Cozzone v. AXA Equitable Life Insurance Society
Filing
7
MEMORANDUM and ORDER denying 2 Motion to Dismiss Signed by Honorable James M. Munley on 4/12/11 (sm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
MONICA COZZONE, D.O.,
Plaintiff
:
No. 3:10cv2388
:
:
(Judge Munley)
v.
:
:
AXA EQUITABLE LIFE
:
INSURANCE SOCIETY OF THE :
UNITED STATES, formerly the :
Equitable Life Assurance
:
Society of the United States
:
and DISABILITY MANAGEMENT :
SERVICES, INC.,
:
Defendants
:
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
MEMORANDUM
Before the court is the defendants’ motion to dismiss the complaint in
its entirety as to Defendant Disability Management Services, Inc. and to
dismiss Count II of the complaint as to Defendant AXA Equitable Life
Insurance Society of the United States. (Doc. 2). The motion has been
fully briefed and is ripe for disposition.
BACKGROUND
Plaintiff Monica Cozzone, D.O. (“Cozzone”) is insured under an
Overhead Expense Insurance Policy (“policy”) issued by Equitable Life
Assurance Society of the United States, a predecessor of Defendant AXA
Equitable Life Insurance Society of the United States (“AXA”), to cover
Cozzone for loss resulting from injury or sickness. (Compl. ¶¶ 5, 6 (Doc. 12)). Cozzone applied for benefits under the policy based on “conditions
which arose on or about December 5, 2005.” (Id. ¶ 8).
Cozzone alleges that AXA, “through its third party administrator,
representative and agent, [Defendant] Disability Management Services
[“DMS”], unlawfully delayed and denied prompt payment of benefits in
violation of said policy. . . .” (Id. ¶ 9). Cozzone also alleges that AXA,
through DMS, “failed to provide all payments due and owing under the
terms and obligations of the defendants under said policy. . . .” (Id. ¶ 10).
According to Cozzone, AXA, through DMS, “failed to provide full payment
of all benefits due and owing under said insurance policy in March, 2007
and continued to fail to provide full and timely payment of all benefits due
and owing thereafter including reimbursement of insurance charges,
including but not limited to malpractice insurance tail expenses, salary
replacement reimbursement . . . and other expenses related to Plaintiff’s
place of business . . . .” (Id. ¶ 12). These allegations comprise Cozzone’s
claim for breach of contract, in Count I of Cozzone’s complaint.
Cozzone also brings a claim under Pennsylvania’s Bad Faith Statute,
42 PA. CONS. STAT. ANN. § 8371 (Count II). In support of her claim,
Cozzone alleges that AXA and DMS “have arbitrarily and capriciously
failed to timely and fully pay all benefits due and owing” under the policy
without reasonable basis. (Compl. ¶¶ 15, 16). Finally, Cozzone alleges
that AXA and DMS acted in bad faith when it “arbitrarily, intentionally and
capriciously delayed and and denied all benefits due” under the policy. (Id.
¶ 17).
Cozzone filed her complaint in the Court of Common Pleas of
Luzerne County, Pennsylvania, on October 20, 2010. (Compl. (Doc. 1-2)).
AXA removed the action to this court on November 18, 2010. (Notice of
Removal (Doc. 1)). On November 24, 2010, the defendants filed a motion
to dismiss, bringing the case to its present posture. (Doc. 2).
JURISDICTION
Because there is complete diversity of citizenship between the
parties and the amount in controversy exceeds $75,000.00, the court has
removal jurisdiction over the case. See 28 U.S.C. § 1332 (“district courts
shall have original jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000, exclusive of interest and
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costs, and is between . . . citizens of different States[.]”); 28 U.S.C. § 1441
(A defendant can generally remove a state court civil action to federal court
if the federal court would have had original jurisdiction to address the
matter pursuant to the diversity jurisdiction statute).
As a federal court sitting in diversity, we must apply state law.
Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000) (citing Erie
R.R. v. Tompkins, 304 U.S. 64, 78 (1938)). In this case, the relevant state
is Pennsylvania. If the state supreme court has not yet addressed an issue
before us, we must predict how that court would rule if presented with that
issue. Nationwide v. Mutual Ins. Co., 230 F.3d 634, 637 (3d Cir. 2000). In
so doing, we must examine the opinions of the lower state courts, and we
cannot disregard them unless we are convinced by other persuasive data
that the highest court would rule otherwise. Id.
LEGAL STANDARD
A 12(b)(6) motion tests the sufficiency of a complaint’s allegations.
Granting the motion is appropriate if, accepting as true all the facts alleged
in the complaint, the plaintiff has not pleaded “enough facts to state a claim
to relief that is plausible on its face,” or put another way, “nudged [his or
her] claims across the line from conceivable to plausible.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Third Circuit requires
the plaintiff to describe “enough facts to raise a reasonable expectation
that discovery will reveal evidence of” each necessary element of the
claims alleged in the complaint. Phillips v. County of Allegheny, 515 F.3d
224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). Moreover, the
plaintiff must allege facts that “justify moving the case beyond the
pleadings to the next stage of litigation.” Id. at 234-35.
