IDS PROPERTY CASUALTY INSURANCE COMPANY v. SCHONEWOLF et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE GERALD A. MCHUGH ON 3/10/17. 3/13/17 ENTERED AND COPIES EMAILED TO COUNSEL AND COPY TO LEGAL.(jaa, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ALLSTATE INSURANCE COMPANY,
MARCH 10, 2017
This is an insurance coverage case in three acts: 1) Dan Lagreca was sued in state court
for physically attacking someone after a concert; 2) Allstate Insurance Company, the
homeowner’s carrier for Lagreca’s parents’ home, filed this action seeking a declaration that it
did not have to defend or indemnify Lagreca in the state-court suit; and 3) Lagreca
counterclaimed against Allstate for bad faith and breach of contract. Allstate both defended and
settled the underlying case, and now moves for summary judgment on both counterclaims, while
Lagreca cross-moves for leave to conduct discovery. Because I find that this is the rare case
where, even with discovery, Lagreca’s claims would fail as a matter of law, I will deny his
motion and enter judgment for Allstate.
Lagreca was sued in state court for “violently beat[ing] and kick[ing]” a concertgoer in
the parking lot after the show. The complaint artfully crafted a claim for negligence, alleging
that Lagreca carelessly drank himself into a state of incoherence that would foreseeably result in
violent behavior. When Lagreca sought coverage for his defense from his parents’ homeowner’s
For more detail, see my earlier opinion at IDS Property Casualty Insurance Co. v.
Schonewolf, 111 F. Supp. 3d 618, 620–22 (E.D. Pa. 2015).
insurance policy, Allstate denied his claim. Allstate then filed this action, seeking a declaratory
judgment that it had no duty to defend or indemnify Lagreca because the policy limits coverage
to damages caused by “accident[s],” and excludes those flowing from “intentional or criminal
acts”—even if the insured “lack[ed] the mental capacity to govern his . . . own conduct.”
I denied Allstate’s subsequent motion for judgment on the pleadings, and so required it to
defend Lagreca. Although the issue was extraordinarily close, I bound Allstate to its policy
because I could not determine at that early stage (1) whether Lagreca’s acts were intentional
(because of the extreme degree of intoxication); or (2) whether Lagreca’s acts were criminal
(because that required a finding of mens rea). Allstate ultimately paid not only for Lagreca’s
defense, but also the settlement of the case against him.
Before I ruled on Allstate’s obligation to provide a defense, Lagreca counterclaimed for
its denial of his claim—specifically, for bad faith under 42 Pa. Cons. Stat. § 8371 and breach of
contract. Following letter briefing, I denied Lagreca’s request for discovery (Dkt. 92). Allstate
now moves for summary judgment on both counterclaims.
Standard of Review
Summary judgment is proper “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a) (emphasis added). “Only disputes over facts that might affect the outcome of the suit
under the governing law will properly preclude the entry of summary judgment.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Generally, “[i]f discovery is incomplete, a district court is rarely justified in granting
summary judgment,” Shelton v. Bledsoe, 775 F.3d 554, 568 (3d Cir. 2015), “particularly . . .
where there are discovery requests outstanding or relevant facts are under the control of the
moving party,” Murphy v. Millennium Radio Grp., LLC, 650 F.3d 295, 310 (3d Cir. 2011).
Nevertheless, a court may grant summary judgment without discovery if the outstanding
discovery requests “pertain to facts that are not material to the moving party’s entitlement to
judgment as a matter of law,” Shelton, 775 F.3d at 568, and if “[a]ny additional facts gleaned in
discovery would not . . . change the District Court’s analysis or its ultimate conclusion,”
Roberts v. Fleet Bank (R.I.), 342 F.3d 260, 271 (3d Cir. 2003), as amended (Oct. 21, 2003)
(affirming a simultaneous grant of summary judgment and denial of additional discovery).
A. Bad Faith
Allstate argues that Lagreca’s bad faith claim fails because Allstate had a reasonable
basis for seeking a ruling that it had no obligation to defend and indemnify him. I agree with
Allstate’s conclusion, but for slightly different reasons.
To recover for bad faith under Pennsylvania law, a plaintiff “must show by clear and
convincing evidence that the insurer (1) did not have a reasonable basis for denying benefits
under the policy and (2) knew or recklessly disregarded its lack of a reasonable basis in denying
the claim.” Post v. St. Paul Travelers Ins. Co., 691 F.3d 500, 522 (3d Cir. 2012) (quoting
Condio v. Erie Ins. Exch., 899 A.2d 1136, 1143 (Pa. Super. Ct. 2006)). “[A]n insurer does not
act in bad faith by investigating and litigating legitimate issues of coverage.” Id. at 523.
