HOMER v. NATIONWIDE MUTUAL INSURANCE COMPANY
Filing
45
MEMORANDUM OPINION indicating that, for the reasons stated more fully within, the Court finds Homer has not alleged facts sufficient to state a claim for insurance bad faith or violation of the UTPCPL. Nationwide's Motion to Dismiss 18 will be granted and Homers Amended Complaint will be dismissed, with prejudice. An appropriate order follows. Signed by Judge Nora Barry Fischer on 8/26/16. (jg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
MARC HOMER,
)
)
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
NATIONWIDE MUTUAL INSURANCE
COMPANY,
Defendant.
Civil Action No. 15-1184
Hon. Nora Barry Fischer
MEMORANDUM OPINION
I.
INTRODUCTION
This is a diversity action filed by Marc Homer (“Homer” or “Plaintiff”) against
Nationwide Mutual Insurance Company (“Nationwide” or “Defendant”) alleging insurance bad
faith and violations of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”),
73 Pa. Cons. Stat. §§ 201.1 et seq., for actions taken by Nationwide during a previous
underinsured motorist trial between the same parties. Nationwide has moved for dismissal of
this action on the grounds that Homer cannot rely on litigation conduct as the basis for an
insurance bad faith claim under Pennsylvania law and that he has not sufficiently pled the
elements of a UTPCPL claim. The case appears to present an issue of first impression with
respect to litigation conduct and insurance bad faith. The Motion has been extensively briefed,
(Docket Nos. 7, 9, 12, 19, 31, 39, 44), and the Court heard oral argument1 on May 11, 2016.
(Id.). The Motion is now ripe for disposition. After careful consideration of the parties’
1
The parties elected not to order the transcript from the oral argument. (Docket No. 35).
1
positions and an exhaustive review of the relevant legal authority in Pennsylvania and other
jurisdictions, for the reasons that follow, Nationwide’s Motion to Dismiss [18] is granted.
II.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY2
Homer was injured in a motor vehicle accident on May 24, 2008. (Docket No. 17 at ¶¶ 3-
8). He suffered a number of medical problems as a result of the accident, including traumatic
head injury, impaired cognition, and neck and back problems. (Id. at ¶ 9). The third-party driver
who crashed into Homer was insured up to $25,000. (Id. at ¶ 11). Homer eventually settled with
the third-party driver for $24,500. (Id. at ¶ 31). At the time of the accident, Homer was driving a
car owned by his mother, who had Underinsured Motorist (“UIM”) coverage though Nationwide
up to $500,000 for bodily injury. (Id. at ¶¶ 14-19, 34). Homer made a written demand for the
full $500,000 to compensate him for the injuries he sustained. (Id. at ¶¶ 25, 34). Nationwide
offered $12,500, which Homer rejected, and the case proceeded to trial in the Court of Common
Pleas of Allegheny County. (Id. at ¶¶ 34-37).
On June 1, 2015, while the trial was ongoing, Homer’s counsel drafted, and the parties
signed, a Binding “High-Low” Settlement Agreement (the “Agreement”),3 which stipulated that
Homer would receive a settlement payment within the range of $100,000 to $300,000, depending
on the verdict of the jury. (Id. at ¶ 38; Docket No. 17-1 at 35-36). In addition to a monetary
settlement within the agreed-upon range, the Agreement contained the following provisions that
are the basis of the present case:
5. All claims for bad faith for acts or omissions occurring prior to the date of the
execution of this Agreement, including all claims contained in GD No. 13-009777,
2
For the purposes of a Motion to Dismiss, the Court assumes as true the factual allegations in Homer’s Amended
Complaint. Connelly v. Lane Const. Corp., 809 F.3d 780, 790 (3d Cir. 2016).
3
Pennsylvania courts have held that high-low agreements are settlement agreements. Vargo v. Mangus, 94 Fed.
Appx. 941, 943 (3d Cir. 2004).
2
are dismissed with prejudice and barred, released and controlled by this Binding
High- Low Agreement.
6. Any claims for bad faith for acts or omissions occurring after the date of the
execution of this Binding High-Low Agreement will not be barred by the
Agreement.
(Docket No. 17-1 at 35-36) (emphasis added).
On the same day the Agreement was signed, Nationwide introduced into evidence
videotaped testimony of two medical experts during its case-in-chief. (Docket No. 17 at ¶¶ 39,
41). The following day, June 2, 2015, both parties gave closing arguments, and counsel for
Nationwide referenced the testimony of the medical experts. (Id. at ¶¶ 79-82). Homer alleges
that Nationwide knew these experts were biased and, thus, committed bad faith by offering their
testimony at trial and relying on same during closing arguments. (Docket No. 31 at 2). On June
2, 2015, the jury returned a verdict in favor of Homer for $1.61 million dollars. (Id. at 4). Two
days later, Nationwide filed a motion to mold the verdict, seeking to have the Judge reduce the
verdict to $300,000 and to dismiss Homer’s bad faith claim for acts that occurred “as of June 1,
2015.”
(Docket No. 17 at ¶¶ 89-96).
In response, Homer objected to the wording of
Nationwide’s motion, arguing instead that given the Agreement, it should reflect “all claims for
bad faith or acts or omissions occurring prior to June 1, 2015” be dismissed with prejudice.
(Docket No. 17-2 at 72-74, 77). The Court of Common Pleas of Allegheny County ruled in
favor of Homer and against Nationwide. (Docket No. 31 at 16).
