FEBRUARY 2012 BAD FAITH CASES: COURT REFUSES REMAND; DISMISSES BAD FAITH ALLEGATIONS AS CONCLUSORY, WITH LEAVE TO AMEND COMPLAINT (Middle District)

In Schlegel v. State Farm Mutual Automobile Insurance Company, the court ruled upon a carrier’s motion to dismiss a complaint that seeks to compel underinsured motorist (“UIM”) benefits pursuant to the insureds’ auto insurance contract. The complaint also alleged violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) and bad faith on behalf of the carrier.
The suit stemmed from an accident in which the insureds were struck by a reckless, underinsured driver. One of the insureds suffered serious injuries as a result of the accident. Since the negligent driver was underinsured, the insureds initiated UIM proceedings with their carrier. When the carrier refused to pay, the insureds filed this lawsuit in Susquehanna County. The carrier subsequently removed to federal court.
The court first addressed the insureds’ motion to remand the proceedings back to state court. The insured parties argued that the carrier had sufficient contacts with Pennsylvania, eviscerating the diversity necessary to confer jurisdiction. However, the court disagreed, reasoning that the carrier’s incorporation in Illinois rendered the parties diverse. The insureds also argued that the amount in controversy does not exceed $75,000 the requisite amount for removal to federal court. However, examining the pleadings, the court was unable to conclude that the amount in controversy would not reach $75,000, denying the insured’s motion to remand.
Second, the court addressed the carrier’s motion to dismiss, which contained three distinct claims. With respect to the first portion, seeking dismissal of the insureds’ motion for attorney fees, the court held that attorney fees are not recoverable in a breach of contract action. As such, the court granted this part of the carrier’s motion.
Next, the carrier moved to dismiss the insureds’ allegations under the Unfair Insurance Practices Act (“UIPA”). The insureds’ complaint primarily averred violations of the UTPCPL, but also included UIPA claims. The court dismissed the UIPA claims because only the State Insurance Commissioner has the power to enforce violations of the statute. However, the insureds argued that a “violation of any or all sections of the UIPA or other statutes can be held or used to show a violation of the UTPCPL.” The court agreed, but found that “a violation of the UIPA does not automatically trigger a violation of the UTPCPL and it is therefore irrelevant to such an analysis.”
The court also dismissed the insureds’ UTPCPL claims because the allegations were conclusory and unsupported. UTPCPL violations require malfeasance in order to support a cause of action and the insureds’ complaint alleges only nonfeasance in protesting the carrier’s failure to provide UIM benefits.
Lastly, the court addressed the carrier’s motion to dismiss the insureds’ bad faith claim. Again, the court dismissed this claim because of the conclusory nature of the allegations listed in the complaint. In order to support a claim of bad faith, the court reasoned, an insured party must corroborate its allegations with supporting facts. The court therefore granted the carrier’s motion with respect to the insureds’ bad faith count.
However, the court allowed the insureds leave to amend its complaint, to the extent that they have failed to state a claim.
Date of Decision: February 10, 2012
Schlegel v. State Farm Mutual Automobile Insurance Company, No. 3:11-CV-2190, 2012 U.S. Dist. LEXIS 17088 (M.D. Pa. Feb. 10, 2012) (Caputo, J.)