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Mitch's Auto Service Center, Inc., et al v. State Automobile Mutual Insurance Co

October 24, 2011

MITCH'S AUTO SERVICE CENTER, INC., ET AL.,
PLAINTIFFS,
v.
STATE AUTOMOBILE MUTUAL INSURANCE CO., DEFENDANT.



The opinion of the court was delivered by: Eduardo C. Robreno, J.

MEMORANDUM

I. INTRODUCTION

Mitch's Auto Service Center, Inc., and Mitchell Hartka ("Plaintiffs"), filed this breach of contract action against State Automobile Mutual Insurance Co. ("Defendant") in the Court of Common Pleas of Philadelphia County for failure to pay a claim under an insurance policy. The Complaint asserts four causes of action: Breach of Contract (Count I); Detrimental Reliance/ Misrepresentation (Count II); Unfair Insurance Practices pursuant to 42 Pa. Cons. Stat. § 8371 (Count III); and Violation of Pennsylvania's Unfair Trade Practices Act, 73 Pa. Cons. Stat. § 201-2(4) (Count IV).*fn1 On March 29, 2011, Defendant moved for summary judgment on Counts I and III, the only remaining counts. Plaintiffs opposed and responded appropriately; the motion is now ripe for disposition.

Under Count I, Defendant's alleged breach of contract, first the Court determines whether the Policy and applicable provisions are clear and unambiguous. Next, the Court addresses Defendant's argument that it did not breach the contract by denying Plaintiffs' insurance claim because the Policy requires documentation as a predicate to claim collection. As to Count III, Defendant's alleged bad faith, the Court considers Plaintiffs' assertion that Defendant engaged in bad faith in its drafting of the Policy. Next, the Court considers whether Defendant's conduct during this insurance claim rises to the level of bad faith.

As discussed below, whether documentation is a predicate to payment under the Policy is ambiguous from the Policy language, and genuine issues of fact remain in regards to Plaintiffs' fulfillment of payment conditions. Therefore, the Court will deny Defendant's summary judgment motion as to Count

I. With respect to bad faith, the Court finds that: (1) Pennsylvania law does not recognize a cause of action for bad faith drafting of an insurance policy; and (2) Defendant's conduct was not in bad faith. Accordingly, the Court will grant Defendant's summary judgment motion as to Count III. Finally, the Court, sua sponte, considers its jurisdiction to continue to adjudicate Plaintiffs' claims based upon its disposition of Defendant's motion and decides to proceed to trial with the remaining issues.

II. BACKGROUND*fn2

This suit relates to a claim submitted by Plaintiffs under a commercial insurance policy issued by Defendant. The parties entered into a preferred business policy of insurance ("Policy") for a period covering January 1, 2008 to January 1, 2009. Pls.' Compl. ¶ 4. The Policy included comprehensive business coverage to Plaintiffs, including coverage in the event of loss caused by fire. Id. On May 1, 2008, a motor vehicle at Plaintiffs' business--an automotive repair garage--combusted resulting in a fire that caused much damage. Id. at ¶¶ 1, 5.

Plaintiffs submitted claims under the Policy and Defendant paid all claims except $64,118.86. Id. at ¶ 7. Specifically, Plaintiffs filed three Sworn Proof of Loss statements and the total remaining unpaid from such statements was the amount of depreciation*fn3 deducted from the value of buildings. See Def.'s Br. in Supp. of Mot. for Summ. J. Exs. B-D. Defendant, despite repeated demands, refused to pay the $64,118.86 justifying its refusal on the basis of Policy provisions that allegedly require the insured to first effectuate repairs and submit the receipts for actual repair costs. See Pls.' Compl. ¶ 8.

A. The Policy Provisions at Issue One of the provisions alleged applicable to this case by Plaintiffs is provision E(4)(a), entitled Loss Payment, which states the following:

In the event of loss or damage covered by this Coverage Form, at our option, we will either:

(1) Pay the value of lost or damaged property;

(2) Pay the cost of repairing or replacing the lost or damaged property, subject to b. below;

(3) Take all or any part of the property at an agreed or appraised value; or

(4) Repair, rebuild or replace the property with other property of like kind and quality, subject to b. below

We will determine the value of lost or damaged property, or the cost of its repair or replacement in accordance with the applicable terms of the Valuation Condition in this Coverage Form or any applicable provision which amends or supersedes the Valuation Condition.

Pls.' Compl. Ex. A, at 13. Moreover, this provision refers to provision E(7), entitled Valuation. The Valuation provision provides how Defendant calculates the value of Covered Property and states the following:

We will determine the value of Covered Property in the event of loss or damage as follows:

a. At actual cash value*fn4 as of the time of loss or damage, except as provided in b., c., d., and

e. below.

b. If the Limit of Insurance for Building satisfies the Additional Condition, Coinsurance, and the cost to repair or replace the damaged building property is $2,500 or less, we will pay the cost of building or replacement.

Id. at 14. The final provision is G(3), under the Optional Coverage heading, entitled Replacement Cost. In pertinent part, this ...


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