SMITH v. ALLSTATE INSURANCE COMPANY
MEMORANDUM AND ORDER OF COURT denying 18 Motion for Summary Judgment, and as more fully stated in said Memorandum and Order of Court. Signed by Judge Kim R. Gibson on 10/24/2012. (dlg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
SUSAN P. SMITH,
ALLSTATE INSURANCE COMPANY,
CIVIL ACTION NO. 3:11-CV-165
JUDGE KIM R. GIBSON
MEMORANDUM AND ORDER OF COURT
This matter comes before the Court on Defendant Allstate Insurance Company's Motion
for Summary Judgment (Doc. No. 18), which Plaintiff Susan P. Smith opposes. For the reasons
that follow, Defendant's Motion for Summary Judgment is DENIED.
JURISDICTION AND VENUE
The Court has jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1441. Venue is proper
under 28 U.S.C. § 1441(a).
FACTUAL AND PROCEDURAL BACKGROUND
This action stems from the personal injuries Susan P. Smith sustained in a motor vehicle
accident on June 13, 2004 and Allstate Insurance Company's (hereinafter "Allstate") subsequent
handling of Plaintiffs insurance claim for injuries allegedly related to the accident. (Doc. No. 20
1, 2, 11; Doc. No. 27
1, 2, 11; Doc. No. 1-2.) Plaintiff Susan P. Smith, (hereinafter
"Plaintiff') commenced the instant action by filing a two-count Complaint in the Court of
Common Pleas of Blair County, Pennsylvania against Allstate under theories of contractual bad
faith (Count I) and statutory bad faith pursuant to 42 Pa. C.S.A. § 8371 (Count II). (Doc. No. 1
at ,-r 1; Doc. No. 1-2.) Plaintiff seeks compensatory and punitive damages, fees, costs, and
interest. (Doc. No. 1-12 at 7, 8.) Allstate timely removed the case to this Court on July 20,
2011. (Doc. No. 1.)
In sum, the relevant facts are as follows. On June 13, 2004, Plaintiff was travelling as a
passenger in a motor vehicle owned by her mother and insured through Nationwide Insurance
Company when she was involved in a motor vehicle accident. (Doc. No. 20 at ,-r 2; Doc. No. 27
at ,-r 2.) Plaintiff was transported to the Emergency Department of the Potomac Hospital in
Virginia, where she was treated for injuries. (Doc. No. 20 at ,-r 3; Doc. No. 27 at ,-r 3.) On the
day of the accident, Plaintiff was diagnosed with a fractured clavicle and released from the
Emergency Department. (Doc. No. 20 at ,-r 4; Doc. No. 27 at ,-r 4.) Over the following years,
Plaintiff visited doctors regarding pain in her knees and other injuries, and later underwent two
arthroscopic surgeries on her left knee. (See Doc. No. 20 at ,-r,-r 14, 16, 17, 18, 27, 36, 42, 47, 48,
50, 56; Doc. No. 27 at ,-r,-r 14, 16, 17, 18, 27, 36, 42, 47, 48, 50, 56.) Although Plaintiff attributes
her knee injuries to the accident (see Doc. No. 27 at ,-r,-r 104, 105, 150), Allstate disputes that
Plaintiffs knee injuries were causally related to the motor vehicle accident (see Doc. No. 29 at
,-r,-r 105, 150).
At the time of the accident, Plaintiff was a named insured under an Allstate Property and
Casualty Insurance Company Auto Policy. (See Doc. No. 1-2 at ,-r 4; Doc. No. 3 at ,-r 4.) On
September 22, 2004, Plaintiff called and advised Allstate that she wanted to make a claim for
underinsured motorist (hereinafter "UIM") benefits pursuant to this policy for injuries arising
from the accident.
(Doc. No. 20 at~ 11; Doc. No. 27 at~ 11; see Doc. No. 20-1 at 41.)
Allstate's handling ofthis claim gives rise to the instant case. 1 (See Doc. No. 1-2.)
