Shawnee Tabernacle Church ("Shawnee") is a parish located in Monroe County, Pennsylvania. The Church was insured by GuideOne Insurance (“GuideOne”) with an insurance policy that included the following language under the title “Pennsylvania Changes”:
Notice of Acceptance or Denial of Claims
Except as set forth in 3 below, we will provide you notice, within 15 business days of receiving proper proof of loss that we:
A.) Accept your claim.
B.) Rejects your claim; or
C.) Needs more time to decide whether to accept or reject a claim.
1) If we deny your claim, such notice will be in writing and we will state any policy terms, conditions or exclusions used as a basis for denial. If we need more time to decide if your claim should be accepted or denied, the written notice will state the reason why more time is required.
2.) If we have not completed our investigation, we will notify you again, in writing, within 30 days of the first notice stated in ie. above and thereafter every 45 days. The written notice states why it takes more time to investigate your claim and when you can expect us to make a decision on your claim.
3.) The disclosure procedures in 1and 2 above do not apply if we have a reasonable basis, on the basis of specific information, to suspect that an insured has fraudulently caused or contributed to the loss of fire or other illegal activity; in such circumstances, we will notify you of the disposition of your claim within a period of time that is reasonable to enable full investigation of your claim, after we have received a correct proof of loss.
Shawnee suffered a major water loss on the property and immediately notified GuideOne of the damage. GuideOne inspected the property within a few days and proceeded with a reservation of rights when determining the coverage. GuideOne eventually conducted inquiries among several Church officials and asked questions about whether the church had been vacant at the time of the loss. All surveys took place on the same date. It was not until six months later that GuideOne admitted that there was coverage for the loss. In particular, GuideOne had not provided a single status letter during that six-month period.
The parties could not reach an agreement and Shawnee Tabernacle filed a complaint in the United States District Court of the Eastern District of Pennsylvania for breach of contract. and bad faith. Shawnee Tabernacle then moved to the Summary Judgment.
According to Pennsylvania Law, in order to recover in bad faith against an insurance company, the insured must show clear and convincing evidence (1) that the insurer did not have a reasonable basis to deny benefits policy and (2) that the insurer knew or ruthlessly ignores its lack of a reasonable basis. 1 An insurer's delay in investigating a claim can constitute bad faith where it involves unforgivable periods of inactivity, unreasonable assumptions and inadequate communication. 2
Although Shawnee alleged several delays during the process management process, Judge Gerald Austin McHugh refined the six-month delay between the completion of the investigations and the coverage provision. Crucial to Judge McHugh's determination was an examination of the defendant's claims notes during the current six – month period. The log notes reflected that GuideOne did not have a single injury log noted during the first three months after the survey and the transcripts from the survey were not even reviewed until four months after they were taken. It then took another two months for GuideOne to provide the coverage decision after the company changed adjusters.
Based on the above, Judge McHugh ruled that (1) GuideOne did not have a reasonable basis for not recognizing coverage under the policy and (2) knew about or ruthlessly disregarded the absence of that basis. While GuideOne tried to argue for a delay due to the plaintiff's transfer to a new team, Judge McHugh found the apology insufficient because "the decision to change the representative's workload did nothing to negate its duty as insurer to the plaintiffs." 3
Judge McHugh further found that GuideOne knew or ruthlessly disregarded the lack of a reasonable basis based on (1) a claim listing at the time of the investigations reflecting the claim adjuster's need to review the transcripts to determine coverage. and (2) evidence showing that the claim adjuster's supervisor had instructed the adjuster to settle the claim one month after the investigations.
The two takeaways I have regarding the above decision are (1) for public adjusters, the importance of keeping track of the timeliness of an insurance driver's response and (2) for lawyers, the importance of reviewing log entries created by a carrier in discovered.
Under 31 PA. Code § 146.7 (c) (1):
If the insurer needs more time to decide whether a first-party claim should be accepted or rejected, it shall notify the first party of the loss within 15 working days of receipt of the evidence giving reasons for more time is needed. If the investigation remains incomplete, the insurer must, 30 days from the day of the first notification and every 45 days thereafter, send a letter to the applicant stating the reasons why additional time is needed for the investigation and state when a decision on the claim can be expected. 4
I know of some public adjusters that have letter letters, calendar the dates listed above and issue the letters when the deadline expires. This is good practice and is encouraged because it (1) drives the carrier to make a decision and (2) keeps a paper trail for a potentially incredible act.
As for the log notes, they are the first information I personally review when I obtained the defendant's discovery response and were crucial to gaining unbelief in one of my New Jersey cases, which is being kept secret. Cases can be based on what is reflected in the claims and used to tear down a carrier's representative at a deposit of 30 (b) (6). In Shawnee Tabernacle, it was actually the lack of activity in the log notes that was decisive for the bad faith award.
If you have any questions regarding the Pennsylvania Bad Faith Law, please feel free to call my cell at 610-442-5198.
1 Shawnee Tabernacle Church v. GuideOne Ins. 383 F. Supp. 3d 460, at 466. (EDPA 2019).
2 Id. at 468.
3 Id. at 467.
4 31 PA. Code § 146.7 (c) (1).