as interpreted under Pennsylvania law -- encompasses actions by an insured that sound in both tort and contract.
Reference to Pennsylvania's Unfair Insurance Practices Act ("UIPA"), an act which defines, provides for the determination of, and prohibits unfair methods of competition or unfair or deceptive acts or practices in the insurance industry, lends further support that actions under § 8371 can sound in either tort or contract. According to Romano v. Nationwide Mut. Fire Ins. Co., 646 A.2d 1228 (Pa. Super. Ct. 1994), a trial court may consider the kinds of unfair practices prohibited under UIPA to evaluate whether an insurer's conduct constitutes "bad faith" under § 8371. Among other things, UIPA forbids insurers from engaging in unfair practices that sound in tort. See 40 Pa.C.S.A. § 1171.5(a)(10)(i) (prohibiting the misrepresentation of provisions of insurance coverage). UIPA also forbids insurers from engaging in unfair practices that sound in contract under the implied covenant of good faith and fair dealing. See 40 Pa.C.S.A. § 1171.5(a)(10)(xiii) (prohibiting the failure to promptly settle claims when liability is reasonably clear for the purpose of influencing settlement on a different claim). Therefore, reference to UIPA in interpreting the meaning of § 8371 suggests that "bad faith" encompasses conduct that can sound in either tort or contract.
Under Pennsylvania law, fraud and deceit -- tortious acts -- are subject to the two (2) year statute of limitations under 42 Pa.C.S.A. § 5524(7). The statute of limitations for breach of contract actions, however, is four (4) years under 42 Pa.C.S.A. § 5525. The problem with applying the most closely analogous limitations period to bad faith actions arising under § 8371 is that one case may sound in tort while another case sounds in contract. The critical inquiry then becomes what limitations period applies to a statute that can sound in either tort or contract. The court in Gabriel v. O'Hara, 368 Pa. Super. 383, 534 A.2d 488 (Pa. Super. Ct. 1987), dealt with an analogous situation when determining the applicable limitations period for actions brought pursuant to the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 Pa.C.S.A. §§ 201-1 et seq., a statute enacted to protect the public from fraud and unfair or deceptive business practices. See Pirozzi v. Penske Olds-Cadillac-GMC, 413 Pa. Super. 308, 605 A.2d 373, 375 (Pa. Super. Ct. 1992) (citing Commonwealth v. Monumental Properties, Inc., 459 Pa. 450, 329 A.2d 812, 817 (Pa. 1974)). In Gabriel, the purchasers of residential property sued the vendor under various tort and contract theories because of substantial defects they discovered shortly after taking possession of the property. Subsequently, the purchasers petitioned for leave to amend their complaint to include a claim under UTPCPL. In UTPCPL, like § 8371, the legislature failed to provide a limitations period for actions brought pursuant to the act. Because the lower court in Gabriel reasoned that the underlying purpose of UTPCPL is to protect consumers against fraud, the court held that the two (2) year limitations period for fraud under 42 Pa.C.S.A. § 5524 should apply to the claim arising under UTPCPL. As more than two (2) years had elapsed since the accrual of their cause of action, the lower court held that the purchasers' cause of action under UTPCPL was time-barred. In another case arising under UTPCPL, however, a federal district court had applied a one (1) year statute of limitations in Merv Swing Agency, Inc. v. Graham Co., 579 F. Supp. 429 (E.D. Pa. 1983), instead of the two (2) year limitations period that the lower court in Gabriel had applied. In Merv Swing, the plaintiff, an insurance company, brought an action, inter alia, for trade disparagement under UTPCPL when the defendant, a competing insurance company, allegedly intentionally misrepresented the extent of the plaintiff's insurance coverage to an insured thereby causing the insured to transfer its insurance coverage to the defendant. Because the court held that the plaintiffs' trade disparagement claim under UTPCPL was "essentially a claim for libel," id. at 430, the court applied the one (1) year statute of limitations period under 42 Pa.C.S.A. § 5523 applicable to libel actions.
Referring to the lower court in Gabriel and the federal district court ruling in Merv Swing, the Pennsylvania Superior Court in the Gabriel appeal pointed out that it had to determine the relevant limitations period for a statute that could sound in (at least) two different causes of action when each cause of action is governed by a different statute of limitations. UTPCPL covers an assortment of unfair practices that can sound in either misappropriation or trademark infringement or disparagement or false advertising or fraud or breach of contract or breach of warranty, depending upon the circumstances. Gabriel, 534 A.2d at 494. Because disparagement, fraud, and breach of contract are each governed by different limitations periods, the Gabriel court concluded that the inconsistent determinations as to the appropriate statute of limitations by the lower court in Gabriel and by the court in Merv Swing were directly attributable to the sui generis nature of the statute. As no explicit statute of limitations applies to a statute that can sound in many different causes of action each governed by a different limitations period, the Gabriel court held that the six-year "catchall" limitations period under 42 Pa.C.S.A. § 5527(6) governed UTPCPL.
The case at hand presents a similar problem to that which faced the court in Gabriel. Actions under § 8371 can sound in either tort or contract and each is governed by a different statute of limitations. As explained in Gabriel, a uniform statute of limitations under § 8371 is necessary to avert inconsistency among the courts and uncertainty among the potential parties to such a suit. Id. at 494. Therefore, consistent with the court in Gabriel, I conclude that the Pennsylvania legislature has provided no explicit limitations period for claims brought pursuant to 42 Pa.C.S.A. § 8371. As § 5527 of the Judicial Code directs that actions not subject to any other statute of limitations are governed by a six (6) year limitations period, I conclude that the Supreme Court of Pennsylvania would most likely find that all actions brought pursuant to that statute are subject to the six (6) year "catchall" statute of limitations.
Anita B. Brody, J.
AND NOW, this 23rd day of May 1997, IT IS ORDERED that defendant's Motion for Judgment on the Pleadings is hereby DENIED because I conclude that a six (6) year statute of limitations period applies to actions arising under 42 Pa.C.S.A. § 8371.
Anita B. Brody, J.