GIBSON v. PROGRESSIVE SPECIALTY INSURANCE CO.

Filing 12

MEMORANDUM AND/OR OPINION. SIGNED BY MAGISTRATE JUDGE TIMOTHY R. RICE ON 5/12/2015. 5/14/2015 ENTERED AND COPIES E-MAILED.(kp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
THOMAS G. GIBSON,

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Plaintiff,
v.
PROGRESSIVE SPECIALTY
INSURANCE COMPANY,
Defendant.

CIVIL ACTION

No. 15-1038

MEMORANDUM
TIMOTHY R. RICE
U.S. MAGISTRATE JUDGE

May 12, 2015

Plaintiff Thomas G. Gibson has filed a complaint alleging that Defendant Progressive
Specialty Insurance Company is liable for breach of contract (Count I), bad faith (Count II), and
violating the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) (Count III).
Progressive moves to dismiss Counts II and III, asserting Gibson cannot prevail as a matter of
law. See Motion to Dismiss (doc. 9). Progressive’s motion to dismiss is granted in part.
Gibson’s bad faith claim survives only on his claim that Progressive used a biased peer review
organization (“PRO”). All other allegations of bad faith are dismissed. Gibson’s UTPCPL claim
also is dismissed because he fails to allege any misconduct prohibited by the UTPCPL.
I may dismiss a complaint for “failure to state a claim upon which relief can be granted.”
Fed. R. Civ. P. 12(b)(6). I must accept all of the plaintiff’s factual allegations and “determine
whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.”
Grammer v. John J. Kane Reg’l Centers-Glen Hazel, 570 F.3d 520, 523 (3d Cir. 2009). When
the complaint does not state a plausible claim for relief, the motion to dismiss should be granted.
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

In November 2010, Progressive issued an automobile insurance policy to Gibson for
$100,000 in primary coverage and $1,000,000 in excess coverage. See First Am. Compl. (doc.
7) ¶ 5, Ex. A (Declarations Page). In December 2010, Gibson was involved in a motor vehicle
accident and suffered various injuries. See First Am. Compl. ¶¶ 6-7. Gibson sought coverage
from Progressive for his medical care and treatment. Id. ¶¶ 10-12, Ex. C (Health Insurance
Claim Forms).
Progressive contracted with MES Solutions to perform a “peer records review” of
Gibson’s treatment and care. Id. ¶ 14, Ex. D (8/21/2014 Letter from MES Solutions). In August
2014, Dr. Lisa M. Nocera reviewed Gibson’s records on behalf of MES Solutions and
determined that “all treatment, injections and compound medications [received by Gibson] on
1/17/14 and beyond are considered unreasonable and unnecessary for injuries reportedly
sustained in the 12/30/10 motor vehicle accident.” Id. Progressive then notified several of
Gibson’s medical providers that, based upon the peer review, it was denying payment for
treatment on or after January 17, 2014 and seeking reimbursement of money it paid for treatment
provided on April 4, 2014. See id. ¶ 15, Ex. E (Letters to CityLine Pharmacy, New Britain
Surgery Center, and Abington Surgical Center). Progressive also notified another provider that it
was denying coverage for a neurosurgical procedure performed on December 17, 2014 because it
was unrelated to the accident. See id. ¶ 15, Ex. E (Letter to Bruno and Salkind, Explanation of
Claim Form).
Gibson alleges that Progressive breached its insurance contract by denying coverage for
his medical services and is liable for damages as allowed under the Pennsylvania Motor Vehicle
Financial Responsibility Law, 75 Pa. C.S. §§ 1701 et seq. (“MVFRL”). See First Am. Compl. ¶¶
18-19, 20-22 (Count I). He further asserts that Progressive acted in bad faith in violation of 42

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Pa. C.S. § 8371, by, among other things: (1) using MES Solutions to perform the peer review
when it has a financial interest in providing Progressive with a “biased peer review report;” (2)
failing to conduct a reasonable investigation; (3) not denying coverage in a reasonable amount of
time; (4) not acting in good faith; (5) failing to act in accordance with the policy; and (6) failing
to provide a reasonable explanation of benefits. Id. ¶¶ 23-29 (Count II). Gibson also alleges that
Progressive violated the UTCPL by failing to promptly offer indemnification and objectively and
fairly evaluate his claims. Id. ¶¶ 30-31 (Count III).
I.

