MEMORANDUM

I. Introduction

Allianz Insurance Company ("Allianz") seeks declaratory relief against defendants Westtown Apartments, Inc. ("Westtown"), SSR Realty Advisors, Inc. ("SSR"), and Does 1-25. Westtown answered and raised eight counter claims. Now before the court are plaintiff's motions to Dismiss Counts III, IV, and VIII of Defendant/Counterclaim Plaintiff Westtown's Counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6), for a more definite statement pursuant to Federal Rule of Civil Procedure 12(e), and to strike pursuant to Federal Rule of Civil Procedure 12(f). Jurisdiction is asserted under 28 U.S.C. § 1332(a) as the amount in controversy exceeds $75,000 and there exists diversity of citizenship. For the reasons that follow, the motion is granted in part and denied in part.

II. Factual Background

Consistent with the review standards applicable to a motion to dismiss under Fed.R.Civ.Proc. 12(b)(6), the alleged facts, viewed in the light most favorable to the non-movant, follow.

Between August 1, 2000 and August 1, 2001, Westtown and Allianz entered into an insurance agreement that covered multiple properties, including the apartment building in question. (Westtown Compl. at ¶ 60.) The "all-risk" commercial property insurance policy indemnifies Westtown for (1) the cost of repairing and/or replacing direct physical loss or damage caused by or resulting from any cause of loss not expressly excluded from coverage under the policy, and (2) any business interruption loss due to the necessary interruption of Westtown's business that results from loss or damage caused by a covered cause of loss. (Id. at ¶ 59.)

The policy provides general coverage from all direct physical loss or damage, subject to exclusions included in the contract. (Id. at ¶ 63.) Pursuant to Section 29.B. of the policy, captioned "Consequential/Sequential Damage," Allianz agreed to indemnify Westtown against physical loss and/or damage resulting from any peril insured by the policy and, further, that resulting "in a sequence of events which causes physical loss and/or damage to other property situated at insured locations. . . ." (Id. at ¶ 67, Policy at 26.) Among perils excluded from coverage is a group of events referred to as "Wear and Tear," defined in Section 6N of the policy. It states:

Wear and tear, depletion, erosion, corrosion, mold, or wet or dry rot; or normal settling, cracking, shrinkage, bulging or expansion of pavements, foundations, walls, floors, roofs or ceilings; or shrinkage, evaporation, leakage of contents, change in flavor or texture of finish, decay or other spoilage; but if direct physical loss or direct physical damage not otherwise excluded by this policy results, the insurer shall be liable for that direct physical loss or direct physical damage.

The policy also contains a "Seepage and Pollution and Asbestos Exclusion Endorsement." It states, in pertinent part:

This agreement does not insure against loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. . . . Actual, alleged, or threatened release discharge, dispersal or escape of toxic or hazardous substances, contaminants or pollutants, at any time regardless of whether sudden or accidental, all whether direct or indirect, proximate or remote or in whole or in part caused by, contributed to, or aggravated by any physical damage insured by this Policy. The term "pollutant" used in this clause is defined as any solid, liquid, gaseous or thermal irritant, including but not limited to vapor, fumes, acids, alkalis, chemicals and/or waste.

This provision does not identify mold as a pollutant.

In the early morning of December 17, 2000, lightening struck a building in the Westtown apartments, igniting a roof fire that spread to apartment units below. (Westtown Compl. ¶ 54.) Five local fire companies, using more than sixty firefighters, responded to the fire, brought it under control, and extinguished it. (Id. at ¶ 55.) The fire, and the water used to extinguish it, caused the building's roof to collapse, completely destroying several apartment units and leaving others uninhabitable. (Id. at ¶ 56.) Thirteen of the building's twenty apartments were required to be completely gutted in order to restore them to habitability. (Id.) As a result of the fire, all of the building's tenants were displaced. (Id. at ¶ 57.)

On December 18, 2000, Allianz was given notice of the fire and was requested to indemnify Westtown for the loss and damage pursuant to the terms of the insurance policy. (Id. at ¶ 58.) Allianz appointed Maxson Young Associates, Inc. to adjust Westtown's loss. (Id. at ¶ 84.) Allianz accepted coverage for the fire damage, and paid $840,333.78 for losses relating to the fire. (Allianz Compl. ¶ 16.) Following the fire, Westtown took steps to prevent further damage, including removing debris and tarping the building. (Westtown Compl. ¶¶ 85-86.) In March 2001, reconstruction work on the property commenced. (Id. at ¶ 87.) By May 2001, the reconstruction work had progressed to a point where the building was enclosed and Westtown was able to undertake microbial sampling to determine whether mold and other water damage caused by the fired had been removed. (Id. at ¶ 88.) Allianz was immediately advised of the result of the sampling. (Id.) The sampling revealed that fire-caused mold persisted throughout the building in wooden sub-floors and joists had become saturated with water when the fire was being extinguished. (Id.) Westtown alleges that this mold condition resulted directly and solely from the water used to extinguish the fire, that was caused by the lightening, and not from general wear and tear.

