PHILADELPHIA – A major insurance provider may have acted in bad faith when it denied coverage to a couple who were injured when their vehicle was struck by a drunk driver over five years ago, a federal judge ruled last Thursday.
Judge Timothy J. Savage of the U.S. District Court for the Eastern District of Pennsylvania decreed defendant Progressive Advanced Insurance Company may have violated the state’s bad faith statute when it refused to pay underinsured motorist claims to Jeffrey and Amiee Kelly.
On Aug. 4, 2010, the Kellys were injured when a drunk driver collided with their vehicle from behind. As a result of the accident, the Kellys say they suffered physical injuries and incurred substantial medical expenses and lost wages.
The Kellys settled their personal injury claims against the drunk driver for his policy liability limits, then made a claim for underinsured motorist benefits with Progressive. Progressive did not pay the claims, and the lawsuit followed.
The Kellys alleged three counts against Progressive - breach of contract, insurance bad faith under Title 42, Section 8371 of the Pennsylvania bad faith statute and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL).
Progressive moved to dismiss the statutory claims, arguing the Kellys “failed to state a claim for bad faith and that the UTPCPL does not afford a remedy for a claim of failure to pay and investigate their claim.” Progressive characterized the Kellys suit as “merely a dispute over the value of their claims.”
“The Pennsylvania bad faith statute creates a cause of action against an insurer for its bad faith in handling its insured’s claim. Where an insurer had no reasonable basis for denying benefits, it may be liable for bad faith. The insurer may also be liable for its failure to investigate a claim,” Savage said.
“The Kellys allege that Progressive failed to pay their claims, make a reasonable settlement offer, investigate their claims properly, and consider medical and other documentation. These allegations suffice to state a claim under Section 8371."
As to the Kellys’ claims under the UTPCPL, Savage stated they must prove that “they purchased or leased goods or services; the goods or services were primarily for personal, family or household purposes; and the plaintiff suffered an ascertainable loss as a result of the defendant’s unlawful, deceptive act.”
Savage continued to explain the plaintiff’s burden of proof included showing the loss was caused by “his or her justifiable reliance on the deceptive conduct.”
“The insurance bad faith statute applies to post-contract formation conduct. The UTPCPL, on the other hand, applies to conduct surrounding the insurer’s pre-formation conduct,” Savage said. “The UTPCPL applies to the sale of an insurance policy. It does not apply to the handling of insurance claims.”
Savage stated Section 8371 provides “the exclusive statutory remedy” in the case of handling insurance claims. Therefore, a policyholder is unable to bring legal action under the UTPCPL based on “the insurer’s failure to pay a claim or to investigate a claim,” Savage said.
“The Kellys have stated a bad faith claim under Section 8371. They have not stated a claim under the UTPCPL. Therefore, we shall grant in part and deny in part Progressive’s motion,” Savage said.
The plaintiffs are represented by Helen G. Litsas in Arlington, Mass. and Thomas S. Biemer of Dilworth Paxson, in Philadelphia.
The defendant is represented by Daniel J. Twilla of Burns White, in Pittsburgh and David Ronald Friedman of Forry Ullman, in King of Prussia.
U.S. District Court for the Eastern District of Pennsylvania case 2:15-cv-04457
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com