MEMORANDUM
Currently pending before the Court is a Motion for Partial Summary Judgment filed by Defendant National Grange Mutual Insurance Company (“National Grange”) and the Response of Plaintiff CRS Auto Parts, Inc. (“CRS”). For the following reasons, the Court grants the Motion.
I. FACTUAL AND PROCEDURAL HISTORY
A. Factual Background
Defendant National Grange is a business entity insurer. (Compl. ¶ 2.) On March 19, 2001, National Grange entered into an Agency Agreement with Turley Insurance Agency, Inc. (“Turley”) authorizing Turley to solicit insurance contracts, issue insurance binders, and collect premiums, all on behalf of National Grange. (Def.’s Mot. Summ J., Ex. 9(B) (“Third Party Compl.”), ¶ I.) Under the Agency Agreement, Turley was prohibited from appointing any sub-agent or submitting business from any other producers without the knowledge of National Grange. (Id. ¶ XII(e).) In addition, Turley agreed to reimburse and hold National Grange harmless for “any loss, expense or damage sustained by reason of any violation of the provisions of this Agreement ...” (Id. ¶ XI (b).)
In May or June 2003, Plaintiff contacted Russell Schaible of Cain Insurance Agency regarding its efforts to obtain commercial insurance coverage. (Compl. ¶ 9.) Upon obtaining policy information, vehicle lists, drivers lists, and lost run documents, Schaible referred Plaintiff to John Turley III of the Turley Insurance Agency.
(Id.
¶¶ 12-13.) All of the accurate loss information needed by Defendant to do the proper policy underwriting was provided to Turley prior to June 30, 2003.
(Id.
On June 30, 2003, Turley issued an insurance binder, purportedly on National Grange’s behalf, to include, in part, worker’s compensation and commercial auto liability coverage for CRS. (Compl. ¶ 16.) Prior to issuing that binder, Turley was nоt advised that he lacked the authority to bind National Grange. In fact, on prior occasions, he had issued binders for National Grange. (Compl. ¶ 19);
Nat’l Grange,
On July 10, 2003, Christopher DiPietro and Richard Tilley, were involved in an automobile accident during the course of their employment with CRS. (Compl. ¶ 18; Def.’s Mot. Summ. J., Ex. 12, 8.) As a result of the accident, Mr. Tilley was killed and Mr. DiPietro was injured. (Id.) Plaintiff CRS timely contacted Turley and/or Defendant, on July 11, 2003, to inform it of the accident and advise that there would be workers’ compensation claims. (Compl. ¶ 21; Def.’s Mot. Summ. J., Ex. 12.) Pending its investigation of the alleged worker’s compensation insurance coverage, National Grange issued Notices of Temporary Compensation to DiPietro and the Tilley Estate. (Def.’s Mot. Summ. J., Ex. 13.) On August 26, 2003, however, National Grange, believing that it had not issued policies of insurance to CRS, sent Notices of Worker’s Compensation Denials and Notices Stopping Temporary Compensation to DiPietro and the Tilley Estate. (Id. Ex. 14.) In these Notices, National Grange informed both DiPietro and the Tilley Estate that, “IF YOU BELIEVE YOU SUFFERED A WORK-RELATED INJURY, YOU WILL BE REQUIRED TO FILE A CLAIM PETITION WITH THE BUREAU OF WORKERS’ COMPENSATION IN ORDER TO PROTECT YOUR FUTURE RIGHTS.” (Id.) Via a Rescinder Letter of the same date, National Grange informed CRS, in part, as follows:
The Turley Insurance Agency did not have the authority to bind any insurance on behalf as the business was brokered ....
A review of the applications supporting material and additional investigative findings reveals that the applications were signed on a date well after the requested effective date indicated on the application and one day after the date of loss. You have acknowledged that you signed all of the applications on July 11, 2003.
Regarding the application for Automobile Insurance you provided inaccurate and incomplete information of previous losses. We have verified over $65,000 in automobile claims that were not disclosed on your signed application. Your signed application also stated that CRS Auto Parts, Inc. had not had any policy declined, cancelled or non-renewed during the last 3 years. This was not true as your prior insurance carrier, Meridian, had notified you that they were non-renewing your Automobile policy. We consider the above inaccuracies to be material misrepresentations.
For the reasons stated above, we hereby rescind any insurance coverage intended to be put in force by your applications, including any binders that may have been issued to you or on your behalf.
(Id. Ex. 15.) National Grange promptly returned CRS’s deposit premium of $11,454.00. (Id.)
On July 11, 2005, CRS, along with its parent company, KSI Trading, filed an action against (1) Albert R. Schaible, Jr., Russell Schaible, and Cain Insurance Agency (collectively, the “Cain Defendants”), and (2) National Grange in the Montgomery County, Pennsylvania Court of Common Pleas (“the State Court Action”). In their Amended Complaint, filed July 1, 2006, CRS and KSI sought damages resulting from the Cain Defendants’ failure to obtain insurance coverage from National Grange on CRS’s behalf and from National Grange’s alleged failure to honor its obligations under the purported policy of workers’ compensation insurance. (Def.’s Mot. Summ. J., Ex. 1, Am. Compl., CRS Auto Parts, et al. v. Nat’l Grange Mut. Ins. Co., et al, No. 05-18198, ¶¶ 6-35 (Phila.C.P. Apr. 3, 2006) (“the State Court Complaint”).) That failure purportedly exposed CRS to workers’ compensation and general liability claims by Christopher DiPietro and the Estate of Richard Tilley. 1 (Id.)
