Phan-Kramer v. Am. States Ins. Co.

1

LOANN T. PHAN-KRAMER and JONERIK KRAMER, W/H Plaintiffs, v. AMERICAN STATES INSURANCE COMPANY, Defendant.

No. 2:23-cv-01867-JDW

United States District Court, E.D. Pennsylvania

July 31, 2023

MEMORANDUM

JOSHUA D. WOLSON, J.

Plaintiffs filed suit against their insurer alleging, among other things, statutory bad faith under 42 Pa. C.S.A. § 8371. Plaintiffs now seek leave to file a second amended complaint to save their bad faith claim from dismissal. But no amendments could save the claim. To the extent it is based on a denial of coverage, the statute of limitations bars the claim. And Pennsylvania's bad faith statute does not extend to an insurer's conduct during litigation while acting as a legal adversary. Because their bad faith claim cannot survive a motion to dismiss, amendment is futile, and I will deny the Motion.

I. BACKGROUND

A. Facts

On April 15, 2016, an underinsured motorist rear-ended Plaintiff Loann T. Phan-Kramer. She suffered a full thickness tear of her rotator cuff, as well as other neck and back injuries. At the time of the accident, American States insured Plaintiffs, including underinsured motorist (“UIM”) benefits. After suing then settling with the other driver, Plaintiffs notified American States of their UIM insurance claim. They sent the American States's adjuster a complete set of all of Mrs. Phan-Kramer's medical records, as well as depositions and expert reports produced in the lawsuit against the other driver. These reports showed future losses between $322,884.00 and $349,582.00.

On June 28, 2019, the American States's adjuster sent correspondence to Plaintiffs that stated in relevant part: “I have had the opportunity to review the medical records you sent for Loann Kramer. Her injury does not appear to have a value over the underlying limits of $100,00[0.00]; therefore, we will not be making an underinsured motorists bodily injury offer. Please discuss with your client.” (ECF No. 15-2.) Less than three weeks after receiving the denial letter, Plaintiffs sued American States for breach of contract and loss of consortium.

Plaintiffs allege that, throughout the course of that litigation, American States's adjusters and in-house legal counsel represented that they were reevaluating Plaintiffs' UIM insurance claim as Plaintiffs presented new treatment records and evidence of work limitations. However, Plaintiffs concluded that American States had not been reevaluating the claim when American States's expert witness issued a report in the litigation on October 28, 2020. The report considered only early records of Mrs. Phan-Kramer's treatment, not any of the evidence of ongoing treatment Plaintiffs had provided throughout the litigation. Plaintiffs also allege that American States exerted influence on its expert to make false conclusions in his report and testimony that would support American States's low valuation of the UIM insurance claim.

Plaintiffs' UIM case proceeded to trial and the jury returned a $480,000.00 verdict in Plaintiffs' favor. The verdict was molded to reflect the $100,000.00 bodily injury liability limits and delay damages of $21,048.36. American States satisfied the verdict.

B. Procedural History

Plaintiffs have now sued American States again for its handling of the UIM claim and conduct in the previous litigation. Plaintiffs filed a Praecipe To Issue Writ Of Summons on March 3, 2022, in the Delaware County Court of Common Pleas. After Plaintiffs filed their Complaint, American States removed the case to this Court. Plaintiffs then amended their Complaint as a matter of right to avoid a motion to dismiss. The Amended Complaint asserts three counts: Count I - Bad Faith Pursuant to 42 Pa. C.S.A. § 8371; Count II - Breach of Contract/Good Faith and Fair Dealing; and Count III - Loss of Consortium. American States answered Plaintiffs' Amended Complaint and informed Plaintiffs' counsel of its intent to file a motion for judgement on the pleadings. Plaintiffs' counsel filed a Second Amended Complaint, which I struck for failure to obtain Defendant's consent or leave of court, as required by Federal Rule of Civil Procedure 15(a).

Plaintiffs' Motion For Leave To File Second Amended Complaint followed. Plaintiffs' Motion seeks to add facts to support their bad faith claim.^[1] Specifically, they seek to expound upon Defendant's assurances that the UIM claim would be reevaluated when Plaintiffs presented new evidence, Defendant's refusal to reevaluate Plaintiffs' UIM claim, and Defendant's interactions with its expert and Plaintiffs during litigation. The Motion is ripe for disposition.

