BYARS v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Filing 29

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE STEWART DALZELL ON 1/12/2015. 1/13/2015 ENTERED AND COPIES E-MAILED; COPY FORWARDED TO ARBITRATION CLERK. (ems)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JOHN BYARS

:
:
v.
:
:
STATE FARM MUTUAL AUTOMOBILE :
INSURANCE COMPANY
:

CIVIL ACTION

NO. 13-6452

MEMORANDUM
Dalzell, J.
I.

January 12, 2015

Introduction
We consider here defendant State Farm Mutual Automobile Insurance Company’s (“State

Farm”) partial motion for summary judgment, plaintiff John Byars’s motion for summary
judgment, and plaintiff’s motion to amend his complaint.
State Farm moves for partial summary judgment to limit plaintiff’s damages to $50,000,
arguing that a prior state court judgment collaterally estops him from recovering more. Plaintiff
moves for summary judgment, arguing that the state court’s findings, and principles of res
judicata, entitle him to uninsured motorist coverage from State Farm as a matter of law. Plaintiff
further seeks to amend his complaint to assert a cause of action for bad faith against State Farm.
We have jurisdiction pursuant to 28 U.S.C. § 1332.

II.

Standards for Summary Judgment
Fed. R. Civ. P. 56(a) provides:
A party may move for summary judgment, identifying each
claim or defense -- or the part of each claim or defense -- on which
summary judgment is sought. The court shall grant summary
judgment 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. The court should state on the record the reasons for
granting or denying the motion.
We treat cross-motions for summary judgment as if they were two distinct, independent
motions. Arnold Pontiac-GMC, Inc. v. General Motors Corp., 700 F. Supp. 838, 840 (W.D. Pa.
1988). In evaluating each motion, we must consider the facts and inferences in the light most
favorable to the non-moving party. Marzano v. Computer Science Corp. Inc., 91 F.3d 497, 501
(3d Cir. 1996).
A party moving for summary judgment bears the initial burden of informing the district
court of the basis for its argument that there is no genuine issue of material fact by “identifying
those portions of the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue
of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotations
omitted). If the moving party meets this initial burden, Fed. R. Civ. P. 56 then obliges the nonmoving party to show, via submissions beyond the pleadings, that there are genuine factual
issues for trial. Id. at 324.
There is a genuine issue of material fact only when there is sufficient evidence such that a
reasonable juror could find for the party opposing the motion. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 251-52 (1986) (explaining further that a mere scintilla of evidence is insufficient).
Material facts are those that would affect the outcome of the case under the governing law. Id. at
248. We may not make credibility determinations or weigh the evidence, and we must draw all
reasonable inferences in favor of the non-moving party. Reeves v. Sanderson Plumbing Prods.,
Inc., 530 U.S. 133, 150 (2000); Amour v. County of Beaver, PA, 271 F.3d 417, 420 (3d Cir.
2001). Our function is to determine whether there is a genuine issue for trial, and we may not
prevent a case from reaching a jury simply because we favor one of several reasonable views of
2

the evidence. Abraham v. Raso, 183 F.3d 279, 287 (3d Cir. 1999) (citing Anderson, 477 U.S. at
249).
We recount the materially undisputed facts pertinent to resolving the motions before us.

III.

Factual Background
This case arises from a motor vehicle accident on October 3, 2009. Def. Brief at 2; Pl.

Brief at 2. Alexander Funtow, a third party not before this Court, hit plaintiff’s pick-up truck
with his car. Def. Brief at 2; Pl. Brief at 2. After the accident, Funtow assaulted plaintiff. Def.
Brief at 2; Pl. Brief at 2. Funtow was uninsured. Def. Brief at 3; Pl. Brief at 3. Plaintiff had an
automobile insurance policy with State Farm.
Plaintiff’s automobile insurance policy with State Farm (the “Policy”) contained an
uninsured motor vehicle provision providing that State Farm would pay plaintiff’s compensatory
damages for bodily injuries that the plaintiff was legally entitled to recover from the driver of an
uninsured motor vehicle.1 The Policy included a provision governing fault and determining the
amount of damages in the event of an accident with an uninsured motor vehicle:
Deciding Fault and Amount – Coverages U and U3
1.
a. The insured and we must agree to the answers to the
following two questions:
1

