Two holdings are of importance in the recent decision in the Federal Case of Cieplinski v. State Farm Mut. Auto. Ins. Co., Download Cieplinski v. State Farm Mutual Auto. Insurance Co. (M.D. Pa. Case No. 3.10.CV.1093, Memorandum Opinion Filed July 26, 2010) FREE ACCESS OFFICIAL REPORT also published as 2010 WL 2926846 (M.D. Pa. July 26, 2010)(Westlaw subscription required to access Westlaw):
1. The Plaintiff stated "a cause of action" for Statutory Bad Faith under 42 PA. CONS. STAT. § 8371 where she based her Claim on allegations that the Defendant Insurance Company refused to pay her medical claims for chiropractor bills because of allegedly biased peer review. "Plaintiff has alleged that State Farm denied her first party medical benefits by using the same peer reviewer on multiple occasions and in the face of Plaintiff's treating chiropractor's recommendations that she treat two (2) or three (3) times per month for the rest of her life.... As such, Plaintiff has properly alleged a cause of action for bad faith pursuant to" the Pennsylvania Statute. The Federal Court denied State Farm's Motion to Dismiss this Claim accordingly. Cieplinski, 2010 WL 2926846 at *3. [Emphasis added.] (Compare the emphasized language from the Cieplinski holding in this regard, with Worth Bargain Outlet, Inc. v. AMCO Insurance Co., Download Worth Bargain Outlet, Inc. v. AMCO Insurance Co. (S.D. Cal. Case No. 09.cv.839, Order Filed July 21, 2010) FREE ACCESS OFFICIAL REPORT also published as 2010 WL 2898264 *11 (S.D. Cal. July 21, 2010)(Westlaw subscription required to access Westlaw), also a case of alleged First-Party Bad Faith. In Worth Bargain Outlet, a Plaintiff-Policyholder which suffered a fire loss argued that one of the grounds for its alleged Bad Faith Claims was that the Defendant Insurance Company "'dishonestly selected its experts' and those 'experts were unreasonable' in their investigation of Plaintiff's claim." The one and "only argument Plaintiff puts forth to suggest a biased investigation is the fact that [Defendant's Expert] was hired 20 times by Defendant before Plaintiff's claim, and 30 to 40 times since." [Emphasis added.] The Worth Bargain Outlet Court held that this was not enough by itself either to show bias or to demonstrate a basis for a First-Party Bad Faith Claim. Worth Bargain Outlet, 2010 WL 2898264 at *11.)
2. Of particular interest to practitioners in Pennsylvania, the Federal Court in Cieplinski revisited one of its own previous decisions and held that a First-Party Statutory Bad Faith Cause of Action under 42 PA. CONS. STAT. § 8371 is not entirely preempted by the strictures of 75 PA. CONS. STAT. § 1797. In the Cieplinski case, as a result, the Plaintiff-Policyholder was allowed to proceed on her Section 8371 claim where she alleged "that State Farm has abused the peer review process by hiring a peer reviewer that it knew had previously provided negative reports regarding Plaintiff's treatment." Cieplinski, 2010 WL 2926846 at *3. "Thus, Plaintiff's bad faith claim survives only to the extent that she is alleging that State Farm abused the peer review process by hiring a peer reviewer that would give a biased determination." Id. The Plaintiff would not, however, be allowed to proceed with a Section 8371 Claim to the extent that she based her Claim "on failure to conduct a reasonable investigation, evaluate coverage, or promptly notify her of a denial of first party benefits," which are preempted by Section 1797. Id.
Timely Investigation and Evaluation plays a major role in preventing and litigating First-Party Bad Faith Claims, and they are both addressed in particular in § 9:7, Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill First Edition; West Publishing Company Second Edition and 2010 Supplement). Preemption of First-Party Bad Faith Claims, whether Statutory or filed at Common Law, are addressed in particular in § 9:16, id.
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POSTSCRIPT OF SEPTEMBER 2, 2010: PACER, the Online Docket of the Federal Courts, reflects that a Notice of Settlement was filed in the Worth Bargain Outlet Case in the Southern District of California, on August 20, 2010.
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