The gist of Allstate’s argument is that an insurer does not act in bad faith if it relies on a
reasonable interpretation of unsettled case law, see, e.g., Terletsky v. Prudential Prop. & Cas.
Ins. Co., 649 A.2d 680, 689–90 (Pa. Super. Ct. 1994), and there were (at least) three decisions at
the time Allstate filed this action that had held that the same or similar policy language excluded
coverage for acts like Lagreca’s, see Allstate Ins. Co. v. Wells, No. 08-05294, 2009 WL 2137236
(E.D. Pa. July 15, 2009); Allstate Ins. Co. v. Lombardi, No. CIV.A. 02-1250, 2003 WL
21666090 (E.D. Pa. July 17, 2003), aff’d, 142 F. App’x 549 (3d Cir. 2005); State Farm Mut.
Auto. Ins. Co. v. Martin, 660 A.2d 66 (Pa. Super. Ct. 1995). 2
Allstate’s characterization of Pennsylvania law on bad faith is incomplete. Supporting
authority, though highly relevant, does not automatically defeat a bad faith claim. This was
made clear by J.H. France Refractories Co. v. Allstate Insurance Co., 534 Pa. 29, 626 A.2d 502
(1993). There, the Pennsylvania Supreme Court found that Allstate had not acted in bad faith in
denying coverage where it had relied on an “excessive pluralism and disparity . . . in the
decisions of the many courts which ha[d] entertained similar litigation.” Id. at 44, 626 A.2d at
510. But the Court did not hold that the mere existence of disparate decisions precluded bad
faith—instead, it took care to note both that it did “not regard the issues presented in this case as
simple ones” and that each of the varying approaches other courts had taken “seem[ed]
reasonable from some point of view.” Id. Indeed, bad faith claims are highly “fact specific,”
Mohney v. Am. Gen. Life Ins. Co., 116 A.3d 1123, 1131 (Pa. Super. Ct. 2015), and their
touchstone—“reasonableness”—only “has meaning in the context of each case,” Muse v.
W.C.A.B., 514 Pa. 1, 8, 522 A.2d 533, 537 (1987).
All the same, applying that more nuanced standard to the record here, I conclude that
Allstate’s initial decision not to provide coverage was reasonable. My analysis at the pleadings
stage made clear that the coverage question in this case was not an easy one, as is true of the
entire line of cases involving intentional or criminal acts and alcohol. See Schonewolf,
111 F. Supp. 3d at 623–26, 628–30. As to intentional acts, I noted that while the policy’s
exclusion of coverage for them was “broad,” intoxication nevertheless “remains relevant to
In its earlier letter brief, Allstate took an even stronger position, claiming (at 3) that the
“Wells case alone is sufficient to establish the reasonableness of Allstate’s interpretation.”
intent” under State Farm Fire & Casualty Co. v. Estate of Mehlman, 589 F.3d 105 (3d Cir.
2009). 111 F. Supp. 3d at 628. Because the underlying complaint was “not clear” about
Lagreca’s level of intoxication, I found I could not “definitively” say that his acts were
intentional. Id. And as to criminal acts, I found that the mens rea required for assault (Allstate’s
theory for applying the exclusion to Lagreca) could not be determined based solely on the
pleadings. Id. at 629. Finally, my ultimate ruling denying Allstate’s motion for judgment on the
pleadings was couched in narrow terms, and invited Allstate to renew its motion as the facts of
the underlying case emerged through discovery. See id. at 628–30. Though I did not find
Allstate’s position controlling, there was a substantial legal basis for it. 3 The conclusion I
reached required a painstaking re-evaluation of earlier cases in light of the Third Circuit’s
decision in Mehlman, and was certainly a conclusion as to which reasonable minds could differ.
In no sense could Allstate’s denial of coverage be deemed arbitrary.