The issue is whether the facts alleged in the complaint, if true,
support a claim upon which relief can be granted. In deciding a 12(b)(6)
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motion, the court must accept as true all factual allegations in the
complaint and give the pleader the benefit of all reasonable inferences that
can fairly be drawn therefrom, and view them in the light most favorable to
the plaintiff. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.
1997). However, “we are not bound to accept as true a legal conclusion
couched as a factual allegation.” Ashcroft v. Iqbal, -- U.S. --, 129 S. Ct.
1937, 1949-50 (2009) (internal quotations omitted).
To decide a motion to dismiss, a court generally should consider only
the allegations in the complaint, exhibits attached to the complaint, matters
of public record, and documents that form the basis of a claim. See In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997);
Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192,
1196 (3d Cir. 1993).
DISCUSSION
The Defendants’ motion seeks (1) to dismiss DMS from the action
because it was not in privity with Cozzone and (2) to dismiss Cozzone’s
claim for bad faith under 42 PA. CONS. STAT. ANN. § 8371. We will address
each argument in order.
1. Dismissal of Breach of Contract and Bad Faith Claims Against DMS
In support of their motion, the Defendants argue that DMS cannot be
a proper party under either count of Cozzone’s complaint. Under
Pennsylvania Law, the elements of a claim for breach of contract are: “1)
the existence of a contract, including its essential terms; 2) a breach of a
duty imposed by the contract; and 3) resultant damage.” Pittsburgh Const.
Co, v. Griffith, 834 A.2d 572, 580 (Pa. Super. Ct. 2003). The parties
dispute the first element of this cause of action. Specifically, DMS argues
that, “one cannot be liable for a breach of contract unless one is a party to
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that contract.” Electron Energy Corp. v. Short, 597 A.2d 175, 177 (Pa.
Super. Ct. 1991). DMS argues that it is not a party to the contract between
AXA and Cozzone, and therefore cannot be liable for breach of contract.
DMS notes that the policy in no way mentions DMS.
Additionally, DMS argues that it cannot be liable on a claim for bad
faith bad faith under § 8371.
The Pennsylvania Superior Court has held that we
must consider two factors when determining
whether a party is an “insurer” for purposes of the
bad faith statute: “(1) the extent to which the company was identified as the
insurer on the policy documents; and (2) the extent to which the company
acted as the insurer.” Brown v. Progressive Ins. Co., 860 A.2d 493, 498
(Pa. Super. Ct. 2004). We should accord “significantly” more weight to the
second factor, which “focuses on the true actions of the parties rather than
the vagaries of corporate structure and ownership.” Id. at 498-99. Courts
applying Pennsylvania law have explained that a party acts as an insurer
when it “issues policies, collects premiums and in exchange assumes
certain risks and contractual obligations.” T & N PLC v. Pa. Ins. Guar.
Ass'n, 800 F. Supp. 1259, 1261 (E.D. Pa. 1992); Margaret Auto Body, Inc.
v. Universal Underwriters Group, 2003 WL 1848560, at *1 (Pa. Com. Pl.
Jan. 10, 2003).
Brand v. AXA Equitable Life Ins. Co., No. 08CV2859, 2008 WL 4279863,
*4 (E.D. Pa. Sept. 16, 2008).
Cozzone “does not disagree that as a general rule an insured may
bring claims for breach of contract and bad faith only against the insurer
who issued the policy.” (Pl. Br. Opp. at 3 (Doc. 5-1)). Cozzone argues that
the policy “contains language suggesting that AXA can delegate the
decision making process and plaintiff contends that this may have
happened in this case.” (Id. at 4). Cozzone also argues that DMS acted
as the insurer, for purposes of the bad faith statute. See Brown, 860 A.2d
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493, 498 (Pa. 2004). Finally, Cozzone suggests that there are questions of
fact about the nature of the relationship between AXA and DMS.
We will deny DMS’s motion to be dismissed from the case at this
stage. Without the benefit of a record, it would be premature to dismiss
DMS. To the extent that DMS may have been the decision maker on
Cozzone’s claims and acted as the insurer, DMS may be liable for breach
of contract and bad faith. Reading Cozzone’s complaint in a light most
favorable to her, she has alleged that premiums were paid to both
defendants and that both defendants assumed obligations to her with
respect to the policy. Accordingly, DMS’s motion to dismiss will be denied.
We will further address DMS’s motion with respect to the elements of a
bad faith cause of action, below.
