Case Breakdown: Insurance Company’s Reliance on Hired Medical Examiner to Deny Claims is ‘Bad Faith’

Case Breakdown: Insurance Company’s Reliance on Hired Medical Examiner to Deny Claims is ‘Bad Faith’

Recently, the United States District Court for the Middle District of Pennsylvania, in the case of Phillips v. State Farm Mut. Auto. Ins. Co., dismissed a plaintiff’s insurance bad faith claim, holding it was reasonable for an insurance company to refuse to pay some of its insured’s claims upon its own medical expert’s opinion rather than the plaintiff’s treating physician.  

Phillips filed a claim with State Farm following an automobile accident. Her auto insurance policy provided her with $100,000 in first-party, no-fault medical benefits and required State Farm to pay for medical expenses arising out of the use of her car. 

When State Farm refused to pay some of Phillips’ claims, she filed complaint against State Farm alleging that State Farm violated 75 P.a.C.S. § 1716 by failing to pay first-party benefits (Count I), breached the insurance contract by failing to pay those first-party benefits (Count II), acted in bad faith (Count III), and breached the insurance contract by failing to pay underinsured motorist benefits (Count IV).

At issue before the District Court was State Farm’s motion to dismiss Phillips’ complaint for failure to state a claim upon which relief can be granted. First, State Farm sought dismissal of Count III, arguing that Phillips failed to plead a bad faith claim. Second, State Farm sought dismissal of Phillips’ demand for attorney’s fees as part of her Count II breach of contract claim, alleging attorney’s fees are not recoverable in such a claim.

In Pennsylvania, in order to prevail on a bad faith claim pursuant to 42 Pa.C.S.A. § 8371, a plaintiff must “present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.”

In this case, the District Court agreed with State Farm, holding that Phillips did not allege sufficient facts to support a bad faith claim. Specifically, Phillips claimed that State Farm acted unreasonably and recklessly disregarded its lack of a reasonable basis to deny her claim for medical benefits by accepting the opinions of its defense medical examiner over her treating physician.

The District Court determined that an insurance company may reasonably rely upon the findings of an “independent” medical examination even in the face of contrary medical opinions. It further held that while an insurance company may be found negligent for relying upon the opinions of its examiner over the opinions of an insured’s treating physician, those facts do not give rise to a bad faith claim.

Thus, in Pennsylvania, it is insufficient to simply claim that an insurance company was unreasonable in accepting its retained examiner’s opinion to support its denial of an insured’s claim. To support a bad faith claim, a plaintiff needs to show that the insurance company knew that it had no reasonable basis to accept its examiner’s opinion. For instance, if there were facts to show that the insurance company knew that its examiner was incompetent and/or relied upon insufficient information when he/she offered his/her opinion, then a plaintiff may have sufficient facts to support such a claim.

With respect to Phillips’ claim for attorney’s fees, 75 Pa.C.S. § 1716 provides that “Benefits are overdue if not paid within 30 days after the insurer receives reasonable proof of the amount of the benefits. If reasonable proof is not supplied as to all benefits, the portion supported by reasonable proof is overdue if not paid within 30 days after the proof is received by the insurer. Overdue benefits shall bear interest at the rate of 12% per annum from the date the benefits become due. In the event the insurer is found to have acted in an unreasonable manner in refusing to pay the benefits when due, the insurer shall pay, in addition to the benefits owed and the interest thereon, a reasonable attorney fee based upon actual time expended.

While the District Court determined that while Phillips correctly argued that she may recover attorney’s fees under Count I of her complaint because she alleges a violation of 75 Pa.C.S. § 1716 and that statute expressly provides for attorney fee awards, she could not show that that attorney’s fees are recoverable in a breach of contract claim. Therefore, the District Court dismissed her claim for attorney’s fees as part of breach of contract claim.

Case breakdown: Pittsburgh attorney Ty Smith breaks down a recent case where a bad faith claim was brought up against State Farm insurance.