JULY 2012 BAD FAITH CASES: COURT PERMITS CHIROPRACTOR’S DEFAMATION COUNT TO PROCEED, BUT DECLINES TO ASSERT SUPPLIMENTAL JURISDICTION OVER BAD FAITH CLAIM (Philadelphia Federal)

In Schatzberg v. State Farm Mut. Auto. Ins. Co., the court heard a carrier’s motion to dismiss a chiropractor’s six-count complaint, which alleged (1) defamation; (2) invasion of privacy; (3) violations of the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”); (4) bad faith; and (5)–(6) RICO violations.
The case stemmed from a series of challenges that the carrier made to treatments its insureds received at the chiropractor’s pain management practices, which were thereafter billed to the carrier under its insureds’ health insurance policies. According to the complaint, the carrier implemented certain programs in an effort to reduce the payout of claims by approximately one billion dollars a year. Part of the carrier’s plan allegedly included characterizing all soft tissue injuries caused by motor vehicle accidents as potentially fraudulent and enlisting its fraud unit to investigate the claims.
The fraud unit would then often hire counsel to litigate against all claimants who have sustained soft tissue injuries. The carrier would also send letters to their insureds, the chiropractor’s clients, apprising them of the ongoing investigations. Moreover, the carrier was alleged to have manipulated the MVFRL peer review process, exchanging with peer review organizations (“PRO”) a steady source of business for favorable reviews. After being targeted for litigation by the carrier’s fraud unit on numerous occasions, the chiropractor brought suit, alleging the aforementioned six-counts against the carrier.
Addressing the defamation claim, the court examined three letters that the carrier had sent to the chiropractor’s patients, alerting them to the ongoing fraud investigations. The court ruled that these letters could plausibly carry defamatory implications and rejected the carrier’s motion. However, the court granted the carrier’s motion with respect to the chiropractor’s invasion of privacy, MVFRL, fraud, and RICO claims, dismissing all but the defamation count.
With respect to the chiropractor’s bad faith claim, the carrier challenged the allegations on jurisdictional grounds, defending that the court did not possess subject matter jurisdiction. The court agreed, declining to assert supplemental jurisdiction over the bad faith claim because the claim was not derived from a common nucleus of operative fact. Essentially, the court reasoned that the bad faith claim relates to actions of the carrier in obtaining and relying on the PRO process, not the carrier’s attempt to minimize its payout of benefits for soft tissue injuries. These are two facially distinct scenarios, the court held, that would not necessarily be tried in one judicial proceeding.
Date of Decision: July 12, 2012
Schatzberg v. State Farm Mut. Auto. Ins. Co., 877 F. Supp. 2d 232, 2012 U.S. Dist. LEXIS 96567 (E.D. Pa. July 12, 2012) (Pratter, J.)