MARCH 2011 BAD FAITH CASES INSURER OWES A COMMON LAW DUTY OF GOOD FAITH AND FAIR DEALING EVEN WHERE NOT STATUTORY BAD FAITH PLEADED (Western District)

In Sartoris v. State Farm Mutual Automobile Insurance Company, the insured was riding his motorcycle in Pennsylvania when the driver of a car crossed into the lane in which he was traveling and struck his motorcycle.  The insured suffered severe injuries, and the insurer of the driver of the other car paid the policy limits of its liability coverage to the insured.  State Farm (“the insurer”) covered the insured, and the insured notified the company of his intent to pursue a claim for underinsured motorist (“UIM”) benefits.  His policy with the insurer consisted of $100,000 of UIM benefits for the vehicle in the accident, two other motorcycles, and one car, and he paid a premium to the insurer for stacking coverage, so the total amount of UIM benefits available was $400,000.

The insured provided medical records and reports to the insurer and made written demands for the full $400,000 available to him, but the insurer only paid $150,000 over the course of two payments.  The insured eventually filed a Complaint for breach of contract, seeking the remaining $250,000 available under the policies.  He alleged in the Complaint that the insurer did not objectively and fairly evaluate his claim and therefore violated its obligations under the policies, which amount to bad faith allegations.  He did not, however, assert a claim for bad faith under Pennsylvania law, and the insurer filed a motion to strike the paragraphs in the Complaint that discussed potential bad faith violations.

The insured responded by agreeing to strike the word “fiduciary” from the Complaint, as he realized that the case did not involve the insurer’s handling of a third-party claim.  On the other hand, the insured argued that while he did not assert a claim for statutory bad faith, the allegations in question were proper because the insurer owed him a duty of good faith and fair dealing with regard to his claim for the full amount of UIM coverage.  The court agreed with the insured, citing prior Pennsylvania case law and holding that “an insurance company’s duty to its insured is one of good faith and fair dealing.”  It therefore denied the insurer’s motion to strike the paragraphs of the complaint dealing with bad faith in their entirety.

Date of Decision:  February 28, 2011

Sartoris v. State Farm Mut. Auto. Ins. Co., Civil Action No. 11-119, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 19414, (Feb. 28, 2011) (Standish, J.)