Category: Pennsylvania

Insured’s Claims Conduct Dooms Bad Faith Claim, Federal Judge Rules

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SCRANTON, May 30 – In Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017), U.S. District Judge Richard Conaboy dismissed the plaintiff’s bad faith case, finding that the insured, who was already paid nearly $350,000 for a fire property loss by State Farm, delayed and frustrated a disputed additional payment amount.

The parties disputed that the insured was entitled to more than $17,000 in landscaping charges.  The insurer had already paid $347,000 for other property loss.  And while the contract dispute over the landscaping fees was not resolved at summary judgment, the bad faith claim made by the insured was dismissed, Judge Conaboy finding it unthinkable” on the facts that a jury could find State Farm acted in bad faith.

The Court ruled that the issue of delay could be analyzed first by a review of the insuring agreement itself.  Judge Conaboy found that the policy placed a duty on the insured to advance his claim by providing information supporting the claim.  The insured in this case, the Court observed, delayed production of supporting documentation for over a year:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that ‘the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.’ Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. ‘The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith,’  citing J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004)…. In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)

 

 

Insurer’s Failure To Obtain Stacking Waiver On Added Vehicle Results In Stacked Benefits, Pa. Judge Rules

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STROUDSBURG, May 30 –  A Pennsylvania state court judge has decided that a driver was entitled to $400,000 in stacked coverage because the driver did not sign stacking waivers when adding the most recent vehicles to his policy.

In Newhook v. Erie Ins. Exchange, Monroe County Court of Common Pleas Judge David J. Williamson granted declaratory relief sought by  Kenneth Newhook when he filed a complaint against Erie seeking entitlement  to the stacked coverage.   Newhook was involved in a rear end accident when he was struck by a drunk driver, and he alleged he sustained severe injuries in the collision.

Erie paid $100,000 in single-vehicle coverage but denied Newhook’s claim for $300,000 in additional stacking benefits based on 3 other vehicles listed on the policy.  Newhook neither selected nor waived stacking  when adding the most recent vehicles, Williamson noted in his opinion.

Williamson declined to follow Erie’s argument that it had no duty to obtain new stacking waivers for the recently added vehicles after the insured initially declined stacking on the former vehicles:

“It appears that the existing case law varies regarding availability of stacked UM/UIM coverage when it is not selected by an insured, but also not specifically waived in writing…From a pure public policy standpoint, and in conformity with the intent of Section 1738 of the [Motor Vehicle Financial Responsibility Law], it would seem that when more benefits are available, a written waiver of those benefits should be given…Clearly, a significant change was made when the Ford Fusion was added to the policy. No stop-gap insurance was needed because Erie was informed and issued a new declaration and also renewed the insurance policy prior to the accident. No new waiver was executed.”

Williamson ruled in favor of stacking despite the fact that the vehicle in the accident, a Ford Fusion, was a replacement for an automobile on which stacking had originally been rejected.  The judge ruled that acquisition of the new cars was akin to the purchase of a new vehicle, on which a stacking waiver would be required.

A link to the opinion appears below.

Newhook v. Erie Ins. Exchange (Monroe C.P., May 30, 2017)(Williamson, J.)

Judge Rules IME Policy Provision May Violate Pa. Motor Vehicle Law

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SCRANTON, May 15  — A Pennsylvania federal judge  dismissed  bad faith and other claims against Allstate Insurance Co.  in a class action, but permitted claims brought under the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL)  by a woman injured in a car accident.

In Sayles v. Allstate Insurance Co., No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760),  Sayles filed suit after the company denied her claim for medical benefits for injuries she sustained following an automobile accident.  According to Sayles, Allstate denied her claim  because she did not first obtain a physical examination, as required in the insuring agreement.  The suit, originally filed against Allstate in Pike County,  was removed to federal Court.

Sayles claimed Allstate’s policy requirement of a mandatory medical examination violated provisions of the MVFRL which permit medical examinations by court order.  She also advanced claims under the Unfair Trade Practices and Consumer Protection Law, and for bad faith under 42 Pa,C.S.A. section 8371.  Sayles also sought class certification for Allstate policyholders denied medical benefits where Allstate had not first obtained a court-ordered physical examination

Allstate moved to dismiss all claims relating to its policy’s examination requirement, which permits it to require  insureds to undergo an independent medical examination (IME) by a physician of Allstate’s choosing as a condition precedent to payment of medical expenses.  Allstate claimed the provision was enforceable notwithstanding Section 1796 of the MVFRL, because Section 1796 relating to court-ordered IME’s  was permissive in nature, not mandatory.

