Pauling v. State Farm Insurance Company
Filing
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MEMORANDUM & ORDER denying defendant's motion to dismiss 11 . (See memo & order for complete details.) Signed by Chief Judge Christopher C. Conner on 9/26/13. (ki)
FIN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
PATRICK D. PAULING,
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Plaintiff,
v.
STATE FARM MUTUAL
AUTOMOBILE INSURANCE
COMPANY,
Defendant
CIVIL ACTION NO. 1:13-CV-01348
(Chief Judge Conner)
MEMORANDUM
Presently before the court in the above-captioned matter is a motion
(Doc. 11), filed by State Farm Mutual Automobile Insurance Company (“State
Farm”), to dismiss Count II of the first amended complaint (Doc. 7), pursuant to
Federal Rule of Civil Procedure 12(b)(6). The parties have fully briefed the issues
and the motion is ripe for disposition. For the reasons that follow, the court will
deny State Farm’s motion.
I.
Factual and Procedural History
The instant matter involves an insurance coverage dispute related to an
uninsured motorist (“UM”) claim brought by Patrick D. Pauling (“Pauling”) under
his parents’ State Farm automobile insurance policy.1 At all times relevant to the
amended complaint, State Farm was the automobile liability insurance carrier to
1
State Farm is a corporation organized under the laws of the state of Illinois
with a principal place of business in that state. Plaintiff is a resident of Wellsboro,
Pennsylvania. Jurisdiction is thus proper based on 28 U.S.C. § 1332.
Pauling’s parents, Daniel and Wana Pauling, pursuant to an insurance policy which
provides UM coverage of $15,000 per person and $30,000 per accident. (Doc. 7, ¶ 3;
Ex. 1 at 1). Pursuant to a stacking election, the total UM coverage available under
the policy is $45,000 per person. (Doc. 7, ¶ 14). Pauling resided with his parents and
their home was his permanent residence through May of 2012. (Id. at ¶ 4).
On January 24, 2010, Pauling was attending school in Daytona Beach, Florida
when he was the victim of a hit-and-run accident while crossing state route A1A as
a pedestrian. (Id. at ¶¶ 5-6). Among other injuries, Pauling’s pelvis was fractured in
three locations and required reconstructive surgery. (Id. at ¶ 7). He suffered knee
damage and nerve damage to his right foot, and despite two subsequent operations
on his knee and years of physical therapy, Pauling still uses a crutch to walk. (Id.).
The damage to Pauling’s right knee is believed to be permanent. (Id.). At the time
of the accident, Pauling did not own a vehicle and had no insurance coverage
available to him. (Id. at ¶ 8). Because the identity of the hit-and-run driver was
unknown to him, Pauling sought to collect UM benefits pursuant to his parents’
State Farm policy “under which he is insured as a resident relative.” (Id. at ¶ 10).
Sometime after the accident, Pauling’s father contacted Matthew Lawson,
identified in the police report as a witness to the accident, and Lawson indicated to
Pauling’s father that the hit-and-run driver, and not Pauling, had been responsible
for the accident. (Id. at ¶ 18). However, after Pauling made a claim with State
Farm seeking UM benefits, State Farm “pressured and intimidated Lawson into
providing a description of events” which placed blame for the accident on Pauling
2
and, in State Farm’s view, supported a denial of coverage. (Id. at ¶ 28). State Farm
made no attempt to locate and interview Lawson’s girlfriend, a known eyewitness
to the accident, and did not have an agent visit or inspect the scene of the accident.
(Id. at ¶ 23, 25). Because Lawson, at State Farm’s “substantial urging,” reported
that Pauling was at fault, (id. at ¶¶ 18-19), State Farm denied Pauling’s claim for
UM benefits. (Id. at ¶ 13).
Pauling commenced this action on April 9, 2013, with the filing of a two-count
complaint in the Court of Common Pleas of York County, Pennsylvania. (Doc. 1, Ex.
A). Pauling asserts claims for breach of contract (Count I) and for bad faith denial
of an insurance claim pursuant to 42 PA . CONS. STAT . § 8371 (Count II). State Farm
filed a timely Notice of Removal (Doc. 1) to this court and, on May 23, 2013, moved
to dismiss Count II of the complaint, contending that Pauling had stated no facts to
support a finding of bad faith liability. (Doc. 5). Pauling responded by filing an
amended complaint (Doc. 7) on June 11, 2013, which included several additional
paragraphs in support of his bad faith claim. State Farm again moved to dismiss
(Doc. 11) on June 25, 2013, and the motion has been fully briefed. (Docs. 15, 18, 19).