That portion of the Policy read:
Insuring Agreement – Coverages U and U3
We will pay compensatory damages for bodily injury an
insured is legally entitled to recover from the owner or driver of an
uninsured motor vehicle. The bodily injury must be:
1. sustained by an insured; and
2. caused by an accident that involves the ownership,
maintenance, or use of an uninsured motor vehicle as a
motor vehicle.
The amount we will pay for damages is subject to the limitations of
Title 75 of the Pennsylvania Consolidated Statutes.
Pl. Brief Ex. F at 18.
3

(1) Is the insured legally entitled to recover compensatory
damages from the owner or driver of the uninsured motor vehicle?
(2) If the insured and we agree that the answer to 1.a.(1)
above is yes, then what is the amount of the compensatory
damages that the insured is legally entitled to recover from the
owner or driver of the uninsured motor vehicle?
b. If there is no agreement on the answer to either question
in 1.a. above, then the insured shall:
(1) file a lawsuit, in a state or federal court that has
jurisdiction, against:
(a) us;
(b) the owner and driver of the uninsured motor
vehicle, unless we have consented to a settlement
offer proposed by or on behalf of such owner or
driver; and
(c) any other party or parties who may be legally
liable for the insured’s damages;
(2) consent to a jury trial if requested by us;
(3) agree that we may contest the issues of liability and the
amount of damages; and
(4) secure a judgment in that action.
The judgment must be the final result of an actual trial and
any appeals, if any appeals are taken.
2. We are not bound by any:
a. judgment obtained without our written consent; and
b. default judgment against any person or organization
other than us.
Pl. Brief Ex. F at 19.
On October 5, 2009, plaintiff called State Farm and provided a statement regarding the
October 3 incident, including both the details of the car accident and the subsequent assault. Pl.
Brief Ex. A. On October 21, 2009, State Farm sent plaintiff a letter denying coverage, explaining
that “[b]ased on our investigation and the facts provided to use [sic], there will be no coverage
for the injuries sustained from this incident under your State Farm Automobile Policy as the
injuries were not as a result of the ownership, maintenance or use of a motor vehicle.” Id. Ex. B.
Plaintiff then filed two lawsuits in the Philadelphia Court of Common Pleas, the first on
September 6, 2011 against Funtow and Stephen Tuttle, the alleged owner of the vehicle Funtow

4

operated. Def. Brief at 2; Pl. Brief at 2, and the second seeking uninsured motorist benefits,
against State Farm on October 1, 2013. Def. Brief at 1; Pl. Brief at 3. State Farm removed to this
Court on November 6, 2013. See Notice of Removal. We stayed this case pending the outcome
of the state court proceeding against Funtow. See February 5, 2014 Order.
Funtow failed to answer the complaint, and the Philadelphia Court of Common Pleas
entered a default judgment against Funtow on January 18, 2012. Def. Brief at 2; Pl. Brief at 7.
On June 30, 2014, the Honorable Lisette Shirdan-Harris held a bench trial to assess damages
against him. Pl. Brief Ex. D. Based on plaintiff’s testimony -- including evidence of his injuries
and damages, medical records, bills, and reports -- Judge Shirdan-Harris entered judgment
against Funtow and in favor of plaintiff in the amount of $50,000. Pl. Brief Ex. E at 2. On July 2,
2014, Judge Shirdan-Harris entered a supplemental order declaring that plaintiff had met his
burden of establishing that “Alexander Funtow’s negligence was the factual cause in bringing
about [plaintiff’s] injuries from the October 3, 2009 incident.” Id. Ex. E at 1. After plaintiff
informed us that his case against Funtow had concluded, and we determined that we retained
jurisdiction over the case, we set a briefing schedule and ordered the parties to complete
discovery. See August 12, 2014 Order. The parties then filed their motions for summary
judgment, which we now address.

IV.

