AUGUST 2007 BAD FAITH CASES NO RELIEF UNDER BAD FAITH STATUTE FOR AN INSURED ALLEGING THAT AN INSURER IMPROPERLY SOLICITED PURCHASE OF THE POLICY (Pennsylvania Supreme Court)

In Toy v. Metropolitan Life Insurance Company, the Pennsylvania Supreme Court considered whether a bad faith action, within the meaning of the Bad Faith Statute (§8371), may be premised on allegations that an insurer engaged in bad faith conduct in soliciting the insured to purchase an insurance policy.  Toy, the Plaintiff, in preparation for her retirement, met with Defendant Martini to discuss a 50/50 Savings Plan that Defendant Metropolitan Life offered.  Martini represented to Toy that the plan was a savings vehicle by which she would generate a fund of $100,000 by 65 if she make monthly payments of $50.  Martini also informed Toy that life insurance was part of the plan.  Toy received a Metropolitan policy of insurance which stated that Metropolitan would pay $31,544 and the other benefits of the policy when Toy died.  The policy also set forth a guaranteed cash value at age 65 of $11,008.86 based on a guaranteed interested rate of 4% a year.  Toy only looked at the cover sheet.  She eventually paid $1,400 in premiums, but stopped making payments when she learned of a Florida class action pending against Metropolitan. 

Toy’s Complaint alleged that Defendants undertook a marketing scheme to disguise the true nature of the policy and misrepresent it to be a savings vehicle, that the misrepresentations caused her to believe she was investing in a savings plan and caused her to purchase life insurance she did not want.  In addition, she was prevented from securing the type of retirement product she needed and Defendants engaged in this practice for their own benefit as administrative fees associated with life insurance were higher.  Toy alleged claims under the Consumer Protection Law and a claim for bad faith under §8371 against Metropolitan. 

After Toy’s case was initiated, a state trial court issued a ruling in Inhat v. Pover, 35 Pa.D&C.4^th 120 (C.C.P. Allegheny 1997), which held that bad faith under §8371 was not limited to allegations that an insurer refused to cover claims, but could be founded on allegations that an insurer did not satisfy a duty that the law imposed upon it in its relationship with its insured.  The Inhat decision relied on the fact that in enacting §8371, the Legislature was creating a comprehensive remedy for fraudulent conduct.  The trial court in Toy applied the ruling in Inhat as to the elements of fraud.  Metropolitan moved for summary judgment arguing that because justifiable reliance is an element of common law fraud, it followed from the court’s construction of §8371 that justifiable reliance was an element of a bad faith claim.  Metropolitan also argued that the bad faith statute is limited to a claim that insurer failed to provide an insured with the benefits or coverages that his insurance policy provide.  The trial court granted Metropolitan’s motion for summary judgment in light of its construction of §8371 in Inhat and held that  justifiable reliance was an element of Toy’s bad faith claim.  Because Toy was unable to prove that she justifiably relied on the alleged misrepresentations, summary judgment was granted.    

Toy appealed to the Superior Court, which affirmed the trial court’s order as to Toy’s §8371 claim.  The Superior Court, however, did not discuss the basis of the trial court’s decision.  Instead, it held that that the requisite elements of a bad faith claim are that the insurer refused to provide benefits and knew or recklessly disregarded that it lacked a reasonable basis for the refusal.  Since Toy’s claim did not include those elements, the Superior Court upheld the dismissal of Toy’s claims on other grounds.  The Supreme Court granted Toy’s petition for allowance of appeal, but limited review to whether the Superior Court’s decision that a claim under §8371 is limited to the unreasonable refusal by an insurance company to pay a valid claim conflicts with Pennsylvania law. 

In determining this issue, the Supreme Court held that because §8371 speaks to an action “arising under an insurance policy”, the Legislature did not intend to provide a remedy under §8371 for bad faith practices in soliciting the purchase of a policy.  Based on the clear and explicit words of the statute, the Legislature did not intend to give relief under the bad faith statute to an insured who alleges that her insurer engaged in bad faith practices in soliciting the purchase of a policy.   

Date of Decision:  July 18, 2007

Toy v. Metropolitan Life Insurance Company, Supreme Court of Pennsylvania, Nos. 33 and 34 WAP 2005, 2007 Pa. LEXIS 1463 (Pa. July 18, 2007) (Cappy, J.), corrected on August 1, 2007, 928 A.2d 186 (Pa. 2007).