Monthly Archive for January, 2011

JANUARY 2011 BAD FAITH CASES
PORTION OF BAD FAITH CLAIM NOT PREEMPTED BY § 1797 OF THE MVFRL; IMPROPER USE OF IME NOT PREEMPTED AND MAY CONSTITUTE BAD FAITH (Western District)

Published on January 26, 2011 in PA - Claims Handling Procedures. Closed

In Roppa v. Geico Indem. Co., the insured was involved in a motor vehicle accident, and he alleged that it caused various injuries to his back, legs, and feet, and that he incurred medical expenses as a result of these injuries.  He was insured under a policy issued by the insurer, which provided for first party medical benefits up to $100,000.

More than seven years after the collision, the insured’s treating physician suggested that he undergo a new course of treatment.  He then began seeing a new physician who administered a course of treatment that included multiple spinal injections and left lumbar nerve blocks.

According to the insured, the insurer eventually determined that he had reached his maximum medical improvement and that further medical treatment was neither reasonable nor necessary.  One-and-a-half years after the insured began the new treatment, he filed a suit in state court, alleging that the insurer breached its contract and acted in bad faith by refusing to pay first party benefits under the policy.  The case was removed to federal court under diversity jurisdiction, and the insurer filed a motion to dismiss the bad faith portion of the Complaint.

In its motion to dismiss, the insurer argued that the Motor Vehicle Financial Responsibility Law (“MFVRL”) was the exclusive remedy for bad faith denials of first party insurance benefits by insurance companies.  Specifically, § 1797 of the MFVRL “sets forth the procedure to be followed if the insurer wishes to challenge the reasonableness and necessity of an insured’s medical treatment,” and it preempts any claim for bad faith under other statutes.  The insured had alleged a violation of Pennsylvania’s bad faith statute, 42 Pa. Cons. Stat. Ann. § 8371, and the insurer argued that the claim was preempted by the MVFRL.

The Pennsylvania Supreme Court had not directly addressed the issue of whether the MVRFL preempts the bad faith statute under the facts presented in this case, so the court had to predict the result.  The court first acknowledged that both the Pennsylvania Supreme Court and the Third Circuit follow the general rule that the MVFRL preempts § 8371 when both apply.  It noted, however, that when an insured “states a claim for bad faith under § 8371, and where the claim is premised upon allegations beyond the scope of the MVFRL, the claim will not be preempted by [the MVFRL] in its entirety, and the [insured] may be allowed to pursue punitive damages under § 8371 to the extent of those claims beyond the scope of the MVFRL.”

The insured had raised ten bad faith allegations in support of his § 8371 claim, and the court determined that eight of them constituted a challenge to the denial of first party benefits based on the reasonableness and necessity of treatment that were therefore preempted by § 1797.  For example, allegations that the insurer failed to objectively and fairly evaluate the insured’s first party benefit claim, unreasonably and abruptly terminated his first party benefits, and failed to carry out its fiduciary obligations to the insured in good faith could only be brought under § 1797.  The only bad faith claims that were not preempted were that the insurer allegedly (1) put its own monetary interests ahead of the insured’s to the detriment of the insured, and (2) employed the independent medical examination process for an improper purpose.  The court therefore granted the motion to dismiss the bad faith portion of the Complaint with respect to all but the two allegations not preempted by the MVFRL.

Date of Decision:  December 29, 2010

Roppa v. Geico Indem. Co., Civil Action No. 10-1428, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 140033, (Dec. 29, 2010) (Lenihan, U.S.M.J.)

JANUARY 2011 BAD FAITH CASES
DIVERSITY JURISDICTION PROPERLY USED WHEN REMOVING BAD FAITH CASE TO FEDERAL COURT (Western District)

Published on January 24, 2011 in PA - Procedural Issues. Closed

In Hutton v. State Farm Mutual Automobile Insurance Company, the insured was operating her automobile when it collided with another vehicle, allegedly causing serious and permanent injuries to her.  Both drivers denied liability, and the insured filed a suit in state court against the other driver.