In her Complaint, Plaintiff alleges that Allstate was on notice that Plaintiff had a potential
UIM claim as early as June 15, 2004 but that Plaintiff was required to retain counsel to represent
her on this claim on June 2, 2005 because of Allstate's lack of action. (Doc. No. 1-2
Plaintiff further alleges that Allstate's adjuster did not conduct any meaningful investigation of
her claim before she retained counsel (id at ~ 10), Allstate selected a medical examiner who was
biased in favor of insurance companies to conduct Plaintiffs independent medical examination
and selected such examiner to advocate against Plaintiffs interests (id at
demanded an examination under oath when its policy did not provide for one (id at
Allstate failed to conduct a prompt and reasonable investigation of Plaintiffs UIM claim (id ),
and Allstate engaged in a myriad of dilatory tactics, including failing to promptly obtain records
and schedule medical examination necessary to evaluate Plaintiffs UIM claim, unreasonably
delaying the arbitration hearing, and failing to promptly make a settlement offer (id ).
Plaintiffs Concise Statement of Material Facts (hereinafter the "CSMF"), Plaintiff also alleges
that Allstate agents were trained to and did apply an incorrect standard to determine whether an
insured breached the limited tort threshold. (See Doc. No. 27
113-21, 125, 132-35, 140.)
On December 9, 2009 Plaintiffs UIM was arbitrated and Plaintiff was awarded $160,000
molded to reflect a final award of$135,000. (See Doc. No. 20
101; Doc. No. 20-1 at 227;
Neither party disputes that Pennsylvania law applies to this action. A district court sitting in diversity applies the
choice-of-law rules of the state in which the district court sits. See St. Paul Fire & Marine Ins. Co. v. Lewis, 935
F.2d 1428, 1431 n.3 (3d Cir.1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,496 (1941)). Under
Pennsylvania's choice-of-law rules, an insurance contract is governed by the law of the state in which the contract
was contracted and delivered. McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073, 1074-75 (3d Cir.
1990); Crawfordv. Manhattan Life Ins. Co., 221 A.2d 877, 880 (Pa. Super. Ct. 1966). It appears that the contract at
issue was contracted and delivered in the Commonwealth of Pennsylvania, of which Plaintiff is a resident. (See
Doc. No. 1 at~ 9; Doc. No. 1-2 at~ 1.)
Doc. No. 27
101.) Allstate issued a check to Plaintiff and her counsel for $135,000 on
December 23,2009. (See Doc. No. 20
102; Doc. No. 27
On May 23, 2012, Allstate filed the instant motion for Summary Judgment. (Doc. No.
18.) Allstate contemporaneously filed its memorandum in support of its motion (hereinafter
"Allstate's Memorandum in Support") (Doc. No. 19) and CSMF (Doc. No. 20) with an appendix
of supporting exhibits (Doc. No. 20-1) as required by the Local Rules of the United States
District Court for the Western District of Pennsylvania (hereinafter the "Local Rules"). On June
26, 2012, Plaintiff filed a memorandum in opposition to the motion (hereinafter "Plaintiffs
Memorandum in Opposition") (Doc. No. 28) and a responsive CSMF (Doc. No 27) with an
appendix of supporting exhibits (Doc. No. 27-1).
Allstate subsequently filed a reply to
Plaintiffs responsive CSMF (Doc. No. 29) and, with leave of Court, a supplemental brief in
support of Allstate's Motion for Summary Judgment (hereinafter "Allstate's Supplemental
Brief') (Doc. No. 37). Plaintiff thereafter filed a response to Allstate's Supplemental Brief (Doc.
No. 43) with leave of Court.
Allstate's motion has been fully briefed and is now ripe for
STANDARD OF REVIEW
"Summary judgment is appropriate only where, drawing all reasonable inferences in
favor of the nonmoving party, there is no genuine issue as to any material fact ... and the
moving party is entitled to judgment as a matter of law." Melrose, Inc. v. Pittsburgh, 613 F.3d
380, 387 (3d Cir. 2010) (quoting Ruehl v. Viacom, Inc., 500 F.3d 375, 380 n.6 (3d Cir. 2007));
see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Fed. R. Civ. P. 56 (a).
fact are genuine "if the evidence is such that a reasonable jury could return a verdict for the
Rule 56 was revised in 2010. The standard previously set forth in subsection (c) is now codified as subsection (a).
The language of this subsection is unchanged, except for "one word-genuine 'issue' bec[ame] genuine 'dispute."'
Fed. R. Civ. P. 56 advisory committee's note, 2010 amend.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also
McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). Material facts are those which will affect
the outcome of the trial under governing law. Anderson, 477 U.S. at 248.
The moving party bears the initial responsibility of stating the basis for its motion and
identifying those portions of the record which demonstrate the absence of a genuine issue of
Celotex, 477 U.S. at 323.