In June 2001, Allianz announced that it was going to investigate a mold remediation protocol and issue a coverage opinion as to the damage. (Id. at ¶ 89.) All reconstruction and repair work was suspended pending the results of the coverage opinion. (Id.) By letter dated June 21, 2001, Allianz advised Westtown that its investigation confirmed the presence of mold in the building, but that it was reserving all rights to determine coverage. (Id. at ¶ 91.) In that letter Allianz stated that the mold damage potentially did not qualify for coverage as a result of the policy's "Wear and Tear Exclusion." (Id.) By letter dated July 11, 2001, Westtown, through its agent SSR, advised Allianz that it continued to await Allianz's coverage determination, and that it had concerns about ongoing delays caused by Allianz's indecision. (Id. at ¶ 93.) On September 5, 2001, Allianz rendered its decision, stating by letter that the policy provided no coverage for mold caused by or resulting from the fire. (Id. at ¶ 94.) Westtown requested reconsideration of this position, but Allianz reaffirmed its denial. (Id. at ¶ 96.) By letter dated January 18, 2002 Allianz announced that the "policy treats mold as a type of damage and not a cause of damage . . . [and] excludes mold regardless of its cause." (Id.) For the first time, Allianz suggested that the policy's "Seepage and Pollution Exclusion" also excludes mold coverage, regardless of its cause. (Id.)

Following this determination, Westtown continued work to make the building habitable. (Id. at ¶ 97.) To accomplish this, Westtown demolished the damaged building to its foundation and undertook its reconstruction. (Id.) As of October 2002, reconstruction was on-going, and the building was still unoccupied. (Id. at ¶¶ 97-98.)

In May 2002 Westtown filed suit against Allianz in the California Superior Court seeking money damages for continuing business interruption losses and the cost of repairing and/or replacing the physical damage cause by or resulting from the fire and including mold and other water damage. (Westtown Ans. ¶ 19.) Allianz moved to dismiss, based on the doctrine of forum non coveniens. (Allianz Compl. ¶ 21.) On August 26, 2002, the California court granted Allianz's motion to dismiss, finding that Pennsylvania was a suitable forum and that the public and private interest factors favored Pennsylvania over California. (Id.) Allianz subsequently filed here for declaratory relief.

III. Discussion

A. Choice of Law

It is disputed whether this action should be governed by California or Pennsylvania law. A federal court sitting in diversity must apply the choice of law rules of the forum state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).

Pennsylvania uses a combination of "significant relationship" and "governmental interest" tests in resolving a conflict of law. Karl v. Donaldson, Lufkin Jenrette Sec. Corp., 78 F. Supp.2d 393, 393 n. 6 (E.D. Pa. 1999) (citing Melville v. Am. Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir. 1978)). Under this combined test, "`a court must evaluate the extent to which one state rather than another has demonstrated, by reason of its policies and their connection and relevance to the matter in dispute, a priority interest in the application of its rule of law.'" Kirschbaum v. WRGSB Assocs., 243 F.3d 145, 151 (3d Cir. 2001) (quoting Troxel v. A.I. duPont Inst., 636 A.2d 1179, 1181 (Pa. 1994) (internal citations omitted)).

First, the court must determine whether there is an actual conflict between the jurisdictions. Under general conflict of law principles, where the laws of two jurisdictions would produce the same result on a particular issue, there is a "false conflict" and the court should avoid the choice of law question.See Luker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994) (applying Pennsylvania choice of law rules). However, there is an actual conflict. Counterclaim VIII contends that Allianz's rejection of the claimed losses was part of a fraudulent scheme to avoid its obligations, a claim that would meet with different results under California and Pennsylvania law.

Allianz argues that, generally, under Pennsylvania's "gist of the action" doctrine a claimant generally seeking recovery under contract is precluded from raising supplemental tort claims.See Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 103-04 (3d Cir. 2000). Under Pennsylvania law, "the doctrine bars tort claims: (1) arising solely from a contract between the parties, where the duties allegedly breached were created and grounded in the contract itself, . . . or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of the contract." See Etoll, Inc. v. Elias/Savion Advertising, Inc., 2002 WL 31491011, *7 (Pa.Super.Ct. Nov. 8, 2002) (internal citations omitted). In contrast, California law has no "gist of the action" doctrine. Its law implies a warranty of good faith and fair dealing into every contract and, consequently, a breach of contract can give rise to both tort and contract claims.Erlich v. Menezes, 981 P.2d 978 (Ca. 1999).