The insured also filed a separate suit against her insurer in state court, alleging breach of contract and bad faith.  The insurer used diversity jurisdiction, 28 U.S.C. § 1332, as the basis for removing the action to federal court, but the insured then filed a motion to remand the case to state court.  The court determined that the removal to federal court was proper because the insurer was an Illinois corporation and the amount in controversy exceeded the $75,000 minimum.  It also dismissed the insured’s argument that the “interest of judicial economy” is a basis for remanding the case, as the insurer had a clear legal right to exercise the removal option.  The court therefore dismissed the insured’s motion to remand the case to state court.

Date of Decision:  January 13, 2011

Hutton v. State Farm Mut. Auto. Ins. Co., 2:10-cv-1730, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 3395, (Jan. 13, 2011) (McVerry, J.)

JANUARY 2011 BAD FAITH CASES
COURT DISMISSES BAD FAITH ALLEGATION WHEN INSURED FAILS TO SPECIFY HOW INSURER ACTED IN BAD FAITH (Monroe County Common Pleas)

Published on January 23, 2011 in PA - Procedural Issues. Closed

In Donegal Mutual Insurance Company v. Stroker, the insured was involved in a motor vehicle accident that resulted in damages to her vehicle.  She had an automobile insurance policy with the insurer.  The policy included a subrogation clause, which stated that if the insurer made a payment under the policy and the insured had a right to recover damages from another, the insurer would be subrogated to that right and the insured must do whatever is necessary to enable the insurer to exercise its rights.

The insured accepted a payment from the driver of the other automobile and executed a release of all claims.  The insurer then filed a suit against the driver on behalf of the insured to recover property damage caused by the driver.  It claimed that the insured had a duty under the policy to do whatever was necessary to enable the insurer to exercise its rights against the driver.  It also claimed that the insured was required to hold any amounts paid to the her in a trust for the insurer to the extent of the insurer’s payment to the insured.  The insured, on the other hand, claimed that she was not responsible for the insurer’s subrogation claim and never signed a release on behalf of the insurer.  She filed a counterclaim against the insurer, alleging that the insurer breached its contract and acted in bad faith.  The insurer proceeded to file preliminary objections to the counterclaim.

The court first sustained the insurer’s preliminary objection to the insured’s breach of contract counterclaim.  It determined that the insured offered “no specific details to educate the Court or [insurer] on what the agreement required, . . . what the essential terms of the agreement were, or how bringing the present action against [the insured] breached the agreement.”

The insured had also alleged in her counterclaim that the insurer acted in bad faith.  She claimed that (1) she had a valid insurance policy with the insurer at the time of the subject incident, (2) the insurer has acted in bad faith toward her, and (3) she has and will suffer direct and consequential damages as a result.  The court first recognized the two-part test under Pennsylvania law to establish bad faith:  an insurer must (1) lack a reasonable basis for denying coverage and (2) the insurer know or recklessly disregard its lack of a reasonable basis.  It then reached the same result as it did with the breach of contract claim.  The court determined that while the insured did have a valid insurance policy with the insurer, she did not provide any details showing just how the insurer acted in bad faith in breaching the policy.  Because the insured offered no evidence demonstrating bad faith on the part of the insurer, the court sustained the insurer’s preliminary objection to the bad faith allegation against it.

Date of Decision:  August 2, 2010

Donegal Mut. Ins. Co. v. Stroker, No. 2568 Civil 2010, Common Pleas Court of Monroe County, Pennsylvania, 2010 Pa. Dist. & Cnty. Dec. LEXIS 398, (Aug. 2, 2010) (Sibum, J.)

