Opinion ID: 3011459
Heading Depth: 2
Heading Rank: 3

Heading: The Effect of the Stipulation

Text: It is our duty to assure ourselves of the existence of subject matter jurisdiction even if the parties fail to raise the question. See Commonwealth of Pennsylvania v. Flaherty, 983 F.2d 1267, 1275 (3d Cir. 1992). At oral argument, we raised with counsel the possibility that their settlement agreement mooted the controversy between them or put them into a position in which they lacked the adversity necessary to meet the case or controversy requirement of Article III. The parties filed supplemental briefing on this issue. They also provided information on the terms of their private settlement agreement, which 8 reflected that Prudential has agreed to pay Keefe one amount if Prudential's argument prevails; a second (and higher) amount if we do not decide the issue; and a third (and still higher amount) if Keefe's argument prevails. We are satisfied that the settlement has not mooted the controversy. As the stipulation makes clear, the parties continue to be adverse regarding the correctness of the district court's prediction of the cognizibility of Keefe's bad faith claim under Pennsylvania law. They have, in effect, only settled a damages issue. In Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982), the Supreme Court considered a letter agreement between two parties providing that, if the Court denied certiorari or granted certiorari and affirmed, the defendant would pay the plaintiffs $400, but if the court granted certiorari and reversed, the plaintiffs would receive nothing. The Court held that the agreement did not moot the controversy between them, reasoning that: respondents continue to seek damages to redress alleged violations of the Fair Housing Act. The letter agreement, if approved by the district court, would merely liquidate those damages. If respondents have suffered an injury that is compensable in money damages of some undetermined amount, the fact that they have settled on a measure of damages does not make their claims moot. Given respondents' continued active pursuit of monetary relief, this case remains definite and concrete, touching the legal relations of parties having adverse legal interests. Id. at 371 (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)). Like the plaintiffs in Havens, Keefe continues to seek monetary damages. The agreement between the parties here is an agreement to liquidate damages similar to a high-low settlement agreement, in which the parties agree on the minimum and maximum amount that the plaintiff will recover depending on the outcome of a suit. See United States Fire Ins. Co. v. Royal Ins. Co., 759 F.2d 306, 308 (3d Cir. 1985) (describing a high-low settlement agreement). Their positions are truly adverse with respect to the critical 9 legal issue that they ask us to resolve, and the dispute between them is not feigned. Moreover, we have reviewed the private settlement agreement and are satisfied that both parties have a significant stake in the outcome. We therefore conclude that we have subject matter jurisdiction over this appeal. Our jurisdiction over this appeal includes review of the issue decided by the district court in the order denying summary judgment. Although an order denying a motion for summary judgment is an interlocutory order that cannot be immediately appealed, after final judgment the losing party may seek review of an issue decided in an order denying summary judgment to the extent that that ruling was dispositive of some issue relevant on appeal. As this Court has explained, since . . . only a final judgment or order is appealable, the appeal from a final judgment draws in question all prior non-final orders and rulings. Drinkwater v. Union Carbide Corp., 904 F.2d 853, 858 (3d Cir. 1990) (quoting Elfman Motors Inc. v. Chrysler Corp., 567 F.2d 1252, 1254 (3d Cir. 1977); see also In re Westinghouse Securities Litigation, 90 F.3d 696, 706 (3d Cir. 1996) (holding that prior interlocutory orders merge with final judgment and the interlocutory orders may be reviewed on appeal from the final order). Thus, the entry of final judgment in this case opens the door for us to review the district court's order denying summary judgment, in which it ruled that an insurance company's refusal to pay unconditionally the undisputed amount of an insured's uninsured motorist claim could constitute bad faith under Pennsylvania law. III. Would Pennsylvania Recognize A Bad Faith Claim Under These Circumstances? Although there is no common law remedy for bad faith in the handling of insurance claims under Pennsylvania law, see D'Ambrosio v. Pennsylvania Nat'l Mutual Casualty Ins. Co., 431 A.2d 966 (Pa. 1981), the Pennsylvania legislature has provided a statutory remedy. The statute provides that [i]n an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith 10 toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. (3) Assess court costs and attorney fees against t he insurer. PA. Stat. Ann., tit. 42, S 8371 (West 1998). In the insurance context, the Pennsylvania Superior Court has explained that the term bad faith includes  `any frivolous or unfounded refusal to pay proceeds of a policy.'  Terletsky v. Prudential Property and Casualty Insurance Co., 649 A.2d 680, 688 (Pa. Super. 1997) (quoting Black's Law Dictionary 139 (6th ed. 1990)).  `For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.'  