The Cain Defendants filed preliminary objections to Plaintiffs’ Amended State Court Complaint on March 11, 2008. (Def.’s Mot. Summ. J. ¶ 5.). In addition, they filed a joinder complaint against Turley, on May 23, 2006, claiming that Turley’s conduct in assisting in the completion of CRS’s application was a direct cause of National Grange’s denial of coverage. Id. The state court sustained the preliminary objections and, in turn, dismissed the Cain Defendants’ third-party claims against Turley. (Id. Ex. 2.) On February 29, 2008, National Grange filed its answer and new matter in state court and, concurrently, filed a joinder complaint against Turley, to which Turley filed preliminary objections. (Id. ¶ 5.)
C. The Declaratory Judgment Action
National Grange filed a Declaratory Judgment Action against CRS in federal court (the “Declaratory Judgment Action”) on July 19, 2006. (Id. Ex. 3.) In that action, National Grange sought a finding (1) that the workers’ compensation insurance policy purportedly issued by National Grange to CRS was not in effect at the time of the motor vehicle accident injuring DiPietro and Tilley, and (2) that National Grange was not the worker’s compensation insurance carrier for CRS on the date of the motor vehicle accident and, thus, had no duty to indemnify DiPietro and Tilley for аny medical benefits. (Id., Ex. 3, at 7.) Turley was not joined as a party to this action. (Id.)
Following a non-jury trial on July 30, 2007, this Court issued Findings of Facts and Conclusions of Law, dated November 16, 2007. In that opinion, the Court determined that: (1) CRS made no misrepresentations, at any time, to either Turley or National Grange; (2) that Turley, acting as an agent of National Grange, issued binders to CRS; and (3) that the insurance binders were in effect and provided coverage to CRS at the time of the accident.
Nat’l Grange,
D. The Present Action
CRS initiated the current federal action against National Grange on April 28, 2008. In its Complaint, CRS alleges claims of breach of contract, bad faith, and fraud. (Compl. ¶¶ 25-42.) The Complaint further asserts that the acts and/or omissions of Natiоnal Grange were done with intent, malice, and gross, willful, wanton, and reckless disregard for the rights of CRS. (Id. ¶ 39.) By way of its Answer and Affirmative Defenses, National Grange contends, among other things, that the Complaint fails to state a claim upon which relief may be granted, that CRS’s claims are barred by the applicable statute of limitations, that CRS’s allegations of fraud fail for want of specificity under Federal Rule of Civil Procedure 9(b), and that CRS’s fraud claims are barred by the economic loss doctrine. (Id., Ex. 8.)
On June 27, 2008, National Grange filed a Third-party Complaint against Turley. (Id. Ex. 9.) Count I seeks common law indemnification on the grounds that Turley, not National Grange, engaged in fraud and/or misrepresentation during the placement of CRS’s insurance policies. (Id. ¶¶ 23-25.) Count II asserts that Turley breached the agreement between National Grange and Turley by (a) relying on third-party information from the Cain Defendants to complete CRS’s application for insurance, and (b) submitting CRS’s application with multiple misrepresentations. (Id. ¶¶ 26-31.) Finally, Count III seeks contractual indemnity pursuant to the Agency Agreement between National Grange and Turley. (Id. ¶¶ 32-36.)
On July 25, 2008, Turley filed a Motion to Dismiss the Third-party Complaint, alleging that Counts I and II were barred by collateral estoppel and
res judicata.
Turley also contended that Count III was not ripe for judicial decision due to the pending appeal of the Court’s November 16, 2007, decision in the Declaratory Judgment Action. By way of Memorandum and Order dated October 7, 2008, the Court denied this Motion.
CRS Auto Parts, Inc. v. Nat’l Grange Mut. Ins. Co.,
Civ. A. No. 08-2022,
Defendant filed the instant Motion for Partial Summary Judgment on Nоvember 22, 2008. The Court now turns to a discussion of the arguments raised by both parties with respect to that Motion.
II. STANDARD OF REVIEW
Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). A factual dispute is “material” only if it might affect the outcome of the case.
Anderson v. Liberty Lobby, Inc.,
On summary judgment, it is not the court’s role to weigh the disputed evidence
Although the moving party bears the initial burden of showing an absence of a genuine issue of material fact, it need not “support its motion with affidavits or other similar materials negating the opponent’s claim.”
Celotex Corp. v. Catrett,
III. DISCUSSION
A. Whether Plaintiff’s Bad Faith Claim is Barred by the Statute of Limitations
Defendant National Grange first seeks summary judgment on Plaintiffs bad faith claim. In its. Complaint, Plaintiff alleges that “Defendant, National Grange, intentionally, willfully, wantonly and recklessly denied the rightful insurance coverage it owed to Plaintiff, CRS, with the intention of avoiding payment of a claim which was properly covered in an attempt to further improve its profits.” (Compl. ¶ 31.) The Complaint goes on to list a series of acts and omissions by National Grange, which are purportedly representative of its violation of its duty of good faith and fair dealing.
2
(Compl. ¶ 38.) National Grange
In resolving the timeliness issue, the Court must first determine the applicable statute of limitations and accrual date for a bad faith claim under state law. Pennsylvania law provides for two types of “bad faith” claims by an insured against an insurer.