U.S. Middle District Judge Richard Caputo granted the motion to dismiss as to the bad faith claims, but denied the motion regarding Sayles’ claims that the policy provision requiring IME’s violated the MVFRL:

“[T]he Court predicts that the Pennsylvania Supreme Court would find Allstate’s examination requirement, as alleged, in conflict with § 1796 of the MVFRL and thus void as against public policy.  The examination requirement conflicts with the plain language of the statute and is inconsistent with the twin purposes of § 1796.  Moreover, the Court is not persuaded by the ‘implication’ of the Superior Court’s decision in Fleming and, consequently, departs from the conclusion reached by the district court in Williams.  Instead, the Court finds it appropriate to rely on the opinion of the district court in Scott, as well as the opinions of Judge [R. Stanton] Wettick [Jr.] in Erie and Hoch.  Additionally, the Court finds the analogous case law from the Commonwealth of Kentucky addressing a similar statutory provision under similar factual circumstances compelling.  Accordingly, in light of the above discussion, Allstate’s Motion to Dismiss will be denied with respect to Counts I and II of Sayles’s Complaint.”

In dismissing both statutory and common law bad faith claims against Allstate, Judge Caputo recognized that the law regarding mandatory IME’s in Pennsylvania was not fully settled, and that Allstate was not unreasonable in relying on some lower court precedent which had approved of similar mandatory examination provisions.  He wrote, therefore:

“It was reasonable for Allstate to rely on [precedent] which supported Allstate’s decision to deny Sayles’s medical benefits based on her failure to submit to an IME per the terms of the Policy.  Because Sayles’s bad faith claim is predicated entirely on the examination requirement, the Court finds that the Complaint alleges only that Allstate made a ‘reasonable legal conclusion based on an area of the law that is uncertain or in flux.’ . . .  Accordingly, the Court will grant Allstate’s Motion to Dismiss with respect to Count IV of Sayles’s Complaint.”

The judge also dismissed Sayles’ claims for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, unjust enrichment and intentional misrepresentation.

Sayles v. Allstate, No. 16-1534, M.D. Pa., 2017 U.S. Dist. LEXIS 71760) (Caputo, J.)

 

Pa. Judge: Bad Faith Case Severed, Jury To Hear Common Law Bad Faith Claims

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Pennsylvania’s  Westmoreland County Court of Common Pleas has denied a motion to stay of discovery in a  bad faith case pending completion of a UIM case, but has also ordered severance of trial of the bad faith claims under which common law bad faith claims will be tried by a jury, and statutory bad faith claims will be tried by the judge.

In Madeja v. State Farm Mutual Automobile Ins. Co., No. 5493 of 2016 (C.P. Westmoreland Co. April 11, 2017 Scherer, J.), the plaintiffs advanced both common law bad faith claims and statutory bad faith claims,  The trial court ordered those claims severed from the underlying UIM claim.  In a bit of a quirk, however, the court ruled that depending on the verdict returned on the UIM claim,  the common law bad faith claims would be heard with the same jury that determined the UIM claim while the court would hear the statutory bad faith claim on a non-jury basis.

A copy of the trial court order can be found here.

Editor’s note:  The trial court order in this case points out the somewhat unique nature of bad faith law in Pennsylvania — it is a two-headed creature with both a common law component and a statutory law component.  In this writer’s experience, trials of both statutory and common law bad faith claims is not the norm — statutory bad faith claims are usually singly tried to the bench in state court.  The court order in question sets up for a potentially unruly and cumbersome bad faith trail, given the likelihood of overlapping evidence presented on the common law and statutory bad faith claims.   The Court might streamline the process by simply taking evidence in a single bad faith proceeding, and then letting the jury render a verdict on the common law claims, with the Court issuing a decision on the statutory bad faith claims. 

