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January 7, 2004.

JOAN KUBRICK, Administratrix of the Estate of Timothy Kubrick, Deceased, and WILLIAM A. KUBRICK, Plaintiffs

The opinion of the court was delivered by: CYNTHIA RUFE, District Judge


This case concerns whether Defendant Allstate Insurance Company acted in bad faith in handling an underinsured motorist benefits claim by the Estate of Timothy Kubrick, deceased. Presently before the Court is Defendant's Motion for Summary Judgment. For the reasons below, Defendant's Motion is granted.


  On October 5, 1985, Timothy Kubrick died in an automobile accident in Lake Township, Wayne County, Pennsylvania. Timothy and his friend, Bernard Michini, were occupying Timothy's 1971 Dodge Demon when, traveling at an excessive speed, it crossed over into oncoming traffic and collided with a vehicle driven by Scott Nagle. Michini was thrown from the Dodge Demon and survived, but Timothy was found dead inside the vehicle. See Police Accident Report (Ex. 2); 3/22/00 Report of Bieber & Assocs., Inc. at 14, 19 ("Bieber Report") (Ex. 28). From the Page 2 outset, there was considerable debate as to whether Timothy or Michini was driving at the time of the accident.

  Plaintiff Joan Kubrick is Timothy's mother and administratrix of his estate. Plaintiff William A. Kubrick is Timothy's father. Plaintiffs contend that Michini was driving the Dodge Demon. Although the truth concerning this question has no bearing on the instant lawsuit, the existence of this factual dispute is significant.

  At the time of the accident both Timothy and Michini held primary policies of insurance with State Farm Insurance ("State Farm"), and Michini held an excess policy with Transamerica Insurance Company("Transamerica"). William A. Kubrick held a policy of insurance with Defendant Allstate Insurance Company ("Allstate") that provided underinsured motorists ("UIM") coverage (the "Allstate Policy").

  On April 18, 1986, Mrs. Kubrick, on behalf of Timothy's Estate, and Mr. Kubrick initiated a wrongful death and survival action against Michini in the Court of Common Pleas of Lackawana County, alleging Michini was the driver of the Dodge Demon. See Summons and Complaint (Exs. 8-9). Soon thereafter Michini filed a countersuit, alleging Timothy was the driver. On November 27, 1991, Plaintiffs agreed to settle the litigation with Michini, splitting State Farm and Transamerica's available settlement funds of $350,000 (out of $400,000 in coverage) between them: $185,000 for the Estate and $165,000 for Michini. On January 30, 1992, the court entered an order approving the settlement. See Court Order of 1/30/92 (Ex. 12).

  Acting on behalf of the Estate, Mrs. Kubrick challenged the settlement, arguing that her daughter, Kimberly, had entered into the settlement on behalf of the Estate without authority. On October 4, 1993, Michini and Transamerica filed a Petition to Enforce the Settlement Agreement. Page 3 Plaintiffs' attorney representing them in the contested settlement, Thomas B. Helbig, intervened as a party in order to recover his costs and fees. See Court Order of 2/11/94 at ¶ 1 (Ex. 3). After an evidentiary hearing, the court granted the Petition on February 11, 1994. See Id.,

  During the pendency of the lawsuit with Michini, Plaintiffs also sought UIM coverage under Mr. Kubrick's Allstate Policy. On July 27, 1989, on behalf of Plaintiffs, attorney Helbig notified Allstate of the accident and pending lawsuit and that they had received an offer of the policy limits from Michini's insurer. Helbig asked Allstate for their consent to settle and a waiver of any subrogation rights. Finally, Helbig notified Allstate of Plaintiffs' claim for UIM benefits under the Allstate Policy and demanded arbitration. See Letter of 7/27/89 from Helbig to Allstate (Ex. 17).