Homer filed the present lawsuit on September 10, 2015, alleging Nationwide acted in bad
faith when it introduced the videotaped testimony of its experts at trial, referenced the experts’
testimony during closing arguments, and filed the motion to mold with what Homer believes was
inaccurate wording. (Docket No. 1). Nationwide moved to dismiss. (Docket No. 6). Following
3
briefing and argument, the Court ruled on the record that Homer’s initial Complaint was
conclusory in nature and did not meet the federal pleading requirements, after which Homer
requested, and was granted, leave to amend. (Docket No. 14). Homer then proceeded to file an
Amended Complaint which addressed in more detail his allegations of bias exhibited by
Nationwide’s experts, the use of those experts at trial, and the circumstances surrounding the
Agreement. (Docket Nos. 17; 31 at 5). As requested by the Court, Homer also provided relevant
portions of the trial transcript and the deposition testimony and reports of the challenged
experts.4 (Id.).
A. Nationwide’s Litigation Conduct
Nationwide’s first expert, Dr. Frances T. Ferraro, is a neurosurgeon. (Docket No. 17 at
¶¶ 43-44). The crux of Homer’s argument regarding Dr. Ferraro’s bias is that his testimony
contradicted his report. (Id. at ¶¶ 69, 81-83). Dr. Ferraro noted in his report that Homer’s “. . .
major problem at this time appears to be his cognitive memory issues.” (Docket No. 31 at 8).
Nevertheless, at his deposition, and after “Nationwide’s employee met with [him] in private,”
Homer claims Dr. Ferraro dramatically changed his testimony.
(Id.) (“The doctor instead
testifies that Plaintiff’s major ‘complaint’ during Dr. Ferraro’s examination was not neck or back
pain, but, actually from Plaintiff’s perspective a complaint about impaired cognition. Dr. Ferraro
then concluded in his deposition that as a neurosurgeon, he was not qualified to address such a
complaint.”) (emphasis in the original).
Nationwide’s second expert, Dr. James D. Petrick, a clinical neurologist, reported that he
4
Since these documents are attached to the Amended Complaint, the Court may consider them on a motion to
dismiss. Bruni v. City of Pittsburgh, No. 15-CV-1755, 2016 U.S. App. LEXIS 10019 (3d Cir. June 1, 2016) (“The
court may . . . rely upon ‘exhibits attached to the complaint and matters of public record.’”) (quoting Pension Benefit
Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)); see also Schmidt v. Skolas, 770 F.3d
241, 249 (3d Cir. 2014).
4
performed “a comprehensive battery of neuropsychological measures” on Homer. (Docket No.
17 at ¶¶ 50-51). From these tests, Dr. Petrick concluded that Homer suffered from depression
but was otherwise normal, did not have significant cognitive defects or traumatic brain injury,
and could continue working as a mechanical engineer. (Id. at ¶¶ 52-55). When cross-examined
by Plaintiff’s counsel, Dr. Petrick admitted that 60% of his examinations were performed for
employers and insurance companies and 30% of his entire practice is defense medical
examinations. (Id. at ¶¶ 59-60). Homer’s attorney cross-examined Dr. Petrick on sixteen of his
past reports, and in all sixteen he conceded he was a defense expert and testified in each of those
cases that there was no cognitive defect or disability. (Id. at ¶¶ 61-63). He was then asked about
another report which he submitted at the request of a plaintiff’s attorney where he concluded that
the individual in that case could not return to work. (Id. at ¶¶ 65-67). Homer avers that Dr.
Petrick was “devastated” by this cross-examination as it showed Dr. Petrick would always
support whichever party retained him. (Id. at ¶ 71).
During closing arguments, the attorney for Nationwide recapped the testimony of both
experts. (Id. at ¶¶ 79-84). Homer now argues that in light of the facts described above,
Nationwide knew or should have known that the experts were biased and should not have used
their testimony at trial or referenced it again during closing arguments.
B. Nationwide’s Motion to Mold
As noted, Nationwide filed a motion to mold the verdict pursuant to the High-Low
Agreement and to dismiss the bad faith claim with prejudice. (Id. at ¶ 89). Nationwide’s motion
to mold stated: “Plaintiff’s bad faith claim is dismissed with prejudice as of June 1, 2015.” (Id.
at ¶ 91). Homer argues that as written, Nationwide’s motion would have dismissed any and all
5
bad faith claims, in particular those that occurred after, but on the same day as, the signing of the
High-Low Agreement. (Id. at ¶¶ 90-96). Homer counters Nationwide’s argument that its motion
was “in artfully [sic] drafted,” arguing “Plaintiff pointed out this effect in Plaintiff’s Response to
Defendant’s Motion to Mold Verdict and Defendant never sought to correct the same.” (Id. at ¶¶
95-96).
III.
LEGAL STANDARD
A valid complaint requires only “a short and plain statement of the claim showing that
the pleader is entitled to relief.” FED. R .CIV. P. 8(a)(2). To survive a motion to dismiss brought
pursuant to Federal Rule of Civil Procedure 12(b)(6), “a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). The United States Supreme Court in Iqbal clarified that its decision in Twombly
“expounded the pleading standard for ‘all civil actions.’” Iqbal, 556 U.S. at 684. The Supreme
Court further explained that even though a court must accept as true all of the factual allegations
contained in a complaint, that requirement does not apply to legal conclusions; therefore, the
pleadings must include factual allegations to support the legal claims asserted. Id. at 678-79.
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. at 678 (citing Twombly, 550 U.S. at 555). Thus, “[a]lthough a
reviewing court now affirmatively disregards a pleading’s legal conclusions, it must still . . .
assume all remaining factual allegations to be true, construe those truths in the light most
favorable to the plaintiff, and then draw all reasonable inferences from them.” Connelly, 809
F.3d at 790 (citing Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 154 n.1 (3d Cir. 2014)).
