J-A29009-14
2015 PA Super 113
TIMOTHY A. MOHNEY, : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
v. :
:
AMERICAN GENERAL LIFE INSURANCE :
COMPANY, AS SUCCESSOR BY :
MERGER TO AMERICAN GENERAL :
ASSURANCE COMPANY, AS :
SUCCESSOR IN INTEREST TO U.S. :
LIFE CREDIT LIFE INSURANCE :
COMPANY, :
:
Appellee : No. 2030 WDA 2013
Appeal from the Judgment entered December 4, 2013,
Court of Common Pleas, Armstrong County,
Civil Division at No. 1995-0764-Civil
TIMOTHY A. MOHNEY, : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellee :
:
v. :
:
AMERICAN GENERAL LIFE INSURANCE :
COMPANY, AS SUCCESSOR BY :
MERGER TO AMERICAN GENERAL :
ASSURANCE COMPANY, AS :
SUCCESSOR IN INTEREST TO U.S. :
LIFE CREDIT LIFE INSURANCE :
COMPANY, :
:
Appellants : No. 2046 WDA 2013
Appeal from the Judgment entered December 4, 2013,
Court of Common Pleas, Armstrong County,
Civil Division at No. 1995-0764-Civil
BEFORE: DONOHUE, ALLEN and STRASSBURGER*, JJ.
*Retired Senior Judge assigned to the Superior Court.
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OPINION BY DONOHUE, J.: FILED MAY 8, 2015
Appellant, Timothy A. Mohney (“Mohney”), appeals from the judgment
entered on December 4, 2013 by the Armstrong County Court of Common
Pleas, following the trial court’s non-jury verdict entered against Mohney on
October 18, 2013. Appellee, American General Life Insurance Company
(“American General”), as successor-in-interest to U.S. Life Credit Life
Insurance Company (“U.S. Life”),1 cross-appeals from the October 18, 2013
verdict. For the reasons set forth herein, we vacate the judgment and
remand the case for a new trial.
In October 1991, Mohney, then a coal miner, purchased disability and
life insurance on an automobile loan from U.S. Life. In September 1992,
Mohney also purchased disability and life insurance from U.S. Life in
connection with a home mortgage. These policies provided, inter alia, for
the payment of benefits on these debts in the event that Mohney became
totally disabled. The 1991 policy defined “Total Disability” as follows:
“Total Disability”, as used in this Certificate means
complete inability of the Insured Debtor to perform
any and every duty of his occupation during the
initial twelve month period of any disability covered
by this Certificate and, thereafter, inability of the
Debtor to engage in any occupation for wage, gain or
profit for which he is qualified by reason of
education, training or experience.
1
Because U.S. Life was the original insurer at the time of the events in
question in this case, we will refer to “U.S. Life” herein throughout, although
American General is now the appellant in interest.
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N.T., 4/16/2013, Exhibit 3. The definition in the 1992 policy differed only
slightly, and imparted the same understanding that after the first twelve
months, “disability means you are unable to perform any occupation that
you are fitted for by means of your education, training or experience.” Id.,
Exhibit 4.
In October 1992, Mohney suffered a back injury in a traffic accident
and was unable to continue work as a coal miner. Pursuant to the two
insurance policies, U.S. Life began making payments on Mohney’s
automobile loan and his mortgage. U.S. Life initially sent Mohney monthly
continuation claims reports for his doctor to verify his disability, but in or
around July 1993 he was placed on automatic status and monthly reports
were no longer necessary.
U.S. Life did not contact Mohney again until October 1994, at which
time it sent questionnaires to Mohney and Edward Miller, M.D. (“Dr. Miller”),
Mohney’s treating physician, requesting information about the status of
Mohney’s current condition and ability to work. In response to the
questionnaire directed to him by Lawrence Carroll (“Carroll”), an
“Investigative Specialist” in U.S. Life’s claims department, Mohney advised
that he had been diagnosed with a rheumatic disease called Ankylosing
Spondylitis that had worsened his back injury. N.T., 4/16/2013, Exhibit 12.
Mohney stated that while he could take care of himself, his ability to walk,
drive, bend, and reach were “limited.” Id. Mohney indicated that he did not
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expect to return to work, either part-time or fulltime, and further advised
that he was receiving disability benefits from the Social Security
Administration. Id.
In Dr. Miller’s response to the initial questionnaire, he provided
Mohney’s medical records, advised that he saw Mohney every six months,
and described Mohney’s progress as “unchanged.” Id., Exhibit 13. Dr.
Miller identified Mohney’s “current limitations and restrictions” as “no heavy
lifting or bending.” Id. In response to a question asking if he expected “the
patient’s condition to improve sufficiently in the future for him or her to
return to work,” Dr. Miller answered “No.” Id. Regarding his prognosis “for
this patient returning to work in this or some other occupation,” Dr. Miller
wrote “unlikely as a coalminer possibly in a light duty position.” Id.
On January 19, 1995, Carroll then sent a second questionnaire to Dr.
Miller that began as follows:
Thank you for responding to our medical
questionnaire dated 1-5-95 regarding your above
named patient.
After reviewing this questionnaire you state that your
patients [sic] current restrictions are no heavy lifting
or bending. You also stated that he could a light
duty position [sic].