If the moving party meets this burden, the party
opposing summary judgment "may not rest upon the mere allegations or denials of the . . .
pleading," but "must set forth specific facts showing that there is a genuine issue for trial."
Saldana v. Kmart Corp., 260 F .3d 228, 232 (3d Cir. 2001) (internal citations omitted);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); see also Podobnik
v. US. Postal Serv., 409 F.3d 584, 594 (3d Cir. 2005) (noting that a party opposing summary
judgment "must present more than just bare assertions, conclusory allegations or suspicions to
show the existence of a genuine issue" (internal quotation marks omitted)).
Allstate contends that the Court should grant summary judgmene for Allstate as to both
counts of Plaintiffs Complaint.
Specifically, Allstate contends that the Court should grant
summary judgment as to (1) Count I of Plaintiffs Complaint (contractual bad faith) because
Plaintiffs UIM claim has been resolved pursuant to the terms of Plaintiffs insurance contract
following payment by Allstate to Plaintiff pursuant to the arbitration award (Doc. No. 18 at
Doc. No. 19 at 19) and (2) Count II of Plaintiffs Complaint (statutory bad faith pursuant to 42
Pa. C. S. § 83 71) because Plaintiff has failed to offer clear and convincing evidence that Allstate
In Allstate's Motion for Summary Judgment (Doc. No. 18) and Allstate's Memorandum in Support (Doc. No. 19),
Allstate states that the Court should dismiss Plaintiffs claims. Allstate's motion, however, is styled as a motion for
summary judgment and supplemented with factual support. (See Doc. No. 20-1.) Therefore, the Court addresses
Allstate's motion as a motion for summary judgment and references Allstate's requested relief as a request to grant
summary judgment, rather that a request to dismiss Plaintiffs claims.
lacked a reasonable basis for its handling of her claim for UIM benefits (Doc. No. 18 at~ 4; Doc.
No. 19 at 5). Plaintiff disagrees. Plaintiff contends that ( 1) summary judgment is inappropriate
as to Count I because an insured may have a cause of action for breach of contract against an
insured notwithstanding payment to the insured pursuant to the insurance policy when bad faith
exists (see Doc. No. 28 at 16) and (2) summary judgment is inappropriate as to Count II because
Allstate failed to advise Plaintiff of benefits, misrepresented applicable benefits, applied an
arbitrary standard to its investigation and evaluation of the claim, employed a biased medical
examiner to examine Plaintiff, conspired to misrepresent the states of the claim to the insured's
attorney, and failed to conduct a meaningful investigation of the claim for a period of nine
months and therefore should be liable for bad faith insurance practices pursuant to 42 Pa. C. S. §
83 71 (see id. at 4-15). 4 The Court will address these issues in tum, beginning with Allstate's
Motion for Summary Judgment as to Count I. 5
In her Memorandum in Opposition, Plaintiff states that "[ v]ioations of the Unfair Insurance Practices Act and the
Unfair Claims Settlement Practices Act are admissible and relevant to support claims of bad faith." (See Doc. No.
28 at 5.) As recently discussed by the Eastern District, "[t]here is some conflict between the Pennsylvania state
court and federal court regarding whether UIPA violations can support a bad faith claim under Section 8371."
Purcell v. State Farm Mut. Auto. Ins. Co., No. 11-7004, 2012 U.S. Dist. LEXIS 17110, at* 12-15 (E.D. Pa. Feb. 10,
2012). While the Pennsylvania Superior Court has determined that it is appropriate to consider the UIPA when
evaluating an insurer's bad faith, "the Third Circuit and District Courts in the Third Circuit have taken the opposite
approach of the Pennsylvania courts." I d. (collecting cases); see also Dinner v. United Servs. Auto. Ass 'n Cas. Ins.
Co., 29 Fed. Appx. 823, 827 (3d Cir. 2002) (finding that "a violation of the UIPA or the UCSP is not a per se
violation of the bad faith standard and ... it is only the Terletsky [sic] standard itselfthat allows one to determine
whether a violation of the former is of any relevance in a case [involving a bad faith claim pursuant to 42 Pa. C. S. §
8371)"). Although Plaintiff uses the UIPA and UCSP to support her argument that Allstate acted in bad faith and is
therefore liable pursuant to 42 Pa. C. S. § 8371, Plaintiff does not rest her bad faith argument on alleged violations
of the UIPA or UCSP nor is Plaintiffs factual or evidentiary support for her bad faith claim relevant solely to
violations of the UIPA or UCSP. (See Doc. No. 1-2; Doc. No. 28.) Thus, the Court will consider Plaintiffs factual
allegations and evidentiary support albeit not in context of the UIP A or UCSP. Rather, the Court will consider
Plaintiffs factual allegations and evidentiary support as they are relevant to the standard established in Terletsky v.
Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994 ), which has been applied and approved of by
the Third Circuit. See UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497, 505 (3d Cir. Pa. 2004).
The Court acknowledges that although Allstate addressed the counts of Plaintiffs Complaint in sequential order in
its Motion for Summary Judgment (Doc. No. 18), Allstate's Memorandum in Support addresses Plaintiffs statutory
bad faith claim (Count II) first and Plaintiffs contractual bad faith claim (Count I) second, a format which Plaintiff
followed in her Memorandum in Opposition. (See Doc. No 19; Doc. No. 28.) The Court will address Allstate's
motion and arguments for summary judgment relevant to the counts of Plaintiffs Complaint in the order in which
those counts appear in the Complaint.
Count I - Contractual Bad Faith
Allstate's Motion for SummaryJudgment on Count I of Plaintiffs Complaint is premised
on the contention that, under Pennsylvania law, when an insurer pays an insured to satisfy an
insured's claim under an insurance policy pursuant to an arbitration award, the insured may not
assert a breach of contract claim arising from an insurer's alleged bad faith in handling the claim.
(See Doc. No. 18
3; Doc. No 19 at 15-19.) This argument misstates the law.
A party asserting a breach of contract claim under Pennsylvania law must demonstrate
(1) the existence of a contract; (2) a breach of duty imposed by the contract; and (3) resultant
damages. Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. Pa. 2003) (quoting CoreStates
Bank, NA. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct. 1999). "In Pennsylvania, a duty of
good faith and fair dealing is implicit in an insurance contract." Simmons v. Nationwide Mut.
Fire Ins. Co., 788 F. Supp. 2d 404, 408 (W.D. Pa. 2011) (citing Condio v. Erie Ins. Exch., 899
A.2d 1136, 1144 (Pa. Super. Ct. 2006)); see also Dercoli v. Pa. Nat. Mut. Ins. Co., 554 A.2d 906,
909 (Pa. 1989) (quoting Fedas v. Ins. Co. of the State of Pa., 151 A. 285 (Pa. 1930)); Zaloga v.
Provident Life and Ace. Ins. Co. ofAm., 671 F. Supp. 2d 623, 629-30 (M.D. Pa. 2009).
Generally, when an insurance company has paid the proceeds of an insurance policy,
there can be no breach of contract claim because the insured has received what she was due
under the policy and therefore has no damages. See Fitzpatrick v. State Farm Ins. Cos., No. 091498, 2010 U.S. Dist. LEXIS 51348, at *6 (W.D. Pa. May 24, 2010); Wolfv. Booker, No. 0812667-BC, 2009 U.S. Dist. LEXIS 2940, at *7-8 (E.D. Mich. Jan. 14, 2009). When a party sues
for damages stemming from an insurer's bad faith in handling a claim, however, the damages
sought may be different from the damages compensated by payment pursuant to the insurance
policy and therefore may not be remedied by such payment. See Birth Ctr. v. St. Paul Cos., 787
A.2d 376, 385 (Pa. 2001); Clunie-Haskins v. State Farm Fire & Cas. Co., 855 F. Supp. 2d 380,
388 (E.D. Pa. 2012); Fitzpatrick, 2010 U.S. Dist. LEXIS 51348, at *7-10; Amitia v. Nationwide
Mut. Ins. Co., No. 3:08cv335, 2009 U.S. Dist. LEXIS 2840, at *7-9 (M.D. Pa. Jan. 15, 2009).
Acknowledging this, the Supreme Court of Pennsylvania has held that "where an insurer acts in
bad faith, by unreasonably refusing to settle a claim, it breaches its contractual duty to act in
good faith" and is liable for "the known and/or foreseeable compensatory damages of its insured
that reasonably flow from the insurer's bad faith conduct." Birth Ctr., 787 A.2d at 389.