II.
Standard of Review
Federal notice and pleading rules require the complaint to provide “the
defendant notice of what the . . . claim is and the grounds upon which it rests.”
Phillips, 515 F.3d at 232 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007)). To test the sufficiency of the complaint in the face of a Rule 12(b)(6) motion,
the court must conduct a three-step inquiry. See Santiago v. Warminster Twp.,
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629 F.3d 121, 130-31 (3d Cir. 2010). In the first step, “the court must ‘tak[e] note of
the elements a plaintiff must plead to state a claim.’” Id. (quoting Ashcroft v. Iqbal,
556 U.S. 662, 675 (2009)). Next, the factual and legal elements of a claim should be
separated; well-pleaded facts must be accepted as true, while legal conclusions may
be disregarded. Id.; see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d
Cir. 2009). Once the well-pleaded factual allegations have been isolated, the court
must determine whether they are sufficient to show a “plausible claim for relief.”
Iqbal, 556 U.S. at 679 (citing Twombly, 550 U.S. at 556); Twombly, 550 U.S. at 555
(requiring plaintiffs to allege facts sufficient to “raise a right to relief above the
speculative level”). A claim “has facial plausibility when the plaintiff pleads 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. When the complaint fails
to present a prima facie case of liability, however, courts should generally grant
leave to amend before dismissing a complaint. Grayson v. Mayview State Hosp., 293
F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver, 213 F.3d 113, 116–17 (3d Cir. 2000).2
2
In its opening brief, State Farm appears to conflate the Rule 12(b)(6)
standard with Pauling’s ultimate burden at trial, asserting that his “accusations
lack support,” (Doc. 15 at 6), and arguing that Pauling must prove each element of
his claim by “clear and convincing evidence.” (Id. (quoting Polselli v. Nationwide
Mutual Fire Ins. Co., 126 F.3d 524, 528 (3d Cir. 1997)). Provability of facts, however,
is not part of the court’s inquiry at this juncture. See Santiago, 629 F.3d at 130-31
(“The [court] takes as true all the factual allegations of the complaint.”); see also
Atiyeh v. Nat’l Fire Ins. Co., 742 F. Supp. 2d 591, 596 (E.D. Pa. Sept. 27, 2010) (court
may not dismiss complaint “merely because it appears unlikely that the plaintiff
can prove” the facts alleged). Accordingly, to the extent State Farm seeks to apply
a heightened pleading standard, the court rejects this position.
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III.
Discussion
Pennsylvania’s insurance bad faith statute, 42 PA . CONS. STAT . § 8371,
provides:
In an action arising under an insurance policy, if the
court finds that the insurer has acted in bad faith toward
the insured, the court may take all of the following
actions:
(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.
Id. In order to prove insurer bad faith under § 8371, a plaintiff must show that the
insurer: (1) did not have a reasonable basis for denying benefits; and (2) knew or
recklessly disregarded its lack of a reasonable basis for denying the claim. Post v.
St. Paul Travelers Ins. Co., 691 F.3d 500, 522 (3d Cir. 2012) (citing Condio v. Erie Ins.
Exch., 899 A.2d 1136 (Pa. Super. Ct. 2006)).
Section 8371 does not explicitly define what constitutes bad faith conduct.
However, courts have held that for purposes of § 8371 claims, “bad faith” is “any
frivolous or unfounded refusal to pay proceeds of a policy,” which “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.” Keefe v. Prudential Prop.
& Casualty Ins. Co., 203 F.3d 218, 225 (3d Cir. 2000) (citing Terletsky v. Prudential
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Prop. and Casualty Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994)). Nevertheless,
“a reasonable basis for denying coverage is all that is required to defeat a claim of
bad faith.” J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004).
State Farm contends that its denial of benefits was justified under the
circumstances and the controlling law, emphasizing that negligence alone is
insufficient for an insured to prevail on a bad faith claim. It is true, as State Farm
posits, that “mere negligence or bad judgment is not bad faith.” Williams v.
