Stanford v. National Grange Ins. Co., Civil Action No. 11-7144 (E.D. Pa. Nov. 3, 2014).
Eastern District of Pennsylvania grants insurer’s motion for summary judgment on bad faith claim in dispute over payment of proceeds under a claim for uninsured motorist benefits.
Roger Stanford filed suit alleging bad faith and breach of contract arising from Defendant National Grange Mutual Insurance Company’s (“NGM”) alleged delay in paying to Stanford “the proceeds of a successful prosecution of a claim for uninsured motorist benefits” in connection with an injury Stanford suffered in an automobile accident. The court granted summary judgment for NGM on both counts. Stanford’s policy provided uninsured and underinsured motorist coverages up to $25,000 per person or $50,000 per accident, stacked for two vehicles. To make a claim under the policy, Stanford was required to submit to examination under oath and medical examinations “as often as [NGM] reasonably require[d].” Stanford failed to undergo an examination under oath for five years, and when he did finally submit to examination, he “refused to answer questions that were necessary and material to NGM’s adjustment of [Stanford’s] claim.” Stanford never submitted to a medical examination despite numerous requests to do so.
The policy provided for arbitration of disputes. Prior to arbitration, NGM offered Stanford $10,000 to settle his claim, but Stanford rejected the offer. Thereafter, the arbitrators found in Stanford’s favor and awarded him $50,000. NGM delivered a check for $50,000 and included with it a draft release and settlement agreement that released NGM “from all uninsured/underinsured motorist coverage benefits claims which have resulted or may in the future develop [from the accident].” The $50,000 check contained an annotation that it was “in settlement of any [and] all claims,” and the cover letter enclosing the check and release stated that “the delivery of this [check] is conditioned upon your client signing the enclosed Release in unaltered form, and the document being returned . . . prior to disbursement.” Stanford’s counsel objected to the release and settlement language on the check. NGM thereafter reissued the check with language that stated “satisfaction of UM Arbitration Award.” One week later, Stanford filed suit alleging bad faith and breach of contract.
In analyzing Stanford’s bad faith claim, the court explained, “a cause of action for the bad faith delay, or the nonpayment, of an insured’s claim in a first-party insured-insurer relationship is cognizable under Delaware law as a breach of contractual obligations” (quotations and citations omitted). To prevail on a bad faith claim, a plaintiff must show that “the insurer’s refusal to honor its contractual obligation was clearly without any reasonable justification” (quotations and citations omitted). “Mere delay is not evidence of bad faith, provided that a reasonable justification exists for refusing to make payment upon submission of proof of loss” (quotations and citations omitted).
Stanford offered four reasons why the court should rule that NGM acted in bad faith: “(1) NGM delayed in handling [Stanford’s underinsured motorist] claim by requesting that [Stanford] submit to an [examination under oath] and medical examination; (2) NGM’s $10,000 pre-arbitration settlement offer was inadequate and made in bad faith; (3) NGM delayed payment of the arbitration award; and (4) NGM acted in bad faith by conditioning the payment of the arbitration award on [Stanford] signing a waiver of claims arising from the accident.”
The court rejected each of these reasons. First, the insurance policy required Stanford to submit to examinations under oath, and medical examinations. “[T]o the extent that [Stanford] contends that NGM’s investigation of or delay in making an offer to settle the claim was in bad faith, NGM believed that [Stanford] failed to comply with the insurance policy requirements.”
Second, the court found that NGM had reasonable grounds to limit its settlement offer to $10,000. At the time of the accident, Stanford had a Delaware residence and driver’s license. NGM believed that Stanford’s claim would be governed by Delaware law, and Delaware law prohibits the stacking of uninsured and underinsured motorist coverages. Thus, if Delaware law applied to the arbitration proceeding, Stanford would have been entitled to a maximum of $25,000 in uninsured/underinsured motorist benefits, not $50,000. However, the arbitrators ultimately ruled that Pennsylvania law – which permits stacking of uninsured and underinsured motorist coverage – applied to Stanford’s claim.
Third, the court ruled that NGM had reasonable grounds for delaying payment of the $50,000 arbitration award. After the arbitrators issued their decision, NGM considered its appellate options under both Delaware and Pennsylvania law. Under Delaware law, NGM had ninety days to appeal; under Pennsylvania law, NGM had thirty days. NGM issued Stanford a check and release three days before the deadline to appeal under Pennsylvania law. After Stanford objected to the check and release, and on the deadline to appeal the arbitration award, NGM prepared a new check with corrected language and sent it via overnight mail to Stanford. Stanford received the new check one day after the deadline to appeal. The court ruled that “[t]he mere fact that NGM issued the check one day after the deadline to appeal is insufficient to demonstrate bad faith because NGM had a reasonable justification for the delay.”
Lastly, the court rejected Stanford’s argument that NGM acted in bad faith by conditioning payment of the award on execution of a release. First, NGM promptly reissued a check and withdrew any requirement that Stanford sign a release. Second, NGM’s counsel testified that providing a release with a settlement check was standard practice in Delaware and that NGM relied on this practice in initially conditioning the award on execution of the release. The court noted that Stanford failed to provide any evidence that this was not standard practice in Delaware.
The court ruled that Pennsylvania law governed Stanford’s breach of contract claim. “An action for breach of an insurance contract does not lie when the policy proceeds have been paid because in such cases, an insured cannot establish damages under the contract” (internal quotations and citations omitted). NGM paid Stanford the limits under the policy ($50,000). As a result, Stanford suffered no damages under the insurance contract and Stanford’s breach of contract claim failed.
Stanford also argued that NGM breached its fiduciary duty to Stanford, but the court rejected this argument. Under Pennsylvania law, a fiduciary duty “does not arise from an insurance contract until an insurer asserts a stated right under the policy to handle all claims asserted against the insured” (internal quotations and citation omitted). The court ruled that NGM did not owe a fiduciary duty to Stanford because there was no evidence that NGM asserted any right to handle claims made against Stanford.
