OVERBROOK PROPERTIES, LLC et al v. ALLSTATE INDEMNITY COMPANY
Filing
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MEMORANDUM AND OPINION. SIGNED BY HONORABLE MICHAEL M. BAYLSON ON 7/17/18. 7/17/18 ENTERED & E-MAILED.(fdc)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
OVERBROOK PROPERTIES, LLC AND
WILLIAM WOLVERTON
CIVIL ACTION
v.
NO. 18-630
ALLSTATE INDEMNITY COMPANY
MEMORANDUM RE: MOTION TO DISMISS
Baylson, J.
July 17, 2018
I.
Introduction
In this case, Plaintiffs Overbrook Properties and William Wolverton allege that
Defendant Allstate Indemnity Company committed breach of contract in refusing to pay their
insurance claim for water damage to an insured residential property, and acted in bad faith in
evaluating their claim and making the determination to deny it. Plaintiff brings a breach of
contract cause of action and a statutory bad faith claim against Allstate. Presently before the
Court is a Motion to Dismiss Count II of the Amended Complaint—the statutory bad faith
claim—for failure to state a claim for which relief can be granted and a Motion to Strike certain
parts of the Amended Complaint, filed by Allstate. For the reasons discussed below,
Defendant’s Motion to Dismiss will be denied, and Defendant’s Motion to Strike will be granted
in part and denied in part.
II.
Factual History
Taking Plaintiff’s allegations as true, the factual background is as follows. Plaintiff
Overbrook Properties, LLC is located in Narberth, Pennsylvania, as is Plaintiff William
Wolverton’s place of business. (Amended Complaint, ¶¶ 1-2.) Defendant Allstate Indemnity
Company is headquartered in Northbrook, Illinois, and regularly conducts business in
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Philadelphia, Pennsylvania. (Id., ¶ 3.) Overbrook owned a three unit residential apartment
building located at 5932 Ridge Avenue in Philadelphia (the “property”). (Id., ¶ 4.) The three
units were rented by tenants with a monthly rental revenue of $2,200.00. (Id., ¶ 5.) Wolverton is
a manager and member of Overbrook, as are Gregory Wax and Francis X. Ounan. (Id., ¶ 6.) In
2009 Plaintiffs obtained an insurance policy for their interest in the property. (Id., ¶ 8.) In 2011
Plaintiffs sustained a casualty claim at the premises which Allstate refused to pay. (Id., ¶ 9.)
Plaintiffs obtained an arbitration award against Allstate for this casualty claim, after which
Allstate attempted to terminate Plaintiffs’ policy. (Id., ¶ 10.) The Pennsylvania Department of
Insurance ruled that this attempt was unlawful, however, and ordered Allstate to renew
Plaintiffs’ policy on the property. (Id., ¶ 11.) On or about June 29, 2016, Allstate issued Policy
Number 928 423 525, “Allstate Landlords Package Policy” (“Policy”), to Plaintiffs, which was a
renewal of Plaintiffs’ policy insuring their interest in the property. (Id., ¶ 7.) Plaintiffs have paid
all premiums as they have become due. (Id., ¶ 12.)
On or about January 12, 2017, leaking water was observed in all three apartments of the
property emanating from the toilet in the third floor apartment and the sewer stacks in the second
and first floor apartments, causing water damage to the premises. (Id., ¶ 14.) There had not been
any continuous or repeated leakage of water, steam, or fuel from any of the pipes, walls,
plumbing fixtures, floors, stacks, or ceilings prior to that date. (Id., ¶ 13.) Plaintiffs reported the
January 12, 2017 leak and resulting water damage to Allstate on or about January 16, 2017. 1
(Id., ¶ 15.) In the weeks and months following the reporting of this claim, Plaintiffs performed
all of the post-loss obligations required under the Policy, including providing Allstate with
Notice of the Loss, a Sworn Statement in Proof of Loss, and repair estimates. (Id., ¶ 16.)
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The Amended Complaint states the date as January 16, 2016, however all other dates alleged relating to damage to
the Property and subsequent events refer to 2017. The Court assumes this was a mistake and considers this to be a
reference to January 16, 2017.
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Plaintiffs took all reasonable steps to preserve the property after the water damage and also
allowed Allstate to access the property. (Id., ¶ 17.) However, Allstate has refused to pay
Plaintiffs’ claim. (Id., ¶¶ 20-21.)