McPeek v. Travelers Cas. and Sur. Co. of Am.,
Civ. A. No. 06-114,
Prior to 2004, Pennsylvania courts applied various statutes of limitations ranging from two to six years for bad faith claims. Finally, in
Ash v. Cont’l Ins. Co.,
The statute of limitations for a common law cause of action for breach of the duty to act in good faith presents a somewhat different analysis, as the Pennsylvania Supreme Court has not expressly addressed this issue. In
The Birth Center v. St. Paul Cos., Inc.,
Given the two year statute of limitations for a bad faith claim under section 8371 and the four year statute of limitations for a common law bad faith claim sounding in contract, the Court must next ascertain the accrual date for each of these limitations periods. In
Adamski v. Allstate Ins. Co.,
Thereafter, in
Sikirica v. Nationwide Ins. Co.,
In light of this deficiency, Plaintiff offers the Court several alternative bases on which to find its bad faith claim timely. First, it contends that the discovery rule applies, permitting consideration of when it actually discovered the bad faith. Second, it asserts that the State Court Complaint sets forth sufficient allegations to put Defendant on notice of both its statutory bad faith claim and its common law bad faith claim. Finally, it claims that the federal Complaint alleges separate acts of bad faith that are ongoing in nature, including actions throughout the litigation of the federal Declaratory Judgment Action and the instant action, for which the statute of limitations has not yet expired. The Court addresses each argument in turn.
2. Whether the Discovery Rule Applies to Save Plaintiff’s Bad Faith Claim
Plaintiff first invokes the discovery rule to argue, in cursory fashion, that its cause of action arose at some unspecified date after the denial of appeal. As noted above, the general rule provides that the statute of limitations begins to run as soon as “a right to institute and maintain suit arises.”
Sikirica,
The Court finds no factual basis supporting application of the discovery rule. Plaintiff admits, and the evidence establishes, that Defendant clearly and unequivocally denied coverage by way of a letter dated August 26, 2003. (Def.’s Mot. Summ. J., Ex. 15.) Following a full explanation as to why it believed no policy was in effect for CRS, Defendant stated,
[W]e hereby rescind any insurance coverage intended to be put in force by your applications, including any binders that may have been issued to you or on yоur behalf. You should be aware that there is no insurance coverage for you, or anyone else, arising out of the accident on July 10, 2003, or any other benefits.... Please accept this as full and final declination of coverage.
(Id. (emphasis added).) As of the date of this letter, Plaintiff had unequivocal notice that it was injured as a result of Defendant’s purportedly bad faith failure to provide insurance benefits. 5 Plaintiff presents no facts to suggest that it was unaware of its injury until a later date. Accordingly, Plaintiff derives no benefit from the discovery rule.
3. Whether CRS Timely Filed Its Bad Faith Claim Via Its State Court Complaint
Plaintiff next argues that its State Court Complaint, filed on July 11, 2005, alleged sufficient facts to give rise to a bad faith claim under both section 8371 and common law. When Plaintiff later withdrew the State Court Action, pursuant to the Mediation Stipulation, the parties entered into “a tolling agreement with respect to any statute of limitations defenses limited to claims raised in the State Court action but not to any other claims (which would have otherwise been time barred even if the case remained in State Court).” (Def.’s Mot. Summ. J., Ex. 6.) In light of this agreement, Plaintiff contends that the statute of limitations on its bad faith claim was tolled and the claim must be deemed timely.
This argument compels an inquiry into whether Plaintiff pled all the elements of a bad faith claim pursuant to the applicable state pleading rules.
6
Under Pennsylvania
If a transaction or occurrence gives rise to more than one cause of action heretofore asserted in assumpsit and trespass, against the same person, including causes of action in the alternative, they shall be joined in separate counts in the action against any such person. Failure to join a cause of action as required by this subdivision shall be deemed a waiver of that cause of action as against all parties to the action.
Pa. R. Civ. P. 1020(d). Given these requirements, the Court must now determine whether the State Court Complaint was sufficient to raise either or both a statutory bad faith claim under section 8371 and a contractual bad faith claim under common law.
a. Statutory Bad Faith Claim
Section 8371 does not define “bad faith.” In the context of insurance litigation, however, Pennsylvania courts have universally accepted the following definition:
‘Bad faith’ on the part of the insurer is any frivolous or unfounded refusal to pay proceeds of policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.
Adamski,
The State Court Complaint in this case set forth three counts, none of which either explicitly or implicitly referenced section 8371. Count I alleged that National Grange acted negligently in denying coverage — a claim that, under plain jurisprudence, is insufficient to show bad faith. Count II asserted that National Grange breached its contract by denying coverage — an allegation completely inconsistent
b. Common Law Bad Faith Claim
The standard to prove a contractual bad faith claim under common law differs from that under section 8371 and, to date, has not been clearly defined by the Pennsylvania courts. “[A]n insurer assumes a fiduciary responsibility towards its insured and therefore is obligated to act in good faith and with due care when it represents the interests of the insured when dealing with third-party claims brought against the insured.”
Haugh v. Allstate Ins. Co.,
“In order to plead a cause of action for breach of the covenant of good faith, whether it is an express or implied covenant, a plaintiff must properly plead the elements of a claim of breach of contract.”
7
Sheinman Provisions, Inc. v. Nat’l Deli LLC,
Civ. A. No. 08-453,
Again, this Court finds that the State Court Complaint failed to put National Grange on notice of any common law bad faith claim. The breach of contract count, under which any claims for breach of the covenant of good faith and fair dealing would be subsumed, stated only as follows:
46. The Cain Defendants breached their agreement with CRS Auto Parts to obtain coverage for them through the Turley Insurance Agency.