6
The facial plausibility requirement is met “when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a
sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly,
550 U.S. at 556–57) (internal citations omitted). Furthermore, the determination as to whether a
complaint contains a plausible claim for relief is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id. at 679 (citation
omitted).
In light of Iqbal, the United States Court of Appeals for the Third Circuit has instructed
that district courts should first separate the factual and legal elements of a claim, and accepting
the “well-pleaded facts as true,” should then “determine whether the facts alleged in the
complaint are sufficient to show that the plaintiff has a ‘plausible claim for relief.’” Fowler v.
UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) (citing Iqbal, 556 U.S. at 679). The matter
for this Court’s determination is not whether the pleading party ultimately will prevail on the
claim, but rather whether that party is entitled to offer evidence in support of it. United States ex
rel. Wilkins v. United Health Grp., 659 F.3d 295, 302 (3d Cir. 2011). Accordingly, a plaintiff
must plead “factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550
U.S. at 556). As part of this task, this Court must “identify those allegations that, being merely
conclusory, are not entitled to the presumption of truth.” Connelly, 809 F.3d at 789. The Court
is mindful that to meet the standard a plaintiff “need only put forth allegations [of fact] that raise
a reasonable expectation that discovery will reveal evidence of the necessary element.” Fowler,
7
578 F.2d at 213 (internal quotations omitted); see also Connelly, 809 F.3d at 791.
In considering a motion to dismiss, courts are not permitted “to go beyond the facts
alleged in the Complaint and the documents on which the claims made therein were based.” In
re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1425 (3d Cir. 1997). A court may,
however, consider documents attached to the complaint. Bruni, 2016 U.S. App. LEXIS 10019,
at *12 (“The court may . . . rely upon ‘exhibits attached to the complaint and matters of public
record.’”) (quoting Pension Benefit Guar. Corp., 998 F.2d at 1196); see also Schmidt, 770 F.3d
at 249. A court must treat a motion to dismiss as one for summary judgment only when “other
‘matters outside the pleadings are presented to and not excluded by the court.’” Bruni, 2016 U.S.
App. LEXIS 10019, at *12 (quoting FED. R. CIV. P. 12(d)). Under those circumstances, “‘[a]ll
parties must be given a reasonable opportunity to present all the material that is pertinent to the
motion.’” Id. (quoting FED. R. CIV. P. 12(d)).
IV.
DISCUSSION
As an initial matter, the Court finds that the parties have not presented “other ‘matters
outside the pleadings.’” Id. (quoting FED. R. CIV. P. 12(d)). Accordingly, the Court will treat
Nationwide’s motion as a motion to dismiss and not as a motion for summary judgment. The
Court will separately address Homer’s insurance bad faith and UTPCPL claims.
A. Insurance Bad Faith Claim
Bad faith on the part of an insurer under 42 Pa. Cons. Stat. § 8371 is defined as a
“frivolous or unfounded refusal to pay proceeds of a policy.” Romano v. Nationwide Mut. Fire
Ins. Co., 646 A.2d 1228, 1232 (Pa. Super. Ct. 1994) (citations omitted). The standard that a
plaintiff must meet under Pennsylvania law is a relatively high one:
8
To succeed in a bad faith claim, the insured must present clear and convincing
evidence that “the insurer did not have a reasonable basis for denying benefits under
the policy and that the insurer knew of or recklessly disregarded its lack of
reasonable basis in denying the claim.” O’Donnell v. Allstate Ins. Co., 734 A.2d 901,
906 (Pa. Super. Ct. 1999), (citing MGA Ins. Co. v. Bakos, 699 A.2d 751, 754 (Pa.
Super. Ct. 1997)). Bad faith in the context of insurance litigation has been defined as
“any frivolous or unfounded refusal to pay proceeds of [a] policy.” Adamski v.
Allstate Ins. Co., 738 A.2d 1033, 1036 (Pa. Super. Ct. 1999). To constitute bad faith
it is not necessary that the refusal to pay be fraudulent. However, mere negligence or
bad judgment is not bad faith. Id. To support a finding of bad faith the insurer’s
conduct must be such as to “import[ ] a dishonest purpose.” Id. It also must be shown
that the insurer breached a known duty (i.e., good faith and fair dealing), through
some motive of self interest or ill will. Id.
Bonenberger v. Nationwide Mut. Ins. Co., 791 A.2d 378, 380 (Pa. Super. Ct. 2002); see also
Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005) (setting forth the
elements of a bad faith claim); W.V. Realty, Inc. v. N. Ins. Co., 334 F.3d 306, 312 (3d Cir. 2003)
(same). Bad faith conduct “‘implies an actual, subjective decision to commit a wrong act.’”
Schleinkofer v. Nat’l Cas. Co., 339 F. Supp. 2d 683, 688 (W.D. Pa. 2004) (quoting Danley v.
State Farm Mutual Auto. Ins. Co., 808 F. Supp. 399, 402 (M.D. Pa. 1992)).
Nationwide takes the position that there is no precedent under Pennsylvania law for
litigation tactics to serve as the basis of a bad faith claim. (Docket No. 19 at 1). It argues that
allowing Homer’s Amended Complaint to go forward would “open the doors for any insurer to
be subject to a bad faith lawsuit for putting on a defense at trial and [would] allow[] plaintiffs to
dictate defendants’ trial strategy.” (Docket No. 19 at 14). Homer counters that courts in
Pennsylvania have held that an insurer’s conduct during the course of litigation may support a
finding of bad faith. (Docket No. 31 at 11-12).
