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Summary Judgment for Insurer in Dispute Over Payment of “Undisputed” Amount

The Federal District Court for the Western District of Pennsylvania recently granted an insurer’s motion for partial summary judgment as to a bad faith claim after finding that there was no evidence that the insurer’s settlement offer was unreasonable, even though it was less than the amount of the reserves, and that the insurer’s alleged failure to pay an “undisputed” amount on the claim did not constitute bad faith.  See Kleinz v. Unitrin Auto and Home Ins. Co., 2020 WL 7263548 (W.D. Pa. Dec. 10, 2020).

In Kleinz, the insured was injured in a motor vehicle accident while riding his bicycle.  After receiving the tortfeasor’s policy limit, the insured demanded his $500,000 UIM policy limit.  The insurer set its reserves at $25,000 and offered $10,000.  The insured rejected the offer, adding that he was not prepared to make a counter demand because his treatment was ongoing.  Several months later, counsel for the insured sent an email to the insurer advising that the insured was still treating and that the insured was not prepared to make a counter demand.  Counsel for the insured requested that the insurer issue a check for the $10,000 that was previously offered with the understanding that the $10,000 payment would be a partial payment toward a future settlement.  The insurer declined to make a partial payment.  However, after another request from the insured’s counsel, the insurer forwarded the $10,000 payment to counsel, and reiterated that this amount was the insurer’s offer to settle the insured’s UIM claim.  No further settlement communications between the parties took place, and the insured and his wife sued the insurer for breach of contract and bad faith.

The insureds argued that the insurer acted in bad faith by making a “lowball” offer in light of its valuation and the reserves.  In addition, the insured alleged that the insurer’s failure to make the partial payment of $10,000, which the insured characterized as an “undisputed” amount, on an earlier date represented evidence of bad faith.

With respect to the alleged “lowball” offer, the Court found that the insureds did not offer any evidence that the insurer’s conduct was unreasonable or that it engaged in bad faith.  The fact that the insurer’s settlement offer of $10,000 was less than the $25,000 amount set in reserve was not evidence of bad faith.  Moreover, the Court found that there was no evidence that the insurer’s evaluation of the UIM claim was far in excess of the amount set as a reserve or that the offer was unreasonable.

As for the insurer’s alleged failure to timely make partial payment of an undisputed amount, the Court noted the absence of Pennsylvania Supreme Court authority on the issue and predicted that an action for bad faith for failure to pay the undisputed amount of a UIM claim may only arise when 1) the parties agreed that a separate assessment of some part of the insured’s claim represents an “undisputed amount” of benefits owed, and 2) the insured made a request for partial payment.  The Court held that while the $10,000 payment could be characterized as undisputed since the insurer agreed to pay it, and the insured, after first rejecting the offer, later requested it, there was no evidence to support a finding that communications about this amount represented a separate assessment of some part of the insured’s claim. Thus, the Court concluded that the insurer’s agreement to pay the amount of its previous offer to settle the UIM claim, when it had no obligation to do, does not represent evidence of bad faith.