In Allen-Wright v. Allstate Insurance Company, the court denied class certification, finding that nearly every requirement for class certification was not met because each would have required an individual determination of class membership, thereby losing the efficiency of a class action.
The insured sought class certification for herself and similarly situated insureds in Pennsylvania who incurred real property damage that was covered for replacement cost, but for which the insurer was alleged to arbitrarily limit the general contractor’s overhead and profit (GCOP) to 5%, beginning in 2003. The insured asserted claims for bad faith, alleging the insurer’s refusal to pay full benefits was unfounded and done out of self-interest, and for breach of contract and violation of the consumer protection law.
The insurer responded that it changed its pricing in 2003 and created a new class of claims, requiring a specialty contractor, to be paid at the lower percentage. Claims requiring a general contractor were still paid at the industry rate for GCOP.
Class certification requires a class that is not defined too broadly but that also meets the requirements of numerosity, commonality, typicality, and adequacy. To obtain class certification, you need predominance of the common question over any individual member’s issues, among other things.
Citing precedent, the determination of whether GCOP is appropriate is an individual and fact-dependant determination, and this would require the court to make individual determinations of class membership.
The court addressed bad faith, specifically, in two places. It noted that the insured asked whether the 5% payment was done in bad faith as one of the questions it posed to demonstrate commonality; and the court evaluated bad faith under the predominance requirement. In both instances, the court found that even if the insurer acted in bad faith with the representative insured, the court would have to review each claim to determine if the insurer acted in bad faith with the other proposed class members.
Similarly, the other two claims required individual determinations. Notably, the court disagreed with the insured’s assertion that justifiable reliance already existed under the consumer protection claim because the insurer owed it a fiduciary duty. The court found that there was no fiduciary relationship generally between an insurer and an insured, an exception being when the insurer affirmatively assumes such a duty under a policy, e.g., by asserting a stated policy right to handle all claims against the insured, including the right to make a binding settlement. Class certification was denied.
Date of Decision: December 17, 2008
On the conflicting views of what status an insurer holds, or does not hold, as a fiduciary under Pennsylvania law, see footnote 11 in Bauer v. Benefit Consumer Disc. Co., No. 07-247, 2007 U.S. Dist. LEXIS 88415 (E.D.Pa. Dec. 3, 2007), which states:
The Court notes that the law in Pennsylvania regarding breach of fiduciary duty in the insurance context is unsettled. For cases recognizing a breach of fiduciary duty claim in limited insurance contexts, see Guthrie Clinic, Ltd. v. Travelers Indem. Co. of Illinois, No. 3:00 CV 1173, 2000 U.S. Dist. LEXIS 18727, 2000 WL 1853044 at *3 (M.D. Pa. December 18, 2000); General Refractories Co. v. Liberty Mut. Ins. Co., No. Civ. A. 97-7494, 1999 U.S. Dist. LEXIS 18932, 1999 WL 1134530 at *3 (E.D. Pa. Dec. 9, 1999) (holding that “federal courts interpreting Pennsylvania law recognize that breach of fiduciary duty is essentially a contractual claim” and denying the defendant’s motion to dismiss on grounds that the plaintiffs had sufficiently pled the existence of a fiduciary duty) (citations omitted); Connors v. Metropolitan Life Ins. Co., 35 Pa. D. & C. 4th 58 (C.P. of Fayette County 1997) (denying motion to dismiss breach of fiduciary duty claim and holding that plaintiff’s claim that he relied on his insurer as “an advisor and counselor” gave rise to a fiduciary duty); Ihnat v. Pover, Part II, 146 P.L.J. 299 (Ct. Cmn. Pleas 1998) (holding that the relationship between an insurer and insured is essentially that of buyer and seller, and not a fiduciary relationship: “A fiduciary duty is ordinarily imposed only where one person, either by agreement or by law, has been entrusted to make a decision on behalf of another person.” The Court further held that the existence of a fiduciary duty in the insurance context occurred only in two narrow circumstances where the insurer took certain actions related to insured’s policy); Connecticut Indemnity Co. v. Markman, No. Civ. 93-799, 1993 U.S. Dist. LEXIS 10853, 1993 WL 304056 (E.D. Pa. August 6, 1993) (noting that “[t]he insurer assumes a fiduciary duty when it asserts a stated right under the policy to handle all claims against the insured, including the right to make a binding settlement.”) (citations omitted).
For cases declining to recognize a breach of fiduciary duty claim in the insurance context, see Smith v. Berg, No. Civ. A. 99-2133, 2000 U.S. Dist. LEXIS 4513, 2000 WL 365949 at *4 (E.D. Pa. April 10, 2000) (providing that “under Pennsylvania law, insurers generally do not owe a fiduciary duty to their insureds”); Wood v. All-State Ins. Co., No. 96-4574, 1996 U.S. Dist. LEXIS 16332, 1996 WL 637832, at *2 (E.D. Pa. Nov. 4, 1996) (holding that plaintiff’s claim for breach of fiduciary duty is “subsume[d]” by plaintiff’s bad faith claim and thus “stricken as redundant”); Garvey v. National Grange Mut. Ins. Co., Civ. A. 95-0019, 1995 U.S. Dist. LEXIS 3283, 1995 WL 115416, at * 1 (E.D. Pa. March 16, 1995) (“Despite creative attempts by the Plaintiff to turn the insurance contract into a fiduciary relationship, Plaintiff’s complaint here alleges nothing more than a breach of contract based on good faith and fair dealing” and thus the Court dismissed said claim); Greater New York Mut. Ins. Co. v. North River Ins. Co., 872 F.Supp. 1403, 1409 (E.D. Pa. 1995) (“The Pennsylvania Supreme Court treats the breach of the contractual duty of good faith and breach of fiduciary duty synonymously in the context of insurance cases. There is no common law tort action for bad faith or breach of fiduciary duty”) (internal citation omitted).