Before the court is defendant Nationwide Mutual Fire Insurance Company's motion for partial summary judgment. Viewed in the light most favorable to plaintiffs Ruth and Elliot Harrison, the facts forming the background of the motion are as follows:
A fire destroyed plaintiffs' home on September 15, 1980. Plaintiffs notified defendant of the loss on the day the fire occurred. Police authorities investigated the fire and determined that it was of an incendiary cause. Shortly after the fire defendant began its own investigation of the loss. Conducted by Nationwide's most experienced fire adjuster as well as an independent fire investigator retained by the company, the investigation led to the denial of liability to plaintiffs on February 9, 1982. Nationwide based the denial of liability on evidence indicating that the fire was caused by arson and that plaintiffs misrepresented the amount of damage sustained by them.
Plaintiffs initiated suit by filing a six-count complaint in the Court of Common Pleas of Bucks County. Defendant removed the suit to this court pursuant to 28 U.S.C. § 1441. Count I of the complaint is for benefits allegedly due under the policy and is not the subject of this summary judgment motion. Counts II through VI, which are the targets of the motion, all seek compensatory and punitive damages.
Defendant filed a motion to dismiss these five counts. Following oral argument, plaintiffs requested and defendant agreed that the motion to dismiss be treated as a motion for partial summary judgment under Federal Rule of Civil Procedure 56.
For the reasons that follow, the motion is granted.
Counts II and VI
The numerous memoranda filed by defendant in this case rely primarily upon the Pennsylvania Supreme Court's decision in D'Ambrosio v. Pennsylvania National Mutual Casualty Insurance Company, 494 Pa. 501, 431 A.2d 966 (1981). In D'Ambrosio, plaintiff's motorboat and outboard motor were damaged. Defendant insurance company denied plaintiff's claim. Plaintiff alleged that "the adjuster was wrong in the conclusions he had reached, and had not based his conclusions on probative evidence." 431 A.2d at 968. Plaintiff further alleged that defendant continued to refuse the claim despite its inability to "produce any information whatsoever which indicated in any way that the original investigation was valid." 431 A.2d at 967-68. Plaintiff's complaint included a count seeking compensatory and punitive damages.
In upholding a dismissal of that cause, the court expressly refused to adopt the approach of the Supreme Court of California, which allows recovery of emotional distress and punitive damages based upon an insurer's bad-faith conduct in denying a claim. See Gruenberg v. Aetna Insurance Company, 9 Cal.3d 566, 510 P.2d 1032, 108 Cal. Rptr. 480 (1973). Instead, the D'Ambrosio court held that the Pennsylvania state legislature had precluded such relief when it passed the "Unfair Insurance Practices Act" 40 PA.CON.STAT.ANN. § 1171.1-1171.15 (Purdon 1982), which directs complaints against insurers through administrative rather than judicial channels.
The court concluded that in light of the remedy created by the legislature, a judicially created cause of action would be unnecessary to deter bad-faith conduct.
In footnote five of its D'Ambrosio opinion, the court very slightly qualified its broad holding:
the possibility cannot be ruled out that emotional distress damages may be recoverable on a contract where, for example, 'the breach is of such a kind that serious emotional disturbance was a particularly likely result.' RESTATEMENT (SECOND) OF CONTRACTS [§ 353 (1981)].
431 A.2d at 970 n.5. The court observed that the record in D'Ambrosio fell "far short" of establishing such a breach.
Counts II and VI cannot survive the broad holding of D'Ambrosio, directing accusations of bad-faith dealings to the Insurance Commissioner. Footnote five, which has been all but ignored in subsequent cases,
provides no vehicle for escape. Although the Harrisons' monetary loss far exceeds the loss experienced by plaintiff in D'Ambrosio, the quantum of loss, by itself, does not bring the case within the ambit of footnote five.
For a case to fall within the exception, not only must the subject matter be fundamental, but defendant's conduct must be something close to outrageous.
Nationwide assigned the fire loss to its most experienced fire adjuster and retained an independent fire investigator. That investigation revealed -- and plaintiffs do not dispute -- that the fire was indeed caused by arson, that there was no forcible entry into the home, and that plaintiffs were suffering financial difficulties at the time of the fire. These facts led defendant reasonably to suspect plaintiffs of knowledge of or responsibility for the arson.
Plaintiffs fault the investigation only by submitting that defendant negligently failed to investigate additional, alternative suspects and that defendant had no absolute evidence that Elliot Harrison was responsible for the fire. "In short," plaintiffs argue, "the record shows that Nationwide just did not adequately investigate the fire." Plaintiffs' Memorandum of Law Contra Defendant's Motion for Summary Judgment, 26. D'Ambrosio makes it clear, however, that mere inadequacy of investigation is not conduct sufficiently outrageous to constitute a breach "particularly likely to cause emotional disturbance."
Therefore, Counts II and VI must be dismissed.
The third count, seeking compensatory and punitive damages based upon alleged libels and slanders relating to the defendant's denial of the claim, must also be rejected. Under the "Unfair Insurance Practices Act," an insurance company is obligated to explain the basis for denial of a claim 40 PA.CON.STAT.ANN § 1171.5 (xiv) (Purdon 1982). The Restatement (Second) of Torts § 592A provides that "one who is required by law to publish defamatory matter is absolutely privileged to publish it." The Pennsylvania Supreme Court has held:
Plaintiff's incendiarism was a relevant, material and (if established, would be a) complete defense to his claim on a fire insurance policy and (2) such an averment when contained in an answer to plaintiff's suit to recover on his fire insurance policies is absolutely privileged and (3) even if made falsely or maliciously and without reasonable and probable cause, is an absolute bar to an action of libel based on such averments.