Although the case announcing this holding involved a third party insurance claim, the
language of that decision does not distinguish between first and third party insurance, see
generally id.; see also Kakule v. Progressive Cas. Ins. Co., No. 06-4995, 2007 U.S. Dist. LEXIS
44942 (E.D. Pa. June 20, 2007), and its holding has since been applied to first party insurance
claims and specifically to claims for UIM benefits that do not involve claims by third parties, see
Fitzpatrick, 2010 U.S. Dist. LEXIS 51348, at *1, *6-10, *13 (permitting bad faith breach of
contract claim following tender of policy proceeds to insured where claim was premised on
insurer's handling of insured's claim for UIM benefits and did not involve claims by a third
party); Zaloga, 671 F. Supp. 2d 623, 632 (holding that a duty of good faith and fair dealing is
implied in insurance contracts in Pennsylvania and allows for the award of compensatory
damages pursuant to a breach of contract claim in a first party insurance case; explaining that
"[t]he difference between first and third party claims does not matter to the implied covenant of
good faith and fair dealing"); Amitia, 2009 U.S. Dist. LEXIS 2840, at *7-8 (permitting
contractual bad faith claim for insurer's handling of Plaintiff's UIM claim despite payment of
benefits under insurance contract); Kakule, 2007 U.S. Dist. LEXIS 44942, at *16 (applying Birth
Center to first party insurance claim; explaining that Birth Center "was meant to apply to bad
faith claims in general"). In light of the language of Birth Center and its subsequent application
by Courts applying Pennsylvania law, this Court predicts that the Supreme Court of
Pennsylvania would apply Birth Center to a first party insurance case if presented with the issue
and applies this precedent to the instant case.
Allstate appears to argue that Plaintiffs now resolved underinsured motorist claim
encompasses Plaintiffs contractual bad faith claim. (See Doc. No. 19 at 15, 17, 19.) It is true
that "Pennsylvania law does not recognize a separate breach of contractual duty of good faith
and fair dealing where said claim is subsumed by a separately pled breach of contract claim."
Simmons, 788 F. Supp. 2d at 409. Hence, Allstate correctly notes that claims for breach of the
contractual duty of good faith and fair dealing have been dismissed where Plaintiff also asserts a
claim for breach of contract and Plaintiffs claim for breach of the duty of good faith and fair
dealing is redundant. (See Doc. No. 19 at 17 (citing Mora v. Nationwide Mut. Fire Ins. Co., 65
Pa. D. & C.4th 59 (Cnty. Ct. 2003)); see also, Simmons, 788 F. Supp. 2d at 409 (explaining that
where plaintiff alleges defendant breached "duty of good faith and fair dealing by denying first
party benefits under an insurance policy, said claim is subsumed by the plaintiffs breach of
insurance contract claim premised on the same conduct" (emphasis added)).
Here, however, Plaintiff does not assert a separate claim for breach of contract. (See
Doc. No. 1-2.) Furthermore, Plaintiff seeks to recover for emotional distress damages and costs.
(See Doc. No. 1-2
27.) Thus, unlike the cases cited by Allstate in which plaintiffs did not
plead damages beyond those sustained by the insurer's failure to pay the proceeds of the policy,
see Galko v. Harleysville Pennland Ins. Co., 71 Pa. D. & C.4th 236, 254 (Cnty. Ct. 2005), or
already settled a claim for breach of contract, see Mora, 65 Pa. D. & C.4th 59, here Plaintiff has
alleged damages resulting from Allstate's alleged delay in tendering payment under the policy
and has not asserted or previously settled a claim for breach of contract. The damages for which
Plaintiff seeks to recover in the instant case, specifically stress and anxiety, costs, embarrassment
and humiliation, and mental anguish (see Doc. No. 1-2 at
27), are distinct from those
compensated by Allstate's payment to Plaintiff under Plaintiffs insurance policy. Although
emotional distress damages are generally not recoverable in actions for breach of contract in
Pennsylvania, Amitia, 2009 U.S. Dist. LEXIS 2840, at *8; Kakule, 2007 U.S. Dist. LEXIS
44942, at *19-20; Tannenbaum v. Unum Life Ins. Co. of Am., No. 03-CV-1410, 2005 U.S. Dist.
