OCTOBER 2011 BAD FAITH CASES BAD FAITH STATUTE DOES NOT INCLUDE COMPENSATORY DAMAGES; COVENANT OF GOOD FAITH AND FAIR DEALING CLAIM NOT DISTINCT FROM CONTRACT CLAIMS (Philadelphia Federal)

In Cummings v. Allstate Insurance Co., the court granted the carrier’s motion to dismiss stemming from a claim that the insured sustained damages to its home and incurred consequential losses from its inability to use the property.  The insured also alleged bad faith and breach of covenant of good faith and fair dealing.

In 2009, the insured’s home flooded, causing its floor to collapse.  The carrier subsequently denied coverage.  In 2010, the insured underwent surgery after falling on the collapsed floor.  While hospitalized, the insured died from cardiac arrest.

Prior to her death, the insured’s son, acting as the named insured, commenced an action against the carrier, alleging damages to the home and consequential damages.  After the insured passed away, her other son was granted letters of administration.  Thereafter, the insured filed an Amended Complaint and the second son, acting as an assignee, filed a similar claim.  The carrier removed to federal court and filed a motion to dismiss.

First, the carrier argued that compensatory damages are not recoverable under statutory bad faith claims.  Specifically, it sought to dismiss Counts II and III of the complaint, which alleged statutory bad faith on behalf of the insured and the assignee, respectively.  The carrier claimed that compensatory damages are not permitted pursuant to the state’s bad faith statute, but only under breach of contract claims generally.  Therefore, only Count I of the complaint, alleging breach of contract bad faith, stated a plausible claim.  The court dismissed Counts II and III as alleged, but granted the insured leave to amend its complaint, and to include a claim for compensatory damages under Count I.

Second, the carrier sought to dismiss the insured’s Count IV, which alleged a cause of action for breach of the covenant of good faith and fair dealing.  According to the carrier, such a claim merges with the common law claim for breach of contract.  The court found that the insured failed to allege a claim upon which relief might be granted because Pennsylvania does not allow an independent cause of action for a breach of the implied duty to act in good faith in this context.  It reasoned that “there is no independent cause of action for a breach of the covenant of good faith and fair dealing – arising in contract – in Pennsylvania because such breach is merely a breach of contract” claim. 

As such, the court held that a “party is generally precluded from maintaining a claim for the breach for the implied duty of good faith and fair dealing separate and distinct from the underlying breach of contract claim.”  The court concluded by granting the insured and the assignee an additional ten days to amend Counts I, II, and III of the complaint.  However, the court dismissed Count IV with prejudice.

Date of Decision:  July 11, 2011

Cummings v. Allstate Insurance Co., No. 11-02691, U.S. District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 74349 (E.D. Pa. July 11, 2011) (Kelly, J.)