Shawnee Tabernacle Church (“Shawnee”) is a Congregation located in Monroe County, Pennsylvania. The church was insured by GuideOne Insurance (“GuideOne) with a policy that included the following language under the title “Pennsylvania Changes”:
Notice of Acceptance or Denial of Claim
Except as provided in 3 below, we will give you notice, within 15 working days after we receive a properly executed Proof of Loss that we:
A.) Accept your claim.
B.) Deny your claim; or
C.) Need more time to determine whether claim should be accepted or denied.
1) If we deny your claim such notice will be in writing and we will state any policy provision, condition or exclusion used as a basis of denial. If we need more time to determine whether 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 after the initial notice as provided in i.e., above and thereafter every 45 days. The written notice will state why more time is needed to investigate your claim and when you may expect us to reach a decision on your claim.
3.) The notice procedures in 1 and 2 above do not apply if we have a reasonable basis, supported by specific information, to suspect that an insured has fraudulently caused or contributed to the loss by arson or other illegal activity; under such circumstances, we will notify you of the disposition of your claim within a period of time reasonable to allow full investigation of your claim, after we receive a properly executed Proof of Loss.
Shawnee suffered a large water loss at the property and immediately notified GuideOne of the damage. GuideOne inspected the property within a few days and proceeded under a reservation of rights as it determined coverage. GuideOne eventually took Examinations Under Oath of multiple church officials and asked questions pertaining to whether the church had been vacant at the time of the loss. All the Examinations occurred on the same date. It was not until six months later that GuideOne admitted there was coverage for the loss. Notably, GuideOne had not provided a single status letter during that six-month time period.
The parties could not reach an agreement and Shawnee Tabernacle filed a Complaint in the United States District Court for the Eastern District of Pennsylvania alleging Breach of Contract and Bad Faith. Shawnee Tabernacle subsequently moved for Summary Judgment.
Under Pennsylvania Law, to recover in a bad faith action against an insurer, the insured must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.1 An insurer’s delay in investigation of a claim may constitute bad faith where it involves inexcusable periods of inactivity, unreasonable assumptions, and inadequate communication.2
Although Shawnee alleged multiple delays during the claim handling process, Judge Gerald Austin McHugh honed-in on the six-month delay between the completion of the Examinations and the coverage determination. Of importance to Judge McHugh’s determination was a review of Defendant’s Claim log notes during the six-month timeframe in question. The log notes reflected that GuideOne did not have a single claim log noted within the first three months after the examination and the transcripts from the examination weren’t 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 acknowledging coverage under the policy and (2) knew of or recklessly disregarded the absence of that basis. While GuideOne attempted to argue delay due to the claims adjuster being moved to a new team, Judge McHugh found the excuse inadequate because “the decision to alter the representative’s workload did nothing to negate its duty as an insurer to Plaintiffs.”3
Judge McHugh further found GuideOne knew of or recklessly disregarded the lack of a reasonable basis based again on (1) a claim note at the time of the examinations 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 resolve the claim a month after the examinations.
The two takeaways that I have regarding the above decision is (1) for public adjusters, the importance of keeping track of the timeliness of an insurance carrier’s responses and (2) for attorneys, the importance of reviewing log notes produced by a carrier in discovery.
Under 31 PA. Code § 146.7(c)(1):
If the insurer needs more time to determine whether a first-party claim should be accepted or denied, it shall so notify the first party claimant within 15 working days after receipt of the proofs of loss giving the reasons more time is needed. If the investigation remains incomplete, the insurer shall, 30 days from the date of the initial notification and every 45 days thereafter, send to the claimant a letter setting forth the reasons additional time is needed for investigation and state when a decision on the claim may be expected.4
I know of some public adjusters who have boilerplate letters, calendar the dates listed above, and issue the letters whenever the deadline is up. This is good practice and encouraged as it (1) pushes the carrier to make a determination and (2) keeps a paper trail for a potential bad faith action.
As to the log notes, they are the first bit of information I personally review when I obtain Defendant’s discovery responses and were crucial in obtaining a bad faith settlement in one of my New Jersey cases, which is under a confidentiality order. Cases can be built on what is reflected in the claim notes and used to tear down a carrier’s representative at a 30(b)(6) deposition. In Shawnee Tabernacle, it was actually the lack of activity in the log notes that was crucial to the bad faith award.
If you have any questions regarding 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).