LEXIS 4305, at *7 (E.D. Pa. Mar. 18, 2005), recovery for emotional distress damages may be
possible where "the breach is of such a kind that serious emotional disturbance was a particular
likely result," Birth Ctr., 787 A.2d at 401 (quoting D'Ambrosio v. Pa. Nat 'l Mut. Cas. Ins. Co.,
431 A.2d 966, 970 (Pa. 1981); see also Kakule, 2007 U.S. Dist. LEXIS 44942, at *20-23;
Tannenbaum, 2005 U.S. Dist. LEXIS 4305, at *7-10.
Accordingly, the Court finds that
Plaintiffs claim is not precluded by recovery under the insurance contract pursuant to Allstate's
payment of the arbitration award.
When resolving a motion for summary judgment, a court must determine whether there is
a genuine dispute as to any material fact. See Fed. R. Civ. Pro. 56(a). Local Rule 56.B.2
requires that a party moving for summary judgment file a memorandum in support of its motion
that "address[es the] applicable law and explain[s] why there are no genuine issues of material
fact to be tried and why the moving party is entitled to judgment as a matter of law." Allstate
argues that Count I of Plaintiffs Complaint should be dismissed because Plaintiff already
resolved her underinsured motorist claim pursuant to the terms of her insurance contract and is
therefore precluded from asserting a breach of contract claim as a matter of law. (See Doc. No.
19 at 19.) As explained in the foregoing discussion, under Pennsylvania law, the resolution of
Plaintiffs uninsured motorist claim pursuant to the terms of Plaintiffs insurance contract does
not prevent Plaintiff from bringing a breach of contract action against Allstate that is premised
on Allstate's alleged bad faith in handling the claim. Beyond this legal argument, Allstate, in its
Memorandum in Support, offers no further explanation as to why there are no genuine issues of
material fact to be tried and why it is entitled to judgment as a matter of law, as is required by
Local Rule 56.B.2. Therefore Allstate's Motion for Summary Judgment on Count I of the
Complaint is denied.
Count II- Statutory Bad Faith Pursuant to 42 Pa. C. S. § 8371
Allstate asserts that the Court should grant Allstate summary judgment on Count II of
Plaintiffs Complaint because the evidentiary record does not support Plaintiffs claim of bad
faith to the requisite burden of proof. (Doc. No. 18
4; Doc. No. 19 at 5). Plaintiff brings her
statutory bad faith claim pursuant to 42 Pa. C. S. § 8371, which states:
In an action arising under an insurance policy, if the court finds that the insurer
has acted in bad faith toward the insured, the court may take all of the following
(1) Award interest on the amount of the claim from the date the claim was
made by the insured in an amount equal to the prime rate of interest plus
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
To make out a bad faith claim under this statute, "a plaintiff must show by clear and
convincing evidence that the insurer (1) did not have a reasonable basis for denying benefits
under the policy; and (2) knew of or recklessly disregarded its lack of reasonable basis in
denying the claim." W V Realty Inc. v. N. Ins. Co., 334 F.3d 306, 312 (3d Cir. 2003); Terletsky
v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994). Bad faith has
been defined as "any frivolous or unfounded refusal to pay proceeds of a policy. . . . For
purposes of an action against an insurer for failure to pay a claim, such conduct imports a
dishonest purpose and means a breach of a known duty (i.e. good faith and fair dealing), through
some motive of self-interest or will .... " Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137
(3d Cir. 2005) (quoting Terletsky, 649 A.2d at 688). An insurer's conduct need not be fraudulent
to constitute bad faith, but mere negligence or bad judgment is not bad faith. !d. (citing Brown
v. Progressive Ins. Co., 860 A.2d 493, 501 (Pa. Super. Ct. 2004)). To defeat a claim of bad faith
an insurer need not show that the insurer was correct; rather, an insurer must demonstrate that it
had a reasonable basis for its decision to deny benefits. See Leach v. Nw. Mut. Ins. Co., No. 012364, 2005 US Dist LEXIS 39966, at *30 (W.D. Pa. Dec. 22, 2005). See also JC. Penney Life
Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004) ("A reasonable basis is all that is required to
defeat a claim of bad faith.").
Section 8371 encompasses a broad range of insurer conduct. Cohen v. State Auto Prop.
& Cas. Co., No. 00-3168, 2001 U.S. Dist. LEXIS 1178, at *6 (E.D. Pa. Feb. 8, 2001). For
example, bad faith includes an unreasonable delay in handling claims, see Willow Inn, Inc. v.
Public Serv. Mut. Ins. Co., 399 F.3d 224, 235 (3d Cir. 2005); Purcell v. State Farm Mut. Auto.