Mr. Mahoney [sic] responded to an occupational [sic]
and stated that he could walk, drive, bend and
reach. He also has 12 years of education and skills
in assembly and as a laborer.
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Id., Exhibit 14. Carroll then asked Dr. Miller if Mohney could perform the
duties of a security guard, automobile salesperson, or an automobile self-
service station attendant. Id. In his response dated January 26, 1995, Dr.
Miller indicated “yes” to each of these jobs, but then qualified his answers
with the following statement:
It is important that the patient be able to sit or stand
(alternating) as needed. Some of these jobs require
the patient to climb in and out of the car or bend
over the hood of the car, etc. which could be
problematic. A trial employment should be
attempted first on a part time basis before
proceeding to full time light duty employment.
Id.
On February 7, 1995, Carroll sent Mohney a letter terminating benefits
under the two insurance policies. Carroll’s letter set forth the definition of
total disability under the insurance policies and then stated in relevant part
as follows:
Records obtained from Dr. Edward Miller, your
treating physician, indicated your current restrictions
were no heavy lifting or bending. He also stated you
could perform sedentary or light duty occupations
such as a security guard, an automobile salesperson
and an automobile self service station attendant.
On an occupational questionnaire you completed,
you stated you could walk, drive, bend and reach.
You also stated you have 12 years of education and
skills in assembly and as a laborer.
Based on all the information and medical records
contained in our file, it does not appear that you
meet the covered criteria for total disability as stated
in your certificates. Although you may not be able to
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perform the regular duties of your profession, our
information does indicate that you are able to
perform the regular duties of an occupation for which
you are qualified by education, training or
experience. Such occupations you appear to be
qualified for, but not limited to, are stated above.
Therefore, no additional benefits are payable at this
time.
Your account will be paid through March 27, 1995. I
trust the above sufficiently explains our position in
this matter but if you feel we have not been given
the proper understanding, we will be glad to review
any additional information you may wish to submit.
Id.
On June 23, 1995, Mohney filed a praecipe for a writ of summons, and
on June 20, 1997, Mohney filed a complaint alleging causes of action for
fraud, breach of contract, violation of the Unfair Trade Practices and
Consumer Protection Law (“UTPCPL”), and bad faith insurance practices.
U.S. Life filed preliminary objections, which the trial court granted. On
December 1, 1997, Mohney filed an amended complaint adding new breach
of contract claims. U.S. Life again filed preliminary objections, which the
trial court granted in part. On October 28, 1998, Mohney filed a second
amended complaint, to which U.S. Life filed an answer and new matter in
the form of a demurrer and a request for attorney’s fees. On July 19, 2001,
U.S. Life filed a motion for summary judgment, which the trial court granted
in part (on the bad faith claim). On July 15, 2003, the day scheduled for
trial to begin, the trial court conducted a hearing out of the presence of the
jury to determine whether Mohney could present a prima facie case with
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regard to his fraud, breach of oral promise, and UTPCPL claims. At the
conclusion of the hearing, the trial court entered summary judgment in U.S.
Life’s favor on all of Mohney’s claims except for breach of contract. The trial
court also certified the case for immediate appeal pursuant to Rule 341(c) of
the Pennsylvania Rules of Appellate Procedure, but on appeal, this Court
concluded that no extraordinary circumstances were present to justify an
immediate appeal and quashed.
On December 27, 2006, the trial court (hereinafter, the “Breach of
Contract Trial Court”) issued an opinion and adjudication on the issue of
whether Mohney was “totally disabled under the terms of the insurance
contract.” Breach of Contract Trial Court Order, 6/12/06. The Breach of
Contract Trial Court determined that Mohney proved “that he was totally
disabled within the meaning of the two insurance policies he purchased from
[U.S. Life].” Breach of Contract Trial Court Opinion and Adjudication,
12/27/06, at 10. As a result, the Breach of Contract Trial Court entered
judgment against U.S. Life and in favor of Mohney on his breach of contract
claim in the amount of $20,772.58. U.S. Life filed a notice of appeal and
Mohney filed a notice of cross-appeal.
On appeal, this Court affirmed the trial court’s ruling on the breach of
contract claim and affirmed the dismissal of the claim under the UTPCPL.
This Court reversed the trial court’s award of summary judgment to U.S. Life
on the bad faith claim, however, concluding as follows:
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Due to its equivocal nature, Dr. Miller’s opinion did
not establish whether [Mohney] was unable to
engage or perform any occupation. Viewed in the
proper light, the opinion expressed by Dr. Miller, at
best, suggested that [Mohney] may be able to
perform the three jobs listed by [Carroll] but that
such a suggestion should be tested by a trial, part-
time employment. Thus, that opinion could not
serve as a reasonable basis for denying [Mohney]
benefits.
Mohney v. U.S. Credit Life Ins. Co., 917 WDA 2007, 18 (Pa. Super. July
1, 2008) (unpublished memorandum) (emphasis in original).
