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SEEGER BY SEEGER v. ALLSTATE INS. CO.

September 4, 1991

EUGENE SEEGER, A MINOR, BY JACQUELINE C. SEEGER, HIS PARENT AND NATURAL GUARDIAN, PLAINTIFF,
v.
ALLSTATE INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Caldwell, District Judge.

MEMORANDUM

The defendant, Allstate Insurance Company (Allstate), has moved us to reconsider our order, dated June 3, 1991. That order held in abeyance Allstate's motion to dismiss the plaintiff's cause of action under 42 Pa. C.S. § 8371 for Allstate's alleged bad faith in the handling of his claim for first party benefits under an Allstate automobile insurance policy.*fn1 Plaintiff, Eugene C. Seeger, who brought this action by his parent and natural guardian, Jacqueline C. Seeger, suffered serious injuries on January 31, 1990, when he was struck by an automobile while he was allegedly standing by the side of the road holding a dirt bike. Allstate has resisted the claim on the basis of an exclusion in its policy for injuries suffered while occupying a motorcycle or similar vehicle.

We have decided to grant the motion for reconsideration and we will therefore consider the motion to dismiss.

We have already disposed of Allstates's argument that the bad faith claim is insufficient because the complaint fails to allege that Allstate's conduct occurred after the effective date of section 8371, July 1, 1990.*fn2 While we agreed with the defendant in our memorandum, dated December 14, 1990, that the section could only be applied prospectively, we also concluded that the complaint does make sufficient allegations of defendant's conduct after the effective date of the section that any questions concerning the facts of the cause of action would have to be resolved by discovery. This discussion will therefore deal with Allstate's remaining legal arguments against the bad faith claim.

Rudolph Rosa is distinguishable. In that case, newly enacted legislation would have destroyed a franchisor's prior contractual right to immediate termination of a franchise on written notice. Section 8371 has no such effect upon Allstate's contractual rights and obligations here. Bryant, however, is directly on point. In Bryant, the court held that section 8371 did not apply to insurance contracts entered into before the effective date of the section because it would have varied contractual obligations agreed upon prior to the section's existence. However, we decline to follow Bryant.

We are persuaded instead by the court's analysis in Coyne v. Allstate Insurance Co., 771 F. Supp. 673, (E.D.Pa.). Addressing the same arguments when Allstate made them in Coyne, the court reasoned as follows:

    Although the existence of an insurance contract
  is a prerequisite to the enforcement of § 8371 and
  the insurer's conduct must be evaluated in light of
  the contract's provisions, plaintiff's bad faith
  claim is not based on the policy of insurance. The
  law proscribes "acting in bad faith toward the
  insured." 42 Pa. C.S.A. § 8371. It is defendant's
  alleged conduct — all of which occurred after the
  act's effective date — that forms the actionable
  gravamen of count two. The application of that law
  does not alter the insurance policy's substantive
  requirements, interfere with the insurer's
  contractual rights, or otherwise impair the
  parties' obligations. While an insurer has the
  right to rely upon the substantive provisions of
  its contractual policy, it has never had the right
  to act in bad faith toward the insured. It cannot
  rely on contractual language agreed to before the
  effective date of the statute in order to insulate
  itself from statutory liability for bad faith
  conduct alleged to have occurred after that date.
  Retrospective laws may be supported when they
  impair no contract and disturb no vested right, but
  only vary remedies, cure defects in proceedings
  otherwise fair, and do not vary existing
  obligations contrary to their situation when
  entered into and when prosecuted. Costa v. Lair,
  241 Pa. Super. 517, 363 A.2d 1313, 1314 (1976)
  (quoting Smith v. Fenner, 399 Pa. 633, 641,
  161 A.2d 150, 154 — (1960)). [remaining citations
  omitted].
    So viewed, § 8371 may be applied to post-July 1,
  1990 conduct even though the policy was issued
  before that date. . . .

Id. at 675, 1991 WL 153422, at *1-2 (footnotes omitted) (brackets added).

In support of its statement that an insurance company never had the right to act in bad faith toward its insured, the court footnoted D'Ambrosio v. Pennsylvania National Mutual Casualty Insurance Co., 494 Pa. 501, 431 A.2d 966 (1981), in which the Pennsylvania Supreme Court, while rejecting a private cause of action for bad faith, noted that the Insurance Commissioner had been authorized by the legislature to curb a number of bad faith practices.

We likewise conclude, either as a matter of contract law or constitutional law, that if the plaintiff can prove that certain bad faith conduct occurred after the effective date of section 8371, his claim under that section is not barred just because it involves an insurance policy entered into prior to that date.

Allstate also argues that section 8371 violates due process because it exposes an insurance company to liability for "bad faith" in the handling of a claim, a vague term which does not give the defendant fair warning of conduct which might be proscribed by the section. Moreover, there is no statutory definition which would cure this defect. Further, section 8371 fails to set forth ...


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