FEBRUARY 2008 BAD FAITH CASES NO BAD FAITH WHEN REASONABLE CLAIMS’ HANDLING IN DISPUTE BETWEEN BENEFICIARIES AS TO TIME OF INVESTIGATON & REQUIRING RELEASE PRIOR TO ANY PAYMENT (Middle District)

    

In Oehlmann v. Metropolitan Life Insurance Company, the case concerned a dispute over the insured’s handling of life insurance policy claim.  The facts are set forth more fully in the following case summary addressing application of the UIPA and UCSP regulations in the same case.  In pertinent part, the plaintiff filed a complaint pleading the following causes of action:  1) statutory bad faith; 2) breach of contract; 3) breach of the covenant of good faith and fair dealing; 4) breach of fiduciary duty; 5) negligence; and 6) negligent infliction of emotional distress.  The subject of the court’s opinion was the insured’s motion for summary judgment as to all plaintiff’s counts.  The court first addressed the plaintiff’s claim for statutory bad faith claim.  The court applied Terletsky test. 

The evidence established that the insured acted reasonably in processing the claims.  When the ex-husband disputed the plaintiff’s entitlement to proceeds and the cause of the fire, the insurer acted appropriately by allowing a reasonable time for the ex-husband to investigate the claim.  The insurers’ delay in distributing the proceeds was reasonable in light of the facts.  As for the conduct after the action of plaintiff was instituted, the insurer attempted to pay out the proceeds upon the execution of the settlement agreement and release from both parties.  The court found that it is reasonable to get a release when there is a dispute as to the money owed.  It is also reasonable to request a settlement agreement when one beneficiary has disputed the beneficiary arrangement, and the other has sued the insurer over the proceeds of the policy.  The court concluded that the insurer had affirmatively demonstrated a reasonable basis for its delay in distributing the life insurance proceeds and summary judgment must be entered. 

The court proceeded to consider the other causes of action raised by the plaintiff.  At the outset, the court noted that the other causes of action, while distinct, are essentially permutations of the bad faith claim in that they stem from plaintiff’s dissatisfaction with insurer’s delay in distributing the life insurance proceeds.   

Addressing the breach of contract claim, the court noted that any delay which occurred in the payment of the proceeds resulted from plaintiff instituting litigation against the insurer.  The purpose of requiring the signing of the release was to settle the pending litigation, and the insurer eventually paid the proceeds even without requiring the signing of the release. 

Addressing the negligence claim and the negligent infliction of emotional distress claim, the court noted that both of the claims were barred by the gist of the action doctrine because the claims arose from the contract between the two parties. 

Addressing the breach of he covenant of good faith and fair dealing claim, the court stated that the claim is not barred by the gist of the action doctrine.  The duty of good faith and fair dealing is an implied covenant that arises in every contract and is tantamount to a breach of contract claim.  To succeed on a breach of good faith and fair dealing claim, it must be shown that the insurer did not accord the interest of the insured the same consideration that it accord itself.  The court found that the insurer did accord the plaintiff the same consideration as its own and, at all times, acted reasonably and efficiently in handling the claim and distributing the proceeds. 

Addressing the fiduciary duty claim, the court noted that, as a general rule, a life insurance company has no fiduciary obligation to the beneficiary, and the relationship between the plaintiff and the insured did not fall under any exception to the general rule. 

Date of decision:  December 21, 2007

Oehlmann v. Metropolitan Life Insurance Co., United States District Court for the Middle District of Pennsylvania, Case No. 3:06-CV-01075, 2007 U.S. Dist. LEXIS 93899, (M.D. Pa. 2007) (Kosik, J.). 

R.E.M.