Opinion ID: 3013556
Heading Depth: 2
Heading Rank: 2

Heading: Summary Judgment on UPMC’s Bad Faith

Text: Claim UPMC alleges that, in failing to disclose that its loss in the year 2000 was at least partly due to its own mistake in entering data onto a computer spreadsheet, MetLife violated the Pennsylvania Unfair Insurance Practices Act, P A. S TAT. A NN. tit. 40 § 1171.5 (“UIPA”), specifically, subsection (a)(1)(vi), which defines a “misrepresentation for the purpose of inducing or tending to induce the lapse, forfeiture, exchange, conversion or surrender of any insurance policy” as an unfair or deceptive practice in the business of insurance. This violation, UPMC argues, constitutes bad faith under Pennsylvania’s Bad Faith Statute, 42 PA. C ONS. S TAT. A NN. § 8371 (“§ 8371”), which creates a private right of action in the event “an insurer has acted in bad faith toward the insured.” The District Court disagreed, and granted summary judgment in Met Life’s favor. It held that there was no issue of fact because the terms of the policy were clear and unambiguous. It added that any such bad faith claim must be predicated, under Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994), on a frivolous or unfounded refusal to pay the proceeds of a policy. Given that UPMC’s allegations did not involve any such refusal, no claim under § 8371 could be asserted. With respect to the District Court’s first reason, it is unclear to us why clear contract terms would necessarily preclude a bad faith claim under § 8371. However clear the terms may be, MetLife may still have intentionally misrepresented facts to UPMC in an effort to avoid its obligations under the rate guarantee. We agree, however, with the District Court as to the second reason. The Pennsylvania Supreme Court, which held that there is no common law remedy for bad faith on the part of 12 insurers, see D’Ambrosio v. Pa. Nat’l Mutual Cas. Ins. Co., 431 A.2d 966, 970 (1981), has not articulated a standard for a claim under the subsequently enacted § 8371. In particular, it has not stated whether conduct that violates the UIPA constitutes bad faith on the part of the insurer for purposes of a § 8371 claim; rather, the leading case on § 8371, Terletsky, was decided by the Pennsylvania Superior Court. That Court explained that bad faith is “‘any frivolous or unfounded refusal to pay proceeds of a policy,’” and that “‘such conduct imports a dishonest purpose and means a breach of a known duty . . . through some motive of self-interest or ill will.’” Terletsky, 649 A.2d at 688 (quoting B LACK’S L AW D ICTIONARY 139 (6th ed. 1990)). To recover under a claim of bad faith, then, UPMC must “show [1] that the defendant did not have a reasonable basis for denying benefits under the policy and [2] that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.” Id. Later decisions of the Pennsylvania Superior Court have applied the Terletsky standard. See O’Donnell v. Allstate Ins. Co., 734 A.2d 901 (Pa. Super. Ct. 1999); Cresswell v. Pa. Nat’l Mutual Cas. Ins. Co., 820 A.2d 172, 180 (Pa. Super. Ct. 2003). We, too, have done so. See Keefe v. Prudential Prop. & Cas. Ins. Co., 203 F.3d 218, 225-26 (3d Cir. 2000); W.V. Realty v. Northern Ins. Co. of N.Y., 334 F.3d 306, 311-12 (3d Cir. 2003). Applying Terletsky to this case, UPMC cannot rest its bad faith claim on the violations of the UIPA it alleges because MetLife’s decision to conceal its miscalculation was intended, at most, to extract a higher premium from UPMC. There is no allegation that MetLife denied benefits; indeed, it paid benefits throughout 2001, even at a loss. While the alleged bad faith need not be limited to the literal act of denying a claim, see O’Donnell, 734 A.2d at 904 (bad faith during pendency of a lawsuit can violate § 8371 if intended to aid denying a claim), the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits. Cresswell, 820 A.2d at 180; see also Belmont Holdings Corp. v. Unicare Life & Health Ins. Co., No. CIV. A. 98-2365, 1999 WL 124389, at -3 (E.D. Pa. Feb. 5, 1999) (Terletsky and the legislative history of § 13 8371 limit that statute’s reach to bad faith handling or payment of claims, and do not apply to disputes over contract terms). Thus, under Pennsylvania law, the District Court correctly determined that UPMC did not state a § 8371 claim. 14