JUNE 2009 BAD FAITH CASES REMOVING ARBITRATION CLAUSE FROM INSURANCE AGREEMENT ON RESOLVING UIM CLAIM COULD BE BAD FAITH (Middle District)

In Bukofski v. USAA Casualty Insurance Company, the insured made allegations of bad faith concerning a UIM claim.  After repeatedly requesting a copy of the policy, and its not being provided, the insured’s counsel initiated an arbitration claim and filed a write of summons in court.  Later, the insured’s counsel learn that the carrier had removed the arbitration provision from the policy, which had been in the policy for the preceding 25 years.  The insurer pointed out that under Pennsylvania Supreme Court precedent it was not required to keep the arbitration clause in the policy.  The insured argued that the removal constituted bad faith because, e.g., the absence of arbitration would increase delays and the insured’s expenses.
Specifically the plaintiff alleged “that defendant took these actions to delay payment of benefits and attempt settlement leverage by necessitating protracted expensive litigation.”
The insurer argued that under the leading Pennsylvania Supreme Court case of Toy v. Metropolitan Life Ins. Co., this was the equivalent of alleging pre-contractual fraudulent inducement to enter the contract, which had been held not to be subject to the bad faith statute.  The court rejected that reading, stating:
“The presence of an arbitration clause deals directly with the defendant’s contractual obligations and clearly arise from the insurance policy. If, as plaintiff asserts, the defendant removed the clause without notification to the plaintiff in order to force favorable settlements of UIM claims, then a statutory bad faith claim might be established. This situation is not analogous to the solicitation of a policy as addressed by Toy.”
In addressing the argument that the change was made prior to the accident, the court noted:  “If the change was done unilaterally without notice to the plaintiff there would be no way for the plaintiff to know about the change until a claim was made. Defendant has cited no authority for the proposition that an insurer cannot be liable for action taken by the insurer in bad faith in anticipation of a future claim under an insurance contract.”
Date of Decision:  June 9, 2009
Bukofski v. USAA Cas. Ins. Co., No. 3:08cv1779, 2009 U.S. Dist. LEXIS 48128 (M.D.Pa. June 9, 2009) (Munley, J.)