Civil Action No. 03-CV-115
February 27, 2003
Defendants Motorists Mutual Insurance Company ("Motorists"), a corporation organized under the laws of Ohio and having its principle place of business in Ohio filed a declaratory judgment action with this Court on November 4, 2002. Plaintiffs David Hardringer and Chrystal Hardringer, h/w, residents of Pennsylvania filed an answer with affirmative defenses and a counterclaim. Plaintiffs' counterclaim sought a declaration that coverage of Plaintiffs' property damage was required under Plaintiffs' homeowner's insurance policy with Motorists.
Plaintiffs filed a five-count complaint against Motorists in the Court of Common Pleas of Philadelphia County, Pennsylvania on December 18, 2002. The complaint alleged breach of contract (Count I), statutory bad faith, 42 PA.CONS.STAT.ANN. § 8371 (West 1992) (Count II), Violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 PA.CONS.STAT.ANN. §§ 201-1 (West 1992) (Count III), breach of implied covenant of good faith (Count IV), and breach of fiduciary duty (Count V). A Notice of Removal of Plaintiffs' action from the Court of Common Pleas of Philadelphia to this court was filed by Motorists on January 9, 2003.
Plaintiffs allege that they are party to a homeowner's insurance policy with Motorists, the terms of which Plaintiffs claim to have complied with fully. On or about September 29, 2000 and continuing until February 2001, Plaintiffs and their children were exposed to certain unsafe substances ultimately determined to be present in the well water supply at their dwelling in Exeter Township, Pennsylvania. This exposure allegedly resulted in personal injuries to Plaintiffs and their children and property damages to Plaintiffs' dwelling. Plaintiffs aver that they promptly notified Motorists of the loss and fully cooperated with Motorists as required by the policy. Nevertheless, Motorists allegedly failed to perform a reasonable investigation and denied coverage as to plaintiffs' property losses. The amount in controversy exceeds $75,000, therefore, we have jurisdiction pursuant to 28 U.S.C. § 1332.
II. Standard of Review
A court may grant a motion to dismiss only if it finds that the plaintiff cannot prove any set of facts, consistent with the complaint, which would entitle her to relief. Hishon v. King Spalding, 467 U.S. 69, 73, 81 L.Ed.2d 59, 104 S.Ct. 2229 (1984). In making this determination, the court "must take all well pleaded allegations as true, construe the complaint in a light most agreeable to the plaintiff, and determine whether under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Colburn v. Upper Darby Township, 838 F.2d 663, 665-66 (3rd Cir. 1988), citing Estate of Baily by Oare v. County of York, 768 F.2d 503, 506 (3rd Cir. 1985).
A. Breach of Implied Covenant of Good Faith and Breach of Fiduciary Duty in Counts IV and V.
Defendant's motion to dismiss with regards to Plaintiffs' claims concerning alleged breaches of implied covenant of good faith and fiduciary duty will be granted. Pennsylvania does not recognize a common law private remedy for bad faith conduct. Polselli v. Nationwide Mut. Fire ins. Co., 126 F.3d 524, 530 (3d Cir. 1997); See also Johnson v. Bean, 541 Pa. 449, 455 n. 3, 664 A.2d 96, 99 n. 3 (1995) ("There is no common law remedy in Pennsylvania for bad faith on the part of insurers. However, the Pennsylvania Legislature has created a statutory remedy in 42 PA.CONS.STAT.ANN. § 8371.") "The Pennsylvania Supreme Court treats the breach of the contractual duty of good faith and breach of fiduciary duty synonymously in the context of insurance cases." Greater N.Y. Mut Ins. Co. v. North River Ins. Co., 872 F. Supp. 1403, 1409 (E.D.Pa. 1995) (citing Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320, 322 (1963)).
Plaintiff contends that Birth Center v. St. Paul Cos., Inc., 1999 PA Super 49, 727 A.2d 1144, 1155 permits a policyholder to proceed simultaneously on its claims of breach of fiduciary duty and implied covenant of good faith as well as its bad faith claims under 42 Pa.C.S.A. § 8371. However, in Birth Center the insurer's decision to litigate or settle a third party claim against the insured — not bad faith — was the basis for the fiduciary duty and good faith claims. See id. at 1155-1156.
