Sunday, June 12, 2011

Federal Middle District Allows Bad Faith Claim to Proceed on Basis of Invalid Rejection of UM Form

In the case of Grassetti v. Property & Casualty Insurance Company of Hartford et al., No. 3:10-cv-2068, 2011 WL 1522326 (M.D. Pa. Apr. 20, 2011), Judge James M. Munley held that a policyholder who signed a form rejecting uninsured motorist coverage could move forward with his bad faith claim because the insurer failed to use language specified by state law on the UM rejection form.

The Plaintiff was allegedly injured as a result of a May of 2007 motor vehicle accident.  As the driver of the other vehicle was never identified, an uninsured motorist claim was pursued by the injured party.  Coverage was denied by the UM carrier on the grounds that the injured party had rejected UM coverage during the application process.

In his bad faith action against the carrier, the injured party argued that the carrier had acted unreasonably in denying coverage.  The injured party essentially asserted that the UM rejection form was invalid because it did not strictly comply with the requirements of Pennsylvania's Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. § 1731(b), pertaining to the content of the rejection of coverage form.

Citing the rejection form signed by the injured party, the carrier moved to dismiss the bad-faith claim. Generally speaking, under Pennsylvania law, although uninsured motorist coverage is optional, an insured must sign a rejection form that uses language specified in the statute in order to waive such coverage.

The carrier’s form was found to deviate from the statutorily required language in one respect.  The carrier's form referred to “Uninsured Motorists Coverage,” while the statutory language referred only to “Uninsured Coverage.”

The court noted that 75 Pa.C.S. Section 1731(c)(1) states, in pertinent part, that "[a]ny rejection form that does not specifically comply with this section is void."

The court accepted the Plaintiff's citation of American Int'l Ins. Co. v. Vaxmonsky, 916 A.2d 1106 (Pa.Super.2006), in which the Pennsylvania Superior Court held that an insurer's underinsured motorist (“UIM”) coverage waiver was null and void for failure to comply with Section 1731(c) of the MVFRL.

For purposes of motion to dismiss standard of review at issue in this Grassetti case, the court found Vaxmonsky persuasive on the issue of interpreting the specific compliance requirements of Section 1731(c)(1). 

Judge Munley held that, in reading the Complaint in a light most favorable to the Plaintiff, it appeared that the Plaintiff had adequately pled a cause of action under Pennsylvania's Bad Faith Statute, 42 Pa.C.S. § 8371 given that Section 1731(c)(1) of the MVFRL requires strict compliance waiver language of section 1731(b) and given that the Plaintiff had adequately asserted in the Complaint that the Defendants withheld payment upon a claim without a reasonable basis and that Defendants did so knowing they did not have a reasonable basis.

I send thanks to Attorney Brian Bevan of the Pittsburgh law firm of DiBella, Geer, McAllister & Best, P.C. for advising me of this recent decision.

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