April 1st, 2019
PA Plaintiffs Must Allege A Denial of Benefits for Insurance Bad Faith
Recently, in the case of Buck v. GEICO, the United States District Court for the Eastern District of Pennsylvania, granted GEICO’s Motion to dismiss Mr. Buck’s insurance bad faith claim for failing to allege a denial of benefits in accordance with 42 Pa. C.S.A. §8371.
Mr. Buck was involved in a motor vehicle accident wherein his vehicle collided with a parking bollard. Mr. Buck claimed that the accident was caused by a non-party security officer. He reported the collision to his insurance company, GEICO, and in accordance with the policy, he “provided a full and accurate description of the accident.”
Despite Mr. Buck’s claim, and without any further investigation, GEICO determined that the collision was Mr. Buck’s fault.” Thereafter, GEICO significantly increased Mr. Buck’s insurance premiums. Consequently, Mr. Buck was forced to seek insurance from another company in an attempt to offset the increased premium.
Months later, Mr. Buck provided GEICO with surveillance video that showed the collision happened exactly as Mr. Buck initially described it. GEICO acknowledged its receipt and review of the video, but nonetheless determined that it’s liability position regarding the loss would not change. Later, GEICO informed Mr. Buck that it had changed its liability decision and determined that Mr. Buck was not solely responsible for the accident, but was comparatively negligent.
Mr. Buck filed an underinsured motorists (UIM) claim against GEICO, and GEICO filed a motion to dismiss the claim on the basis that Mr. Buck did not assert that GEICO denied benefits under an insurance policy as required by Pennsylvania’s insurance bad faith statute, 42 Pa. C.S.A. §8371. In response, Mr. Buck argued that he does not need to allege a denial of benefits to state a cause of action for insurance bad faith under § 8371 and claimed that GEICO’s investigative practices and faulty conclusions based on egregious investigative inaction provided a cause of action under § 8371. Mr. Buck relied on O’Donnell ex rel. Mitro v. Allstate Ins. Co, which states that “[S]ection 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.” 734 A.2d 901, 904 (Pa. Super. Ct. 1999). However, in UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497, 506 (3d Cir. 2004), the Court explained, that O’Donnell merely clarified that “the alleged bad faith need not be limited to the literal act of denying a claim,” but “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” Id. Thus, the Court determined that Mr. Buck must allege the denial of benefits to state a claim under § 8371.
In response, Mr. Buck argued that GEICO’s investigative practices and faulty conclusions based on egregious investigative inaction effectively denied him the benefits of (1) fair and reasonable treatment upon submission of a claim; (2) the wisdom and experience of a multi-billion-dollar organization standing behind you in your moment of need; and (3) an insurance carrier to pursue your deductible from the actual party at fault. Nonetheless, the Court noted that Mr. Buck did not allege in his Complaint that any of these benefits arose from his insurance policy, or that he was denied those benefits. Accordingly, the Court could not consider Mr. Buck’s assertions in resolving GEICO’s motion to dismiss. The Court explained that even assuming that the bad faith denial of the benefits claimed by Mr. Buck was properly alleged in the Complaint, Mr. Buck’s argument fails because he does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.’” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006). None of the “benefits” that GEICO allegedly denied Mr. Buck concern the refusal to pay proceeds under an insurance policy. Therefore, the Court concluded that because Mr. Buck did not allege a “denial of benefits” within the meaning of § 8371, GEICO’s motion to dismiss was granted. However, Mr. Buck was given the opportunity to file an Amended Complaint.