Bad faith insurance lawsuits usually involve a claimant alleging that an insurance company failed to use good faith efforts to settle the underlying dispute or that an insurance company improperly denied benefits that the claimant was owed under the policy. In the latter case, an insurance company can defeat the claimant’s allegations by proving a thorough investigation and sound contract interpretation that is consistent with the jurisdiction’s case law.
In Mohney v Am Gen Life Ins Co., the plaintiff purchased disability and life insurance in connection with an automobile loan and a home mortgage. In the event that plaintiff became totally disabled, both policies provided for the payment of benefits. Shortly thereafter, plaintiff injured his back in a traffic accident and was unable to work as a coal miner. American General Life Insurance (“American”) paid benefits for the first three years but then terminated the payments because plaintiff did not allegedly meet the criteria for total disability.
The trial court entered summary judgment in favor of American on the bad faith claim and held that American proved the plaintiff was not totally disabled within the meaning of the two policies. The plaintiff appealed.
The Pennsylvania Superior Court ruled that the trial court erred in finding that American did not act in bad faith because American did not conduct a sufficient investigation and American’s interpretation of “totally disabled” was at odds with prior Pennsylvania case law. American relied on a doctor’s ambiguous responses concerning the plaintiff’s ability to work. American never sought to clarify and confirm that plaintiff was unable to work or obtain an independent medical evaluation to determine whether plaintiff was in fact totally disabled. American also relied on an investigator’s misrepresentations of fact in letters addressed to plaintiff and the plaintiff’s doctor. The Pennsylvania Superior Court also disagreed with American’s interpretation of “totally disabled” under binding Pennsylvania case law.
Overall, if an insurance company wishes to move for summary judgment on the grounds that it properly denied a claimant benefits, it is necessary to ensure that a sufficient, thorough investigation was performed. A lack of diligence up front can have the unfortunate consequence of prolonging litigation, and with it, the costs of litigation as well.
Thanks to Eric Clendening for his contribution.