B. Violation of Unfair Trade Practices and Consumer Protection Law in Count III.
Defendant's motion to dismiss with regards to Plaintiffs' claims concerning alleged violations of Unfair Trade Practices and Consumer Protection Law will be granted as to the denial or withholding of benefits; otherwise, denied. "In Pennsylvania, only malfeasance, the improper performance of a contractual obligation, raises a cause of action under the Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq., and an insurer's mere refusal to pay a claim which constitutes nonfeasance, the failure to perform contractual duty, is not actionable." Horowitz v. Federal Kemper Life Assurance, 57 F.3d 300, 307 (3d Cir. 1995). See also Klinger v. State Farm Mut. Auto Ins. Co., 895 F. Supp. 709 717 (M.D.Pa. 1995); Parasco v. Pacific Indem Co., 870 F. Supp. 644, 648 (E.D.Pa. 1994).
Plaintiffs contend that they have alleged more than nonfeasance. "A fair reading of the Complaint discloses numerous references to unreasonableness, disingenuousness, unfairness and recklessness in the processing and investigation of the claim and its ultimate denials by Movant . . ." Pl.'s Br. in Opp. at 8. We will address each of these allegations.
We first consider the averment that Defendants failed to conduct a reasonable and fair investigation. In Parasco v. Pacific Indem. Co., 870 F. Supp. 644 (E.D.Pa. 1994); plaintiffs alleged, inter alia, that the defendant insurance company conducted an unfair and nonobjective post-loss investigation. 870 F. Supp. at 648. The Plaintiffs' averment that Motorists conducted a unfair and unreasonable investigation establishes a basis for relief under the ruling in Parasco and establishes a viable UTPCPL claim.
We next address Plaintiffs' averment that Defendant unreasonably withheld policy benefits and asserted denials without reasonable basis in fact. The essence of this portion of Plaintiffs' complaint is Defendants' refusal to pay benefits. Refusal to pay benefits is nonfeasance. See Horowitz, 57 F.3d at 307. This allegation does not state a viable claim of misfeasance under the UTPCPL.
Finally, we view Plaintiffs' allegations that Defendants unnecessarily and unreasonably compelled litigation as part of Defendant's refusal to pay benefits. Plaintiff cites no case law supporting its contention that unnecessarily compelling litigation qualifies under the catchall provision of UTPCPL as "unfair methods of competition" or "unfair or deceptive acts or practices." See PA.STAT.ANN. tit. 73, § 201-2(4). This provision applies only to fraudulent conduct. Yeager's Fuel Inc. v. Pennsylvania Power Light Co., 953 F. Supp. 617 (E.D.Pa. 1997). As no fraud on Defendant's part in bringing the declaratory judgment action was alleged, we believe the allegation does not state a viable claim under the UTPCPL.
C. Effect of Asserting Compulsory Counterclaims in a Pending Action as a Claim in Another Action
Defendant's motion to dismiss with regards to Plaintiffs' claims barred as compulsory counterclaims is denied. Motorists argues each of the counts in Plaintiffs' complaint constitute compulsory counterclaims and are barred under Fed.R.Civ.P. 13(a) and res judicata. Def.'s Br. At 9, citing Moore's Federal Practice, Volume 3. In other words, when a claim must be asserted by way of a counterclaim in a pending action, Motorists argues that it may not be re-asserted by way of a complaint in another action. It is well established that a party is barred from suing on a claim that should have been pleaded as a compulsory counterclaim in a federal action. See generally 6 CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1418 (2d Ed. 1995). We, however, are unaware of any authority that precludes a party who does not want to assert a claim as a compulsory counterclaim in a suit instituted by an opponent from bringing an independent action on that claim while the first action is pending. See Leonard F. Fellman Co., Inc. v. Smith Corona Marchant Inc., 27 F.R.D. 263, 264 (E.D.Pa. 1961).
Based on the foregoing reasons, Defendants' motion to dismiss will be granted with respect to Counts IV and V and with respect to Count III to the extent that Plaintiffs have asserted claims based on the denial of coverage or withholding of benefits. Defendants' motion will be denied in all other respects.
An appropriate Order follows.