JANUARY 2011 BAD FAITH CASES
BAD FAITH ALLEGATION DISMISSED WHEN PLAINTIFF PHYSICIAN FAILS TO QUALIFY AS AN INSURED UNDER PENNSYLVANIA LAW (Lawrence County Common Pleas)

Published on January 22, 2011 in PA - General Bad Faith and Litigation Issues. Closed

In Richard A. Papa & Associates, P.C. v. Highmark Blue Shield, the plaintiff was a physician who provided pediatric and adolescent physician services.  He allegedly functioned as a preferred provider and a health service provider for the insurer’s policyholders, and the insurer paid the plaintiff on behalf of its patients.  One day, the insurer notified the plaintiff that it had reviewed his records and requested a refund of $2,205.99.  The plaintiff did not agree or comply with this request, as he believed that he had complied with all of the terms of the “prevailing agreement” between the parties.

The plaintiff filed suit, alleging that the insurer’s demand for payment constituted a breach of contract.  He also claimed that the insurer violated Pennsylvania’s bad faith statute, 42 Pa.C.S.A. § 8731, in denying payment.  The insurer raised preliminary objections to the Complaint which were mainly based on the plaintiff not providing any copy of an agreement between the parties.

Concerning the breach of contract claim, the court agreed with the insurer’s argument that under Pennsylvania law, the pleader must attach a copy of the written agreement to the Complaint if the foundation of the claim is an express contract.  Also, a plaintiff must state whether the contract is an oral or written contract.  Is this case, the plaintiff’s Complaint mentioned a “prevailing agreement” many times, but it failed to mention whether the agreement was written or oral, and the plaintiff did not attach any portion of the agreement.  The court therefore sustained the insurer’s preliminary objection regarding the failure to provide a copy of the “prevailing agreement” and granted the plaintiff leave to amend its Complaint concerning that issue.

With respect to the bad faith claim, the court held that the plaintiff was not an “insured” under Pennsylvania’s bad faith statute.  Under the system where the plaintiff provided medical services to patients and the insurer paid the plaintiff for these services, the insureds were the patients who had paid the insurer for coverage.  The policies were therefore being held for the benefits of the patients, and the plaintiff simply was a preferred provider or health service provider.  The only possible insureds in this case were the patients, and because the bad faith statue requires that an insurer act in bad faith toward the insured, the court was required to dismiss the count for bad faith as a matter of law.

Date of Decision:  August 3, 2010

Richard A. Papa & Assocs., P.C. v. Shield, No. 11537 of 2009, Common Pleas Court of Lawrence County, Pennsylvania, 2010 Pa. Dist. & Cnty. Dec. LEXIS 399, (Aug. 3, 2010) (Cox, J.)

JANUARY 2011 BAD FAITH CASES
BAD FAITH CLAIM AUTOMATICALLY DISMISSED WHEN INSURED REACTS TO MOTION TO DISMISS BY SRIKING BAD FAITH CLAIM FROM AMENDED COMPLAINT (Western District)

Published on January 21, 2011 in PA - Procedural Issues. Closed

In Rubin v. State Farm Mutual Automobile Insurance Company, the insured was in a motor vehicle accident when her car was struck from behind by another driver.  She suffered various “potentially permanent physical injuries” from the accident, and she was insured by the insurer under a policy that provided underinsured motorist coverage.  The insured reported the accident to the insurer soon after it occurred and made a timely claim for benefits under the policy.  Soon after, the driver at fault offered a sum of money which the insured accepted.  However, once the benefits from the settlement were exhausted, the insured’s injuries still were not fully compensated.  She then filed a claim under her policy for underinsured benefits.

Under the policy, the insurer agreed to pay compensatory damages for bodily injury to an insured if the injury was caused by an accident that involves an underinsured motor vehicle.  The insured allegedly failed to pay underinsured motorist benefits, and the insured filed a Complaint alleging, among other counts, breach of contract and bad faith.

Concerning the breach of contract claim, the court denied the insurer’s Motion to Dismiss.  The insured had alleged that there was an existence of a contract between the two parties, and that the insurer unreasonably denied her underinsured motorist benefits under the policy.  She also pled the existence of damages available if breach of contract was to be proven, so the court had no choice but to let the claim proceed.

