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In determining which of two related insurance entities was a plaintiffs insurer for the purposes of the bad-faith statute, Pennsylvania’s courts should look more to companies’ actions than to their corporate structures, a three-judge panel of the Superior Court has ruled in an apparent case of first impression. In Brown v. Progressive Insurance Co., Michael Brown had been injured in a January 1996 accident. His attorney later valued his claim against Progressive as worth between $60,000 and $75,000, while Progressive had asserted it was worth between $35,000 and $40,000. The claim was ultimately settled for $25,000 in September 1999. (Brown had died of causes unrelated to the accident in December 1997). In December 2002, according to the opinion, a Beaver County court awarded Brown’s estate $100,000 in the bad-faith claim it had filed against Progressive and Mountain Laurel Assurance Co.; the names of both entities had appeared on Brown’s insurance policy. The panel in Brown found that the trial court had not erred in allowing Progressive to be named as a party in the matter, but it vacated the judgment in Brown’s favor on his bad-faith claim. “The record reflects that wherever Mountain Laurel is listed, Progressive is also listed, at least as prominently (if not more so),” Judge Maureen Lally-Green wrote. “These facts, combined with a total lack of guidance in the policy itself as to who is the insurer, supports the trial court’s finding that Progressive was an appropriate party to this action.” Lally-Green was joined by Judges Kate Ford Eliott and Debra M. Todd. All parties involved in the accident had agreed that the other driver was solely liable, according to the opinion. The other driver’s Nationwide Insurance Co. policy had a bodily injury limit of $50,000. Brown’s claim against Nationwide was settled in September 1998 for $25,000. Progressive agreed to the settlement and waived its subrogation rights. It was further agreed that for the purposes of the underinsured motorist claim Brown had filed against Progressive, Progressive would have a credit in the amount of $50,000. Brown’s Progressive policy featured UIM coverage of $25,000 per person and $50,000 per accident, unstacked, according to the opinion. Those limits were lower than the policy’s $50,000/$100,000 liability limits. The parties agreed to submit to arbitration after disagreeing as to the value of the award, but a $25,000 settlement was reached days before the arbitration was to commence. Beaver County Common Pleas Judge C. Gus Kwidis presided at the non-jury trial addressing the bad-faith claim, according to the Superior Court’s docket. Kwidis wrote in his December 2002 opinion that Progressive had “acted in bad faith by failing to properly evaluate [Brown's UIM] claim,” according to the panel’s opinion. On appeal, Progressive and Mountain Laurel had argued that Mountain Laurel was the insurer because, among other points, Mountain Laurel’s name and address are listed in key sections of Brown’s policy, according to the opinion. “There is no simple rule for determining who is the insurer for purposes of the bad faith statute,” Lally-Green wrote, adding in a footnote that the judges urge the Legislature to examine the potential lack of clarity in the statute. “The question is necessarily one of fact, to be determined both by examining the policy documents themselves, and by considering the actions of the company involved.” Citing the U.S. District Court for the Eastern District of Pennsylvania’s March 1998 opinion in Lockhart v. Federal Insurance Co., the judges outlined the two-part test of analysis: the extent to which a company was identified as the insurer on a policy’s documents, and the extent to which the company acted as the insurer. “This second factor is significantly more important than the first factor, because it focuses on the true actions of the parties rather than the vagaries of corporate structure and ownership,” Lally-Green wrote. The judges noted that Mountain Laurel’s name appears alongside Progressive’s on Brown’s policy and that Progressive’s actions toward Brown following the accident were indicative of its status as his insurer. “As noted at length infra, Progressive … approved the third-party settlement, waived its subrogation rights and handled all aspects of the UIM claim,” Lally-Green wrote. “In this respect, the record overwhelmingly establishes that Progressive was Brown’s insurer. To hold otherwise would create a situation where insurers are judged not on their actions, but on their corporate structures.” But the judges went on to remand the case for entry of JNOV in favor of Progressive and Mountain Laurel, rejecting the argument that the record suggested that Brown’s claim was worth more than $75,000. “The record … reflects that Progressive adequately evaluated the claim, and believed that the total value was worth around $35,000 to $40,000. In other words, Progressive reasonably believed that it would owe nothing, because it was entitled to a $50,000 credit from Nationwide,” Lally-Green wrote. Brown’s estate was represented by Kelly Tocci of McMillen Urick Tocci & Fouse in Aliquippa. According to Tocci, the confusion over which of two related entities acted as insurer could impact a bad-faith claim if the companies assert that the entity with less net worth was the policy’s insurer. “The potential negative effect would be [seen] when you need to assess the net worth of a company in terms of arguing punitive damages,” Tocci said. Tocci said the plaintiff was considering petitioning the court for en banc consideration of the reversal of the trial court’s bad-faith finding. Progressive and Mountain Laurel were both represented by Jeffrey Ramaley of Zimmer Kunz in Pittsburgh. Ramaley did not immediately respond to calls seeking comment.

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