Bad Faith Claim
42 Pa. C.S. § 8371 establishes a “separate and independent” cause of action for bad faith

claims against insurance companies related to their handling of an insured’s claims. See Toy v.
Metropolitan Life Ins. Co., 928 A.2d 186, 199-200 (Pa. 2007); Schwartz v. State Farm Ins. Co.,
No. 96-160, 1996 WL 189839, at *2 (E.D. Pa. April 18, 1996) (citing Serubo v. Home Ins. Co.,
No. 95-3207, 1995 WL 461274, at *2 (E.D. Pa. Aug. 3, 1995)). If a court finds that an insurer
acts in bad faith,1 the court may: (1) award interest in an amount equal to the prime rate plus 3%;
(2) award punitive damages; and (3) assess court costs and attorney fees against the insurer. 42
Pa. C.S. § 8371.
The PMVFRL concerns motor vehicle liability insurance. See 75 Pa. C.S. § 1711.
Section 1797 of that Act sets forth a procedure by which an insurer can evaluate the
reasonableness of charges for medical care. See id. § 1797; Schwartz, 1996 WL 189839 at *3.
An insurer may contract with a PRO “established for the purpose of evaluating treatment and
health care services” to determine whether such treatment or services conform to professional
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Bad faith generally means a frivolous denial of coverage without any foundation. See
Schwartz, 1996 WL 189839 at *2 (citing Romano v. Nationwide Mut. Fire Ins. Co., 646 A.2d
1228, 1231 (Pa. Super. 1984)).
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standards and are medically necessary.2 75 Pa. C.S. § 1797(b)(1). The insurer, insured, or
medical provider may seek reconsideration of the PRO’s initial determination within 30 days of
the PRO’s initial determination. Id. § 1797(b)(2). If the PRO determines that a medical provider
has provided unnecessary medical treatment, the insurer is not responsible for payment of those
services and can seek reimbursement for any payments provided. Id. § 1797(b)(7).
Alternatively, if the PRO finds that the treatment was medically necessary, the insurer must pay
the provider any outstanding amount plus interest at 12% per year, costs, and attorney’s fees. Id.
§ 1797(b)(5).
Progressive argues that an insured whose claim has been denied based on a PRO
determination cannot bring a claim for statutory bad faith because the remedies available under §
8371 conflict with the remedies available under § 1797(b). I agree there is a conflict in remedies
because the bad faith statute allows for interest at the prime rate plus 3%, punitive damages,
court costs, and attorney fees, see 42 Pa. C.S. § 8371, whereas the MVFRL provides for interest
at 12% plus reasonable attorney’s fees. 75 Pa. C.S. § 1798(b).
Further, under the Pennsylvania Rules of Statutory Construction, § 1797(b) must apply
here because it is a specific statute limited to motor vehicle liability insurance, while § 8371
applies generally to insurance claims. See 1 Pa. C.S. § 1933 (when a conflict between two
statutory provisions is irreconcilable, the more specific provision must prevail and is constructed
as an exception to the more general provision); see also Barnum v. State Farm Mut. Auto. Ins.

