AUGUST 2011 BAD FAITH CASES COMPENSATORY DAMAGES NOT RECOVERABLE UNDER STATUTORY BAD FAITH CLAIM BUT ARE RECOVERABLE UNDER A BREACH OF CONTRACT BAD FAITH CLAIM (Philadelphia Federal)

In Cummings v. Allstate Insurance Company, the plaintiff, Barry Cummings, experienced a flood in his home, causing his floor to collapse. Cummings, who held a home owners insurance policy with Allstate, promptly alerted the insurer of the damage. Allstate sent out an adjuster to assess the extent of the insured’s loss and decided to deny coverage.

The insured did not have the money to pay for the necessary repairs out of pocket, so after Allstate denied coverage, the damaged floor in plaintiff’s home remained in disrepair. A little over a year after coverage was denied, plaintiff’s mother, Mary—who was an additional insured on the homeowner’s policy—broke her leg after tripping on the collapsed floor. While recovering from surgery on her broken leg, the insured’s mother suffered a fatal heart attack.

In bringing a bad faith suit against Allstate for denying coverage, the insured alleges that the damages to his home and the consequential damages stemming therefrom are in excess of $50,000.

Plaintiff originally filed in Philadelphia County Municipal Court, where a default judgment was entered in his favor after Allstate failed to appear. Allstate appealed the default judgment and plaintiff amended his complaint. In April of 2011, Allstate had the amended claim removed via diversity to the Eastern District.

Allstate argued that a plaintiff cannot seek compensatory damages couched within a statutory bad faith claim and, accordingly, moved to dismiss. The court agreed with Allstate that compensatory damages are generally not recoverable under the bad faith statute. Thus, that aspect of plaintiff’s statutory bad faith claim was dismissed.

However, the court said that the plaintiff could seek compensatory damages within the scope of a common law breach of contract bad faith claim. Here, the insured did bring a breach of contract claim, in addition to the bad faith claim, but did not initially pray for compensatory damages therein. Taking this into account, the court decided to allow the plaintiff leave to amend its breach of contract claim in order to include a prayer for compensatory damages.

Date of Decision: July 11, 2001

Cummings v. Allstate Ins. Co., Civil Action No. 11-02691, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 74349 (July 11, 2011) (Kelly, J.)