  When Helbig received no reply to this letter, he followed up with another letter on September 6, 1989, enclosing a copy of his previous correspondence and asking for a response. See Letter of 9/6/89 from Helbig to Allstate (attached to Plff.'s Resp. at Ex. F). Helbig wrote again on October 9, 1989, enclosing his two previous letters and repeating his request for a response. Helbig explained that Plaintiffs were making the UIM claim because Timothy resided in Mr. Kubrick's home at the time of the accident, and therefore was eligible for UIM benefits under the Allstate Policy. Finally, Helbig addressed the Allstate Policy coverage limits by noting that the Allstate Policy declaration sheet listed the bodily injury liability limits as $300,000 per person/$500,000 per occurrence, while the UIM coverage limits were $15,000 per person/$30,000 per occurrence. See Allstate Policy Declaration (Ex. 31). Citing the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. Ann. § 1731, which requires that bodily injury liability limits and UIM limits of a policy be equal unless the named insured submits a written request for lower Page 4 UIM limits, Helbig asked for verification that Mr. Kubrick had executed the written request, also known as a "sign-down waiver." Letter of 10/9/89 from Helbig to Allstate (attached to Plff.'s Resp. at Ex. F). On October 13, 1989, Helbig wrote Allstate and designated his arbitrator. See Letter of 10/13/89 from Helbig to Allstate (attached to Plff.'s Resp. at Ex. F).

  Allstate began searching its records for the sign-down waiver on October 30, 1989. See Letter of 10/30/89 from Whelan to Morrison (Ex. 36). On December 5, 1989, its Operations Territory Manager sent a letter to the claims department stating that after "an extensive search" of both on-and off-site storage by "our most experienced document retrieval personnel," the sign-down waiver could not be located. Letter of 12/5/89 from Morrison to Whelan (attached to Plff.'s Resp. at Ex. B). An unidentified Allstate representative noted in the claim file that the missing sign-down waiver presented "another issue" regarding the Estate's UIM claim. Claim Diary Entry of 12/12/89 (attached to Plff.'s Resp. at Ex. B). Allstate did not inform Helbig that the sign-down waiver was missing.

  On November 13, 1989, Helbig wrote to Allstate again, referencing his previous correspondence, asking that the matter of the Estate's UIM claim be assigned to a claims representative, and threatening to file a Petition to Compel Arbitration unless Allstate contacted him within ten days. See Letter of 11/13/89 from Helbig to Pettus (attached to Plff.'s Resp. at Ex. F).

  Allstate representative S. James Everett responded to Helbig's letter on November 20, 1989. Everett noted that because the Estate was planning to accept only $125,000 in settlement of its claim against Michini, and thus was not exhausting the applicable $400,000 limits in other triggered policies, the Estate would not be entitled to any UIM benefits under the Allstate Policy. See Letters of 11/20/89 and 1/24/90 from Everett to Helbig (Exs. 18-19). In addition to addressing Page 5 the exhaustion issue, Everett identified two other Allstate concerns as to its liability: (1) whether Timothy was driving the Dodge Demon and therefore caused the accident; and (2) whether Timothy was residing in Mr. Kubrick's home at the time of the accident. Letter of 11/20/89. If the accident had been Timothy's fault, or if he was not living with his father at the time, the Estate would not be entitled to UIM benefits under the Allstate Policy. See Complaint ¶ 28; Helbig Dep. at 132-33 (Ex.4).

  Helbig believed that Allstate's position on the exhaustion requirement was reasonable and in accordance with Pennsylvania law. Helbig Dep. at 150-53 (Ex. 4).*fn2 Helbig had no further contact with Allstate after that because "it was our opinion at that time that in order to have a valid UIM claim, there had to be exhaustion of all available liability coverage, which we did not have, and it did not appear were going to have in terms of subsequent discussions with Transamerica [Michini's excess insurer]." Id. at 153-54.