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If the insured denies coverage without using a PRO, the insured or medical provider can
challenge the denial before a court. 75 Pa. C.S. § 1797(b)(c). If the court finds in favor of the
insurer, the insurer is not responsible for paying the provider. Id. § 1797(b)(7). However, if the
court finds in favor of the insured, the insurer must provide coverage plus interest, costs for the
challenge, and attorney’s fees. Id. § 1797(b)(6). “Conduct considered to be wanton [also] shall
be subject to a payment of treble damages to the injured party.” Id. § 1797(b)(4).
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Co., 635 A.2d 155, 159 (Pa. Super. 1993) (where insurer “follows the PRO procedure, it cannot
be subjected to damages for bad faith” under § 8371), rev’d and remanded on other grounds
Barnum v. State Farm Mut. Auto. Ins. Co., 652 A.2d 1319 (Pa. 1994). Although the
Pennsylvania Supreme Court has not yet addressed this issue, the United States Court of Appeals
for the Third Circuit has predicted that the Supreme Court would adopt the reasoning in Barnum
and limit an insured’s remedies to those specified by § 1797(b) where the insurer submitted the
claim to a PRO. See Gemini Physical Therapy and Rehab. Inc. v. State Farm Mut. Auto. Ins.
Co., 40 F.3d 63, 67 (3d Cir. 1994). 3
Recent federal and state decisions have continued to limit an insured to the relief set forth
in § 1797(b) when the claim involves an improper denial of first-party medical benefits pursuant
to a challenge to the findings of or amount due from the PRO process. See Perkins v. State Farm
Ins. Co., 589 F. Supp. 2d 559, 564 n.2 (M.D. Pa. 2008) (citing cases). Those courts, however,
also have found that an insured is not precluded from seeking damages under § 8371 if he raises
bad faith allegations beyond the scope of § 1797(b), such as claims involving contract
interpretation or claims that the insurer did not properly invoke or follow the PRO process. See
Schwartz, 1996 WL 189839, at *4 (“Nothing in Barnum or Gemini suggests that a bad faith
insurance coverage claim under § 8371 is barred by § 1797 where the peer review process set out
in § 1797 . . . is not actually followed.”); Perkins, 589 F. Supp. 2d at 564-65 n. 3 (citing cases). I
agree and predict such reasoning would be adopted by the Pennsylvania Supreme Court.

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As a diversity case, I must follow Pennsylvania substantive law as set forth by the
Pennsylvania Supreme Court. Kiewit E. Co. v. L & R Const. Co., 44 F.3d 1194, 1201 n.16 (3d
Cir. 1995. Where the Pennsylvania Supreme Court has not decided an issue, I may look to
decisions by the lower Pennsylvania courts to predict how the Supreme Court would decide the
issue. Id.
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Gibson argues that he has properly brought a statutory bad faith claim because he
“alleges facts [in paragraphs 24 and 25 of his First Amended Complaint] which show that the
peer review process used by [Progressive] . . . was outside the scope of section 1797.” Gibson’s
Br. (doc. 11) at 10-11. Gibson further contends that he has properly brought a bad faith claim
against Progressive based on its denial of expenses related to his December 2014 neurosurgical
procedure because that denial was not based on a peer review. See id. at 12.
Paragraph 24 of the First Amended Complaint alleges that Progressive retained MES
Solutions in bad faith because MES Solutions has a financial interest in providing biased reports
to Progressive and MES Solutions has provided negative reports to Progressive and others to
maintain a “steady source of business.” First Am. Compl. ¶ 24. Because this claim does not fall
within the scope of § 1797(b), it alleges a proper basis for a statutory bad faith claim. See
Perkins, 589 F. Supp. 2d at 566 (citing cases that have held that abuse of the PRO process are not
within the scope of § 1797 and state a claim under § 8371).
Paragraph 25, however, alleges that Progressive failed to conduct a reasonable
investigation, act in a reasonable time and in good faith, fairly evaluate coverage, and explain its
decisions. First Am. Compl. ¶ 24. These allegations are essentially a challenge to Progressive’s
decision to deny first-party benefits and fall within § 1797(b). See Hickey v. Allstate Prop. &
Cas. Ins. Co., 722 F. Supp. 2d 609, 614 (M.D. Pa. 2010); Roppa v. Geico Indemnity Co., No. 101428, 2010 WL 5600899, *7 (W.D. Pa. Dec. 29, 2010); Perkins, 589 F. Supp. 2d at 566. Gibson
cannot seek statutory bad faith damages based on the misconduct alleged in paragraph 25.
Furthermore, although Progressive allegedly denied coverage for Gibson’s December
2014 neurosurgical procedure without using a PRO, Gibson is limited to the remedies set forth in
§ 1797(b)(4) and (6) because such a denial is specifically addressed by those sections. See supra

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n. 2; Roppa, 2010 WL 5600899 at *7 (“insurer need not utilize a PRO in order to trigger the
procedures and remedies under § 1797”). Gibson’s statutory bad faith claim is limited to those
allegations set forth in paragraph 24 of the First Amended Complaint. All other allegations of
statutory bad faith are dismissed.
II.