On remand, the sole question for the trial court (hereinafter, the “Bad
Faith Trial Court”) was whether U.S. Life had acted in bad faith. On April 12,
2013, Mohney requested leave to file a third amended complaint, which the
Bad Faith Trial Court denied. The Bad Faith Trial Court then held a bench
trial on April 15-16, 2013. On October 17, 2013, the Bad Faith Trial Court
issued its decision, ruling in favor of U.S. Life. In particular, the Bad Faith
Trial Court found that U.S. Life’s investigation of Mohney’s claim, “although
ultimately leading to an incorrect conclusion, was reasonably thorough and
sufficient to provide it with a reasonable basis to find [Mohney] to be not
“totally disabled” under the terms of the policy certificates.” Bad Faith Trial
Court Findings and Adjudication, 10/17/2013, at 21. The Bad Faith Trial
Court further found that Mohney had presented “no evidence whatsoever
showing that U.S. Life willfully or recklessly came to an unreasonable
conclusion regarding [Mohney’s] benefits. Id. at 26.
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On December 4, 2013, the Bad Faith Trial Court denied Mohney’s post-
trial motions for judgment notwithstanding the verdict or for a new trial and
entered judgment in favor of U.S. Life. On appeal, Mohney raises the
following issues for our consideration and determination:
1. Did the Bad Faith Trial Court err by failing to
follow this Court’s holdings made previously in this
case that Dr. Miller’s “opinion” was equivocal and
could not be reasonably relied upon to terminate the
disability benefits?
2. Did the Bad Faith Trial Court ma[k]e factual
findings and conclusions of law inconsistent with and
contradictory to those made by the Breach of
Contract Trial Court?
3. Did the Bad Faith Trial Court fail to properly apply
the standards for finding bad faith to the conduct of
U.S. Life in the investigation of the law and facts
applicable to the termination of benefits decision?
4. Did the Bad Faith Trial Court err by permitting
evidence of the insured and his legal counsel’s
conduct in deciding whether insurance bad faith
occurred?
5. Did the Bad Faith Trial Court err in failing to
permit [Mohney] to amend his complaint to include
allegations of bad faith litigation misconduct?
6. Did the Bad Faith Trial Court err in failing to
permit [Mohney’s] proposed expert from testifying?
Mohney’s Brief at 4-5. In its cross appeal, U.S. Life raises a single issue for
our review:
If and only if the [Bad Faith] Trial Court’s decisions
are reversed and the case is remanded on other
grounds, should the [Bad Faith] Trial Court’s
exclusion of [U.S. Life’s] experts be reversed as
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unduly prejudicial to [U.S. Life’s] fair defense of the
case?
U.S. Life’s Brief at 3.
Our standard of review provides:
Our review in a nonjury case is limited to whether
the findings of the trial court are supported by
competent evidence and whether the trial court
committed error in the application of law. We must
grant the court's findings of fact the same weight
and effect as the verdict of a jury and, accordingly,
may disturb the nonjury verdict only if the court's
findings are unsupported by competent evidence or
the court committed legal error that affected the
outcome of the trial. It is not the role of an
appellate court to pass on the credibility of
witnesses; hence we will not substitute our judgment
for that of the factfinder. Thus, the test we apply is
not whether we would have reached the same result
on the evidence presented, but rather, after due
consideration of the evidence which the trial court
found credible, whether the trial court could have
reasonably reached its conclusion.
Hollock v. Erie Insurance Exchange, 842 A.2d 409, 413-14 (Pa. Super.
2004) (en banc) (citations omitted), appeal denied, 903 A.2d 1185 (Pa.
2006).
Mohney’s first three issues on appeal challenge the Bad Faith Trial
Court’s determination that U.S. Life did not act in bad faith. Bad faith
actions are governed by 42 Pa.C.S.A. § 8371:
In an action arising under an insurance policy, if the
court finds that the insurer has acted in bad faith
toward the insured, the court may take all of the
following actions:
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(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 the
insurer.
42 Pa.C.S.A. § 8371.
This Court has explained that “[a]lthough the bad faith statute does
not include a definition of ‘bad faith,’ the term encompasses a wide variety
of objectionable conduct.” Condio v. Erie Ins. Exchange, 899 A.2d 1136,
1142 (Pa. Super. 2006), appeal denied, 912 A.2d 838 (Pa. 2006).
For example, bad faith exists where “the insurer did
not have a reasonable basis for denying benefits
under the policy and that the insurer knew of or
recklessly disregarded its lack of reasonable basis in
denying the claim.” O'Donnell v. Allstate Ins. Co.,
734 A.2d 901, 906 (Pa. Super. 1999) ...; see also
Terletsky v. Prudential Prop. And Cas. Ins. Co.,
649 A.2d 680, 688 (Pa. Super. 1994) (bad faith is a
frivolous or unfounded refusal to pay the proceeds of
a policy done with dishonest purpose, motivated by
self-interest or ill will). Bad faith conduct also
includes “lack of good faith investigation into facts,
and failure to communicate with the claimant.”
[Romano v. Nationwide Mut. Fire Ins. Co., 646
A.2d 1228, 1232 (Pa. Super. 1994)]; see also The
Birth Center v. The St. Paul Cos., 787 A.2d 376,
378 (Pa. 2001) (upholding a finding of bad faith
where the insurer intransigently refused to settle a
claim that could have been settled within policy
limits, where the insurer lacked a bona fide belief
that it had a good possibility of winning at trial, thus
resulting in a large damage award at trial);
O'Donnell, 734 A.2d at 906 (bad faith “may also
extend to the insurer's investigative practices”).
