Webb et al v. The Travelers Indemnity Company et al
Filing
67
MEMORANDUM and ORDER granting in part and denying in part 55 plaintiff's Motion for Summary Judgment; and denying dfts' 58 Motion for Summary Judgment Signed by Honorable James M. Munley on 8/12/11 (sm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
HERMAN DOUGLAS and
CYNTHIA R. DOUGLAS,
:
No. 3:08cv1607
:
:
(Judge Munley)
Plaintiffs
:
:
v.
:
:
DISCOVER PROPERTY &
:
CASUALTY INSURANCE
:
COMPANY; THE TRAVELERS
:
INDEMNITY COMPANY; THE
:
TRAVELERS INDEMNITY
:
COMPANY OF AMERICA; THE
:
TRAVELERS INDEMNITY
:
COMPANY OF CONNECTICUT;
:
TRAVELERS PROPERTY AND
:
CASUALTY COMPANY OF
:
AMERICA; THE CHARTER OAK
:
FIRE INSURANCE COMPANY;
:
ST. PAUL TRAVELERS
:
COMPANIES, INC.; THE ST. PAUL
:
TRAVELERS COMPANIES, INC.;
:
THE TRAVELERS COMPANIES,
:
INC.; STANDARD FIRE INSURANCE :
COMPANY OF CONNECTICUT;
:
TRAVELERS INSURANCE GROUP
:
HOLDINGS, INC.; TRAVELERS
:
PROPERTY CASUALTY CORP.;
:
and THE PHOENIX
:
INSURANCE COMPANY,
:
:
Defendants
:
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
MEMORANDUM
Before the court for disposition are the parties’ cross-motions for
summary judgment. (Docs. 55, 58). Having been briefed, the motions are
ripe for disposition.
BACKGROUND
Plaintiff Herman Douglas was injured in a car accident on August 21,
2005. (Joint Stip. of Facts ¶ 1 (Doc. 55-1)).1 Herman Douglas settled a
The Joint Stipulation of Facts for Herman Douglas is not signed by
counsel for the defendants. (Doc. 55-1 at 2). The court considers the
1
claim with the third-party tortfeasor and seeks underinsured motorist
(“UIM”) benefits from Defendant Discover Property & Casualty Insurance,
Co. (“Discover”). (Id. ¶ 2). At the time of the accident, Abbott Laboratories
(“Abbott”) maintained an automobile insurance policy with Discover. (Id. ¶¶
4, 5). Herman Douglas was driving a car provided to him by Abbott at the
time of the accident. (Id. ¶ 6). The car was principally garaged in
Pennsylvania at the time of the accident. (Id. ¶ 8).
Beyond the facts stipulated, the defendants state that the policy was
“delivered” to Abbott in the state of Illinois. (Defs.’ Counterstatement of
Material Facts (“CSMF”) ¶ 10 (Doc. 63)). The defendants also state that
Abbott intended to waive UIM benefits in every jurisdiction permitted,
including Pennsylvania. (Id. ¶ 11). The policy was a commercial fleet
policy. (Id. ¶ 12). The policy contained a self-funded retention. (Id. ¶ 13).
The plaintiffs filed a declaratory judgment action in the Court of
Common Pleas of Luzerne County, Pennsylvania on August 5, 2008.
(Compl. (Doc. 1 at 9-28)). Count I of the complaint seeks a declaratory
judgment, essentially that the policy’s waiver of UIM protection is void
under 75 PA. CONS. STAT. ANN. § 1731(c.1), part of Pennsylvania’s Motor
Vehicle Financial Responsibility Law (“MVFRL”). (Id.) Count II of the
complaint raises a claim for bad faith under 42 PA. CONS. STAT. ANN. §
8371. (Id.) Count III of the complaint seeks the appointment of a special
master to adjudicate the claims of the members of a potential class action.
(Id.) The defendants filed a notice of removal on August 27, 2008. (Notice
of Removal (Doc. 1)).
On September 2, 2008 the defendants filed a motion to dismiss the
stipulation valid, however, because the defendants cite to the stipulation in
their own counterstatement of material facts. (See Doc. 63).
2
complaint. (Doc. 3). The motion to dismiss was denied on September 22,
2009. (Doc. 23).
