McDonough v. State Farm Fire & Cas. Co.
McDonough v. State Farm Fire & Cas. Co.
Opinion of the Court
I. INTRODUCTION
The Plaintiff, an injured driver, has brought this action against his automobile insurer based on a dispute regarding payment of underinsured motorist benefits arising from a motor vehicle accident. Claims for breach of contract, statutory and common law bad faith, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law have been asserted. The insurer has moved to dismiss the bad faith and Unfair Trade Practices and Consumer Protection Law claims under Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the partial motion to dismiss is granted.
II. BACKGROUND
On May 22, 2014, at around 6:55 a.m., after running a stop sign, Chad Sweigart's Jeep Cherokee struck Plaintiff Richard McDonough's Pontiac Sunfire as he proceeded through the intersection of Lebanon Road and Elizabeth Town Road in Manheim, Pennsylvania.
As a result of the accident, McDonough suffered serious injuries to his neck and spine. He was taken to Heart of Lancaster Regional Medical Center by ambulance where he underwent conservative treatment involving physical therapy, anti-inflammatory, *556and pain medication. This initial treatment proved ineffective. McDonough received subsequent medical treatment for his injuries and underwent two surgeries to remedy his spinal injury caused by the accident. Because of his injuries an economist estimated that McDonough lost past and future earnings and past and future fringe benefits equal to $ 620,631.
Donegal Insurance Group insured Sweigart for bodily injury liability with a policy limit of $ 100,000. Donegal offered McDonough the full policy amount of $ 100,000 to settle the claim for personal injury and loss stemming from the accident. McDonough requested consent to this settlement from his own insurer, Defendant State Farm Fire and Casualty Company, as required by the State Farm policy. State Farm provided its consent. The Donegal insurance coverage, however, was allegedly insufficient to compensate McDonough for his losses and damages.
After settling with Sweigart and Donegal, McDonough filed a demand with State Farm to collect underinsured benefits to the extent of the underinsured coverage limits of $ 300,000. State Farm denied McDonough's request for the full $ 300,000 and counter-offered with $ 12,460.76 to settle his claim. Despite repeated requests, State Farm refused to pay McDonough the full amount of the State Farm policy limit.
After McDonough initiated this suit in the Court of Common Pleas of Philadelphia County, State Farm removed this action from state court to the District Court for the Eastern District of Pennsylvania. McDonough asserts the following claims against State Farm: statutory bad faith under
III. LEGAL STANDARDS
Federal Rule of Civil Procedure 12(b)(6) allows a court to dismiss a complaint for its "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). The Rules generally demand "only a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the claim is and the grounds upon which it rests." Connelly v. Lane Constr. Corp. ,
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal ,
IV. ANALYSIS
A. Count I: Statutory Bad Faith
Count I of the complaint alleges a claim for statutory bad faith. McDonough's allegations of bad faith are numerous. They include that State Farm refused to "fairly and equitably determine the value of damages" and that its "refusal to pay to the plaintiff the value of damages ... is without a reasonable basis and in bad faith." However, McDonough has not stated a plausible statutory bad faith claim because his allegations are not supported by specific facts. Therefore, State Farm's motion to dismiss the statutory bad faith claim is granted.
The Pennsylvania Consolidated Statutes provides a cause of action for bad faith against an insurer.
Here, McDonough's complaint fails to state a plausible statutory bad faith claim. He alleges no factual content indicating that State Farm lacked a reasonable basis for its tendered offer or that it knew or recklessly disregarded a lack of reasonable basis for the offer. Rather, McDonough makes conclusory statements that State Farm unreasonably withheld the payment of underinsured motorist benefits under the policy, failed to make a reasonable offer of settlement, presented a low offer of settlement, failed to engage in good faith negotiations, presented an offer of less than the amount due in an attempt to compel him to institute litigation, and failed to perform an adequate investigation of the value of his claim for underinsured motorist benefits.
*558Allegations like those McDonough makes in his complaint must be supported by specific facts illustrating where and how State Farm's conduct indicated bad faith. See Toner ,
For those reasons, McDonough has not presented factual statements that would state a plausible claim of bad faith under § 8371. Accordingly, Count I is dismissed.
B. Count II: Common Law Bad Faith
Count II of the complaint alleges a claim for common law bad faith against State Farm. The basis of this claim is the "common law duty to act with good faith and fair dealing towards its insured ... within [ ] the meaning of the automobile insurance polic[y]." Compl. ¶ 79, ECF No. 1. McDonough's allegations of common law bad faith mirror those pled for his statutory claim. Where, as is the case here, a common law bad faith claim is incorporated through a separately pled breach of contract claim, Pennsylvania law does not recognize a common law bad faith claim. Simmons v. Nationwide Mut. Fire Ins. Co. ,
In addition to the statutory bad faith cause of action under § 8371, "Pennsylvania law also permits a plaintiff to 'bring a cause of action for breach of the contractual duty of good faith and fair dealing in the insurance context, permitting an insured to recover compensatory damages for an insurer's failure to act in good faith.' " Mittman v. Nationwide Affinity Ins. Co. , No. 16-cv-04658,
Here, McDonough pleads both a common law bad faith claim (i.e. , a violation of good faith claim) as Count II and a breach of contract claim as Count III. Both claims stem from State Farm's refusal to pay McDonough the full amount of his policy coverage. His breach of contract claim includes allegations that State Farm "breached its duty of good faith and fair dealing ... established by the insurance contract." Compl. ¶ 94. As such, the common law bad faith claim is subsumed into the breach of contract claim. See Northview Motors, Inc. v. Chrysler Motors Corp. ,
*559Fingles v. Cont'l Cas. Co. , No. 08-cv-05943,
As described above, because Pennsylvania courts would decline to proceed with the claim alleging bad faith, the Court dismisses McDonough's claim in Count III.