Allstate denied Plaintiff’s claim solely based on an unsigned report form an unnamed
person on a letterhead from a plumbing company dated March 30, 2017, which states: “The
amount of water damage seen would indicate that the damage had occurred from continuous
water use and not from a one-time occurrence or had contributed to possible prior water damage
when the pipe on the first floor has been replaced.” (Id., ¶ 29.) The unsigned report did not
provide a factual basis to support its conclusion. (Id., ¶¶ 30-31.) Allstate failed to consider a
statement, reports and documents provided by Plaintiffs and their representatives communicating
that January 12, 2017 was the first time that any water damage was observed, and failed to
consider or give adequate weight to Plaintiffs’ contractor’s report which stated that the water
damage occurred as a result of a deteriorated toilet flapper along with a broken fluid master. (Id.,
¶¶ 32-33.)
Plaintiffs sustained repair damages to the property in the amount of $32,671.00, and the
loss of rental income from all three apartments from January 12, 2017 through November 20,
2017, for a total loss of rental income of $24,200.00, solely as a result of the water damage
originating on or about January 12, 2017. (Id., ¶¶ 18-19.) As a result, Plaintiff Overbrook was
unable to pay the mortgage on the property and was forced to sell it at a loss of $75,000.00 on or
about November 30, 2017. As a result of Allstate’s conduct, Plaintiffs have suffered damages in
terms of having to hire counsel to prosecute this claim, having to hire experts to assist them in
the assessment of their damages, and having to pay for the expenses for the repairs and/or
replacements to the premises that should have been paid by Allstate. (Id., ¶ 26.)
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III.
Procedural History
Plaintiffs filed the original Complaint in this case on January 11, 2018, in the
Philadelphia Court of Common Pleas, and Defendant filed a Notice of Removal to this Court on
February 9, 2018 (ECF 1). On February 16, 2018, Defendant filed a Motion to Dismiss the
Complaint and a Motion to Strike parts of the Complaint (ECF 3). This became moot on March
1, 2018 when Plaintiffs filed the first Amended Complaint (ECF 4) stating two causes of action:
I.
Breach of Contract –Defendant Allstate breached the Policy by refusing to accept
and pay Plaintiffs’ claim for water damage to the premises which arose solely
from a sudden and accidental direct physical loss to the premises.
II.
Statutory Bad Faith Claim pursuant to 42 Pa. C.S.A. § 8371 – Defendant Allstate
acted in bad faith in that it failed to fairly evaluate Plaintiffs’ claim and had no
reasonable basis for denying the claim.
Defendant filed a Motion to Dismiss Count II of the Amended Complaint, and a Motion
to Strike Plaintiff’s demand for attorneys’ fees from Count I and Paragraphs 9-11, and 37 of the
Amended Complaint, on March 6, 2018 (ECF 5). Plaintiff responded in opposition on March 12,
2018 (ECF 6).
IV.
Legal Standard
In considering a motion to dismiss under Rule 12(b)(6), the Court must accept as true all
well-pleaded allegations in the complaint and view them in the light most favorable to the
plaintiff. Angelastro v. Prudential–Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985). “To
survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true,
to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
The Court in Iqbal explained that, although a court must accept as true all of the factual
allegations contained in a complaint, that requirement does not apply to legal conclusions;
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therefore, pleadings must include factual allegations to support the legal claims asserted. Id. at
678, 684. “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id. at 678 (citing Twombly, 550 U.S. at 555); see also
Phillips v. County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008) (“We caution that without
some factual allegation in the complaint, a claimant cannot satisfy the requirement that he or she
provide not only ‘fair notice,’ but also the ‘grounds’ on which the claim rests.”) (citing
Twombly, 550 U.S. at 556 n.3). Accordingly, to survive a motion to dismiss, a plaintiff must
plead “factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).
Rule 12(f) states, “[t]he court may strike from a pleading an insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). “The standard
for striking a complaint or a portion of it is strict, and ‘only allegations that are so unrelated to
the plaintiffs' claims as to be unworthy of any consideration should be stricken.’” Steak Umm
Co., LLC v. Steak ‘Em Up, Inc., No. 09-2857, 2009 WL 3540786, at *2 (E.D. Pa. Oct. 29,
2009), citing Johnson v. Anhorn, 334 F.Supp.2d 802, 809 (E.D. Pa. 2004). “The purpose of a
motion to strike is to clean up the pleadings, streamline litigation, and avoid unnecessary forays
into immaterial matters.” McInerney v. Moyer Lumber and Hardware, Inc., 244 F. Supp. 2d
393, 402 (E.D. Pa. 2002). Although “[a] court possesses considerable discretion in disposing of
a motion to strike under Rule 12(f),” such motions are “not favored and usually will be denied
unless the allegations have no possible relation to the controversy and may cause prejudice to
one of the parties, or if the allegations confuse the issues in the case.” River Road Dev. Corp. v.
