OCTOBER 2015 BAD FAITH CASES: IF TERLETSKY STANDARDS COULD BE MET, BAD FAITH CLAIMS CAN BE PURSUED FOR: (1) WITHHOLDING PAYMENTS, EVEN WHEN PARTIAL PAYMENTS ARE MADE; (2) FAILURE TO INVESTIGATE; AND (3) ABSENCE OF REASONABLE EXPLANATION. A COURT MAY CONSIDER UIPA VIOLATIONS, AND INSURED NEED NOT PROVE ILL-WILL (Philadelphia Federal)

In Scott v. Foremost Insurance Company, Judge Baylson was called upon again to address statutory bad faith claims in the claims handling process.

The insureds complaint alleged that their homes suffered damages from an electrical surge. Their public adjuster estimated damages well in excess of $300,000 to the home and appliances, which the insureds claimed were covered. They allege the insurer’s representative told them the insurer would cover the claim if they provided three estimates. They did so, and the insurer offered approximately 1/3 of the estimates. They allege their public adjuster assessed the entire loss, which the insurer disputed without providing a reasonable explanation.

The insurer did send an investigator. The insureds alleged that this investigator conducted no actual investigation however, and falsely accused the insureds of falsifying their damages on the basis that the damage was caused by lightning, rather than a power surge.

Initially the insurer relied upon this inspector to deny the claim. The insureds alleged that three months later, the insurer did agree they suffered a loss, and the insureds demanded certain remedial work; but they claim charges were improperly placed on them for this work, instead of the insurer, causing them extreme financial distress.

The court found a bad faith claim was stated, on the basis that withholding payments absent a reasonable basis, with intent or reckless disregard, can constitute bad faith. The insureds alleged no reasonable explanation was offered in disputing their estimates, and that there was a failure to conduct any investigation. Further, a bad faith plaintiff need not prove ill-will. Nor does making partial payment preclude a statutory bad faith claim.

Finally, this federal court apparently accepted the argument that it is not improper to rely upon violations of the Unfair Insurance Practices Act (UIPA) in supporting a bad faith claim, citing Bombar v. West American Insurance Company. By contrast, some federal cases appear to hold that reference to the UIPA cannot be used as the basis for a bad faith claim. In a recent decision, posted yesterday, Magistrate Judge Mitchell in the Western District noted the split in authority on reference to the UIPA. Date of Decision: September 30, 2015

Scott v. Foremost Ins. Co., CIVIL ACTION NO. 15-3257, 2015 U.S. Dist. LEXIS 133698 (E.D. Pa. September 30, 2015) (Baylson, J.)