The ruling could serve as an incentive to the plaintiffs’ bar to not only plead common law bad faith claims, but seek trial of those claims in an effort to work around what has traditionally been the province of the trial judge in bad faith cases. 

 

 

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Pa. Supreme Court Update: Is Ill Will A Required Element of Bad Faith?

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PITTSBURGH, April 4  — This week, the  Pennsylvania Supreme Court heard oral argument on whether intentional ill will or malice was a required element to make out a claim for insurance bad faith in Pennsylvania, exposing insurers to punitive damages.

In Rancosky v. Conseco, the Pa. Superior court reversed a trial court ruling in favor of an insurer on bad faith claims following a bench trial.  The Superior Court held that the insurer  did not have a reasonable basis to deny benefits to LeAnn Rancosky following her diagnosis of ovarian cancer in 2003.  The intermediate appeals court relied on its 1994 ruling in Terletsky v. Prudential, and held that while it was a consideration, ill will and malice was not a stand-alone requirement to establish insurer bad faith.

Ms. Rancosky and her husband sued Conseco in the Washington County Court of Common Pleas in 2008,  and eventually won a $31,000 jury verdict on breach-of-contract claims.  Conseco prevailed, however, on the bad faith claims.

During argument this week, Conseco argued to the state Supreme  Court  that Pennsylvania’s bad faith statute does not contemplate punitive damage awards against carriers without evidence of a malicious motive.  In response, Rancosky’s estate argued that proving ill will was exceptionally difficult, and that making bad motive a requisite element would allow insurers to handle claims recklessly and carelessly without fear of penalty.

Law360.com reported that during argument earlier this week,  Justice Max Baer saw the appeal of Rancosky’s arguments, stating “It’s hard to prove that kind of motive, and if you’re going to hold the insured to that burden then you tend to put the rabbit in the hat and the insurance company wins because they say, ‘We’re the most incompetent organization in the world. We were dead wrong, but we had no motive of ill will.’”

A ruling is anticipated later this year.

Editor’s note:  Justice Baer’s comments during oral argument this week are emblematic of a trending misconception that the Pa. Bad Faith Statute created anything beyond an intentional tort cause of action.  There is a large body of case law in both Pa. state and federal courts holding that mere negligence is not bad faith, and that an insurer has the legal right to be wrong on claims decisions, as long as the decision can be supported by a reasonable basis. 

There should be no real dispute that reasonable but negligenct claims decisions are not actionable, and that intentionally malicious claims decisions are actionable , under the bad faith statute.  The  current battleground in Pennsylvania appears to be the class of claims decisions which lie in the twilight between these two signposts, i.e., claims decisions made recklessly, and wanton disregard to the insured’s rights.   Rancosky is an attempt to find clarity in this twilight.

 

 

No Bad Faith Claim Where UIM Claim Not Covered Under Antique Auto Policy

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PITTSBURGH, March 13 – U.S. District Magistrate Judge Cynthia Reed Eddy has dismissed both a bad faith and breach of contract claim against an issuer  of an antique auto policy where the alleged injury occurred in a vehicle not covered under the UM/UIM portion of the policy.

Bish v. Am. Collectors Insurance, Inc., et. al., (W.D. Pa., March 13, 2017)(Eddy, U.S.D.M.J.)

Disagreement Over ACV Estimate Insufficient To Support Bad Faith Claim, Judge Rules

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PITTSBURGH, March 2  —  An ACV basis estimate upon which a homeowners’ claims offer was made by State Farm Insurance  did not lack a reasonable basis, a federal judge ruled in dismissing the homeowners bad faith claim.  In Randy Gowton v. State Farm Fire and Casualty Co., U.S. District Judge Cathy Bissoon dismissed Gowton’s bad faith claim against State Farm, finding that the  insured  failed to show that his insurer’s offer to settle “was not supported by a thorough and even-handed investigation.”

Gowton sustained damage to his home in a fire, and submitted an estimate from his contractor to State Farm for a replacement cost benefit of $293,911.80.  After performing its own inspection, State Farm offered just $112,694.50, based on a replacement cost estimate of $187,874.50, less  depreciation of $75,180.15.  Gowton’s policy was payable on an “actual cash value benefits” basis.

