Insurance litigation risk rises with new strict liability standard in Penn.
A court ruling lowered the burden of proof in Penn.'s consumer protection law, which could result in more lawsuits for insurers and agents.
It is not uncommon for insureds in Pennsylvania to assert claims against insurance companies for violation of the state’s unfair trade practices and consumer protection law (UTPCPL). In these cases, such claims were historically brought alongside breach of contract and insurance bad faith claims and often were not the focus of the litigation.
In 2020, the Pennsylvania Superior Court confirmed that the UTPCPL does not apply to the handling of insurance claims, further reducing the emphasis on UTPCPL claims in insurance litigation. However, the Pennsylvania supreme court recently imposed a strict liability standard for the UTPCPL, which lowered the burden of proof for insureds and may result in increased litigation against both insurance companies and insurance agents.
Pennsylvania’s UTPCPL was enacted in 1968 to protect consumers “from fraud and unfair or deceptive business practices.”
The UTPCPL prohibits numerous specific “unfair or deceptive acts” and also contains a catch-all provision. As originally enacted, the catch-all provision prohibited “any other fraudulent conduct which creates a likelihood of confusion or of misunderstanding.” The Pennsylvania courts required proof of common law fraud for a plaintiff to recover under the original catch-all provision. Because common law fraud requires proof that the defendant acted intentionally, UTPCPL claims brought pursuant to the original catch-all provision failed unless the plaintiff could establish that the defendant intentionally engaged in conduct that created a likelihood of confusion.
Catch-all provision amended
In 1996, the UTPCPL and its catch-all provision were amended, and the catch-all provision now prohibits “engaging in any other fraudulent or deceptive conduct that creates a likelihood of confusion or of misunderstanding.”
Following the amendment, Pennsylvania’s intermediate appellate courts began issuing inconsistent opinions regarding the burden of proof required to establish a violation of the catch-all provision. The superior court generally continued to hold that a showing of fraud and intentional conduct was required for liability under the catch-all provision.
For example, in Skurnowicz v. Lucci, the Pennsylvania Superior Court explained that “in addition to 20 specifically enumerated practices, the act provides that ‘engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding’ constitutes an ‘unfair or deceptive act or practice.’ In order to establish a violation of this catchall provision, ‘a plaintiff must prove all of the elements of common-law fraud.’”
The Pennsylvania Commonwealth Court, however, generally held that the 1996 amendment to the catch-all provision “allowed for liability based on the less restrictive standard of ‘deceptive conduct.’”
Against this backdrop, insureds have frequently included UTPCPL claims in lawsuits against insurers for breach of contract and bad faith. It is rare for such claims to be the focus of the litigation and they are often considered secondary to the contract and bad faith claims. And in 2020, the Superior Court confirmed that the UTPCPL does not apply at all to the insurance company’s claims handling.
In Wenk v. State Farm Fire & Casualty, 228 A.3d 540 (Pa. Super. Ct. 2020), the plaintiffs sued their homeowner’s insurance company for bad faith and violation of the UTPCPL. Following a bench trial, the judge entered judgment in favor of the insurer on the bad faith and UTPCPL claims. The Superior Court affirmed the trial court’s ruling and held that the UTPCPL applies to the sale of an insurance policy, not to “the handling of an insurance claim.” The superior court further noted that Pennsylvania’s bad faith statute “provides the exclusive statutory remedy applicable to claims handling.”
Earlier this year, the Pennsylvania Supreme Court finally clarified the standard of proof required to prove a violation of the UTPCPL’s catch-all provision. In Gregg v. Ameriprise Financial, the plaintiffs sought the expertise of a financial advisor and insurance salesperson for Ameriprise Financial, Inc. The adviser held himself out as someone with skill, training, and expertise in insurance and investment products and encouraged the plaintiffs to rely upon his advice. Based upon the advisor’s sales pitch, the plaintiffs believed that if they purchased a new life insurance policy and made annual payments, the policy would accrue significant cash value that they could use to fund their retirement. However, the advisor did not allocate the plaintiffs’ payments in a manner consistent with the plaintiffs’ understanding.
In interpreting the catch-all provision, the supreme court looked at the intent of the legislature when enacting the UTPCPL and noted that it was an attempt “to place on more equal terms seller and consumer.” The supreme court noted that the 1996 amendment of the catch-all provision expanded the definition of unlawful conduct to also prohibit “deceptive” conduct that creates a likelihood of confusion or of misunderstanding.
The supreme court analyzed the plain language of the catch-all provision to determine whether a strict liability standard applies to a UTPCPL claim. The supreme court found that the addition of “deceptive” to the statute expanded the provision beyond fraudulent conduct. The court held “it is the capacity to deceive rather than the actor’s state of mind that renders conduct actionable under the amended catch-all provision of the UTPCPL.”
The supreme court explained that the test for deceptive conduct is “a lesser, more relaxed standard than that for fraudulent or negligent misrepresentation” and “all that the statute requires the plaintiff to prove is that the acts or practices are capable of being interpreted in a misleading way.” Thus, the supreme court concluded that the intermediate appellate court was correct in its characterization of the catch-all provision as a strict liability provision and that a finding of liability did not depend on the defendant’s state of mind. The court acknowledged that the statute did not contain an explicit strict liability designation but found that it is the “absence of an intent requirement that imposes a strict liability standard.”
While Wenk stands for the clear proposition that the UTPCPL does not apply to claims handling, the UTPCPL can apply to conduct involving the sale of an insurance policy. For example, it is not uncommon for insureds to allege that they were confused regarding their insurance coverages because the coverage was not fully explained at the time of purchase or because the explanation was somehow unclear. Gregg eliminates the requirement that the insured prove the state of mind of the insurer or agent and allows insureds to potentially recover if they can establish that the circumstances of the sale created “a likelihood of confusion or misunderstanding.” The ramifications of this decision on insurance companies and insurance agents remain to be seen.
Kathleen P. Dapper is a member of Burns White. She focuses her practice on litigation. Her experience ranges from handling insurance coverage and extracontractual matters where she represents insurers in a variety of bad faith and coverage disputes to working with clients as part of the firm’s transportation and logistics practice group. She is based out of the firm’s Pittsburgh office.
Daniel J. Twilla is a member of Burns White, whose practice focuses on insurance bad faith, insurance coverage, and commercial litigation. He is co-chair of the insurance practice and extracontractual practice group.
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