A bad-faith suit against an insurance company can go forward, a Monroe County judge has ruled, despite the fact that the money the plaintiff claims is owed stems from an annuity and not an insurance policy.
In Halterman v. American National Insurance, Monroe County Court of Common Pleas Judge David J. Williamson partially denied defendant American National Insurance Co.’s motion for judgment on the pleadings.
American National claimed that plaintiff Brianna Halterman’s suit was fatally flawed, Williamson wrote, because state common law does not support a cause of action where the dispute concerns solely an annuity. Therefore, American National contended, only statutory law governs bad-faith litigation.
However, the defendant further argued that the Pennsylvania statute governing bad faith is inapplicable because the case does not deal with an insurance policy, according to Williamson.
While agreeing with American National that Halterman’s suit was not applicable under statutory law, the plaintiff should be given the opportunity to show that her case is supported by common law, the judge said.
“We find that the plaintiff has the opportunity to prove a cause of action based on the bad-faith doctrine established under Pennsylvania common law,” Williamson said.
“Furthermore,” he added, “at this stage of the pleadings, we make no determination as to whether [Halterman] has set forth sufficient facts to sustain [her] bad-faith action based on Pennsylvania common law.”
The case stems from an $87,000 annuity the plaintiff was paid as trustee of a revocable living trust. After receiving notice of a $10,000 surrender charge for payment of the annuity, Halterman tried contacting American National several times to no avail, Williamson said. The plaintiff filed the bad-faith suit after two attempts at contact.
In responding to the suit, American National supported its claims that the plaintiff could not sue for bad faith by pointing to Prusky v. Allstate Life Insurance, a 2010 decision from the U.S. District Court for the Eastern District of Pennsylvania. According to Williamson, the court in Prusky held that “while annuities contracts are regulated by the Pennsylvania Insurance Commission, they are not insurance policies.”
Williamson noted that the defendant relied heavily on federal court cases distinguishing annuities from insurance policies to support its reasoning.
Additionally, American National argued that the plaintiff suffered no damages because it made payment to Halterman. American National also said that Halterman acknowledged that penalties could apply under the terms of the annuity, according to Williamson.
The plaintiff argued, however, that the state’s courts have recognized common law in bad-faith cases, distinct from statutory law, and that statutory law does not negate common-law causes of action, Williamson said.
Furthermore, the plaintiff argued that she did establish a cause of action under common law relating to bad faith. Williams said the plaintiff criticized the defendant’s use of federal opinions because the court could not consider them precedential.
Halterman added that, by definition, insurance policies and annuities are similar enough to allow for the case to continue under statutory law, Williamson said.
Lastly, Halterman claimed that she suffered significant financial losses from the defendant’s conduct and was entitled to punitive damages and attorney fees.
American National rebutted that for the plaintiff to file suit for bad faith under common law relating to an annuity, she must also allege breach of contract for the suit to be valid.
According to Williamson, the defendant further argued that there is no remedy under common law because the statute codified the law.
“We do not find, as [the] defendant has argued, that a common law bad-faith action requires a companion cause of action for breach of contract,” Williamson said.
He added, “We also recognize that [the statute] codified a common-law remedy as to an insurance policy, but not as to an annuity contract. The defendant cannot argue that [the statute] only applies to insurance policies and then argue that annuity contracts are subject to a codification of remedies even though the remedy does not apply.”
Williamson said that a common-law remedy of bad faith in annuity contracts “still appears to be an available remedy.”
The attorneys in the case, Kevin A. Hardy and Gerard J. Geiger, did not return calls seeking comment.
(Copies of the 13-page opinion in Halterman v. American International Insurance, PICS No. 14-1107, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information. Account holders can use the online form to order.) •