Pennsylvania Insurance Company's "Right to be Wrong" on Likely Damages: ...

... Evaluating Damages in Good Faith.

   "They brought two claims:  breach of contract and bad faith."  Download Rossi v. Progressive Insurance (M.D. Pa. Case No. 3.09CV876, Memorandum Order Filed April 25, 2011) PUBLIC ACCESS, also published as 2011 WL 1565848 (M.D. Pa. April 25, 2011)(authorized password required to access Westlaw).  "They" are Mr. and Mrs. Alan and Laura Rossi.  They are the Policyholders on a Progressive Policy that provides Underinsured Motorist Coverage in accordance with its terms.

   Among the terms is of course the universally followed rule of Underinsured Motorist Coverage that the Underinsured Tortfeasor must in fact be "underinsured" in relation to the Policyholders' Damages.  Based on the Damages information submitted to Progressive in this case, the Federal Court concluded that Progressive could reasonably conclude that the likely Damages did not invade UIM Coverage at all, id. at *4, even assuming that "liability and causation issues" were to be determined in the Policyholders' favor.  However, the UIM Tortfeasor's Liability Insurer, Allstate, settled with Progressives' Policyholders for $131,567.82 or $31,567.82 above the $100,000.00 limit on Allstate's Liability Policy.  "Of this amount, $31,567.82 is described as costs and fees."  Id. at *7.

   Under the circumstances of this case, the Federal Court in Pennsylvania granted Progressive's Motion for Summary Judgment on the Bad Faith Claim.  That Claim was brought under the Pennsylvania Bad Faith Statute, 42 Pa. C.S.A. § 8371 because in Pennsylvania there is no Bad Faith Cause of Action in a case like this UIM case, unless that statute applies.

   The Federal Court's opinion in this case reads like a primer on Pennsylvania Statutory Bad Faith Claims.  It is significant to potential parties and to practitioners outside of Pennsylvania to note that many of the points summarized by the Federal Court are generally held applicable in other jurisdictions in cases of Third-Party or Liability Insurance Company "Bad Faith" Claims.  The Court summarized that Pennsylvania Statutory Bad Faith Claims have the following features:

1. The Insurance Company in Pennsylvania "'assumes a fiduciary status by virtue of the policy's provisions which give the insurer the right to handle claims and control settlement.'"
2. "'Bad faith' ... is any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent.'"
3. To constitute actionable Bad Faith, the Insurance Company's conduct must show "'a dishonest purpose,'" "self-interest or ill will; mere negligence or bad judgment is not bad faith.'"
4. Bad Faith can be shown when the Insurance Company "'did not have a reasonable basis for denying benefits under the policy and ... the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.'"
5. Bad Faith can include the Insurance Company's investigation.
6. Moreover, "conduct that violates the Unfair Insurance Practices Act may rise to the level of bad faith."
7. The Insurance Company's duties of Good Faith  continue "during the pendency of the litigation."
8. And, finally, "[t]he plaintiff must prove bad faith by clear and convincing evidence."

Id. at *9-*10.

   In this case, the evidence showed the District Judge that "Progressive continued its investigation in an objectively reasonable manner, even if it did not move as quickly as [its Policyholder] would have liked."  Id. at *10.  The available proof on damages led to an objectively verifiable conclusion that the likely damages would not exceed the UIM Tortfeasor's available Liability Coverage in this case, even if in fact the damages settlement did  exceed that limit:  "However, considering the lack of evidence that Rossi's injuries would exceed the amount covered by McGroarty's [the UIM Tortfeasor's] policy, the pace and scope of Progressive's investigation does not suggest bad faith."  Id. at *11.

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