“Low-Ball” Settlement Offer On Its Own Is Insufficient To Support A Claim for Bad Faith Under Pennsylvania Law

A low-ball settlement offer on its own is not enough to state a claim for a bad faith according to a federal district court for the Eastern District of Pennsylvania which granted the insurer’s motion to dismiss the insured’s claim for alleged violation of Pennsylvania’s bad faith insurance statute, 42 Pa.C.S. §8371. See West v. State Farm Insurance Company, 2016 U.S. Dist. LEXIS 106783 (E.D.Pa. Aug. 11, 2016). The statute provides that in an action on an insurance policy, if the court finds that the insurer acted in bad faith toward its insured, the insured may be awarded interest on the amount of the claim from the date the claim was first made by the insured, punitive damages, court costs and attorneys’ fees,. 42 Pa.C.S. §8371. The statute does not identify what constitutes bad faith on the part of the insurer.

            In West, the insured alleged that State Farm acted in bad faith in handling his uninsured motorist claim.  State Farm offered to settle the claim for $1,000 despite receiving medical bills in excess of $8,200. The insured argued that State Farm’s “low-ball” offer on its own was sufficient evidence of bad faith. The court disagreed, explaining that Pennsylvania law requires an insured to show more. Specifically, an insured must allege facts that show the insurer “lacked a reasonable basis for denying benefits under the policy” and the insurer “knew or recklessly disregarded its lack of [a] reasonable basis in denying the claim.” 2016 U.S. Dist. LEXIS at *5. An insurer’s low (even facially unreasonable) estimate of its insured’s damages, without more, does not rise to the level of bad faith.

While the court granted the insured’s request to file a second amended complaint, the insured may be out of luck if he is unable to allege additional facts.  We will continue to monitor the case to see whether the insured can meet the heightened pleading standard imposed by the court.