Opinion
Civil No. 3:18-CV-1053
12-17-2018
WILLIAM GRUSTAS, Plaintiff, v. KEMPER CORPORATE SERVICES, INC., et al., Defendants.
(Judge Mariani)
( ) REPORT AND RECOMMENDATION
I. Statement of Facts and of The Case
Pennsylvania law provides a cause of action for insured individuals who believe that they have been victimized by bad faith handling of an insurance claim by their insurance companies. 42 Pa. Cons. Stat. § 8371. The instant case, which come before us for consideration of a motion to dismiss, invites us to address the legal question of what an insured must allege to state a claim under Pennsylvania's bad faith state upon which relief may be granted. In this case, considering the spare allegations set forth in the complaint, we find that the plaintiff has not yet stated a bad faith claim that meets the exacting standards prescribed by the state statute and federal pleading rules. Therefore, we recommend that this bad faith claim be dismissed, but that the claim be dismissed without prejudice to allowing the plaintiff the opportunity to re-plead the claim in a fashion which satisfies the requirements prescribed by law.
This case involves a dispute relating a claim under a property insurance policy. (Doc. 1.) The well-pleaded facts set forth in the complaint, which we must accept as true for purposes of this motion to dismiss, provide a straightforward, if somewhat spare, description of this dispute, and allege as follows:
4. At all times pertinent hereto, Plaintiff was the owner of the premises known as 71 Center Avenue, Schuylkill Haven / Landingville, Pennsylvania 17972.
5. At all times pertinent hereto, Plaintiff and Defendant were parties to a contract of insurance covering the aforesaid subject property.
6. On or about May 21, 2017, the subject property was damaged by fire and Plaintiff submitted a claim to Defendant for same.
7. At all times pertinent hereto, Plaintiff maintained the subject insurance policy in good standing and made any and all payments due thereupon.
8. Plaintiff performed his obligations pursuant to the subject policy/contract.
9. At the time of making said claim to the present, Defendant has failed to honor its obligations under the subject policy/contract, to wit, Defendant continues to undervalue the property damage and fails to properly process the claim and make full payment.
(Doc. 1, ¶¶ 4-9.)
On the basis of these allegations, Grustas brings two legal claims against the defendant insurers: a claim of breach of an insurance contract between the parties, (Doc. 1, Count 1), and a companion claim of breach of a state statutory duty of good faith in investigating and paying this insurance claim in violation of 42 Pa. Cons. Stat. § 8371. (Doc. 1, Count 2.)
Presented with these claims, the defendants have moved to dismiss this statutory bad faith claim in its entirety, arguing that the complaint fails to state claim upon which relief may be granted under § 8371. (Doc. 9.) For his part, Grustas has responded to this motion by arguing that his complaint sufficiently states a statutory bad faith claim under Pennsylvania law. (Doc. 10.) This motion is fully briefed by the parties and is, therefore, ripe for resolution. For the reasons set forth below, we recommend that the motion be granted and Count II of the complaint be dismissed, without prejudice.
II. Discussion
A. Motion to Dismiss-Standard of Review
A motion to dismiss tests the legal sufficiency of a complaint. Rule 12(b)(6) of the Federal Rule of Civil Procedure provides for the dismissal of a complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief can be granted. The moving party bears the burden of showing that no claim has been stated, Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005), and dismissal is appropriate only if, accepting all of the facts alleged in the complaint as true, the plaintiff has failed to plead "enough facts to state a claim to relief that is plausible on its face," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). The facts alleged must be sufficient to "raise a right to relief above the speculative level." Twombly, 550 U.S. 544, 555. This requirement "calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence" of necessary elements of the plaintiff's cause of action. Id. at 556. Furthermore, in order to satisfy federal pleading requirements, the plaintiff must "provide the grounds of his entitlement to relief," which "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (brackets and quotation marks omitted) (quoting Twombly, 550 U.S. at 555).
In practice, consideration of the legal sufficiency of a complaint entails a three-step analysis: "First, the court must 'tak[e] note of the elements a plaintiff must plead to state a claim.' Iqbal, 129 S. Ct. at 1947 Second, the court should identify allegations that, 'because they are no more than conclusions, are not entitled to the assumption of truth.' Id. at 1950. Finally, 'where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.' Id." Santiago v. Warminster Tp., 629 F.3d 121, 130 (3d Cir. 2010).
