United States District Court, E.D. Pennsylvania
March 15, 2004.
LITTLE SOULS INC., Plaintiff,
STATE AUTO MUTUAL INSURANCE, CO., successor in interest to MERIDIAN MUTUAL INSURANCE CO. Defendants
The opinion of the court was delivered by: CLIFFORD GREEN, Senior District Judge
Presently pending is Defendant's Motion to Dismiss Counts III and IV
and Numerous Paragraphs of Plaintiffs Amended Complaint pursuant to FRCP
12(b)(6) and 12(f) and Plaintiff's response thereto. For the following
reasons, Defendant's motion will be denied.
I. Factual and Procedural Background
On or about May 15, 2001, a fire occurred at the Continental Business
Center in Bridgeport, Pennsylvania, where plaintiff Little Souls, Inc.
("Little Souls") was a tenant and conducted business. Plaintiff submitted
a claim to defendant State Auto Mutual Insurance Co. ("State Mutual")
pursuant to a policy for alleged damage, including business income loss,
sustained as a result of the fire pursuant to a Pacemaker Businessowners
policy of insurance. A dispute arose as to the "period of restoration."
While both parties agree the "period of restoration" begins on the date
of the loss and ended when Plaintiffs moved to another location, the
parties disagreed as to the date of Plaintiff's move. To settle this
dispute, State Mutual filed a Declaratory Judgment action before this
court. Little Souls moved to dismiss and requested a remand to appraisal. On February 5, 2003, we denied the motion to
dismiss the declaratory judgement complaint, entered an order compelling
both parties to proceed to appraisal, and placed the litigation in the
civil suspense file. Thereafter, the parties were able to reach an
agreement as to the appropriate length of time for the "period of
restoration" in settlement discussions; however, the parties were not
successful in agreeing to the amount of business income loss. Those
negotiations are ongoing but have stalled.
On October 15, 2003, plaintiff Little Souls filed the instant complaint
against defendant State Mutual alleging breach of contract, bad faith,
fraud, intentional misrepresentation, negligent misrepresentation and
breach of duty of good faith and fair dealing. Defendant filed a Motion
to Dismiss the Complaint based on the fact that the counts were
duplicative and unnecessary under the "gist of the action" doctrine.
Thereafter, Plaintiff filed an Amended Complaint, alleging breach of
contract, bad faith, intentional misrepresentation, and fraud. Still
believing the causes of action duplicative, Defendant filed the current
Motion to Dismiss. Due to the filing of the Amended Complaint and the
Motion to Dismiss the Amended Complaint, the Motion to Dismiss the
original complaint will be dismissed as moot. The Motion to Dismiss
Counts III and IV and Numerous Paragraphs of Plaintiff's Amended
Complaint and the response thereto is addressed below.
II. Legal Standard
A court should grant a motion to dismiss for failure to state a cause
of action only if it appears to a certainty that no relief could be
granted under any set of facts which could be proved. See Hishon v.
King & Spalding, 467 U.S. 69. 73 (1984). The "notice pleading" approach governs the standard of specificity regarding motions to
dismiss civil rights claims pursuant to 42 U.S.C. § 1983. In
Swierliewicz v. Sorema, 122 S.Ct. 992 (2002), a unanimous
Supreme Court stated,
[g]iven the Federal Rules' simplified standard for
pleading, a court may dismiss a complaint only if
it is clear that no relief could be granted under
any set of facts that could be proved consistent
with the allegations. If the pleading fails to
specify the allegations in a manner that provides
sufficient notice, a defendant can move for a more
definite statement under Rule 12(e) before
responding. Moreover, claims lacking merit may be
dealt with through summary judgment under Rule 56.
The liberal notice pleading of Rule 8(a) is the
starting point of a simplified pleading system,
which was adopted to focus on the merits of a
Id. at 998-99 (internal citations omitted).
A court must accept as true all well pleaded allegations of the
complaint in evaluating a motion to dismiss. See Jordan v. Fox.
Rothschild. O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.
1994). Nevertheless, "a court need not credit a complaint's `bald
assertions' or `legal conclusions' when deciding a motion to dismiss."
Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.
1997) (citations omitted). Furthermore, because granting a motion to
dismiss results in a determination on the merits at an early stage of the
plaintiff's case, the district court must "construe the complaint in the
light most favorable to the plaintiff, and determine whether, under any
reasonable reading of the pleadings, the plaintiff may be entitled to
relief." Colburn v. Upper Darby Township, 838 F.2d 663, 665-66
(3d Cir. 1988), cert. denied, 489 U.S. 1065 (1989) (citations
omitted). III. Discussion
A. Gist of the Action Doctrine
Defendant State Mutual contends Plaintiff's complaint sounds in
contract, rather than tort, and the allegations of fraud and intentional
misrepresentation merely mirror the claims for breach of contract.
Defendant argues Plaintiff's intentional misrepresentation and fraud
claims should be dismissed under Pennsylvania's "gist of the action"
doctrine. (Def. Mem. at 7.) The doctrine states that "[w]hen a plaintiff
alleges that the defendant committed a tort in the course of carrying out
a contractual agreement, Pennsylvania courts examine the claim and
determine whether the `gist' or gravaman of it sounds in contract or
tort; a tort claim is maintainable only if the contract is `collateral'
to conduct that is primarily tortious." Sunquest Info. Sys., Inc. v.
Dean Witter Reynolds. Inc., 40 F. Supp.2d 644. 651 (W.D.Pa. 1999)
(citing cases). The opinion further iterates, "contract actions arise
from breach of duties mutually agreed to, while torts have their basis in
violations of duties imposed as a matter of social policy. Id.,
citing Phico Ins. Co. v. Presbyterian Medical Serv. Corp.,
663 A.2d 753, 757 (Pa. Super. 1995).*fn1 Plaintiff Little Souls argues
the tort claims are the gist of the action and are not dependent on the
resolution of the contract claims.
