NOVEMBER 2012 BAD FAITH CASES: INSURED ADDUCES DISPUTED FACT WITH REPSECT TO CARRIER’S ALLEGED BAD FAITH TRAINING OF CLAIMS ADJUSTER AND PROVIDING IMPROPER STANDARD TO INDEPENDENT MEDICAL ADJUSTER; COURT ALLOWS FOR EMOTIONAL DISTRESS DAMAGES POTENTIAL IN CONTRACTUAL BAD FAITH SETTING (Western District)

In Smith v. Allstate Ins. Co., the court head a carrier’s summary judgment motion stemming from its insured’s claims for contractual bad faith and statutory bad faith. The dispute arose from the carrier’s denial of an underinsured motorist claim (UIM) made by the insured after she was severely injured in an automobile accident. The carrier originally denied UIM coverage and the coverage issue went to arbitration, where the insured was awarded $135,000. the insured filed suit in state court for bad faith. The carrier removed to federal court and filed this motion for summary judgment.

First, the court examined the carrier’s motion contesting the insured’s contractual first party bad faith claim. The carrier argued that, when a carrier pays an insurance claim pursuant to an arbitration award, an insured is not permitted to assert a breach of contract claim arising from the carrier’s alleged bad faith claims handling. However, the court disagreed, noting that, although an insured may not make a claim for breach of contract damages, it may still maintain an action for the carrier’s breach of a contractual duty of good faith. The court accepted that contractual bad faith claims could be brought in first party cases.

As such, the court concluded that the arbitration award did not preclude the insured’s claim for emotional damages arising from the carrier’s breach of its contractual duty. That award only served to resolve the UIM coverage dispute. The court concluded that, while emotional damages are typically not recoverable in a breach of contract action, an insured can pursue such a claim emotional distress damages where a serious emotional disturbance was likely to result from the carrier’s actions.

Second, the court addressed the carrier’s opposition to the insured’s statutory bad faith claim. The insured’s claim was based upon the carrier’s improper training of its claims adjusters and its providing an improper standard to its independent medical examiner. The carrier denied these claims but depositions showed that the adjuster might have been misinformed about injuries that breach the limited tort threshold. As such, the court denied the carrier’s motion in total because the insured set forth sufficient evidence to prove a disputed issue of fact that should be tried by a jury.

Date of Decision: October 24, 2012

Smith v. Allstate Ins. Co., 3:11-CV-165, 2012 U.S. Dist. LEXIS 152773, U.S. District for the Western District of Pennsylvania (W.D. Pa. Oct. 24, 2012) (Gibson, J.)