[co-author: Zachary Kizitaff]
After Melissa Parisi sustained injuries in a vehicle collision and learned that the other motorist involved in the crash carried only $15,000 in auto insurance, she submitted an underinsured motorist (UIM) claim to State Farm, her insurer. Soon after Parisi filed her claim in May 2014, she and State Farm began exchanging letters and documentation regarding the substantial cognitive injuries that Parisi incurred in the accident, as well as the status of Parisi’s claim against the other motorist’s insurer.
Nearly a year later, in March 2015, Parisi’s counsel advised State Farm that Parisi settled with the other motorist for the $15,000 policy limit. Then, in January 2016, Parisi’s counsel made a settlement demand to State Farm for Parisi’s full $100,000 UIM policy limit, noting that the value of Parisi’s claim exceeded that limit. State Farm responded with a $17,000 counteroffer. Subsequently, State Farm obtained outside counsel, who asked Parisi to undergo an independent medical evaluation and testify under oath as to her medical condition. The results of the medical evaluation and testimony convinced State Farm that Parisi’s medical condition warranted payment of the $100,000 policy limit, which State Farm paid to Parisi in November 2016.
Parisi thereafter sued State Farm, alleging that State Farm breached her policy in bad faith by unreasonably delaying payment and making a “low ball” settlement offer. The parties cross-moved for summary judgment as to the bad faith claim. The Court denied both motions, finding that there were questions of material fact as to whether State Farm’s failure to offer the $100,000 policy limit during the period of May 2014 through November 2016 constituted unreasonable delay and whether the initial $17,000 offer was a “low-ball” offer. Parisi v. State Farm Mut. Auto. Ins. Co., Civil Action No. 3:16-179 (W.D. Pa. May 7, 2018).
Under Pennsylvania law, an insured can show that an insurer unreasonably delayed in making a settlement offer when the insurer: “(1) had no reasonable basis for causing the delay and (2) knew or recklessly disregarded the lack of a reasonable basis for the delay” (internal quotations omitted). Nevertheless, a delayed settlement offer is not per se bad faith; mere negligence or a desire to further investigate are insufficient to demonstrate bad faith delay. Alternatively, an insurer acts in bad faith when making a “low-ball” offer, which courts have defined as an offer bearing no reasonable relationship to the actual damages the injured party incurred.
The Court first held that a reasonable fact-finder could conclude that State Farm was not unreasonable, and therefore not acting in bad faith, when it delayed making its offer to settle for the $100,000 UIM policy limit. While State Farm did wait two-and-a-half years to offer Parisi the policy limit, Parisi’s counsel did not actually make a settlement demand until January 2016—only eleven months before the settlement. Moreover, while State Farm waited until February 2016 to conduct a medical evaluation and take Parisi’s testimony, it did so before Parisi filed her lawsuit. Therefore, a fact-finder could potentially discern that any delay on State Farm’s part in making a settlement offer was not unreasonable.
The Court next rejected Parisi’s claim that State Farm’s initial $17,000 offer entitled her to summary judgment because it was a “low-ball” offer. At the time of the $17,000 offer, Parisi had only proffered evidence of $12,000 in damages. Further, the difficult-to-evaluate nature of cognitive injuries justified State Farm’s assertion that it lacked reliable evidence with which to confirm Parisi’s contentions.
The Court also dispensed with State Farm’s Motion for Summary Judgment, but noted that its ruling in this regard was “a close call.” Concerning unreasonable delay, the Court noted that State Farm began receiving Parisi’s medical records in mid-2014, but it did not order an independent medical evaluation until March 2015. Notably, in the eighteen months between the time Parisi filed her insurance claim and when Parisi’s counsel demanded settlement, State Farm made no meaningful investigative efforts and made no attempt to settle.
Lastly, regarding the $17,000 offer, the Court ruled that a fact-finder could determine that the $17,000 figure constituted a “low ball” settlement proposal. The Court explained that a reasonable fact-finder could decide that State Farm made the figure artificially low by “failing to incorporate any damages for pain and suffering into the injury evaluation….” Moreover, just days before the $17,000 offer, State Farm’s adjuster valued the claim at $31,000. State Farm offered no explanation as to why it authorized its adjuster to only offer an amount as high as $26,800 and why its adjuster ultimately extended an offer of only $17,000; a fact-finder could find this conduct constitutes bad faith.
