case to verdict and seek an assignment of bad faith rights from your insured against you in the event of an excess verdict.

You have almost all of the relevant medical and work loss records, but no depositions have been taken.  What to do?

If those of you in the claims and claims management business had a nickel for every time this scenario  (or one similar to it) crossed your desk, you would no longer need to be in the claims or claims management business and, consequently, would not have to worry about it.   But until that kind of hazardous duty pay somehow materializes, you are stuck on the horns of a dilemma.

An excess verdict, in this example is possible, you believe, but it is equally possible that the case could come in at $200,000,00, maybe less.  Heck, if the jury finds the plaintiff more than 51% at fault (using Pennsylvania law as an example), the Plaintiff is going to take $0.  So the decision is taken:  despite the urgings, and veiled threats, of both the Plaintiff’s lawyer, and your insured’s personal lawyer (policy limit demands indeed make strange bedfellows), you are going to decline to pay the demand, and move forward for now with the litigation.

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In this two-part post, we are going to examine the decision not to settle your insured’s tort case within policy limits.  How it should be done, when it should be done, whether it should be done, and why it should be done or not done, not necessarily in that order.  In Part One,  we will take a broad, 50,000 – foot look at the issue, and then in Part Two,  we will drill down into some of the particulars.

The Big Picture And  Rules of the Road

Obviously, the decision not to protect an insured and settle a tort case against him or her is a major one with major consequences:  It potentially exposes the insured to excess, and potentially personal liability, which defeats the purpose, your insured believes, of paying for insurance in the first place.  Not settling prevents financial and emotional closure of a rather unpleasant experience for one of your customers.  And perhaps most importantly, if declining a policy limits demand  is not done properly, with reasonable basis, it exposes the insurer to extracontractual damages via a bad faith claims in the event the underlying tort verdict exceeds the policy limits.

Doing business in this territory can be a risky place to go.

While all of these things are true, there are other less thought of elements which also operate in the background:

  • Despite what every Plaintiff’s lawyer would like you to believe, an excess verdict is not a res ipsa loquitur  or per se establishment of insurance bad faith.   An excess verdict is nothing more than an entre’ for an insured or his assignee to attempt to make out a bad faith case, which is a far cry from a final finding.  Do not let a Plaintiff’s bad faith  lawyer standing at home plate holding an excess verdict convince you he or she has already hit a home run.  He or she has not.
  • Reasonable offers of settlement less than policy limits are often  made, and rejected, followed by a verdict in excess of the policy limits.  It happens, and it often times happens even in the absence of insurer bad faith.    If the amount of the offer and the amount of the verdict are reasonably close (I use this vague term intentionally), and there is a reasonable, documented rationale for either making a sub-limit settlement offer and/or declining to pay a limits demand, a finding of bad faith against the insurer is not a foregone conclusion.

So how should the decision to pay or not to pay a limits demand be made?

 

The Art and Science of the Decision Not To Settle Within Limits

There is a reason this post was not titled, “The Fine Art of Not Settling Within Policy Limits.”  The title contains an extremely important verb:  “Deciding.”   An insurer’s decision to reject a policy limits demand against its insured must be just that:  a decision.  The decisional aspect of not settling within limits implies a whole host of items comprising a decision – making process, which encompasses legal and factual information-gathering, deliberation, analytics, examination of comparable injuries and cases, and consideration of other relevant factors.

The decision not to settle within limits must be an informed one — it cannot be one which is knee-jerk, emotional, or irrational.  It cannot be one made simply on the basis that the insurer would rather not pay.  Stated simply, the decision, if made, must be made properly.  The decision – making process must not only  be a thorough one;  it must be one where the reasoning behind it is documented so that it is re-traceable at a later time .  We will examine the specifics of this decision making process in Part Two of this post.

 

Sinkholes Near Propane Storage Tanks Not Covered Loss, Federal Judge Rules

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HARRISBURG, Sept. 18 – A federal judge has ruled that a sinkhole collapse near the insured’s propane storage tanks was not a covered loss under the insured’s property policy, finding a flood exclusion in the policy applied.

In Heller’s Gas, Inc. v. International Ins. Co. of Hannover, Ltd.,, U.S. Middle District Judge Matthew Brann granted International’s motion for summary judgment in full on both breach of contract and bad faith claims.  Heller’s had a policy insuring Heller’s property which include  six propane storage tanks.  Several months after policy inception, Heller’s noticed sinkholes near  the tanks.

