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Boring v. State Farm Fire and Casualty Co.

United States District Court, E.D. Pennsylvania

August 9, 2019

JOEL BORING
v.
STATE FARM FIRE AND CASUALTY COMPANY

          MEMORANDUM

          KEARNEY, JUDGE

         Joel Boring sues his home insurer State Farm Fire and Casualty Company for failing to pay what he perceives to be the full estimate of water damage resulting from a broken pipe in his house. He received, and accepted, partial payment for twenty to twenty-four feet of slab repair but claims State Farm's failure to pay for an additional fifteen to nineteen feet of slab repair breached his insurance policy and violated Pennsylvania statutes prohibiting bad faith insurance practices and the unfair trade practices. Mr. Boring concedes he purchased an insurance policy with an endorsement requiring State Farm to pay for repairing only those areas in the house necessary to access the specific defect in the appliance causing the water damage. Admitting he bought this endorsement, he now alleges the endorsement is unconscionable. He asks us to use unconscionability-a contract defense-to enforce the policy without the endorsement. Without citing an allegation, he now argues the challenged endorsement is ambiguous as to the meaning of "access" and thus cannot be enforced because it violates an insured's reasonable expectations.

         State Farm moves to dismiss the Second Amended Complaint. In the accompanying Order, we grant State Farm's motion to dismiss Mr. Boring's third attempt to plead contract, bad faith or unfair trade practices claims but grant Mr. Boring one last leave to timely plead whether and which ambiguous language in the endorsement may allow him to proceed into discovery.

         I. Alleged facts

         Mr. Boring's Policy with Endorsement

         Mr. Boring purchased a homeowners policy with State Farm to insure his home from November 16, 2017 to November 16, 2018 ("Policy").[1] The Policy covers losses "for accidental direct physical loss to the property ... except as [to]...Losses Not Insured."[2] The parties agreed State Farm would not insure losses caused by "continuous or repeated seepage or leakage of water or steam from a: (1) heating, air conditioning or automatic fire protective sprinkler system; (2) household appliance; or (3) plumbing system, including from, within or around any shower stall, shower bath, tub installation, or other plumbing fixture, including their walls, ceilings or floors; which occurs over a period of time. If loss to covered property is caused by water or steam not otherwise excluded, we will cover the cost of tearing out and replacing any part of the building necessary to repair the system or appliance."[3]

         This case involves State Farm's decision to not pay an entire estimated claim based on an endorsement to the Policy deleting the last sentence regarding tear out and replacement (highlighted above) with:

"ii. Tear Out. If a Loss insured to Coverage A property is caused by water or steam escaping from a system or appliance, we will also pay the reasonable cost you incur to tear out and replace only that particular part of the building or condominium unit owned by you necessary to gain access to the specific point of that appliance from which the water or steam escaped. We will not cover the cost of repairing or replacing the system or appliance itself.[4]

         Mr. Boring's claim and State Farm's timely payment.

         On September 10, 2018, Mr. Boring suffered water damage to his home after an "escape of water from within the home's [sic] plumbing system" requiring access to a kitchen drain line under the kitchen floor for repair, a covered loss under the Policy.[5] Mr. Boring promptly reported the loss to State Farm.[6]

         Mr. Boring's plumber estimated the cost to replace the broken kitchen drain line running under the slab floor of his home from the kitchen sink to the main drain, located thirty-five to forty feet away, as well as demolition, excavation, backfill, and rough slab repair to be $8, 900.[7] Of the total estimated cost, $400 is attributed to the "actual cost of pipe replacement," while the balance of the cost is attributed to "accessing pipe and restoring trench."[8] The plumber's estimate did not include floor covering repairs, restorations, or dry wall repairs.[9]

         State Farm paid Mr. Boring $ 1, 198.19 to replace a twenty to twenty-four feet of slab repair under its Endorsement but refused to pay for replacing the entire thirty-five to forty feet of slab repair in Mr. Boring's plumber's estimate.[10]

         II. Argument

         Mr. Boring sued State Farm for breach of contract, statutory bad faith, [11] and Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("Act").[12] He then filed two amended complaints repeating these claims alleging State Farm "unilaterally" reduced the amount of coverage it offered to him through the Endorsement, did not provide him with a choice of accepting or rejecting the Endorsement, and never provided him notice he may elect optional coverage removing the Endorsement from the Policy.[13] Mr. Boring alleges the Endorsement reduced "access" or "tear out" coverage by replacing "the cost of tearing out and replacing any part of the building necessary to repair the system or appliance" with "the reasonable cost you incur to tear out and replace only that particular part of the building... owned by you necessary to gain access to the specific point of that appliance from which the water or steam escaped."[14] He never alleges the term "access" is ambiguous. State Farm moves to dismiss each claim, essentially arguing Mr. Boring's acceptance of the Policy with the Endorsement precludes relief.[15]