As the Court of Appeals has observed: "The Supreme Court in Twombly set forth the 'plausibility' standard for overcoming a motion to dismiss and refined this approach in Iqbal. The plausibility standard requires the complaint to allege 'enough facts to state a claim to relief that is plausible on its face.' Twombly, 550 U.S. at 570, 127 S. Ct. 1955. A complaint satisfies the plausibility standard when the factual pleadings 'allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.' Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S. Ct. 1955). This standard requires showing 'more than a sheer possibility that a defendant has acted unlawfully.' Id. A complaint which pleads facts 'merely consistent with' a defendant's liability, [ ] 'stops short of the line between possibility and plausibility of "entitlement of relief." ' " Burtch v. Milberg Factors, Inc., 662 F.3d 212, 220-21 (3d Cir. 2011) cert. denied, 132 S. Ct. 1861, 182 L. Ed. 2d 644 (U.S. 2012).
In considering a motion to dismiss, the court generally relies on the complaint, attached exhibits, and matters of public record. Sands v. McCormick, 502 F.3d 263, 268 (3d Cir. 2007). The court may also consider "undisputedly authentic document[s] that a defendant attached as an exhibit to a motion to dismiss if the plaintiff's claims are based on the [attached] documents." Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). Moreover, "documents whose contents are alleged in the complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered." Pryor v. Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 560 (3d Cir. 2002); see also, U.S. Express Lines, Ltd. v. Higgins, 281 F.3d 382, 388 (3d Cir. 2002) (holding that "[a]lthough a district court may not consider matters extraneous to the pleadings, a document integral to or explicitly relied upon in the complaint may be considered without converting the motion to dismiss in one for summary judgment."). However, the court may not rely on other parts of the record in determining a motion to dismiss. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994).
B. Legal Standards Governing Statutory Bad Faith Claims Under 42 Pa. Cons. Stat. § 8371
Pennsylvania law provides for a cause of action by insurance customers against insurance companies that engage in bad faith claims handling, stating that: "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.
Under Pennsylvania law, "[b]ad faith is a frivolous or unfounded refusal to pay, lack of investigation into the facts, or a failure to communicate with the insured. See Coyne v. Allstate Ins. Co., 771 F.Supp. 673, 678 (E.D.Pa.1991) (bad faith is failure to acknowledge or act promptly on the claims or refusing to pay without reasonable investigation of all available information); Romano v. Nationwide Mut. Fire Ins. Co., 435 Pa.Super. 545, 646 A.2d 1228 (1994)." Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 751 (3d Cir. 1999). "Ultimately, in order to recover on a bad faith claim, the insured must prove: (1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim." Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005). Case law sets exacting standards for any bad faith claim. As the Court of Appeals has observed:
In the primary case construing bad faith under 42 Pa.C.S.A. § 8371, Terletsky v. Prudential Property & Casualty Co., the Superior Court of Pennsylvania explained:
"Bad faith" on [the] part of [an] insurer is any frivolous or unfounded refusal to pay proceeds of a 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.
437 Pa.Super. 108, 125, 649 A.2d 680, 688 (Pa. Super. Ct.1994) (quoting Black's Law Dictionary 139 (6th ed.1990)). Terletsky held that, "to recover under a claim of bad faith," the insured must show that the insurer "did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim." Id. Thus, an insurer may defeat a claim of bad faith by showing that it had a reasonable basis for its actions. Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300, 307 (3d Cir.1995). Our Court has described "the essence of a bad faith claim" as "the unreasonable and intentional (or reckless) denial of benefits." UPMC Health Sys. v. Metro. Life. Ins. Co., 391 F.3d 497, 506 (3d Cir.2004).Bad faith "must be proven by clear and convincing evidence and not merely insinuated." Terletsky, 649 A.2d at 688 (collecting cases). As the District Court noted, this heightened standard requires the insured to provide evidence "so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith." Bostick v. ITT Hartford Grp., 56 F.Supp.2d 580, 587 (E.D. Pa. 1999) (citations omitted).Amica Mut. Ins. Co. v. Fogel, 656 F.3d 167, 179 (3d Cir. 2011).