When a conflict exists, the court must determine which state has more significant contacts. See Ramey v. Wal-Mart, Inc., 967 F. Supp. 843, 845 (E.D. Pa. 1997). "Contacts considered vital in determining the state of most significant relationship include place of injury, place of conduct, domicile of the parties, and the place where the relationship between the parties is centered." Griffith v. United Air Lines, Inc., 203 A.2d 796, 802 (Pa. 1964). "When doing this, it must be remembered that a mere counting of contacts is not what is involved. The weight of a particular state's contacts must be measured on a qualitative rather than quantitative scale."Caputo v. Allstate Ins. Co., 495 A.2d 959, 961 (Pa.Super.Ct. 1985).

Relevant factual contacts include that: (1) the policy was negotiated outside of Pennsylvania or California; (2) neither SSR nor Westtown is incorporated or has its principal place of business in Pennsylvania or California (Westtown Compl. ¶ 45, Allianz Compl. ¶ 3); (3) Allianz is incorporated and has its principal place of business in California, though it argues for Pennsylvania law to be applied (Allianz Compl. ¶ 2); and (4) the insured property is located in West Chester, Pennsylvania (Id. at ¶ 11). California deems that every contract contains an implied duty of good faith and fair dealing, and California has an interest in enforcing this covenant, particularly when the insured party is incorporated in California, and where the covenant acts to protect smaller parties with unequal bargaining power. Nedlloyd Lines B.V. v. Superior Court, 11 Cal.Rept. 330, 346-47 (Ca. 1992). Here, the decision comes down to two main competing interests, the location of the insured property, favoring Pennsylvania, and California's interest in enforcing its implied contract covenants against a resident insurer.

Allianz argues that the location of the insured property is the most important interest and should decide the governing law, citing the Restatement (Second) of Conflict of Laws and cases in support of this position. "The validity of the contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term or the policy, unless with respect to the particular issue, some state has a more significant relationship under the principles stated in § 6 to the transaction and the parties, in which event the local law of the other state will be applied." Restatement (Second) of Conflict of Laws § 193 (1971) (cited with approval by Transamerica Ins. Co. v. Thomas M. Durkin Sons, Inc., No. 90-0968, 1991 WL 206765, *8 (E.D. Pa. Oct. 1, 1991)).

While California cases do emphasize the significance of California's interest in enforcing the implied covenant of fair dealing, see Nedlloyd, 11 Cal. Rpt. at 347, the California courts have adopted § 193, which finds that the location of the insured property generally predominates the choice of law decision. See, e.g., Ford Motor Co. v. Insurance Co., 41 Cal. Rept. 342, 348 (Ct.App. 1995) (recognizing the adoption of § 193, and stating "[t]he location of the insured risk will be given greater weight than any other single contact in determining the state of the applicable law.") (internal citation omitted); Stonewall Surplus Lines Ins. Co. v. Johnson Controls, 17 Cal. Rept.2d 713, 718-19 (Ct.App. 1993) ("More importantly for our purposes, `Where a multiple risk policy insures against risks located in several states, it is likely that the courts will view the transaction as if it involved separate policies . . . and apply the law of the state of the principal location of the particular risk.").

An exception to this analysis applies if the contract explicitly binds parties to a choice of law, in which case courts will generally respect that choice. In contract disputes, Pennsylvania courts generally honor the parties' choice of law provisions. Nationwide Mutual Ins. Co. v. West, 807 A.2d 916, 920 (Pa.Super.Ct. 2002). Thus, if the parties have designated that a particular choice of law provision in a contract, then that should govern. University Mechanical Engineering Contractors Inc. v. Ins. Co. of North America, No. 00-1554, 2002 WL 857105, *3 (Pa. Com. Pl. May 1, 2002)

Westtown claims that it was entitled to a choice of law in bringing suit against Allianz, citing the "Jurisdiction and Suit" provision of the contract, which reads:

In the event of the failure of the Insurer to pay an amount claimed to be due hereunder, the Insurer, at the request of the Insured, will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such jurisdiction. All matters arising hereunder shall be determined in accordance with the law and practice of such court.