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* * *
To constitute bad faith, it is not necessary that the
insurer's conduct be fraudulent. However, mere
negligence or bad judgment is not bad faith. To
support a finding of bad faith, the insurer's conduct
must be such as to “import a dishonest purpose.” In
other words, the plaintiff must show that the insurer
breached its duty of good faith through some motive
of self-interest or ill-will. Bad faith must be shown
by clear and convincing evidence.
Id. (quoting Brown v. Progressive Insurance Co., 860 A.2d 493, 497
(Pa. Super. 2004), appeal denied, 872 A.2d 1197 (Pa. 2006)).
To succeed in a bad faith claim, the insured must present clear and
convincing evidence to satisfy a two part test: (1) the insurer did not have a
reasonable basis for denying benefits under the policy, and (2) the insurer
knew of or recklessly disregarded its lack of reasonable basis in denying the
claim.” 2 O'Donnell, 734 A.2d at 906. Bad faith claims are fact specific and
depend on the conduct of the insurer vis à vis the insured. Rhodes v.
USAA Cas. Ins. Co., 21 A.3d 1253, 1261 (Pa. Super. 2011) (quoting
Condio, 899 A.2d at 1143).
With regard to the first prong, the Bad Faith Trial Court concluded that
Dr. Miller’s responses to the two questionnaires, “taken together with the
2
In Nordi v. Keystone Health Plan West Inc., 989 A.2d 376, 385 (Pa.
Super. 2010), this Court clarified that “the ‘motive of self-interest or ill will’
level of culpability is not a third element required for a finding for bad faith,
but is probative of the second element, i.e., ‘the insurer knew or recklessly
disregarded its lack of reasonable basis in denying the claim.’” Id. at 385
(quoting Greene v. United Services Auto. Ass’n, 936 A.2d 1178, 1190
(Pa. Super. 2007), appeal denied, 954 A.2d 577 (Pa. 2008)).
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totality of the evidence presented at trial, including the live and very credible
testimony of the claims handler, Lawrence Carroll (“Carroll”), could form a
reasonable (even if incorrect) basis for discontinuing coverage.” Bad Faith
Trial Court’s 1925(a) Opinion, 2/12/14, at 2. For the reasons that follow, we
conclude that the trial court erred in this determination as a matter of law.
After its review of the relevant documents, including Dr. Miller’s
responses to the two questionnaires, the Breach of Contract Trial Court
summarily rejected U.S. Life’s contention that it had any basis for
terminating Mohney’s benefits.
After a careful review of these documents, the
[Breach of Contract Trial Court] is not persuaded
that [Mohney] was the least bit less disabled at the
time of Dr. Miller’s last two reports than he was prior
to that time. Dr. Miller’s reports indicated that
[Mohney’s] condition was ‘unchanged’ and that he
‘might’ be able to engage in certain light duty work
so long as he could observe various limitations
relating to heavy lifting, sitting, standing, bending,
and climbing in and out of vehicles. This is certainly
not the same thing as saying that [Mohney] was in
fact able to engage in any of these three jobs
discussed above, or that “in March, 1995 Timothy
Mohney was able to complete all of the tasks
normally associated with the job of an automobile
salesman, security guard or gas station attendant,”
as U.S. Life claimed in its trial brief.
Opinion and Adjudication, 12/27/06, at 10 (emphasis in original).
On appeal, this Court agreed with this assessment of Dr. Miller’s
responses, stating that because of their equivocal nature, Dr. Miller’s
opinions “did not establish whether [Mohney] was unable to engage or
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perform any occupation.” Mohney, 917 WDA 2007 at 18. To the contrary,
we emphasized that Dr. Miller’s opinions “at best, suggested that [Mohney]
may be able to perform the three jobs listed by [Carroll] but that such a
suggestion should be tested by a trial, part-time employment.” Id.
(emphasis in original). Accordingly, we ruled that Dr. Miller’s responses to
U.S. Life’s questionnaires “could not serve as a reasonable basis” for denying
Mohney benefits. Id.
Mohney now contends that the Bad Faith Trial Court violated the law of
the case doctrine when it concluded that Dr. Miller’s responses to U.S. Life’s
questionnaires could serve as a reasonable basis for denying Mohney
benefits. The law of the case doctrine holds, inter alia, that a lower court
should not reopen questions decided by a higher court in an earlier phase of
the same case. See, e.g., Ario v. Reliance Ins. Co., 980 A.2d 588, 597
(Pa. 2009); Commonwealth v. Starr, 664 A.2d 1326, 1331 (Pa. 1995).
The Bad Faith Trial Court disagreed, indicating that it applied a different
standard of proof (clear and convincing evidence) than this Court applied in
reversing the grant of summary judgment on this issue (evidence in the light
most favorable to the non-moving party). Bad Faith Trial Court Findings and
Adjudication, 10/17/2013, at 30 n.7.
As a technical matter, we conclude that the law of the case doctrine
did not bind the Bad Faith Trial Court on this issue. In determining whether
the law of the case doctrine applies, the appellate court “looks to where the
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rulings occurred in the context of the procedural posture of the case.”
