In Heinlein v. Progressive Northern Insurance Company, the United States District Court for the Western District of Pennsylvania addressed the issue of whether an insurer’s initial refusal to provide a settlement offer in response to the insureds’ demand for first-party benefits could be considered sufficient evidence of bad faith.  On July 20, 2001 plaintiffs husband and wife were involved in an automobile accident in which plaintiff husband sustained serious personal injuries.  Plaintiffs immediately placed their insurer on notice of the accident and advised that they would be pursuing a UIM claim.  By the end of 2002 the insurer had received medical information from plaintiffs’ counsel and set reserves at $600,000.  Throughout 2003 the insurer continued to receive medical and financial loss documentation from plaintiffs’ counsel and also independently investigated plaintiffs’ loss.  On November 30, 2003 plaintiffs’ counsel submitted a settlement demand for $1,200,000 which represented the policy limits.  The insurer did not make a settlement offer in response to this demand.  On August 30, 2004, the insurer’s claims attorney prepared an internal trial report which valued plaintiff husband’s pain and suffering between $500,000 and $600,000; his economic loss between $149,600 and $1,013,910; and his future medical benefits from $0 to $555,812.  On September 26, 2004 the insurer increased its reserve to $950,000.  The arbitration on the claims commenced on September 2, 2004; reconvened on October 19, 2004; and concluded on  December 15, 2004.  In early November 2004, after two days of testimony, the insurer made its first settlement offer of $815,000; plaintiffs rejected the offer.  On December 3, 2004, the insurer offered plaintiffs $933,000 and plaintiffs reduced their demand to $1,150,000.  The insurer did not respond to that demand.  Ultimately, the arbitration panel awarded plaintiffs $1,275,000.  The verdict was molded to match the policy limits and was paid by the insurer.
Plaintiffs subsequently filed a bad faith claim against the insurer.  The insurer filed a motion for summary judgment seeking dismissal of the bad faith claim arguing that it was entitled to conduct a reasonable investigation of plaintiffs UIM claim and that so long as there was a reasonable basis for its evaluation it could not have acted in bad faith.  Plaintiffs raised a myriad of issues with regard to the insurer’s handling of the their UIM claim, but the Court focused on the timing of the insurer’s first settlement offer.  The Court stated that it was undisputable that the insurer had conducted a thorough investigation of plaintiffs’ claims.  Nevertheless, the Court held that a reasonable fact finder could conclude that the insurer acted in bad faith because it failed to make a  settlement offer until after the UIM arbitration had commenced.  Specifically, the Court concluded that a jury could find that given the information which the insurer possessed between its early liability determination and its initial settlement offer in November 2004, the delay in issuing any settlement offer was done in bad faith.  Since the Court was compelled to view the facts in a light most favorable to the plaintiffs, the insurer’s motion for summary judgment was denied.
Date of Decision: July 17, 2007
Heinlein v. Progressive Northern Ins., Unites States District Court for the Western District of Pennsylvania, No.05-1769, 2007 U.S. Dist. LEXIS 51592 (W.D.Pa. July 17, 2007) (Ambrose, J.)