Carlson Corp., No. 89-7037, 1990 WL 69085, at *3 (E.D. Pa. May 23, 1990).
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Motions to strike are to be decided “on the basis of the pleadings alone.” N. Penn
Transfer, Inc. v. Victaulic Co. of Am., 859 F.Supp. 154, 159 (E.D. Pa. 1994) (citations omitted).
Striking a pleading or a portion of a pleading “is a drastic remedy to be resorted to only when
required for the purposes of justice.” DeLa Cruz v. Piccari Press, 521 F. Supp.2d 424, 428 (E.D.
Pa. 2007) (quotations omitted). See also Giuliani v. Polysciences, Inc., No. CV 17-1705, 2017
WL 3226002, at *3 (E.D. Pa. July 31, 2017).
V.
Discussion
1. Allstate’s Motion to Dismiss Plaintiffs’ Statutory Bad Faith Claim
Plaintiffs assert that Allstate acted in bad faith, pursuant to 42 Pa. C.S.A. § 8371, in
evaluating their coverage claim under the Policy for water damage to the Property that occurred
in January, 2017.
Allstate argues that under Pennsylvania law, an insurer is insulated from a claim for bad
faith when it has a reasonable basis for the relevant coverage decision, including when it relies
on the conclusions of an independent expert in making that decision. Defendant’s Memorandum
of Law in Support of Its Motion to Dismiss and Motion to Strike, at 8-9. Because Allstate relied
upon the conclusions of a plumber in making its coverage decision, there can be no claim for bad
faith. Id. at 9-11. Even in light of Plaintiffs’ allegation that Allstate or its expert failed to give
adequate weight to certain evidence, the bad faith claim must be dismissed because the standard
for bad faith merely requires that an insurer had a reasonable basis for its conclusion about
coverage, not that an insurer eliminated all possibilities at odds with that conclusion. Id. at 10.
Plaintiffs respond that Allstate’s reliance on a report prepared by a plumber in making its
coverage decision in this case was unreasonable, given that the report was unsigned and its
author unnamed, it failed to state the factual basis for its conclusion, and it did not state its
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conclusion within a reasonable degree of plumbing certainty. Plaintiffs’ Response in Opposition
to Defendant’s Motion to Dismiss and to Strike, at 6-12.
42 Pa. C.S.A. § 8371 provides that in the context of a claim arising under an insurance
policy, “if the court finds that the insurer has acted in bad faith toward the insured,” the court
may do any of the following:
(1) Award interest on the amount of the claim from the date the claim was made by the
insured in an amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa. C.S.A. § 8371.
The operative test for evaluating whether an insurer has “acted in bad faith” is that set out
in Terletsky v. Prudential Property and Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994). See,
Klinger v. State Farm Mut. Auto Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997); see also, Wolfe v.
Allstate Property & Cas. Ins. Co., 790 F.3d 487, 498 (3d Cir. 2015) (“Section 8371 does not
define ‘bad faith,’ but we have predicted that the Pennsylvania Supreme Court would follow the
definition of bad faith, and test for liability, set out by the Pennsylvania Superior Court in
Terletsky.”) Terletsky adopted the definition of “bad faith” set out in Black’s Law Dictionary:
“Bad faith” on part of insurer is any frivolous or unfounded refusal to pay
proceeds of a policy; it is not necessary that such refusal be fraudulent.
For purposes of an action against an insurer for failure to pay a claim, 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.
Terletsky, 649 A.2d at 125 (quoting Black’s Law Dictionary 139 (6th ed. 1990)). Despite
reference to an insurer’s motive in this definition, there is no requirement that a plaintiff show
that an insurer was motivated by a “dishonest purpose” in order to sustain a statutory bad faith
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claim. Klinger, 115 F.3d at 233-34. Rather, courts impose a simple two part test in evaluating
claims of bad faith brought under Section 8371: a plaintiff must demonstrate (1) “the insurer did
not have a reasonable basis for denying benefits under the policy,” and (2) “the insurer knew or
recklessly disregarded its lack of reasonable basis in denying the claim.” Wolfe v. Allstate, 790
F.3d at 498, (citing Terletsky, 649 A.2d at 688).