Defendant State Farm’s Motion for Partial Summary Judgment
State Farm argues that collateral estoppel bars plaintiff from re-litigating the issue of

damages. Def. Brief at 4. Plaintiff argues that, as claimed in his own motion for summary
judgment, he is entitled as a matter of law to coverage from State Farm, and, should we so
decide, “he would be bound by the $50,000 findings on damages.” Pl. Resp. at 3-4. However,
plaintiff argues, if we do not find that he is entitled to coverage as a matter of law then he
5

“should be provided the opportunity to fully litigate the merits (and explain the difference of
negligence versus assault) of his damages in the present venue.” Id. at 4.
Because we have jurisdiction over this case pursuant to 28 U.S.C. § 1332, we must apply
Pennsylvania law on collateral estoppel, also known as issue preclusion. See Public Serv. Mut.
Ins. Co. v. Cohen, 616 F.2d 704, 707 (3d Cir. 1980) (district court sitting in diversity correctly
applied Pennsylvania law to issue of collateral estoppel); M & M Stone Co. v. Hornberger, 2009
WL 3245460, *7 (E.D. Pa. Sep. 30, 2009) (Gardner, J.) (“Pursuant to the Full Faith and Credit
Act, 28 U.S.C. § 1738, a federal district court must give the same preclusive effect to a state
court judgment that the adjudicating state would give.”); see also Ranger Ins. Co. v. General
Accident Fire & Life Assurance Corp., Ltd., 800 F.2d 329, 330 (3d Cir. 1986) (citing 28 U.S.C.
§ 1738 on full faith and credit).
According to Pennsylvania law, the doctrine of collateral estoppel bars re-litigating an
issue determined in a previous action if: (1) the issue decided in the earlier action is identical to
the issue presented in the later action, (2) there was a final adjudication on the merits, (3) the
party against whom the doctrine is asserted was a party or in privity with a party in the prior
case, and (4) the party against whom the doctrine is asserted had a full and fair opportunity to
litigate the issue in the prior proceeding.2 Shaffer v. Smith, 673 A.2d 872, 874 (Pa. 1996).

2

Some courts include an additional fifth factor, that the determination in the prior
proceeding was essential to the judgment. See Office of Disciplinary Counsel v. Kiesewetter,
889 A.2d 47, 50-51 (Pa. 2005). As defendant State Farm notes, not all Pennsylvania courts
include the fifth factor listed in Kiesewetter. Def. Brief at 4 (citing Witkowski v. Welch, 173
F.3d 192, 203 n. 15 (3d Cir. 1999)).
We agree with our Court of Appeals in Witkowski that “[w]hether there are four or five
formal elements to the doctrine is not of consequence, nor is it for us to decide. In any event, the
doctrine is essentially the same under either analysis. Even with just the four formal elements,
clearly there must be a nexus between the first two. In other words, the identical issue must have
been necessary to final judgment on the merits.” Witkowski, 173 F.3d at 203 n. 15 (internal
quotation marks omitted). We will therefore use the four-part test from Shaffer.
6

Parties typically use collateral estoppel in either a defensive or offensive posture.
Offensive collateral estoppel would describe the case where a plaintiff seeks to foreclose a
defendant from litigating an issue that the defendant previously litigated unsuccessfully in an
action with another party. Shaffer, 673 A.2d at 874. Defensive collateral estoppel would describe
a case where a defendant tries to bar a plaintiff from asserting a claim that the plaintiff has
previously litigated and lost against a different defendant. Id. (citing Parklane Hosiery Co., Inc.
v. Shore, 439 U.S. 322, 326 n.4 (1979)).
Plaintiff argues that he is not collaterally estopped from litigating the amount of his
damages because the issue decided in the state court proceeding is not identical to the issue
before us, and he also did not have a full opportunity to litigate the issue in state court. Pl. Resp.
at 3.
Defendant State Farm replies that the issue at hand and the issue in the third party
litigation were the same -- namely, “the amount of plaintiff’s damages resulting from the alleged
negligence of Funtow, the uninsured motorist.” Def. Reply at 1. State Farm argues that plaintiff
had a full and fair opportunity to litigate the issue in state court, where “[h]e had no opponent.”
Id. at 2.
We must first determine whether the doctrine of collateral estoppel applies, using the test
as set forth in Shaffer. As we explain below, we find plaintiff is collaterally estopped from
litigating the issue of his damages resulting from the motor vehicle incident with Funtow.
First, the issue decided in the state court case is identical to the issue in this case. See
Shaffer, 673 A.2d at 874 (describing the first prong of the four-part test). At the assessment of
damages hearing in the state court action, plaintiff presented evidence as to the nature of his
injuries, and therefore the amount he was entitled to recover, resulting from Funtow’s car

