United States District Court, E.D. Pennsylvania
Purvi, LLC filed this lawsuit alleging that Defendant
National Fire & Marine Insurance Company has failed to
comply with the terms of a settlement agreement resolving
Plaintiff's claims against Defendant in a separate
insurance action. Purvi LLC v. National Fire & Marine
Ins. Co., Civ. A. No. 18-0822.
business was damaged by fire in May 2017. Shortly thereafter,
Plaintiff notified its insurer, National, about the loss.
Plaintiff alleges that National improperly denied payment of
benefits. Then, on January 24, 2018, Plaintiff sued National
for payment. Plaintiff alleges the parties reached a
settlement agreement on May 11, 2019. On May 13, 2019, its
lawyer sent a letter to the Court stating that the
“parties have amicably resolved this matter and an
appropriate order may be entered on the docket.” The
next day, the Court dismissed the action with prejudice.
the terms of the settlement agreement had not been committed
to paper. Here, Purvi claims that the agreement required
National to pay it $237, 000. However, shortly after
dismissal of the underlying action, National transmitted a
written release of claims to Plaintiff which contained a
clause listing Plaintiff's mortgagee as a payee on the
settlement check, i.e., as a recipient of the $237,
000. Plaintiff objected to the inclusion of this clause.
National, however, maintained that the terms of
Plaintiff's policy required inclusion of the mortgagee as
a payee. Because of this disagreement, the parties are once
again at odds, with Plaintiff insisting on a settlement check
not naming the mortgagee and Defendant refusing to issue the
settlement check without naming the mortgagee.
effort to resolve this impasse, Plaintiff filed in the
Philadelphia Court of Common Pleas, the current lawsuit
against National. National then removed it to federal court -
which is how it ended up back before this Judge. Plaintiff
asserts breach of contract (Count I) and breach of good faith
and fair dealing (Count II) claims in connection with
National's alleged failure to comply with the settlement
agreement, i.e., for its refusal to issue a
settlement check exclusively in Plaintiff's name.
now moves to dismiss Count II of the Complaint-the breach of
good faith and fair dealing claim-for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6).
Plaintiff opposes the motion, and, in the alternative, seeks
leave to once again amend its Complaint.
a motion to dismiss under Rule 12(b)(6), a complaint must
have sufficient factual matter, taken as true, to state a
claim to relief that is plausible on its face. A claim is
facially plausible if the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Bing v. Iron Mountain Secure Shredding, Inc., 2018
WL 466456, at *1 (E.D. Pa. Jan. 18, 2018) (internal
quotations and citations omitted). Though a court at the
motion to dismiss stage must construe the facts in the light
most favorable to the plaintiff, it is not required to accept
mere conclusory statements. See Ashcroft v. Iqbal,
556 U.S. 662, 678-9, (2009).
does not recognize common law claims for breach of good faith
and fair dealing sounding in tort but it does recognize such
claims sounding in contract. See Simmons v. Nationwide
Mut. Fire Ins. Co., 788 F.Supp.2d 404, 408-09 (W.D. Pa.
[i]n Pennsylvania, a duty of good faith and fair dealing is
implicit in an insurance contract. As such . . . a plaintiff
may bring a cause of action for breach of the contractual
duty of good faith and fair dealing in the insurance context,
permitting an insured to recover compensatory damages for an
insurer's failure to act in good faith.
Id. However, where a plaintiff alleges both breach
of contract and breach of good faith and fair dealing, the
“claim for breach of the implied covenant of good faith
and fair dealing is subsumed in [the] breach of contract
claim.” Davis v. Wells Fargo, 824 F.3d 333,
352 (3d Cir. 2016) (dismissing plaintiff's breach of good
faith and fair dealing claim where plaintiff pleaded both
breach of contract and breach of good faith and fair dealing
and explaining that “arguments concerning bad faith
should be addressed in connection with his surviving breach
of contract claim”). Such subsuming occurs when
“the actions forming the basis of the breach of
contract claim are essentially the same as the actions
forming the basis of the bad faith claim.” See
McHale v. NuEnergy Grp., 2002 WL 321797, at *8 (E.D.
Pa. Feb. 27, 2002). “In other words, [a Plaintiff]
cannot maintain a bad faith claim separate and distinct from
a breach of contract claim. Rather, a claim arising from a
breach of the covenant of good faith must be prosecuted as a
breach of contract claim, as the covenant does nothing more
than imply certain obligations into the contract
itself.” Davis, 824 F.3d at 352.
in the insurance context do also have the option of asserting
breach of good faith and fair dealing claims pursuant to
Pennsylvania's bad faith insurance statute, 42 Pa. C.S.A.
