In Amitia v. Nationwide Mutual Insurance Company, the court addressed both statutory bad faith under 42 Pa.C.S. § 8371 and contractually based bad faith. The court dismissed emotional distress allegations and the request for compensatory and/or consequential damages sought under the bad faith statute because neither is specifically recoverable under that law. It did, however, refuse to dismiss the bad faith statutory claims entirely because the claim rested on many allegations of bad faith actions and not merely on the two offered by the insurer as being unfounded.
The insured in this case was unable to return to work due to serious injuries sustained in an automobile accident. He also pleaded various forms of emotional distress, which apparently had a physical manifestation, as a result of the insurer’s handling of the claim and underlying UIM arbitration. The insurer eventually paid the policy benefits for underinsured motorist and income loss coverage, but the insured filed suit on several counts, including bad faith for the way the claim was handled. The insurer moved for dismissal.
The court dismissed the emotional distress allegations as asserted under the statutory bad faith claim because these types of damages for emotional distress are not covered by the statute, citing two state cases for that principle. However, the Court added, without similar citation to authority, that such emotional distress claims “are instead covered by the punitive damages.” It is not wholly clear from the opinion whether this is so because emotional distress damages can go into the total compensatory damages under a breach of contract theory (see below), which increases the base number from which punitive damages can be multiplied; and/or whether this form of harm can be considered the kind of physical harm to be weighed in the U.S. Supreme Court’s punitive damage factors.
The court also dismissed the request for “other compensatory and/or consequential damages” under the bad faith claim because the statute does not provide for such damages. The court did note, however, that this dismissal would have no practical effect because committing a common law bad faith breach of the contractual duty of good faith can still result in an award of compensatory damages, as was done in the Birth Center
The court denied dismissal of the statutory bad faith count because it found that the claim rested on more than thirty allegations which, if taken as true as required under a Rule 12(b)(6) motion, would constitute bad faith. The allegations include failure to conduct a timely and thorough investigation, failure to evaluate the insured’s claim fairly, and failure to promptly evaluate and pay the claim. There was also alleged bad faith in refusing to settle and in the conduct of the underlying UIM arbitration.
As to the breach of the contractual duty of good faith, the court determined that a breach of contract claim could continue even though the insurer had paid all policy benefits due. The insured is not seeking policy benefits but, rather, is seeking compensation for emotional distress caused by non-payment or delayed payment, and the manner in which that occurred. Quoting Pennsylvania’s Supreme Court, the federal court observed that “Emotional distress damages may be recoverable on a contract where . . . the breach is of such a kind that serious emotional disturbance was a particularly likely result.” The insurer allegedly was aware of the insured’s physical and financial condition and thus could reasonably foresee such emotional distress so the court could not dismiss the claim.
Date of Decision: January 15, 2009
Amitia v. Nationwide Mut. Ins. Co., No. 3:08cv335, 2009 U.S. Dist. LEXIS 2840 (M.D. Pa. Jan. 15, 2009)(Munley, J.)