Review of Pennsylvania case law does not yield a hard and fast rule regarding what types
of litigation tactics may serve as the basis for an insurance bad faith claim. Yet, some decisions
indicate that certain acts committed during the course of litigation can constitute bad faith.
9
O’Donnell, 734 A.2d at 906. Courts are also mindful that all litigation is inherently adversarial
and defendant insurers have a right to defend themselves in court. Therefore, state and federal
courts in Pennsylvania have allowed bad faith claims for certain types of litigation conduct and
not others, such as discovery violations:
The Pennsylvania Superior Court has held that bad faith is actionable regardless of
whether it occurs before, during or after litigation. O’Donnell v. Allstate Ins. Co.,
734 A.2d 901, 906 (Pa. Super. 1999) (“[W]e refuse to hold that an insurer’s duty to
act in good faith ends upon the initiation of suit by the insured.”). The Superior Court
made quite clear, however, that this did not mean that insureds may recover under
Pennsylvania’s bad faith statute “for discovery abuses by an insurer or its lawyer in
defending a claim predicated on its alleged prior bad faith handling of an insurance
claim.” Id. at 908 (quoting Slater v. Liberty Mut. Ins. Co., No. 98–1711, 1999 WL
178367, at *2 n.3 (E.D. Pa. Mar. 30, 1999)). This general proposition comes with the
caveat that using litigation in a bad faith effort to evade a duty owed under a policy
would be actionable under Section 8371.
In those cases in which nothing more than discovery violations were alleged, courts
have declined to find bad faith. . . . .
W.V. Realty, Inc., 334 F.3d at 313; see also Slater, 1999 WL 178367, at *2 (“Section 8371
provides a remedy for bad-faith conduct by an insurer in its capacity as an insurer and not as a
legal adversary in a lawsuit filed against it by an insured. The court is confident that the
legislature did not contemplate a potentially endless cycle of § 8371 suits, each based on alleged
discovery abuses by the insurer in defending itself in the prior suit.”).
There are a few cases outside the discovery context where courts have allowed bad faith
claims to go forward. In one case, a court denied a motion to dismiss a bad faith claim premised
on an insurance company’s “misrepresentations to the court” and filing of abusive motions
during an insurance coverage action. See Gen. Refractories Co. v. Fireman’s Fund Ins. Co.,
2002 WL 376923, at *3 (E.D. Pa. Feb. 28, 2002), reversed in part on other grounds, 337 F.3d
297 (3d Cir. 2003) (“Since Plaintiff’s cause of action for insurance bad faith is not entirely
10
founded on Defendants’ discovery tactics, the Court cannot say, at this time, that Plaintiffs
cannot prove any set of facts which would entitle them to relief . . . .”). In another case, the court
allowed a bad faith claim where the insurer “engaged in obstructive conduct and induced
[plaintiff] to discontinue his state court suit by misrepresenting its intent to evaluate and settle his
claim.” Cooper v. Nationwide Mut. Ins. Co., 2002 WL 31478874, at *4 (E.D. Pa. Nov. 7, 2002).
A third court refused to dismiss a bad faith claim where the insurer allegedly filed a baseless
counterclaim against the insured in a coverage action. Krisa v. The Equitable Life Assurance
Soc., 109 F. Supp. 2d 316, 321 (M.D. Pa. 2000). Consequently, a somewhat ill-defined line
appears to be drawn between conduct which can be described as “defending the claim” and that
which suggests “that the conduct was intended to evade the insurer’s obligations under the
insurance contract.” W.V. Realty, Inc., 334 F.3d at 313-14.
The parties cite a few cases specifically relating to expert witnesses, none of which are
completely analogous. Nationwide points to Gallatin Fuels, Inc. v. Westchester Fire Ins. Co.,
2006 WL 2289789, at *7 (W.D. Pa. Jan. 13, 2006).
In Gallatin, the plaintiff argued the
insurance company’s use of an expert was in bad faith because the expert’s methodology had no
basis in Pennsylvania law and the expert had never actually applied that methodology before. Id.
The court rejected that argument, finding it to be “a common and acceptable litigation tactic that
Westchester had every right to employ” and noted that the plaintiff could subject the expert to
vigorous cross-examination. Id. Homer cites to Hollock v. Erie Ins. Exchange, 842 A.2d 409
(Pa. Super. Ct. 2004), for the proposition that a pattern and practice of choosing biased experts
can constitute a bad faith claim.
The facts in Hollock, however, were considerably more
egregious than the present case. See id. at 416 (characterizing the insurance company’s conduct
11
as “an intentional attempt to conceal, hide or otherwise cover-up the conduct of [its]
employees”).
In other jurisdictions, courts have developed more comprehensive rules for dealing with
bad faith claims premised on litigation conduct. Essentially four approaches are employed. See
Knotts v. Zurich Ins. Co., 197 S.W.3d 512, 518-20 (Ky. 2006) (collecting decisions). Arkansas,
Wyoming, and Missouri have a blanket prohibition on introducing evidence of litigation conduct
to show an insurer’s bad faith. See Sinclair v. Zurich American Ins. Co., 129 F. Supp. 3d 1252,
1258 (D.N.M. 2015); Knotts, 197 S.W.3d at 518 n.3.
