Klinger v. State Farm Mut. Auto. Ins. Co., Civ. A. No. 1:CV-94-1393

• Decision Date: 21 August 1995
• Docket Number: Civ. A. No. 1:CV-94-1393,1:CV-94-1469.
• Citation: 895 F. Supp. 709
• Parties: Mark KLINGER, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant. Linda NEYER, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

895 F. Supp. 709

Mark KLINGER, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

Linda NEYER, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

Civ. A. Nos. 1:CV-94-1393, 1:CV-94-1469.

United States District Court, M.D. Pennsylvania.

August 21, 1995.

David L. Lutz, Harrisburg, PA, for plaintiff.

Robert E. Kelly, Jr., Matthew Chabal, III, Duane, Morris & Heckscher, Harrisburg, PA, David J. Battisti, Duane, Morris & Heckscher, Harrisburg, PA, for defendant.

MEMORANDUM

CALDWELL, District Judge.

These cases involve claims against an insurer in connection with its handling of Plaintiffs' insurance claims. We are considering the Defendant's motions for summary judgment, as well as each Plaintiff's motion for partial summary judgment. The issues raised in each action are nearly identical and, therefore, we will address the motions together insofar as possible.

I. Background

The factual background is not in dispute. However, a detailed discussion of the facts is necessary for a proper understanding of these actions.

On August 7, 1992, the Plaintiffs were injured in an automobile accident. The accident involved Klinger's van, in which Neyer was a passenger, and another vehicle. Klinger had two automobile policies with State Farm Mutual Automobile Insurance Company ("State Farm"). One policy insured the vehicle involved in the accident and the other insured a motorcycle. The driver of the other vehicle was insured by Allstate Insurance Company ("Allstate"). Allstate tendered its policy limits to the Plaintiffs, but the amount was insufficient to cover their injuries. Therefore, each Plaintiff submitted a claim under Klinger's UIM coverage.

Klinger's policy provided that disputes as to coverage and damages be submitted to arbitration. An issue concerning the amount of UIM coverage under Klinger's policy arose, and the parties agreed to bifurcate the coverage and damage issues. On October 27, 1993, an arbitration hearing was conducted to determine the amount of UIM coverage. At the hearing, State Farm was represented by counsel. The board of arbitrators determined that the aggregate UIM coverage was $100,000 on Klinger's policy covering the vehicle involved in the accident and $15,000 on his policy covering the motorcycle. On November 1, 1993, and again on November 22, 1993, Plaintiffs' counsel sent correspondence to State Farm's attorney, demanding a tender of the policy limits.

However, counsel failed to notify State Farm of the arbitrators' decision and of the letters of demand from Plaintiffs. In fact, from November 18, 1993 to January 20, 1994, a State Farm claims representative, Timothy Spader, attempted unsuccessfully to reach its counsel in order to determine whether a decision had been reached on the coverage question. On January 20, 1994, in a conversation between Spader and Plaintiffs' attorney concerning another matter, Spader learned of the October 27, 1993 arbitration decision.¹ The next day, Plaintiffs' counsel sent Spader a copy of the arbitrators' coverage award, along with copies of his November 1 and 22 letters to State Farm's attorney, and offered to supply State Farm with medical and work loss records for each Plaintiff.

On February 3, 1994, State Farm's counsel finally informed Spader of the arbitration result, and advised that a letter detailing the status of the case would follow. When no letter had been received by February 23, 1994, Spader went to the office of State Farm's attorney and obtained the Plaintiffs' medical records, which allegedly amounted to only five pages. On February 24, 1994, State Farm requested that Plaintiffs' counsel provide all of Plaintiffs' medical and work loss records.² On March 18, 1994, in a letter to counsel, the board of arbitrators scheduled a hearing for June 28, 1994 to determine damages. The letter was not sent to State Farm.