With respect to the bad faith claim, the insured admitted after the insurer filed the Motion to Dismiss that her bad faith claim was “premature at this point.”  She therefore amended her Complaint before the judge issued a ruling and struck the bad faith section.  The court, as a mere formality, granted the insurer’s Motion to Dismiss the bad faith claim.

Date of Decision:  January 7, 2011

Rubin v. State Farm Mut. Auto. Ins. Co., 10cv1651, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 1613, (Jan. 7, 2011) (Schwab, J.)

JANUARY 2011 BAD FAITH CASES
NO BAD FAITH WHEN WAITING TO RECEIVE IMPORTANT RECORDS BEFORE DETERMINING CLAIM, BUT BAD FAITH WHEN UNREASONABLY LOW SETTLEMENT OFFERS AND REFUSAL TO ENTER ARBITRATION WHEN THE POLICY ALLOWS IT (Western District)

Published on January 10, 2011 in PA - Claims Handling Procedures. Closed

In Wisinski v. American Commerce Group, Inc., the insured was involved in a serious motor vehicle accident in December 2001.  The driver of the other vehicle was uninsured, as his auto insurance had expired months before the accident.  The accident caused trauma to both of the insured’s knees, and the total medical costs to treat her injuries were $41,269.  She reported the to accident to her insurer the day after it occurred.  Initially, the claims manager assigned to the claim documented it to be under the insured’s personal auto policy with $5,000 in first party medical benefits.

When completing her initial application for benefits, the insured had not indicated that she would have lost wages as a result of the injury.  However, once her first party medical benefits under the policy were eventually exhausted, her counsel indicated that it would be pursuing an income loss benefits claim.  In a second application for benefits, the insured alleged that she was employed by the United States Postal Service at the time of the accident, and she earned $776 weekly.  The insurer and the insured’s counsel corresponded for months about this claim, as there were issues relating to the production of documents such as medical records and documentation from the insured’s employer.  The insured also eventually notified the insurer that it also would be pursuing an uninsured motorist claim because the driver of the other vehicle had no insurance.

In February 2004, the insurer reassigned the claims to a more experienced adjuster, who identified the policy limits to be $50,000.  She requested extensive medical records again, and she made settlement offer of $9,000, an increase of $2,000 from the initial offer.  The insured changed counsel during this time, and eventually she filed suit against the insurer, as the accident had occurred four years prior and the claim still not been decided.

An issue then arose concerning the stacking of the uninsured motorist claims.  The parties eventually agreed that the coverage could be stacked, and therefore the policy limit was $100,000, but the insurer had not recognized that the claims could be stacked until the insured’s counsel mentioned it.  The insurer’s attorney recognized that its client had overlooked the stacking issue for a considerable length of time, and therefore the arbitration panel would be more likely to accept the insured’s arguments.  The insured also notified the insurer that it would initiate a bad faith claim within 21 days if the insurer did not increase its settlement offer to the policy limits of $100,000.

The insurer proceeded to increase its settlement offer to $100,000, and the parties agreed to settle based on that figure.  The insured still proceeded to file a claim for bad faith, alleging that the insurer acted in bad faith in its handling of her income loss and uninsured motorist claims.  Concerning the income loss claim, the court noted that the insured indicated on her initial application that she did not have lost wages, and once she amended her application, the insurer proceeded to request proper documentation before verifying the claimed losses.  The insurer also learned that the insured had not been working for a year prior to the accident and was on Social Security Disability Income, and therefore it reasonably could have denied the claim.  The court therefore granted the insurer summary judgment on the bad faith claim concerning the first party income loss.

With respect to the uninsured motorist claim, the court was less sympathetic to the insurer.  It determined that the insurer’s conduct in failing to acknowledge the stacking of benefits under the policy until the insured brought the matter to its attention was unreasonable and done either intentionally or recklessly, and therefore constituted bad faith as a matter of law.  It also determined that because it was clear that either party could request arbitration, the insurer’s initial refusal to arbitrate upon the insured’s request constituted bad faith.  The insurer’s counsel had advised the insurer that it did not have to accept arbitration, but the court noted that the insurer did not provide its counsel with the correct policy before asking him for his opinion.  The insurer had hired an attorney with little experience handling auto insurance claims in Pennsylvania, and it notified him that it wished to avoid arbitration before asking for his opinion. 