In opposition, Lagreca does not offer substantive arguments but instead argues summary
judgment is premature, and so (unsurprisingly) cross-moves under Rule 56(d) for time to conduct
discovery. He attaches in support his counsel’s declaration listing materials he seeks to discover,
which can be broadly summarized as documents involved in Allstate’s handling of his and
similar claims. Lagreca anchors these requests to his theory that Allstate could be liable if it
made an “inadequate investigation or failed to perform adequate legal research concerning a
As to the specific cases Allstate advances as its shield against bad faith liability—Wells,
Martin, and Lombardi—I continue to find them instructive but not dispositive. Wells and Martin
predated Mehlman, where the Third Circuit canvassed several Superior Court cases and held
that under Pennsylvania law “situations may arise in which an insured’s intoxication, particularly
when combined with other factors, may call the insured’s intent into question.” 589 F.3d at 114;
cf. id. (distinguishing Martin as a case where intent was clearer because there the “insured told
police that he had aimed his truck at his wife”). And in Lombardi, the underlying complaint had
an assault-and-battery count but no allegations of intoxication, and the court did not need to
reach the intentional-act exclusion. 2003 WL 21666090, at *1, *3, *5. Nonetheless, taken in
combination, these cases provided a substantial, reasoned basis for Allstate’s position.
coverage issue.” Lagreca Letter Br. 2 (quoting Corch Constr. Co. v. Assurance Co. of Am., 64
Pa. D. & C. 4th 496, 516 (Ct. Com. Pl. 2003)). Specifically, Lagreca seeks to discover whether
Allstate, prior to denying coverage, was aware of the decision in Leroy v. Live Nation
WorldWide Inc., No. 12-03397 (D.N.J. Dec. 4, 2013), which held that an identical policy covered
acts similar to Lagreca’s.
As to Leroy, Allstate’s knowledge of the decision is simply irrelevant. That case focused
on how to apply an exclusion for intentional torts in the context of a claim of self-defense on the
part of the insured—it was not a case where the insured sought to avoid the exclusion because of
profound intoxication. The June 2014 letter Allstate’s counsel sent denying coverage (Dkt. 76-1)
appropriately cited both Martin and Lombardi, demonstrating that Allstate engaged in a reasoned
process before denying coverage. The most Lagreca can argue is that I reached a contrary
conclusion on similar facts. On the record here, that does not suffice to convert Allstate’s denial
of coverage into an act of bad faith. In that regard, as the jurist who had to struggle with the
issue at the declaratory-judgment stage, I am perhaps uniquely situated to evaluate just how close
the question was. Suffice it to say that my decision requiring Allstate to defend gave its insured
the benefit of every doubt.
On summary judgment, a non-movant who requests discovery must not only identify the
information sought, but also show “how, if uncovered, it would preclude summary judgment.”
Pa., Dep’t of Pub. Welfare v. Sebelius, 674 F.3d 139, 157 (3d Cir. 2012) (citation omitted). This
Lagreca has failed to do. The most common formulation of the test for bad faith under
Pennsylvania law remains that from Terletsky, which requires proof that (1) the insurer did not
have a reasonable basis for denying benefits under the policy, and (2) the insurer knew of or
recklessly disregarded its lack of reasonable basis in denying the claim. 649 A.2d at 688. 4 The
discovery sought by Lagreca would at most shed light on the second prong of the test—the
specifics of what Allstate considered in ultimately denying coverage. Because I have determined
as a matter of law that a reasonable basis for that denial existed, Lagreca’s claim would fail
regardless of what the requested discovery might reveal.
A strong remedy for bad faith is important because a denial of benefits or coverage is an
“evasion of the spirit of the bargain” a carrier struck with its insured. Rancosky, 130 A.3d at 94.
But on the facts here, Allstate’s challenge to the limits of that bargain was entirely appropriate.
B. Breach of Contract
Allstate also moves for summary judgment on Lagreca’s breach of contract claim,
contending Lagreca cannot prove damages, see Meyer, Darragh, Buckler, Bebenek & Eck,
P.L.L.C. v. Law Firm of Malone Middleman, P.C., ___ Pa.___, ___, 137 A.3d 1247, 1258
(2016). This argument certainly has force, because after I denied Allstate’s motion for judgment
on the pleadings, Allstate both paid for Lagreca’s defense in the underlying suit and indemnified
him. Lagreca offers no argument in response, and so I will also enter judgment in Allstate’s
favor on the contract claim.
The Pennsylvania Supreme Court has not definitively ruled on the prevailing test for
bad faith. See Rancosky v. Washington Nat’l Ins. Co., 130 A.3d 79, 92 (Pa. Super. Ct. 2015). It
has, however, granted allocatur in Rancosky to consider whether proof of an ill motive is a
necessary element of a bad faith claim. 144 A.3d 926 (Pa. 2016) (mem.) (per curiam).
Allstate’s Motion for Summary Judgment will be granted, Lagreca’s Cross-Motion to
Allow Time for Discovery will be denied, and Lagreca’s bad faith and breach of contract claims
will be dismissed. An appropriate order follows.
/s/ Gerald Austin McHugh
United States District Judge
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