         A. Mr. Boring cannot proceed on a contract claim by reading out the Endorsement.

         State Farm moves to dismiss the breach of contract claim arguing (1) Mr. Boring concedes State Farm did not breach the Policy in effect on the date of the loss; (2) the reasonable expectation doctrine is inapplicable because the Endorsement is unambiguous; and (3) the Amended Complaint fails to state a claim for breach of the Policy even without the Endorsement.

         To proceed on a breach of contract claim, Mr. Boring must allege "(1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by the contract and (3) resultant damages"[16] Mr. Boring pleads these elements for a contract but not for a contract in this case. He does not plead these elements for the Policy in effect on the day of his loss.

         1.Mr. Boring concedes State Farm did not breach the Policy in effect on the date of loss.

         State Farm argues Mr. Boring fails to state a claim for breach of contract. It argues Mr. Boring concedes State Farm did not breach the terms of the Policy in effect at the time of loss. State Farm characterized Mr. Boring's claim as "but for" the challenged endorsement, the Policy would have covered Mr. Boring's loss.

         Mr. Boring pleads existence of a contract. An insurance policy is a contract.[17] But he ignores the contract terms. He argues the Endorsement is unconscionable. He wants us to read out the Endorsement. Under Pennsylvania law, the law of unconscionability is a defense, not a cause of action. Our Court of Appeals explains, "[u]nconscionability is a defense contractual remedy - which serves to relieve a party from an unfair contract or from an unfair portion of the contract."[18]Mr. Boring is not entitled to claim unconscionability as he is the party seeking enforcement of the Policy. The Endorsement is read into the Policy. We must interpret the Policy with the Endorsement.

         Mr. Boring does not allege a breach of the Policy. He alleges State Farm would need to pay his plumber's full estimate if the Endorsement did not apply.[19] He may be right but this is a different case. The contract we must look to is the Policy with the Endorsement. Under the Policy, Mr. Boring does not allege State Farm breached as they reimbursed Mr. Boring under the Endorsement. He just did not get paid for the full amount he wanted under the original Policy.[20]Mr. Boring fails to state a claim for breach of contract.

         In his Opposition to State Farm's motion to dismiss, Mr. Boring now argues an issue he elected to not allege in three successive complaints: the term "access" in the Endorsement is ambiguous and thus cannot be enforced against an insured on a motion to dismiss standard. We cannot guess as to how we would find "access" is ambiguous. Mr. Boring does not plead the Endorsement is ambiguous. We cannot add allegations to create a potential cause of action. If Mr. Boring has a good faith belief the term "access" in the Endorsement is unenforceable as ambiguous, he (and his counsel) needs to satisfy Rule 11 and, if warranted, assert this claim. We grant him leave to timely plead this claim if he can do so under Pennsylvania law.

         2.The reasonable expectation doctrine is inapplicable.

         Mr. Boring alleges the Policy is unenforceable as violating an insured's reasonable expectations. State Farm argues the reasonable expectation doctrine is inapplicable because the Endorsement is unambiguous.

         Under the reasonable expectation doctrine, our Court of Appeals held "where ... an individual applies and prepays for specific insurance coverage, the insurer may not unilaterally change the coverage provided without an affirmative showing that the insured was notified of, and understood, the change, regardless of whether the insured read the policy."[21]

         Mr. Boring does not allege State Farm failed to inform him. He does not allege a surprise. Mr. Boring attached the Policy with the Endorsement to his First Amended Complaint.[22] He judicially admitted the Policy includes the Endorsement. The reasonable expectation doctrine does not apply to Mr. Boring given he admits receiving the Endorsement with the Policy.

         3. Mr. Boring fails to state a claim for breach of the Policy even without the Endorsement.

         Mr. Boring alleges "[u]nder the insurance policy issued before [the Endorsement], the entire bill would have been covered." Mr. Boring alleges nothing allowing us to infer a breach of contract assuming no Endorsement. We cannot ignore specific terms of a parties' bargain because the insured may not have fully read his Policy. We cannot distort "inference" into rank speculation to meet an insured's hopes.

