PHILADELPHIA – The U.S. Court of Appeals for the Third Circuit has turned away a couple’s argument that State Farm Mutual Insurance Company acted in bad faith in handling their claim for underinsured motorist (UIM) benefits.
The appeals court ruled in line with the U.S. District Court for the Middle District of Pennsylvania that there was no impropriety in the manner State Farm processed a claim for Barry and Kimberly Shaffer, and no “clear and convincing evidence” presented by the appellants that the company acted in bad faith.
Judge Thomas I. Vanaskie authored the Court’s opinion in this case.
State Farm covered the Shaffers through an automobile insurance policy which provided for medical payments and “stacked” UIM benefits up to a value of $200,000. On Sep. 5, 2008, Barry Shaffer was involved in a head-on collision accident where the other driver, Tina Kresge, was largely at fault.
In the accident, Shaffer sustained multiple injuries to his neck, back, eyes, and knees. At the time of the crash, Shaffer was receiving social security and military disability benefits for a number of physical ailments.
The Shaffers notified State Farm of the accident and initiated a claim for medical payment benefits, and the company paid all bills associated with the crash (according to court records, without first consulting a physician to see if they were connected to the accident).
On April 6, 2011, the Shaffers requested State Farm assign an UIM benefits adjuster and said they were discussing a possible settlement with Kresge regarding the accident. Through their counsel, the Shaffers requested State Farm consent to a possible settlement and State Farm complied. The Shaffers settled with Kresge for $72,500, well below Kresge’s liability limit of $100,000.
After negotiating the settlement with Kresge, the Shaffers demanded $250,000 from State Farm under the UIM policy. Since Barry Shaffer had been on disability for conditions preceding the accident, including lower back and knee problems, State Farm requested access to his complete medical records.
Subsequent to State Farm’s expert’s review, the company offered the Shaffers a settlement of $10,000 – which they refused. Feeling State Farm handled their claim in bad faith, the Shaffers initiated legal action against the company for both this charge and a supposed breach of the UIM benefits policy.
Diversity of jurisdiction saw the case removed to federal court and State Farm later won summary judgment on the bad faith claim in October 2014. The breach of contract claim went to trial, and the jury awarded the Shaffers $250,000. After taking into account Kresge’s policy limit and prior State Farm payments, the Shaffers received a final judgment amount of $142,651.22 on Feb. 18, 2015.
The Shaffers then appealed the prior summary judgment ruling in favor of State Farm on the separate issue of bad faith.
“A plaintiff may prevail on a claim of bad faith…by presenting ‘clear and convincing’ evidence that the defendant insurance company ‘did not have a reasonable basis for denying benefits under the policy and that the defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim,” Vanaskie said.
Though the Shaffers asserted State Farm delayed their claims investigation process unnecessarily, Vanaskie said the appellants presented no evidence to suggest State Farm’s desire for complete medical records was done to purposefully delay their claim.
“Although State Farm’s claims management may have been flawed, the Shaffers failed to present evidence that State Farm’s delay or intentions were anything other than what it claimed: an attempt to further investigate Barry Shaffer’s medical history to determine the value of the UIM claim,” Vanaskie said.
The Shaffers argued State Farm’s not opening an underinsured motorist claim directly after the accident and its inquiries into the causal connection between Barry Shaffer’s medical conditions and the accident constituted bad faith.
It was a viewpoint the Court did not concur with.
“It is undisputed, however, that as late as June 2010, the Shaffers’ own counsel was unsure whether a UIM claim would be needed. At that point, the Shaffers’ attorney specifically advised State Farm that he would notify it if a UIM claim became necessary,” Vanaskie stated.
“State Farm did not dispute that Barry Shaffer suffered significant injuries as a result of the accident. Its consulting physician review in the UIM claim was intended to determine how much of his injuries were due to the accident and how much were due to his preexisting conditions,” Vanaskie added.
Finally, the Shaffers argued the District Court mistakenly ignored their insurance expert’s report regarding the issue of bad faith.
“Here, the expert review provides a legal conclusion without adding any additional facts, and so provides no factual evidence to support a claim of bad faith,” Vanaskie concluded.
The appellants are represented by Michael E. Kosik of Schmidt Kramer, in Harrisburg.
The appellee is represented by Kevin D. Rauch of Summers McDonnell Hudock Guthrie & Skeel, in Mechanicsburg.
U.S. Court of Appeals for the Third Circuit case 15-1196
U.S. District Court for the Middle District of Pennsylvania case 1:13-cv-01837
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at firstname.lastname@example.org