Throughout April and May, 1994, various correspondence and documents were exchanged between Plaintiffs' attorney and Edward T. McMerty, who had replaced Spader. During this time, State Farm's counsel had not informed it that the hearing on damages had been set. On May 18, 1994, McMerty completed his evaluation and recommended that State Farm tender policy limits to Klinger.³ On June 22, 1994, the State Farm claims superintendent contacted its counsel in connection with completing a claim committee report. She was informed, for the first time, that the arbitration hearing on damages was scheduled for June 28, 1994. State Farm then made an unsuccessful attempt to continue the arbitration hearing. The arbitrators determined that Klinger's damages were $380,000, and therefore awarded him the policy limits of $115,000. They also determined that Neyer's damages were $85,000, and, after deducting $15,000 received from Allstate, awarded her $70,000. State Farm produced no witnesses and introduced no evidence at the hearing.

On August 2, 1994, the amount owed to each Plaintiff was sent to their counsel. Klinger instituted this action on August 3, 1994 in the Dauphin County Court of Common Pleas, and it was removed here on August 30, 1994. Neyer's claim was filed in state court on August 12, 1994, and removed here on September 14, 1994.⁴

II. Law and Discussion

A. Standard for Summary Judgment

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In reviewing the evidence, facts and inferences must be viewed in the light most favorable to the nonmoving party. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538, 553 (1986). Summary judgment must be entered in favor of the moving party "where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party...." Matsushita, 475 U.S. at 586-87, 106 S.Ct. at 1356, 89 L.Ed.2d at 552 (citations omitted).

When a moving party has carried his or her burden under Rule 56, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts...." Matsushita, 475 U.S. at 586-87, 106 S.Ct. at 1356, 89 L.Ed.2d at 552 (citations omitted). The nonmoving party "must present affirmative evidence in order to defeat a properly supported motion for summary judgment", and cannot "simply reassert factually unsupported allegations contained in the pleadings." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir.1989) (emphasis in original) (citation omitted). However, "if the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202, 212 (1986) (internal citations omitted).

B. Plaintiffs' Motions for Partial Summary Judgment

In their motions for partial summary judgment, Plaintiffs seek a ruling that State Farm's counsel's

neglect, if any, is binding upon Defendant State Farm and, therefore, Defendant State Farm cannot call Attorney Robert Davis to offer an expert opinion that counsel's neglect is not binding upon Defendant State Farm.

Pls.' Motions for P.S.J. at 3. However, as State Farm points out, Plaintiffs' motions are not proper under Fed.R.Civ.P. 56. Rather, they are motions in limine.

In any event, the motions must be denied. Plaintiffs wish to prevent State Farm's expert from testifying on the subject of State Farm's reliance on its counsel. That testimony is clearly admissible. As is set forth more fully, infra, Plaintiffs must establish that State Farm's failure to make a settlement offer prior to the June 28, 1994 arbitration hearing was unreasonable and that State Farm knew its decision had no reasonable basis, or that it recklessly disregarded that fact. Thus, State Farm's expert should be permitted to testify about State Farm's handling of Plaintiffs' claims.

As to Plaintiffs' arguments concerning the law of agency, we agree with State Farm that, for purposes of a bad faith claim pursuant to 42 Pa.C.S.A. § 8371, we must look solely to the conduct of the insurer for failure to pay benefits: was State Farm's conduct unreasonable, and if so, did it know or recklessly disregard that fact. The jury could determine that State Farm's reliance on its counsel was reasonable, and thus its failure to offer benefits was also reasonable. On the other hand, the jury could conclude that State Farm's reliance on counsel was unreasonable and, in fact, that its conduct was reckless. Therefore, Plaintiffs' motions for partial summary judgment will be denied.

C. Defendants' Motions for Summary Judgment

1. Breach of Contract

In each case, the Plaintiffs advance a claim for breach of contract. State Farm argues that because the amount due Plaintiffs, as determined by the arbitrators, was paid in full, no action for breach of contract can exist.

In Klinger's complaint, he argues that State Farm breached the contract by: (1) failing to pay him benefits due under the policy; and (2) failing to offer any benefits prior to the arbitration hearing on damages. Neyer's complaint contains only the second allegation. Because it is clear that payment was received by the Plaintiffs, we need only consider whether State Farm's failure to offer and/or pay any amount prior to the arbitrators' decision was a breach of contract.

We have examined Klinger's insurance policy, as well as the relevant contract law, and are unable to conclude that State Farm's failure to pay prior to the arbitrators' decision amounted to a breach of the parties' contract. Plaintiffs have not cited a single case to support such a theory. The policy provided that an arbitration panel would...