7

striking his pick-up truck.3 Plaintiff testified as to how the accident occurred and the resulting
injuries to his knee and shoulder. See Pl. Brief Ex. D at 13-15.
In the case before us, plaintiff seeks uninsured motorist benefits from State Farm. See
Complaint at ¶¶ 8-16. The Pennsylvania Financial Motor Vehicle Financial Responsibility Law
(“MVFRL”), 75 Pa. Cons. Stat. § 1731(b) (1984), provides that uninsured motorist coverage
protects persons “who suffer injury arising out of…the use of a motor vehicle and are legally
entitled to recover damages therefor from owners or operators of uninsured motor vehicles.”
Plaintiff’s Policy provides that State Farm will “pay compensatory damages for bodily injury an
insured is legally entitled to recover from the owner or driver of an uninsured motor vehicle”
where the bodily injury is sustained by the insured and caused by an accident involving the use
of an uninsured motor vehicle. Pl. Brief Ex. F at 18 (emphasis omitted).
There are therefore two issues in this case: whether plaintiff is entitled to coverage from
State Farm, and, if so, in what amount. By the terms of his policy, plaintiff would only be
entitled to those compensatory damages resulting from bodily injuries sustained in the accident.
And in fact, that is precisely what plaintiff litigated at the assessment of damages hearing in the
state court action -- the amount of money Funtow, the driver of the uninsured motor vehicle, was
liable to plaintiff for as a result of his injuries from the accident, not the subsequent assault.
Thus, that issue in the prior action is identical to this issue in the case before us.
Second, the issue of plaintiff’s damages reached a final adjudication on the merits. See
Shaffer, 673 A.2d at 874 (describing the second prong of the four-part test). In the state court

3

See Pl. Brief Ex. D (hearing testimony transcription). Plaintiff’s attorney summarized
the nature of the motor vehicle accident and said, “The vehicles came to rest. At that point, Mr.
Byars suffered some pain, some injury. There was subsequently an assault. That is all dealing
with the face and head and chest; something separate than what we’re dealing with here. We’re
not seeking recovery on the assault.” Id. at 6.
8

action, plaintiff obtained a default judgment against Funtow and, after an assessment of damages
hearing, a judgment in the amount of $50,000 against Funtow. See Pl. Brief Ex. E.
Though default judgments do not meet the requirements of collateral estoppel since the
issues are not actually litigated, see Wilson v. Reliance Ins. Co., 138 F. App’x 457, 459 (3d Cir.
2005), here the actual issue of the assessment of damages was litigated at a hearing on June 30,
2014 before Judge Shirdan-Harris. Pl. Brief Ex. D.
The Philadelphia Court of Common Pleas essentially bifurcated the case such that the
issue of assessment of damages was actually litigated. See Pl. Brief Ex. E (“After an Assessment
of Damages hearing, judgment is entered in the amount of $50,000.00 for Plaintiff and against
Defendant, Alexander Funtow.”). Thus, notwithstanding the default judgment against Funtow,
there was a final adjudication on the merits of the issue of damages.4
Third, the party against whom collateral estoppel has been asserted was a party in the
prior case. See Shaffer, 673 A.2d at 874 (describing the third prong of the four-part test). Neither
party disputes that defendant State Farm is attempting to use the doctrine of collateral estoppel
against plaintiff John Byars, also the plaintiff in the state court action.
Fourth, the party against whom collateral estoppel has been asserted had a full and fair
opportunity to litigate the issue in the prior proceeding. See Shaffer, 673 A.2d at 874 (describing
the fourth prong of the four-part test). Plaintiff sued Funtow in the Philadelphia Court of
4