Finally, concerning the various settlement offers the insurer had offered, the court determined that the insurer’s conduct in “proposing unreasonably low settlement offers, in falsely threatening to appeal an arbitration award, and its unreasonable post-settlement demands” supported a finding of bad faith as a matter of law.  Before finally reaching the $100,000 figure for the uninsured motorist claim, the insurer had made two prior offers, each for less than $10,000.

In sum, the while court determined that the insurer’s conduct in handling the insured’s first party loss claim did not involve bad faith, it did find that the insurer acted in bad faith when handling the uninsured motorist claim as a matter of law.  Therefore, it granted the insured’s motion for summary judgment on her allegations that the insurer acted in bad faith by refusing to acknowledge the stacking issue until it was brought up late in the process and by refusing to arbitrate the claims when the insurer demanded it.  The court granted the insurer summary judgment for the remainder of the claims, including the bad faith allegation with respect to the first party loss claim.

Date of Decision:  January 4, 2011

Wisinski v. Am. Commerce Group, Inc., Civil No. 07-346 Erie, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 320, (Jan. 4, 2011) (Cohill, Jr., J.)

JANUARY 2011 BAD FAITH CASES
BAD FAITH STATUE ONLY CONCERNS WHETHER INSURER ACTS BADLY IN PARTICULAR CASE, NOT WHETHER ITS BUSINESS PRACTICES ARE REASONABLE IN GENERAL (Philadelphia Federal)

Published on January 7, 2011 in PA - Discovery and Evidence. Closed

In Wolk v. Westport Insurance Corporation, the insureds brought suit against their former professional liability insurer for failing to provide them with a defense when claims were asserted against the insureds in a state court case.  The suit included a claim for a violation of Pennsylvania’s bad faith statute, 42 Pa. Cons. Stat. Ann §8731, in connection with which the insureds served a subpoena for documents upon the insurance broker for the policy at issue.

The insurance broker objected to the subpoena and failed to produce any documents, and the insureds filed a motion to compel the production of the documents.  The court noted that the insureds had requested documents containing information about other lawyers who had brought complaints about the insurer’s policy or the broker’s practices.  The bad faith statute, however, only looks to whether a defendant “acted recklessly or with ill will in a particular case, not whether its business practices are reasonable in general.” (quoting Hyde Athletic Indus., Inc. v. Cont’l Cas. Co., 969 F. Supp. 289, 307 (E.D. Pa. 1997)).  Because the information about other lawyers was not relevant to this specific case, the court rejected the insureds’ motion to compel the production of the requested documents.

Date of Decision:  December 21, 2010

Wolk v. Westport Ins. Corp., Civil Action No. 06-cv-5346-JF, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 134923, (Dec. 21, 2010) (Fullam, J.)

JANUARY 2011 BAD FAITH CASES
NO BAD FAITH WHEN INSURER PROPOSES TO MERGE UNDERINSURED MOTORIST CLAIM WITH A LIABILITY CLAIM FOR THE SAME ACCIDENT, AND WHEN DISPUTE EXISTS OVER CLAIM’S VALUE (Middle District)

Published on January 6, 2011 in PA - Claims Handling Procedures. Closed

In Calestini v. Progressive Casualty Insurance Company, the insured was involved in two car accidents.  In the first, which occurred in August 2005, the plaintiff was rear-ended by a car, the driver of which was insured by the insurer.  A week after this accident, the plaintiff notified the insurer that it was pursuing an underinsured motorist claim relating to the accident for the amount of injuries in excess of $25,000, which was the insurer’s maximum liability coverage under the policy.  The plaintiff was in another car accident in April 2006, when he was hit by a car that was making a left turn.  Despite the driver of the vehicle in the second accident being insured by a different insurer for $25,000 in liability coverage, the plaintiff soon-after put the insurer from the first accident on notice that it was pursuing an uninsured motorist claim relating to the second accident.

