OCTOBER 2011 BAD FAITH CASES COURT DENIES AND GRANTS PORTIONS OF MOTION TO DISMISS BAD FAITH CLAIMS IN UM/UIM CONTEXT (Western District)

In Flaherty v. Allstate Property & Casualty Insurance Company, the court ruled upon a carrier’s motion to dismiss an insured’s breach of contract and bad faith claims.  The action stemmed from a 2008 car accident, during which the insured passenger suffered several injuries.  After the accident, the insured was unable to recall who was driving the vehicle.  The car was insured under a policy, issued in Ohio, by the owners of the vehicle.  The complainant was also insured by the same carrier, but in Pennsylvania.  The carrier refused to cover the insured under either policy.

The insured subsequently brought claims for Uninsured and/or Underinsured Motorist (“UM/UIM”) coverage under both policies in the Court of Common Pleas of Allegheny County.  The carrier removed to federal court in the Western District of Pennsylvania and moved to dismiss the insured’s seven-count amended complaint.

Count I alleged that the carrier breached the policy held by the insured because it failed to issue UM/UIM benefits.  As to the UM coverage, the court highlighted language in the policy that the carrier would pay damages that the insured is entitled to recover from the owner of an uninsured automobile.  However, the policy conditioned that recovery be a part of a “hit-and-run motor vehicle.”  As such, the court held that the insured did not state a plausible claim for UM benefits under its own policy. 

With respect to the UIM benefits, the insured’s policy covered damages that exceed “the bodily injury protection in effect at the time of the accident.”  However, the insured had yet to ascertain the precise amount of damages he sustained, warranting discovery on the issue.  The court therefore denied the carrier’s motion to dismiss the suit for UIM benefits.

Counts II and III included bad faith claims under Pennsylvania and Ohio law.  The court disposed of the Ohio bad faith claim in count III because the insured’s own policy was issued in Pennsylvania.  The court denied the motion to dismiss with respect to the Pennsylvania bad faith claim because the insured’s allegation that he was improperly denied coverage was plausible and warranted discovery.

Count IV contained a breach of contract claim under the car owner’s UM/UIM coverage.  The court began by noting that, according to the owner’s policy, Ohio law would apply.  Specifically, under Pennsylvania’s flexible “contacts/interest” methodology, the court would apply law of the state with the greatest interest in the underlying tort.  The court decided that Ohio law should apply because the car owner’s policy was executed and delivered in Ohio to two Ohio residents.  Moreover, Ohio has the most substantial contacts with the car owner’s policy.  Pursuant to the policy’s choice of law provision, the court ruled that Ohio law should govern the owner’s policy.

With respect to count IV, the carrier argued that, under the policy, “An Uninsured Auto Is Not: a motor vehicle which is insured under the Automobile Liability Insurance of this policy.”  Because the car involved in the accident was listed as the insured vehicle on the owner’s policy, it was not an uninsured vehicle for the purposes of the insured’s claim.

However, the insured insisted that Ohio’s Revised Code § 3937.18(B) contravenes the language of the policy, stating that “an ‘uninsured motorist’ is the owner or operator of a motor vehicle if…[t]he identity of the owner or operator cannot be determined, but independent corroborative evidence exists to prove that the bodily injury… of the insured was proximately caused by…the unidentified operator of the motor vehicle.”  The court disagreed, citing case law where Ohio courts have applied the language of similar UM policies over that of the statute.  Moreover, the court agreed with the carrier that the owner’s policy only provides UIM coverage in limited circumstances, where there is a “uninsured” auto.  Yet, the owner’s policy provides that a vehicle insured under the policy cannot also be deemed “an uninsured auto,” so it does not qualify for coverage under the policy’s UIM provision.  The court therefore dismissed count IV.

The court then examined counts V and VI, which alleged bad faith under Pennsylvania and Ohio law, respectively.  The court immediately dismissed count V because the owner’s policy was governed by Ohio law.  As for count VI, the court dismissed the Ohio bad faith claim because, as discussed in reference to the counts I-IV, the carrier had a “reasonable justification” for believing that the insured was not entitled to coverage under the owner’s policy.

Lastly, the carrier claimed that count VII, alleging negligence on behalf of the anonymous driver, should be dismissed or severed.  It argued that suits against fictitious, unidentified defendants are disfavored in Pennsylvania.  However, the court recognized the need for this claim to proceed to discovery, affording the insured an opportunity to identify the driver.  The court rejected the carrier’s motion on count VII, noting that it would revisit a possible severance of the negligence claim prior to trial.

Date of Decision: October 19, 2011

Flaherty v. Allstate Property & Casualty Insurance Company, No. 11-440, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 120698 (W.D. Pa. Oct. 19, 2011) (Mitchell, U.S.M.J.)