AUGUST 2011 BAD FAITH CASES BAD FAITH CLAIM SUFFICIENT UNDER TWOMBLY TO WITHSTAND DISMISSAL; EXISTENCE OF BAD FAITH CLAIMS DOES NOT PRECLUDE RECOVERY OF COMPENSATORY DAMAGES (Western District)

In Pavlick v. Encompass Indemnity Insurance Company, the plaintiff was the wife and executrix of John Pavlick’s estate.  Defendant insurers sold the late Mr. Pavlick polices which included underinsured motorist (UIM) coverage.

The decedent was killed when a car struck him in his front yard. The driver of that car lacked the personal assets to pay any more than what the limit of his insurance policy allowed. That amount was not sufficient to compensate plaintiff’s loss and damages. The plaintiff sought additional compensation under the UIM provisions of Mr. Pavlick’s insurance policies.

At the time of his death, Mr. Pavlick had his own personal automobile insurance through Encompass and another policy through State Auto Insurance which covered his contracting business. Both policies included UIM coverage, and each had a limit of $500,000. The plaintiff sought the policy limit from each insurer.

Over the ensuing months, both defendant insurers got together and agreed to split the costs of an eventual settlement. However, defendant State Auto soon notified the plaintiff that further investigation would need to be done to determine whether the decedent’s particular policy covered her claim. State Auto attempted to have the policy valued through a mediation process, but the plaintiff would not compromise on the policy’s limits.

The defendants made an initial joint offer of $650,000 and then a second offer of $950,000, citing an extra-marital affair as justification for not providing the widow plaintiff with the entirety of the proceeds.

Plaintiff filed suit, first alleging an improper delay in the insurer’s settlement offers. She also brought a statutory bad faith claim on account of the defendant insurance carriers’ failure to pay the $50,000 difference between that offered and paid ($950,000) and the full limits of the combined policies ($1 million).

Both insurers moved to have these claims dismissed, claiming that the plaintiff has merely submitted conclusory allegations of statutory bad faith without the factual support required by the post-Twombly pleading standards.

The Western District disagreed, finding that the plaintiff’s complaint did provide the factual details necessary to withstand a motion to dismiss. Moreover, the court refused to dismiss the plaintiff’s bad faith claim solely on account of the fact that she also requested compensatory damages, noting that compensatory damages are available under Pennsylvania’s common law of contracts, even where the action is brought under a bad faith theory. As such, the court pointed to the plaintiff’s breach of contract count and found that the mere existence of a supplemental bad faith claim did not preclude her from recovering compensatory damages in connection with her breach of contract claim.

Accordingly, the insurers’ motions to dismiss were denied.

Date of Decision: July 14, 2011

Pavlick v. Encompass Indem. Ins. Co., 11cv705, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 76026 (July 14, 2011) (Schwab, J.)