The plaintiff eventually obtained new counsel, who promptly notified the insurer that he was demanding arbitration with respect to the underinsured motorist claims.  At this point, the insurer proposed to the plaintiff that the underinsured motorist claim against it for the first accident be tried by a jury at the same time as the liability claim against the driver, but the plaintiff rejected this idea.  The plaintiff eventually settled with the driver of the first accident for $15,000 of the original $25,000 available in liability coverage, and the insurer then offered the plaintiff $2,000 for both the first and second accidents to resolve the underinsured motorists claims.

The parties could not agree on a settlement or to move the case to arbitration, so the plaintiff filed a Complaint against the insurer.  The Complaint contained claims for breach of contract and bad faith with respect to both accidents.  The insurer then filed a motion for summary judgment to dismiss the two bad faith claims.

The plaintiff alleged that the insurer acted in bad faith by (1) suggesting to the plaintiff that his underinsured motorist claim relating to the first accident be tried with the plaintiff’s negligence claim against the driver relating to the same accident, and (2) failing to properly evaluate the plaintiff’s underinsured motorist claims.  Concerning the first allegation, he felt that the insurer’s proposal to merge the two claims relating to the first accident undermined the purpose of underinsured motorist coverage, but the court disagreed with this assertion.  It noted that the insurer would still be responsible to pay any damages awarded by the jury in excess of the $25,000 available under the driver’s insurance policy.  The court also gave credibility to the insurer’s assertion that its proposal was partially designed to save the plaintiff from the trouble and expense of two separate proceedings.

With respect to the second bad faith assertion, the court determined that the insurer had not failed to properly evaluate the plaintiff’s claim because there still was a genuine dispute over the claim’s value.  As the court noted, the plaintiff did not provide the insurer with an expert report regarding his injures and bases of claims until three years after the second accident and ten days before filing the Complaint.  Finally, the plaintiff had been involved in many other accidents causing him injuries over the past six years, and the insurer understandably wanted to conduct a thorough investigation before settling the his claim.  Therefore, the court determined that the insurer had not acted in bad faith as a matter of law, and it granted the insurer’s motion to dismiss both bad faith claims.

Date of Decision:  December 28, 2010

Calestini v. Progressive Cas. Ins. Co., Civil Action No. 3:09-CV-1679, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 136815, (Dec. 28, 2010) (Caputo, J.)

JANUARY 2011 BAD FAITH CASES
COMPENSATORY DAMAGES NOT AVAILABLE UNDER BAD FAITH STATUTE, BUT STATUTE DOES NOT ALTER ANY RIGHTS TO DAMAGES AVAILABLE UNDER CONTRACT LAW (Western District)

Published on January 5, 2011 in PA - General Bad Faith and Litigation Issues. Closed

In OneBeacon America Insurance Company v. UBICS, Inc., the insured had a policy with the insurer for multiple forms of business insurance.  The policy included a provision for employee theft crime coverage of up to $1 million The insured discovered that one of its employees had embezzled almost $1 million from the company, and it filed a claim with the insurer to recover under the policy.

The insurer initially refused to pay, based in part on an exclusion pertaining to losses caused by anyone authorized to sign checks for the insured.  The parties agreed that the exclusion was clearly worded and placed in a schedule attached to the policy, and the insurer claimed that because the employee was authorized to sign checks for the insured, it did not have to cover the company’s losses.  It also claimed that the policy was void due to fraud, misrepresentation, or concealment because the employee’s status as an officer of the organization meant that his knowledge of the embezzlement was imputed to the company.

The insurer filed a suit seeking a declaratory judgment that it was not obligated to cover the losses caused by the employee, and the insured responded by filing a counterclaim, which alleged breach of contract and bad faith on the insurer’s part.  The insurer then filed a motion for summary judgment to dismiss the bad faith allegations.