  On April 4, 1995, an intervening change in Pennsylvania insurance law affected the Estate's claim for UIM benefits under the Allstate Policy. In Boyle v. Erie Insurance Co., 656 A.2d 941 ( Pa. Super. 1995), the Pennsylvania Superior Court declared that an exhaustion clause that requires that the limits of bodily injury insurance coverage must be exhausted prior to any claim for UIM coverage is against public policy and does not preclude recovery by the insured for UIM coverage. See also Chambers v. Aetna Cas. & Sur. Co., 658 A.2d 1346 ( Pa. Super. 1995). Thus, after April 4, 1995, Pennsylvania law no longer barred the Estate from seeking UIM coverage under the Allstate Policy due to its failure to exhaust the limits of available bodily injury coverage. Page 6

  On November 6, 1997, Mr. and Mrs. Kubrick retained attorney Bruce Neff to determine whether the Estate might have any additional insurance claims. Neff Dep. at 15-16 (Ex. 20).*fn3 On Mr. Neff's advice, the Estate pursued a UIM claim against Timothy's insurer, State Farm, and laid plans to pursue a UIM claim under the Allstate Policy thereafter. Id., at 20-23.

  Over a period of approximately fifteen months, Neff negotiated a settlement of the Estate's UIM claim against State Farm. In February 1999, State Farm offered to settle for the full policy limits of $50,000. Neff advised Mrs. Kubrick to sign the settlement agreement and release, but Mrs. Kubrick hesitated for various reasons. Joan Kubrick Dep. at 200-01 (Ex. 7); Petition to Withdraw as Counsel and Enforce Settlement at ¶ 3-19 (Ex. 22). After making numerous requests for additional information and revisions to the release, Mrs. Kubrick signed the release and consummated the settlement on December 15, 1999. Id. at ¶ 19.

  Even as he pursued a UIM claim against State Farm, Neff continued the process of making a UIM claim under the Allstate Policy. On November 10, 1997, Neff notified Allstate that he now represented the Estate, demanded arbitration of the Estate's UIM claim, and named the Estate's chosen arbitrator. Letter of 11/10/97 from Neff to Allstate (Ex. 23).

  Allstate employee John Russell analyzed the Estate's UIM claim on November 14, 1997. Russell identified several issues that needed to be addressed before paying UIM benefits. He noted that "even before we deal" with the sign-down waiver, counsel for the Estate should address tort exhaustion, Timothy's residency at the time of the accident, and whether the Estate accepted a tort settlement without Allstate's consent. 11/14/97 Claim Diary Entry (Ex. 27). Russell also Page 7 identified the statute of limitations as a potential issue. See Id.,

  On November 25, 1997, Neff spoke with Allstate representative Ronald Neil Feher. Feher's subsequent letter to Neff summarizes their conversation:

As we both know, there is a great deal of investigation to be completed on this case on both sides. The main issue on my end is to try to determine who actually was the driver of the Kubrick vehicle. . . . As we had agreed, we will not proceed with the arbitration until we both have completed our investigations into the many issues involved in this case. At this point, I will wait to refer this case to our defense counsel to appoint an arbitrator if necessary.
Letter of 11/26/97 from Feher to Neff (Ex. 24). Consistent with a recommendation from Russell, see Claim Diary Entry of 11/14/97, Feher also requested information related to Allstate's liability on the Estate's claim, such as court orders, copies of depositions, and State Farm and Transamerica insurance documents. Neff requested the sign-down waiver purportedly executed by Mr. Kubrick, and Feher agreed to send it to him if it was available. See 11/26/97 Claim Diary Entry (Ex. 25).