47. The Turley Insurance Agency breached its contract with CRS Auto Parts in that the Turley Insurance Agency did not feign the coverage that they had advised CRS Auto had been obtained and for which CRS Auto Parts paid a premium to the Turley Insurance Agency.
46. The Grange Insurance Company denied coverage.
49. Plaintiffs have suffered damages as a result of the breach of the agreement to obtain the insurance through the Turley Agency.
(Def.’s Mot. Summ. J., Ex. 1, ¶¶ 46-49.) Aside from the fact that the State Court Complaint makes no mention of any explicit or implied covenant of good faith and fair dealing in the contract, it does not allege any bad faith breach by National Grange of any specific provision of its policy with CRS. While Plaintiff argues that the facts alleged in the State Court Complaint “establish that National Grange and its Agents were not acting in good faith” with respect to the denial of coverage, this Court finds nothing in that State Court Complaint that even remotely implicates National Grange in any bad faith dealings. (Pl.’s Opp. Mot. Summ. J. 18.) More importantly, nothing in the State Court Complaint puts National Grange on notice of the fifty-two separate allegations comprising the bad faith claim in the federal Complaint. Accordingly, we find that the common law bad faith claim was also not properly raised by the State Court Complaint.
c. Whether Plaintiff Could Have Amended the State Court Complaint
Alternatively, Plaintiff alleges that even if the State Court Complaint was lacking any requisite allegation for the claim of bad faith under either section 8371 or common law, “CRS would have been allowed to amend the Complaint amplifying the facts plead to rectify any alleged deficit.” (PL’s Opp. Mot. Summ. J. 19.) It goes on to argue that since the facts alleged in the State Court Complaint support both a contractual bad faith claim and a statutory bad faith claim, any amendment to include these causes of actions would have been permitted even if the statute of limitations had expired. In light of the tolling provision in the Mediation Stipulation, Plaintiff claims that such “amplification” of the facts should now be permitted.
Plaintiffs argument, however, is misplaced on several grounds. Primarily, Plaintiff again relies on federal rules regarding amendment of complaints. As noted above, this logic disregards the fact that the State Court Complaint was filed in state court, under state court rules of pleading, and would have been amended or re-pled under state court rules of civil procedure. The mere fact that the State Court Complaint was dismissed pursuant to the federal Mediation Agreement does not automatically convert it into a federаl complaint governed by the Federal Rules of Civil Procedure.
Furthermore, under these state court rules, Plaintiffs attempt to add a bad faith cause of action would have been untimely. The amendment of pleadings is governed by Pennsylvania Rule of Civil Procedure 1033, which states:
A party, either by filed consent of the adverse party or by leave of court, may at any time change the form of action, correct the name of a party or amend his pleadings. The amended pleading may aver transactions or occurrences which have happened before or after the filing of the original pleading, even though they give rise to a new cause of action or defense. An amendment may be made to conform the pleading to the evidence offered or admitted.
The Pennsylvania Supreme Court has addressed what constitutes a new cause of action:
A cause of action does not consist of facts .. but of the unlawful violation of a right which the facts show. The number and variety of the facts alleged do not establish more than one cause of action so long as their result, whether they be considered severally or in combination, is the violation of but one right by a single legal wrong.... The facts are merely the means, and not the end. They do not constitute the cause of action, but they show its existence by making the wrong appear.
Catanese v. Taormina,
As repeatedly emphasized above, the State Court Complaint, given its most liberal reading, raises nothing resembling a bad faith claim against Defendant National Grange. It simply indicates that National Grange declined to honor the policy, not because of a bad faith effort to avoid coverage or a lack of a reasonable basis for its coverage decision, but because it believed, correctly or incorrectly, that Turley improperly issued a binder and that Turley was not its agent. At no point did Plaintiff challenge Defendant’s refusal to acknowledge Turley as its agent, allege National Grange’s reckless disregard of the binder, claim that National Grange failed to properly investigate or analyze the facts of the claim, or assert any other of the fifty-two allegations of bad faith set forth in the federal Complaint. Given the stark absence of a bad faith allegation in the State Court Complaint, any amendment to include such a claim could not be deemed to “amplify” any facts already alleged. Accordingly, the Court finds that an amendment to permit such a claim after the statute of limitations would have been denied. 8
In short, the Court declines to find that National Grange raised even the semblance of a bad faith claim in its State
4. Whether the Federal Complaint Alleges Ongoing Acts of Bad Faith Which Are Not Time Barred
In a final effort to save its bad faith claim, Plaintiff contends that the Federal Complaint “alleges separate acts of bad faith that are ongoing in nature, including actions throughout the litigation of the Federal Declaratory Judgment Action and the instant action.” (Pl.’s Opp. Mot. Summ. J. 20.) The Court finds no merit to this argument.
Plaintiff has provided a list of fifty-two different allegations of bad faith. Of these, at least thirty relate directly to the initial investigation and denial of coverage.
9
Under Pennsylvania law, as dictated by the Superior Court and reiterated by the Third Circuit, these acts constitute continuing denials of coverage and do not give rise to separate acts of bad faith that trigger the statute of limitations anew.
Adamski
attempting to intimidate and/or coerce CRS with multiple threats of criminal prosecution, intentionally losing files and/or portions thereof and material evidence, tampering of evidence, attempting to blackmail CRS into discontinuing its claims for coverage, misrepresenting facts to CRS and the court during trial of the Declaratory Judgment Action, attempting to force litigation of a state court action filed by CRS knowing that the said action was a saving action and knowing that the parties had agreed that said State Court Action was stayed by Agreement of Counsel until the said Declaratory Judgment Action was totally resolved and attempting to require CRS to undergo unnecessary expenses in the said state court action in an effort to place economic pressure onto CRS to discontinue the said state action.