The insured alleged that the insurer acted in bad faith in denying coverage for employee theft, and it requested, in addition to a judgment against the insurer, an award for the costs of suit, including attorneys’ fees, consequential and compensatory damages, net economic loss, excess verdict, and punitive damages.  The insurer only sought to dismiss the small portion of the claim concerning compensatory and other common law contract damages, arguing that they were not available under Pennsylvania’s Bad Faith Statute, Pa. Cons. St. Ann. § 8371.

The court agreed with the insurer that under Pennsylvania law, an insured may not recover compensatory damages based on § 8371 alone.  However, § 8371 does not alter an insured’s common law contract rights, so if compensatory damages are available under another portion of the claim, they remain available if there is a bad faith claim in another section of the complaint.  In this case, not only did the insured also file a breach of contract claim which allows for compensatory damages, but it also explicitly stated that it only sought damages that were “reasonable and permissible” under the circumstances, and that it would not attempt to recover damages that were prohibited by the statutes in question.  The court therefore denied the insurer’s motion to dismiss the portion of the bad faith claim relating to compensatory damages.

Date of Decision:  December 28, 2010

OneBeacon Am. Ins. Co. v. UBICS, Inc., Civil Action No. 10-737, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 136801, (Dec. 28, 2010) (Standish, J.)

JANUARY 2011 BAD FAITH CASES
BAD FAITH CLAIM SURVIVES SUMMARY JUDGMENT WHEN ALLEGATIONS SUPPORT NOTION THAT INSURER DID NOT HAVE REASONABLE BASIS TO DECREASE A SETTLEMENT OFFER BUT DID SO (Middle District)

Published on January 4, 2011 in PA - Claims Handling Procedures. Closed

In Zintel v. Progressive Northern Insurance Company, the insured suffered injuries when he was run over by a pickup truck while kneeling down to tie his shoe in the street.  He suffered a compression fracture and a right MCL/ACL meniscus tear.  The insured wore a back brace and underwent physical therapy, but he initially did not have surgery. 

The insured notified the insurer of the accident four days after it occurred.  Because the driver of the pickup truck was never identified, the insured eventually commenced an attempt to collect uninsured motorist benefits from his insurer.  The insured’s attorney and the insurer corresponded often over the next few months, as the insured provided medical records and other information to the insurer in order for the insurer to properly assess the uninsured motorist claim.  Eventually, despite the insured requesting the policy limits of $100,000, the insurer offered the insured $28,300 to settle the claim.  The insured also had surgery on his knee two months after the insurer made its offer.

The insured then filed an action for uninsured motorist benefits and a breach of Pennsylvania’s Bad Faith statute, 42 Pa. Con. Stat. Ann. § 8371.  The insurer filed a motion for summary judgment on the bad faith claim.  He had alleged that the insurer (1) improperly reduced its settlement offer based on a comparison of the insured’s and the driver’s levels of fault, (2) ignored the insured’s meniscus tear in calculating the offer, and (3) failed to account for the insured’s expected upcoming knee surgery when making the offer.

The court addressed only the first allegation, and it recognized that the insured had properly cited precedent where the Eastern District determined that “where a defendant is found to have acted with reckless disregard of safety, a plaintiff’s own contributory negligence is not a defense.”  The insurer’s claims specialist had admitted that a comparison of fault factored into her claim evaluation to reduce the amount of money offered to the insured.  When the court viewed the evidence in the light most favorable to the insured (which is required when determining motions by an insurer for summary judgment), it assumed that the insurer knew that the driver was reckless and therefore that the insured’s negligence was immaterial.  It concluded that a reasonable jury could conclude that the insurer knew it did not have a reasonable basis to reduce its settlement offer but reduced the offer anyway, and it therefore denied the insurer’s motion for summary judgment.

Date of Decision:  December 16, 2010

Zintel v. Progressive N. Ins. Co., No. 3:09cv2577, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 133170, (Dec.16, 2010) (Munley, J.)