365 F. Supp. 3d 552
E.D. Pa.2019Background
- On May 22, 2014, Richard McDonough was severely injured in an automobile collision caused by a third party whose insurer (Donegal) paid its $100,000 policy limit; McDonough then sought underinsured motorist (UIM) benefits from his insurer, State Farm, with a $300,000 limit.
- State Farm tendered $12,460.76 and refused to pay the full $300,000 UIM limit; McDonough sued in Pennsylvania court asserting statutory bad faith (42 Pa. Cons. Stat. § 8371), common-law bad faith, breach of contract, and a UTPCPL claim; State Farm removed to federal court.
- State Farm moved under Rule 12(b)(6) to dismiss the statutory bad faith and UTPCPL claims and to dismiss the common-law bad faith claim as duplicative of the breach claim.
- The district court applied Pennsylvania law and found McDonough’s bad-faith allegations conclusory and lacking specific factual support required under Pennsylvania standards for § 8371.
- The court held that Pennsylvania does not recognize a separate common-law bad-faith claim when it is subsumed by a breach of contract claim, so that claim was dismissed as a matter of law.
- The court declined to apply the Third Circuit’s Werwinski economic-loss rule and followed Pennsylvania Superior Court decisions holding the economic-loss doctrine does not bar UTPCPL claims, but dismissed the UTPCPL claim for failure to plead justifiable reliance and ascertainable loss; leave to amend was granted as to the statutory bad-faith and UTPCPL claims (not the common-law bad-faith claim).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statutory bad faith under § 8371 | State Farm unreasonably refused to pay UIM limits and acted in bad faith in settlement handling | Offer was reasonable; plaintiff’s allegations are conclusory and insufficient | Dismissed for failure to plead specific facts showing lack of reasonable basis or reckless disregard; leave to amend granted |
| Common-law bad faith (duty of good faith) | Separate tort claim for insurer’s failure to act in good faith under the policy | Claim duplicates breach of contract and thus is not a separate cause of action | Dismissed with prejudice as subsumed by breach of contract; no leave to amend |
| UTPCPL (catchall deceptive conduct) — economic loss doctrine defense | N/A (argues UTPCPL claim is not barred) | Economic loss doctrine bars UTPCPL claims that arise solely from contract breach (relying on Werwinski) | Court rejects Werwinski here and follows Pennsylvania Superior Court precedent: economic-loss doctrine does not bar UTPCPL claim |
| UTPCPL — pleading elements (justifiable reliance, ascertainable loss) | Alleged misleading conduct by insurer during claim handling suffices | Plaintiff failed to plead justifiable reliance or that any reliance caused ascertainable loss | UTPCPL claim dismissed for failure to plead justifiable reliance and ascertainable loss; leave to amend granted |
Key Cases Cited
- Connelly v. Lane Constr. Corp., 809 F.3d 780 (3d Cir. 2016) (Twombly/Iqbal plausibility standard in pleading)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to pleading credit)
- Rancosky v. Washington Nat'l Ins. Co., 170 A.3d 364 (Pa. 2017) (elements for statutory bad faith under § 8371)
- Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994) (definition of insurer bad faith)
- Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002) (held economic-loss doctrine bars certain UTPCPL claims; court discussed but declined to follow here)
- Knight v. Springfield Hyundai, 81 A.3d 940 (Pa. Super. 2013) (Superior Court holding that economic-loss doctrine does not bar UTPCPL claims)
- Dixon v. Northwestern Mut. Life Ins. Co., 146 A.3d 780 (Pa. Super. 2016) (Superior Court reaffirming that economic-loss doctrine does not bar UTPCPL claims)