See, e.g., GGIS Ins. Servs., Inc. v. Lincoln Gen. Ins. Co., 2012 WL 1164994, *8 (M.D.
Pa. Apr. 9, 2012) (Conner, J.) (determining that an arbitration award was not a default award
because, although one party did not participate, the arbitration panel made findings of fact and
reached conclusions of law based upon the evidence). Though GGIS dealt with a possible default
judgment in the res judicata context, where default judgments can support such a claim, it
illustrates that an award entered on the merits is not a default award. See also Restatement
(Second) of Judgments § 27, comment d (1982) (explaining that an issue is actually litigated
when it is raised, submitted for determination, and determined); but see Restatement (Second) of
Judgments § 27, comment e (1982) (“In the case of a judgment entered by confession, consent,
or default, none of the issues is actually litigated.”).
9

Common Pleas, and, after obtaining a default judgment against Funtow, presented evidence at an
assessment of damages hearing as to the nature and scope of his injuries. Plaintiff maintains that
he “did not have a full opportunity to litigate the issue of ‘negligence versus assault’ causation in
the State Court action,” since he took “a streamline [sic] approach addressing only those injuries
sustained in the automobile accident,” and therefore “did not have a full and fair opportunity to
defend against those accusations in the uncontested testimony provided in the underlying case.”
Pl. Resp. at 3. Essentially, plaintiff argues that since no one challenged his account of his
injuries, he wasn't forced to explain the difference between the injuries sustained in the accident
and the injuries sustained in the subsequent assault.
Plaintiff’s testimony about his injuries was not subject to adversarial testing, but the
potential unfairness of that one-sided argument breaks in plaintiff’s favor. Plaintiff essentially
had an open, unimpeded platform from which he could present evidence about his injuries, and
he took that opportunity to testify, at length, with supporting documentation, about those injuries.
That plaintiff did not take the opportunity to argue against himself, or against an absent
opponent, about whether his injuries were from the negligent accident or subsequent assault does
not mean that he did not fully and fairly litigate the issue of his damages from the accident.
Plaintiff argues that State Farm is using collateral estoppel offensively, and therefore, in
addition to the Shaffer test, we should evaluate the issue of collateral estoppel under the fourprong test in Toy v. Metropolitan Life Ins. Co., 863 A.2d 1 (Pa. Super. Ct. 2004).5 Plaintiff

5

Plaintiff cites Toy to argue that, when a party attempts to use collateral estoppel
offensively, Pennsylvania courts also consider whether the party attempting to use the doctrine
had an opportunity to join the earlier action and whether the party against whom the doctrine is
being used had an incentive to vigorously prosecute the first action. Pl. Resp. at 3. In Toy, the
Pennsylvania Superior Court explained that “when a plaintiff seeks to employ the doctrine
offensively, courts must also consider whether (1) plaintiff had an opportunity to join the earlier
action, (2) the defendant had an incentive to defend the first action vigorously, (3) the judgment
10

argues, using Toy, that State Farm’s opportunity to intervene in the state court action and
plaintiff’s incentive to prosecute his case vigorously “weigh in favor of disallowing the
doctrine.” Pl. Resp. at 3.
Here, we have the apparently unusual situation where the defendant seeks to estop the
plaintiff from re-litigating an issue the plaintiff seems to have already won. See Parklane
Hosiery, 439 U.S. at 329 (“In both the offensive and defensive use situations, the party against
whom estoppel is asserted has litigated and lost in an earlier action.”) (emphasis added). State
Farm seeks to estop plaintiff from re-litigating an issue that it alleges was fully and finally
litigated in an action which ended in plaintiff’s own favor.
Perhaps as a result of this unique posture, plaintiff takes exception to State Farm taking
up a sword instead of a shield in its own defense. Pl. Resp. at 3 (“State Farm is really presenting
an ‘offensive’ collateral estoppel challenge.”). But we do not accept plaintiff’s characterization
of State Farm’s use of collateral estoppel as "offensive". State Farm has been sued by the
plaintiff, and now seeks to preclude the plaintiff from re-litigating an issue he already raised and
successfully litigated against another defendant. That plaintiff prevailed in the state court action
does not change State Farm’s posture with respect to collateral estoppel. State Farm is trying to
stop plaintiff from re-litigating the issue of damages at all, which presumably it would do had
plaintiff lost on the issue of damages in the state court and then tried to re-litigate here. An
analysis of the Toy factors is thus unnecessary.

