JANUARY 2011 BAD FAITH CASES BAD FAITH ALLEGATION DISMISSED WHEN PLAINTIFF PHYSICIAN FAILS TO QUALIFY AS AN INSURED UNDER PENNSYLVANIA LAW (Lawrence County Common Pleas)

In Richard A. Papa & Associates, P.C. v. Highmark Blue Shield, the plaintiff was a physician who provided pediatric and adolescent physician services.  He allegedly functioned as a preferred provider and a health service provider for the insurer’s policyholders, and the insurer paid the plaintiff on behalf of its patients.  One day, the insurer notified the plaintiff that it had reviewed his records and requested a refund of $2,205.99.  The plaintiff did not agree or comply with this request, as he believed that he had complied with all of the terms of the “prevailing agreement” between the parties.

The plaintiff filed suit, alleging that the insurer’s demand for payment constituted a breach of contract.  He also claimed that the insurer violated Pennsylvania’s bad faith statute, 42 Pa.C.S.A. § 8731, in denying payment.  The insurer raised preliminary objections to the Complaint which were mainly based on the plaintiff not providing any copy of an agreement between the parties.

Concerning the breach of contract claim, the court agreed with the insurer’s argument that under Pennsylvania law, the pleader must attach a copy of the written agreement to the Complaint if the foundation of the claim is an express contract.  Also, a plaintiff must state whether the contract is an oral or written contract.  Is this case, the plaintiff’s Complaint mentioned a “prevailing agreement” many times, but it failed to mention whether the agreement was written or oral, and the plaintiff did not attach any portion of the agreement.  The court therefore sustained the insurer’s preliminary objection regarding the failure to provide a copy of the “prevailing agreement” and granted the plaintiff leave to amend its Complaint concerning that issue.

With respect to the bad faith claim, the court held that the plaintiff was not an “insured” under Pennsylvania’s bad faith statute.  Under the system where the plaintiff provided medical services to patients and the insurer paid the plaintiff for these services, the insureds were the patients who had paid the insurer for coverage.  The policies were therefore being held for the benefits of the patients, and the plaintiff simply was a preferred provider or health service provider.  The only possible insureds in this case were the patients, and because the bad faith statue requires that an insurer act in bad faith toward the insured, the court was required to dismiss the count for bad faith as a matter of law.

Date of Decision:  August 3, 2010

Richard A. Papa & Assocs., P.C. v. Shield, No. 11537 of 2009, Common Pleas Court of Lawrence County, Pennsylvania, 2010 Pa. Dist. & Cnty. Dec. LEXIS 399, (Aug. 3, 2010) (Cox, J.)