Superior Court of Pennsylvania Finds Trial Court Erred in Bad Faith Claim

The Superior Court of Pennsylvania found that the court erred in a bad faith claim in Mohney v. American General (2030 & 2046 WDA 2013). The Court reasoned that the insurer acted in bad faith by having no reasonable basis for terminating the plaintiff’s benefits.

Mohney purchased life insurance from U.S. Life (now succeeded and represented by American General) in October 1991 and September 1992. A year later, the plaintiff suffered an injury as a result of a traffic accident preventing him from returning to work. U.S. Life found Mohney to be totally disabled under the definition of their policy and disbursed insurance benefits on a monthly in basis. In February 1995 U.S. Life suddenly terminated Mohney’s benefits alleging that Mohney no longer met “the covered criteria for total disability as stated in [his] certificates” and was “able to perform regular duties of an occupation for which [he was] qualified”.

The plaintiff immediately initiated civil action against the defendant, and in June 1997 filed a complaint for fraud, breach of contract, violation of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), and insurance bad faith. During the following four years, U.S. Life’s objections were granted by the court. In 2001, U.S. Life filed a motion for summary judgement which was granted in part with the exception of Mohney’s breach of contract claim. The trial court found Mohney to be “totally disabled under the terms of the insurance contract” and awarded the plaintiff $20,772.58. Upon appeal the Superior Court affirmed the trial court’s breach of contract judgement, but remanded for a trail on the bad faith matter. In October 2013 the trial court ruled in favor of U.S. Life prompting Mohney to appeal the bad faith ruling which is the central consideration of the present memorandum.

Using a two-prong test, the Superior Court sought to answer whether U.S. Life had acted in bad faith when terminating Mohney’s benefits. Citing O’Donnell (734 A.2d at 906), the court held that a bad faith claim must be shown with clear and convincing evidence, and must prove that “(1) the insurer did not have a reasonable basis for denying benefits under the policy, and (2) the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.”

The Superior Court reasoned that the evidence with which U.S. Life had based its decision to terminate Mohney’s benefits was insufficient. The Court explained that Mohney’s treating physician had merely made an “opinion”, that may be “equivocal”, and had made no affirmative or definitive statements regarding Mohney’s ability to work again. In effect, the Court disagreed that U.S. Life’s termination letter included an “accurate and adequate summary” of the facts. Furthermore, the Superior Court argued that U.S. Life recklessly disregarded the facts by misrepresenting evidence and carrying out an investigation that was “neither honest nor objective”. By showing that U.S. Life had acted in bad faith, the Court concluded that U.S. Life had no reasonable basis for terminating Mohney’s benefits.

The Superior Court vacated the judgement of the trial court and remanded for a new trial on the bad faith matter. Ultimately, the plaintiff’s persistence with this matter proved to be in his favor. This opinion be important for future references on the two-prong test for establishing bad faith in insurance fraud.

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