relied upon as a basis for collateral estoppel is inconsistent with one or more previous judgments
in favor of the defendant, and (4) the second action would afford the defendant procedural
opportunities unavailable in the first action that could produce a different result.” Toy, 863 A.2d
at 15.
11

We therefore find, in accordance with Shaffer, that the doctrine of collateral estoppel
applies to the issue of the amount of damages the plaintiff was awarded as a result of the accident
with the uninsured motor vehicle.
Since collateral estoppel applies to the issue of damages, we will grant in part defendant
State Farm’s motion for partial summary judgment and find that plaintiff is collaterally estopped
from re-litigating the issue of damages as a result of the accident with the uninsured motor
vehicle. We deny defendant State Farm’s motion for partial summary judgment to the extent that
it seeks to construe the $50,000 judgment as a cap on damages. Rather, plaintiff is collaterally
estopped from litigating his damages from the accident because the state court action fully and
finally determined his damages to be $50,000.
Whether or not he is entitled to recover that amount from State Farm under his uninsured
motorist coverage -- solely by virtue of the prior state court action -- is a separate question,
which we now address.

V.

Plaintiff’s Motion for Summary Judgment
Plaintiff argues that he is entitled to summary judgment as a matter of law based on the

prior state court action and principles of res judicata, or claim preclusion. See Pl. Brief at 8 (“As
all pertinent issues in this coverage action have been determined, judgment should be entered for
Mr. Byars as a matter of law.”).
Because we have jurisdiction over this case pursuant to 28 U.S.C. § 1332, we must apply
Pennsylvania law on res judicata. See O’Leary v. Liberty Mut. Ins. Co., 923 F.2d 1062, 1064 (3d
Cir. 1991) (explaining that determining whether a district court is barred by res judicata because
of a state court judgment requires looking to the law of the adjudicating state); Gregory v. Chehi,
843 F.2d 111, 116 (3d Cir. 1988) (“A federal court applying preclusion principles is bound by
12

the Full Faith and Credit statute, 28 U.S.C. § 1738, and must give a prior state court judgment
the same effect as would the adjudicating state.”) (footnotes omitted).
According to Pennsylvania law, res judicata applies “when there exists an identity of
issues, an identity of causes of action, identity of persons and parties to the action, and identity of
the quality or capacity of the parties suing or being sued.” In re Iulo, 766 A.2d 335, 337 (Pa.
2001) (citing Safeguard Mut. Ins. Co. v. Williams, 345 A.2d 664, 668 (1975)). This means that
the two actions must share an identity of: (1) the thing sued upon or for, (2) cause of action, (3)
persons or party to the action, and (4) capacity of the parties to sue or be sued. O’Leary, 923 F.2d
at 1065.
Res judicata does not apply to the case at hand because there is no identity of the persons
or parties to the action between the state court action and this case. Plaintiff did not sue State
Farm in the state court action; he chose to sue State Farm in a separate lawsuit. Nor was State
Farm, as plaintiff argues, “a privy of the uninsured motorist.” Pl. Brief at 8. State Farm was
plaintiff’s insurer, not Funtow’s. Funtow was uninsured.
Notwithstanding plaintiff’s Policy with State Farm, in the state court action plaintiff and
State Farm were not in privity because State Farm’s interest would have been adverse to
plaintiff’s interest. See Ranger Ins. Co., 800 F.3d at 331 (explaining that Pennsylvania law holds
insurers and their insureds to be in privity for collateral estoppel purposes, except when the
insurer and its insured had conflicting interests in the prior adjudication); Levitz v. Nationwide
Ins. Co., 167 F. Supp. 2d 748, 750 (E.D. Pa. 2001) (same). State Farm’s interest would have
been to minimize plaintiff’s recoverable damages against Funtow as a result of the motor vehicle
incident, since State Farm would have had to pay plaintiff’s compensatory damages from that