2. Dismissal of Bad Faith Claim Against AXA and DMS
Section 8371 authorizes recovery for an insurance company’s bad
faith towards an insured. It provides for several remedies upon a finding of
bad faith: (1) an award of “interest on the amount of the claim” at a rate
equal to “the prime rate of interest plus 3%”; (2) an award of “punitive
damages against the insurer”; and/or (3) an assessment of “court costs
and attorney fees against the insurer.” Id. Pennsylvania courts have
adopted the following definition of “bad faith” on the part of an insurer:
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.
Perkins v. State Farm Ins. Co., 589 F. Supp. 2d 559, 562 (M.D. Pa. 2008)
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(citing Terletsky v. Prudential Property & Casualty Ins. Co., 649 A. 2d 680,
688 (Pa. Super. Ct. 1994) (quoting Black’s Law Dictionary 139 (6th ed.
1990)) (citations omitted); see also Northwestern Mut. Life Ins. Co. v.
Babayan, 430 F. 3d 121, 137 (3d Cir. 2005) (predicting the Pennsylvania
Supreme Court would define “bad faith” according to the definition set forth
in Terletsky)).
The United States Court of Appeals for the Third Circuit has adopted
the legal standard established by the Pennsylvania Superior Court for
testing the sufficiency of bad faith claims under section 8371, “both
elements of which must be supported with clear and convincing evidence:
(1) that the insurer lacked a reasonable basis for denying benefits; and (2)
that the insurer knew or recklessly disregarded its lack of reasonable
basis.” Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d
Cir. 1997) (citing Terletsky, 649 A.2d at 688).
Defendants argue that Cozzone has only made conclusory
allegations of bad faith. (See Compl. ¶¶ 15-17). Cozzone argues that the
bad faith statute is to be liberally construed to effectuate its purpose.
The Pennsylvania rules of statutory construction
state that, in general, the “provisions of a statute
should be liberally construed to effect their objects
and purposes and to promote justice.” 1 PA. CONS.
STAT. ANN. § 1928(c) (Supp. 1992). The purpose of
section 8371 is to provide persons with a remedy
against the bad faith conduct of insurers. Remedial
statutes like section 8371 should be broadly
construed. The narrow construction of section 8371
proposed by Defendant runs counter to [the] rule of
liberal statutory construction and would defeat,
rather than effectuate the purpose of the statute,
and would hinder, rather than promote, justice.
Krisa v. Equitable Life Assur. Soc., 109 F. Supp. 2d 316, 320 (M.D. Pa.
2000) (quoting Rottmund v. Continental Assur. Co., 813 F. Supp. 1104,
1110 (E.D.Pa. 1992)). Cozzone points out that she alleged: that the
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Defendants stopped providing benefits that they had previously provided;
that the Defendants delayed benefit payments (Compl. ¶ 9); and that the
Defendants failed to pay other benefits (Compl. ¶¶ 10, 12).
We will deny the Defendants’ motion on this point. Cozzone has
alleged that the Defendants unreasonably delayed benefits payments. As
such, it would be premature to dismiss the claim. See Ania v. Allstate Ins.
Co., 161 F. Supp. 2d 424, 430 n.7 (E.D. Pa. 2001) (unreasonable delay in
payment may constitute bad faith). While paragraphs of Cozzone’s
complaint which fall under her claim for bad faith could be read as legal
conclusions, we read them in conjunction with her more specific allegations
in her breach of contract claim. (See Compl. ¶ 14 (incorporating
paragraphs one through thirteen into bad faith claim)). There, bolstering
her claim of unreasonable delay, she alleged that defendants “failed to
provide full payment of all benefits due and owing under said insurance
policy in March, 2007 and continued to fail to provide full and timely
payment of all benefits due and owing thereafter. . . .” (Id. ¶ 12).
Accordingly, we find that Cozzone has sufficiently alleged facts indicating
unreasonable delay in the payment of benefits in order to survive a motion
to dismiss. The Defendants’ motion will be denied with respect to
Cozzone’s bad faith claim.
CONCLUSION
For the reasons stated above, Defendants’ motion to dismiss will be
denied. An appropriate order follows.
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IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
MONICA COZZONE, D.O.,
Plaintiff
:
No. 3:10cv2388
:
:
(Judge Munley)
v.
:
:
AXA EQUITABLE LIFE
:
INSURANCE SOCIETY OF THE :
UNITED STATES, formerly the :
Equitable Life Assurance
:
Society of the United States
:
and DISABILITY MANAGEMENT :
SERVICES, INC.,
:
Defendants
:
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
ORDER
AND NOW, to wit, this 12th day of April 2011, upon consideration
of the Defendants’ motion to dismiss the complaint in its entirety as to
Defendant Disability Management Services, Inc. and to dismiss Count II of
the complaint as to Defendant AXA Equitable Life Insurance Society of the
United States (Doc. 2) it is HEREBY ORDERED that the motion is
DENIED.
BY THE COURT:
s/ James M. Munley
JUDGE JAMES M. MUNLEY
United States District Court
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