OCTOBER 2017 BAD FAITH CASES: BAD FAITH PLEADED BASED ON FACTUAL HISTORY OF TIMING AND AMOUNT OF SETTLEMENT OFFERS, AND INCLUSION OF DEMAND TO RELEASE BAD FAITH CLAIM TO OBTAIN A SETTLEMENT (Western District of Pennsylvania)

This is a UIM bad faith case. The insurer did not meet the insureds’ demand, and sought a release of bad faith claims during the negotiation process. Suit followed for breach of contract and bad faith.

In the fall of 2015, the insureds rejected a $4,335 offer. The insureds’ counsel demanded the insurer’s best and final offer in January of 2016, and the insurer responded with $5,000. The insureds rejected this offer.

The insurer increased its offer to $5,100, but the insureds remained uninterested in settlement for that amount. In the fall of 2016, the insurer increased its offer to $12,500, contingent on an agreement that the insureds execute a full and final release of all claims, including the bad faith claim.

The insureds rejected this offer as well, and subsequently brought suit for breach of contract and bad faith. The insurer moved to dismiss both claims, and the matter was referred to the Magistrate Judge for a Report and Recommendation.

As to the bad faith claim, the Magistrate Judge cited the Pennsylvania Superior Court as defining bad faith in the insurance context as “conduct [that] imports a dishonest purpose and means a breach of a known duty (for example, good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.” [Pennsylvania’s Supreme Court recently made clear the motive of self-interest or ill will do not constitute an additional element of proof.]

The Magistrate Judge observed case law indicating bad faith may exist where an insurer attempts to obtain a release of a bad faith claim before it will pay any settlement under the policy. The court also reasoned that the insureds’ factual allegations concerning the length of time over which the offers were made, and the allegations that low offers were followed by dramatic increases were sufficient to support that claim. Thus, the Magistrate Judge recommended denying the insurer’s motion to dismiss as sufficient facts were pleaded to make out a plausible claim.

The Report and Recommendation was adopted by the Court.

Date of Decision: September 29, 2017

Winschell v. Encompass Home & Auto Ins. Co., No. 17-CV-522, 2017 U.S. Dist. LEXIS 162384 (W.D. Pa. Sept. 29, 2017) (Pupo Lenihan, M.J.)