United States District Court, E.D. Pennsylvania
June 8, 2004.
DANIEL ORRISON, ET AL.
FARMERS NEW CENTURY INSURANCE COMPANY.
The opinion of the court was delivered by: JOHN PADOVA, District Judge
Plaintiffs, Daniel and Linda Orrison, have brought this action
for breach of a homeowner's insurance contract, bad faith,
negligence, and negligent misrepresentation against Farmers New
Century Insurance Company ("Farmers"). Defendant has moved to
dismiss Counts II-IV of the Complaint pursuant to Federal Rule
of Civil Procedure 12(b)(6) ("Rule 12(b)(6)") for failure to
state a claim upon which relief may be granted. For the reasons
that follow, the Motion is granted in part and denied in part.
The Complaint alleges that Farmers issued a homeowners'
insurance policy, Policy No. 92096-43-88, covering Plaintiffs'
premises at 3961 Mechanicsville Road, Bensalem, Pennsylvania (the
"Policy"). (Compl. ¶ 3.) On June 24, 2002, while the Policy was
in full force and effect, Plaintiffs suffered a physical loss to
the insured premises resulting in damage to several areas of the
premises, including the infiltration of water into the interior
of the home. (Compl. ¶ 5.) Plaintiffs promptly gave Farmers
notification of their loss. (Compl. ¶ 6). Farmers determined that Plaintiffs had suffered a covered loss and paid certain benefits
to Plaintiffs, including benefits for the replacement of their
roof. (Compl. ¶ 7.) Farmers, in accordance with the Policy,
retained Mark Irwin to replace Plaintiffs' roof. (Compl. ¶ 7.)
Plaintiffs' roof was replaced by Irwin either through his own
company or through a subcontractor. (Compl. ¶ 7.)
Not long thereafter, Plaintiffs discovered mold growth on the
underside of their new roof, in the attic, and in other areas of
their home. (Compl. ¶ 8.) They promptly notified Defendant, who
investigated and refused to provide coverage for the mold growth.
(Compl. ¶ 8.) The mold growth was due in whole or in part to
Farmers' roofer's improper installation of the roof, which
affected the ventilation within the home and provided an
environment which encouraged mold growth. (Compl. ¶ 9.) The mold
growth was also caused by the infiltration of water into
Plaintiffs' home on June 24, 2002. (Compl. ¶ 10.) As a result of
the mold growth, Plaintiffs have suffered damage to their home,
personal property, and health. (Compl. ¶ 11.)
The Complaint asserts causes of action for breach of contract
(Count I) and bad faith in violation of 42 Penn. Cons. Stat. Ann.
§ 8371 (Count II). The Complaint also alleges negligence and
negligent misrepresentation claims (Counts III and IV).
II. LEGAL STANDARD
"The test for reviewing a 12(b)(6) motion is whether under any
reasonable reading of the pleadings, plaintiff may be entitled to relief." Simon v. Cebrick, 53 F.3d 17, 19 (3d Cir. 1995). The
court must accept as true all well pleaded allegations in the
complaint and view them in the light most favorable to the
Plaintiff. Angelastro v. Prudential-Bache Securities, Inc.,
764 F.2d 939, 944 (3d Cir. 1985). A Rule 12(b)(6) motion will be
granted when a Plaintiff cannot prove any set of facts,
consistent with the complaint, which would entitle him or her to
relief. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).
Farmers has moved to dismiss Count II of the Complaint on the
grounds that the Complaint fails to adequately state a claim for
bad faith under Pennsylvania law. Additionally, Farmers has moved
to dismiss Counts III and IV of the Complaint on the grounds
that, in Pennsylvania, breach of contract is the exclusive remedy
for failure to pay the proceeds of an insurance policy, and state
law does not provide a cause of action based on negligence or
tort theories for the failure to pay the proceeds of an insurance
A. Bad Faith
Count II of the Complaint alleges a claim against Farmers for
insurance bad faith based on Farmers' treatment of Plaintiffs
pertaining to their covered loss and Farmers' refusal of coverage
for the mold damage to the property. The Pennsylvania insurance
bad faith statute provides as follows:
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
42 Pa. Cons. Stat. Ann. § 8371. "To establish a claim for bad
faith denial of insurance coverage under Pennsylvania law, a
Plaintiff must prove by clear and convincing evidence that: the
insurer (1) lacked a reasonable basis for denying coverage, and
(2) knew or recklessly disregarded its lack of a reasonable
basis." Justofin v. Metropolitan Life Ins. Co., No.CIV.A.