C. Count IV: Claim for Violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL)
Pennsylvania's UTPCPL catchall provision "prohibits '[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.' " DeHart v. HomEq Servicing Corp. ,
State Farm seeks to dismiss the UTPCPL claim for two reasons: (1) the economic loss doctrine precludes such a claim; and (2) McDonough's allegations do not support a finding of justifiable reliance. As discussed below, the Court disagrees that the economic loss doctrine prohibits McDonough's UTPCPL claim but agrees that McDonough failed to plead sufficient facts to support a UTPCPL claim.
1. Economic Loss Doctrine
The economic loss doctrine bars a plaintiff from recovering tort damages for economic losses stemming solely from a breach of contract. See Werwinski v. Ford Motor Co. ,
State Farm argues that the economic loss doctrine applies here because McDonough's UTPCPL claim is based solely on the allegation that State Farm failed to perform its contractual obligations under the insurance policy and that the economic loss doctrine bars McDonough's UTPCPL claim. State Farm relies on the United States Court of Appeals for the Third Circuit's decision in Werwinski , and other district court decisions that have analyzed that Third Circuit Court of Appeals' decision. In Werwinski , the Third Circuit Court of Appeals predicted that Pennsylvania law would bar a UTPCPL claim based on the economic loss doctrine.
Although the Third Circuit Court of Appeals predicted that the Pennsylvania Supreme Court would bar a UTPCPL claim based on the economic loss doctrine, after *560the Werwinski decision the Pennsylvania Superior Court concluded the opposite in two opinions. See Dixon v. Nw. Mut. ,
Although the Pennsylvania Superior Court decisions in Dixon and Knight led numerous district courts in this circuit not to follow the precedent of the Third Circuit Court of Appeals from Werwinski , other district courts in this circuit have concluded that they are bound by the Third Circuit Court of Appeals' decision unless the Third Circuit Court of Appeals or the Pennsylvania Supreme Court subsequently rule otherwise. See , e.g. , Powell v. Saint Joseph's Univ. , No. 17-cv-4438,
Thus, this Court must decide whether to follow the precedent of the Third Circuit Court of Appeals from Werwinski (which holds that the doctrine does apply) or Pennsylvania Superior Court decisions (which hold that the doctrine does not apply). Because the Court will follow the Pennsylvania Superior Court decisions on this question of state law, the economic loss doctrine does not bar McDonough's UTPCPL claim.
In deciding to follow the Pennsylvania Superior Court decisions, this Court considered the Third Circuit Court of Appeals' holding that "in the absence of a clear statement by the Pennsylvania Supreme Court to the contrary or other persuasive evidence of a change in Pennsylvania law," courts within the circuit "are bound by the holdings of previous panels of [the Third Circuit Court of Appeals]." Debiec v. Cabot Corp. ,
Since the Third Circuit Court of Appeals' decision in Werwinski , an intermediate appellate court in Pennsylvania has held on more than one occasion that the economic loss doctrine does not apply in these circumstances. Kantor v. Hiko Energy, LLC ,
Had State Farm not removed this matter from state court, the trial court would have been compelled to follow one Pennsylvania Superior Court's precedent in Knight and Dixon . This creates a situation, as identified in Dixon , where the "split in authority means that state and federal courts in this Commonwealth follow different substantive rules in considering claims advanced under the UTPCPL." Dixon ,
For the reasons above, this Court is persuaded that it should also follow the precedents of Knight and Dixon . Therefore, McDonough's UTPCPL claim is not barred by the economic loss doctrine and State Farm's motion to dismiss on that basis is denied.
2. Justifiable Reliance
State Farm argues that the UTPCPL claim must be dismissed because McDonough has not pled sufficient facts showing that he believed, justifiably relied upon, or suffered any form of harm based *562upon any misrepresentation by State Farm. McDonough disagrees and argues that he only needs to plead sufficient facts showing that State Farm engaged in "misleading conduct."
McDonough misstates the law. Pennsylvania courts have determined that "the 1996 amendment of the UTPCPL adding the catchall provision lessened the degree of proof required-that is, a plaintiff need not establish common law fraud to prevail on a claim for deceptive conduct under the catchall provision." Shea v. USAA , No. 17-cv-4455,
McDonough's complaint does not contain sufficient facts to state a plausible claim for deceptive conduct under the UTPCPL's catchall provision. He has failed to allege facts that would establish that he justifiably relied upon any alleged misleading conduct. Further, his complaint fails to allege that such reliance on State Farm's alleged misleading conduct. caused an injury. Therefore, the Court finds that McDonough has failed to state a claim for a violation of the UTPCPL and State Farm's motion to dismiss this Count is granted.
V. CONCLUSION
For the reasons stated above, State Farm's motion to dismiss is granted. The Court will allow McDonough leave to file an amended complaint with respect to Counts I and IV.
The background information in this section is taken from the complaint and is set forth as if true. See Phillips v. Cnty. of Allegheny ,
Since this case comes before the Court on diversity grounds, we must apply state law, which in this case is the law of the Commonwealth of Pennsylvania. Chamberlain v. Giampapa ,
State Farm argues that the Third Circuit Court of Appeals has repeatedly affirmed the dismissal of UTPCPL claims arising out of an alleged breach of contract under the economic loss doctrine. The cases State Farm cites are unpersuasive. Only one of the cases Berkery v. Verizon Communs. Inc. ,
The Court does not grant leave to amend on Count II. As a matter of law, McDonough's common law bad faith claim is subsumed into the breach of contract claim. Amendment to that claim would be futile.
Reference
- Full Case Name
- Richard B. MCDONOUGH v. STATE FARM FIRE AND CASUALTY COMPANY
- Cited By
- 22 cases
- Status
- Published