The plaintiffs filed a motion to remand to state court on September 4,
2008. (Doc. 5). On September 17, 2008 the plaintiffs also filed a motion to
limit the defendants’ contact with putative class members. (Doc. 11). The
plaintiffs’ motions were denied on November 24, 2008. (Doc. 18).
The defendants answered the complaint on October 16, 2009 and
the parties engaged in discovery. (Doc. 23). On July 9, 2010 the plaintiffs
filed an unopposed motion to sever the claims of Plaintiffs Leroy and Anna
Webb from those of Plaintiffs Herman and Cynthia Douglas. (Doc. 39).
That motion was denied on August 4, 2010. (Doc. 42). On November 12,
2010, the plaintiffs moved for voluntary dismissal of Plaintiffs Leroy and
Anna Webb, which the court granted on November 15, 2010. (Docs. 53,
54).
On December 27 and 29, 2010, the remaining plaintiffs and
defendants filed their respective cross-motions for summary judgment.
(Docs. 55, 58). The motions have been briefed, bringing the case to its
present posture.
JURISDICTION
The plaintiffs are citizens of Pennsylvania and the various defendants
are incorporated and have their principal places of business in Illinois,
Minnesota, Connecticut, and Delaware. (Notice of Removal ¶ 5). The
amount in controversy exceeds $75,000.00. (Id. ¶ 9). Because there is
complete diversity of citizenship between the parties and the amount in
controversy exceeds $75,000.00, the court has removal jurisdiction over
the case. See 28 U.S.C. § 1332 (“district courts shall have original
jurisdiction of all civil actions where the matter in controversy exceeds the
sum or value of $75,000, exclusive of interest and costs, and is between . .
3
. citizens of different states[.]”); 28 U.S.C. § 1441 (A defendant can
generally remove a state court civil action to federal court if the federal
court would have had original jurisdiction to address the matter pursuant to
the diversity jurisdiction statute).
As a federal court sitting in diversity, we must apply state law.
Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000) (citing Erie
R.R. v. Tompkins, 304 U.S. 64, 78 (1938)). In this case, the relevant state
is Pennsylvania. If the state supreme court has not yet addressed an issue
before us, we must predict how that court would rule if presented with that
issue. Nationwide v. Mutual Ins. Co., 230 F.3d 634, 637 (3d Cir. 2000). In
so doing, we must examine the opinions of the lower state courts, and we
cannot disregard them unless we are convinced by other persuasive data
that the highest court would rule otherwise. Id.
LEGAL STANDARD
Before the court are the parties’ motions for summary judgment.
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law. See Knabe v.
Boury, 114 F.3d 407, 410 n.4 (3d Cir. 1997) (citing FED. R. CIV. P. 56(c)).
“[T]his standard provides that the mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly supported
motion for summary judgment; the requirement is that there be no genuine
issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 24748 (1986).
When considering a motion for summary judgment, the court must
examine the facts in the light most favorable to the party opposing the
motion. Int’l Raw Materials, Ltd. v. Stauffer Chem. Co., 898 F.2d 946, 949
4
(3d Cir. 1990). The burden is on the moving party to demonstrate that the
evidence is such that a reasonable jury could not return a verdict for the
non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A fact is material if it might affect the outcome of the suit under the
governing law. Id. Where the non-moving party will bear the burden of
proof at trial, the party moving for summary judgment may meet its burden
by showing that the evidentiary materials of record, if reduced to
admissible evidence, would be insufficient to carry the non-movant's
burden of proof at trial. Celotex v. Catrett, 477 U.S. 317, 322 (1986).
Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond its pleadings, and designate specific
facts by the use of affidavits, depositions, admissions, or answers to
interrogatories showing that there is a genuine issue for trial. Id. at 324.
DISCUSSION
The parties have filed cross-motions for summary judgment on
largely stipulated facts. We will address the competing motions jointly.
A. Necessity and Sufficiency of § 1731 Waiver
The parties dispute several issues regarding section 1731 of
Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”).
“The MVFRL requires insurers to offer underinsured motorist and
uninsured motorist (“UM”) coverage that compensates individuals for
damages sustained in accidents with uninsured or underinsured vehicles.