Gerrow v. Shincor Silicones, Inc., 756 A.2d 697, 701 (Pa. Super. 2000)
(citing Goldey v. Trustees of the Univ. of Pennsylvania, 675 A.2d 264,
267 (Pa. 1996)), aff'd sub nom., Gerrow v. John Royle & Sons, 813 A.2d
778 (Pa. 2002). The Bad Faith Trial Court based its decision upon the trial
record at the April 2013 trial and (as it correctly indicated) on a different
standard of review.
Neither of these differences, however, changes our firm conclusion
that U.S. Life had no reasonable basis to terminate Mohney’s benefits. U.S.
Life now contends that Carroll reviewed and relied on the contents of
Mohney’s entire claim file. U.S. Life’s Brief at 26. Carroll’s testimony at
trial, however, evidences that he only relied upon three documents in
making his determination: Dr. Miller’s responses to the two questionnaires
sent to him and Mohney’s responses to his questionnaire. N.T., 4/16/13, at
260. Although the claims file contained other documents, including the
original claim form from 1992 and continuation reports from 1993, Carroll
testified that these documents did not play any significant role in the
decision to deny benefits. Id. at 222-28 (“When we terminated the benefits,
we used the most recent medical information[... and] did not consider
reports that were two years old.”). As such, Carroll’s decision to terminate
Mohney’s benefits was based upon the same documents this Court reviewed
in making its determination.
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Moreover, regardless of the standard of review, U.S. Life’s
investigation did not provide any reasonable basis for its decision to
terminate benefits to Mohney under the two insurance policies. As this
Court previously concluded, at best Dr. Miller’s responses established that
Mohney could attempt, on a trial basis, to perform the light duty jobs
identified by Carroll. Dr. Miller never advised U.S. Life that Mohney was
actually capable of performing either of the three identified jobs (security
guard, automobile salesman, gas station attendant). As a result, U.S. Life
had no reasonable basis to terminate Mohney’s benefits on the grounds that
he was no longer “totally disabled.”
At trial, Carroll did not testify that Mohney was actually capable of
performing any of these three jobs. To the contrary, he testified that Dr.
Miller’s indication that Mohney could attempt to perform them was, in and
of itself, sufficient to find Mohney not totally disabled:
Q. He’s saying attempt to work. So you are saying that
attempt on a part-time basis means he’s no longer
totally disabled?
A. Yes. If he’s saying he can work, he can work.
Q. And, a part-time basis or an attempt at a part-time
basis is sufficient under your understanding under
the terms of the credit disability policy to mean he is
no longer totally disabled?
A. From what his doctor says in this statement, that
attempt first on a part-time basis before proceeding
to a full-time basis, that he is not, after the period of
time on this claim that his doctor stated that he is
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not total, our definition, that is not totally
disability.
N.T., 4/16/2013, at 245-46 (emphasis added).
Carroll’s reference to “our definition” is striking, since nothing in the
definitions of the term “Total Disability” in the two insurance policies
provides, or even suggests, that a person is not totally disabled if a doctor
signals that the policyholder may “attempt” to work. To the contrary, as set
forth hereinabove, the two policies provide that a person is not totally
disabled if he can “engage in” or “perform” any occupation for which he is
qualified by reason of education, training or experience – and neither
definition contains any reference to mere attempts to do so.
In addition, Carroll’s understanding of the term “total disability” is
fundamentally at odds with prior decisions of Pennsylvania appellate courts
interpreting the term. In Cooper v. Metropolitan Life Insurance Co.,
177 A. 43 (Pa. 1935), our Supreme Court made clear that a common sense
understanding of the term precludes a finding that the person is not totally
disabled merely because he can perform basic functions:
While the words of the policy must receive
reasonable construction and, literally interpreted, the
words ‘total disability’ to engage ‘in any and every
occupation of employment for wage or profit’ would
require that an insured be a helpless invalid before
he would be entitled to benefits under the policy, this
cannot be what the parties intended. It is rare that
any man is incapacitated from doing some work;
many a blind man weaves baskets; a man with both
legs and one arm off can sit in a doorway and sell
lead pencils, or act as a telegraph operator; but it
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cannot well be argued that either is not totally
disabled.
Id. at 44.
Similarly, in Bundy v. Nat'l Safety Life Ins. Co., 503 A.2d 417 (Pa.
Super. 1985), this Court found that the mere ability to perform “occasional
work” does not preclude a finding of total disability:
“Total disability” does not mean helplessness or
complete disability, but it includes more than that
which is partial. “Permanent disability” means that
which is continuing as opposed to what is temporary.
* * * The mere fact that one has done some work
after the lapse of his policy is not of itself sufficient
to defeat his claim of total permanent disability. He
may have worked when really unable and at the risk
of endangering his health or life. * * * It may be
assumed that occasional work for short periods by
one generally disabled by impairment of mind or
body does not as a matter of law negative total
permanent disability.
Id. at 422 (quoting Lumbra v. United States, 290 U.S. 551 (1934)).