These same exacting standards apply to assessing the sufficiency of complaints alleging bad faith claims under § 8371. When considering whether a proposed statutory bad faith claim under § 8371 fails as a matter of law, "[m]any federal district courts have recently been called upon to evaluate bad faith complaints in light of Iqbal and Twombly. Under these Supreme Court decisions, plaintiffs must plead sufficient facts to make out a plausible claim for relief against the defendant. See Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 557). In the bad faith context, district courts have required more than 'conclusory' or 'bare-bones' allegations that an insurance company acted in bad faith by listing a number of generalized accusations without sufficient factual support. See e.g., Liberty Ins. Corp. v. PGT Trucking, Inc., Civ. A. No. 11-151, 2011 WL 2552531, at *4 (W.D.Pa. Jun. 27, 2011); Pfister v. State Farm Fire & Cas. Co., Civ. A. No. 11-799, 2011 WL 3651349 (W.D.Pa. Aug. 18, 2011); Atiyeh, 742 F.Supp.2d at 599 ('However, these averments are merely conclusory legal statements and not factual averments.')." Palmisano v. State Farm Fire & Cas. Co., CIV.A. 12-886, 2012 WL 3595276 (W.D. Pa. Aug. 20, 2012). See Yohn v. Nationwide Ins. Co., 1:13-CV-024, 2013 WL 2470963 (M.D. Pa. June 7, 2013) (collecting cases). Thus, the assessment of the sufficiency of a particular complaint often turns on the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss. Compare Sypeck v. State Farm Mut. Auto. Ins. Co., 3:12-CV-324, 2012 WL 2239730 (M.D. Pa. June 15, 2012) with Zimmerman v. State Farm Mut. Auto. Ins. Co., 3:11-CV-1341, 2011 WL 4840956 (M.D. Pa. Oct. 12, 2011). Where a complaint's § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was "unreasonable" or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims. See e.g., Wanat v. State Farm Mut., Auto. Ins. Co., 4:13-CV-1366, 2014 WL 220811 (M.D. Pa. Jan. 21, 2014); Cacciavillano v. Nationwide Ins. Co. of Am., 3:12-CV-530, 2012 WL 2154214 (M.D. Pa. June 13, 2012).
D. Grustas' Bad Faith Claim Should Be Dismissed Without Prejudice
Judged against these legal benchmarks, we recommend that this motion to dismiss be granted, but Grustas be provided with an opportunity to further amend this complaint to state a bad faith claim upon which relief may be granted. The factual averments in this complaint succinctly state a claim for breach of an insurance contract; however, more is required to state a viable bad faith claim under §8371. As this court has recently noted, a statutory bad faith claim "premised largely on 'bare-bones conclusory allegations . . . . [is] not sufficient to state a bad faith claim.' Meyers v. Protective Ins. Co., No. 16-1821, 2017 WL 386644, at *9 (M.D. Pa. Jan. 27, 2017)." Nor can a bad faith claim rest upon "conduct has been found to constitute 'legal conclusions rather than factual allegations.' Rickell v. USAA Cas. Ins. Co., No. 18-1279, 2018 WL 5809865, at *3 (M.D. Pa. Nov. 6, 2018)." LAUREN ANTIDORMI MORAN, Plaintiff, v. UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA), Defendant., No. 3:18-CV-2085, 2018 WL 6524385, at *3 (M.D. Pa. Dec. 12, 2018).