(PL’s Opp. Mot. Summ. J. 21.) Plaintiff asserts that these acts have occurred over the last year and are ongoing, thus precluding dismissal of the bad faith claim as time-barred.
The Pennsylvania Supreme Court has yet to speak on whether acts beyond the denial of coverage trigger a new limitations period. Accordingly, this Court is “charged with predicting how that court would resolve the question at issue.”
Colliers Lanard & Axilbund v. Lloyds of London,
The Pennsylvania Superior Court, in
O’Donnell v. Allstate Ins. Co.,
734 A.2d
Via several recent decisions, the Third Circuit has undertaken to delineate the confines of
O’Donnell
and to clarify what acts by an insurer constitute actionable bad faith. In
W.V. Realty, Inc. v. N. Ins. Co.,
Subsequently, in
UPMC Health Sys. v. Metro. Life Ins. Co.,
Notably, although these cases discussed what acts beyond the denial of coverage or improper investigation could be used as
evidence
of bad faith, none of them touched on whether acts outside the denial of coverage could trigger a separate limitations period. To prove its current theory that a limitations period could begin with the occurrence of actions outside the denial of coverage, Plaintiff refers this Court to several cases suggesting, in dicta, that “if activity after the initial denial of an insured’s claim (“post-enabling date activity”) constitutes ‘separate acts of bad faith, not a continuation of a previous denial,’ the insurer can be held liable for those additional acts, notwithstanding the expiration of the limitations period as to the initial denial.”
Romeo v. Unumprovident Corp.,
Civ. A. No. 07-1211,
Instead, this Court turns to the persuasively-reasoned decision in
Precision Door Co., Inc. v. Meridian Mut. Ins. Co.,
Civ. A. No. 04-1194,
The plaintiff filed a complaint against defendant on March 19, 2004, alleging breach of contract and bad faith resulting from its denial of coverage in the Naulty Action.
Precision Door,
(1) breaching its duty to defend [plaintiff] in the Declaratory Judgment [sic] action; necessitating the filing of the Joinder Complaint in the Naulty Action; (3) necessitating the filing of the Declaratory Judgment Action; (4) necessitating the filing of this lawsuit; asserting policy limitations and exclusions as the reason(s) to deny coverage to [plaintiff] without any basis in fact and/or in law, (5) relying on the Employer Liability Exclusion when its own coverage supervisor admitted the exсlusion had no applicability to the claims; (6) refusing to review the PMA competing excess insurance provision despite admitting that it could not apply the Additional Insured Endorsement without comparing the two policies; and (7) misconduct during the pendency of the Naulty Action and Declaratory Judgment Action.... Moreover, [defendant] continues to engage in bad faith conduct during the course of this litigation, which provides a further basis for [plaintiffs] claim.
Id. at *6 (emphasis added). While the court found that the first “additional” act of bad faith was distinct from the initial denial of coverage, since it did not come to light until Defendant’s separate and subsequent refusal to defend plaintiff during the June 2003 Declaratory Judgment Action, the remaining acts all involved the September 2001 denial of coverage in the Naulty Action. 12 Id. Specifically, as to the claim that defendant engaged in bad faith conduct during the course of the current litigation, the court stated,
The Pennsylvania Superior Court held that “the conduct of an insurer during the pendency of litigation may be considered as evidence of bad faith under section 8371.” O'Donnell v. Allstate Ins. Co.,734 A.2d 901 , 907 (Pa.Super.1999). To the extent that [plaintiff] seeks to introduce bad faith conduct during the course of this litigation as support for its first additional act of bad faith, that evidence is admissible. To the extent that [plaintiff] door seeks to amend its complaint to add a separate claim of bad faith, that claim is dismissed.... Therefore, all of the acts stemming from [defendant’s] original denial of coverage to Drisсoll are time-barred.
Id. at *7.
Following the thorough analysis and persuasive prediction of Pennsylvania law set forth in Precision Door, this Court likewise declines to find Plaintiffs alleged “continuing acts of bad faith” based on Defendant National Grange’s conduct during the Declaratory Judgment Action and the current action to constitute actions separate and distinct from the initial denial of coverage in August 2003. At their core, both the Declaratory Judgment Action and the current litigation stem solely and precisely from the original denial of coverage by Defendant to Plaintiff and from the parties efforts to determine whether that denial was proper. As such, any alleged bad faith actions taken by Defendant during such litigation relate directly to and are subsumed by the bad faith claim arising from the initial denial of coverage. Although evidence of such continuing bad faith litigation tactics might have been admissible to prove the underlying bad faith claim were it not time-barred, such evidence does not create a separate claim of bad faith triggering the running of a separate statute of limitations. 13
In light of the foregoing, the Court finds that the bad faith claim is unequivocally time barred. Notwithstanding its contrary argument, Plaintiff first raised this claim in the federal Complaint filed on April 28, 2008, alleging bad faith stemming from a denial of coverage in August 2003. Under either a two or four year statute of limitations, Plaintiffs time for presenting this claim has expired. None of the allegations in that claim offer a basis separate and distinct from the initial denial of coverage on which the Court can find that a new statute of limitations begins. Accordingly, we grant Defendant’s Motion for Summary Judgment on this claim.