Purchase of UM and UIM coverage is optional, although to refuse such
coverage, an insured must sign rejection forms whose precise language is
dictated by statute[.]” Jackson v. Allstate Ins. Co., 441 F. Supp. 2d 728,
732-33 (E.D. Pa. 2006). Subsection 1731(a) is the mandatory offering
provision of the MVFRL, which states:
5
No motor vehicle liability insurance policy shall be
delivered or issued for delivery in this
Commonwealth, with respect to any motor vehicle
registered or principally garaged in this
Commonwealth, unless uninsured motorist and
underinsured motorist coverages are offered therein
or supplemental thereto in amounts as provided in
section 1734 (relating to request for lower limits of
coverage). Purchase of uninsured motorist and
underinsured motorist coverages is optional.
75 PA. CONS. STAT. ANN. § 1731(a).
UIM coverage, and its disclaimer, is dictated by subsection 1731(c)
of the MVFRL, which provides:
Underinsured motorist coverage.--Underinsured
motorist coverage shall provide protection for
persons who suffer injury arising out of the
maintenance or use of a motor vehicle and are
legally entitled to recover damages therefor from
owners or operators of underinsured motor
vehicles. The named insured shall be informed that
he may reject underinsured motorist coverage by
signing the following written rejection form:
REJECTION OF UNDERINSURED
MOTORIST PROTECTION
By signing this waiver I am rejecting
underinsured motorist coverage under
this policy, for myself and all relatives
residing in my household. Underinsured
coverage protects me and relatives
living in my household for losses and
damages suffered if injury is caused by
the negligence of a driver who does not
have enough insurance to pay for all
losses and damages. I knowingly and
voluntarily reject this coverage.
....................................
Signature of First Named Insured
....................................
Date
Id. § 1731(c) (emphasis added).
6
Subsection 1731(c.1) requires strict compliance with subsection (c):
Form of Waiver.--Insurers shall print the rejection
forms required by subsections (b) and (c) on
separate sheets in prominent type and location. The
forms must be signed by the first named insured
and dated to be valid. The signatures on the forms
may be witnessed by an insurance agent or broker.
Any rejection form that does not specifically comply
with this section is void.
Id. § 1731(c.1) (emphasis added).
The parties agree that Discover’s form deviates from the statutory
language quoted above. It states:
By signing this waiver I am rejecting underinsured
motorist coverage under this policy, for myself and
all relatives residing in my household. Underinsured
Motorists protects me and relatives living in my
household for losses and damages suffered if injury
is caused by the negligence of a driver who does
not have enough insurance to pay for all losses and
damages. I knowingly and voluntarily reject this
coverage.
(Abbott Laboratories Pennsylvania Underinsured Motorists Coverage
Selection/Rejection Form (Doc. 55-1 at 48) (emphasis added)). Thus,
Discover’s form refers to “Underinsured Motorists,” while the statutory
rejection language in subsection 1731(c) refers only to “Underinsured
Coverage.”
The defendants make several arguments in favor of their motion for
summary judgment on the plaintiffs claims as to section 1731. We will
address each argument in order.
1. Whether § 1731 Applies to Commercial Fleets
The defendants’ most broad argument is that section 1731 is a
consumer protection provision of the Pennsylvania Code, and that it is not
applicable to commercial fleet policies, such as Abbott’s. The defendants
analogize to the decision of the Supreme Court of Pennsylvania in Everhart
7
v. PMA Ins. Group, 938 A.2d 301 (Pa. 2007). There, the Supreme Court of
Pennsylvania held that section 1738 of the MVFRL, which requires
stacking of UM/UIM benefits absent a valid waiver, was not applicable to
commercial fleet policies. Id. at 302, 307. The majority, finding that the
statute was not unambiguous as to whether stacking was mandated in
commercial fleet policies, sought to ascertain the legislative intent behind
section 1738. The court found that mandating stacking on commercial
fleet policies would raise insurance premiums, undercutting the MVFRL’s
purpose of lowering insurance costs. Id. at 306. The court also found that
mandating stacking “would be inconsistent with the reasonable intent of the
contracting parties” and would ignore the fact that under common law
stacking of UIM coverage did not apply to commercial fleet policies. Id. at
306-07.
The defendants argue that subsection 1731(c), at issue here, is also
ambiguous because it refers to “households” and uses personal pronouns
like “I,” “my,” and “myself”– terms not typically used in reference to
corporations. Finding such an ambiguity, the defendants seek to
determine the legislative intent behind the subsection. They note that
there is no disparity of bargaining power between large corporations, such
as Abbott, and insurance companies, like Discover. Thus, there is no risk
of a contract of adhesion– the concern that animates section 1731 with
respect to individual consumers. The defendants add that section 1731
does not specifically refer to corporations, as such.
