In Perkins v. State Farm Insurance Company, the court denied the insurer’s motion to dismiss the bad faith claim, ruling that the allegation of abusing the peer review organization (“PRO”) process exceeded the purview of PA’s Motor Vehicle Financial Responsibility Law (“MVFRL”) and was sufficient to state a bad faith claim.
This case arises from the insurer’s denial of first-party medical benefits under an automobile insurance policy for injuries sustained after the insured was struck by a motor vehicle while walking in a parking lot. The accident occurred in January, 2005 and the insurer originally paid the medical bills. In September, 2007, however, the insurer notified the insured’s chiropractor that it would not pay for any further treatments and requested reimbursement plus 12% interest for treatment dates January 26, 2006 through May 8, 2007. It based its decision on a PRO evaluation which determined that Perkins’ treatment was no longer medically reasonable or necessary.
The insured filed for statutory bad faith, as well as for breach of contract, violation of the PA Unfair Trade Practices and Consumer Protection Law, and fraud. The insurer moved for dismissal of most of the counts under Fed. R. Civ. Pro. 12(b)(6). Its argument for the bad faith claim was that the statute is pre-empted by the MVFRL which is the exclusive remedy.
The court explained the relevant sections of the MVFRL, under which an automobile insurer must cover reasonable and necessary medical treatment. The penalty for unreasonably denying payment is to pay the benefit plus 12% interest and reasonable attorney fees. Conversely, the insurer may be reimbursed plus 12% interest if treatment previously paid was not medically necessary. To determine medical necessity, the insurer may submit the bills to a PRO. The insured or provider may request reconsideration of an unfavorable PRO decision. If the insurer did not use a PRO, the insured or provider may challenge the non-payment in court.
The PA Supreme Court has determined that an insured or provider does not need to ask for reconsideration of a PRO decision made under the MVFRL before filing in court but has not otherwise addressed the pre-emption issue. This has resulted in mixed precedent. The court rejected the view that the two laws are irreconcilable and that the MVFRL is the exclusive remedy for PRO process bad faith. It, instead, the court adopted the reasoning that the MVFRL pre-empts the bad faith statute only when the claim is for denial of first-party medical benefits, not when the bad faith allegations exceed the scope of the MVFRL, e.g., for contract interpretation or not properly invoking or following PRO process.
Evaluating the motion for dismissal accordingly, the court found that one allegation – using a biased PRO that continuously denied benefits in order to maintain its business with the insurer – exceeded the scope of the MVFRL. Although the court found this allegation to be “thin” it also found it to be sufficient to state a claim under the bad faith statute and therefore denied the insurer’s motion to dismiss the bad faith claim.
Date of Decision: December 16, 2008