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Insurance Bad Faith Case Law Update

By: John B. Cromer, Esq.

In an important procedural case, The Hon. R. Stanton Wettick, Jr., of the Court of Common Please of Allegheny County, in Wutz v. Smith, revisited issues that were decided in the Gunn v. Hartford case, which was also heard by Judge Wettick in 2008. In Gunn, the court had to determine issues surrounding a court case brought for underinsured motorist benefits (no longer in arbitration) and a related bad faith claim. The insurance carrier sought to preclude discovery on the bad faith claim while the UIM claim proceeded. Judge Wettick, in Gunn, determined that while the bad faith claim may be dependent on the outcome of the UIM claim, a stay was not in order for the bad faith claim discovery because of reasons of judicial economy and due to the fact that, in State Court, the bad faith claim would be heard by and decided by the trial judge which could occur immediately after the jury renders a decision on the UIM claim. In effect, Judge Wettick ruled that there was already a severance of the claims and a stay on discovery was not warranted. An appeal on this issue was quashed by the appeals court as premature.

In Wutz, decided on September 9, 2009, Judge Wettick was faced with a similar issue involving State Farm and a UIM claimant. The argument for a stay of discovery on the bad faith claim focused on the insurance carrier having to reveal information as to the value of the UIM claim and the decisions and strategies on the handling the UIM claim before it was to be tried before a jury. In effect, State Farm argued that having to produce this discovery for the bad faith claim is akin to showing the other team your playbook before the game takes place. Judge Wettick agreed and ruled that the discovery need not occur until after the UIM claim goes to the jury.

The immediate result of the Gunn and Wutz decisions appears to be that the particular disputes in the UIM and bad faith case will determine whether bad faith discovery will be allowable while the UIM claim proceeds forward.

Also this summer, in the Eastern District of Pennsylvania, a decision was rendered in which Allstate prevailed on a Motion for Summary Judgment. Allstate was sued by an insured claiming an unreasonable delay in the processing of an uninsured motorist claim, the making of an unreasonable settlement offer, and the general unfairness of Allstate’s actions in their entirety, including using an unfair doctor and arbitrator. Upon the filing of a Motion for Summary Judgment, the trial judge granted Allstate’s Motion and dismissed the case, finding that there was no “bad faith” in the alleged actions and that Allstate’s actions had a reasonable basis in fact.

On the other side of the Commonwealth, in the Western District of Pennsylvania, a decision was rendered which granted a dismissal motion filed by an insurance carrier that was sued more than two years after they sent their insurance coverage denial letter. The court held that a cause of action for statutory bad faith begins to accrue when the insurer first provides definite notice of a refusal to indemnity or defend. Since it was clear that the insurance notice was sent more than two years before suit was filed, the case was dismissed.

Burns White has an experienced litigation department that is experienced in defending insurance bad faith claims. For more information on any of the cases discussed above, or for a review or evaluation of your particular issue, please contact attorney John B. Cromer at 412-995-3000.