An engineering firm engaged by Heller’s concluded the sinkholes were the result of excessive rainfall.  International began an investigation, reserving all rights, and raised a number of potential policy exclusions including Excavation Cost, Land and Water, and Earth Movement exclusions.

Ultimately Heller’s brought suit against the insurer, alleging International’s breach of the policy, and bad faith.

In granting the insurer’s summary judgment motion, Judge Brann held that Heller’s failed  to meet the burden of establishing actual property damage.  Judge Brann also found that the policy’s flood exclusion precluded coverage because the damage was the result of “surface water,” as confirmed by the insured’s engineering firm.

Judge Brann held that International had a reasonable basis to ultimately deny the claim, and that as a result Heller’s could not meet the heightened burden of clear and convincing evidence showing that the insurer acted in bad faith.

Heller’s Gas, Inc. v. International Ins. Co. of Hannover, Ltd., No. 4:15-CV001350, 2017 U.S. Dist. LEXIS 151072 (M.D.Pa.  Sept. 18, 2017)(Brann, J.)

 

 

 

RICO, Fraud Claims Properly Pled Against Insurer, Georgia Federal Judge Rules

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COLUMBUS, Oct. 5 — Georgia’s bad faith statute does not preempt claims against an insurer for fraud or claims of violation of the Georgia Racketeer Influenced and Corrupt Organizations Act (RICO), a federal judge has ruled.  The Court ruled in  Holly Steigel, et al. v. USAA Casualty Insurance Co., et. al., No. 16-346, M.D. Ga., 2017 U.S. Dist. LEXIS 163341  that fraud and state RICO claims could be alleged in addition to bad faith claims because the former were not premised upon the insurer’s unreasonable refusal to pay the claim.

 

Holly Stiegel filed an auto insurance claim with USAA Casualty Insurance Co., which included claims for medical expenses resulting from the  car accident.  USAA denied the claim, after which Steigel filed suit against USAA in the U.S. Middle District of Georgia.  The complaint originally included breach of contract and bad faith claims pursuant to Official Code of Georgia Annotated Section 33-4-6, O.C.G.A. § 33-4-6.  Steigel later amended  the complaint to include her husband as a plaintiff, and to  add claims for fraud, violations of the Georgia RICO Act, O.C.G.A. § 16-14-1 et seq., as well as unjust enrichment.  Steigel aslo added as a defendant Auto Injury Solutions (AIS), a USAA vendor.

According to the  amended complaint, USAA and AIS constructed a plan whereby USAA would outsource claims for medical payments to AIS with the design that AIS would deny or reduce the amount of the medical claims.

USAA and AIS both moved to dismiss the fraud, RICO, and unjust enrichment claims, arguing that they were all preempted by the state bad faith statute, which provided the exclusive remedy for the claims conduct of the defendants in claims handling.

Georgia Middle District Chief Judge Clay D. Land denied the motions to dismiss.  Chief Judge Land ruled that the preemption issue was one of first impression in Georgia, and that RICO and fraud claims were not precluded by Georgia’s bad faith law.  The Court specifically held that RICO and fraud claims were not strictly premised upon USAA’s failure to pay a claim, and that they were therefore not precluded by the bad faith statute.  Rather, the judge ruled, the RICO and fraud claims were based on the alleged conspiracy of the defendants to commit theft and deception:

“Plaintiffs allege that Defendants stole their money when they devised a scheme for USAA to avoid paying benefits legitimately owed under their insurance policy while collecting premiums for insurance that they knew was not being provided.  Thus, Plaintiffs appear to seek as their damages the return of the money they paid in the form of premiums to USAA.  The Court finds that this claim is not a claim by a holder of an insurance policy to recover benefits under the policy and bad-faith penalties based on an insurance company’s refusal to pay a loss covered under the policy.”

Chief Judge Land also denied the motion to dismiss the unjust enrichment claim, writing that he would re-visit the issue at summary judgment.

Holly Steigel, et al. v. USAA Casualty Insurance Co., et. al., No. 16-346, M.D. Ga., 2017 U.S. Dist. LEXIS 163341

Breaking: Pa. Supreme Court Rules Ill Will / Malice Not Required To Establish Bad Faith

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PITTSBURGH, Sept. 28— The Pennsylvania Supreme Court declined to require a showing of intentional ill will or malice to establish  bad faith claims against insurers in Pennsylvania, calling such ill will merely a factor in the analysis.