Ins. Co., No. 11-7004, 2012 U.S. Dist. LEXIS 17110, at *11 (E.D. Pa. Feb. 10, 2012), "a
frivolous or unfounded refusal to pay, ... [and] a failure to communicate with the insured."
Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999). "Bad faith
also occurs when an insurance company makes an "inadequate investigation or fails to perform
adequate legal research concerning a coverage issue." Corch Constr. Co. v. Assurance Co. of
Am., 64 Pa. D. & C.4th 496, 516 (Cnty. Ct. 2003) (citing Hallock v. Erie Ins. Exch., 54 Pa. D. &
C.4th 449 (Cnty. Ct. 2002)).
Furthermore, "[a]n unreasonable interpretation of the policy provisions as well as a
blatant misrepresentation of the facts or policy provisions will support a bad faith claim." !d. at
516-17; see also Bracciale v. Nationwide Mut. Fire Ins. Co., No. 92-7190, 1993 U.S. Dist.
LEXIS 11606, at *27 (E.D. Pa. Aug. 20, 1993). Failure to provide an examining physician with
the proper definition of a term that is applicable to a Plaintiffs claim pursuant to an insurance
policy and the physician's requested report is relevant to bad faith. See Greco v. Paul Revere,
No. 97-6317, 1999 U.S. Dist. Lexis 110, at *4, *15-17 (E.D. Pa. Jan. 12, 1999) (denying
summary judgment for insurer where evidence provided by plaintiff included evidence that
insurer provided incorrect definition of disability to IME examiner upon whose report insurer
based its decision to terminate disability payments).
For a plaintiff to succeed on a bad faith claim pursuant to 42 Pa. C. S. § 8371, bad faith
"must be proven by clear and convincing evidence and not merely insinuated." Terletsky, 649
A.2d at 688; see also Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 750 (3d Cir. 1994);
Cowden v. Aetna Cas. & Sur. Co., 134 A.2d 223, 229 (Pa. 1957). "At the summary judgment
stage, the insured's burden in opposing a summary judgment motion brought by the insurer is
'commensurately high because the court must view the evidence presented in light of the
substantive evidentiary burden at trial."' Babayan, 430 F.3d at 137 (quoting Koiserowski v.
Allstate Ins. Co., 51 F. Supp. 2d 583, 588 (E.D. Pa. 1999). Nonetheless, if a reasonable jury
could find that Allstate did not have a reasonable basis for denying benefits under the policy and
knew of or recklessly disregarded this, summary judgment is not appropriate.
See Jung v.
Nationwide Mut. Fire Ins. Co., 949 F. Supp. 353, 356 (E.D. Pa. 1997).
Plaintiff cites numerous alleged actions and inactions of Allstate to support her allegation
that Allstate acted in bad faith. (See Doc. No. 1-2; Doc. No. 27; Doc. No. 28.) See also supra
Part III. Among these is Allstate's alleged use of the wrong standard in evaluating Plaintiffs
claim. (See Doc. No. 28 at 6-8.) With respect to the standard used to evaluate Plaintiffs claim,
Plaintiff specifically alleges that two Allstate adjusters "investigated and evaluated Susan
Smith's claim requiring her to prove that she suffered a 'permanent impairment' and a 'serious
permanent impairment"' even though the motorist insurance policy stated that the insured may
maintain an action for non-economic losses if a serious injury is suffered6 (id. at 6; Doc. No. 27
120; Doc. No. 20-1 at 117) and that Allstate trained and instructed its adjusters to apply this
incorrect standard (Doc. No. 28 at 6-8). (See also Doc. No. 27
113-16, 118-20, 125, 132,
In support of these allegations, Plaintiff has supplied the Court with the following: ( 1) an
excerpt of the deposition of Allstate adjuster Kenneth Trost in which he stated that (a) at the time
he was handling injury claims, it was his understanding that a person must prove death,
permanent loss of a bodily function, or serious permanent disfigurement-in other words, a
permanent impairment-to breach the limited tort threshold (see Doc. No. 27-1 at 36), (b) he
believed this understanding likely came from his training (see id. at 36-37), (c) in his letter to Dr.