The plaintiffs respond that issue of stacking UM and UIM benefits,
analyzed in Everhart, is logically distinguishable from this case involving
only UIM benefits. In the commercial fleet context, a rule that UM and UIM
benefits will be stacked absent a valid waiver would potentially multiply the
8
benefit limits by the hundreds or thousands of vehicles insured under the
commercial fleet policy– an absurd result. No absurdity results from
requiring a valid UIM waiver for a commercial fleet policy– a driver simply
receives UIM benefits in the event that a waiver does not comply with
subsection 1731(c). Furthermore, the plaintiffs argue, there was no
preexisting rule at common law rendering UIM benefits inapplicable in the
commerical fleet context, as there had been with stacking of UIM benefits
in the commercial fleet context.
Finally, the plaintiffs point to a decision of the United States Court of
Appeals for the Third Circuit, Travelers Indemnity Co. of Illinois v.
DiBartolo, 171 F.3d 168, 169 (3d Cir. 1999), in which that court predicted
that the Supreme Court of Pennsylvania would hold that a corporation can
waive UM coverage just as an individual can. The plaintiff in that case,
DiBartolo, had argued that because the plain language of subsection
1731(b)– like 1731(c)– refers to “I,” “myself,” and “relatives residing in my
household,” the legislature could not have intended for corporations to
have the ability to waive UM coverage without the consent of the
employee. Id. at 170. The Third Circuit agreed with the trial court that “the
linguistic style of the rejection form, designed for easy comprehension,
does not evidence a legislative intent to prohibit corporations or other legal
entities from executing a waiver.” Id. (internal quotations omitted) (citing 1
PA. CONS. STAT. § 1902). The corporate employer in that case had used
the statutorily required waiver language, therefore DiBartolo was precluded
from receiving UM benefits. Id. at 172.2 The plaintiffs here argue, simply,
The court noted that had Travelers used language other than that
prescribed in subsection 1731(b), “it would have been out of compliance
with the law.” DiBartolo, 171 F.3d at 170, n.4.
2
9
that insofar as the court in DiBartolo found that a corporation can waive
UM benefits– so long as the corporation specifically complies with the
statutory waiver language– it is necessarily the case that section 1731
applies to corporate fleet policies.
The Third Circuit’s prediction that the Supreme Court of Pennsylvania
would rule that corporations can waive UM benefits by following subsection
1731(b) carries with it the necessary implication that corporations must
follow 1731(c) in order to waive UIM benefits. See DiBartolo, 171 F.3d at
170, n.4. We also do not find any ambiguity inherent in subsection
1731(c). The language used by the Pennsylvania legislature may be better
suited to an individual policy, but no terms in subsection 1731(c) purport to
exclude any entity from its mandate. We also find no merit in the
defendants’ reliance on the fact that subsection 1731(c) does not refer to
corporations– if the legislature wanted to exclude corporate policies from
the subsection’s coverage it could have done so explicitly. Finally, we are
not persuaded that the Supreme Court of Pennsylvania would treat section
1731 and section 1738 identically– the patent absurdity of stacking UM and
UIM benefits in the commercial fleet context is the strongest explanation
for that court’s decision in Everhart and no such absurdity results from
forcing corporations to comply with the simple language found in
subsection 1731(c).3 Accordingly, the defendants’ motion for summary
To the extent it is relevant, it is clear from the record that Abbott and
Discover did attempt to comply with subsection 1731(c), rendering
somewhat hollow the defendants argument that subsection 1731(c) does
not apply to corporations. The record shows that these entities sought to
waive UIM coverage in all the states which allowed waiver. The record
also shows that, with respect to Pennsylvania, the entities simply failed to
comply with subsection 1731(c), at the peril of the specific compliance
3
10
judgment will be denied with respect to whether section 1731 applies to
corporation. The plaintiffs’ motion will be granted with respect to the same.
2. Whether the Policy was Delivered or Issued for Delivery in
Pennsylvania
The defendants argue that it is the plaintiffs’ burden to prove that the
Abbott policy was delivered or issued for delivery in the state of
Pennsylvania. The defendants cite Bamber v. Lumbermans Mut. Cas. Co.,
680 A.2d 901, 903-04 (Pa. Super. Ct. 1996) which held that a policy issued
and delivered in Washington, D.C. for primary coverage of vehicles
registered in Washington, D.C., Illinois, and California– and incidentally
covering Bamber’s Pennsylvania-registered personal vehicle when used in
the course of employment– was not subject to the mandatory offering
provision of subsection 1731(a). The defendants contend that Abbott’s
policy was issued for delivery in Illinois.4 We note that 75 PA. CONS. STAT.