In Rancosky v. Washington National Insurance, the Court affirmed the  state’s Superior Court which held that an insurer’s motive of self-interest or ill will is only one factor that can be considered in an analysis of potential bad faith conduct under Pennsylvania’s bad faith statute.  The Superior Court  held that Washington’s predecessor, Conseco Health Insurance Co. did not have a reasonable basis to deny medical benefits to LeAnn Rancosky for the treatment of her ovarian cancer, or to refuse to honor a waiver of premium provision in her health insurance policy following her diagnosis.

Rancosky sued the insurer in the Pa. Court of Common Pleas in 2008,  and her estate later won  $31,000 jury verdict on breach-of-contract claims.  Conseco won the bench trial at that level on the bad faith claims however, after the trial judge ruled that Rancosky demonstrated no ill will or actual malice on the part of Conseco in the handling of her claim.

In affirming the Superior Court and sending the case back to the trial court under the clarified bad faith test, Justice Max Bear noted:

“We do not believe that the General Assembly intended to create a standard so stringent that it would be highly unlikely that any plaintiff could prevail thereunder when it created the remedy for bad faith. . . Such a construction could functionally write bad faith under Section 8371 out of the law altogether.”

The Supreme Court confirmed a long standing two part bad faith test first announced in a prior Superior Court ruling in 1994 in the case of in Terletsky v. Prudential.  In Terletsky, the Court held that  an insurance company’s bad faith was established when   the insured demonstrates that 1.) the insurer lacked a reasonable basis for denying benefits under the policy, and 2.)  the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.

The Supreme Court affirmed the intermediate appeals court finding that dishonest purpose or motive of self interest was not a third element of the Terletsky standard, but rather an element that could be considered as part of the second prong of the Terletsky test.

Rancosky v. Washington National Insurance Co., case number 28 WAP 2016

Federal Judge Denies Bifurcation of Bad Faith / UIM Claims

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WILLIAMSPORT, Sept. 20  — A Pennsylvania federal has refused GEICO’s motion to sever and stay bad faith claim after finding that judicial economy would not be served, and that no prejudice would occur to GEICO if the bad faith and UIM claims were tried together.

In David Newhouse et al. v. GEICO Casualty Co., No. 17-477, M.D. Pa., 2017 U.S. Dist. LEXIS 150793, U.S. Middle District of Pa. Judge Matthew Brann denied GEICO’s request to bifurcate the case, which was originally filed in state court, but removed by GEICO to the U.S. District Court for the Middle District of Pennsylvania.

On March 16, 2015, GEICO insured David Newhouse was operating a rental car when he was struck from behind by a car driven by Joseph Haywood.  As a result of the accident, Newhouse alleged he  suffered a number of injuries. Haywood’s liability  insurer tendered his $15,000 limit of his insurance policy to Newhouse.  The policy Newhouse had with GEICO provided $100,000.00 in UIM coverage, stacked for two vehicles, for a total of  $200,000 in UIM benefits.

After the Haywood tender, Newhouse  demanded the $200,000.00 policy limit he had with GEICO.  GEICO responded with an offer of  $10,000,  after which Newhouse filed suit for breach of contract and bad faith.

Judge Brann rejected GEICO’s argument that the breach of contract and  bad faith claims were “wholly distinct” from one another and severing the claims would promote judicial economy:

 

“Newhouse’s bad faith claim is based on GEICO offering $10,000.00 as the UIM settlement amount and failing ‘to act with reasonable promptness in evaluating and responding’ to Newhouse’s demand.  While the two claims are grounded on similar findings of evidence, they are nevertheless separate claims.  Thus, litigation on the bad faith claim is not contingent upon success of the breach of contract claim. . .  For example, documents concerning how Newhouse’s insurance claim was handled, documents reflecting the claims adjuster’s determination, and how GEICO arrived at its settlement value would be relevant for both claims.  Contrary to GEICO’s contention, bifurcating these claims and consequently requiring two separate discovery processes would be a waste of both judicial resources and time.”

Judge Brann also determined that GEICO would not be prejudiced by denial of the motion to bifurcate, sever, and stay.