Gowton sued State Farm in the Fayette County Court of Common Pleas, and after removing the case to federal court, State Farm moved to dismiss the bad faith count.  A breach of contract count had previously been dismissed by Judge Bissoon on statute of limitations grounds.

Judge Bissoon held that mere disagreement on the value of a claim following a reasonable investigation could not support a claim for bad faith:

“Gowton has failed to allege any facts to suggest that State Farm’s settlement offer lacked a reasonable basis or was not supported by a thorough and even-handed investigation… Significantly, Gowton’s response brief reiterates that he is not alleging that State Farm was dilatory, failed to communicate, performed an unsatisfactory or biased investigation or unreasonably delayed in considering his claim.  Rather, Gowton simply alleges that State Farm’s estimate was per se unreasonable for no other reason than that it differed from his own.. In the absence of any supporting facts from which it might be inferred that the company’s investigation was biased or unreasonable, this type of disagreement in an insurance case is ‘not unusual,’ and ‘cannot, without more, amount to bad faith.”

“This conclusion is bolstered by an examination of the exhibits referenced throughout Gowton’s Amended Complaint.  State Farm performed an initial inspection of the property only two days after the damage occurred and provided a detailed, 38-page estimate within a month thereafter.  State Farm’s estimate contains a room-by-room assessment of the damage; detailed measurements; design drawings; materials analysis; and line by line estimates of the cost and depreciation of the construction materials necessary to rebuild the home.  This is precisely the type of thorough and adequate investigation that vitiates a claim of bad faith.”

Randy Gowton v. State Farm Fire and Casualty Co., et al., No. 15-1164, W.D. Pa., 2017 U.S. Dist. LEXIS 29390 (Bissoon, J.)

UM/UIM Rejection Form Need Not Comply Verbatim With Statute, State High Court Rules

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HARRISBURG, Feb.22 – In a 5-2 decision, the Pennsylvania Supreme Court ruled that a UM/UIM rejection form which did not comply verbatim with the statutory requirements for rejection was valid, finding the differences between the form and the statutorily required language “inconsequential.”

In Ford v. Am. States,  the Plaintiff rejected UM/UIM coverage in her auto policy by signing a form which, according to the opinion, was identical to the statutorily required waiver in 75 Pa.C.S.A. sec. 1731 except for the following:  1.) the form referenced “motorists” instead of “motorist” in its title line and first sentence, and 2.) it injected the word “motorists” between  Underinsured” and “coverage” in the second sentence.

The American States form read, therefore, as follows:

REJECTION OF UNDERINSURED MOTORISTS PROTECTION

By signing this waiver I am rejecting underinsured motorists coverage under this policy, for myself and all relatives residing in my household. Underinsured motorists coverage protects me and relatives living in my household for losses and damages suffered if injury is caused by the negligence of a driver who does not have enough insurance to pay for all losses and damages. I knowingly and voluntarily reject this coverage.

In affirming summary judgment in favor of American States, Justice Max Baer rejected Ford’s argument that the form she signed violated Section 1731, and cited to Robinson V. Travelers Indemnity Co., 520 Fed. Appx. 85 (3d Cir. 2013).  In Robinson, the identical language used by American States was found to be in compliance with the Pa.M.V.F.R.L.:

“the Third Circuit observed that the MVFRL does not define the phrase “specifically comply” and that courts have not been uniform in their treatment of UIM coverage rejection forms that add language to the statutory form. Robinson, 520 Fed.Appx. at 88. As to the specific circumstances in the case, the court reasoned that the addition of the word “motorists” into the rejection form did not introduce any ambiguity and, in fact, made the form consistent with the rest of the MVFRL. Id. While the court opined that it is a better practice for  insurance companies not to supplement the statutory language of the MVFRL’s rejection form, the court nonetheless concluded that the insurer’s rejection form was valid because: it included the entirety of the statutory text; the addition of the word “motorists” did not introduce ambiguity into the form and did not alter the scope of the coverage.”. .  when a UIM rejection form differs from the statutory form in an inconsequential manner, the form will be construed to specifically comply with Section 1731 of the MVFRL.”

Justice Baer did caution, however, that the safer practice for insurers was to replicate the statutory language to avoid any question of non-compliance of UM/UIM rejection forms.