ANN. §§ 102 and 1702 do not define “delivery” or “issuance.”
We determine that there is no genuine issue of material fact but that
Abbott’s policy was issued for delivery in Pennsylvania. Preliminarily,
Bamber does not control our analysis. The car at issue there was the
plaintiff’s personal vehicle which enjoyed ancillary coverage under the
requirement of subsection 1731(c.1).
The plaintiffs frame the issue as one of choice of law. The
plaintiffs’ argument seems misplaced. The defendants are not arguing that
any other state’s law should apply in place of Pennsylvania law. The
defendants argue about how Pennsylvania law applies in this case– that is,
whether the policy was delivered or issued for delivery in Pennsylvania
such that subsection 1731(a) applies. Thus we do not have a choice of
law question before us.
4
11
commercial policy in that case. The policy in that case was issued in
Washington, D.C. to cover vehicles registered in D.C., Illinois, and
California. It was the plaintiff’s personal car that was registered in
Pennsylvania and plaintiff obtained coverage for that vehicle under his
employer’s policy only because of the fact that he happened to be using
the personal vehicle in the course of his employment. The case presently
before the court is not one of such limited facts– Discover clearly issued
the policy to Abbott in order to cover corporate vehicles registered in
Pennsylvania.
Turning to the policy itself, it is apparent that the defendants’
argument is unavailing. The policy is replete with references to
Pennsylvania law and clearly evinces that it has been created to insure
vehicles operating in Pennsylvania. (See, e.g., Pls.’s Ex. B, Pennsylvania
UM Coverage Selection / Rejection Form (Doc. 55-1 at 47); Pls.’s Ex. B,
Pennsylvania UIM Coverage Selection / Rejection Form (Doc. 55-1 at 48);
Pls.’s Ex. B, Pennsylvania Auto Supplemental Application (Doc. 55-1 at
49) (stating “Insurance companies operating in the Commonwealth of
Pennsylvania are required by law to make available for purchase the
following benefits to you. . .”); Pls.’s Ex. B, Pennsylvania Antifraud Notice
(Doc. 55-1 at 50)). Were the court to find that this policy is not within the
purview of section 1731, based on the defendants’ interpretation of
issuance and delivery, we would allow corporations to evade Pennsylvania
law based merely on a self-serving “delivery” location. We are convinced
that this was not the Pennsylania legislature’s intent in drafting subsection
1731(a). Accordingly, the defendants’ motion for summary judgment will
be denied with respect to whether Abbott’s policy was delivered or issued
for delivery in Pennsylvania. Summary judgment will be granted to the
12
plaintiffs as to this issue.
3. Whether Discover’s Waiver Substantially Complies With §
1731(c)
The defendants argue that Discover’s UIM waiver differs minimally
from the statutory form and, therefore, substantially complies with the
statute. The plaintiffs cite American Int’l Ins. Co. v. Vaxmonsky, 916 A.2d
1106 (Pa. Super. Ct. 2006), where the Pennsylvania Superior Court,
relying predominantly on subsection 1731(c.1), held that an insurer’s
underinsured motorist (“UIM”) coverage waiver was null and void for failure
to comply with Subsection 1731(c) of the MVFRL. This court has already
found Vaxmonsky persuasive in interpreting the specific compliance
requirements of subsection 1731(c.1) in a case similar to that before us.
See Grassetti v. Property & Cas. Ins. Co., No. 3:10cv2068, 2011 U.S. Dist.
LEXIS 42731 (M.D. Pa. Apr. 20, 2011) (applying Vaxmonsky in a UM
benefits case where plaintiff was covered by a personal automobile
insurance policy). Given that Discover’s UIM waiver form here does not
specifically comply with subsection 1731(c), it is void. By the terms of
subsection 1731(c.1), Pennsylvania law does not countenance substantial
compliance in this context. Accordingly, the defendants’ motion for
summary judgment will be denied. The plaintiffs’ motion for summary
judgment will be granted and the waiver is null and void for failure to
comply with subsection 1731(c).