David Newhouse et al. v. GEICO Casualty Co., No. 17-477, M.D. Pa., 2017 U.S. Dist. LEXIS 150793

UM/UIM Plaintiff Fails to State Bad Faith Claim, Federal Judge Rules

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Philadelphia, Sept. 6 – A Pennsylvania federal judge has ruled that a UM/UIM insured has failed to state a bad faith claim against State Farm Insurance arising out of the handling of her UIM claim.  In Myers v.  State Farm Automobile Insurance Company, federal judge R. Barclay Surrick granted State Farm’s 12(b)(6) motion to the complaint, but granted the insured plaintiff leave to file an amended complaint.

The insured filed a UIM claim with her insurer after sustaining injuries in an auto accident.  After failing to reach agreement on the settlement of her UIM claim, the insured filed breach of contract and bad faith claims against State Farm in Philadelphia County Common Pleas Court.   In the complaint, the insured alleged State Farm’s failure to act with reasonable promptness or to act with reasonable fairness, as well as the failure to conduct a proper investigation.

State Farm removed the action to the Eastern District of Pa., and filed a motion to dismiss  the bad faith claim pursuant to Federal Rule of Civil Procedure 12(b)(6).  Judge Surrick, in granting the motion, observed that “[t]o survive a motion to dismiss, [the insured’s] complaint must include factual allegations from which the Court may plausibly infer the unreasonable and intentional or reckless denial of benefits.”  The judge found the plaintiff’s allegations to be conclusory at best, observing that the complaint failed to describe the ways and means in which the insurer allegedly failed to properly investigate her claim.  The complaint also, Judge Surrick observed, failed to cite to any specific transactions or contact between the insured and the insurer which would factually make out a bad faith claim.

The Court concluded that even if it took the averments  the insured’s complaint as true, it was unable to  “plausibly infer from those facts that [insurer] acted unreasonably and intentionally or recklessly in denying benefits to [the insured].”  The Plaintiff was granted leave to attempt to amend her complaint to allege sufficient factual support for her bad faith claims.

Myers v. State Farm Mutual Automobile Ins. Co.,  No. 17-3509, 2017 U.S. Dist. LEXIS 143794 (E.D. Pa. Sept. 6, 2017) (Surrick, J.)

Judge Rules No Bad Faith In Insurer’s Low But Reasonable Valuation of UM/UIM Claim

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PHILADELPHIA, Aug. 17 – A Pennsylvania state court judge has granted summary judgment in favor of Travco Insurance Company, ruling that a $25,000.00 offer in a UIM claim which later ended in a $45,000.00 arbitration award was not so unreasonably low as to constitute bad faith.

In Boleslavksy v. Travco Insurance Co., Travco offered its insured $25,000.00 to settle a UIM claim in response to the insured’s  policy limits demand of $50,000.00.  After reviewing some additional information on the claim, Travco increased the valuation of the claim to $28,000.00 but did not change it’s offer in light of the policy limits demand.

The UIM case went to arbitration where the insured won an award of $45,000.00.  The insured thereafter  filed sued Travco for bad faith in the Philadelphia County Court of Common Pleas, arguing first  that insurer’s final settlement offer of $25,000 was inadequately low in light of the ultimate arbitration award, and second that Travco never notified the insured of the valuation increase.

Travco filed a motion for summary judgment, arguing that its offer and claims conduct were reasonable as a matter of law.  The Court agreed with the insurer, granted the motion and found Travco’s offer to be low but reasonable, and therefore not in bad faith.  The Court also found that Travco continued to reasonably evaluate information concerning the claim, and that offers of settlement which were made in the context of that information were not without basis.

Finally, the court ruled Travco had no obligation to increase its offer to $28,000.00 because the insured had unambiguously hewed to a policy limits demand, signaling no desire to negotiate.

Boleslavksy v. Travco Insurance Co., No. 151000886, 2017 Phila. Ct. Com. Pl. LEXIS 257 (Phila. C.C.P. Aug. 17, 2017) (Anders, J.)

Faulty Workmanship Not Occurrence, Travelers No Duty to Defend / Indemnify Real Estate Investment Companies, Federal Judge Rules

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PHILADELPHIA,  September 1 — A Pennsylvania federal judge granted summary judgment Travelers Insurance last week, ruling it had no duty to defend insured real estate developers who were sued for claims of defective community living infrastructure construction.

In the breach of contract suit over coverage (bad faith claims had been dismissed earlier in the case), U.S. District Judge Mitchell Goldberg said that no coverage existed under the applicable Travelers insurance policies because the defective workmanship issues were not “occurrences” under well-established Pennsylvania precedent.