For these reasons, we conclude that U.S. Life had no reasonable basis
to find that Mohney could engage in or perform the three light duty
occupations identified by U.S. Life in the second questionnaire to Dr. Miller.
The Bad Faith Trial Court’s determination to the contrary is not supported by
any competent evidence of record and was error. However, our analysis of
Mohney’s bad faith claim cannot end here.
In addition to proving that U.S. Life had no reasonable basis for its
denial of benefits, Mohney also had the burden to establish that U.S. Life
knowingly or recklessly disregarded its lack of a reasonable basis.
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O'Donnell, 734 A.2d at 906. With regard to this second prong of the bad
faith test, the Bad Faith Trial Court determined that “even if the basis for
discontinuing benefits was unreasonable, there was no evidence before us
indicating that [U.S. Life] acted in knowing or reckless disregard of the fact
that the basis for discontinuing coverage was unreasonable.” Bad Faith Trial
Court’s 1925(a) Opinion, 2/12/14, at 2. The Bad Faith Trial Court stated
that “[o]ur verdict dismissing [Mohney’s] bad faith claim was, and continues
to be, based on both of these grounds.” Id.
We conclude that the Bad Faith Trial Court’s finding on this second
prong is faulty in part because its erroneous determination that U.S. Life had
a reasonable basis for its decision substantially impacted its subsequent
ruling that U.S. Life did not knowingly or recklessly disregard its lack of a
reasonable basis. The Bad Faith Trial Court recognized that “U.S. Life was
required to conduct an investigation sufficiently thorough to provide it with a
reasonable foundation for its actions.” Bad Faith Trial Court Findings and
Adjudication, 10/17/2013, at 21; see Romano, 646 A.2d at 1232 (bad faith
conduct includes “lack of good faith investigation into facts”). Based upon
this standard, the Bad Faith Trial Court thus concluded that U.S. Life’s
investigation was “reasonably thorough and sufficient” to provide it with the
necessary reasonable basis for its termination of Mohney’s benefits. Id.
Since we have now determined, however, that U.S. Life did not have a
reasonable basis for its actions, the corresponding finding that U.S. Life
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conducted a “reasonably thorough and sufficient” investigation is called into
serious question.
In this regard, we note that the certified record contains substantial
evidence, largely ignored by the Bad Faith Trial Court, that U.S. Life’s
investigation was not sufficiently thorough to obtain the necessary
information regarding Mohney’s ability to work. For example, Carroll
acknowledged at trial that he made no attempt to contact Dr. Miller to obtain
any clarifying information in response to his (at best) equivocal responses to
his second questionnaire. N.T., 4/16/2013, at 273. Carroll likewise did not
contact the Social Security Administration to inquire regarding its basis for
granting disability benefits to Mohney (as reported to Carroll in Mohney’s
responses to his questionnaire). Id. at 275. And Carroll terminated
Mohney’s benefits without first obtaining an independent medical
examination, as permitted under the two insurance policies. Id.
The Bad Faith Trial Court’s “no evidence” finding is also contradicted
by Carroll’s misrepresentations of facts in his February 7, 1995 letter to
Mohney advising him of the termination of benefits. In his letter, Carroll
represented to Mohney that Dr. Miller had “stated you [Mohney] could
perform sedentary or light duty occupations such as a security guard, an
automobile salesperson and an automobile self service station attendant,”
even though (as discussed exhaustively hereinabove) Dr. Miller had made no
such affirmative representations. N.T., 4/16/2013, Exhibit 16. Carroll
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further represented to Mohney that “[o]n an occupational questionnaire you
completed, you stated you could walk, drive, bend and reach,” even though
Mohney had in fact indicated that his ability to perform these functions was
“limited.” Id.; N.T., 4/16/2013, Exhibit 12. These same misrepresentations
were contained in the second questionnaire Carroll sent to Dr. Miller, in
which he informed the doctor that “You also stated that he could [do] a light
duty position,” and that Mohney had “stated he could walk, drive, bend and
reach.” N.T., 4/16/2013, Exhibit 14. We cannot agree with the Bad Faith
Trial Court’s description of the February 7, 1995 letter as an “adequate and
accurate” summary of the information provided by Dr. Miller. Bad Faith Trial
Court Findings and Adjudication, 10/17/2013, at 27.
These misrepresentations of fact by Carroll are relevant to whether
Carroll (and thus U.S. Life) knowingly or recklessly ignored its lack of a
reasonable basis in denying benefits. An insurer has an obligation to
communicate with its insured, Brown, 860 A.2d at 497, and its investigation
must be “honest, intelligent and objective.” See, e.g., Shearer v. Reed,
428 A.2d 635, 638 (Pa. Super. 1981). Carroll’s misrepresentations
constitute evidence that his investigation was neither honest nor objective,
as it would appear that he focused solely on those parts of the
questionnaires’ answers that supported denial of the claim, while ignoring
the important limitations recognized by Dr. Miller and Mohney that supported
a contrary decision.
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For these reasons, we cannot agree with the Bad Faith Trial Court that
there was “no evidence” relevant to the second prong of the bad faith test.
At the same time, however, while Carroll’s misrepresentations are evidence
of bad faith, they do not without more establish knowing or reckless
misconduct as a matter of law by clear and convincing evidence on the
record before us.