4. Whether Occupants Can Reform Policy
The defendants argue that Herman Douglas is only eligible for such
benefits as Abbott wishes to provide him. Defendants argue that only
named insureds and relatives can reform an insurance policy– guests
cannot compel UIM benefits. See Pennsylvania Nat'l Mut. Cas. Co. v.
13
Black, 916 A.2d 569, 581, n.18 (Pa. 2007) (“it is not clear whether the
MVFRL mandates the offer of underinsured motorist coverage for guest
passengers”).
The plaintiffs respond that Herman Douglas was not a guest. He
was the primary driver of the vehicle in question, plaintiffs argue, and
clearly an intended beneficiary of Abbott’s policy. The plaintiffs base their
argument on the caveat in Black, that “occupants of vehicles, who are not
named insureds or resident relatives of named insureds, are class two
insureds who do not have a contractual relationship with the insurer as
they have not paid premiums for the coverage and are not specifically
intended beneficiaries of the policy.” Black, 916 A.2d at 572, n.3
(emphasis added) (citing Utica Mut. Ins. Co. v. Contrisciane, 473 A.2d
1005, 1010-11 (Pa. 1984).
Factually, we agree that Herman Douglas was not merely an
occupant or guest at the time of the accident. He was the driver of the
vehicle and covered by Abbott’s policy. The purpose of the policy was to
insure Abbott’s employees while they were driving. Legally, it is incomplete
to say that Herman Douglas is only eligible for those benefits which Abbott,
as the insured, wished to provide him. Herman Douglas is also eligible for
those benefits which Abbott may not have wished to provide him but which
Abbott did not disclaim in conformance with Pennsylvania law.
In summary, we conclude that Discover’s UIM waiver is null and void
under 75 PA. CONS. STAT. ANN. § 1731(c.1). Summary judgment will be
entered in favor of the plaintiffs on Count I of the complaint seeking a
declaratory judgment.
B. Bad Faith
Count II of the plaintiffs’ complaint alleges a violation of
Pennsylvania’s bad faith statute. Pennsylvania’s insurance bad faith
14
statute, 42 PA. CONS. STAT. ANN. § 8371, authorizes recovery for an
insurance company’s bad faith towards an insured. It provides for several
remedies upon a finding of bad faith: (1) an award of “interest on the
amount of the claim” at a rate equal to “the prime rate of interest plus 3%”;
(2) an award of “punitive damages against the insurer”; and/or (3) an
assessment of “court costs and attorney fees against the insurer.” Id.
The Court of Appeals for the Third Circuit has adopted the legal
standard established by the Pennsylvania Superior Court for testing the
sufficiency of bad faith claims under section 8371, “both elements of which
must be supported with clear and convincing evidence: (1) that the insurer
lacked a reasonable basis for denying benefits; and (2) that the insurer
knew or recklessly disregarded its lack of reasonable basis.” Klinger v.
State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997) (citing
Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa.
Super. Ct. 1994)). Thus, “[i]n a bad faith case, summary judgment is
appropriate when there is no clear and convincing evidence that the
insurer's conduct was unreasonable and that it knew or recklessly
disregarded its lack of a reasonable basis in denying the claim.” Bostick v.
ITT Hartford Group, Inc., 56 F. Supp. 2d 580, 587 (E.D. Pa. 1999) (citing
Jung v. Nationwide Mutual Fire Insurance Co., 949 F. Supp. 353 (E.D. Pa.
1997); Leo v. State Farm Mutual Automobile Insurance Co., 939 F. Supp.
1186, 1192-1193 (E.D. Pa. 1996)).
While this test represents the general criteria, “[i]t is now clear . . .
that section 8371 is not restricted to an insurer's bad faith in denying a
claim. An action for bad faith may also extend to the insurer's investigative
practices.” Sawyer v. Fireman’s Fund Ins. Co., No. 3:03-cv-0233, 2006 WL
167814, at *8 (M.D. Pa. Jan. 20, 2006) (citing O'Donnell v. Allstate Ins.
Co., 734 A.2d 901, 906 (Pa. Super. Ct. 1999). The Third Circuit has
15
recognized that bad faith conduct extends to “a frivolous or unfounded
refusal to pay, lack of investigation into the facts, or a failure to
communicate with the insured.” Frog, Switch & Mfg. Co., Inc. v. Travelers
Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999).
