In the case of Smith v. Allstate Insurance Company, in the U.S. District Court Eastern District of Pennsylvania, Judge John R. Padova found that the plaintiff’s complaint adequately pleads bad faith on the part of Allstate in that its denials, delays, dilatory conduct, undervaluation, improper claim handling, failures to investigate, and failure to consider expert reports.

Plaintiff Marcella Smith commenced this action against Defendant Allstate Vehicle and
Property Insurance Company ("Allstate"), asserting claims for breach of a homeowners insurance policy and for bad faith conduct in violation of 42 Pa. Cons. Stat. Ann. § 8371.

Allstate moved to dismiss Count I, as to the plaintiff's bad faith claim, arguing that it did not state a claim upon which relief could be granted.

Relevant Factual Background

On August 4, 2020, while the plaintiff's policy was in effect, Hurricane Isaiah caused wind and water damage to her property. Allstate initially did not dispute the loss was covered under its policy.

However, shortly thereafter, the insurer assigned multiple claim representatives who were unaware of the history of Plaintiff’s claim refused to acknowledge receipt of engineering reports, and failed to acknowledge or respond to proofs of loss submitted by Plaintiff.

The complaint further alleged that full payment from Allstate was never made, which resulted in other damages.

The plaintiff sued Allstate for breach of contract and bad faith, but Allstate moved to dismiss the bad faith claim only. Judge Padova denied that motion.

According to the court record, Judge Padova reviewed the complaint in its totality, and after drawing all reasonable inferences in the plaintiff’s favor, concluded that the complaint did adequately allege that Allstate was unresponsive and dilatory, failed to carry out a proper investigation, and made unsubstantiated coverage denials.

Facts In Support of Claim for Bad Faith

1. Allstate “failed to fairly and adequately evaluate Plaintiff’s claim or make a reasonable effort to negotiate a timely settlement of the claim.”

2. Allstate “assigned multiple claim representatives who were unaware of the history of Plaintiff’s claim, refused to acknowledge receipt of engineering reports submitted by Plaintiff and Ridley Township and failed to acknowledge or respond to proofs of loss that Plaintiff submitted.”

3. Allstate denied the “claim without engaging its own engineering expert.”

4. Allstate “Forced the plaintiff to retain the services of a public insurance adjuster and obtain an Appraisal, which proved that Allstate had grossly undervalued her claim. The insurer “[e]ventually … reversed its coverage determination and provided coverage, admitting that its denials of the claim had been unsubstantiated, but this was not until 5 months after Plaintiff submitted her claim.”

5. Allstate “Refused to issue any substantial advance payment to permit Plaintiff to seek alternative shelter, and ‘Ridley Township compelled the demolition of the [P]roperty.’”

6. The complaint also alleged that she lost her job as a remote medical insurance biller because her living accommodations did not have a dedicated, HIPAA-compliant workspace; she then had to sell off her personal property and use her own funds from her deceased husband’s insurance policy to pay for her living expenses.

The Courts Finding As to Bad Faith

While the court did find some of the plaintiff’s allegations to be conclusory, Judge Padova found that “others assert factual matter that gives rise to a reasonable inference that [the insurer] denied Plaintiff the benefits of her policy in bad faith. For instance, while the complaint alleges generally that [the insurer] ‘fail[ed] to make a reasonable effort to negotiate the timely settlement of the claim,’ it also alleges more specifically that [the insurer] refused to acknowledge receipt of Plaintiff’s and Ridley Township’s engineering reports, as well as receipt of Plaintiff’s proofs of loss, and failed to engage its own third-party engineering expert to counter Plaintiff’s engineering reports.”

On May 9, 2022, the court denied Defendant Allstate Insurance Company’s “Motion to Dismiss Plaintiff’s Bad Faith Claim Pursuant to Federal Rule 12(b)(6).

In re Smith v. Allstate Insurance Company, U.S. District Court Eastern District of Pennsylvania (Memorandum order issued May 9, 2022) (Padova, J.)