B. Whether Plaintiff’s Fraud Claim is Barred by the Gist of the Action Doctrine
Defendant’s second argument in its Motion for Summary Judgment alleges that Plaintiffs fraud claim, based on National Grange’s failure to honor its obligations under the insurance policy, sounds overwhelmingly in contract. Relying on the gist of the action doctrine, Defendant contends that any suit to recover the re-suiting damages must be based upon the breach of contract, and not upon tort.
In general, Pennsylvania courts are cautious about permitting tort recovery on contractual breaches.
Glazer v. Chandler,
“When a plaintiff alleges that the defendant committed a tort in the
The jurisprudence in Pennsylvania has battled with whether the gist of the action doctrine applies to a cause of action for fraud. The elements of a fraud claim under Pennsylvania law include “a misrepresentation, an intent by the maker that the recipient be induced to act, justifiable reliance by the recipient upon the misrepresentation, and damage to the recipient as the proximate result.”
Olkowski v. Prudential Ins. Co. of Am.,
The Pennsylvania Superior Court has explicitly recognized that Pennsylvania law has
“not
carved out a categorical exception for fraud, and [has] not held that the duty to avoid fraud is always a qualitatively different duty imposed by society rather than by the contract itself.”
eToll,
Even this distinction, however, does not establish a clear-cut rule. Where the precontractual statements that are the basis for the fraudulent inducement claim concern specific duties that the parties later outlined in the contract, courts have repeatedly dismissed such claims as sounding in contract and, thus, barred by the gist of the action doctrine.
See, e.g., Williams v. Hilton Group, PLC,
In the case at bar, Plaintiffs fraud claim, as set forth in the Complaint, consists of two skeletal paragraphs, one incorporating all of the previous paragraphs of the Complaint and one stating that “[s]ome or all of the acts and/or omissions discussed supra, amount to Fraud.” (Compl. ¶¶ 41-42.) Via its brief in opposition to the Motion for Partial Summary Judgment, Plaintiff has infused this bare fraud claim with two detailed prongs. First, it alleges that National Grange, through its agent, provided insurance cards, which its agent knew were false, that National Grange provided these cards and insurance binder with the intent that CRS would rely on them, that CRS did rely on these insurance cards and assertions that coverage was in place, and that the injury/damages were caused by the fraud and reliance. (PL’s Sur-reply Br. 6.) Second, Plaintiff identifies behavior by National Grange during litigation that purportedly amounts to fraud “including making misrepresentations to the Court, losing material evidence, denying that Turley was their agent, asserting that Turley was an agent of CRS and/or a broker, intentionally losing files or portions of files and attеmpting to coerce CRS with multiple threats of criminal prosecution.” (Id. at 6-7.)
As to the first prong of the fraud claim, the Court finds that it sounds entirely in contract, not in tort.
15
In the Declaratory
Plaintiff now attempts to recharacterize its fraud claim as one of fraudulent inducement, arguing as follows:
In CRS’ Complaint, it is alleged that National Grange’s Agent advised that coverage was bound and provided an insurance binder and insurance cards to CRS on June 30, 2003. Further, it is alleged that National Grange’s agent failed to acknowledge its obligations under its Authorized Agency Agreement (which includes obligations regarding preparing insurance applications, obtaining information about prospective insureds, dealing with applications for insurance, and events leading up to coverage.) These allegations, among others in the Complaint, address the conduct of National Grange, via its agent, in the inducement of the insurance contract.
(PL’s Opp. Mot. Summ. J. 24.)
This argument, however, lacks several crucial elements required for a fraudulent inducement claim collateral to a contract. Primarily, aside from the fact that the Complaint does not mention, or even hint at any type of fraudulent inducement, Plaintiff also asserts that the written insurance policy was freely and validly entered into by both parties, thus binding
Moreover, and more importantly, a thorough review of the Complaint finds no alleged misrepresentation made by either National Grаnge or its agent Turley with the specific intent to induce Plaintiff to enter into a contract that could somehow be construed as collateral to the contract. Any pre-contractual statements by Turley concerned coverage duties that were later outlined in the written insurance policy and, accordingly, were “intertwined with the subject matter of the contract, and ... not ‘free-standing’ topics which can be the subject matter of a tort claim.”
16
Penn City,
As to the second prong of Plaintiffs fraud count — -that National Grange engaged in inappropriate behavior during the litigation- — -the Court likewise finds this claim untenable. We noted above that a claim of fraud under Pennsylvania law requires a showing of “a misrepresentation, an intent by the maker that the recipient be induced to act, justifiable reliance by the recipient upon the misrepresentation, and a damage to the recipient as the proximate result.”
Olkowski,
Given this finding, the Court declines to address Defendant’s alternative arguments that the fraud claim must be dismissed either under the economic loss doctrine or because of Plaintiffs failure to plead fraud with the requisite specificity under Federal Rule of Civil Procedure 9(b).
IV. CONCLUSION
In light of the foregoing, the Court holds that Plaintiffs claim for bad faith, under either the statute or common law, is unequivocally time-barred by the applicable limitations period. Moreover, under the gist of the action doctrine, Plaintiff cannot maintain a claim for fraud separate and apart from the breach of contract action. Accordingly, the Court grants summary judgment on Counts II and III of the Complaint.