13

accident since it was with an uninsured motor vehicle. Thus, State Farm was not in privity with
plaintiff in the state court action.6
Further, by the Policy’s own terms, which we are permitted to interpret, see Allstate Prop.
& Cas. Ins. Co. v. Squires, 667 F.3d 388, 391 (3d Cir. 2012) (explaining that under Pennsylvania
law the interpretation of an insurance contract is a matter of law for the courts to decide), State
Farm is not bound by the judgment against Funtow. See Pl. Brief Ex. F at 19 (“We [State Farm]
are not bound by any…judgment obtained without our written consent; and . . . default judgment
against any person or organization other than us.”) (emphasis omitted).
Res judicata does not apply to the case at hand with respect to State Farm and does not
support judgment for plaintiff as a matter of law. We will therefore deny plaintiff’s motion for
summary judgment.

VI.

Plaintiff’s Motion to Amend the Complaint
Plaintiff seeks leave to amend his complaint to assert a count of bad faith against State

Farm. Pl. Motion at 3. Plaintiff attaches to his motion the proposed amended complaint,
including a new Count II. Id. Ex. B at ¶¶ 17-21. In his motion, plaintiff explains the factual basis
for his new Count as State Farm’s conduct during discovery and continued refusal to provide
uninsured motorist coverage for the October 3, 2009 incident based on the judgment plaintiff
obtained against Funtow. Pl. Motion at 2-3.

6

This conforms with the Policy’s very terms, which contemplates the situation when an
insured and insurer disagree about whether an insured is entitled to recover compensatory
damages from the operator of an uninsured motor vehicle, and, if so, in what amount. See Pl.
Brief Ex. F at 19. In that event, the insured is required to sue the insurer, the driver of the
uninsured motor vehicle, and any other parties who may be liable for the insured’s damages. Id.
In that same provision, the insured is also required to “agree that we [State Farm] may contest
the issues of liability and the amount of damages” at issue. Id. (emphasis omitted).
14

Fed. R. Civ. P. 15(a)(2) provides that, when amendment is not permitted as a matter of
course, “a party may amend its pleading only with the opposing party’s written consent or the
court’s leave. The court should freely give leave when justice so requires.” We have discretion to
grant or deny a request for leave to amend, though we may not deny leave without any justifying
reason. Foman v. Davis, 371 U.S. 178, 182 (1962). Still, we may deny leave to amend a
complaint if (1) the moving party has demonstrated undue delay, bad faith, or dilatory motives,
(2) the amendment would be futile, or (3) amendment would prejudice the other party. Id.; Lake
v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000).
An amendment is futile when the complaint, as amended, would not state a claim upon
which relief could be granted. In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1434
(3d Cir. 1997) (explaining that district courts assess futility by applying the Rule 12(b)(6)
standard of legal sufficiency). Where a proposed amendment is frivolous, or advances a facially
insufficient claim, we may deny leave to amend. Harrison Beverage Co. v. Dribeck Imps., Inc.,
133 F.R.D. 463, 468-469 (D.N.J. 1990) (citing 6 Wright, Miller & Kane, Federal Practice &
Procedure § 1487 at 637-642 (2d ed. 1990)).
Our Court of Appeals has predicted that the Pennsylvania Supreme Court would adopt
the definition of “bad faith” in the context of 42 Pa. Cons. Stat. § 8371 (1990) as set forth in
Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1984). See
Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005). In Terletsky, the
Pennsylvania Superior Court defines bad faith on the part of an insurer as a frivolous or
unfounded, though not necessarily fraudulent, refusal to pay the proceeds of a policy, when that
refusal goes beyond negligence or bad judgment such that there is a dishonest purpose or breach
of a known duty. Terletsky, 649 A.2d at 688 (citing Black’s Law Dictionary 139 (6th ed. 1990)).

