700 F.Supp.3d 288
E.D. Pa.2023Background
- On Sept. 20, 2017 Lisa Carr was injured as a passenger in a rear-end collision; she settled with the tortfeasor’s insurer (Geico) for $15,000.
- Carr had underinsured motorist (UIM) coverage with Travelers with a $100,000 policy limit and submitted a UIM claim after the Geico settlement.
- Over ~2+ years Travelers and Carr (through counsel) exchanged medical records and communications; Travelers made settlement offers of $5,000, $40,000, then $50,000, all rejected by Carr.
- Carr demanded arbitration; a three-arbitrator panel awarded $500,000, of which Travelers paid $100,000 (the policy limit).
- Carr sued Travelers in state court alleging: (1) common-law bad faith, (2) statutory bad faith under 42 Pa. Stat. § 8371, and (3) UTPCPL violations; Travelers removed and moved to dismiss.
- The district court granted the motion: Count I (common-law) and Count III (UTPCPL) dismissed with prejudice; Count II (§ 8371) dismissed without prejudice for failure to plead plausibly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Common‑law bad faith / breach of implied duty | Carr alleged Travelers acted in bad faith in handling and settling her UIM claim. | Travelers: Pennsylvania does not recognize a tort freestanding bad‑faith claim; arbitration award has preclusive effect (res judicata) on contractual/bad‑faith theories subsumed in the arbitration. | Dismissed with prejudice: no freestanding tort claim; contract/bad‑faith theory precluded by arbitration (res judicata). |
| Statutory bad faith (42 Pa. Stat. § 8371) | Carr alleged unreasonable denial/delay, inadequate investigation, reliance on insurer experts, and low offers showing bad faith and reckless disregard. | Travelers: offers, investigation, and expert reliance were reasonable; plaintiff’s allegations are conclusory and fail to plausibly plead that insurer knowingly or recklessly lacked a reasonable basis. | Dismissed without prejudice: allegations speculative/conclusory and do not plausibly show insurer knew or recklessly disregarded lack of reasonable basis. |
| UTPCPL claim | Carr alleged Travelers’ claim‑handling violated Pennsylvania consumer‑protection law. | Travelers: UTPCPL does not apply to post‑formation claim handling (only to sale/marketing); plaintiff failed to oppose and thus waived the claim. | Dismissed with prejudice: UTPCPL inapplicable to claims handling and plaintiff waived response. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (complaints must allege factual content rendering claims plausible).
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading).
- D’Ambrosio v. Pa. Nat’l Mut. Cas. Ins. Co., 431 A.2d 966 (Pa. 1981) (Pennsylvania does not recognize a common‑law tort remedy for insurer bad faith).
- Rancosky v. Washington Nat’l Ins. Co., 170 A.3d 364 (Pa. 2017) (statutory bad‑faith under § 8371 requires lack of reasonable basis and knowledge or reckless disregard of that lack).
- Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999) (definition of bad faith as frivolous or unfounded refusal to pay).
- UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497 (3d Cir. 2004) (discussing limits of common‑law bad‑faith claims under Pennsylvania law).
- Zappile v. Amex Assurance Co., 928 A.2d 251 (Pa. Super. 2007) (difference between offer and arbitration award alone does not prove bad faith).
- Smith v. State Farm Mut. Auto. Ins. Co., 506 F. App’x 133 (3d Cir. 2012) (insurer’s low but reasonable estimate or refusal to immediately pay policy limit does not by itself establish bad faith).