OCTOBER 2013 BAD FAITH CASES: INSURER’S MOTION TO DISMISS ON CHOICE-OF-LAW GROUNDS DENIED WHERE DELAWARE HAD NO ACTUAL INTEREST IN APPLICATION OF ITS LAW, WHICH LACKED STATUTORY BAD FAITH CLAIM SIMILAR TO PENNSYLVANIA (Middle District)

In Davis v. GEICO Gen. Ins. Co., plaintiff brought suit against the defendant-insurer alleging statutory bad faith for defendant-insurer’s handling of her UIM claim. Plaintiff was a citizen of Delaware at the time she purchased the policy and at the time of the underlying accident, and at all relevant times the insurer was a Maryland insurance company. However, prior to filing the UIM claim, plaintiff became a Pennsylvania citizen. Therefore, when it received plaintiff’s complaint, the insurer filed a motion to dismiss, basing its legal argument on the position that the applicable choice-of-law grounds rules boded in favor of Delaware law, which did not provide an equivalent bad faith remedy to that found in Pennsylvania.

In resolving conflict of law issues, Pennsylvania applies a “flexible, interests/contacts methodology to contract choice-of-law questions.” When applying this methodology, the Courts first determine whether the states’ laws are actually in conflict. In this case, the parties agreed a conflict existed because Pennsylvania provides a statutory remedy to bad faith, including punitive damages and attorneys’ fees, and Delaware provides no similar remedy, only allowing plaintiffs to pursue a breach of contract action. If a conflict does exist, the court must characterize the conflict as a ‘true conflict,’ ‘false conflict,’ or ‘unprovided for situation.’ A ‘true conflict’ occurs where both jurisdictions’ interests would be impaired by allowing application of the opposing jurisdiction’s law. A ‘false conflict’ occurs where the conflict is more apparent than real.

The Court determined this case exhibited a ‘false conflict’ because Pennsylvania was the only jurisdiction with any interest in seeing its laws enforced in this case. The insurer failed to identify any interest Delaware could possibly have in having its common law applied to the case, particularly because such an application would effectively only preclude plaintiff from recovering attorney fees and make it more difficult for her to be awarded punitive damages. Furthermore, because the insurer is not a Delaware corporation, the Court could find no reason why Delaware would have an interest in having its law applied in a dispute involving two non-Delaware parties. This was particularly true because the plaintiff was the only party with any connection to Delaware, and certainly Delaware would not want to see its law applied in an effort to take away a former citizen’s rights.  Finally, the Court found even if it applied the ‘true conflict’ method of evaluation, the connections with Pennsylvania were sufficient to mandate application of Pennsylvania law. At the time the claim against the insurer accrued, plaintiff was a resident of Pennsylvania. The auto accident that formed the basis of the suit occurred in Pennsylvania with a tortfeasor from Pennsylvania. Furthermore, the medical treatment plaintiff received occurred in Pennsylvania, and her UIM claim was initiated by a Pennsylvania attorney. Thus, the Magistrate Judge recommended the insurer’s motion to dismiss be denied and the District Court judge adopted the recommendation.

Dates of Decision:  June 27, 2013 and July 18, 2013

Davis v. GEICO Gen. Ins. Co., No. 1:12-CV-2332, 2013 U.S. Dist. LEXIS 101359 (M.D. Pa. June 27, 2013) (Carlson, M.J.) adopted by Davis v. Geico Gen. Ins. Co., 2013 U.S. Dist. LEXIS 100384 (M.D. Pa. July 18, 2013) (Conner, J.).