Bad Faith Litigation: Suggestive Letter to Expert May Be Evidence of Bad Faith

In a case which represents troubling precedent to the insurance industry, the United States District Court for the Eastern District of Pennsylvania in Atiyeh v. Liberty Mutual Fire Insurance Company, 2002 WL 88918 (E.D. Pa. Jan. 8, 2002) seemingly created a new category of bad faith liability in Pennsylvania by holding that a suggestive letter sent to the carrier’s expert may be indicia of the carrier’s bad faith.

Enacted in 1990, Pennsylvania’s Bad Faith Statute provides a private cause of action against an insurer for bad faith in actions arising under an insurance policy. Under the statute, a successful plaintiff may be entitled to an enhanced award of interest, punitive damages, and attorneys’ fees and costs. Fearful of these enhanced penalties, insurers have vigorously defended bad faith actions since the inception of the statute.

Although there is no definition in the statute, “bad faith” in Pennsylvania has come to mean any frivolous or unfounded refusal to pay proceeds of a policy. Bad faith conduct imports a dishonest purpose and involves a breach of known duty (i.e., good faith and fair dealing). This rather amorphous definition has been reduced to a two-part test, requiring proof that (1) the insurer lacked a reasonable basis for denying benefits, and (2) the insurer knew or recklessly disregarded its lack of reasonable basis. Both elements must be proven by “clear and convincing” evidence — a higher standard than that usually applicable to civil proceedings.

In Atiyeh, a woman injured in an automobile accident brought a bad faith action against her automobile insurance company after the carrier terminated her wage loss benefits. After paying over $20,000 in wage loss benefits, the carrier arranged for an independent medical evaluation (“IME”) of the plaintiff to evaluate her alleged continuing disability. The referral from the carrier’s representative included the following language: ‘Please see enclosed pictures of claimant’s car depicting very minimal damages! Claimant has been out on disability for 9 months now?’ After performing the examination, the doctor concluded that the plaintiff was able to return to work. In reliance upon this opinion, the carrier terminated wage loss payments to plaintiff. Plaintiff sued.

During the litigation, the carrier moved for summary judgment, and asked the court to decide as a mailer of law that it was reasonable in denying future wage loss benefits to the plaintiff because it relied upon the findings of the IME doctor that the plaintiff was able to return to work. The court denied the motion for summary judgment. It reasoned, among other things, that the IMP doctor may have been “unduly influenced” by the suggestive statements contained in the referral letter. Accordingly, the court held that there was a sufficient issue of fact for the jury to determine whether the carrier’s reliance on the allegedly tainted report was a reasonable basis for denying the claim. In the wake of Atiyeh, communications with experts will undoubtedly receive more intense scrutiny to determine if the communication impermissibly colors the opinion of the report, rendering the opinion unreliable. In communicating with their experts during the course of litigation, insurance carriers and their representatives should be ever more cautious about the substance of communications with their experts, especially in the context of bad faith litigation. After Atiyeh, overly suggestive statements to experts may be indicia of bad faith.