ORDER
AND NOW, this 2nd day of February, 2009, upon consideration of the Motion of Defendant National Grange Mutual Insurance Company (“National Grange”) for Partial Summary Judgment (Doc. No. 27), the Response thereto of Plaintiff CRS Auto Parts, Inc. (“CRS”) (Doc. No. 31), Defendant’s Supplemental Memorandum of Law in Support of the Motion for Partial Summary Judgment, (Doc. No. 35), and Plaintiffs Sur Rebuttal in Opposition to Defendant’s Motion (Doc. No. 37), it is hereby ORDERED that the Motion is GRANTED.
JUDGMENT IS ENTERED in favor of Defendant and against Plaintiff on Counts II and III of the Comрlaint.
Notes
. Originally, DiPietro and the Tilley Estate filed claim petitions with the Bureau of Worker's Compensation. (Def.’s Mot. Summ. J. ¶ 29.) Following the filing of the State Court Action, however, DiPietro and the Tilley Estate, acting pursuant to their rights under the Pennsylvania Workers’ Compensation Act, 77 P.S. § 501(d), asserted third-party claims against multiple defendants including CRS. (Id. ¶¶ 30-31.) Those third-party claims were settled, with CRS contributing to the settlements. (Id. ¶ 31.) In turn, both claim petitions with the Bureau of Worker’s Compensation were withdrawn. (Id. ¶ 29.)
. The Complaint lists the following actions and omissions:
a. intentionally losing files and/or portions thereof;
b. having a filing policy relating to storage of files which allowed for policies in litigation and/or otherwise to be lost;
c. conducting interviews and investigations without producing lhem/it to its insured, its agents, servants, workers or employees;
d. failing to honor a binder properly issued by its Authorized Agent;
e. disregarding the binding authority of their Authorized Agent;
f. failing to acknowledge its obligations under its Authorized Agency Agreement;
g. denying that Turley was their agent;
h. asserting that Turley was the agent of CRS;
i. asserting that Turley was a broker;
j. conducting inappropriate investigation(s);
k. failing to protect and preserve evidence;
l. failing to independently and properly analyze the facts of the instant claim and independently and properly apply the facts to the law;
m. abuse of process;
n. attempting to intimidate and/or coerce CRS economically;
o. attempting to intimidate and/or coerce CRS with multiple threats of criminal prosecution;
p. following advice of counsel, knowing said advice was improper;
q. failing to provide a defense in the DiPietro and Tilley cases, mentioned, supra;
r. failing to participate in the defense and negotiations in the DiPietro and Tilley, mentioned supra;
s. requiring CRS to pay counsel fees, costs, expenses and settlement share out of the funds of its business;
t. failing to resolve conflicts of interest;
u. improper handling of and delay in deciding coverage questions;
v. hiring agents, servants, workers or employees who had no experience or negligible experience in rendering legal opinions regarding coverage questions;
w. hiring who had no experience or negligible experience in rendering legal opinions regarding coverage questions;
x. failing to have a group of individuals within its employ who regularly review coverage issues;
y. having a group of individuals within its employ who are not properly trained in coverage issues who regularly review coverage issues;
z. disregarding the results the Dec. Action, supra;
aa. failing to properly documents file activity;
bb. failing to seek advice from a professional source regarding the coverage issues in this case;
cc. placing opinions in the file which prove that it is gambling with the insured’s funds
dd. providing erroneous information for legal activities;
ee. making decisions inconsistent with each other and the facts;
ff. failure to consider the claims of CRS upon their merits;
gg. failing to resolve doubt in favor of CRS;
hh. Disregarding the clear intent of the law;
ii. Defrauding CRS of coverage;
jj. Intractably refusing to settle the Dec. Action, supra., after the liability relating to said claims was established at trial;
kk. Failing to inform counsel for CRS of all the facts;
11. Losing material evidence;
mm. Engaging in a calculated scheme in an attempt to defeat the claims of CRS by concealing information and/or the facts;
nn. Taking an unreasonable position on the validity of defense of coverage;
oo. Tampering of evidence;
pp. Arbitrary denial of coverage;
qq. Failing to give prompt and appropriate notice of a coverage question(s) to CRS;
rr. Failing to discuss coverage issues with their Authorized Agent;
ss. Failing to adopt policies and procedures relating to coverage issues;
tt. Adopting inadequate policies and procedures relating to coverage issues;
uu. Failing to adopt policies and procedures relating to investigations;
w. Adopting inadequate policies and procedures relating to investigations;
ww. Attempting to blackmail CRS into discontinuing its claims for coverage;
xx. Misrepresenting facts to the court during the trial of the said Declaratory Judgment Action;
yy. Attempting to force litigation of a state court action filed by CRS knowing that the said action was a saving action and knowing that the parties had agreed that the Defendant, had agreed to forgo any and all proceeding in the said state action until the said Declaratory Judgment Action was totally resolved;
zz. Attempting to require CRS to undergo unnecessary expenses in the said state court action in an effort to place economic pressure onto CRS to discontinue the said state action.
(Compl. ¶ 38(a)-(zz).)
. The statute provides:
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:
(1)Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa. Cons.Stat. § 8371.
.
See also Campbell v. State Farm Mut. Auto. Ins. Co.,
. Indeed, in a separate part of its Opposition Memorandum, Plaintiff actually argues that it raised its bad faith claim in its June 2005 State Court Complaint, thereby undermining any claim that it did not discover the bad faith acts until after the statute of limitations had run. (Pi's Opp. Mot. Summ. J. 15-18.)
