Federal judge in Pennsylvania shuts down insurer’s refusal to share its playbook2021-06-21T20:20:19+00:00
Federal judge in Pennsylvania shuts down insurer’s refusal to share its playbook

Bad-faith claims against an insurer open the door to many more issues, and a lot more discovery about those issues, than insurers would lead you to believe. Insurers routinely clam up about anything in any of their files — even ones related directly to an insured’s claim — the moment the insured drags the insurer into court. My colleague, Kyle Sturm, recently posted an article here about a pending decision by the Oregon Supreme Court regarding an insurer’s attempt to bury its claims file.

But the claims file, the insurer’s correspondence, reports, and notes about a particular claim, tells only part of the story. That is, these documents will show an insured how he was mistreated by the adjusters. Another rich source of information powering bad-faith claims lies in what the adjusters were supposed to do, what the insurer’s own procedures and training manuals dictate should be done in handling a claim.

These manuals were the subject of a recent order by a federal district-court judge in Pennsylvania in Stephens v. State Farm Fire & Cas. Co. (Apr. 13, 2015). In this case, the insured, Gerald Stephens, told his State Farm agent that he would be renting his home while he was undergoing back surgery. Stephens alleges that the agent assured him that coverage under his homeowner’s policy “would remain unaffected by his departure while he sought medical care.”

And therein lies the rub. After the theft, vandalism, and water-damage loss of over $165,000, State Farm allegedly canceled Stephens’s policy on the grounds that he no longer lived in his home. If you don’t think that insurers would actually play this game, take a look at my post here about an Oregon case involving an insurer’s terrible coverage advice about its own policy.

Stephens sought State Farm’s procedures and training manuals to find out whether the sharp elbows were merely the product of a rogue adjuster, or part of State Farm’s business plan. The judge handily rejected State Farm’s argument that its manuals were irrelevant, noting that “this court has frequently granted such requests for discovery in the past, reasoning that agency claims processing policies, and noncompliance with those policies, may be relevant to a bad faith claim like the claim made by the plaintiffs in this case.” Insureds ought to ask for these manuals in bad-faith cases for precisely this reason.

But the insurer’s potential “noncompliance” with anodyne procedures may not be the worst of it — discovery in other cases has revealed just the kind of bad-faith intent that every policyholder lawyer suspects:

The court references the [insurer’s] manual statements, which called for “aggressive use of [Independent Medical Exams],” attempts at catching claimants “off guard,” and assigning cases to defense counsel who fully follow the adjuster’s orders and who refrain from exercising independent judgment.

Bonenberger v. Nationwide Mut. Ins. Co., 791 A.2d 378, 381-82 (Pa. Super. Ct. 2002).

Discovery of an insurer’s claims manuals may be a double-edged sword cutting the insurer either way: showing noncompliance with good-faith internal rules, or faithful compliance with bad-faith rules. Either way, coverage counsel should not neglect seeking this important source of evidence against insurers.

Opinion reprinted from WestlawNext with permission of Thomson Reuters. If you wish to check the currency of this case by using KeyCite on WestlawNext, please visit www.next.westlaw.com.


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