California takes another approach,
allowing for “the introduction of unreasonable settlement behavior (specifically, low settlement
offers) that occurs after suit has been filed while prohibiting the admission of litigation conduct,
techniques, and strategies.” Knotts, 197 S.W.3d at 519 (surveying California case law). At least
one state, West Virginia, takes a more permissive approach and allows the introduction of
litigation strategies and techniques as long as the insurer knowingly encouraged, directed,
participated in, relied upon, or ratified the alleged wrongful conduct. See Barefield v. DPIC
Companies, Inc., 600 S.E.2d 256, 271 (W.V. 2004).
The fourth approach, and that which appears to be the one used in the greatest number of
jurisdictions, allows evidence of litigation conduct to be admissible as evidence of bad faith in
“rare cases involving extraordinary facts.”
Sinclair, 129 F. Supp. 3d at 1258 (collecting
decisions). This view allows for the possibility that particularly egregious litigation conduct may
constitute bad faith, but places significant emphasis on the interests of insurers in defending
themselves, the responsibility of their attorneys to zealously represent them, the risk of confusion
to the jury, and the ability of courts and rules of civil procedure to remedy most litigation abuses.
12
See e.g., Timberlake Const. Co. v. U.S. Fidelity & Guar. Co., 71 F.3d 335, 341 (10th Cir. 1995);
Sinclair, 129 F. Supp. 3d at 1258; Palmer v. Farmers Ins. Exchange, 861 P.2d 895, 913-15
(Mont. 1993); Parsons v. Allstate Ins. Co., 165 P.3d 809, 818-19 (Colo. App. 2006); see also The
Insurer’s Duty of Good Faith in the Context of Litigation, 60 GEO. WASH. L. REV. 1931, 1976-79
(Aug. 1992) (“This Note advocates excluding evidence of postfiling conduct unless its probative
value substantially outweighs its prejudicial effect.
At the very least, courts approving
previously unprecedented inroads upon the practical access of insurers to the courts should
consider more carefully the costs and benefits of their decisions.”).
In summary, the four approaches are: (1) most litigation conduct can constitute bad faith;
(2) no litigation conduct can constitute bad faith; (3) only litigation conduct relating to settlement
offers can constitute bad faith; and (4) litigation conduct can constitute bad faith but only in “rare
cases involving extraordinary facts.” It appears that the Supreme Court of Pennsylvania has not
adopted an approach, to date. While other courts in the Commonwealth have found various
types of litigation conduct to either constitute bad faith or not, no prior case is directly on point
and these cases generally do not establish an overarching rule. See supra at 7-10. Thus, this
Court must predict how Pennsylvania’s highest court would decide the issue. Kleinknecht v.
Gettysburg Coll., 989 F.2d 1360, 1365-66 (3d Cir. 1993). The Court now predicts that the
Supreme Court of Pennsylvania would adopt the fourth approach described above, i.e., that
evidence of litigation conduct can be admissible as evidence of bad faith but only in “rare cases
involving extraordinary facts.”
In this Court’s view, the Supreme Court of Pennsylvania would mostly likely adopt this
approach for three reasons. First, it is the approach that most effectively balances an insurer’s
13
interest in defending itself and the ability of courts and rules of civil procedure to handle most
litigation abuses with the relatively broad scope of § 8731. The approaches that allow either the
vast majority of litigation conduct or no litigation conduct to constitute bad faith do not
adequately balance the competing sets of interests. Second, this is the approach used in most
jurisdictions. Sinclair, 129 F. Supp. 3d at 1258 (finding on an issue of first impression under
New Mexico law “I believe that New Mexico courts would follow what appears to be the
majority view that allows evidence of bad faith in rare cases involving extraordinary facts”).
Third, and most importantly, this is the only approach that is consistent with the Pennsylvania
case law that already exists on the issue. As already discussed, the Superior Court has made
clear that § 8731 applies to conduct before, during, and after litigation, but that it does not
include minor or routine litigation conduct, such as discovery abuses. O’Donnell, 734 A.2d at
906-10. Subsequent decisions have allowed bad faith claims for more egregious conduct, such
as filing a baseless counter claim in a coverage action, Krisa, 109 F. Supp. 2d at 321, an insurer
inducing the plaintiff to drop his lawsuit by misrepresenting its intent to settle his claim, Cooper,
2002 WL 31478874, at *4, or actions described as “an intentional attempt to conceal, hide or
otherwise cover-up the conduct of [insurer’s] employees,” Hollock, 842 A.2d at 416. Other
decisions have refused to allow bad faith claims for actions which amounted to “a common and
acceptable litigation tactic[.]” Gallatin, 2006 WL 2289789, at *7.
Having concluded that Pennsylvania precedent is most consistent with the fourth of the
approaches described above, the Court now adopts the approach described in Sinclair, i.e., that
evidence of litigation conduct is admissible as evidence of bad faith, but only in “rare cases
involving extraordinary facts.” 129 F. Supp. 3d at 1258. With this standard in mind, the Court
14
will evaluate each of Homer’s allegations, in turn.
i.
The Use of Dr. Ferraro’s Testimony
Homer contends Nationwide acted in bad faith when it played Dr. Ferraro’s videotaped
deposition testimony at trial because it knew he was biased in its favor. (Docket No. 17 ¶ at 98).
Unlike his allegations regarding Dr. Petrick (who is discussed below), Homer makes no
accusation that Dr. Ferraro always finds in favor of whichever side pays him, always appears for
defendants, or anything similar. (See generally Docket Nos. 17 at ¶¶ 81-84; 30 at ¶¶ 42-53; 31 at
8-9). Rather, the entire claim of bias stems from the fact that Dr. Ferraro noted in his report that
Homer’s “. . . major problem at this time appears to be his cognitive memory issues.” (Id.).
