Condio v. Erie Insurance Exchange

DISSENTING OPINION BY

JOHNSON, J.:

¶ 1 I respectfully dissent. In this case, the Majority would allow Erie Insurance Exchange and Erie Insurance Group (collectively “Erie”) to avoid liability under Pennsylvania’s bad faith statute by effectively narrowing the scope of the insurers’ duty to first party UM/UIM claimants. Reasoning that such claims are similar to third-party claims, the Majority adopts the assertion of amicus curiae, the Pennsylvania Defense Institute, that such “U-claims” are “inherently and unavoidably arm’s length and adversarial.” Op. at 1144. I reject this conclusion as an unwarranted diminution of the duty of good faith due to all Pennsylvania policyholders who seek benefits from their own insurer, notwithstanding the nature of the claim. Such apparent vitiation of the insurer’s duty, with its concurrent license of the sort of pretextual denial of coverage evident in this case, is far beyond the contemplation of current caselaw.

¶ 2 I object further to the Majority’s assertion that notwithstanding the duty applied, Erie need have tendered no more than the nominal “investigation” it now defends because other factors in the case rendered a thorough investigation premature, redundant, and duplicative. See Op. at 1154. The stark reality of this case is that had Erie conducted even a cursory investigation it would have recognized (as did the trial court), the dubious nature of the police report on which it relied. It could also have spared its insured (who died during the pendency of this litigation) the delay and expense of an unnecessary arbitration. Accordingly, I concur in the trial court’s conclusion that Erie acted in bad faith and I would affirm its judgment.

¶ 3 Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371, offers no definition of “bad faith toward the insured.” Consequently, we have articulated circumstances in which bad faith claims may be brought, suggesting that “bad faith” is equivalent to a breach of the carrier’s obligation to act in good faith. See Zimmerman v. Harleys-ville Mut. Ins. Co., 860 A.2d 167, 172 (Pa.Super.2004) (“The breach of the obligation to act in good faith cannot be precisely defined in all circumstances, however, examples of ‘bad faith’ conduct include: ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.’ ”).

¶ 4 “The duty of an insurer to act in good faith ‘arises because the insurance company assumes a fiduciary status by virtue of the policy’s provisions which give the insurer the right to handle claims and control settlement.’ ” Brown v. Progressive Ins. Co., 860 A.2d 493, 500 (Pa.Super.2004) (quoting Romano v. Nationwide Mut. Fire Ins. Co., 435 Pa.Super. 545, 646 A.2d 1228, 1231 (1994)). This duty applies to all instances in which an insured makes a first-party claim, including UM/UIM claims, subject to limited exceptions. Accordingly, our courts have recognized that the valuation of UIM claims “may follow traditional third party claimant concepts.” Bonenberger v. Nationwide Mut. Ins. Co., 791 A.2d 378, 381 (Pa.Super.2002).

*1157¶ 5 That is not to say, however, that such concepts apply to every aspect of the case. In practical terms, this standard only allows the insurer to contest the insured’s valuation; the insured’s demand must continue to be treated as a first-party claim. See Brown, 860 A.2d at 500 (“An individual making a UIM claim is making a first party claim, however the valuation of that claim may follow traditional third party claimant concepts[.]”). Thus, while insurer and insured may assert, and defend, competing positions on the value of the claim, the carrier remains bound by a duty of good faith. See Bonenberger, 791 A.2d at 881. Accordingly, its decision on valuation, and by extension its denial of the claim, may be made only after a conscientious investigation of each matter on a case-by-case basis. See id. at 382; see also Brown, 860 A.2d at 500 (quoting Romano, 646 A.2d at 1232) (recognizing that “[b]ad faith conduct also includes ‘lack of good faith investigation into fact[s]’ ”.).

¶ 6 Our reasoning in Bonenberger, a case decided on a claim for UIM benefits, confirms this conclusion as a bedrock principle that binds every carrier and every court in the disposition of every “U-claim:”

Individuals expect that their insurers will treat them fairly and properly evaluate any claim they may make. A claim must be evaluated on its merits alone, by examining the particular situation and the injury for which recovery is sought. An insurance company may not look to its own economic considerations, seek to limit its potential liability, and operate in a fashion designed to “send a message.” Rather, it has a duty to compensate its insureds for the fair value of their injuries. Individuals make payments to insurance carriers to be insured in the event coverage is needed. It is the responsibility of insurers to treat their insureds fairly and provide just compensation for covered claims based on the actual damages suffered. Insurers do a terrible disservice to their insureds when they fail to evaluate each individual case in terms of the situation presented and the individual affected.

Bonenberger, 791 A.2d at 382 (emphasis added). Thus, the duty imposed on the insurer to investigate does not change merely because the claim at issue seeks UM/UIM coverage. Nor does the realignment of the parties’ interests accompanying a “U-claim” alter the parties’ relationship in the manner the Majority supposes. Simply stated, “U-elaims” are not “inherently and unavoidably arm’s length and adversarial,” see Op. at 1144, and have never been so recognized by the caselaw that properly controls our disposition. Consequently, no carrier may deny its insured’s UIM claim on a pretext or fail to conduct a plausible investigation because evidence otherwise available, although limited, ostensibly supports denying the claim, See Brown, 860 A.2d at 501 (quoting Romano, 646 A.2d at 1232). In short “U-claimants” may not be treated as adversaries in any aspect of the case other than the valuation of the claim. This standard does not impose a “heightened duty,” but is merely an affirmation of the one recognized by our cases.

