WATSON et al v. NATIONWIDE MUTUAL INSURANCE COMPANY
MEMORANDUM. SIGNED BY HONORABLE R. BARCLAY SURRICK ON 10/12/11. 10/13/11 ENTERED AND COPIES E-MAILED.(mas, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CALVIN WATSON ET AL.
NATIONWIDE MUTUAL INSURANCE
MiCHI\cllc I:UNZ. Clerk
. ~Dep. Clerk
Presently before the Court is Defendant's Motion to Dismiss Pursuant to Rule 12(b)(6)
and Strike Pursuant to Rule 12(1). (ECF No.3.) For the following reasons, the Motion will be
granted in part and denied in part.
On November 23, 2008, Plaintiff Blanche Watson was injured when an automobile struck
her vehicle from behind. At the time of the accident, Plaintiff had an automobile insurance
policy issued by Defendant Nationwide. Plaintiff alleges that under the policy, Defendant was
required to provide first-party medical benefits and uninsured motorist beneiits. (Compl. 'i[ 9,
ECF No. 1.) As a result of her injuries, Plaintiff sought medical treatment from numerous
Defendant contracted with several peer review organizations ("PROs") to determine
whether the treatment Plaintiffreceived was medically reasonable and necessary. (Id. at~~ 1719, 32.) Based on the findings of the PRO:s, Defendant denied Plaintiffs variolts requests for
payment of her medical bills. (!d.
18, 27 .) Plaintiff alleges that she provided Defendant
with all of her medical documentation and that Defendant had no reasonable basis for submitting
the medical bills to a PRO. (Jd. at~~ 19, 28.) She further alleges that Defendant recklessly relied
upon defective peer review reports that failed to identify specific reasons to deny coverage. (Id.
27.) Plaintiff alleges that Defendant engaged in a "sham peer review process" by contracting
with PROs that did not conduct fair and objective reviews of the medical records. (!d.
PlaintiiT filed a Complaint in the Court of Common Pleas of Lancaster Cotmty alleging
breach of contract (Count!) and statutory bad faith (Count II). On March 10,2011, Defendant
removed the action to this Court based upon diversity. Thereafter Defendant filed the instant
Motion to partially dismiss and strike.
Federal Rule of Civil Procedure 12(b)(6) provides that a complaint may be dismissed for
''failure to state a claim upon which relief can be granted." "To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to 'state a claim to rcliefthat is
plausible on its face."' Ashcroji v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell At/. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A complaint that merely alleges entitlement to relief,
without alleging facts that show entitlement, must be dismissed. See Fowler v. UPMC
Shadyside, 578 F.3d 203,211 (3d Cir. 2009). This "'does not impose a probability requirement
at the pleading stage,' but instead 'simply calls for enough facts to raise a reasonable expectation
that discovery will reveal evidence of' the necessary elements." Phillips v. County ~fAllegheny,
515 F.3d 224,234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556).
Federal Rule of Civil Procedure 12(i) gives district courts discretion to strike from a
pleading any immaterial or impertinent matter. Motions to strike are disfavored. Mcinerney v.
Moyer Lumber & Hardware, Inc., 244 F. Supp. 2d 393,402 (E.D. Pa. 2002). The standard is
"strict," and "only allegations that are so unrelated to plaintiffs' claims as to be unworthy of any
consideration should be stricken." Johnson v. Anhorn, 334 F. Supp. 2d 802, 809 (E.D. Pa. 2004)
(citations omitted). An allegation is immaterial if it has "no essential or important relationship to
the claim for relief." Del. Health Care, Inc. v. MCD Holding Co., 893 F. Supp. 1279, 1291-92
(D. Del. 1995) (citations omitted). An allegation is impertinent if it "consists of statements that
do not pertain, and are not necessary, to the issues in question." Jd at 1292.