The insured plaintiffs, Northridge Village LP and Hastings Investment Co. Inc., bought and subdivided lots in Chester County, Pa., subsequently selling them to a builder.   Northridge built roads, storm water and runoff  management and other infrastructure for the planned community.

The community  association alleged defects with the construction of roads, drainage ponds, utility boxes, and other items, later suing Northridge and Hastings in Pennsylvania state court in 2013.  Northridge and Hastings then sought defense and indemnity for the suits under a commercial general liability policy with a $1 million occurrence limit, $2 million aggregate limit and $2 million products-completed-operations aggregate limit, as well as excess coverage of $2 million.  When Travelers denied the claims, Northridge and Hastings brought a coverage and bad faith suit against Travelers  in 2015.

Judge Goldberg dismissed the coverage suit, relying on what he called well-settled precedent stemming from a 2006 case, Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006).  Judge Goldberg held that under Kvaerner, construction workmanship issues did not constitute “occurrences”‘ within the meaning of the CGL policies, as they were not accidental, fortuitous events which the instrument of insurance is designed to cover:

 “Courts in this circuit have consistently applied Kvaerner and held that claims based upon faulty workmanship do not amount to an ‘occurrence,’ and thus do not trigger an insurer’s duty to defend … The same conclusion has been reached in this circuit in cases where the faulty workmanship results in foreseeable damage to property other than the insured’s work product…Given the weight of Pennsylvania and Third Circuit precedent, I conclude that the term ‘occurrence’ in defendants’ CGL policies and excess policies does not include faulty workmanship. Further, the definition of ‘occurrence’ excludes negligence claims premised on faulty workmanship.”

Judge Goldberg further held that even if a duty to defend were potentially triggered, that was mooted by a ‘Real Estate Development Activities’ exclusion which also appeared in the applicable policies.

Northridge Village LP and Hastings Investment Co. Inc. v. Travelers Indemnity Co. of Connecticut et al., (E.D. Pa 2:15-cv-01947)(Goldberg., J.)

Attorney Client Privilege Waived In Bad Faith Case Despite No Advice of Counsel Defense, Federal Magistrate Rules

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HATTIESBURG, Aug. 15 — A federal magistrate judge in Mississippi has ruled Nationwide Insurance must produce documents and that the insurer’s former counsel must produce billing records in a bad faith case related to the handling of an uninsured/underinsured motorist’s claim, finding the insurer waived protections under the attorney-client privilege and the attorney work product doctrine, even though it did not formally assert the advice of counsel defense.

In Craig Flanagan, et al. v Nationwide Property and Casualty Insurance Company,  U.S. Magistrate Judge Michael T. Parker  found that while Nationwide did not formally assert the advice of counsel defense opening the door to prior counsel’s work product and communications, it did pick and choose certain potentially privileged documents to produce in  aid of  its defense in the case, thereby waiving attorney – client and work product protections.

Nationwide’s insured, Craig Flanagan was severely injured in a motor vehicle accident on  May 31, 2014 while driving a vehicle owned by owned by Flanagan Construction Co. and insured by Nationwide Property and Casualty Insurance Co.  The Nationwide Policy provided UM/UIM Coverage, out of which Nationwide paid  $1 million statutory limits for noneconomic damages and $1.5 million for the medical expenses.  After Nationwide failed to pay the remaining $4.15 million in remaining UM/UIM limits, Flanagan, his wife,  and Flanagan Construction sued Nationwide in the U.S. District Court for the Southern District of Mississippi. In the suit, the  Plaintiffs sought the remaining UM/UIM limits ,  and also alleged fad faith, for which they sought punitive damages.

During the course of the case the Plaintiff’s filed a motion to compel production of a number of Nationwide claims documents, including investigative documents, and the files of outside counsel, Bill McDonough of Copeland Cook Taylor and Bush, relating to the claims. The Plaintiffs also sought the billing records of McDonough and the Copeland firm,  which was retained initially by Nationwide  to investigate the claim, but was later retained to represent Nationwide in the UM/UIM claim as well.

In granting the motion to compel, Judge Parker wrote:

“Plaintiffs argue that Nationwide is relying upon the advice and actions of McDonough as a defense despite Nationwide’s insistence that it is not asserting an ‘advice of counsel’ defense.  According to Plaintiffs, ‘Nationwide has produced a number of communications between Nationwide and Copeland Cook in support of its defense to the bad faith allegations, but has chosen to cherry-pick which communications to produce in discovery and which communications to withhold on a claim of privilege.’ . . .  Plaintiffs also point to the fact Nationwide identified McDonough as a witness in its initial disclosures and point to Nationwide’s interrogatory response.”