In the instant case, Count II of Grustas' complaint consists of little more than allegations of a failure to pay under an insurance policy, coupled with conclusions of bad faith. Such allegations, standing alone, do not meet the pleading standards required for a statutory bad faith claim under §8371. While Grustas attempts to satisfy these pleading standards by citing to one sentence in paragraph 9 of his complaint which alleges that, "Defendant continues to undervalue the property damage and fails to properly process the claim and make full payment." (Doc. 1, ¶ 9), this averment by itself does not carry the day of the plaintiff. Fairly construed, this averment simply states the plaintiff's subjective belief that the defendants have undervalued this particular insurance claim. Such claims, stated in a conclusory manner, do not meet federal pleading standards since it is well-settled that a:
Plaintiff's subjective belief as to the value of her claim is not indicative of bad faith "because Defendants' subjective belief as to the value of the claim may reasonably, and permissibly, differ." Id. Thus, absent additional factual allegations supporting how "Defendant failed to offer any reasonable amount of uninsured motorist benefits," (Doc. 1-2, ¶ 11), Plaintiff cannot proceed on a bad faith claim on this basis. See Meyers, 2017 WL 386644, at *8; see also Rickell, 2018 WL 5809865, at *4 ("The mere allegation that Plaintiffs provided documentation and Defendant has failed to make a reasonable settlement offer, however, does not support an inference of bad faith without additional factual support such as the complexity of the claim and the time passed
between the date Plaintiffs supplied the necessary information and the date the complaint was filed."); Camp v. N.J. Mfrs. Ins. Co., No. 16-1087, 2016 WL 3180743, at *6 (E.D. Pa. June 8, 2016) ("other than the conclusory allegation that NJMIC failed to make a settlement offer, Camp posits no additional factual averments from which it could be found that NJMIC's failure to make an offer was in bad faith."); Pfister v. State Farm Fire & Cas. Co., No. 11-799, 2011 WL 3163184, at *4 (W.D. Pa. July 26, 2011) (discrepancy in parties' valuation of claim "alone is not evidence of bad faith").LAUREN ANTIDORMI MORAN, Plaintiff, v. UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA), Defendant., No. 3:18-CV-2085, 2018 WL 6524385, at *4 (M.D. Pa. Dec. 12, 2018).
While we find that the complaint, in its present form, does not sufficiently plead a bad faith claim under 42 Pa. Cons. Stat. § 8371, we recognize that plaintiffs should often be provided an opportunity to amend a complaint before the complaint is dismissed in its entirety, See Fletcher-Hardee Corp. v. Pote Concrete Contractors, 482 F.3d 247, 253 (3d Cir. 2007), unless granting further leave to amend would be futile or result in undue delay. Alston v. Parker, 363 F.3d 229, 235 (3d Cir. 2004). The rule applies with force to statutory bad faith claims under §8371, where courts have typically have afforded litigants an opportunity to further amend and articulate their bad faith claims. See e.g., Wanat v. State Farm Mut., Auto. Ins. Co., 4:13-CV-1366, 2014 WL 220811 (M.D. Pa. Jan. 21, 2014); Cacciavillano v. Nationwide Ins. Co. of Am., 3:12-CV-530, 2012 WL 2154214 (M.D. Pa. June 13, 2012). Accordingly, we recommend that Count II of this complaint be dismissed without prejudice to the filing of an amended complaint which may adequately state the elements of this particular cause of action.
III. Recommendation
For the foregoing reasons, IT IS RECOMMENDED that the defendants' Motion to Dismiss Count II of the Complaint, (Doc. 9), be GRANTED without prejudice to the filing of an amended complaint which may adequately state the elements of this particular cause of action.
The Parties are further placed on notice that pursuant to Local Rule 72.3:
Any party may object to a magistrate judge's proposed findings, recommendations or report addressing a motion or matter described in 28 U.S.C. ' 636 (b)(1)(B) or making a recommendation for the disposition of a prisoner case or a habeas corpus petition within fourteen (14) days after being served with a copy thereof. Such party shall file with the clerk of court, and serve on the magistrate judge and all parties, written objections which shall specifically identify the portions of the proposed findings, recommendations or report to which objection is made and the basis for such objections. The briefing requirements set forth in Local Rule 72.2 shall apply. A judge shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge. The judge, however, need conduct a new hearing only in his or her discretion or where required by law, and may consider the record developed before the magistrate judge, making his or her own determination on the basis of that record. The judge may also receive further evidence, recall witnesses or recommit the matter to the magistrate judge with instructions.
Submitted this 17 day of December, 2018.
S/ Martin C . Carlson
Martin C. Carlson
United States Magistrate Judge