01-6266, 2002 WL 1773007, (E.D. Pa. July 29, 2002) at *7 (citing
Adamski v. Allstate Ins. Co., 738 A.2d 1033
, 1036 (
Pa. Super. 1999), appeal denied, Goodman v. Durham, 759 A.2d 387
Farmers argues that Count II should be dismissed pursuant to
Rule 12(b)(6) because the Complaint does not allege that Farmers
acted without a reasonable basis, or with the knowledge that it
lacked a reasonable basis, in investigating and denying
Plaintiffs' claim. However, the Complaint does plead that the
Defendant engaged in bad faith conduct toward Plaintiffs. The
Complaint sets forth the basic facts of the Plaintiffs'
interaction with Farmers, including the issuance of the insurance
policy, the coverage of the initial loss, and Farmers' refusal to
provide coverage for the mold growth. The Complaint specifically avers that Farmers did not have a reasonable basis for denying
Plaintiffs' benefits and that Farmers knowingly or recklessly
disregarded its lack of reasonable basis when it denied
Plaintiffs' claim. (Compl. ¶ 18(f).) Under Rule 8 of the Federal
Rules of Civil Procedure, "[t]he complaint will be deemed to have
alleged sufficient facts if it adequately put the defendants on
notice of the essential elements of the plaintiffs' cause of
action." Langford v. City of Atlantic City, 235 F.3d 845, 847
(3d Cir. 2000). Count II of the Complaint provides Defendant with
adequate notice of the bad faith claim and the basis on which it
rests. Consequently, the Motion to Dismiss will be denied with
respect to Count II of the Complaint.
B. Negligence and Negligent Misrepresentation
Counts III and IV of the Complaint allege claims for negligence
and negligent misrepresentation pertaining to both Plaintiffs'
initial loss and the mold growth in their home. Count III alleges
that Defendant was negligent in selecting a contractor to perform
repairs to Plaintiffs' home, in failing to properly inspect
Plaintiffs' home, and in failing to provide compensation
sufficient to enable them to prevent the growth of mold. Count IV
alleges that Defendant was negligent in its representation to
Plaintiffs that the repair plan for Plaintiffs' property was
adequate to repair the damages related to the initial loss.
Farmers argues that Plaintiffs' negligence and negligent
misrepresentation claims should be dismissed on the grounds that the "gist of the action" doctrine bars Plaintiffs from recasting
breach of contract claims as tort claims.*fn1 "When a
plaintiff alleges that the defendant has committed a tort in the
course of carrying out a contractual agreement, Pennsylvania
courts examine the claim and determine whether the `gist' or
gravamen of it sounds in contract or tort; a tort claim is
maintainable only if the contract is `collateral' to conduct that
is primarily tortious." Yocca v. Pittsburgh Steelers Sports,
Inc., 806 A.2d 936, 944 (Pa. Cmwlth. Ct. 2002) (citing Sunquest
Information Systems, Inc. v. Dean Witter Reynolds, Inc.,
40 F. Supp.2d 644, 651 (W.D.Pa. 1999)). "[T]he important difference
between contract and tort actions is that the latter lie from the
breach of duties imposed as a matter of social policy while the
former lie for the breach of duties imposed by mutual consensus."
Phico Ins. Co. v. Presbyterian Med. Serv. Corp., 663 A.2d 753,
757 (Pa. Super. 1995) (citing Bash v. Bell Telephone Co.,
601 A.2d 825 (Pa. Super. 1992)).
Plaintiffs argue that their negligence and negligent misrepresentation claims pertaining to Farmers' selection of a
contractor to repair their home, his repair plan, and the work
performed by that contractor are not barred by the gist of the
action doctrine. They maintain that Farmers exceeded the scope of
its duties under the Policy by selecting the contractor who
repaired their roof and, in doing so, undertook an
extracontractual duty to exercise reasonable care. The
Restatement (Second) of Torts provides as follows:
One who undertakes, gratuitously or for
consideration, to render services to another which he
should recognize as necessary for the protection of
the other's person or things, is subject to liability
to the other for physical harm resulting from his
failure to exercise reasonable care to perform his
undertaking, if (a) his failure to exercise such care
increases the risk of such harm, or (b) the harm is
suffered because of the other's reliance upon the
Restatement 2d of Torts § 323. However, Plaintiffs allege in
the Complaint that Defendant retained the services of a
contractor "in accordance with its options under the applicable
insurance policy." (Compl. ¶ 7.) When determining a Motion to
Dismiss pursuant to Rule 12(b)(6), the court may look only to the
facts alleged in the complaint and its attachments. Jordan v.
Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250
at 1261. The
Complaint alleges that selection of the contractor falls within
the bounds of Farmers' policy. Consequently, the "gist" of
Plaintiffs' negligence and negligent misrepresentation claims
pertaining to Farmers' selection of a contractor to repair their home, his repair plan, and the work conducted by that contractor
sound in contract. Additionally, the allegations of the Complaint
pertaining to Defendant's failure to: 1) properly inspect
Plaintiffs' home after the initial loss; 2) provide compensation
for the repair of areas in Plaintiffs' home that would permit the
growth of mold; 3) cover germicides; 4) notify Plaintiffs of the
hazards of water filtration; 5) warn Plaintiffs of its failure to
provide proper compensation for the initial loss; and 6) provide
compensation for mold growth, all arise out of the contractual
relationship between Plaintiffs and Defendant. Consequently, the
Motion to Dismiss is granted with respect to Plaintiffs' claims
for negligence and negligent misrepresentation in Counts III and
IV of the Complaint.
An appropriate order follows. ORDER
AND NOW, this 8th day of June, 2004, upon consideration of
Defendant's Motion to Dismiss the Complaint (Docket No. 3), and
Plaintiffs' response thereto, IT IS HEREBY ORDERED that the
Motion is GRANTED in part and DENIED in part as follows:
1. Defendant's Motion to Dismiss Count II of the
Complaint is DENIED.
2. Defendant's Motion to Dismiss Counts III and IV of the
Complaint is GRANTED.