Defendant raises four arguments in its Motion. (Def.'s Br. 1, ECF No.4.) Defendant
argues that (1) Plaintiffs bad faith claim is preempted, (2) punitive damages are not recoverable
for a breach of contract, (3) emotional distress damages are not recoverable under the bad faith
statute, and (4) violations of the Unfair Insurance Practices Act are immaterial to Plaintiffs bad
Bad Faith and Preemption
In Count IT of the Complaint, PlaintiiT contends that Defendant violated 42 Pa. Cons. Stat.
Arm.§ 8371, Pennsylvania's bad faith statute. Defendant argues that to the extent Plaintiffs
claim is based on Defendant's usc of PROs to deny Plaintiffs first-party medical benefits, the
claim must be dismissed because Pennsylvania's Motor Vehicle Financial Responsibility Law
("MVFRL"), 75 Pa. Cons. Stat. Ann. § 1797(b), preempts the bad faith statute. (De£'s Br. 9.)
Section 8371 provides that if a court finds that an insurer has acted in bad faith toward an
insured, the court may award interest on the amount of the claim, award punitive damages
against the insurer, and assess costs against the insurer. The specific provisions of§ 1797(b)
have been deemed an exception to the general remedy for bad faith found in
§ 8371. See Schwartz v. State Farm Ins. Co., No. 96-160, 1996 WL 189839, at '4 (E.D. Pa. Apr.
18, 1996). The statutory scheme in§ 1797(b), which governs the use of PROs, allows an insured
seeking first-party medical benefits to recover benefits plus 12% interest, costs and attorneys'
tees, if the court finds that the treatment was medically necessary.
It is well settled that a claim for statutory bad faith under§ 8371, is preempted by§
1797(b), where the claim is based on an insurer's wrongful denial of first-party benefits. See,
e.g., Gemini Phy>'ical Therapy & Rehab., Inc. v. State Farm Mut. Auto. Ins. Co., 40 F.3d 63,67
(3d Cir. 1994 ); Harris v. Lumberman's Mut. Cas. Co., 409 F. Supp. 2d 618, 620-21 (E.D. Pa.
2006); Seas or v. Liberty Mut. Ins. Co., 941 F. Supp. 488, 493 (E.D. Pa. 1996); Bennett v. State
Farm Fire & Cas. Ins. Co., 890 F. Supp. 440, 443 (E.D. Pa. 1995). P1aintiffmay not pursue a
bad faith claim under§ 8371 based upon the assertion that the PROs selected by Defendant
improperly denied first-party benefits.
Courts have held, however, that plaintiffs may pursue a bad faith claim under§ 8371 to
the extent that the claim is based on the insurer "not having properly followed or invoked the
statutory procedure" governing PROs, namely,§ 1797. Panameno v. Stale Farm Mut. Auto. Ins.
Co., No. 99-1490, 1999 WL 320916, at 'I (E.D. Pa. May 19, 1999) (quoting Schwartz, 1996 WL
189839, at '4); see Harris, 409 F. Supp. 2d at 621 n.4; Champlost Family Med Practice v. Stale
Farm Ins., No. 02-3607,2002 WL 31424398, at '2 (E.IJ. Pa. Oct. 29, 2002). In other words, a
§ 8371 claim is not barred if the insurance company's alleged bad faith conduct went beyond the
scope of§ 1797. For example, a plaintiff may allege that there was an abuse of the peer review
process itself. Schwartz, 1996 WL 189839, at *4.
In the instant case, Plaintiff does not merely bring a cause of action for denial of benefits
under § 1797. She also alleges that Defendant improperly used a "sham peer review process and
PRO reports that are based upon relatedness and causation to the accident." (Compl.
Moreover, Plaintiti alleges that Defendant failed to employ PROs that had fair and impartial
physicians authoring the reports. (Id.
55( d), (n).) Although Plaintiff does not offer detailed
allegations supporting the deficiency of the peer review process, she has alleged sufficient facts
to withstand a motion to dismiss. See Bacstrom v. State J
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