Ford. v. American States Ins. Co. (Pa., Feb. 22, 2017) (Baer, J.)

Claims Delay Not Unreasonable, In Bad Faith, Judge Rules

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SCRANTON, Pa., Jan. 31 — An auto insurer did not unreasonably delay processing of a claim, a Pennsylvania federal judge has ruled.   In Thomas and Colleen Meyers v. Protective Insurance Co., No. 16-1821, M.D. Pa., 2017 U.S. Dist. LEXIS 11338, a delay in the payment of an auto claim at issue in the case was found not so unreasonable as to constitute bad faith.

Thomas Meyers was insured by a hit-and-run vehicle while working as a delivery man on  Jan. 21, 2014.  He filed a claim alleging serious injury  with  Protective Insurance Co.,  for uninured/underinsured motorist benefits on April 23, 2014.  Meyers sought medical expenses and wage loss of more than $120,000.00 on Feb. 1, 2006.  He claims to have received no response from Progressive for more than three months.

On May 26, 2016, Meyers rejected a settlement offer from Protective in the amount of $225,000 .  Meyers later rejected an increased offer, and Protective hired counsel requesting additional time to review the claim.  Protective’s counsel required Meyers to complete four medical evaluations.

Meyers sued the Protective in the Lackawanna County, Pa., Court of Common Pleas, stating claims for breach of contract, common law, and  statutory bad faith pursuant to 42 Pa. C.S. §8371.  Protective removed the action to the U.S. District Court for the Middle District of Pennsylvania and moved to dismiss all claims including breach  of “fiduciary duty,” bad faith and a loss of consortium claim.

Judge A. Richard Caputo dismissed all fiduciary claims, holding, “[u]nder Pennsylvania law, an insurer owes a duty of good faith and fair dealing toward their insureds.  It is well-established, however, that there is no fiduciary duty owed to an insured in the context of an underinsured/uninsured motorist benefits.”

Judge Caputo also rejected the bad faith claims, including allegations that Protective’s failure to communicate constituted bad faith, finding such claims unsupported.  The judge found  that the insurer contacted the Meyerses four times requesting information and/or providing updates on the investigation between March 9, 2016, and May 24, 2016:

“Moreover, after the first settlement offer was rejected by Plaintiffs, Defendant, within only one week, proposed a new, higher, settlement offer.  Although Defendant often did not immediately respond to Plaintiffs’ communications, an allegation of ‘failure’ to communicate is inconsistent with reality.  Defendant’s communications may be described as tardy, but I cannot impute bad faith or even unreasonable delay, especially in light of the fact that Defendant made a settlement offer within three-and-a-half months after receiving Plaintiffs’ estimate of damages.  Although ‘[d]elay is a relevant factor in determining whether bad faith had occurred,’ [Kosierowski v. Allstate Ins. Co., 51 F.2d 583, 588 (E.D.Pa.1999)], I am unable to find precedent supporting the proposition that an insurance company’s investigation of a claim lasting three-and-a-half months is unreasonably lengthy. . . “[t]here is also no evidence that Defendant failed to objectively and fairly evaluate Plaintiffs’ claims, or that the settlement offer was so inadequate as to constitute bad faith.”

Judge Caputo also did not find Protective’s settlement offers unreasonably low:

“First, given that the damages package provided by Plaintiffs included a ‘medical lien and wage loss documentation in an amount in excess of $122,000,’ a settlement offer that is higher by nearly $100,000 than the proposed damages package is not unreasonable, and ‘bad faith is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages.’  Secondly, Plaintiffs’ assertion of a verdict potential is an opinion as to the value of their claim, not an objective measure of it, and because such an assertion is nothing more than a legal conclusion, it must be disregarded.  Simply put, Plaintiffs’ subjective belief as to the verdict potential of their claims cannot constitute evidence of bad faith on the part of Defendant because Defendant’s subjective belief as to the value of the claim may reasonably, and permissibly, differ.”

The judge granted Protective’s 12(b)(6) motion, and gave the Plaintiffs 21 days to amend their complaint.

Thomas and Colleen Meyers v. Protective Insurance Co., No. 16-1821, M.D. Pa., 2017 U.S. Dist. LEXIS 11338