U.S. Life’s defense of this bad faith claim has consistently been based
on the testimony of its adjuster that his only responsibility in determining
the insured’s right to disability benefits was to view the medical and other
information in the claims file in light of a common sense reading of the
definition of total disability in the policy. Thus, this practice is the focal point
of the analysis of the second prong of the bad faith test.
In his appellate brief, Mohney does not argue that Carroll’s failure to
procure additional medical information or that the misrepresentations in his
April 7, 1995 letter provided the proof necessary to establish the second
prong of the bad faith test. Instead, Mohney argues, more indirectly, that
Carroll’s decision to disregard the important words of limitation in the
questionnaire responses was the result of his faulty understanding of the
term “total disability” in the insurance policies. According to Mohney, this
faulty understanding was in turn the product of Carroll’s (and U.S. Life’s)
knowing or reckless failure to conduct sufficient legal research into the
interpretation of “total disability” under Pennsylvania appellate law.
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Mohney’s Brief at 44. The Bad Faith Trial Court rejected this argument,
indicating that while U.S. Life had no standard policy manual, its adjusters
(including Carroll) were “trained to read and apply policy terms in
accordance with their prior experience and common sense.” Bad Faith Trial
Court Findings and Adjudication, 10/17/2013, at 23. In this regard,
[i]f legal questions arose, U.S. Life employed staff
attorneys experienced in insurance policy
interpretation to provide guidance to its adjusters.
Mr. Carroll did not seek legal advice in this case
because he did not believe that any additional legal
construction of the term “total disability” was
necessary. Instead, he applied a plain and common
sense meaning to the certificates’ definition of “total
disability.”
Id.
As explained hereinabove, the definition of “total disability” that Carroll
applied in terminating Mohney’s benefits (namely, that he was not totally
disabled because Dr. Miller advised that Mohney could attempt a light duty
position) was contrary to both the policy definitions of the term and
interpretations by Pennsylvania appellate courts. Based upon the Bad Faith
Trial Court’s own factual findings, it would appear that, in the absence of a
standard policy manual or other specific guidance, it was left solely to
Carroll’s “common sense” and discretion to decide whether it was necessary
to consult with legal counsel on the proper (legal) interpretation of the policy
term at issue. The certified record contains no evidence on industry
standards relating to the need to (1) train claims adjusters on legal
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interpretations of policy terms, or (2) provide adjusters with guidance as to
when they should seek guidance (i.e., legal research) from the available
staff attorneys.
In his pre-trial statement, Mohney included an expert report prepared
by John W. McCandless (“McCandless”), formerly a claims attorney for
Nationwide Mutual Insurance Company. In his expert report, McCandless
offered the following opinions regarding the standards of practice in this
area:
It is the responsibility of every insurance company,
manager and professional to be informed on the
established law which they would be expected to
apply in the course of handling claims, specifically
including the law regarding the interpretation of
policy provisions and definitions. In addition, it is
the good faith obligation of every insurer and claims
professional to investigate and properly apply that
established case law to every coverage
determination.
Mohney’s Pretrial Statement, 9/24/2012. The certified record also includes
the transcript of McCandless’ deposition for use at trial, in which he testified
regarding his experience with proper claims handling, procedures for review
of applicable policy language, and the need for adjusters to be trained in the
proper application of established case law on applicable policy terms.
Deposition Transcript of John W. McCandless, 4/16/2013, at 9-49.
At trial, the Bad Faith Trial Court, after receiving oral argument from
counsel, initially agreed to consider McCandless’ deposition testimony. N.T.,
4/16/2013, at 16. By order dated October 17, 2013, however, the Bad Faith
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Trial Court granted U.S. Life’s Motion in Limine to Exclude the Reports and
Testimony of John W. McCandless. Bad Faith Trial Court Order, 10/17/2013,
at 1. The Bad Faith Trial Court concluded that McCandless’ report and
testimony consisted of legal conclusions that were improper and
inadmissible, the facts underlying Mohney’s bad faith claim were “readily
ascertainable by the Court without the aid of expert testimony,” and
McCandless’ testimony would not assist in the resolution of Mohney’s bad
faith claim. Id. In his sixth issue on appeal, Mohney contends this decision
was in error.
The decision whether a witness is permitted to testify as an expert
rests within the sound discretion of the trial court. Bergman v. United
Servs. Auto. Ass'n, 742 A.2d 1101, 1105 (Pa. Super. 1999). To constitute
reversible error, an evidentiary ruling must not only be erroneous, but also
harmful or prejudicial to the complaining party. Id. If the facts can be fully
and accurately described to the factfinder, who, without special knowledge
or training, is able to estimate the bearing of those facts on the issues in the
case, then expert testimony is unnecessary in the search for truth. Whyte
v. Robinson, 617 A.2d 380 (Pa. Super. 1992). Whether to permit expert
testimony in a bad faith insurance case depends on the complexity of the
issues in question. Compare Bergman, 742 A.2d at 1105 (expert
testimony not permitted because it “would not contribute anything that had
not already been said”), with Bonenberger v. Nationwide Mut. Ins. Co.,
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791 A.2d 378, 382 (Pa. Super. 2002) (“The trial judge who acted as
factfinder in this matter permitted the admission of this expert to aid the
court in its ability to evaluate the bad faith claim.”).