UTPCPL Claim
A consumer may bring a private action under the UTPCPL to recover damages caused by

certain enumerated “unfair methods of competition” and “unfair or deceptive acts or practices.”
73 P.S. §§ 201-3, 201-2(4), 201-9.2. Although Pennsylvania law permits a consumer to bring an
action against an insurer pursuant to the UTPCPL, the action cannot be based on a failure to
perform a contractual obligation, such as the failure to pay a claim or a failure to investigate
pursuant to the contract. See Nordi v. Keystone Health Plan W. Inc., 989 A.2d 376, 385 (Pa.
Super. 2010); Horowitz v. Fed. Kemper Life Assur. Co., 57 F.3d 300, 307 (3d Cir. 1995) (citing
Gordon v. Pa. Blue Shield, 548 A.2d 600, 604 (Pa. Super. 1988)). The UTPCPL claim must be
based on misfeasance or negligent conduct. See Nordi, 989 A.2d at 385.
Progressive also argues that such claims must relate to the selling of a policy, rather than
the handling of claims pursuant to the policy. See Progressive Br. at 5-7. Progressive relies on a
2008 trial court decision, which precluded a UTPCPL claim based on an insurer’s conduct in
handling a claim. See Progressive Br. Ex. B, Bodnar v. State Farm Mutual Ins. Co., No. AR08001337, Memo. Op. 2. The trial court relied on Toy v. Metropolitan Life Insurance Co., 928
A.2d 186 (Pa. 2007), in which the Supreme Court held that the legislature enacted 42 Pa. C.S. §
8371 solely to address an insurer’s bad faith handling of claims, not to provide relief “to an
insured who alleges his insurer engaged in unfair or deceptive practices in soliciting the purchase
[of] a policy.” Id. at 200.

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The trial court reasoned that the Supreme Court in Toy had found that the bad faith
statute applied only to the handling of insurance claims because the UTPCPL did not provide a
remedy for such claims. Accordingly, it limited the UTPCPL to claims concerning the
solicitation of insurance policies, noting that: “[t]he Court appeared to recognize a legislative
scheme in which misconduct relating to the selling of a policy is governed by the [UTPCPL] and
misconduct related to the handling of claims allegedly due under the policy is governed by the
bad faith statute.” Ex. B, Memo. Op. at 2.
Gibson alleges only that Progressive breached its contract by denying coverage. See First
Am. Compl. ¶ 22. Similarly, the allegations in his UTPCPL claim relate solely to Progressive’s
refusal to provide coverage or failure to act in some way, rather than misfeasance or improper
performance. See id. ¶ 31 (“failing to promptly offer indemnification [and] failing to objectively
and fairly evaluate [Gibson’s] claims”); see also Hardinger v. Motorists Mut’l Ins. Co., No. 03115, 2003 WL 21250664, at *2 (E.D. Pa. Feb. 27, 2003) (allegations that insurer “unreasonably
withheld policy benefits and asserted denials without reasonable basis” were in essence a
challenge to the denial of benefits).
Although Gibson also incorporates the other allegations in his complaint, including his
claim that Progressive used a biased PRO, and this claim could be viewed as a type of
misfeasance, this claim cannot be brought under the UTPCPL because it relates to Progressive’s
handling of Gibson’s claim, rather than Progressive’s solicitation of the policy. Based on
Bodnar, I conclude that if the Supreme Court of Pennsylvania was faced with this issue, it would
hold that the UTPCPL solely relates to claims concerning the improper sale of a policy and the
statutory bad faith act is limited to claims concerning the handling of an insurance claim.
Accordingly, Gibson’s UTPCPL claim is dismissed.

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An appropriate order follows.

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