An insurer need not demonstrate that their evaluation of an insured’s claim was correct in
order to show that they had a reasonable basis for a coverage decision, and thereby prevail
against a statutory bad faith claim. See, Smith v. Allstate Ins. Co., 904 F.Supp.2d 515, 525
(W.D. Pa. Oct. 24, 2012); see also, Bostick v. ITT Hartford Group, Inc., 56 F.Supp.2d 580, 587
(E.D. Pa. July 27, 1999) (“Bat faith cannot be found where the insurer’s conduct is in accordance
with a reasonable but incorrect interpretation of the insurance policy and the law.”). 2 Rather, an
insurer simply must show that it had a reasonable basis for a coverage decision based on the
information available at the time the decision was made. See, J.C. Penney Life Ins. Co. v. Pilosi,
393 F.2d 356, 367-68 (3d Cir. 2004). “In deciding whether an insurer had a reasonable basis for
denying benefits, a court should examine what factors the insurer considered in evaluating a
claim.” Padilla v. State Farm Mut. Auto. Ins. Co., 31 F.Supp.3d 671, 675 (E.D. Pa. July 8, 2014)
(citing Terletsky, 649 A.2d at 688-89). The reasonable basis standard imposes a requirement
“that the insurer properly investigate claims prior to refusing to pay the proceeds of the policy to
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In fact, some courts in this district have gone so far as to hold that the first prong of the statutory bad faith test is a
purely objective one; that is, that an insurer need not demonstrate that their evaluation of an insured’s claim was
reasonable in order to prevail against a statutory bad faith claim, but rather merely that some reasonable basis exists
for reaching the same conclusion, even where it is clear that the insurer did not rely on that reason. Williams v.
Hartford Cas. Ins. Co., 83 F.Supp.2d 567 (E.D. Pa. Feb. 22, 2000). Other courts, however, have rejected such a far
reaching approach. See, Shannon v. New York Cent. Mut. Ins. Co., 2013WL 6119204, at *3 (M.D. Pa. Nov. 21,
2013) (“Given the remedial purpose underpinning the Bad Faith Statute, we are not persuaded that permitting an
insurer to evade its statutory obligation due to some fortuitous fact to which it was oblivious is consistent with the
legislature’s intent.”). Because it is not necessary for this Court to make a judgment on whether the lack of a
reasonable basis requirement is an objective test in order to evaluate Plaintiff’s claim, we do not reach this question
here.
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its insured.” Bombar v. W. Am. Ins. Co., 932 A.2d 78, 92 (Pa. Super. Ct. 2007) (relying on
Hollock v. Erie Ins. Exch., 842 A.2d 409, 415 (Pa. Super. Ct. 2004)). Ultimately, “[b]ad faith
claims are fact-specific and depend on the conduct of the insurer vis-à-vis its insured.” Williams
v. Nationwide Mut. Ins. Co., 750 A.2d 881, 887 (Pa. Super. Ct. April 12, 2000). Courts must
analyze the facts at hand to determine whether an insurer’s decision process on a particular
insurance claim was sufficient such that it cannot be said to constitute bad faith as a matter of
law.
Plaintiffs allege that Allstate’s reliance on only one expert report, that was written by an
unnamed plumber and was not signed, was insufficient to establish a reasonable basis to deny
their claim. Plaintiffs additionally assert that the plumber’s report did not provide a factual basis
to support its conclusion. The report does indicate a factual basis for the plumber’s judgments
about the cause of the damage—namely, “the amount of water damage seen”—however, this
reasoning suggests that the plumber considered only surface level evidence, and offered quite a
thin analysis of the potential evidence available for determining the cause of the damage. The
question is whether, taking these allegations in the light most favorable to Plaintiffs, they
plausibly state a claim for statutory bad faith. At the motion to dismiss stage, this Court
concludes that they do.
