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Breach of Contract Claim Dismissed in Class Action Regarding Application of New Jersey Fee Schedule, but UTPCPL Claim Proceeds

The Middle District of Pennsylvania recently dismissed a breach of contract claim against an insurer but allowed a UTPCPL claim to proceed in a putative class action regarding the payment of personal injury benefits under Pennsylvania auto insurance policies.  Plaintiffs, an insured individual from Pennsylvania and two New Jersey medical providers, alleged that the insurer wrongfully applied a New Jersey fee schedule to claims made under Pennsylvania insurance policies so as to underpay the claims.   See Banks, et al. v. Allstate Fire and Cas. Co., et al., 2020 WL 1849545 (M.D. Pa., Apr. 13, 2020).

The insured was involved in a car accident and suffered physical injuries.  The insured received treatment for her injuries from the plaintiff New Jersey medical providers and subsequently filed a claim with the insurer for medical benefits under her insurance policy.  The insurer applied the New Jersey fee schedule to the claim.  The plaintiffs sued the insurer, alleging that payment pursuant to the New Jersey fee schedule constituted a breach of contract and violation of the UTPCPL, among several other claims.

The Court dismissed the breach of contract claim (without prejudice) after finding that the language of the insured’s insurance policy clearly and unambiguously required the insurer only to pay reasonable and necessary medical expenses, and that the plaintiffs did not allege that the insurer failed to make such reasonable and necessary payments.  While the plaintiffs argued that the insurance policy required the insurer to make payments in the amount customarily charged by healthcare providers, the Court held that the plaintiffs’ argument ran contrary to the clear and unambiguous language of the insurance policy, which specified only that the payment made “shall not exceed” the amount customarily charged—no provision of the policy required the insurer to make payments in an amount equal to the amount customarily charged.

In ruling on the insurer’s motion to dismiss the plaintiffs’ claim for violation of the UTPCPL, the Court first reviewed the situations in which a UTPCPL claim is actionable: although a plaintiff may bring a claim against an insurer under the UTPCPL, only malfeasance, the improper performance of a contractual obligation, raises a cause of action under the UTPCPL, and an insurer’s mere refusal to pay a claim which constitutes nonfeasance, the failure to perform a contractual duty, is not actionable.  The Court examined several Middle District decisions and concluded that the plaintiffs sufficiently plead a claim under the UTPCL because it was plausible to conclude that the insurer misperformed their obligation to the plaintiffs by applying the New Jersey fee schedule to the insured’s claims.

The Court further explained that the dismissal of the breach of contract claim and the sufficiency of the UTPCPL claim were not inconsistent because the UTPCPL claim was based on misfeasance under the policy, rather than nonfeasance.  The Court reasoned that although the plaintiffs failed to state a claim for breach of contract because they failed to allege that the insurer breached their duty to pay reasonable and necessary medical expenses, their claim under the UTPCPL survived the insurer’s motion to dismiss because it alleged that the insurer intentionally applied an inapplicable standard—the New Jersey fee schedule—so as to not pay reasonable and necessary medical expenses.