Ellis, Plaintiffs treating orthopedist, Kenneth Trost was asking Dr. Ellis for Dr. Ellis' medical
opinion as to whether Plaintiff sustained a permanent injury (see id. at 38; see also Doc. No. 27
115; Doc. No. 29
115; Doc. No. 20-1 at 89 (letter from Ken Trost to Dr. Ellis inquiring
whether Plaintiff suffered any type of permanent impairment from the injuries sustained in the
accident)), and (d) when explaining the tort threshold to Plaintiff, Kenneth Trost explained that
she would have to show death, serious disfigurement, permanent loss, and permanent impairment
(see Doc. No. 27-1 at 41-42); (2) an excerpt of the deposition of Allstate adjuster Timothy
The insurance policy defines serious injury as "a personal injury resulting in death, serious impairment of body
function or permanent serious disfigurement." (Doc. No. 20-1 at 105.)
McCarten in which he stated that (a) he believed a claimant would need to prove a serious
permanent injury to a bodily function to breach the limited tort liability threshold (see id at 50)
and (b) he used a serious permanent injury standard (see id); (3) an IME referral request
requesting that examining physician "indicate whether or not injuries breach the limited tort
threshold- Is this serious- permanent impairment" (see Doc. No. 20-1 at 177); (4) claim notes
of adjuster Timothy McCarten indicating that Dr. Perry "held to [sic] opinion of no serious
permanent impairment" (see Doc. 27-1 at 57); (5) an excerpt of Allstate's Claims Manual that
indicates that some examples of serious injuries include multiple fractures and disc injuries (see
id at 69); and (6) claim notes of Lawrence E. Clark indicating that Allstate was aware Plaintiff
suffered "fractures" in the motor vehicle accident as of June 21, 2004 (see id at 59).
Allstate admits that Plaintiffs insurance policy stated that the insured may maintain an
action for non-economic losses if a serious injury is suffered (see Doc. No. 27
120; Doc. No.
120) but denies Plaintiffs claims that its adjusters applied and were trained to apply a
permanent impairment/injury standard to determine whether Plaintiff breached the limited tort
threshold (see Doc. No. 27
114, 116, 118-19; Doc. No. 29
114, 116, 118-19). As such,
the Court finds that a genuine dispute as to a material fact exists with respect to whether
Allstate's adjuster applied an appropriate standard to Plaintiffs claim and whether Allstate
trained its employees to apply an incorrect standard to such claims. Specifically, the Court finds
that Plaintiff has provided sufficient evidence from which a reasonable jury could find that
Allstate unreasonably denied benefits under the policy as a result of applying an incorrect
standard to Plaintiffs claim and/or providing the IME physician with the improper standard
relative to Plaintiffs claim and that Allstate knew of or recklessly disregarded this lack of a
reasonable basis for denying Plaintiffs claim.
While Allstate was not obligated to pay Plaintiffs claim on demand without inquiring
into Plaintiffs entitlement to UIM coverage, Allstate could not withhold payments of the UIM
claim absent a reasonable basis for doing so. See Condio v. Erie Ins. Exch., 899 A.2d 1136,
1145 (Pa. Super. Ct. 2006) (citing Terletsky, 649 A.2d at 688). The Court is satisfied that, when
viewed in the light most favorable to the Plaintiff, the non-moving party, Plaintiff has set forth
sufficient evidence to show that a reasonable jury could find that Allstate did not have a
reasonable basis for denying benefits under the policy and knew of or recklessly disregarded this
lack of a reasonable basis, and therefore that there is a genuine dispute of material fact for trial.
Accordingly, Allstate's Motion for Summary Judgment on Count II of the Complaint is denied.
For the reasons stated above, Allstate has failed to meet its burden to show that there is
no genuine dispute as to any material fact with respect to Count I of Plaintiffs Complaint.
Further, Plaintiff has demonstrated that a genuine dispute of material fact exists with respect to
Count II of Plaintiffs Complaint.
Accordingly, the Court DENIES Allstate's Motion for
Summary Judgment. An appropriate order follows.
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
SUSAN P. SMITH,
ALLSTATE INSURANCE COMPANY,
CIVIL ACTION NO. 3:11-CV-165
JUDGE KIM R. GIBSON
AND NOW, this
2J-Jf~ of October, 2012, upon consideration of the Motion for
Summary Judgment (Doc. No. 18) filed by Defendant Allstate Insurance Company, and in
accordance with the forgoing Memorandum, IT IS HEREBY ORDERED that the motion is
KIM R. GIBSON,
UNITED STATES DISTRICT JUDGE
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