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Superior Court Confirms No Institutional Bad Faith, No UTPCPL Liability Arising From Claims Handling Misconduct

The Superior Court of Pennsylvania recently held that Pennsylvania does not recognize a separate cause of action for institutional bad faith under 42 Pa. C.S. § 8371.  Section 8371 only authorizes certain actions if the court finds that the insurer has acted in bad faith towards the insured, not “the world at large.”  Additionally, the Superior Court held that the UTPCPL applies to the sale of an insurance policy and not to the handling of an insurance claim.  See Wenk v. State Farm Fire & Cas. Co., 2020 WL 597224 (Pa. Feb. 7, 2020).

In Wenk, plaintiff homeowners hired a contractor to remodel their home.  During construction, the contractor contaminated the wood structure in a corner of the house while attempting to destroy a bee’s nest.  Plaintiffs contacted their homeowner’s insurer, State Farm, to submit a claim and request assistance repairing the damage.  State Farm agreed to remediate plaintiffs’ home using an approved contractor, FireDEX.  Plaintiffs were unhappy with the work performed by FireDex and believed that FireDex caused additional structural damage to other aspects of the home.  State Farm reviewed the work performed by FireDex and engaged an engineer to review same.  State Farm’s engineer ultimately confirmed that some of the work was deficient.  Plaintiffs did not allow FireDEX to continue its remediation work and hired another contractor, a company owned by one of the plaintiff’s parents, to do the work.  This relationship lead State Farm to question the fairness and reasonableness of the replacement contractor’s estimate.  Plaintiffs sued State Farm for bad faith.  Plaintiffs also sued both State Farm and FireDEX for violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL), among other claims.

Following a bench trial, the trial court entered a judgment in favor of State Farm on the bad faith and UTPCPL claims.  On appeal, the Superior Court affirmed the trial court’s judgment for State Farm on the bad faith issue.  Following the standard set forth in Rancosky v. Washington National Ins. Co., 170 A.3d 364 (Pa. 2017), the Superior Court concluded that the plaintiffs failed to present clear and convincing evidence that State Farm lacked a reasonable basis for denying benefits under the policy and that it knew or recklessly disregarded its lack of reasonable basis.  The Superior Court also affirmed the trial court’s rejection of the plaintiffs’ claim for “institutional bad faith” against State Farm, recognizing that no such claim exists in Pennsylvania.  A Section 8371 claim is only viable “if the court finds that the insurer has acted in bad faith toward the insured…not to the world at large.”  While plaintiffs submitted State Farm’s policies and practices as “institutional evidence” in support of their bad faith claim, they “failed to establish a nexus between State Farm’s business policies and specific claims the [plaintiffs] asserted in support of bad faith.”

The Superior Court also affirmed the trial court’s ruling with respect to plaintiffs’ UTPCPL claim against State Farm.  The Superior Court held that the UTPCPL applies to the sale of an insurance policy and not to “the handling of an insurance claim.”  The Superior Court further noted that Pennsylvania’s bad faith statute “provides the exclusive statutory remedy applicable to claims handling.”