Thursday, March 11, 2010

Bad Faith Claim Dismissed From First Party Benefits Suit in Monroe County

In the recent first party case of O'Connor v. Erie Insurance Exchange, No. 8654 CV 2009 (Monroe Co. Feb. 9, 2010 Zulick, J.), Judge Zulick struck a bad faith claim against the carrier finding that, based upon the allegations of the Complaint, the Plaintiff's remedy was limited to those provided for under the provisions of the Motor Vehicle Financial Responsibility Law (MVFRL) pertaining to first party benefits.

The O'Connor case involved a Plaintiff who had been involved in three separate motor vehicle accidents (1995, 1998, and 2000) after all of which she alleged mental health injuries such as depression and a stress disorder.

At the time of each of these accidents, the Plaintiff was covered by an Erie policy that provided first party medical benefits of $100,000 for each accident. The Plaintiff eventually exhausted her medical benefits after the first accident as well as the second accident.

With regards to the third accident, Erie referred the Plaintiff for a psychological independent medical examination (IME) to determine whether the Plaintiff's ongoing treatment for mental health issues was caused by the 2000 accident or one of the previous accidents. Erie argued that it properly used an IME as opposed to the peer review process because the issue on the payment of the medical benefits was causation not the reasonableness of the treatment.

When that IME doctor concluded that the Plaintiff really never recovered from her mental health injuries from the first accident, Erie refused to pay further medical benefits for psychological treatment allegedly related to the third accident in 2000.

The Plaintiff responded by filing a lawsuit for breach of contract and bad faith under 42 Pa.C.S.A. 8371. Erie filed Preliminary Objections in the form of a demurrer to the bad faith claim.

Erie's basic argument was that the bad faith claim should be dismissed because the Plaintiff had a full and complete remedy available under 75 Pa.C.S.A. 1798 of the MVFRL which pertains to an "Unreasonable refusal to pay benefits." Under Section 1798, if it is determined that the carrier acted unreasonably in refusing to pay benefits, the carrier would be compelled to pay the medical expenses, any interest, and a reasonable attorneys fee to the injured party for having to fight the issue.

The Plaintiff apparently pursued a bad faith claim under Section 8371 in part because that statute provides for the additional remedies of additional interest, costs, and punitive damages.

In his opinion, Judge Zulick noted that the Pennsylvania Supreme Court has not yet addressed the issue of whether the MVFRL preempts Section 8371. After reviewing analogous precedent from other state and federal courts in Pennsylvania, Judge Zulick concluded that the Plaintiff's remedies were limited to that provided for in the MVFRL and not the bad faith statute.

Judge Zulick noted the case before him, involving the use of an IME, was slightly different from the issues in the previous precedent in that those prior decisions primarily involved the different peer review process.

Nevertheless, the judge came to the same result that the Plaintiff's remedies were limited to that provided in the specific provisions on the issue in the MVFRL pertaining to first party benefits.

The court emphasized that there were no allegations in the Complaint asserting that the carrier fraudulently corrupted the process by using a "shill" for its independent medical opinion. The suggestion by the court was that such an allegation may have been an allegation that took the case out of the scope of the MVFRL and into the ambit of the bad faith statute. As there were no such allegations, Judge Zulick dismissed the bad faith claim.

I send thanks to Erie's defense attorney Robert Panowicz, Esquire for bringing this case to my attention.

Anyone desiring a copy of O'Connor v. Erie Insurance Exchange may contact me at

I note that Judge Zulick's decision is consistent with a prior decision issued by Judge Carmen Minora out of Lackawanna County in the case of Veltri v. Travelers Commercial Insurance Company, 08-CIVIL-8534 (Lacka. Co. September 2, 2009 Minora, J.) [I do not have a copy of this decision].

In Veltri, the Plaintiff’s vehicle was struck in a rear-end collision by a tractor trailer. The
Plaintiff’s first party motor vehicle insurance carrier was Travelers. Travelers initially paid first party medical and wage loss benefits and then referred the Plaintiff for an IME.

The first IME was favorable to the Plaintiff and, as such, Travelers was compelled to continue paying first party benefits.

Thereafter, Travelers requested a second IME with a new and different physician who issued an opinion that the Plaintiff’s allegedly ongoing conditions were no longer related to the subject accident. Based upon the second IME, Travelers ceased all first party benefits.

Travelers’ decision to terminate first party benefits led to the filing of a breach of contract and bad faith Complaint by the Plaintiff.

Travelers responded with Preliminary Objections to the bad faith count of the Complaint alleging that the general tenants of the bad faith statute at 42 Pa. C.S.A. §8371 are negated by the specific remedies of the MVFRL remedies found at 75 Pa. C.S.A. §1716 and §1798.

Judge Minora denied the Travelers’ Preliminary Objections and rejected the contention that the rules of statutory construction mandate that the punitive provisions for the nonpayment of first party benefits found under the MVFRL negate or trump the general bad faith statute.

Consistent with Judge Zulick's recent decision noted above, the courtin Veltri essentially ruled that where, as here, the Complaint specifically alleges culpable misconduct both within and beyond the coverage of the specific statutes of the MVFRL, then the general bad faith statute at §8371 may additionally apply as well.

Thus, it all comes down to properly pleading separate causes of action in the Complaint. Where that is not done, a dismissal of certain claims may be secured by the carrier.

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