. In its Sur-reply Brief, Plaintiff argues that the Federal Rules of Civil Procedure must be used to determine what claims were actually asserted and preserved in the State Court Action. Plaintiff reasons that the Mediation Agreement, which indicated that statute of limitations defenses were waived as to the claims raised in the State Court Complaint, “was discussed and signed at a Federal mediation and as a result of the agreement, and the state court action was being dismissed in furtherance of the Federal action.” (Pl.'s Reply Br. 2.)
While Plaintiff is correct that the mediation was under the auspices of the federal court and provided for the dismissal of the state court action, to permit the parties to litigate the federal Declaratory Judgment Act, Plaintiff's interpretation of the Mediation Agreement is flawed. The Agreement stated that "[w]e will enter into a tolling agreement with respect to any statute of limitations defenses
limited to claims raised in the State Court action but not to any other claims (which
. Defendant argues that a claim for breach of the implied covenant of good faith is not comparable to a claim for bad faith. (Def.’s Reply. Br. 9.) The Pennsylvania Supreme Court has explicitly recognized, however, that "where an insurer acts in bad faith, by unreasonably refusing to settle a claim, it breaches its contractual duty to act in good faith and its fiduciary duty to its insured.”
Ash,
. To the extent Plaintiff suggests that it was prevented from filing a timely amendment to the State Court Complaint by Mediation Agreement, which called for a dismissal of the State Court Complaint, its argument is mistaken. National Grange’s denial of coverage occurred on August 26, 2003, and the State Court Complaint was filed on June 11, 2006. The Declaratory Judgment Action was not filed until July 19, 2006, well past the statute of limitations for the statutory bad faith claim. Thereafter, the parties attended the mediation on June 2, 2008, and the State Court Complaint was dismissed on June 6, 2008, past the limitations period for the common law bad faith claim. As such, any failure by Plaintiff to amend the State Court Complaint to include a bad faith cause of action was borne from its own missteps and not from Defendant’s actions.
. These allegations include the following: ¶¶ 38(d), (e), ffl, (g), (h), (i), (j), (l), (p), (q), (r), (s), (u), (v), (w), (x), (y), (bb), (ee), (ff), (gg), (hh), (ii), (pp), (qq), (rr), (ss), (tt), (uu), (w).
. Indeed, in
Rottmund,
the court confronted the question of whether a plaintiff insured, who suffered a purported bad faith denial of coverage prior to section 8371’s effective dаte, could maintain a claim under the statute where it alleged two additional acts of bad which occurred after the statute took effect.
Likewise, the court in Romeo, while acknowledging the basic proposition in Rottmund, declined to consider whether an alleged bad faith action taken five years after the initial termination of coverage was separate from that termination and triggered a new limitations period because "plaintiff did not allege this act of bad faith in her Complaint.” Id. at *5.
. The Court draws many of the facts from a summary in a previous decision in the
Precision Door
action, which was incorporated by reference in the August 28, 2005 decision.
Precision Door,
. Notably, the Court found that a portion of the seventh "additional” act — misconduct during the pendency of the Declaratory Judgment Action — was subsumed by the first "additional” act and, thus, governed by that limitations period. Id. at *7.
. Defendant engages in a lengthy discussion of Chief Justice Cappy's dissent in the Penn
As noted above, both the Pennsylvania Superior Court and numerous decisions by and within the Third Circuit, have found, in contrast to Justice Cappy’s dissent, that the duty of bad faith can extend past the initial denial of coverage. Given our holding in this case, however, we need not resolve whether the Pennsylvania Supreme Court would permit a separate bad faith cause of action based solely on acts occurring after the initial denial.
. Although the Pennsylvania Supreme Court has not explicitly adopted the gist of the action doctrine, both the Pennsylvania Superior Court and multiple United States District Courts have predicted that it will.
Woods v. ERA Med LLC,
Civ. A. No. 08-2495,
. Plaintiff argues that Defendant’s Motion for Partial Summary Judgment comes at an
. Plaintiff cites to
Little Souls, Inc. v. State Auto Mut. Ins. Co.,
No. 03-5722,
In this case, all of the alleged misrepresentations concern duties that were later embodied in the written contrаct. Plaintiff has not set forth any false statements made by either Turley or National Grange that induced it into entering the contract, but were never included in the contract.
. See Compl. ¶ 38(g) (denying Turley was agent); ¶ 38(h) (asserting that Turley was the agent of CRS); ¶ 38(i) (asserting that Turley was a broker); ¶ 38(ii) (defrauding CRS of coverage); ¶ 38(mm) (engaging in a calculated scheme in an attempt to defeat the claims of CRS by concealing information and/or the facts).
. Specifically, Plaintiff lists these acts as "making misrepresentations to the Court, losing material evidence, denying that Turley was their agent, asserting that Turley was an agent of CRS and/or a broker, intentionally losing files or portions of files and attempting to coerce CRS with multiple threats of criminal prosecution.” (PL's Sur-reply Br. 7.)
. In its Sur-reply Brief, Plaintiff makes several misplaced arguments in an effort to resuscitate its fraud claim. First, it argues that fraud does not require a contractual relationship and, thus, a fraud claim cannot be barred by the gist of the action doctrine. While Plaintiff is correct that fraud claims that involve acts collateral to a contract or in the absence of a contract are not barred by the gist of the action doctrine, fraud claims that effectively replicate breach of contract actions are not cognizable.
Plaintiff also contends that common law fraud against an agent is recognized as an independent cause of action. Defendant does not dispute this proposition, but rather correctly recognizes that a fraud claim against an agent that is subsumed by a written contract may not be separately pursued.