SEPTEMBER 2011 BAD FAITH CASES COURT REJECTS CARRIER’S MOTION TO DISMISS BECAUSE ITS DENIAL OF DELAY DAMAGES WAS IMPROPER (Philadelphia Federal)

In Heebner v. Nationwide Insurance Enterprise, the court was faced with a carrier’s motion to dismiss, hinging upon whether insurance coverage for compensatory damages, provided under an uninsured/underinsured (UM/UIM) policy, includes delay damages.

The case stems from a car accident that occurred in 1997 between the insured and a UM/UIM motorist.  The insured sued the motorist and, in June 2008, was awarded $133,201.96.  The award was allocated as $85,000.00 for compensatory damages, and $48,201.96 for delay damages pursuant to Pa. R.C.P. 238, or Rule 238.  However, the carrier, acting pursuant to the insured’s UM/UIM policy, only paid the insured $85,000.00 in compensatory damages, refusing to pay the $48,201.96 in delay damages on grounds that it is not liable for such damages under the policy.  In response, the insured filed a motion for declaratory judgment in state court.  The carrier removed to federal court and filed a motion to dismiss.

The insured first pointed to the language of Rule 238, which states that delay damages shall be “added to the amount of compensatory damages…and shall become part of the verdict, decision or award.”  The insured claimed that, under its policy, the carrier “will pay damages that exceed such total amount” of a UM/UIM driver’s coverage.  As such, the insured argued that the carrier is responsible to pay all damages, including delay damages.  The insured also alleged that its policy is ambiguous as to whether delay damages are “compensatory.”  The second count of the insured’s complaint argues that the carrier acted in bad faith by refusing to pay the delay damages award.

In its motion to dismiss, the carrier asserted that, because Rule 238 states that delay damages are “added to the amount of compensatory damages,” they must be separate from compensatory damages.  Furthermore, the carrier claimed that the primary purpose of delay damages is only to quicken settlements and lessen the burden on courts, distinguishing them from compensatory damages.  Lastly, the carrier argued that the policy is not ambiguous and that the absence of coverage for delay damages reflects an intent not to cover these types of damages.

First, the court reasoned that, if the carrier desired not to provide coverage for delay damages, it could have easily done so.  The carrier chose not to specifically exclude delay damages, but did specifically exclude other types of damages from the policy, including “punitive or exemplary damages.”

Second, the court held that, under Pennsylvania law, delay damages are “merely an extension of the compensatory damages necessary to make a plaintiff whole.”  While the court did recognize, as the carrier argued, that delay damages under Rule 238 are meant to encourage quicker settlements, the rule’s main purpose is to fully compensate a victim for its loss.  The court denied the carrier’s motion to dismiss on these issues, finding that the insured stated a plausible claim under Pennsylvania law.

However, the court dismissed the insured’s bad faith claim because it did not allege facts sufficient to prove that the carrier acted in bad faith by refusing to cover delay damages.  According to facts alleged by the insured, the court concluded, the carrier’s interpretation of the policy was not so unreasonable that it amounted to bad faith.

Date of Decision: September 28, 2011

Heebner v. Nationwide Insurance Enterprise, No. 10-2381, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 111382, 818 F. Supp. 2d 853 (E.D. Pa. Sept. 28, 2011) (Goldberg, J.)