Homer attempted, during cross-examination and attempts now, to characterize this statement as
Dr. Ferraro diagnosing Homer with cognitive problems. (Id.). Homer then argues that Dr.
Ferraro “backtracked” under cross-examination and “dramatically changed his opinion” when he
explained that he meant in his report that the cognitive issues were Homer’s main complaint and
that he did not, and is not qualified to, diagnose same. (Id.). Homer contends that this purported
contradiction between Dr. Ferraro’s report and his testimony demonstrates that he was biased
and that Nationwide knew of his bias.
Contrary to Homer’s assertion, nothing in Dr. Ferraro’s report forecloses the explanation
he provided during cross-examination.
(See Docket No. 17-1 at 66).
Rather, the more
reasonable reading of the report is exactly as Dr. Ferraro explained. Nowhere in it does he write
that he diagnosed Homer with cognitive problems. Rather, he raises a suspicion and suggests
additional testing:
At the present time, I do not feel that Mr. Homer needs any additional formal
treatment for his neck or back problems. However, I suspect that his difficulty trying
15
to find and maintain a job has to do with his cognitive problems. I would
recommend he undergo formal neuropsychological testing and evaluation at either a
Concussion Clinic or by a psychiatrist.
(Id.) (emphasis added). The plain language of the report shows that Dr. Ferraro evaluated Homer
for neck and back problems and, upon finding none, recommended that Homer see an
appropriate specialist to evaluate his complaints of cognitive problems.
Consequently,
Nationwide’s decision to use Dr. Ferraro’s testimony at trial in no way shows that “the insurer
knew of or recklessly disregarded its lack of reasonable basis in denying the claim.” 5 Homer’s
bias allegation against Dr. Ferraro fails as conclusory and the Court grants Nationwide’s Motion
to Dismiss as it pertains to the use of Dr. Ferraro’s testimony at trial.
ii.
The Use of Dr. Petrick’s Testimony
The allegations concerning Nationwide’s second expert, Dr. Petrick, present a slightly
closer case, but also do not rise to the level of bad faith. Homer’s claim of bias is essentially that
during cross-examination, his attorney “devastated” Dr. Petrick by questioning him on his prior
5
While not entirely clear from the record before this Court, there is no indication Homer objected to the use of the
experts’ videotaped testimony at the time of trial. (See Docket No. 44 at 3). Hence, there could be an issue of
waiver here, as there are a number of ways a party can waive an argument or objection. See e.g., Belmont Indus.,
Inc. v. Bethlehem Steel Corp., 62 F.R.D. 697, 702-03 (E.D. Pa. 1974) (“[E]vidence to which a timely objection is not
made becomes competent.”); Anderson v. McAfoos, 57 A.3d 1141, 1149 (Pa. 2012) (failure to object to the
competence of an expert at trial is waived on appeal) (citing Pa.R.A.P. 302(a)); Warden v. Zanella, 423 A.2d 1026,
1029 (Pa. Super. Ct. 1980) (argument that service of the complaint was improper was waived when not raised until
after trial). Likewise, Homer did not plead that he raised the High-Low Agreement as a defense to the use of the
testimony at trial. To the extent he and his counsel interpreted same to preclude the challenged presentation of the
testimony, that argument may have also been waived because even if there was language in the contract prohibiting
same, contract provisions may be waived either expressly or through implication. See, e.g., Trumpp v. Trumpp, 505
A.2d 601, 603 (Pa. Super Ct. 1985). An explicit contractual provision may be waived when “there is either an
unexpressed intention to waive, which may be clearly inferred from the circumstances, or no such intention in fact to
waive, but conduct which misleads one of the parties into a reasonable belief that a provision of the contract has
been waived.” Den-Tal-Ex, Inc. v. Siemens Capital Corp., 566 A.2d 1214, 1223 (Pa. Super. Ct. 1989). In the
Court’s view, Plaintiff’s counsel should have placed an objection on the record at the time Nationwide introduced
the now challenged testimony. This Court is not convinced a plaintiff and his counsel should be permitted to create
a bad faith claim simply by silently allowing conduct they find objectionable to take place. It is particularly
concerning in this case given the depositions had been videotaped in advance and Homer and his counsel were fully
aware of the facts on which they base their allegations of bias by the time they drafted the High-Low Agreement and
Nationwide used the testimony at trial.
16
reports and revealing that Dr. Petrick always finds in favor of the party paying him, which is
usually the defense. (Docket No. 30 at 9-10). Nationwide argues now, as Dr. Petrick testified on
cross, that Homer simply “cherry-picked” the sixteen reports and used them out of context.
(Docket No. 19 at 11) (“In doing so, counsel selectively summarized lengthy reports down to a
conclusory paragraph, and asked Dr. Petrick to agree with him.”). In response, Homer maintains
that those sixteen reports were the only ones he could find and that all sixteen support his charge
of bias against Dr. Petrick. (Docket No. 31 at 9).
The cross-examination of Dr. Petrick may have been effective, but does not appear to be
extraordinary. (See generally Docket No. 17-1 at 69-84). Rather, it was the sort of crossexamination that is typical of these kinds of cases.
Dr. Petrick explained in detail the
“comprehensive battery of neuropsychological measures” he employed in evaluating Homer.
(Docket No. 17-1 at 72-73).
But, Homer did not cross-examine him on the medicine or
methodology. Rather, Plaintiff’s counsel zeroed in on the nature and number of examinations
Dr. Petrick performs annually. He testified that he does between 50 and 100 litigation related
examinations a year (out of a total of around 500 examinations he performs yearly). (Id. at 80).
