Holohan v. Mid-Century Ins. Co.

Holohan v. Mid-Century Ins. Co.

On Sept. 9, 2015, Plaintiff Kevin Holohan was involved in a motor vehicle collision. He was covered by a personal auto policy issued by Defendant Mid-Century Insurance Company (“Mid-Century”). Mr. Holohan sustained numerous injuries to his cervical spine, with headaches and pain and numbness in the right upper extremity. Mid-Century began making payments for his medical treatment. On Aug. 18, 2016, Kevin was involved in another motor vehicle collision, which aggravated the injuries sustained during the September 2015 incident. Mid-Century closed Kevin’s First-party medical benefits claim relating to the September 2015 incident and utilized the Peer Review process to obtain a determination that Kevin’s treatment was not related to the Aug. 18, 2016, collision but, rather, the Sept. 9, 2015, collision, which Mid-Century closed. Thereafter, Mid-Century refused to pay for the treatment under the first claim despite more than $80,000 of First-party medical benefits available. After the second collision, Kevin filed an underinsured motorist (“UIM”) claim arising from the initial Sept. 9, 2015, collision. Despite having determined that Kevin’s injuries and treatment were related to the Sept. 9, 2015, collision and that the Aug. 18, 2016, collision aggravated his symptoms, Mid-Century still refused to pay Kevin’s UIM benefits. On Oct. 20, 2020, Kevin sued Mid-Century and its claims adjusters, Patrick Eckles, and Timothy Harman, in the Philadelphia Court of Common Pleas (State Court Action) claiming:

(1) Breach of Contract relative to UIM Benefits;

(2) Common Law and Statutory Bad Faith relative to UIM Benefits;

(3) Timothy Harman’s Violation of Consumer Protection Law;

(4) Breach of Contract relative to First-party Medical Benefits;

(5) Violation of 75 Pa.C.S.A § 1716/1798;

(6) Violation of 75 Pa.C.S.A. § 1797;

(7) Common Law and Statutory Bad Faith relative to the First-party medical benefits; and,

(8) Patrick Eckles’ Violation of Consumer Protection Law.

The Defendants removed the action to federal court based on diversity jurisdiction, claiming that Defendant Timothy Harman, a citizen and resident of the Commonwealth of Pennsylvania, was fraudulently joined solely for the purpose of destroying diversity jurisdiction. The Defendants also filed a motion to dismiss all claims against Defendants Harman and Eckles. Plaintiffs filed a Motion to Remand the case back to state court.

Under the fraudulent joinder doctrine, a defendant may still remove an action if it can establish that the non-diverse defendants were “fraudulently” named or joined solely to defeat diversity jurisdiction. In Re Briscoe, 448 F.3d 201, 215-16 (3d Cir. 2006). Joinder is fraudulent “where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendants or seek a joint judgment.” Batoff v. State Farm Ins. Co., 977 F.2d 848, 851 (3d Cir. 1992). The objective test for fraudulent joinder is whether there is a “reasonable basis in fact or colorable ground supporting the claim against the joined defendant” and requires consideration of whether the plaintiffs “fail[] to state a cause of action... and the failure is obvious according to the settled rules of the state.” Id. at 111-12. The Third Circuit has emphasized that this inquiry is not coextensive like the inquiry required for a 12(b)(6) motion to dismiss. Lopez v. Home Depot, Inc., No. CIV. A. 08-1020, 2008 WL 2856393, at *2 (E.D. Pa. July 22, 2008).

The District Court for the Eastern District of Pennsylvania determined that the Plaintiffs did not have a claim against the Mid-Century’s claims adjusters for breach of contract because their duty to act reasonably did not create a contractual obligation. See Reto v. Liberty Mut. Ins., No. CIV. A. 18-2483, 2018 WL 3752988, at *2 (E.D. Pa. Aug. 8, 2018). The Court also concluded that the Plaintiffs failed to plead allegations of personal misconduct and fraudulent representations on the part of Timothy Harman or Patrick Eckles, necessary to support their claim that the Defendants engaged in a scheme to defraud them of their benefits. See Hennessy v. Allstate Ins. Co., No. CIV.A. 13-6594, 2014 WL 1479127, at *2 (E.D. Pa. Apr. 14, 2014).  

The Court also determined that the Plaintiffs had no plausible claim against Defendants Harman and Eckles for statutory bad faith because such claims have been found impermissible under § 8371. See Reto, 2018 WL 3752988, at *2. Similarly, the Court held that the Plaintiffs failed to make a plausible claim against Defendants Harman and Eckles for common law bad faith because Pennsylvania law does not support a bad faith claims against a claim adjuster. See, e.g., Peer v. Minnesota Mut. Fire & Casualty Co., No. CIV. A. 93-2338, 1993 WL 533283, at *3 (E.D. Pa. Dec. 23, 1993).

Regarding Defendant the Plaintiffs’ alleged violations of the Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq., the Court stated, “[i]n Pennsylvania, only malfeasance, the improper performance of a contractual obligation, raises a cause of action under the [UTPCPL] and an insurer’s mere refusal to pay a claim which constitutes nonfeasance, the failure to perform a contractual duty, is not actionable.” Horowitz v. Fed. Kemper Life Assur. Co., 57 F.3d 300, 307 (3d Cir. 1995) Again, the Court noted that Plaintiffs failed to plead factual allegations that establish they believed any misrepresentation made by the Defendants that they justifiably relied upon any misrepresentation, or that they suffered any form of harm based on their reliance of any misrepresentation by the Defendants. Moreover, the Court found no contractual obligation between Plaintiffs and the Individual Defendants so there could be no malfeasance on their part. Accordingly, all the Plaintiffs’ claims against Defendant Harman and Eckles were dismissed. The UTPCPL claim was also dismissed; and the Plaintiffs’ motion for remand was denied due to the “fraudulent joinder.”

    Court dismisses breach of contract, bad faith and consumer protection claims against insurance claims adjusters in Holohan v. Mid-Century Ins. Co. Ty Smith explains.