         B. Mr. Boring fails to allege a bad faith claim.

         Mr. Boring seeks interest on his unpaid claim, punitive damages and attorney fees under Pennsylvania's bad faith statute. He alleges State Farm's bad faith is: interpreting the Endorsement as reducing coverage; selling this Endorsement as additional coverage knowing it actually reduces coverage; misleading him as to coverage for access while never intending to cover all access charges; arbitrarily taking away coverage without a legal or factual basis; requiring him to file this case which should have been avoided; unreasonably withholding a benefit; and "acting unreasonably and unfairly" in responding to his claim.[23] Mr. Boring does not plead how State Farm's response is unreasonable or unfair. He purchased the Policy with the Endorsement. In his Opposition, he argues State Farm's interpretation of the Endorsement is unfair.

         State Farm moves to dismiss the bad faith claim arguing (1) Mr. Boring fails to state a plausible claim; (2) the bad faith claim fails because the breach of contract claim fails; (3) the bad faith statute does not extend to wrongful handling and denial of a claim for benefits and to conduct unrelated to the denial of a claim; and, (4) even if such conduct could support a claim under the bad faith statute, Mr. Boring fails to plausibly allege such a claim based on the language of the Endorsement.

         The Pennsylvania General Assembly allows a court to remedy an insurer's bad faith conduct.[24] But the General Assembly did not define "bad faith." The Pennsylvania Superior Court defined two elements necessary to allege a bad faith claim: "(1) The insurer did not have a reasonable basis for denying benefits under the applicable insurance policy; and (2) the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim."[25]

         To eventually prove bad faith under § 8371, Mr. Boring must adduce clear and convincing evidence "(1) [State Farm] did not have a reasonable basis for denying benefits under the policy; and, (2) [State Farm] knew or recklessly disregarded its lack of a reasonable basis in denying the claim."[26] Bad faith means a "frivolous or unfounded refusal to pay proceeds of a policy."[27] Mr. Boring can also base his bad faith claim on State Farm's failure to investigate his claim.[28] The Pennsylvania Supreme Court clarified Mr. Boring does not have to show State Farm had a "subjective motive of self-interest or ill-will" to prove a bad faith claim, although such evidence would be probative.[29] To prevail in his bad faith claim, Mr. Boring must allege State Farm (1) lacked a reasonable basis for denying underinsured motorist coverage; and (2) knew or recklessly disregarded its lack of a reasonable basis.[30] "Gross negligence or bad judgment is insufficient to amount to bad faith."[31] Mr. Boring may plead bad faith based on State Farm's investigative practices "such as a lack of good faith investigation into facts, and failure to communicate."[32]

         "Bad faith claims are fact specific and depend on the conduct of the insurer vis-a-vis the insured."[33] In Smith v. State Farm, our Court of Appeals affirmed dismissal of the insured's bad faith claim because the insured plead "conclusory statements unsupported by facts-State Farm, e.g., 'breach[ed] covenants of good faith and fair dealing,' [] and 'engaged in unfair settlement negotiations."[34] After the insured got into a car accident, the other driver's insurer tendered the $15, 000 policy and the insured then sought the full extent of her $45, 000 underinsured motorist benefits through her State Farm policy.[35] The insured's medical bills increased from $26, 474 to almost $30, 000 during ten months of communications with State Farm to resolve her claim.[36] The insured requested the policy limit multiple times but State Farm offered $21, 000.[37] The insured sued after State Farm increased the offer to $32, 225 in the tenth month of negotiations.[38] Our Court of Appeals found the complaint to be replete with broad and conclusory statements and factual content contradicted several of the insured's allegations.[39] Though the parties disagreed over the value of the claim, "failure to immediately accede to a demand for the policy limit cannot, without more, amount to bad faith."[40]

         1. Mr. Boring does not plead a plausible bad faith claim.

         Mr. Boring must plead denial of benefits under the applicable insurance policy, meaning State Farm breached the contract. The applicable insurance policy is the Policy with the Endorsement. He pleads denial of benefits under the Policy without the Endorsement[41] which is not relevant as we find no partial Policy. We cannot infer State Farm did not have a reasonable basis for denying benefits under the Policy; or State Farm knew or recklessly disregarded its lack of reasonable basis in denying the claim, when Mr. Boring alleges State Farm did not deny him benefits under the Policy as written. If Mr. Boring can plead ...


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