That Homer produced sixteen reports over the course of Dr. Petrick’s twenty plus year career is
not a particularly remarkable sample size.6 Indeed, Homer was able to fully address his concerns
about Dr. Petrick through cross-examination.
See Gallatin, 2006 WL 2289789, at *7 (on
different facts, finding no bad faith claim relating to expert and explaining the plaintiff could
effectively address his concerns through cross-examination). If anything, Homer benefited from
Nationwide’s decision to use Dr. Petrick’s testimony at trial, particularly given the size of the
6
Additionally, by Homer’s logic, every one of the other parties that hires Dr. Petrick 50-100 times a year is equally
guilty of bad faith.
17
verdict the jury rendered. And, from a policy perspective, it would be problematic to allow an
insured to bring a bad faith claim every time there is an effective cross-examination of one of the
insurance company’s experts.
Homer also argues that Dr. Petrick’s opinion conflicted with the opinion of Homer’s
expert. (Docket Nos. 17 at ¶¶ 56-57; 17-1 at 75). The mere presence of dueling experts is not
novel or unique, and even where the insured prevails with the jury, does not necessarily establish
that the insurer’s expert was wrong, let alone that the insurer acted in bad faith in allowing the
expert to testify. See Montgomery v. Mitsubishi Motors Corp., 2006 WL 1892719, at *2 n.3
(E.D. Pa. July 10, 2006) (where one party’s experts did not agree with the other party’s expert,
“this disagreement does not lead the Court to conclude that one expert’s opinion is wrong and the
other correct. Rather, the credibility and veracity of these ‘dueling’ expert witnesses is a matter
for cross-examination at trial.”); see also The Pennsylvania Bar Institute, Pennsylvania
Suggested Standard Civil Jury Instructions, 4.100 (Civ) (4th ed. 2016) (“In resolving any
conflict that may exist in the testimony of expert witnesses, you are entitled to weigh the opinion
of one expert against that of another.”).
In the Court’s view, nothing that Homer alleges about the defense experts is at all rare,
extraordinary, or egregious. His concerns were fully addressed by cross-examination and use of
his own experts.
Hence, Nationwide’s Motion to Dismiss is granted as it relates to the
allegations of bias in Dr. Petrick’s testimony.
iii.
Nationwide’s Closing Argument
Homer next alleges that Nationwide committed bad faith when its attorney referenced the
purportedly biased testimony of Dr. Ferraro and Dr. Petrick in his closing argument to the jury.
18
(Docket No. 17 at ¶ 98).
As an initial matter, since the Court has already found that
Nationwide’s use of expert testimony did not constitute bad faith, referencing same in closing
arguments likewise cannot be bad faith. Also, since counsel for Homer did not object during
Nationwide’s closing argument, (see generally Docket No. 17-2 at 2-26), there is a serious
question as to whether his challenge has now been waived. See supra at 15 n.4. Moreover,
Homer was not prejudiced by the expert testimony or Nationwide’s closing argument, as the jury
returned a $1.61 million verdict in his favor.
Recounting the evidence presented at trial is the point of a closing argument, and doing
so is a perfectly reasonable part of conducting a defense. See The Pennsylvania Bar Institute,
Pennsylvania Suggested Standard Civil Jury Instructions, 1.170 (Civ) (4th ed. 2016) (“After all
the evidence has been presented, the lawyers will present to you closing arguments to summarize
and interpret the evidence in an attempt to highlight the significant evidence that is helpful to
their clients’ positions. As with opening statements, closing arguments are not evidence.”).
Reviewing Nationwide’s closing argument, its counsel simply recapped the testimony the jury
heard and it was then up to the jury to determine credibility; find the facts; and apply the law.
Parsing an insurer’s closing argument after the fact through a bad faith action endangers
an insurer’s ability to defend itself. It would also threaten the independent duty held by an
insurer’s attorney to perform competently and professionally in zealously representing his or her
client. See Pa. RPC 1.1, 1.3 (a lawyer has a duty to competently represent his or her client and to
act with reasonable diligence). The conduct Homer calls bad faith goes directly to the heart of
19
the strategy and work product of Nationwide’s attorney.7 It is a stretch to ask this Court to not
only second-guess that strategy after the fact, but also to call it bad faith.
iv.
Nationwide’s Motion to Mold
Homer alleges that Nationwide’s wording of its motion to mold represented bad faith
because it would have (arguably) dismissed any and all bad faith claims, even those occurring
after June 1, 2015. (Docket No. 17 ¶¶ 90-94, 98). Nationwide responds that it was simply a case
of inartful drafting of its motion and points out that the High-Low Agreement itself, which was
drafted by Plaintiff’s counsel, was ambiguous in the first place. (Docket No. 19 at 16-17). Since
the Agreement stated that bad faith claims “prior to the date” and “after the date” were
dismissed, the Court agrees with Nationwide that the Agreement was ambiguous with regard to
bad faith claims arising on the date of the Agreement.8 See Vargo, 94 Fed. Appx. at 943
(holding that “under Pennsylvania law, a high-low agreement may be construed as a settlement”
and explaining that “"basic contract principles do indeed apply to settlement agreements”)
(internal quotations omitted).
The Court would further note that under Pennsylvania law,
ambiguous contract provisions are to be construed against the drafter. 9 Keystone Dedicated
Logistics, LLC v. JGB Enterprises, Inc., 77 A.3d 1, 7 (Pa. Super. Ct. 2013) (citations omitted).
