OCTOBER 2006 BAD FAITH CASES PLAINTIFF STATED CLAIM FOR BOTH STATUTORY AND CONTRACTUAL BAD FAITH IN ALLEGING IMPROPER INVESTIGATION, NEGOTIATIONS AND DENIAL OF CLAIMS (Western District)

In Miller Pools, Inc. v. Nationwide Mutual Insurance Company, Defendant insurer moved to dismiss Plaintiff insured’s bad faith allegations, arguing that Plaintiff’s bad faith Count failed to state a claim upon which relief could be granted.  The United States District Court for the Western District of Pennsylvania determined that the insured had alleged the type of conduct that would support a bad faith claim pursuant to Pennsylvania’s bad faith statute.  Among other things, Plaintiff’s Complaint alleged that the insurer:  (1) conducted an unfair, unreasonable and inadequate investigation of Plaintiff’s claims related to a fire; (2) failed to fairly negotiate the amount of the loss sustained by Plaintiff; and (3) knowingly and/or recklessly denied the balance of Plaintiff’s claims without having a reasonable basis for doing so.  The Court looked to Pennsylvania’s case law, which clearly held that to support a finding of bad faith, the insurer’s conduct must be such as to import a dishonest purpose, and bad faith would be shown where an insurer has for a frivolous or unfounded reason refused to pay the proceeds of a policy to its insured.  Accordingly, the Court held that the allegations contained in Plaintiff’s Complaint, which are assumed to be true for purposes of Defendant’s Motion to Dismiss, clearly include averments sufficient to surmount dismissal. 

Defendant further argued that Plaintiff’s purported claim for lost business income or business reputation must be dismissed insofar as it was incorporated within the bad faith Count.  However, though compensatory damages are not recoverable under Pennsylvania’s bad faith statute, the Court held that said Counts appeared to allege not only a cause of action under Pennsylvania’s bad faith statute, but also a violation of the covenant of good faith and fair dealing.  Thus, although the bad faith statute does not allow recovery of compensatory damages, such damages would still be available under Pennsylvania’s common law of contracts, even where the action was brought under a bad faith theory.

Date of Decision:  September 29, 2006

Miller Pools, Inc. v. Nationwide Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 2006-366J, 2006 U.S. Dist. LEXIS 70859 (W.D. Pa.) (Gibson, J.)