§ 8371, however. ‘“Bad faith' on part of
insurer is any frivolous or unfounded refusal to pay proceeds
of a policy.” Nw. Mut. Life Ins. Co. v.
Babayan, 430 F.3d 121, 137 (3d Cir. 2005) (quoting
Terletsky v. Prudential Prop. & Cas. Ins. Co.,
437 Pa. Super. 108, 124 (1994)). “[T]o prevail in a bad
faith insurance claim pursuant to Section 8371, a plaintiff
must demonstrate, by clear and convincing evidence, (1) that
the insurer did not have a reasonable basis for denying
benefits under the policy and (2) that the insurer knew or
recklessly disregarded its lack of a reasonable basis in
denying the claim.” Rancosky v. Washington
Nat'l Ins. Co., 642 Pa. 153, 175-76 (2017).
case, Defendant primarily argues that Count II must be
dismissed because that claim “is duplicative of, and
subsumed in” Count I. Defendant also characterizes
Count II as a tort claim and notes that Pennsylvania does not
recognize a cause of action for breach of good faith and fair
dealing sounding in tort. Finally, Defendant argues that to
the extent that Count II asserts insurance bad faith under
Section 8371, Plaintiff's claim fails because it does not
arise “under an insurance policy.” In response,
Plaintiff maintains that Counts I and II are and should
remain separate claims because while Count I “arises
out of Defendant's breach of the parties' settlement
agreement[, ] Plaintiff's bad faith claim arises out of
Defendant's refusal to make payment of the settlement
amount to Plaintiff within sixty (60) days as required by the
argument fails whether Count II is construed as a tort claim,
a contract claim, or a statutory claim for insurance bad
faith. As stated supra, Pennsylvania does not
recognize a cause of action for breach of good faith and fair
dealing sounding in tort. D'Ambrosio v. Pennsylvania
Nat. Mut. Cas. Ins. Co., 494 Pa. 501 (1981). And, courts
within the Third Circuit have been clear that a Plaintiff may
not maintain both a breach of contract and a breach of good
faith and fair dealing claim where the claims arise under the
same contract and from the same actions. See McHale v.
NuEnergy Grp., 2002 WL 321797, at *8 (E.D. Pa. Feb. 27,
2002); Davis v. Wells Fargo, 824 F.3d 333, 352 (3d
Cir. 2016). Here, both of Plaintiff's claims arise out of
National's refusal to issue a settlement check listing
Plaintiff as the sole payee. Therefore, as in Davis,
Plaintiff's breach of good faith and fair dealing claim
is “subsumed” in its breach of contract claim
“and [its] arguments concerning bad faith should be
addressed in connection with [its] surviving breach of
contract claim.” Id.
Plaintiff's claim cannot survive as either a tort claim,
or as an independent breach of good faith and fair dealing
claim sounding in contract, Plaintiff's only remaining
option would be under Section 8371. However, the facts
alleged in the Amended Complaint do not support such a claim.
The Amended Complaint states that “Plaintiff seeks this
Court's enforcement of the terms of the settlement
agreement, ” and no mention is made of enforcing the
policy. Critically, while Plaintiff does claim that National
“refus[ed] to make payment of a settlement amount
within 60 days as required by the policy of insurance,
” it is clear from Plaintiff's own recitation of
the facts that what Plaintiff means by “refus[al] to
make payment” amounts to Plaintiff's refusal to
accept a settlement check naming the mortgagee as a payee,
rather than a denial of benefits under the policy. Though
“Courts have extended the concept of ‘bad
faith' beyond an insured's denial of a claim in
several limited areas, ” Nw. Mut. Life Ins. Co. v.
Babayan, 430 F.3d 121, 137 (3d Cir. 2005) (collecting
cases), “the essence of a bad faith claim must be the
unreasonable and intentional (or reckless) denial of
benefits, ” UPMC Health Sys. v. Metro. Life
Ins. Co., 391 F.3d 497, 506 (3d Cir. 2004) (emphasis
added). As such, Section 8371 “do[es] not apply to
[mere] disputes over contract terms.” Id.
(quoting Belmont Holdings Corp. v. Unicare Life &
Health Ins. Co., 1999 WL 124389, at *2-3 (E.D. Pa.
Feb.5, 1999). Tellingly, Plaintiff identifies no case in
which a Pennsylvania court or a court interpreting
Pennsylvania law has found that Section 8371 encompasses the
type of settlement dispute at issue here. Count II of