Castillo v. Progressive Insurance, 3:19-cv-01628

In June 2015 Castillo, then ~31, was a passenger in a car involved in a collision with an uninsured driver and sustained alleged severe injuries that prevented her from returning to work.
Three layers of UM coverage were implicated: GEICO (owner/driver’s policy), Castillo’s Allstate policy (stacked to $30,000), and Castillo’s Progressive policy (stacked to $60,000); Progressive provided $15,000 UM per policy but offered Castillo $1,000 to settle.
Castillo filed suit in state court asserting breach of contract (Count I) and insurance bad faith under 42 Pa. Cons. Stat. § 8371 (Count II); Progressive removed the case to federal court and moved to dismiss Count II and to strike attorney’s fees in Count I.
The court reviewed the motion under Rule 12(b)(6), applying Pennsylvania substantive law and the federal pleading standards of Twombly/Iqbal and related Third Circuit precedent.
Castillo alleged Progressive failed to properly investigate, unreasonably delayed handling, underestimated the claim’s value, and denied benefits without a reasonable basis; Progressive contended the bad-faith allegations were legally insufficient and that attorney’s fees in the breach claim lacked a basis.
The court denied the motion to dismiss the bad-faith claim (allowing discovery on insurer’s state of mind) but granted the motion to strike attorney’s fees from the breach-of-contract count.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Sufficiency of bad-faith claim under § 8371	Castillo alleged inadequate investigation, unreasonable delays, underestimation of UM value, and knowledge that denial lacked a reasonable basis	Progressive: pleading lacks facts showing no reasonable basis or that insurer knew/recklessly disregarded lack of basis	Court: allegations suffice at pleading stage; denial of motion to dismiss Count II (discovery required to probe state of mind)
Recovery of attorney’s fees on breach-of-contract claim	Castillo sought attorney’s fees in the prayer for relief	Progressive: no statutory authorization, contractual clause, or recognized exception permits fees here	Court: struck request for attorney’s fees from Count I (grant as to fees)

Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994) (formulative definition and elements of insurer "bad faith")
Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230 (3d Cir. 1997) (adopting Terletsky two‑element test for § 8371 claims)
Smith v. Allstate Ins. Co., 904 F. Supp. 2d 515 (W.D. Pa. 2012) (inadequate investigation can support bad‑faith claim)
Bayne v. Smith, 965 A.2d 265 (Pa. Super. Ct. 2009) (attorney’s fees not recoverable in contract actions absent statutory or contractual authorization)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
Ashcroft v. Iqbal, 556 U.S. 662 (further explaining plausibility standard)
Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008) (pleading standards and factual specificity requirements)