Guessford v. Pennsylvania National Insurance

In Guessford v. Pennsylvania National Mutual Casualty Insurance Company, the federal court in Greensboro (on January 16, 2013) denied a motion to dismiss a claim for bad faith and unfair and deceptive acts against an insurance company.

The plaintiff was insured under a UIM (underinsured motorist) policy issued by the defendant. The liability carrier paid $100,000, leaving $900,000 in UIM coverage under the defendant's policy (with limits of $1 million). The plaintiff submitted more than $500,000 in medical bills to the defendant to document the injuries, and demanded the policy limits. The insurer continued to request additional records, and would not negotiate unless the workers compensation carrier participated. (The plaintiff was also covered by workers compensation at the time of the accident, which carrier had paid a large portion of the medical expenses.) The plaintiff demanded arbitration, but the insurer still insisted that the plaintiff file suit. The insurer offered $525,000 with no explanation, even though this was far less than the medical bills. The claim went to arbitration, where the arbitrators awarded $2.5 million for the injuries (arising from an automobile accident), and the insurer finally tendered the $900,000, but it was conditioned on the plaintiff signing a release of all claims against the defendant.

The plaintiff sued the insurer for breach of contract, bad faith, and unfair and deceptive practices. The insurer moved to dismiss. The court essentially held that the plaintiff's allegations were sufficient to state a claim for both bad faith and unfair and deceptive practices. This is a rather complex area of law in North Carolina, with some cases going both ways on the issue of whether an insured can sue the insurer for bad faith in handling a UIM claim. This issue is complicated because the insured can arbitrate the damages portion of the claim. The issue in this particular case was more complicated because of the persence of the workers compensation lien. (North Carolina now has a statute addressing the interplay between workers compensation coverage and UIM coverage).

There are several interesting aspects to this decision. For example, the court cited to a line of cases holding that in order to state a claim for bad faith, the insured must show "a refusal to pay after recognition of a valid claim." The federal court held that the insurer had recognized that the insured had a claim, and that thus this element was met. In a subsequent brief, the insurer has argued that that bad faith is supported not merely by recognition of valid insurance claim, but that the court should also look at the amount at issue (and not simply whether there is some valid claim, for any amount). This whole issue is further complicated because this particular line of authority in North Carolina is misguided. If the history of this legal authority is traced, it is evident that this is not in fact an element of a bad faith claim in North carolina (but merely an example of conduct which can constitute bad faith).

Also of some interest is that the court struck several affirmative defenses, ruling as a matter of law that they did not apply to the plaintiff's claims. The court struck defenses of (a) "arbitration and award" (i.e. that the bad fiath claim was barred by the arbitration proceeding (b) unclean hands, and (c) failure to cooperate. The court also struck a defense of "advice of counsel" as to the unfair-and-deceptive claim, but not as to the bad faith claim. The court refused to strike a defense of failure to mitigate. Each of these rulings is rather significant.

In October 2013 the Court in this case ruled on motions for summary judgment.

John Kirby has taught continuing education seminars specifically on the issue of whether a UIM (underinsured motorist carrier) can be sued for bad faith and unfair-and-deceptive acts in connection with the handling of the claim. He has also taught such classes on the interplay between UIM coverage and workers compensation, as well as litigating bad faith claims against insurers.

 


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