Allstate argues that because it relied on an expert report in making its coverage decision,
it cannot plausibly have acted in bad faith. Where courts have found that an insurer’s reliance on
reports regarding investigation into a claim is sufficient to preclude a finding of bad faith,
however, the facts reflect a much more comprehensive investigation process and more detail
relied upon than is alleged here. For example in Gold v. State Farm Fire and Cas. Co., 880
F.Supp.2d 587, 598-99 (E.D. Pa. July 24, 2012), the court granted summary judgment in favor of
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an insurance company on a statutory bad faith claim relating to a claim which was
“thorough[ly]” investigated, including a representative of the insurer conducting a site visit
during which other potential causes of damage were eliminated and the insurer’s representative
fully explained his rationale to the insured; in that same case, however, the court denied
summary judgment on a statutory bad faith claim tied to a separate insurance claim in light of the
insurer’s refusal to conduct an onsite inspection, a very short (twelve minutes long)
investigation, and the insurer’s rejection of the insured’s offer to have an independent
investigation conducted. The facts alleged by Plaintiffs much more closely resemble the facts at
issue in the second claim, which the court permitted to move to trial on the basis that a finding of
statutory bad faith could not be ruled out as a matter of law.
The cases that Allstate relies on in its Motion to Dismiss brief reflect a similar pattern.
For example, in Bostick v. ITT Hartford Group, Inc., the court granted summary judgment in
favor of an insurer on a statutory bad faith claim where the insurer relied on a detailed report that
reviewed significantly more evidence than the plumber is alleged to have considered here.
Bostick, 56 F.Supp.2d at 587. Similarly, in Sanders v. State Farm Ins. Co., the court affirmed a
finding in favor of an insurer on a statutory bad faith claim at the summary judgment stage based
on evidence that the insurer inspected the property three separate times, each time concluding
that there was no basis for coverage. Sanders v. State Farm Ins. Co., 47 Pa. D. & C. 4th 129,
136, 142-43 (Pa. Com. Pls. July 27, 2000). In comparison, Plaintiffs allege that Allstate relied
on only one report that was both lacking in detail and authored by an unidentified individual, and
that Allstate did not give adequate consideration to their independent expert’s report.
Taking the allegations in the light most favorable to the Plaintiffs as we must at this
stage, it cannot be said that Allstate did not act in bad faith as a matter of law in making its
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decision to deny Plaintiffs’ claim. Allstate’s Motion to Dismiss Plaintiffs’ statutory bad faith
claim will be denied.
2. Allstate’s Motion to Strike Plaintiffs’ Demand for Attorneys’ Fees for Breach of
Contract
Allstate argues that Plaintiffs’ demand for attorneys’ fees in association with their breach
of contract claim should be stricken from the Amended Complaint because under Pennsylvania
law, attorneys’ fees are only recoverable as damages in limited circumstances, none of which
apply in the present case. Def.’s Memo. at 11-13.
Plaintiffs concede to their demand for attorneys’ fees in Count I being stricken. Pl.s’
Response, at 12. As such, Allstate’s Motion to Strike this language will be granted, and the
demand for attorneys’ fees in Plaintiffs’ breach of contract claim will be stricken from the
Amended Complaint.
3. Allstate’s Motion to Strike Paragraphs 9-11, and 37 of the Amended Complaint
Allstate argues that paragraphs 9-11, and 37 of the Amended Complaint should be
stricken as immaterial and impertinent. Paragraphs 9 and 10 refer to a claim made by Plaintiffs
against Allstate in 2011 that has already been litigated, and therefore cannot be re-litigated in this
case. Id. at 15. Paragraphs 11 and 37 allege facts relating to Allstate improperly canceling
Plaintiffs’ policy, conduct which is not relevant to a statutory bad faith claim under Pennsylvania
law. Def.’s Memo. at 13-15.
Plaintiffs respond that the allegations regarding the 2011 claim they brought against
Allstate and Allstate’s alleged subsequent attempted termination of Plaintiffs’ policy are relevant
to the question of whether Allstate had knowledge of, or recklessly disregarded its lack of any
reasonable basis for denying Plaintiffs’ coverage claim for the January, 2017, water damage to
the property. Pl.s’ Memo. at 12-13.
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A Motion to Strike is reviewed according to a very high standard, and should only be
granted in rare circumstances. See, supra, 5-6. Allstate has failed to meet that high standard to
establish that justice requires this Court to strike these paragraphs from the Complaint. The
Motion to Strike will be denied.
VI.
Conclusion
Defendant’s Motion to Dismiss will be denied. Defendant’s Motion to Strike Plaintiffs’
demand for attorneys’ fees in Count I will be granted, pursuant to Plaintiffs’ concession;
Defendant’s Motion to Strike paragraphs 9-11 and 37 from the Amended Complaint will be
denied.
O:\Christina.2017\Overbrook Properties v. Allstate (18-630\MTD Amended Complaint Memorandum.docx
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