THE FIRST LIBERTY INSURANCE CORPORATION v. WALKER et al

Filing 23

MEMORANDUM AND/OR OPINION RE: MOTION TO DISMISS COUNTERCLAIM. SIGNED BY HONORABLE WILLIAM H. YOHN, JR ON 3/7/2013. 3/8/2013 ENTERED AND COPIES MAILED TO UNREP, E-MAILED.(tomg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
THE FIRST LIBERTY INSURANCE
CORPORATION,

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Plaintiff,
v.
APRIL WALKER et al.,
Defendants.

CIVIL ACTION
NO. 12-6823

MEMORANDUM
YOHN, J.

March 7, 2013

This action arises out of a dispute between the residents of Neshaminy Hills Camp in
Langhorne, Pennsylvania. April Walker has been sued by her neighbors, Alan and Joy Franklin,
in the Buck County Court of Common Pleas. Her insurer, The First Liberty Insurance
Corporation (“Liberty”), has been called upon to defend the suit. Liberty now brings a declaratory
judgment action in this court seeking to determine its obligations under Walker’s policies.
Walker has filed a counterclaim asserting bad faith conduct by an insurer under 42 Pa. Cons.
Stat. § 8371. Before me is Liberty’s motion to dismiss the pursuant to Federal Rule of Civil
Procedure 12(b)(6). For the reasons set forth below, I will grant Liberty’s motion and dismiss the
counterclaim without prejudice because it currently contains insufficient factual allegations to
state a claim under section 8371.
I.

Factual and Procedural Background
Liberty issued Walker a pair of homeowners insurance policies in late 2008. (Am. Compl.

¶¶ 13,14; Answer ¶¶ 13,14.) Under the policies, if Walker was sued for an “occurrence” leading
to “property damage,” Liberty would defend the suit and pay Walker’s liability. (Am Compl.

¶¶ 15-18; Answer ¶¶ 15-18.) In 2009, Walker was sued by the Franklins in Pennsylvania state
court. It was unclear whether the action fell under the terms of coverage, but Liberty assumed the
defense subject to a reservation of rights. (Am. Compl. ¶¶ 19-27; Answer ¶¶ 19-27.)
According to Liberty, during discovery in the state court action it became clear that the
Franklins’ alleged harm was the result of intentional conduct. The policies would not cover such
an action, because “occurrence” only encompassed accidental loss, not intentionally caused loss.
(Am. Compl. ¶¶ 28-33, 36-37.) Liberty also alleges that the Franklins’ true “motivation” in
bringing the lawsuit is to force Walker to concede an easement over her property; this, too, would
take the lawsuit outside of the scope of the policies. (Id. ¶ 38.)
Thus, Liberty filed the instant declaratory judgment action in federal court. It seeks a
declaration that it has no duty to defend or indemnify Walker in the underlying state court action.
It amended its complaint on December 14, 2012. Walker answered and filed a counterclaim for
bad faith under 42 Pa. Cons. Stat. § 8371 on January 30, 2013. Liberty moves to dismiss the bad
faith counterclaim as inadequately pleaded under Rule 12(b)(6).
II.

Discussion
A.

Legal Standard

The Third Circuit has developed a three-step approach to resolve Rule 12(b)(6) motions.
The approach applies whether the motion targets a plaintiff’s claim or defendant’s counterclaim.
See Shionogi Pharma, Inc. v. Mylani, Inc. No. 10-1077, 2011 WL 3860680, at *3 (D. Del. Aug.
31, 2011). “First, the court must take note of the elements a [counterclaimant] must plead to state
a claim. Second, the court should identify allegations that, because they are no more than
conclusions, are not entitled to the assumption of truth. Finally, where there are well-pleaded
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factual allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief.” Santiago v. Warminster Twp., 629 F.3d 121, 130
(3d Cir. 2010) (internal quotation marks and citations omitted). “[I]f a [claim] is vulnerable to
12(b)(6) dismissal, a district court must permit a curative amendment, unless an amendment
would be inequitable or futile.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 236 (3d. Cir. 2008).
B.

Application

The core definition of bad faith under section 8371 is “any frivolous or unfounded refusal
to pay proceeds of a policy; . . . such conduct imports a dishonest purpose and means a breach of
a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will;
mere negligence or bad judgment is not bad faith.” Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d
121, 137 (3d Cir. 2005) (quoting Terletsky v.Prudential Prop. and Casualty Ins. Co., 649 A.2d
680, 688 (Pa. Sup. Ct. 1984)). Bad faith can occur outside the context of a claim denial: “[t]he
insured must ultimately show that ‘the insurer breached its duty of good faith through some
motive of self-interest or ill will.’” Id. (quoting Brown v. Progressive Ins. Co., 860 A.2d 493,
501 (2004)).
Liberty argues that Walker’s counterclaim fails to provide factual allegations that shore
up what are otherwise empty conclusory statements. I agree. Plaintiff alleges that Liberty has “not
attempt[ed] in good faith to provide coverage” and “act[ed] in direct violation of the [policy]”;
has “fail[ed] to adequately investigate” the claim prior to denial; has “improperly and
unreasonably initiat[ed] a lawsuit” and “attempt[ed] to stop its defense” while “unreasonably
asserting” it has no duty to indemnify; has “fail[ed] to timely provide a reasonable explanation of
the basis for the denial”; and has “fail[ed] to provide a proper defense.” (Countercl. ¶ 52.) Yet
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she nowhere explains how Liberty violated the policy, how its investigation was deficient, how
its defense has been improper, or why its lawsuit is improper. Exactly these kinds of allegations
were found to be vulnerable to Rule 12(b)(6) dismissal in Smith v. State Farm Mut. Auto. Ins.
Co., No. 12-1681, 2012 WL 5910532, at *3 (3d. Cir. 2012). Walker provides only legal
conclusions. There are no well-pleaded factual allegations that could plausibly lead to an
entitlement for relief.
Moreover, Walker admits facts in her answer to Liberty’s complaint that undercut her
claim of bad faith. She acknowledges that Liberty has “provided defense counsel” for her in the
underlying state court actions. (Answer ¶¶ 23, 27.) She nowhere states that Liberty has ceased its
defense of her suit. Liberty’s act in filing for declaratory judgment cannot, by itself, be the basis
of bad faith action. See Little Souls Inc. v. State Auto Mut. Ins. Co., No. 03-5722, 2004 WL
503538, at *4 (E.D. Pa. March 15, 2004). In sum, it appears that Liberty “has proceeded as we
expect a responsible insurer to proceed when it has a legitimate coverage question; it has
assumed the defense of [Walker] in the State Court action and filed a declaratory judgment action
in this Court.” Victoria Ins. Co. v. Ren, No. 08-517, 2008 WL 2371850, at *3 (E.D. Pa. June 9,
2008).
I must grant leave to amend unless amendment would be futile or inequitable. See
Phillips, 515 F.3d at 236. Liberty has not argued against amendment. Though I do not discern the
faintest adumbration of a factual predicate for bad faith, I cannot say that amendment would be
futile. Therefore, Walker is given leave to amend her counterclaim.
III.

Conclusion
For the reasons discussed above, Walker’s counterclaim against Liberty is dismissed
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without prejudice. Walker may file an amended counterclaim within 30 days to state the requisite
facts, if she can do so in good faith within the confines of Rule 11. An appropriate order follows.

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