The opinion of the court was delivered by: BRODY
Defendants State Farm Fire and Casualty Company and State Farm Mutual Automobile Insurance Company (hereinafter, "State Farm") have filed a Motion for Judgment on the Pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, contending that plaintiff Sylvester Woody's ("Woody") action is time-barred. The issue before me is whether under Pennsylvania law an action for bad faith under 42 Pa.C.S.A. § 8371 brought by an insured against an insurer is subject to the two (2) year statute of limitations under 42 Pa.C.S.A. § 5524 or the six (6) year "catchall" statute of limitations under 42 Pa.C.S.A. § 5527. Because I conclude that actions brought pursuant to 42 Pa.C.S.A. § 8371 are subject to the six (6) year "catchall" statute of limitations, I will deny the motion for Judgment on the Pleadings.
Pennsylvania's cause of action against bad faith insurers arises under 42 Pa.C.S.A. § 8371. That 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.C.S.A. § 8371. The statute does not explicitly provide for a statute of limitations period, however, and no court -- state or federal -- has ever addressed the issue of the applicable statute of limitations for such actions.
State Farm contends that this action is time-barred because the applicable statute of limitations of two (2) years under 42 Pa.C.S.A. § 5524 has run.
This is based on its rationale that Pennsylvania's bad faith statute is essentially a tort action that the state legislature codified after the Supreme Court of Pennsylvania failed to recognize such an action at common law in D'Ambrosio v. Pennsylvania Nat'l Mut. Casualty Ins. Co., 494 Pa. 501, 431 A.2d 966 (Pa. 1981). Because tort actions carry a two (2) year statute of limitations pursuant to 42 Pa.C.S.A. § 5524, State Farm asserts that the applicable statute of limitations in actions brought under § 8371 is also two (2) years.
Woody argues that the applicable statute of limitations is (6) years under the "catchall" provision of 42 Pa.C.S.A. § 5527.
Because he claims that bad faith acts under § 8371 can sound in either tort or contract depending upon the conduct, Woody contends that Pennsylvania's bad faith statute is of a sui generis nature. Woody relies upon Gabriel v. O'Hara, 368 Pa. Super. 383, 534 A.2d 488 (Pa. Super. Ct. 1987), where the court applied the six (6) year "catchall" limitations period to actions arising under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL") which it described as a sui generis statute.
Woody therefore asserts that § 8371 should also be governed by the six (6) year "catchall" limitations period of 42 Pa.C.S.A. § 5527.
The applicability of the relevant statute of limitations to § 8371 is an issue of state law. A federal court must therefore decide the appropriate statute of limitations period by reference to Pennsylvania law as expounded upon by the state legislature or the Supreme Court of Pennsylvania.
Packard v. Provident Nat'l Bank, 994 F.2d 1039, 1046 (3d Cir. 1993). Following this direction, when a statute does not explicitly provide a limitations period, Pennsylvania courts generally apply "the most closely analogous limitations period." Gabriel, 534 A.2d at 394; see also Lowe v. Volkswagen of Am., 879 F. Supp. 28 (E.D. Pa. 1995) (Pennsylvania Lemon Law governed by four (4) year statute of limitations because it is most closely analogous to statutory warranty under Uniform Commercial Code, which carries a four (4) limitations period). Because no Pennsylvania court has addressed this issue, I must predict how this matter would be decided were it before the Pennsylvania Supreme Court. Packard, 994 F.2d at 1046.
In the insurance context, the term "bad faith" has a distinct and universally accepted meaning:
Insurance. "Bad Faith" on part of 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.
Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 751 (3d Cir. 1994) (citing Black's Law Dictionary 139 (6th ed. 1990)); Romano v. Nationwide Mut. Fire Ins. Co., 646 A.2d 1228, 1232 (Pa. Super. Ct. 1994) (same). According to this definition, under Pennsylvania law, "bad faith" acts can sound in either tort or contract, depending upon the conduct exhibited. For example, the definition of bad faith explains that it is not necessary that a frivolous or unfounded refusal to pay insurance proceeds be fraudulent. This implies that fraudulent activity is, indeed, contemplated by the meaning of "bad faith." The definition of bad faith also encompasses the duty of good faith and fair dealing. Under Pennsylvania law, the implied covenant of good faith and fair dealing sounds in contract. Engstrom v. John Nuveen & Co. 668 F. Supp. 953, 958 (E.D. Pa. 1987) (breach of implied covenant of good faith and fair dealing is a breach of contract action); Creeger Brick & Bldg. Supply v. Mid-State Bank & Trust Co., 385 Pa. Super. 30, 560 A.2d 151, 153 ...