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
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.
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
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
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
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
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
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.
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
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
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
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
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,
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
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.
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
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
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 ...