MARCH 2009 BAD FAITH CASES INSURER GRANTED SUMMARY JUDGMENT ON INVESTIGATION, PAYMENT DELAY & UNDERPAYMENT, BUT DENIED ON INVESTIGATOR’S CONDUCT (Philadelphia Federal)

In Aquila v. Nationwide Mutual Insurance Company, the court granted in part the insurer’s motion for summary judgment, allowing one component of one insured’s bad faith claim to continue to trial.  The surviving component relates to the manner in which the insurer’s investigation was conducted.  The insurer did not address this so the court was required to let it stand, even though the insured never responded to the summary judgment motion to present any evidence to support its allegation.
This bad faith and defamation case relates to the insured’s claim for benefits under his motor vehicle insurance policy for the theft and destruction of a covered vehicle and the ensuing investigation.  [A prior ruling dismissed all bad faith claims by a third plaintiff, the insured’s child; see BAD FAITH CLAIM DISMISSED BECAUSE THE PLAINTIFF, THE CHILD OF AN INSURED, LACKED STANDING posted on this site in January, 2009].
The court addressed the insured husband’s bad faith claims, construing three of the four components to be statutory and one part (seeking compensatory damages) as contractual bad faith, since the insured did not specify which law was at issue.
The bad faith allegations were that the insurer (1) conducted an unnecessary investigation, (2) improperly delayed making payment, (3) did not pay the full amount due, and (4) conducted the investigation in an unreasonable manner.  The court found that the insurer had acted reasonably under the first three components and was thereby entitled to have its motion for summary judgment granted on those components.
First, the investigation was reasonable because the existence of “red flags” is reasonable justification for an investigation and there were nine such “red flags” in this case, including a questionable manner and place of destruction and the insured’s financial situation (negative cash flow).
Second, the payment delay was reasonable because it was at first due to the (reasonable) investigation taking place and subsequently due to lack of cooperation from the insured who, among other things, took more than five months to return a standard packet of materials to the insurer.
Third, the amount paid was reasonable because, although the insured sought replacement costs, he was paid actual cash value (minus deductible) as determined by an outside examiner; and the insured never challenged this report and never stated what the amount paid should have been.  The insurer reimbursed him for premiums paid during the investigation period and paid auto rental expenses pursuant to the policy.  The insured sought compensation in other amounts including for time spent finding and meeting with counsel and lost work time, but he did not cite a policy provision that covered such amounts, nor was the court able to identify any, so the court determined he was not entitled to them.
The final bad faith component was the manner in which the investigation was conducted.  Since bad faith claims may extend to conduct during the insurer’s investigation, the court considered the investigator’s alleged actions which included intimidation, insinuations of insurance fraud, and defaming the insured’s character.  Although the insured did not provide evidence of this conduct, the insurer never addressed it either.  Consequently, the insurer can not prove there is no genuine issue of material fact and the court denied summary judgment.
In so ruling, the Court did not address the argument, based on the Pennsylvania’s Supreme Court decision in Toy v. Metropolitan Life Ins. Co., that there can be no bad faith cause of action in the absence of a denial of a benefit (payment in first party claims, or defense and indemnification in third party claims).  The issue of courts failing to address this argument from Toy is addressed at more length in this post, found on this website.
The court did, however, grant summary judgment to the insurer on all of the bad faith claims made by the insured ex-wife because, despite being an insured under the policy, she never filed a claim for the theft so she could not qualify as a bad faith plaintiff.
Date of Decision:  December 15, 2008
Aquila v. Nationwide Mut. Ins. Co., CIVIL ACTION No. 07-2696, 2008 U.S. Dist. LEXIS 101518 (E.D. Pa. Dec. 15, 2008)(Strawbridge, M. J.)