¶ 7 Significantly, the Majority’s analysis of the duty standard, as advocated by ami-cus, see Pennsylvania Defense Institute Amicus Brief at 7-8, shortchanges this “first-party” duty, limiting its application to “threshold connections” and denying its effect on “liability, damages, coverage, or even procedure!)]” See Op. at 1144. Although the Majority asserts that its decision does not “impose a different duty on an insurance company in a U-claim setting,” Op. at 1145, the result it espouses does precisely that. Indeed, it appears to excuse insurers fielding UIM claims from any serious obligation to investigate, requiring the insured to shoulder the burden of proof to show liability. See Op. at 1150 *1158(concluding that “the trial court failed to consider that Erie was not required to pay the UIM claim until the question of its liability became reasonably clear”). Thus, the Majority would apply a measure of duty appropriate only for third-party claims and valuation of “U-claims” to the initial assessment of those claims. The Majority cites none of our prior decisions to support so substantial a limitation of the insurer’s duty to UIM claimants, and by my reckoning, no such decision exists. In point of fact, its premise appears to contravene our prior caselaw which, as I have noted, acknowledges the similarity of third-party claims and UM/UIM claims only for purposes of valuation. See Brown, 860 A.2d at 500; Bonenberger, 791 A.2d at 381. Nevertheless, relying upon the decision the Majority now renders, Erie and any other carrier so determined might dismiss UM/UIM claims out of hand, merely because some kernel of information readily available, (in this case, a facially dubious police report), provides the needed cover. The trial court recognized that such an approach is fundamentally at odds with the duty owed to first-party claimants and I concur in its conclusion. See Trial Court Opinion, 1/12/04, at 13 (“[I]t was inappropriate for [Erie], as an insurer in a first party claim, to rely solely upon the police report in this instance because the police report clearly indicated that the identity of the driver was uncertain. Faced with that information, [Erie] could not, in good faith, determine whether or not [the Estate] had a valid claim.”).

¶ 8 When adjudged by a first-party duty standard, Erie’s “investigation” was woefully inadequate. That standard, which we reaffirmed upon reversing the trial court’s entry of summary judgment in favor of Erie, imposes responsibility upon the insurer to conduct an investigation sufficient to make an informed and measured assessment of liability without reference to valuation:

An insurer cannot meet its obligation to its insured by stating a pretextual reason for denying a claim in the hope that the insured will forego litigation or a subsequent investigation in preparation for the litigation will find support for the pretextually stated reason. An insured, should not be compelled to litigate a claim without the insurer first conducting a prompt and full investigation and the objective evaluation of the claim that reveals a reasonable basis for denial. Insurers have an implied duty to promptly and fully respond to their insured to investigate the claim and engage in an objective review process. This duty necessarily places the responsibility upon the insurer to assemble all the facts necessary for a fair and comprehensive investigation before it denies a claim, and it may not base a defense to a bad faith assertion by relying on later acquired information.

Condio v. Erie Ins. Exch., 815 A.2d 1134 (Pa.Super.2002) (unpublished memorandum) (Slip Op. at 18) (emphasis added).

¶ 9 Thus, the Majority’s characterization notwithstanding, what actions Erie employees took in response to the Estate’s claim do not constitute an investigation as we, and the trial court, understood that term on remand following our reversal of the trial court’s grant of summary judgment. See Slip Op. at 27 (“Another Erie employee investigated the Estate’s claim beyond the police report. During the period of Tidrick’s involvement from April 6th through 29th, [Erie claims representative] Habursky was in contact with [Plaintiffs counsel] about (1) the need for arbitration on the question of who was driving, (2) the two Sailar litigations, including Sailar’s verified statements that she was the passenger in Breen’s car, and (3) Sailar’s settlement with Lumberman’s Insurance.”). None of these acts operated to assemble *1159the facts underlying Breen’s fatal accident. Indeed, each evinces a “wait and see” attitude, anticipating that other litigation or the arbitration itself might ameliorate Erie’s exposure and make even a cursory investigation unnecessary. Had Erie conducted an investigation, it would have discerned, if only by the position of Breen’s body in the car, that he had been the passenger, not the driver, and was thereby entitled to coverage. Breen died of injuries sustained when his car careened down an embankment, colliding with a tree. First responders at the scene found Breen in the front passenger seat, the car’s mangled footwell entrapping his legs beneath the dashboard on that side of the car and his head resting against a tree that had intruded into that side of the car. Further examination showed that Breen had suffered a fracture of the skull in the area above his right ear, ostensibly where his head had struck the tree. Breen’s companion, Karen Sailar, survived the accident but attested almost no recollection of the incident. When medics removed her from the car, her upper body was lying over Breen’s on the right side of the car with her legs extending to the left into the driver’s-side footwell.

¶ 10 Notwithstanding the availability of this information had Erie chosen to investigate, it relied on the state trooper’s report, which did not reach a firm conclusion on the identity of the car’s driver. Although in one portion of the report the trooper indicated that Karen Sailar had been driving, the trooper indicated elsewhere that he was not sure who was driving. Nevertheless, the trooper further noted that the seatbelts had been cut when he arrived at the scene, thus suggesting that Sailar and Breen had been using them and were found by the medics strapped into their respective seats. If anything, the report thus suggested that Breen was not driving, entitling his estate to UIM coverage, yet Erie relied on its uncertainty to delay the claim in favor of taking a chance on arbitration. Although the arbitration panel ultimately found for the Estate, the delay incumbent in the arbitration process could have been substantially reduced or eliminated had Erie only acted in good faith, treating the Estate’s request for coverage as the first party claim it was. Its failure to do so, in my view, runs afoul of its duty to the insured and violates Pennsylvania’s bad faith statute. Accordingly, I would affirm the judgment of the trial court. Because the Majority declines this course, I must respectfully dissent.