Westtown argues that, because it initially brought suit in California, it is entitled to have this action be governed by California law. Allianz counters that the above-cited provision does not concern choice of law but only the consent to "service of suit" in a jurisdiction of plaintiff's choice. Allianz contends that after suit is initiated, the chosen court is expected to use its own rules to select the applicable law. Therefore, this provision has no effect on which law governs the dispute. Interpreting similar clauses, many courts have similarly found them relevant only to choice of forum. See, e.g., Chesapeake Util. Corp. v. American Home. Assur. Co., 704 F. Supp. 551, 557 (D. Del. 1989); Singer v. Lexington Ins. Co., 658 F. Supp. 341, 344 (N.D. Tex. 1986).

Likewise, this court finds that the policy language here is not a choice of law provision, but a permissive suit provision. The plain language of the clause shows a consent to jurisdiction of any court of plaintiff's choice; it does not address the law that is to be applied. See Singer, 658 F. Supp. at 344. Under such a provision, the court of the chosen forum determines the appropriate law to apply. If the drafters had intended the language to also function as a choice of law provision, such an intent would have had to have been clearly stated. Accordingly, the Jurisdiction and Suit provision does not affect the application of Pennsylvania law.

B. Legal Standard for 12(b)(6) Motion to Dismiss

C. Counterclaims III and IV

Allianz claims that these claims "improperly seek `policy benefits' based solely on Allianz's bad faith conduct, in disregard of the coverages actually provided by the Policy." (Allianz's Mem. in Support of Mot. to Dismiss at 4.) Allianz further argues that there can be no recovery because Westtown has not shown that these claims were within the coverage of the Policy. (Id.) Allianz cites Pennsylvania law for the position that in the absence of coverage there can be no successful claim. (Id. (citing Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363 (Pa. 1987); Miller v. Boston Ins. Co., 218 A.2d 275 (Pa. 1966))). Westtown responds that these are not claims of bad faith, and that they should survive a motion to dismiss because Westtown is not required at this stage in the litigation to prove coverage existed to properly plead the claims. (Westtown's Mem. in Opp'n at 17.) Further, Westtown argues that all cases cited by Allianz were fully litigated or decided on summary judgment and cannot be relied upon to place enhanced pleading requirements upon it. (Id.)

Counterclaims III and IV will be dismissed because Westtown may be able to establish that the policy affirmatively provided coverage for these areas. A court may only dismiss claims if it is clear that no relief can be granted on the allegations stated. Because Westtown alleges that the contract contains coverage for such losses, it has properly raised claims on which relief may be granted, and the claims will proceed.

D. Counterclaim VIII

Allianz claims that the "gist of the action" doctrine precludes Westtown from raising a tort claim, since their action generally sounds in contract. Allianz cites Pennsylvania cases for the proposition that tort claims are barred where they arise: (1) `solely from a contract between the parties . . .; [or] (2) where the duties allegedly breached were created and grounded in the contract itself." See Etoll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 19 (Pa.Super.Ct. 2002) (internal citations omitted). Westtown counters that the tort claim should be allowed to proceed because: (1) Westtown should be entitled to argue alternative theories at this stage of the litigation, and should only be forced to choose between the theories before recovery takes place; and (2) the claim is for fraudulent inducement, which is an exception to the "gist of the action" doctrine. (Westtown's Mem. in Opp'n at 14.)

In making its arguments, Westtown relies exclusively on the case Asbury Auto Group LLC v. Chrystler Ins. Co., No. 01-3319, 2002 WL 15925 (E.D. Pa. 2002). There, plaintiffs were allowed to proceed on an inconsistent fraud claim during the preliminary stages of litigation. Asbury is a holding of a federal trial court at odds with the general Pennsylvania rule and, thus, is not binding upon this court. The Pennsylvania rule "turn[s] on the question of whether the fraud concerned the performance of contractual duties [and i]f so, then the alleged fraud is generally held to be merely collateral . . ." Etoll, 811 A.2d at 19. Further, Westtown's counterclaims do not appear to seek recovery for fraud. First, a successful claim for fraudulent inducement would nullify the contract, mooting the bulk of Westtown's claims for breach of contract. Second, Westtown has not sought any relief for fraudulent inducement, such as rescission or reformation of the contract raising doubt about the true nature of counterclaim VIII. Westtown's reliance onAsbury is insufficient to exempt it from the general Pennsylvania rule that in contract cases, under the "gist of the action" doctrine, fraud claims are dismissed.

E. 12(e) Motion for a More Definite Statement

While Allianz seeks a more definite statement of Westtown's claims, it does not explain why they are deficient and, therefore, such relief is not warranted. Allianz's 12(e) motion is accordingly denied.

F. 12(f) Motion to Strike

G. Conclusion