614 F.Supp.3d 153
E.D. Pa.2022Background
- July 9, 2019: Christina Young (driver), Lindsay Guarino (passenger), and Dorothy Marks (passenger) were injured/killed in a rear-end collision with a passenger bus; Young and Guarino pursued underinsured motorist (UIM) coverage under their State Farm policy.
- Plaintiffs notified State Farm of UIM claims in August 2019; State Farm acknowledged and began evaluation but, in November 2019, requested to place the UIM claims in abeyance pending resolution of third-party claims and verification of limits; plaintiffs’ counsel agreed.
- Third-party claims settled in late 2021; State Farm consented to the third-party settlement and paid $400,000 for Marks’s death in December 2021; State Farm took statements from Young and Guarino on February 10, 2022.
- Plaintiffs demanded $400,000 per person for Young and Guarino, and, after no final UIM decision as of April 1, 2022, filed suit alleging breach of contract and bad faith under 42 Pa. Cons. Stat. § 8371.
- State Farm moved to dismiss the bad faith claim; the court granted the motion and dismissed the bad faith claim without prejudice.
- Court reasoning: the alleged multi-year delay is misleading because the parties agreed to abeyance while third-party claims were pending; after reopening, State Farm acted promptly and maintained communication, so plaintiffs failed to plead the two Terletsky elements (no reasonable-basis denial; insurer knew or recklessly disregarded lack of basis).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer's delay/supports a bad-faith claim under § 8371 | Young: State Farm took over two years and failed to timely decide UIM claims (delay = bad faith) | State Farm: Parties agreed to hold claims in abeyance pending third-party resolution; investigation resumed and communications continued | Court: Dismissed bad-faith claim; alleged delay largely due to agreed abeyance and post-reopening delay was short |
| Whether plaintiffs pleaded insurer knew or recklessly disregarded lack of reasonable basis | Young: Delay and alleged failure to timely pay show reckless disregard | State Farm: No unreasonable basis for delay; investigation and communications were reasonable | Court: Plaintiffs failed to plausibly allege knowledge or reckless disregard; dismissal without prejudice |
Key Cases Cited
- Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008) (motion-to-dismiss standard: accept factual allegations and construe complaint in plaintiff’s favor)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to assumption of truth in pleading analysis)
- Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994) (establishes two-part test for insurer bad faith)
- Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230 (3d Cir. 1997) (adopts Terletsky two-element test for § 8371 claims)
- Wolfe v. Allstate Prop. & Cas. Ins. Co., 790 F.3d 487 (3d Cir. 2015) (bad-faith requires lack of reasonable basis and knowledge or reckless disregard)
- Grossi v. Travelers Pers. Ins. Co., 79 A.3d 1141 (Pa. Super. Ct. 2013) (one-year delay not per se bad faith)
- Williams v. Hartford Cas. Ins. Co., 83 F. Supp. 2d 567 (E.D. Pa. 2000) (fifteen-month delay insufficient to prove bad faith)
- Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121 (3d Cir. 2005) (mere negligence or bad judgment is not bad faith)