II. LEGAL STANDARD

The Federal Rules of Civil Procedure allow liberal amendments of pleadings to facilitate resolution of cases on the merits. See Mullin v. Balicki, 875 F.3d 140, 149 (3d Cir. 2017). Rule 15(a) “enable[s] a party to assert matters that were overlooked or were unknown at the time the party interposed the original complaint.” Garrett v. Wexford Health, 938 F.3d 69, 82 (3d Cir. 2019) (quotation omitted). Though leave to amend should be freely given when justice so requires, “[t]here are three instances when a court typically may exercise its discretion to deny a Rule 15(a) motion for leave to amend: when ‘(1) the moving party has demonstrated undue delay, bad faith or dilatory motives, (2) the amendment would be futile, or (3) the amendment would prejudice the other party.'” United States ex rel. Customs Fraud Investigations, LLC. v. Victaulic Co., 839 F.3d 242, 249 (3d Cir. 2016) (quotations omitted). “An amendment is futile if the amended complaint would not survive a motion to dismiss for failure to state a claim upon which relief could be granted.” Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir. 2000) (quotation omitted). Courts, therefore, apply the same standard of legal sufficiency to a futility argument as that of a 12(b)(6) Motion. See Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 243 (3d Cir. 2010).

III. ANALYSIS

To survive a motion to dismiss for failure to state a claim on insurance bad faith, Plaintiffs must plead that American States lacked a reasonable basis to deny benefits under the insurance policy and that American States knew of or recklessly disregarded its lack of a reasonable basis. See Berg v. Nationwide Mut. Ins. Co., Inc., 235 A.3d 1223, 1245 (Pa. 2020). Plaintiffs' proposed amendment seeks to add facts that would support two overarching bases for the bad faith claim: (a) Defendant's continued unjustified denial of the UIM insurance claim; and (b) Defendant's conduct during litigation. Neither basis can survive a motion to dismiss, so amendment is futile.

A. Continued Denial Of The UIM Claim

Plaintiffs' proposed amendment based on the continued denial of Plaintiffs' UIM claim is futile because the statute of limitations bars the claim. The statute of limitations on a bad faith claim under 42 Pa. C.S.A § 8371 is two years. See Ash v. Continental Ins. Co., 932 A.2d 877, 885 (Pa. 2007). The statute begins to run when the insurer first refuses to pay the claim. See Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 225 (3d Cir. 2005).

American States first refused to pay Plaintiffs' UIM claim on June 28, 2019, when the insurance adjuster sent Plaintiffs a letter that stated American States “will not be making an underinsured motorists bodily injury offer.” (ECF No. 15-2.) Plaintiffs understood this letter to be a denial of coverage-they filed a lawsuit for the denial of their claim less than three weeks after the letter. Plaintiffs also knew the facts giving rise to their argument that the denial was unfounded. They had submitted evidence showing future loss three times greater than the policy limit. The statute, therefore, began to run on June 28, 2019, and expired on June 28, 2021. Plaintiffs did not file this action until March 3, 2022. So, their bad faith claim based on denial of coverage is barred by the statute of limitations.

Plaintiffs' arguments that they did not know of Defendant's denial are unpersuasive. First, the letter is not equivocal. It does not say American States “will not be making an underinsured motorists bodily injury offer at this time.” It says American States will not make an offer. That Plaintiffs' claim was denied distinguishes them from the plaintiff in Bowers v. Nationwide Ins. Co., Civ. A. No. 3:07cv1134, 2008 WL 189572 (M.D. Pa. Jan. 18, 2008), a case upon which Plaintiffs rely. In that case, the insurer never denied coverage but instead made an unaccepted settlement offer. A settlement offer is negotiation; a denial letter closes negotiation. Second, the fact that American States made settlement offers to end litigation is distinct from its denial of the insurance claim. Settlement offers during litigation do not admit liability, their purpose is to end litigation. While we all presume that plaintiffs sue insurers because they think they have a good faith basis to do so, the reality is that they also do so because litigation creates pressure to settle, without regard to the merits of the claim. So, when American States made an offer to settle the first lawsuit, that offer did not indicate that the claims handling was still underway. It just showed that American States put a price on avoiding litigation.

Because Plaintiffs knew of the initial coverage denial and believed it was unfounded, their arguments about the discovery rule and doctrine of fraudulent concealment fail. The discovery rule applies when the injured party, despite the exercise of reasonable diligence, is unable to know they suffered an injury or what caused that injury. See Fine v Checcio, 870 A.2d 850, 858 (Pa. 2005). The doctrine of fraudulent concealment applies where the defendant has deceived the plaintiff, intentionally or...