OCTOBER 2016 BAD FAITH CASES: COURT APPLIES PENNSYLVANIA SUPREME COURT DECISION IN TOY TO LIMIT SCOPE OF STATUTORY BAD FAITH CLAIMS, WHILE STILL FINDING A CLAIM HAD BEEN STATED (Middle District)
This is one of the seemingly rare cases since 2007 recognizing that the Pennsylvania Supreme Court’s decision in Toy V. Metropolitan Life exists and is controlling case law. This will be discussed in more detail below.
In this case, the insured alleged he purchased a death and dismemberment policy that required no medical questions or examinations to obtain coverage. The insured alleged that he was a Type I diabetic and was injured in an accident resulting in an amputation due to infection. The carrier denied coverage, with issue apparently being whether the amputation was the result of his fall or his diabetes. The insured sued for breach of contract and bad faith.
After allowing the breach of contract claim to proceed, the court addressed the insurer’s motion to dismiss the bad faith claim. In carrying out its Rule 12(b)(6) analysis, the court disregarded the plaintiff’s conclusory allegations, focusing only on the factual pleadings, which it found adequate to allow the case to proceed. Specifically, the plaintiff pleaded that the carrier “1) … failed to conduct a proper investigation of the claim as evidenced by the fact that [it] failed to obtain [the insured’s] podiatric and family physician records; 2) [it] inaccurately denied [the] claim based upon his death and not the loss of his limb; 3) [it] made a finding that [the insured] suffered from Type II diabetes when he actually suffered from Type I diabetes; 4) [it] made a finding that [the insured] had previously had a toe amputated due to his diabetes, a fact that [the insured] alleges is not correct; 5) [it] relied only on medical records that supported [the insurer’s] decision to deny coverage and ignored medical records that did not support denial; 6) and [it] referred to [the insured] as Robert … instead of Ronald ….”
The Court did find, however, that the insured could not bring statutory bad faith claims based upon violations of Pennsylvania’s Unfair Insurance Practices Act (UIPA). In doing so, it recognized the fundamental place the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life holds in bad faith case law. The decision will be quoted at length below.
The District Court itself stated:
“Each party cites a case in support of its argument. Hartford cites Toy v. Metropolitan Life Insurance Company, in which the court held that a plaintiff may not recover under § 8371 against an insurer who engages in unfair or deceptive practices in soliciting the purchase of an insurance policy. Mr. Long cites Hayes v. Harleysville Mutual Insurance Company, for the contention that ‘an insurer may be liable for bad faith conduct if the insurer has violated the [UIPA].'”
The holding in Toy, however, is controlling in this case. Toy was decided by the Supreme Court of Pennsylvania, whereas Hayes was decided four years earlier by the Superior Court of Pennsylvania. Furthermore, in Toy, the Pennsylvania Supreme Court engaged in a thorough review of the legislative and common law history of § 8371 and that of other states with similar provisions. In doing so, it explained [quoting two paragraphs from Toy]:
Presently, Toy adopts the trial court’s perspective, arguing that the Legislature did not articulate the reach of a bad faith claim under § 8371, and intended the statute to remedy any act that is prohibited to insurers under Pennsylvania’s common or statutory law. Thus, Toy argues, if an insured alleges that an insurer violated a provision of the UIPA, as she has, the insured necessarily states a bad faith claim under § 8371.
We disagree. In 1990, at the time that the General Assembly enacted § 8371 to provide a remedy to an insured when his insurer “‘acted in bad faith toward [him],’ the term ‘bad faith’ had acquired a ‘peculiar and appropriate meaning’ in this context.” When we incorporate that meaning into § 8371, as the Act instructs, and also consider that § 8371 speaks to an action “arising under an insurance policy,” and grants an award based on the “amount of the claim from the date the claim was made by the insured,” we need go no further than the words of the statute to ascertain that the Legislature did not intend to provide Toy with a remedy under § 8371 for the deceptive or unfair practices in which she alleges Metropolitan engaged in soliciting her purchase of the Policy.”
The District Court then concluded that the section 8371 bad faith claim “must be dismissed, with prejudice, to the extent that it rests on violations of the UIPA.”
