"> April 2011 Bad Faith Cases | “Compensatory Damages” Demand

April 2011 Bad Faith Cases: “Compensatory Damages” Demand in Bad Faith Claim Survives Motion to Dismiss Because the Term Has Different Meanings in Different Contexts (Western District)

In Simmons v. Nationwide Mutual Fire Insurance Company, in 2004, the insured’s business was burglarized.  A large assortment of the insured’s tools were stolen, and he promptly reported the theft to the insurer.  The insurance policy between the two parties allegedly covered the property and the contents of the property, and the insured claimed that the stolen tools were “business personal property” and therefore a covered loss under the policy.
The insurer conducted an investigation, and it denied the claim about seven months after the burglary occurred.  The insured then filed a Complaint containing claims for breach of contract, breach of duty of good faith and fair dealing, and statutory bad faith.  The insurer filed a motion to dismiss the breach of duty of good faith and fair dealing count and strike the insured’s demand for compensatory damages from the statutory bad faith claim.
Regarding the breach of duty of good faith and fair dealing, the court did acknowledge that “a duty of good faith and fair dealing is implicit in an insurance contract,” and that a plaintiff can bring a cause of action for breaching this duty that may lead to compensatory damages.  In this case, however, the claim was subsumed by the breach of contract claim, as that claim already implied that the insurer beached its duty of good faith and fair dealing.  The court consequently dismissed the second count of the Complaint because it was redundant.
Concerning the demand in the statutory bad faith claim, the insurer alleged that Pennsylvania’s bad faith statute, 42 Pa.C.S.A. § 8371, did not permit the recovery of compensatory damages.  The court agreed that a plaintiff cannot recover compensatory damages under § 8371, but § 8371 does not specifically prohibit an award of compensatory damages, as they are available under Pennsylvania contract law even if the action is brought under bad faith theory.  Additionally, Pennsylvania courts in the past had labeled the attorney’s fees, costs, and interests available under § 8371 as “compensatory damages” in the past, implying that the term has different meanings in different contexts.  The court therefore denied this portion of the motion to dismiss, without prejudice, as the challenged language was “unobjectionable in the context presented.”
Date of Decision:  April 20, 2011
Simmons v. Nationwide Mut. Fire Ins. Co., 2:11-cv-328, United States District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 42724,  788 F. Supp. 2d 404 (Apr. 20, 2011) (McVerry, J.)