In our view, the decision to exclude McCandless’ expert report and
testimony in this case constituted an abuse of discretion. The issue in
question, involving the standards in the insurance industry for the training of
claims adjusters in applying legal precedent when deciding insurance claims,
is sufficiently complex to permit the introduction of expert testimony. The
Bad Faith Trial Court’s written decision does not reflect that it had any
specific knowledge of the industry standards in this area. Instead, the Bad
Faith Trial Court merely accepted Carroll’s testimony that there was no need
to consult with staff attorneys in this case, and in the absence of expert
testimony from McCandless, Mohney had no ability to offer contradictory
evidence to rebut Carroll’s testimony.
Because we conclude that the Bad Faith Trial Court committed errors
in the application of law and abused its discretion in deciding this case, we
must vacate the judgment and remand for a new trial. In connection with
the new trial, we will address the remaining issues raised by the parties to
this appeal.
For his fourth issue on appeal, Mohney contends that the Bad Faith
Trial Court erred by considering his post-denial conduct. Mohney’s Brief at
52. As a general matter, we agree with Mohney that the analysis of an
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insurance bad faith claim “is dependent on the conduct of the insurer, not its
insured.” Rhodes, 21 A.3d at 1261. The Bad Faith Trial Court posits that it
committed no error because it “imposed no burden whatsoever on [Mohney]
or [Mohney’s] counsel to take any action after the discontinuance of
coverage.” Bad Faith Trial Court’s 1925(a) Opinion, 2/12/14, at 3. We do
not agree, as the Bad Faith Trial Court specifically noted that neither Mohney
nor his counsel provided any additional information in response to Carroll’s
request that they do so in his February 7, 1995 letter terminating benefits.
Bad Faith Trial Court Findings and Adjudication, 10/17/2013, at 28. On
remand, evidence of Mohney’s post-denial conduct should not be admitted.
For his fifth issue on appeal, Mohney argues that the Bad Faith Trial
Court erred by failing to permit him to amend his complaint to include
allegations of bad faith litigation misconduct.3 Mohney’s Brief at 54. We
take no issue with this decision by the Bad Faith Trial Court, as Mohney did
not request leave to amend until one business day prior to the scheduled
start of trial. Bad Faith Trial Court’s Memorandum and Order, 11/20/13, at
2. A trial court enjoys broad discretion in evaluating a motion for leave to
amend pleadings. See, e.g., Borough of Mifflinburg v. Heim, 705 A.2d
3
Mohney’s proposed amendment identified specific instances of alleged bad
faith misconduct by U.S. Life during the pendency of this litigation. We note
that Mohney has not raised the more general issue of whether U.S. Life’s
decision to continue to litigate this claim for many years, despite the
absence of any reasonable basis in the record to support its decision to
terminate benefits, is itself bad faith. See generally Berg v. Nationwide
Mut. Ins. Co., Inc., 44 A.3d 1164 (Pa. Super. 2012), appeal denied, 65
A.3d 412 (Pa. 2013).
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456, 463 (Pa. Super. 1997), appeal denied, 794 A.2d 359 (Pa. 1999).
Based upon its determination that amendment of the pleadings on the eve of
trial would be prejudicial to U.S. Life, the Bad Faith Trial Court properly
exercised its discretion to deny Mohney’s request.
Finally, in its cross-appeal, U.S. Life argues that if this Court remands
this case for a new trial, we should reverse the Bad Faith Trial Court’s
exclusion of its proposed expert witness (Barbara Sciotti) as a sanction for
failure to file a pretrial statement in compliance with the pre-trial order.
U.S. Life’s Brief at 55. In its March 6, 2013 sanctions order, the Bad Faith
Trial Court precluded U.S. Life from “introducing at trial any expert
testimony or reports.” Bad Faith Trial Court Order, 3/6/2013, at 1. In its
Rule 1925(a) written opinion, the Bad Faith Trial Court indicates that it did
so based upon its conclusion that Mohney “suffered actual prejudice from
[U.S. Life’s] ongoing failure to provide notice of its experts.” Bad Faith Trial
Court’s 1925(a) Opinion, 2/12/14, at 4.
On appeal, U.S. Life requests relief from these sanctions on the
grounds that it “substantially complied” with the pretrial order, that it had a
legitimate reason for its delay (its counsel was not informed of the disclosure
date), that Mohney was not prejudiced by the delay, and that Mohney’s
counsel had “ample time to investigate the qualifications of U.S. Life’s
experts and prepare for their examination.” U.S. Life’s Brief at 56-57. U.S.
Life further indicates that the exclusion of its experts “worked a great
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prejudice on U.S. Life,” id. at 57, though it does not explain the nature of
this alleged prejudice.
U.S. Life has not identified any basis in the certified record that would
permit this Court to grant the requested relief, as it has not directed us to
any evidence to support these unproven contentions. We will leave it to the
sound discretion of the Bad Faith Trial Court whether to lift its sanctions and
permit the requested expert testimony at the new trial on remand.
Judgment vacated. Case remanded for a new trial. Jurisdiction
relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 5/8/2015
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