Nationwide opposed the motion to compel,  and argued that did not plead advice of counsel.  It also argued that the documents it did produce showing communication between Nationwide and McDonough contained only “objective facts,” and neither legal advice nor attorney work product.

Judge Parker disagreed, however, writing:

“review of the documents produced by Nationwide . . . reveals that Nationwide did not simply disclose ‘objective facts’ as it alleges, but also disclosed McDonough’s opinions regarding Flanagan’s evidence supporting his loss of income claim, Flanagan’s ability to prove cognitive impairment, the need to hire experts, the benefits and risks involved in scheduling a medical examination, and the timeliness of Nationwide’s investigation and payment to Flanagan…

An insured cannot force an insurer to waive the protections of the attorney-client privilege merely by bringing a bad faith claim.  Nationwide’s prior production, however, has put at issue Nationwide’s confidential communications with McDonough.  Nationwide has voluntarily injected its counsel’s advice into this case by purposely disclosing, inter alia, its counsel’s opinion that Nationwide has not ‘unnecessarily delayed payment of [Flanagan’s] claim.  . . .

To allow Nationwide to use the attorney-client privilege to withhold additional information related to counsel’s advice ‘would be manifestly unfair’ to Plaintiffs.”

Judge Parker also  found that Nationwide’s disclosure of certain documents containing McDonough’s opinions and impressions constituted waiver of the work product doctrine as well, and ordered the documents to be produced.

Editor’s Note: The price of asserting the Advice of Counsel Defense in a bad faith case is always waiver of attorney – client privilege and the attorney work product doctrine.  The calculus of the costs and benefits of asserting the defense must therefore always  be done thoroughly and carefully.   Insurers and their lawyers must be mindful that there are many ways to assert Advice of Counsel, and few, if any, to try to put it back in to the bottle once it has been let out.  Formal assertion of the defense is but one way to waive the protections of   attorney – client privilege and the attorney work product doctrine.  The defense can be asserted by conduct as well, leading to inadvertent waivers of privilege and work product protection. 

Craig Flanagan, et al. v Nationwide Property and Casualty Insurance Company, No. 2:17-cv-33-KS-MTP, S.D. Miss., Eastern Div., 2017 U.S. Dist. LEXIS 123204

Pa. Federal Judge Says Amended Complaint Sufficiently Alleges GEICO Attempted To Avoid UIM Claim In Bad Faith

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LANCASTER, July 11 –  A Federal District Judge has ruled that an amended complaint sufficiently alleges that GEICO sought to avoid a UIM claim in bad faith on grounds that the vehicle in question was not added to the subject policy.  In Reidi v. Geico Casualty Co., U.S. Middle District Judge Lawrence Stengel found that the insureds sufficiently alleged Geico failed to follow its own policy language guaranteeing coverage for new vehicles if they were reported to the company within 30 days of acquisition.

After granting Plaintiff’s leave to file an amended complaint following a motion to dismiss which Geico filed to the original complaint, the Judge held that the newer pleading sufficiently alleged breach of contract and bad faith.

After purchasing a new car, Ms. Reidi and her son were involved in an accident with an uninsured motor vehicle. The insureds made a claim for UIM benefits to Geico, which denied the claim because the  the newly purchased car was not listed an insured vehicle at the time of the accident. Ms. Reidi brought suit against Geico including claims for breach of contract and statutory bad faith.

In the amended complaint, the insureds attached their automobile policy which assured coverage  to plaintiffs “as long as they request a car be added to the policy within 30 days of acquiring the car.”

Judge Stengel found that reference to the specific policy language re newly acquired vehicles was sufficient allegation of bad faith.  He wrote, “an insurance company ignoring its costumer’s claim in the face of its own policy language clearly guaranteeing coverage for the very claim at issue certainly forms the basis for a bad faith claim.”

Editor’s Note:  This particular fact pattern provides very unfavorable optics for the insurer, and can easily, in the hands of competent plaintiff’s bad faith counsel, be made to look as if the insurer was attempting to use a technicality to avoid its coverage obligation — a technicality that its own policy took care of with the after-acquired vehicle provision.

Reidi v. Geico Cas. Co.CIVIL ACTION NO. 16-6139 (E.D. Pa. Jul. 11, 2017)