JANUARY 2009 BAD FAITH CASES DENIAL OF BENEFITS IS NOT NECESSARY TO TRIGGER BAD FAITH STATUTE (Philadelphia Federal)

In Jeffrey K. Kohn v. Unumprovident Corporation,  a bad faith claim arose based on the handling and investigation of the insured’s disability insurance claim.  The insured was a practicing psychiatrist who was attacked by one of his patients.  Several months after the attack, the insured ended his psychiatry practice. The insured filed for benefits arising out of three disability insurance policies issued to him by the insurer.  The insured submitted the claim to the insurer after closing his practice claiming that he suffered post traumatic stress disorder and other ailments which prohibited him from  effectively providing treatment to his patients. 

The insurer began processing the claim and started an investigation into the insured’s claim. After the insured told the insurer he was also engaged in an antiques business the insurer became suspicious of the insured’s disability claim and engaged in an extensive investigation of the insured’s lifestyle. The insured contacted a separate firm, Insight Investigations, to conduct surveillance of the insured to determine how the disability has affected his daily life.  During the course of Insight’s investigation into the insured’s background, a list of phone numbers that the insured dialed on his cellular phone was obtained by the insurer. 

On March 31, 2000 the insurer denied the insured’s claim for disability benefits.  The insurer alleged that the denial of the claim was based on the failure to provide the psychiatrist’s treatment records.  The insurer and the insured eventually came to an agreement where the insured would accept the psychiatrist’s narrative report.  After the report was received and reviewed by the insurer, the insurer decided to begin the disability payments to the insured eight months after the insured filed his claim. 

By 2002, another individual assumed responsibility for handling the insured’s claim. The insurer began ongoing investigations into the status of the insured’s disability. The insurer notified the insured that it intended to conduct an independent medical examination (IME) , which the insured challenged.  After several communications between the parties, the insurer suspended disability payments to the insured. 

In response to this suspension the insured filed a lawsuit against the insurer in state court.  During the course of discovery in that action, the insured came across the telephone list that the insurer had obtained. After that point, the insurer reinstated the insured’s benefits.  The insured’s payments were suspended for 3 weeks but eventually the insured was paid for all the benefits that were suspended during that period.  Once the parties decided on a psychiatrist to perform the IME, the psychiatrist determined that there were several issues with the insured’s disability status.  Many of these issues were the same as had been identified by the insurer in the months following the filing of the initial claim.  Even though there was concern with the insured’s disability status, the insurer continued to pay for the insured’s disability payments. 

The insured then filed a bad faith and invasion of privacy complaint against the insurer in the United States District Court for the Eastern District of Pennsylvania.  The insured alleged that during the handling of his claim the insurer acted in bad faith.  The insurer filed a motion for summary judgment.  The insurer argued that the bad faith claim must be dismissed because it is undisputed that the insurer paid all benefits to which the insured was entitled under the policy. The insurer claimed that there could be no bad faith under the statute unless benefits have been denied. 

The Superior Court has indicated that the Pennsylvania bad faith statute 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.  Even though the insurer has now paid all benefits to which the insured was entitled, the insurer did initially deny and later suspend his payments.  There is significant dispute that still exists as to whether this was done in good faith or bad faith.  Also the investigative tactics used by the insurer may lead a jury to conclude that the insurer’s suspension of benefits and general handling of the insured’s claim was conducted in bad faith, including the acquisition of the phone records.  Therefore the court held that it was improper to grant summary judgment to the insured and that the insurer’s conduct should be considered on the basis of a full factual record developed at a trial.  Therefore the insurer’s motion for summary judgment on the bad faith claim was denied.

Date of Decision: October 31, 2008

Kohn v. Unumprovident, Corp., No. 2:04-cv-4929, 2008 U.S. Dist. LEXIS 101658 (E.D. Pa. Oct. 31, 2008)(Baylson, J.). 

 

J.M.A.