NOVEMBER 2015 BAD FAITH CASES: COURT REFUSES TO DISMISS INSURED’S BAD FAITH CLAIM ON BASIS OF CLAIMS HANDLING ALLEGATIONS (Middle District)

In Yatsonsky v. State Farm Fire and Casualty Company, the complaint alleged breach of contract and statutory bad faith under Pennsylvania law relating to the insurer’s handling of the insured’s claim under a homeowners insurance policy.

The insured’s claim arose after a pipe burst inside the insured’s home, causing extensive damage. The insured alleged that the insurer “failed to adequately investigate her claim, and engaged in dilatory and abusive claims handling.” Specifically, the insurer only visited the insured’s residence once, five months after the loss had occurred, and “only agreed to pay for limited repairs despite extensive water damage.” The insured further alleged that she provided the insurer with “documentation substantiating the extent of the water damage, including estimates from several contractors,” yet the insurer “refused to revise its estimate or pay for all of the resulting damage, including additional living expenses.” The insurer moved to dismiss the bad faith claim.

The Court noted that two elements must be shown by clear and convincing evidence to sufficiently plead a bad faith claim under the Pennsylvania statute, 42 Pa. Cons. Stat. Ann. § 8371: (1) the insurer lacked a reasonable basis for denying benefits, and (2) the insurer knew or recklessly disregarded its lack of reasonable basis. The Court also acknowledged that the Third Circuit has recognized that bad faith conduct extends to “a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured.” Here, the Court found that the insured’s above-described allegations may satisfy the elements of a cause of action under Pennsylvania’s bad faith statute, and denied the insurer’s motion to dismiss the bad faith claim.

Date of Decision: October 16, 2015

Yatsonsky v. State Farm Fire & Cas. Co., NO. 03:15cv1777, 2015 U.S. Dist. LEXIS 14078 (M.D. Pa. October 16, 2015) (Munley, J.)