The defendants argue that they did not act in bad faith towards the
plaintiffs because they reasonably relied on Pennsylvania state court
decisions in Bamber and Everhart in declining to pay UIM benefits. The
plaintiffs argue that the defendants did not really act in reliance on this
Pennsylvania caselaw, but rather acted in bad faith by ignoring Subsection
1731(c.1) and Vaxmonsky. We conclude that a genuine issue of material
fact remains as to whether defendants acted in bad faith towards plaintiffs.
A reasonable jury could credit either party’s account of what motivated
Discover’s decision to deny benefits. Accordingly, the parties’ respective
motions for summary judgment will be denied.
C. Class Action and Other Defendants
The defendants other than Discover move for summary judgment,
arguing that there is no genuine issue of material fact as to whether they
violated section 1731 or acted in bad faith towards plaintiffs. The plaintiffs
object, arguing that it would be premature to grant summary judgment
before allowing discovery into these defendants towards a potential class
action. They note that the parties have contemplated such discovery since
March 2010. The plaintiffs also request that the court appoint a special
master to expedite this process under Federal Rule of Civil Procedure 53.
The defendants’ motion for summary judgment will be denied. As per
the parties’ joint case management plan and as agreed during the case
management conference of March 9, 2010, a second case management
conference will be scheduled to permit the plaintiffs limited discovery
regarding class certification. The court will address the plaintiffs’ request
16
for a special master during this second case management conference.
CONCLUSION
For the reasons stated above, the defendants’ motion for summary
judgment will be denied and the plaintiffs’ motion for summary judgment
will be granted, in part, and denied, in part. Discover’s motion for summary
judgment will be denied with respect to Counts I and II. The motion for
summary judgment for lack of involvement, filed by the non-Discover
Defendants, will also be denied. The plaintiffs’ motion for summary
judgment will be granted with respect to Count I of the complaint, seeking a
declaratory judgment that the waiver is null and void. The motion will be
denied with respect to Count II for bad faith. A second case management
conference will be scheduled to discuss discovery into a potential class
action certification and appointment of a special master. An appropriate
order follows.
17
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
HERMAN DOUGLAS and
CYNTHIA R. DOUGLAS,
:
No. 3:08cv1607
:
:
(Judge Munley)
Plaintiffs
:
:
v.
:
:
DISCOVER PROPERTY &
:
CASUALTY INSURANCE
:
COMPANY; THE TRAVELERS
:
INDEMNITY COMPANY; THE
:
TRAVELERS INDEMNITY
:
COMPANY OF AMERICA; THE
:
TRAVELERS INDEMNITY
:
COMPANY OF CONNECTICUT;
:
TRAVELERS PROPERTY AND
:
CASUALTY COMPANY OF
:
AMERICA; THE CHARTER OAK
:
FIRE INSURANCE COMPANY;
:
ST. PAUL TRAVELERS
:
COMPANIES, INC.; THE ST. PAUL
:
TRAVELERS COMPANIES, INC.;
:
THE TRAVELERS COMPANIES,
:
INC.; STANDARD FIRE INSURANCE :
COMPANY OF CONNECTICUT;
:
TRAVELERS INSURANCE GROUP
:
HOLDINGS, INC.; TRAVELERS
:
PROPERTY CASUALTY CORP.;
:
and THE PHOENIX
:
INSURANCE COMPANY,
:
:
Defendants
:
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
ORDER
AND NOW, to wit, this 12th day of August 2011, upon
consideration of the parties’ cross-motions for summary judgment (Docs.
55, 58) it is HEREBY ORDERED that the defendants’ motion for summary
judgment (Doc. 58) will be DENIED and the plaintiffs’ motion for summary
judgment (Doc. 55) will be GRANTED, in part, and DENIED, in part, as
follows:
•
The defendants’ motion for summary judgment will be denied with
respect to Counts I and II, and with respect to dismissal of the non18
Discover Defendants.
•
The plaintiffs’ motion for summary judgment will be granted with
respect to Count I for a declaratory judgment that Discover’s waiver
is null and void and denied with respect to Count II for Bad Faith.
The court will schedule a case management conference to permit limited
discovery into class action certification and to entertain the plaintiffs’
request for the appointment of a special master.
BY THE COURT:
s/ James M. Munley
JUDGE JAMES M. MUNLEY
United States District Court
19
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