  On December 3, 1997, Neff requested the sign-down waiver yet again. Feher responded in a December 15, 1997 letter, stating, "[b]efore I begin to investigate the availability of sign-down waivers, we must first determine if there is a valid UIM claim. . . ." Letter of 12/15/97 from Feher to Neff (Ex. 26). In order to determine liability, Feher explained, Allstate wanted verification that Timothy was a resident in his father's home at the time of the accident, a copy of the court order concerning the settlement of Michini's Transamerica policy, and the Transamerica and State Farm policy and claim numbers for the accident. Feher also stated that Allstate needed to determine whether all available policies were exhausted, whether the Estate entered settlements without Allstate's consent, and whether the UIM claim was precluded by the four year statute of limitations. See id. He concluded, "I feel that before we can discuss the details of the UIM claim, Page 8 we need to resolve these issues to determine if there is in fact a legitimate UIM claim to be pursued." Id.

  Neff knew that in order to successfully pursue a UIM claim, he needed to prove that Timothy was not the driver and that he was residing at his father's home. Neff investigated these issues and was confident that he could prove them in the Estate's favor. Neff Dep. at 102-05.

  Meanwhile, Allstate began its own investigation of the accident and its liability for the Estate's UIM claim. Several weeks later, on January 23, 1998, counsel for Allstate contacted Neff and asked him to identify a person to give a statement under oath concerning the claim. Letter of 1/23/98 from Herman to Neff (Ex. 29). Neff responded a few days later and restated his request for the sign-down waiver. He also opined that there was "no purpose to be gained from" an oral examination of a representative of the Estate because that person would have no personal knowledge of the accident. Letter of 1/28/98 from Neff to Herman (Ex. 51). The record reflects almost no activity on the UIM claim for the next seventeen months.

  At some point during this lull, Allstate obtained new counsel. On June 28, 1999, Allstate's new counsel wrote to Neff and requested that he arrange for Mrs. Kubrick to provide a statement under oath. He also named Allstate's arbitrator and requested the underlying claim file. Finally, he notified Neff that Allstate had "been unable to locate the sign-down waivers. It should be noted, however, that the search is continuing and in the event such sign-down waivers are located, I will supply you with copies of same."*fn4 Letter of 6/28/99 from Riemenschneider to Neff (Ex. 39). Page 9 Mrs. Kubrick provided a statement on December 7, 1999. See Statement Under Oath of Joan Kubrick ("Kubrick Statement") (Ex. 41).

  The next day, December 8, 1999, Allstate retained a private investigator, Bieber & Associates, Inc. ("Bieber"), to determine whether Timothy was driving the Dodge Demon and whether Timothy was residing at his father's home at the time of the accident. See Bieber Report at 3. Bieber actively investigated these issues from December 8, 1999 through December 23, 1999; from January 3, 2000 through January 27, 2000, and from March 15, 2000 through March 22, 2000, when it issued its report.

  Allstate and the Estate agreed to settle the UIM claim in September 2000 for $600,000. See Letter of 9/29/00 from Neff to Riemenschneider (Ex. 48). Mrs. Kubrick hesitated to finalize the agreement, however, because she wanted to ensure that the settlement and release would not preclude her from pursuing a subsequent bad faith claim against Allstate. Attorney Neff wrote to counsel for Allstate on September 29, 2000, asking Allstate to "clarify" that the settlement "includes no monies for any alleged bad faith claims handling on the part of Allstate. Since you and I have discussed these issues, it is my understanding that there is no disagreement in this matter." Id., Neff wrote to Mrs. Kubrick that same day to confirm that the settlement did not include a release of any bad faith claim and enclosed a copy of his letter to Allstate. See Letter of 9/29/00 from Neff to Kubrick (Ex. A to Ex. 30).

  On October 10, 2000, Neff sent Mrs. Kubrick the settlement release. See Letter of 10/10/00 from Neff to Kubrick (Ex. B to Ex. 30). Mrs. Kubrick refused to sign, however, because Page 10 she was still concerned that she would be waiving future bad faith claims against Allstate. See Allstate's Second Set of Requests for Admission ("RFA") nos. 7-9 (Ex. 30).*fn5 Mrs. Kubrick drafted her own release, believing that it would preserve her bad faith claim against Allstate. RFA nos. 14-15; Letter of 10/18/00 from ...

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