One would think Homer and his counsel would have taken extra care in drafting the bad faith
7
The Court notes that were this case to proceed into discovery, there would be considerable challenges with respect
to attorney-client privilege and attorney work product. See, e.g., In re Cendant Corp. Securities Litigation, 343 F.3d
658 (3d Cir. 2003); Cottillion v. United Refining Co., 279 F.R.D. 290 (W.D. Pa. 2011); FED. R. CIV. P. 26(b).
Further, counsel for both parties in the previous action would need to be witnesses, may have to be deposed, and
likely need to secure their own representation.
8
As discussed, the Agreement excluded claims for bad faith acts occurring “prior to” and “after” the date of its
execution. The term “prior” is defined as “[t]he former; earlier; preceding,” and “at any time prior to” is defined as
“mean[ing] that it occurred before the given date.” BLACK’S LAW DICTIONARY (10th ed. 2014). The term “after” is
defined as “[l]ater, succeeding, subsequent to, inferior in point of time or of priority or preference.” Id.
9
Homer’s counsel is experienced, Homer is educated, and regardless, “[c]ontracting parties are normally bound by
their agreements, without regard to whether the terms thereof were read and fully understood.” Simeone v. Simeone,
581 A.2d 162, 165 (Pa. 1990).
20
waiver given the possibility that Nationwide might still use expert testimony Homer already
believed to be biased and in bad faith.10
Nationwide further notes that Homer’s response to its motion to mold also deviated from
the actual wording of the agreement, stating “on or after” rather than “prior to the date” and
“after the date.” Ultimately, the allegations regarding the motion to mold do not establish bad
faith. Homer’s interpretation of Nationwide’s wording – that it would have effectively barred all
claims – is possible, but the inclusion of “as of June 1, 2015” seems an odd choice, if
Nationwide’s purpose was to have the Court dismiss all past, present, and future claims of bad
faith by Homer. Whether or not “as of June 1, 2015” would dismiss claims arising on June 1,
2015 is especially ambiguous. Regardless, Homer has not pled any facts that suggest it is
plausible that Nationwide and its counsel knowingly acted in bad faith with its wording of the
motion to mold.
Nationwide’s wording seems reasonable given the somewhat ambiguous
wording of the agreement itself, as drafted by Plaintiff’s counsel and agreed to by Defendant’s
counsel. Ambiguous wording of a motion pursuant to an ambiguously worded agreement is not
the type of rare or extraordinary litigation conduct that should constitute bad faith. At most,
what the Court sees is sloppy lawyering on both sides.
In his brief, Homer contends that Nationwide’s argument that the Agreement was
ambiguous is barred by collateral estoppel because the state court used Homer’s wording and not
Nationwide’s in its order molding the verdict. (Docket No. 31 at 16). That is not the purpose of
collateral estoppel, which would prevent this Court from ruling differently than the state court.
See generally Greenleaf v. Garlock, Inc., 174 F.3d 352, 356-57 (3d Cir. 1999) (the doctrine of
10
Nationwide would have provided Homer with a pre-trial statement indicating that Dr. Ferraro and Dr. Petrick may
be witnesses at trial. See Allegheny Court of Common Pleas Local Rule 212.2 (requiring the parties to exchange
pre-trial statements in conformity with Pa.R.C.P. 212.2).
21
collateral estoppel is about preventing parties from “relitigating” in a new court and giving acts
of the first court full faith and credit). Nationwide’s point is only that its position in the first
action was not unreasonable, not that this Court should issue a ruling contrary to that of the Court
of Common Pleas. The doctrine of collateral estoppel, thus, has no application here.
In sum, there is no basis for bad faith related to the drafting and presentation of
Nationwide’s motion to mold.
B. UTPCPL Claim
“To state a claim under Pennsylvania’s [UTP]CPL, plaintiffs must allege facts from
which the court can plausibly infer: (1) deceptive conduct or representations by defendant; and
(2) justifiable reliance by plaintiffs on defendant’s deceptive conduct that caused plaintiffs’
harm.” Papurello v. State Farm Fire & Cas. Co., 144 F. Supp. 3d 746, 776 (W.D. Pa. 2015)
(citing Toy v. Metro. Life Ins. Co., 928 A.2d 186, 208 (Pa. 2007); Yocca v. Pittsburgh Steelers
Sports, Inc., 854 A.2d 425, 438 (Pa. 2004)).
Nationwide moves for dismissal of the UTPCPL claim on the grounds that Homer has not
pled sufficient facts to establish the elements of justified reliance or ascertainable loss. (Docket
No. 19 at 17-18). Homer’s response on either of these elements is not entirely clear. (See
generally Docket No. 31 at 16-17). It does not appear from the facts alleged in the Amended
Complaint that Homer justifiably relied on Nationwide’s actions in any way. Similarly, it is not
clear what Homer’s ascertainable loss would be since he received the maximum award possible
in light of the High-Low Agreement. Pennsylvania courts have held that the hiring of an
attorney to bring a UTPCPL claim does not satisfy the ascertainable loss requirement. Grimes v.
Enterprise Leasing Co. of Phila., LLC, 105 A.3d 1188, 1193 (Pa. 2014). Because Homer has not
22
pled justified reliance or ascertainable loss, his UTPCPL claim will be dismissed.
V.
CONCLUSION
For the foregoing reasons, the Court finds Homer has not alleged facts sufficient to state a
claim for insurance bad faith or violation of the UTPCPL. Nationwide’s Motion to Dismiss [18]
will be granted and Homer’s Amended Complaint will be dismissed, with prejudice.
An appropriate order follows.
s/Nora Barry Fischer
Nora Barry Fischer
United States District Judge
Date: August 26, 2016
cc/ecf: All counsel of record
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