COURT FINDS LOW OFFER IN FACE OF VERIFIED LOSSES SUFFICIENT TO STATE A BAD FAITH CLAIM (Middle District)

Middle District Magistrate Judge Carlson’s Report and Recommendation, adopted by Judge Mariani, provides a lucid and detailed overview of the case law governing pleading standards in statutory bad faith cases. A copy of that R&R can be found here.

In this UIM case, Magistrate Judge Carlson found the insured pleaded enough to survive a motion to dismiss the bad faith claim, though it was a close case. He states:

“In reaching this conclusion, we find that [the] complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute. Rather, as we construe the complaint, it describes a scenario in which the plaintiff … suffered injuries that led to a confirmed and verifiable wage loss and out-of-pocket medical expense totaling $31,773.70. [The insured] recovered $30,000 from the under-insured motorist’s insurance carrier, but when he submitted proof of his losses to his own insurer … he was offered only $1,500, a sum which, when combined with the $30,000 payment from the tortfeasor’s insurance company, still fell below his verified wage and out-of-pocket medical expenses.”

[Note: Although the discrepancy between the fixed damage claim and total insurance payments received and offered is only $223.70, in addition to the wage loss and medical expenses the insured pleaded “significant injuries to multiple levels of his neck and back which caused or aggravated herniated discs and required multiple pain injections.”]

Magistrate Judge Carlson continues:

“In our view, these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim. Rather, they allege a failure to pay the full, verified value of the insured’s claim. On this score, we recognize that a bad faith denial of an insurance claim may constitute a violation of § 8371, but in this setting, [i]n order to show bad faith, a claimant must ultimately establish by clear and convincing evidence both that: 1) the insurer lacked a reasonable basis for denying benefits; and 2) the insurer knew or recklessly disregarded its lack of reasonable basis.” (Internal quotation marks omitted)

“While this is an exacting burden of proof, these bad faith determinations are often fact-bound decisions that are not amenable to resolution on the pleadings alone. Instead, [i]n deciding whether an insurer had a reasonable basis for denying benefits, a court should examine what factors the insurer considered in evaluating a claim. ‘Bad faith claims are fact specific and depend on the conduct of the insurer vis à vis the insured.” (Internal quotation marks omitted)

“Thus, while [the insurer] vigorously disputes these averments of bad faith and argues that the facts alleged by the plaintiffs support a prudent effort on its part to thoroughly examine and resolve a potentially meritless claim, this argument invites us to go beyond the pleadings themselves and resolve essentially factual questions. This is a task which, in our view, may not be performed on consideration of a motion to dismiss, where we must simply assess the adequacy of the pleadings. Accordingly, we should decline this invitation to resolve this bad faith claim as a matter of law on the pleadings but deny this motion without prejudice to renewal of any summary judgment motion at the close of discovery.”

Dates of Decision: December 8, 2020 (Report and Recommendation), December 23, 2020 (Order Adopting Report and Recommendation)

Mertz v. Mid-Century Insurance Company, U.S. District Court for the Middle District of Pennsylvania No. 3:20-CV-690, 2020 WL 7647959 (M.D. Pa. Dec. 8, 2020) (Carlson, M.J.) (Report and Recommendation), adopted on December 23, 2020 (Mariani, J.)