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PARASCO v. PACIFIC INDEM. CO.

December 12, 1994

ANTHONY PARASCO and TAMMY PARASCO, Plaintiffs,
v.
PACIFIC INDEMNITY COMPANY, Defendant.



The opinion of the court was delivered by: J. CURTIS JOYNER

 Joyner, J.

 This diversity case arising under Pennsylvania law has been brought before the Court by motion of the defendant, Pacific Indemnity Company (Pacific), which seeks dismissal of Counts II and IV of the plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons that follow, the defendants' motion to dismiss is granted only to the extent that Count IV asks this Court to determine whether Pacific violated the Unfair Insurance Practices Act. In all other respects, the defendants' motion will be denied.

 I. HISTORY OF THE CASE

 Plaintiffs Anthony and Tammy Parasco, husband and wife, held a homeowner's insurance policy issued by Pacific. On June 23, 1993, the Parascos' home and its contents were destroyed by fire. After an investigation, Pacific concluded that Mr. Parasco had set the fire. As a result, it refused to honor the Parascos' insurance claim. While Mr. Parasco has denied any wrongdoing, law enforcement officials apparently reached the same conclusion as Pacific, as criminal charges were brought against Mr. Parasco in March of 1994. These charges remain pending. The Parascos filed this lawsuit in September of 1994, six months after Pacific denied their insurance claim. The complaint asserts an entitlement to relief under four counts, including breach of contract, breach of the covenant of utmost fair dealing, bad faith under 42 Pa. Cons Stat. Ann. § 8371 (Supp. 1994), and violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat. Ann. §§ 201-1--201-9.2 (1993) (Consumer Protection Act). Pacific now brings this motion to dismiss under Fed. R. Civ. P. 12(b)(6) and argues that, with respect to the second and fourth counts, the Parascos have failed to state a legally cognizable claim.

 II. DISCUSSION

 A. Standards Applicable to a Rule 12(b)(6) Motion

 A Rule 12(b)(6) motion is the proper method by which the legal sufficiency of a complaint is challenged. Great W. Life Assurance Co. v. Levithan, 834 F. Supp. 858 (E.D. Pa. 1993). In making its determination, the court must accept as true all of the plaintiff's factual allegations and draw from them all reasonable inferences. Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991)(citations omitted). Thus, the court will grant a Rule 12(b)(6) motion only if there are no set of facts under which the non-moving party can prevail. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990). In deciding this issue, this Court will apply these standards to each of the two counts raised in Pacific's motion.

 B. Breach of Covenant of Utmost Fair Dealing

 Count II of the Parascos' complaint alleges that Pacific violated the duty of utmost fair dealing that it owed to the plaintiffs. Specifically, according to the complaint, Pacific failed to conduct a fair and objective investigation into the loss, failed to pay living expenses after the dwelling became uninhabitable, and rejected the plaintiffs' proof of loss without a reasonable basis. Further, the complaint contends that Pacific advanced certain monies to the plaintiffs in an attempt to cause the plaintiffs to delay in exercising their rights under the policy. Finally, the plaintiffs maintain that Pacific unreasonably delayed the adjustment of their claim.

 Pennsylvania courts have long recognized that an insurer owes a duty of the utmost good faith to its insured. Fedas v. Insurance Co. of Pennsylvania, 300 Pa. 555, 151 A. 285, 286-87 (1930). Over the years, the courts in Pennsylvania have further defined the nature of this duty. In Diamon v. Penn Mut. Fire Ins. Co., 247 Pa. Super. 534, 372 A.2d 1218 (1977), the court held that the duty of good faith encompasses not only the burden to investigate fairly and objectively, but also the obligation to reject claims only where good cause exists to do so. Id. at 1226.

 More recently, the Supreme Court of Pennsylvania has expanded the duty to include the obligation "of full and complete disclosure as to all of the benefits and every coverage that is provided by the applicable policy," even when such disclosure works against the insurer's interest. Dercoli v. Pennsylvania Nat'l Mut. Ins. Co., 520 Pa. 471, 554 A.2d 906, 909 (1989). In Dercoli, the Court held that the insurer had a duty to inform the insured of recently decided case law that impacted the insured's rights. Id. Pacific argues that Dercoli defines the insurer's duty of utmost good faith and fair dealing in its entirety. *fn1" Nothing in the Dercoli decision, however, limited the nature of the duty as defined by the Diamon court. Indeed, the Supreme Court recognized that the Dercoli decision did not represent a narrowing of the nature of the duty, but was instead consistent with prior cases defining the insurer's obligation. Miller v. Keystone Ins. Co., 535 Pa. 531, 636 A.2d 1109, 1113 (1994).

 Thus, the Dercoli decision defines a specialized subset of the circumstances in which the duty applies, and not the scope of the duty in its entirety. The Parascos complaint alleges, inter alia, that Pacific failed to investigate the loss fairly and objectively and rejected the Parascos claim without good cause. These facts, if proved, constitute a breach of the insurer's duty of good faith and fair dealing. See Diamon, 372 A.2d at 1226 (The duty operates as "a promise by [the insurer] that it would exercise reasonable care in investigating a claim by [the insureds]. When an insured has contracted for protection against a specified loss, he is entitled to expect that a claim made under the policy will not be rejected except for good ...


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