Id. Therefore, in order to recover under a bad faith claim, a plaintiff must show (1) that the defendant did not have a reasonable basis for denying benefits under the policy; and (2) that the defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim. See id. ; Klinger v. State Farm Mutual Automobile Ins. Co., 115 F.3d 230 (3d Cir. 1997); Polselli v. Nationwide Mutual Fire Ins. Co., 23 F.3d 747, 751 (3d Cir. 1994). Prudential asserts that an insured never has an obligation to make a partial payment on an UM claim, because the pain and suffering component of compensatory damages cannot be divided into separate assessments for each injury. Surprisingly, there are no Pennsylvania appellate decisions on this subject. The authority in other jurisdictions is divided, and in some cases deals with statutes markedly different from Pennsylvania's bad faith statute. It is useful nonetheless to canvass the cases, as they provide background and context. Arizona and Alabama have rejected similar claims, but the Arizona claimant 11 sought relief under an implied covenant of good faith and fair dealing (rather than a statute regarding bad faith) and the Alabama defendant was able to rely on Alabama decisions holding that there can be no undisputed amount prior to an arbitration award or the execution of a release. See Voland v. Farmers Ins. Co. of Ariz., 943 P.2d 808 (Ariz. 1997); LeFevre v. Westberry, 590 So.2d 154 (Ala. 1991). In Millers Mutual Ins. Ass'n of Illinois v. House, 675 N.E.2d 1037 (Ill. App. 1997), an Illinois intermediate appellate court held that, where the parties disputed the limits of coverage, the trial court did not abuse its discretion in holding that the insurance company's failure to pay the amount of the lower policy limit to the claimant while litigation was pending--an amount it admitted it owed--violated an Illinois statute prohibiting unreasonable delay in paying claims. The parties did not dispute that the plaintiff would be entitled to recover at least the lower limit. In Kehoe v. Lightning Rod Mutual Ins. Co., 685 N.E.2d 255 (Ohio App. 1996), the Ohio court of appeals held that whether a failure to pay an undisputed portion of UM claim for eleven months after a jury verdict in favor of the plaintiff constituted bad faith was a question for the jury. Unlike this case, however, the claim there was for underinsured motorist coverage, and the undisputed amount that the defendant failed to pay to the plaintiff was the amount that the defendant had received from the underinsured motorist's insurance company before the defendant entered the case to protect its subrogation interests. Finally, the Louisiana Supreme Court has held that, if the insured shows that he was not at fault, that he was injured, and that the other driver was underinsured, the insurer cannot refuse to pay any damages until the insured is able to prove the exact extent of his general damages, but must unconditionally tender the reasonable amount that is due. McDill v. Utica Mutual Ins. Co., 475 So.2d 1085 (La. 1985). The McDill case, however, involved a claim that was clearly worth more than the $10,000 limit of the plaintiff 's policy, and the Louisiana statute at issue provided for penalties for any failure to pay a claim within sixty days after receipt of satisfactory proofs of loss from the insured that was found to be arbitrary, capricious, or without 12 probable cause. See id. at 1088-89. In sum, the authority from other jurisdictions provides some helpful guidelines, but has no great persuasive effect in our task of predicting Pennsylvania law. At all events, we need not go so far as Prudential asks. Based on Terletsky, 649 A.2d 680, and the cases applying it, we are convinced that, if Pennsylvania were to recognize a cause of action for bad faith for an insurance company's refusal to pay unconditionally the undisputed amount of a UM claim, it would do so only where the evidence demonstrated that two conditions had been met. Thefirst is that the insurance company conducted, or the insured requested but was denied, a separate assessment of some part of her claim (i.e., that there was an undisputed amount). The second is, at least until such a duty is clearly established in law (so that the duty is a known duty), that the insured made a request for partial payment. Until a partial final assessment is made or requested, there is a reasonable basis for failing to make a offer of partial settlement: namely, it is unclear what the separate injuries are worth, or what the plaintiff would have been legally entitled to recover for bodily injury if the uninsured motorist had had coverage. A request for a partialfinal assessment or evidence that the insurer conducted such a partial final assessment is a precondition of success on a bad faith claim because of the subjective components of a pain and suffering award. As the Arizona Supreme Court has noted, a personal injury claim is unique and generally not divisible or susceptible to relatively precise evaluation or calculation. The `pain and suffering'/general damage elements of a personal injury claim . . . are inherently flexible and subject to different and potentially changing evaluations. Voland v. Farmers Insurance Company of Arizona, 943 P.2d at 812 (citing Lefevre v. Westberry, 590 So.2d 154, 163 (Ala. 1991)). Our decision in Klinger, 115 F.3d 230, 234-35, is not to the contrary. In upholding a jury verdict for the plaintiffs on an uninsured motorist claim brought under Pennsylvania law, it suggests the principle that there must be some undisputed amount before the insurance company can be liable for bad faith refusal to pay. Id. Klinger held 13 that [a] rational jury could well have concluded that [the insurer], by not making an offer to [the