Ladies and Gentlemen:
You may be interested in two decisions issued in the last ten days from different judges in the United States District Court for the Eastern District of Pennsylvania, both of which pertain to insurance bad faith in Pennsylvania.
In Dewalt v. Ohio Casualty, the carrier's insured was involved in a one-car accident which left three vehicle
occupants seriously injured, one a quadriplegic. Ohio Casualty had limits of
only $25,000/$50,000 on the involved vehicle and knew soon after the accident
of the nature of the quadriplegic's injuries. However, the company had limited
information about the injuries sustained by the other occupants and therefore
did not tender its policy limits until almost 11 months after the accident
when it concluded that it now had sufficient information to tender its $50,000
limits in whatever fashion the three claimants wished to split them. The quadriplegic
claimant refused the offer, proceeded to trial, obtained a verdict in excess
of four million dollars and then paid the Ohio Casualty insured approximately
fourteen thousand dollars for an assignment of the insured's rights against
the carrier. Suit was then instituted against Ohio Casualty claiming common
law bad faith for failure to promptly settle and statutory bad faith under
section 8371.
Judge McLauglin granted summary judgment to Ohio Casualty, concluding that
no reasonable jury could conclude that the company had acted in bad faith by
attempting to obtain information about and settle all three claims together
in order to protect the insured. However, in doing so the court issued several
holdings which may be of significance in future cases.
First, the court holds that in third party failure to settle bad faith claims,
the standard of proof for liability differs based on whether the plaintiff
is proceeding on the statutory cause of action created by section 8371 or on
the common law breach of contract claim for failure to settle based on Cowden
v. Aetna and its progeny. With respect to the former, the Terletsky
v. Prudential standard applies, i.e., the plaintiff must show that the
insurer lacked a reasonable basis for its position and knew of or recklessly
disregarded the lack of such basis. However, with respect to the common law
breach of contract claim for failure to settle under Cowden, the court
holds that to prevail on such a claim the plaintiff must show only that the
insurer acted "negligently or unreasonably" in refusing to settle.
Second, as noted above, regardless of which standard is applicable, the court
concluded that plaintiff could not show that Ohio Casualty had acted in bad
faith: "Pennsylvania law does not require Ohio Casualty to risk acting
in bad faith with respect to the claims of Ms. Swinehart and Mr. Fantini in
order to avoid being accused of acting in bad faith with respect to Mr. DeWalt."
Third, because mere negligence can be sufficient to show contractual bad faith
for failure to settle, delay alone can be sufficient to make out a claim
of contractual bad faith. Holdings such as those in Kosierowski v. Allstate,
to the effect that delay alone is usually insufficient to show bad faith are
not applicable to contractual bad faith claims for failure to settle because Kosierowski was
based on section 8371 which has a higher standard of care. (Nevertheless, Ohio
Casualty's conduct was held not to have been negligent).
Last, although Ohio Casualty conceded that it had violated Pennsylvania Unfair
Insurance Practice Claims regulations by failing to keep its insured apprised
of the status of the claim against her, that failure alone could not establish
bad faith. Rather, in a third party bad faith case, the insurer is liable only
for the damages that reasonably flow from its bad faith conduct. The court
concluded that there was no evidence that Ohio Casualty's failure to communicate
with its insured played any role in the existence of the excess verdict and,
therefore, granted summary judgment on that issue, also.
Kakule v. Progressive presented a different bad faith issue to Judge
Kelly. In Kakule, Progressive and its insured differed on the value
of the insured's uninsured motorist claim. The case proceeded to arbitration
where a panel awarded Kakule $500,000, far in excess of Progressive's $18,000
offer. Kakule sued for bad faith. In addition to his statutory claim, Kakule
included a breach of contract claim contending that Progressive had breached
its contractual duty of good faith and fair dealing established, according
to Kakule, by the Pennsylvania Supreme Court in its Birth Center opinion.
Judge Kelly dismissed the contractual claim concluding that the contractual
cause of action recognized in Birth Center exists only with respect
to third party failure to settle claims, not to first party bad faith causes
of action.
Should you have any questions concerning either opinion, please feel free
to give me a call. If you wish to review either opinion, please click
here for Judge Kelly and/or click here for Judge McLaughlin's, or you can
call my assistant, Denise Patsch, who will be happy to mail or e-mail you a
copy.
Very truly yours,
Louis E. Bricklin
LEB/dp