15

To prevail on a bad faith claim, the insured must prove that the insurer (1) did not have a
reasonable basis for denying benefits under the policy, and (2) knew of or recklessly disregarded
its lack of a reasonable basis in denying the claim. Babayan, 430 F.3d at 137 (citing Keefe v.
Prudential Prop. & Cas. Ins., Co., 203 F.3d 218, 225 (3d Cir. 2000)). An insured alleging bad
faith must prove it by clear and convincing evidence, and a mere insinuation of bad faith will not
suffice. Amica Mut. Ins. Co. v. Fogel, 656 F.3d 167, 179 (3d Cir. 2001). Pennsylvania law
provides that an insurer does not act in bad faith when it conducts a thorough investigation into a
questionable claim. Babayan, 430 F.3d at 138. Further, since Section 8371 is intended to provide
redress to an insured for an insurer’s bad faith conduct in its capacity as an insurer, and not as a
legal adversary in a lawsuit initiated by the insured, discovery violations do not fall within the
statute’s ambit. O’Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901, 908-09 (Pa. Super.
Ct. 1999) (explaining that, while an insurer’s bad faith conduct may occur while litigation is
pending, such bad faith conduct would have to be in the nature of breaching the fiduciary or
contractual duty owed by the insurer to the insured and not in the nature of a discovery
violation).
Here, amendment would be futile as the amended complaint’s Count II fails to state a
claim upon which relief can be granted. In his motion to amend the complaint, plaintiff
complains of State Farm’s discovery conduct, including its objections during the deposition of
the State Farm representative who took plaintiff’s initial recorded statement after the motor
vehicle incident, as well as certain redactions in State Farm’s files. Pl. Motion at 2. These
grievances are discovery disputes and not within the ambit of Section 8371. We will not grant
plaintiff leave to amend his complaint to add a count of bad faith on this frivolous basis.

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Plaintiff also alleges that State Farm’s continued refusal to provide uninsured motorist
coverage for the October 3, 2009 incident after the state court judgment constitutes bad faith. Id.
at 3. State Farm bases its continued denial of uninsured motor vehicle benefits for the accident
on its belief that it is not bound by the state court judgment, citing to the Policy’s provisions
regarding State Farm’s consent to be bound. Such consent clauses are enforceable under
Pennsylvania law and not contrary to public policy. See Sands v. Andino, 590 A.2d 761, 765-66
(Pa. Super. Ct. 1991) (explaining that such consent clauses are binding on insureds and that it
does not violate public policy to enforce them against insureds who do not fulfill their duties
under such clauses). State Farm, therefore, had a reasonable basis in law to refuse to pay
plaintiff’s state court judgment against Funtow when it had not consented in writing to the
judgment and plaintiff had not obtained a default judgment against State Farm itself. State
Farm’s reasonable basis for denying benefits under the policy precludes prevailing on a claim of
bad faith. We will therefore not grant plaintiff leave to amend his complaint to add a count of
bad faith on this facially insufficient basis.

VII.

Conclusion
Plaintiff is collaterally estopped by the state court action from re-litigating the issue of his

damages from the motor vehicle incident with Alexander Funtow. Plaintiff has not shown that
the state court judgment, by itself, entitles him to judgment as a matter of law that State Farm
must provide him with uninsured motorist coverage for the October 3, 2009 accident. Plaintiff’s
proposed amendment to his complaint would be futile.
We will therefore grant in part and deny in part State Farm’s motion for summary
judgment, deny plaintiff’s motion for summary judgment, and deny plaintiff’s motion to amend
the complaint.
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Because State Farm only moved for partial summary judgment on the issue of the amount
of damages, there remains the question of whether State Farm is obligated, under the Policy, to
provide uninsured motor vehicle coverage to plaintiff for the motor vehicle accident with
Funtow. As this matter has been designated arbitrable, we will therefore direct the parties to
Court-annexed arbitration for resolution under our Local Civil Rules of the remaining issues in
this case.
An appropriate Order follows.

BY THE COURT:

_/s/ Stewart Dalzell, J.
Stewart Dalzell, J.

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