The Advantages of Removal: Twombly and Iqbal Applied to Bad Faith Claims

This month, the Eastern District of Pennsylvania issued an opinion that reminds insurance carriers and their counsel that it is often beneficial to remove certain cases to federal court. While federal court offers many advantages in insurance litigation, the recent opinion in Camp v. N.J. Mfrs. Ins. Co., No. 16-1087, 2016 U.S. Dist. LEXIS 74496 (E.D. Pa. June 8, 2016) highlights one important benefit: the federal court’s role in protecting carriers from frivolous and groundless claims at an early point in the litigation.

In Camp, the court considered whether to grant the insurer’s motion to dismiss when it was faced with a complaint alleging bad faith for denying the insured’s underinsured motorist (“UIM”) claim. The insurer had denied the claim because it appeared that the insured had been fairly compensated by the tort carrier for the injuries that the insured sustained in the loss. Before getting to the substance of the claim, however, the court looked at whether the allegations were even properly pled.

As background, Federal Rule of Civil Procedure 8(a), which governs the pleading standard for causes of action in federal court, was given teeth by the United States Supreme Court in a set of rulings commonly referred to as Twombly and Iqbal. Those cases, Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), require that a plaintiff plead a factual basis in support of a cause of action, as mere conclusory allegations are insufficient to state a claim under Federal Rule of Civil Procedure 12(b)(6).

DismissedThe court in Camp ultimately relied on that standard set out in Twombly and Iqbal, showing what an important tool the pleading standard in federal court can be in opposing bad faith claims. In fact, even though the court rejected the insurer’s argument that the heightened pleading standard for fraud under Rule 9(b) should apply, the court still concluded that the insured’s complaint insufficiently alleged bad faith. As the insured’s first complaint was dismissed for failing to plead facts “other than denial and refusing to make an offer,” the plaintiff amended her complaint by including allegations, for example, that the insurer acted in bad faith by:

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre-existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Camp, 2016 U.S. Dist. LEXIS 74496 at *6-7.

Yet, the court again found that the amended complaint failed to enumerate “specific conduct” other than a disagreement over the value or amount of the claim. The complaint lacked any “factual specificity as to what claims handling practices were abusive or how NJMIC acted unreasonably.” For example, analyzing the allegation above, the court concluded that the failure to accede to a demand was not a factual basis to support a claim of bad faith. Therefore, the court granted, with prejudice, the insurer’s motion to dismiss, demonstrating that any complaint that fails to allege sufficient factual support should not go unchallenged. Camp reminds us that insurers should always consider whether removal is appropriate as it may ultimately save the insurer the fees and costs associated with prolonged litigation. While it is just one factor in the equation, it is certainly a benefit that deserves proper thought and consideration.

About The Authors

Stephen is an associate in Cozen O'Connor's Global Insurance Department in Philadelphia. Stephen graduated with his J.D. from the University of Virginia School of Law and received his Bachelor of Arts, summa cum laude, in history and political science from Rutgers. While at UVA Law, Stephen was a member of the Virginia Law & Business Review and received a Pro Bono Certificate of Recognition for Pro Bono Service Hours.

Print Page
Tagged with: , ,
Posted in Bad Faith
Avoiding Insurance Bad Faith
Cozen O’Connor represents insurance clients in jurisdictions throughout the U.S. against statutory and common law first- and third-party extracontractual claims for actual and consequential damages, penalties, punitive and exemplary damages, attorneys’ fees and costs, and coverage payments. Whether bad faith claims are addenda to a broader coverage matter or are central to the complaint, Cozen O’Connor attorneys know how to efficiently respond to extracontractual causes of action. More
Cozen O’Connor Blogs