MARCH 2016 BAD FAITH CASES: LENGTHY INVESTIGATION ALONE INSUFFICIENT TO MAKE OUT BAD FAITH CASE; LATER LARGE JURY VERDICT ALONE COULD NOT SHOW BAD FAITH; TRIAL COURT HAS BROAD DISCRETION IN REJECTING EXPERT’S LEGAL CONCLUSIONS ON BAD FAITH (Third Circuit)

In Shaffer v. State Farm Mutual Automobile Insurance Company, the Third Circuit upheld the trial court’s summary judgment decision in this underinsured motorist case, affirming that “no reasonable fact finder could conclude that there is “clear and convincing” evidence that the insurer acted in bad faith”.

In evaluating a bad faith claim the court observed that:  “A claim for bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant. ….  Although a delay between a demand for benefits and an insurer’s determination of whether to pay a claim is relevant, delay “does not, on its own, necessarily constitute bad faith.” ….  Rather than focusing solely on delay, courts have looked “to the degree to which a defendant insurer knew that it had no basis to deny the claim[].” Thus, “’[i]f delay is attributable to the need to investigate further or even to simple negligence,’ bad faith has not been shown.”

The insureds focused on the alleged delay in investigating and evaluating their UIM claim.  The court found that the insurer’s request to obtain the injured insured’s extensive medical file was not undertaken for the purpose of delaying the claim. Nor was there evidence that retaining a doctor to review the file was merely a pretext to effect a low payment the claim.  Even if the claims handling process was flawed, no evidence was presented that the delays or the insurer’s objectives were anything other than an effort to evaluate the insured’s medical history and determine the claim’s value.

After summary judgment on bad faith had been entered below, the case went to trial and the insureds won a substantial jury verdict.  The Third Circuit did not find this a basis to rewrite the lower court’s decision. The “jury’s later determination regarding the credibility of [the] medical review does not affect the reasonableness of [the insurer’s] earlier reliance on that review. Similarly, the fact that [the insurer’s] settlement offer was much lower than the amount the jury ultimately awarded would not necessarily affect the reasonableness of [the insurer’s] reliance on the review in making that offer.”

The court further ruled that the timing of the insurer’s opening the UIM file was not a basis for reversal; nor was the manner in which the carrier assessed medical expenses from the incident at issue vs. prior injuries.

Finally, the Third Circuit upheld the trial court’s decision to disregard the insured’s expert regarding the bad faith issue.  A trial court “has considerable discretion to accept or reject an expert’s conclusions on the question of bad faith.” And in this case, the expert review provides a legal conclusion without adding any additional facts, and so provides no factual evidence to support a claim of bad faith.”

Date of Decision:  March 10, 2016

Shaffer v. State Farm Mut. Auto. Ins. Co., No. 15-1196, 2016 U.S. App. LEXIS 4448 (3d Cir. March 10, 2016) (Jordan, McKie, Vanaskie, JJ.)