insured] based upon some objective criteria it believed compensated adequately for her injuries, knowingly or recklessly acted without reasonable basis, but only after noting that the extent of [the insured's] injuries had become clear to the defendant insurance company. Id. at 235. The district court correctly recognized that Pennsylvania would require a plaintiff in Keefe's position to establish that there was an undisputed amount that the defendant would owe to her. The parties dispute whether Prudential ever made a partial assessment of Keefe's knee and shoulder injuries. Keefe argues that Prudential's records from 1996 regarding the value of her injuries establish that Prudential had at least assessed the lower limit of liability that was an undisputed amount it would owe to Keefe. Prudential denies that these records establish that it had assessed an undisputed amount and characterizes them instead as preliminary estimates made with the understanding that some information was still missing, including information on the wrist injury. According to Prudential, without information regarding the preexisting condition in the wrist, it was simply not in a position to make anything more than a preliminary evaluation of Keefe's pain and suffering attributable to the accident. The district court ruled on the motions for summary judgment that there was a genuine issue of material fact as to whether, at any point during 1996, there was an undisputed amount that Prudential knew it would have to pay to Keefe. We view this decision as a determination that there was a genuine issue of material fact as to the first prerequisite we have identified, i.e. whether the insurance company conducted, or the insured requested but was denied, a separate assessment of some part of her claim. We agree with the district court that this genuine issue of material fact precluded summary judgment. Were this the only prerequisite that we predicted Pennsylvania would make for such a claim, we would affirm the district court. However, as noted above, we also believe that Pennsylvania would require that the plaintiff establish that 14 she had made a request for partial payment. Until a plaintiff makes a request for partial payment, the insurance company has no notice that the plaintiff claims a partial payment. Keefe argues that her requests for the policy limits implicitly included a request for partial payments, but we are not persuaded that Pennsylvania is likely to consider it unreasonable for an insurance provider to treat a request for the policy limits as just that--a request for the policy limits. Cf. Kehoe, 685 N.E.2d at 256 (holding that question of bad faith was one for jury where there was a clear undisputed minimum amount that the insurer would have to pay on a UM claim, but noting that the insured made a demand for partial payment). This is especially true given that under Pennsylvania law bad faith must be proven by clear and convincing evidence. See Cowden v. Aetna Casualty & Surety Co., 134 A.2d 223, 229 (Pa. 1957); Hall v. Brown, 526 A.2d 413, 416 (Pa. Super. 1987); see also Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d at 750 (3rd Cir. 1994). Without a request for partial payment, and unless and until Pennsylvania recognizes a duty to make partial payments, we believe that an insurance company does not act in bad faith when it assumes that an insured desires settlement of the entire claim, at least where the contract provides for general damages, and does not explicitly require separate assessments and payments for separate injuries in the calculation of compensatory damages. We do not believe Pennsylvania would require an insurance company--on its own initiative--to determine whether a partial payment is due under an UM contract before information regarding all of the injuries has been provided to it. To require such initiative would be tantamount to imposing a duty on the insurance company above and beyond the duty imposed by the implied duty of good faith and fair dealing. Under the duty of good faith and fair dealing, the insurer need only accord the interest of the insured the same faithful consideration it gave its own interest, United States Fire Insurance Company v. Royal Insurance Company, 759 F.2d 306, 311 (3rd Cir.1985) (citing Cowden v. Aetna Casualty and Surety Co., 134 A.2d 223 (Pa. 1957); the good faith standard requires that the evaluation of the case by the insurance company must be 15 honest, intelligent and objective. Id. ; see also Shearer v. Reed, 428 A.2d 635, 638 (Pa. Super. 1981)). Under Pennsylvania law, a fiduciary duty higher than the duty of good faith and fair dealing does not arise out an insurance contract until an insurer asserts a stated right under the policy to handle all claims asserted against the insured. See Gedeon v. State Farm Mut. Auto. Ins. Co., 188 A.2d 320, 322 (Pa. 1963); see also Lee R. Russ & Thomas F. Segalia, 3 Couch on Insurance S 40.7 (3d ed. 1995). When this requirement is applied to these facts, Keefe cannot make out a claim for bad faith under Pennsylvania law. As Keefe concedes that she never requested a partial settlement for the shoulder and knee injuries before January 1997, she cannot show that she made some sort of request for partial payment. Accordingly, we conclude that the district court erred in denying summary judgment to Prudential. The judgment of the district court will therefore be reversed, and the case remanded with directions to enter judgment for Prudential. A True Copy: Teste: Clerk of the United States Court of Appeals for the Third Circuit 16