United States District Court, E.D. Pennsylvania
Charlestown Township alleges a breach of contract against
Defendant United States Surety Company (“USSC”)
for its failure to comply with contractual terms related to a
construction project. In addition to its breach of contract
claims, Plaintiff seeks declaratory judgment and damages
pursuant to Pennsylvania's bad faith statute, 42
Pa.C.S.A. § 8371. Before me is Defendant's motion to
dismiss Plaintiff's bad faith claim alone. For the
reasons discussed, Defendant's motion will be granted.
FACTS AND PROCEDURAL BACKGROUND
August 15, 2015, Charlestown Township contracted with Out of
Site Infrastructure, Inc., to perform work at the project in
Phoenixville, Pennsylvania. See Compl. at ¶ 7.
In connection with the construction contract, USSC as surety
executed a Performance Bond and Payment Bond, each in the
amount of $1, 143, 000. Id. at ¶ 8. The
construction contract specified that the contractor was to
complete work on the project no later than May 13, 2016.
Id. at ¶ 9. On May 24, 2016, the township
issued a letter declaring the contractor in default and
terminating the contractor's employment. Id. at
pre-termination conference, USSC proposed a recovery plan
consisting of immediate advance payment by the township and a
further schedule extension. See Compl. at ¶
¶ 11-13. The township rejected this plan and demanded
that USSC take over and complete all required work on the
project. Id. at ¶ 15. USSC agreed to perform
and complete the construction contract under the condition
that USSC and the township complete a “Takeover
Agreement.” Id. at ¶ ¶ 17-19.
takeover agreement was signed on August 29, 2016, and set
forth a schedule for the completion of the remaining work and
a schedule for payment by the Township to USSC for the work
as completed. See Compl. at ¶ 21 and Ex.
“A.” As of December 1, 2016, the township's
design professionals compiled an inspection report regarding
the status of the work and submitted a letter advising
USSC's contractor of a punch list of items to be
completed. See Compl. at ¶ ¶ 29-31.
December 3, 2016, USSC's contractor provided a response
to the punch list “in some cases reporting that items
were complete, in other cases reporting the items would be
addressed on unspecified future dates, and on other items
noting that they would not be completed because they
purportedly were not required by the takeover agreement or
that a particular subcontractor would address those items
with the Township directly.” See Compl. at
¶ 32. The township alleges this response was in direct
violation of the construction contract. Id. at
December 23, 2016, USSC's construction manager submitted
a report indicating the work was 100% complete and requesting
payment. See Compl. at ¶ 25. The township
alleges that USSC has failed to satisfactorily complete the
work required by the takeover agreement and rejected the
request for payment. Id. at ¶ ¶ 24, 35.
letter dated January 23, 2017, the township advised USSC that
the project was still not complete and that back charges were
due to the township under the takeover agreement and
construction contract. See Compl. at ¶ 37. Over
the next 9 months, the parties corresponded regarding
construction progress and alleged inadequacies. Id.
at ¶¶ 38-51.
September 12, 2017, USSC once again reported that work had
been completed and requested payment in full. See
Compl. at ¶ 50. On September 19, 2017, the township
advised USSC that the project remained incomplete.
Id. at ¶ 51. This suit was commenced on
November 17, 2017.
Rule 12(b)(6), a complaint may be dismissed for failure to
state a claim upon which relief can be granted. Federal Rule
of Civil Procedure 8(a)(2) only requires “a short and
plain statement of the claim showing that the pleader is
entitled to relief;” however, the Supreme Court has
stated that there must be “enough facts to state a
claim to relief that is plausible on its face.”
Bell Atlantic Corporation v. Twombly, 550 U.S. 544,
570 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678
Pennsylvania bad faith statute states provides for remedies
“[i]n an action arising under an insurance policy, if
the court finds that the insurer has acted in bad faith
toward the insured.” 42 Pa. Cons. Stat. Ann. §
8371. Defendants argue that a bad faith claim cannot be
maintained against a surety because a surety bond does not
constitute an insurance policy under Pennsylvania law.
See Upper Pottsgrove Tp. v. International Fidelity Ins.
Co., 976 F.Supp.2d 598 (E.D. Pa. 2013); Ferrick
Const. Co. v. One Beacon Ins. Co., 2004 WL 3051443
counter that the takeover agreement between USSC and the
township establishes a direct contractual relationship which
distinguishes it from the general principal that surety bonds
are not subject to bad faith claims. Despite Plaintiff's
arguments to the contrary, I conclude that the takeover
agreement fails to convert USSC into an insurer who would be
subject to a bad faith claim under 42 Pa. Cons. Stat. Ann.