Plaintiff's intentional misrepresentation claim states that the
Defendants confirmed representations regarding making timely payments for
legitimate claims when the parties entered into the insurance policy.
(Compl. at ¶ 54.) Crediting the allegations of the complaint as true,
Plaintiff alleges the Defendant never had any intention of making timely
payments. In addition, the intentional misrepresentations alleged by Plaintiff were not
limited solely to the claim that State Mutual breached its contract.
Plaintiff also alleges State Mutual made false statements in the
declaratory judgment lawsuit, and sought relief on a claim that was not
in dispute. (Am. Comp. ¶ 58.) The Amended Complaint also alleges the
defendant's conduct in marketing itself as a trustworthy and reliable
company and its corporate policy are fraudulent. These representations
allegedly induced the Plaintiff into purchasing their insurance with
Defendant. (Am. Comp. at ¶ 60-62.)
At this point in the litigation, it is difficult to ascertain whether
the gist of the action doctrine would preclude plaintiff from asserting
these arguably similar causes of action. While based on a collateral
contract, the plaintiff Little Souls is alleging misrepresentations
occurred both before and after the formation of the contract that, if
sufficiently distinct, would not hinge on the outcome of the breach of
contract claim. As a sufficient factual basis is alleged, the tort claims
will not be prohibited by the "gist of the action" doctrine. Plaintiff
has stated a cause of action upon which relief can be granted; therefore,
defendant's motion to dismiss will be denied. As allegations in count III
differ from the allegations in the breach of contract claims they are not
redundant; therefore, the allegation will not be stricken from the
B. Rule 9(b) Fraud
As to the sufficiency of the claims, State Auto Mutual Insurance has
moved to dismiss plaintiff's cause of action for fraud pursuant to
F.R.C.P 12(b)(6) for failure to plead with particularity, and in the
alternative, moved to strike Count IV as redundant, pursuant to F.R.C.P.
12(f). Rule 9(b) requires a plaintiff to plead "(1) a specific false
representation of material fact; (2) knowledge by the person who made it
of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted
upon; and (5) that the plaintiff acted upon it to his damage."
Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284 (3d Cir.), cert.
denied, 506 U.S. 934, 113 S.Ct. 365 (1992) (citation omitted).
The complaint alleges the Defendant marketed itself as a trustworthy
and reliable insurer that will promptly and fairly evaluate and pay
claims, but actually had a corporate policy to pay as little and as late
as it can. The complaint also alleges the Plaintiff was induced by these
representations into purchasing Defendant's insurance to his detriment.
(Am. Comp. at ¶¶ 60-62.) Contrary to defendant's contention, the
allegations "inject precision and some measure of substantiation."
Sun Co. v. Badger Design & Constructors, 939 F. Supp. 365,
369 (E.D.Pa.1996)(quoting In re Chambers Dev. Sec. Litig.,
848 F. Supp. 602, 616 (W.D.Pa.1994)). When accepting as true all the factual
allegations, plaintiff has sufficiently alleged a claim for fraud in the
inducement and defendants motion to dismiss count IV will be denied.
C. Bad Faith
Plaintiff's Complaint avers that State Mutual acted in bad faith under
42 Pa. C.S.A. § 8371 by delaying or denying portions of Plaintiff's
insurance claim knowing there was no reasonable basis to do so. (Compl.
at ¶ 50.) Among its claims of bad faith, Plaintiff Little Souls
alleges that State Mutual: denied or delayed Plaintiff's claim with
reckless disregard of the lack of reasonable basis; violated the
Pennsylvania Unfair Insurance Practices Act; violated the Unfair Claims
Settlement Act; misinterpreted and misrepresented terms of the insurance
contract; utilized ambiguous wording in the insurance contract; failed to
properly and timely investigate the claim; compelled Plaintiff to defend
a lawsuit; and instituted a lawsuit and made statements in such that were
not true. (Compl. at ¶ 52.) Defendant contends several paragraphs of Plaintiff's bad faith claim,
relating to the filing of the Declaratory Judgment action, must fail as a
matter of law. Defendant claims it should not be held liable for
committing bad faith under 42 Pa. C.S.A. § 8371 because the liability
of an insurance company under its policy is a proper subject of a
declaratory judgment action pursuant to 42 Pa. C.S.A. § 7531 et
seq. Plaintiff claims the Defendant did not have a basis to file the
Declaratory Judgment action and that it is inappropriate to dismiss any
of the allegations relating or referring to the Declaratory Judgment
While it is true the filing of a declaratory judgment alone cannot
sustain an action for bad faith, the plaintiff may use that as part of
its case to prove bad faith. Just because the filing alone does not prove
bad faith, the filing in conjunction with other evidence may. See
Krisa v. The Equitable Life Assurance Society, 109 F. Supp.2d 316,
321 (M.D. Pa. 2000). Even though defendant claims they did not engage in
that other conduct constituting bad faith, that is not an appropriate
inquiry in a motion to dismiss. Defendants' motion to strike will be
An appropriate order follows. ORDER
IT IS HEREBY ORDERED that Defendant's Motion to Dismiss
Counts III and IV and Numerous Paragraphs of Plaintiffs Amended Complaint
pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f) is
DENIED. IT IS FURTHER ORDERED that Defendant's original Motion
to Dismiss is DISMISSED as Moot. IT IS FURTHER
ORDERED that the Deputy Clerk schedule a settlement conference with
counsel for the parties.