Hartford Casualty Ins. Co., 83 F. Supp. 2d 567, 570-71 (E.D. Pa. Feb. 22, 2000)
(quoting Terletsky, 649 A.2d at 688). State Farm is also correct that a reasonable
but incorrect legal analysis resulting in a denial or a legitimate coverage dispute is
not sanctionable insurer conduct. See Pilosi, 393 F.3d at 367. However, courts
interpreting § 8371 have not limited its application to cases involving bad faith
denials of coverage or coverage disputes, and “[a]n action for bad faith may also
extend to the insurer’s investigative practices.” O’Donnell v. Allstate Ins. Co., 734
A.2d 901, 906 (Pa. Super. Ct. 1999) (noting that narrow construction of § 8371 would
be contrary to statute’s deterrent purpose); also Gallatin Fuels, Inc. v. Westchester
Fire Insurance Co., 244 F. App’x 424 (3d Cir. 2007) (non-precedential) (insurer found
liable for bad faith absent duty of coverage on the grounds that it “dragged its feet
in the investigation of the claim, hid information from the insured, and continued to
shift its basis for denying the claims.”)). A bad faith claim may thus succeed even
where reasonable minds could disagree as to the existence of coverage.
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At this juncture, the court concludes that neither the law nor the facts
support State Farm’s position. Indeed, the course of conduct outlined in the
amended complaint far surpasses mere negligence and falls squarely within the
definition of bad faith conduct. Accepting the facts of the amended complaint as
true, which the court must at this stage, Santiago, 629 F.3d at 130-31, the pleading
establishes that Pauling was an insured under his parents’ State Farm insurance
policy at the time of the hit-and-run accident and thus covered by the policy’s UM
benefit provisions.3 (Doc. 7, ¶ 13). The amended complaint further alleges that
State Farm refused to visit the accident scene and declined to seek out a known
eyewitness who, according to Pauling, could have corroborated his version of
events. (Id., ¶ ¶ 23, 25). Instead, State Farm actively and intentionally worked
against its insured’s interests, going so far as to “pressure[] and intimidate[]” an
eyewitness into providing a false statement which placed blame for the accident
with Pauling and, in State Farm’s view, supported its decision to deny benefits.
(Id. at ¶ 28).4
3
Neither party has provided the court with a copy of the insurance policy.
The court thus accepts as true Pauling’s assertion that the policy extended coverage
to him as a resident of the named insured’s household.
4
In its supporting brief, State Farm cites to a handful of cases as support for
the proposition that broad accusations and sweeping conclusions are insufficient to
satisfy the federal pleading standard. (See Doc. 15 at 9-12 (citing Atiyeh v. Nat’l Fire
Ins. Co., 742 F. Supp. 2d 591 (E.D. Pa. Sept. 27, 2010); Sypeck v. State Farm Mutual
Auto. Ins. Co., No. 3:12-cv-324, Doc. 11 (M.D. Pa. June 15, 2012) (dismissing claim
supported only by “conclusory allegations” and “boilerplate language”)). While the
court concurs with these propositions as a matter of law, these cases are inapposite;
Pauling has pled ample, specific facts in support of his bad faith claim.
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Assuming the veracity of this account, State Farm’s conduct embodies the
“dishonest purpose” and self-interested conduct which the General Assembly
sought to prevent when enacting § 8371. See Keefe, 203 F.3d at 225 (conduct which
“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” falls squarely
within § 8371). Not only did State Farm fail to visit the scene of the accident and
investigate a known exculpatory eyewitness, it intentionally encouraged a witness
to provide a false statement to support its decision to deny coverage. In the court’s
view, such conduct, independent of the rest of Pauling’s allegations, is sufficient to
sustain a bad faith claim. Coupling that conduct with State Farm’s selective and
self-interested investigation, the court is compelled to conclude that State Farm’s
actions, if proved, represent exactly the type of egregious bad faith conduct
contemplated by § 8371. State Farm’s motion to dismiss Count II will thus be
denied.
IV.
Conclusion
For the foregoing reasons, the court will deny State Farm’s motion (Doc. 11)
to dismiss. An appropriate order follows.
/S/ CHRISTOPHER C. CONNER
CHRISTOPHER C. CONNER
Chief Judge, Middle District of Pennsylvania
Dated:
September 26, 2013
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
PATRICK D. PAULING,
Plaintiff,
v.
STATE FARM MUTUAL
AUTOMOBILE INSURANCE
COMPANY,
Defendant
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CIVIL ACTION NO. 1:13-CV-01348
(Chief Judge Conner)
ORDER
AND NOW, this 26th day of September, 2013, upon consideration of the
motion to dismiss (Doc. 11) by State Farm Mutual Automobile Insurance Company
(“State Farm”), and for the reasons set forth in the accompanying memorandum, it
is hereby ORDERED that State Farm’s motion (Doc. 11) is DENIED.
/S/ CHRISTOPHER C. CONNER
CHRISTOPHER C. CONNER
Chief Judge, Middle District of Pennsylvania
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