The opinion of the court was delivered by: McLAUGHLIN, District Judge.
On June 12, 1994, a fire severely damaged real property and
destroyed personal property owned by the Plaintiffs and insured
by a commercial policy issued by then United States Fidelity &
Guaranty Company and now by merger St. Paul Insurance Companies
(hereinafter "Defendant"). (See Complaint, ¶¶ 8-10). Shortly
thereafter, the Plaintiffs filed a claim with the Defendant and
allege that, throughout its handling, the Defendant pursued a
course of bad faith conduct that resulted in a delayed recovery
and damages including but not limited to lost profits, rents,
and costs from a demanded arbitration. (See Complaint, ¶¶
16-39). The specific instances of behavior alleged to have been
undertaken in bad faith are numerous and immaterial to this
discussion. In 1996, the Plaintiffs were ultimately awarded
$2,160,173, an amount significantly greater than the $778,000
offered to resolve the claim in 1994. (See Complaint, ¶ 23,
30). The Plaintiffs commenced this action on March 20,
A motion to dismiss under Rule 12(b)(6) is evaluated by
accepting all allegations in the complaint as true and viewing
them in the light most favorable to the plaintiffs. See Gould
Electronics Inc. v. United States, 220 F.3d 169 (3d Cir. 2000)
(citing In re Burlington Coat Factory Securities Litigation,
114 F.3d 1410, 1420 (3d Cir. 1997)). The proper inquiry is
"whether relief could be granted . . . `under any set of facts
that could be proved consistent with the allegations.'"
Gasoline Sales, Inc. v. Aero Oil Co., 39 F.3d 70, 71 (3d Cir.
1994) (quoting National Organization for Women, Inc. v.
Scheidler, 510 U.S. 249, 256, 114 S.Ct. 798, 127 L.Ed.2d 99
(1994)). If no cause of action can be identified, dismissal is
In the absence of an opinion from a state's highest court on a
matter of state law before it, a federal court sitting in
diversity must predict how that court would rule on the matter
if it were confronted with it. See Packard v. Provident
National Bank, 994 F.2d 1039, 1046 (3d Cir. 1993). In making
this determination, the court must consider "relevant state
precedents, analogous decisions, considered dicta, scholarly
works, and any other reliable data tending convincingly to show
how the highest court in the state would decide the issue at
hand." Id. Given the decision of a lower state court and a
conflicting decision of a federal court, the opinion of the
state court is given greater weight. See id. at 1047.
The Pennsylvania state courts that have addressed the
applicable statute of limitations for section 8371 claims have
reached conflicting conclusions. See Susich v. Prudential
Property & Cas. Ins. Co., 35 Pa. D. & C. 4th 178 (Ct.C.P. Beaver
Co. 1998) (applying a two-year period on ground that bad faith
claims fall into both the "civil penalty" and tort categories);
Mantia v. Northern Ins. Co. of New York, 39 Pa. D. & C. 4th 71
(Ct.C.P.Lanc.Co. 1998) (applying a six-year period on ground
that bad faith claims embody elements of both tort and
contract); Hospital Shared Services v. CIGNA Ins. Co., No.
GD95-2956 (Ct.C.P.Allegh.Co. 1998) (applying a six-year period
on ground that section 8371 creates a private cause of action
for claims under the Pennsylvania Unfair Insurance Practices
Act, 40 Pa. Stat.Ann §§ 1171.1-1171.15, and that such causes of
action arise under statutorily created obligations as well as
under tort law); Copeland v. Farmers Mutual Fire Ins. Co. of
McCandless County, No. 11219-1997, 82 Erie Co. L.J. 27 (Ct.C.P.
Erie Co. 1997) (applying a six-year period on ground that
section 8371 claims are sui generis and embody elements of
both tort and contract).
Likewise, the federal courts in Pennsylvania that have faced
the issue have divided between the two and six-year
possibilities. See Nelson v. State Farm Mut. Aut. Ins. Co.,
988 F. Supp. 527 (E.D.Pa. 1997); Friel v. Unum Life Ins. Co. of
America, No. CIV. A. 97-1062, 1998 WL 800336 (E.D.Pa. 1998);
McCarthy v. Scottsdale Ins. Co., No. C.A. 99-978, 1999 WL
672642 (E.D.Pa. 1999); Mantakounis v. Aetna Cas. & Sur. Co.,
No. CIV A. 98-4392, 1999 WL 600535 (E.D.Pa. 1999); Liberty Mut.
Fire Ins. Co. v. Corry Indus., C.A. 97172E (W.D.Pa. 2000) (each
applying a twoyear period), and Woody v. State Farm Fire & Cas.
Co., 965 F. Supp. 691 (E.D.Pa. 1997); Kosierowski v. Allstate
Ins. Co., 51 F. Supp.2d 583 (E.D.Pa. 1999); Miller v. The
Cincinnati Insurance Co., No. 97CV-1223 (E.D.Pa. 1997) (each
applying a six-year period). We find it useful to set forth the
rationale of both lines of cases as well as the history of the
bad faith claim.
The cases that have applied a two-year period have largely
characterized claims under section 8371 as tort actions. In
explanation, these courts have discussed or noted the
development of the bad faith
claim generally. See Nelson, 988 F. Supp. at 531-34;
McCarthy, 1999 WL 672642, at *3. Beginning with the landmark
decision of the California Supreme Court in Gruenberg v. Aetna
Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032
(1973), a majority of jurisdictions have recognized the bad
faith claim in both the third and first-party contexts as a tort
action distinct from a breach of contract claim on the insurance
contract. See Nelson, 988 F. Supp. at 533-34 (noting that at
least twenty-nine jurisdictions appear to characterize the
first-party bad faith claim as a common law tort and citing
Douglas R. Richmond, The Two Way Street of Insurance Good
Faith: Under Construction, But Not Yet Open, 28 Loy. U. Chi.
L.J. 95, 107 n. 74 (1996)). As the California court stated in
The duty violated — that of dealing fairly and in
good faith with the other party to a contract of
insurance — is a duty imposed by law, not one arising
from the terms of the contract itself. In other
words, this duty of dealing fairly and in good faith
is nonconsensual in origin rather than consensual.
Breach of this duty is a tort. Gruenberg,
108 Cal.Rptr. 480, 510 P.2d at 1037 (internal citations
Under this rationale the duty breached in a bad faith action
arises from the relationship of the contracting parties rather
than from the terms of the insurance contract. This action more
closely resembles a tort than a contract because the standard of
conduct is an exogenous one rather than ...