Dolph et al v. Illinois National Insurance Company et al

Filing 9

MEMORANDUM re: 4 MOTION to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)filed by American International Group, Inc. (order to follow).Signed by Honorable Malachy E Mannion on 2/11/13. (bs)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
MICHAEL DOLPH; MARJIE
DOLPH and SHAWN DOLPH

:
:

Plaintiffs

CIVIL ACTION NO. 3:12-2167
:

v.

(JUDGE MANNION)1

:
ILLINOIS NATIONAL INSURANCE
COMPANY; AMERICAN
:
INTERNATIONAL GROUP, INC.,
:
Defendants
:
MEMORANDUM2
Presently before the court is a motion to dismiss filed by Defendant
American International Group, Inc. (hereinafter “AIG”), (Doc. No. 4). The
plaintiffs allege bad faith, pursuant to 42 Pa.C.S. §8371, and breach of
contract actions against each of the defendants. AIG claims that it is not an
‘insurer’ as required under the Pennsylvania bad faith statute and that there
is no privity of contract between the parties on which to base a breach of
contract claim. At this stage in the proceeding, the court finds the plaintiff’s
have sufficient pled their cause of action. Therefore the motion to dismiss will

1

This case was originally assigned to the Honorable A. Richard Caputo.
Pursuant to the verbal order dated January 7, 2013, the case has been
reassigned to the undersigned.
2

For the convenience of the reader of this document in electronic
format, hyperlinks to the court’s record and to authority cited have been
inserted. No endorsement of any provider of electronic resources is intended
by the court’s practice of using hyperlinks.

be DENIED.

I.

BACKGROUND
This action arises out of an automobile accident and subsequent efforts

to settle the resulting personal injury claims. On August 5, 2007, the plaintiffs
suffered severe and permanent injuries when they were involved in a collision
with a vehicle driven by Austin Smith. Mr. Smith was intoxicated and was the
sole cause of the accident. Mr. Smith died as a result of the accident and
Diane Smith was made administratrix of his estate.
On March 16, 2012, Diane Smith assigned to the plaintiffs her right to
bring claims against the defendants for their alleged mishandling of the
estate’s insurance claims. Shortly thereafter, the plaintiffs initiated the instant
action in the Court of Common Pleas of Lackawanna County, Pennsylvania.
On October 31, 2012, the defendants removed the case to this court. (Doc.
No. 1).
The plaintiffs allege bad faith, pursuant to 42 Pa.C.S. §8371, and
breach of contract in the defendant’s handling of the accident related
insurance claims in the period leading up to and through the tort action
brought in state court. The plaintiffs assert that at all relevant times a contract
of insurance existed between Diane Smith and Defendant Illinois National
Insurance Company and that at all relevant times a contact of insurance
existed between Ms. Smith and Defendant AIG. The plaintiffs assert that the

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defendants,

collectively,

assigned

Bob

McCaughan

as

a

Claim

Representative. The plaintiffs further assert that the defendants were aware
that Mr. Smith’s accident had exposed their insureds to liability and that tort
litigation had been initiated against Ms. Smith and the Estate of Mr. Smith.
The plaintiffs’ attorney corresponded with Mr. McCaughan and demanded
settlement at the policy limits of $50,000 and intended to provide Diane Smith
and the Estate of Mr. Smith with a full release of liability upon settlement.
These discussions became protracted, allegedly due to dilatory conduct by
the defendants, and the case proceeded to trial. The plaintiffs were ultimately
awarded $1,942,230 in damages. $75,000 of the award was for punitive
damages. The plaintiffs allege that defendant mislead Ms. Smith with regard
to her personal liability and the liability of the estate and that their failure to
settle the case for policy limits exposed Ms. Smith to excess liability. The
plaintiffs seek damages in excess of $50,000 in addition to punitive damages,
interest, attorney’s fees and costs.
On November 7, 2012, Defendant AIG filed a motion to dismiss counts
III and IV of the plaintiffs’ complaint, the bad faith and breach of contract
claims against AIG. (Doc. No. 4). On November 8, 2012, AIG filed a brief in
support. (Doc. No. 5). On November 11, 2012, the plaintiffs filed a brief in
opposition. (Doc. No. 7). AIG argues that the plaintiffs’ claims fail because
AIG is not an ‘insurer’ as required by the Pennsylvania bad faith statute and
the plaintiffs have failed to sufficiently plead privity of contract existed between

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Ms. Smith and AIG.

II.

STANDARD OF REVIEW
The defendant’s motion to dismiss is brought pursuant to the provisions

of Fed. R. Civ. P. 12(b)(6). This rule provides for the dismissal of a complaint,
in whole or in part, if the plaintiff fails to state a claim upon which relief can be
granted. The moving party bears the burden of showing that no claim has
been stated, Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005), and
dismissal is appropriate only if, accepting all of the facts alleged in the
complaint as true, the plaintiff has failed to plead “enough facts to state a
claim to relief that is plausible on its face,” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 127 S. Ct. 1955, 1974 (2007) (abrogating “no set of facts” language
found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The facts alleged must
be sufficient to “raise a right to relief above the speculative level.” Twombly,
550 U.S. 544, 127 S. Ct. at 1965. This requirement “calls for enough fact[s]
to raise a reasonable expectation that discovery will reveal evidence” of
necessary elements of the plaintiff’s cause of action. Id. Furthermore, in order
to satisfy federal pleading requirements, the plaintiff must “provide the
grounds of his entitlement to relief,” which “requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)
(brackets and quotations marks omitted) (quoting Twombly, 550 U.S. 544,

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127 S. Ct. at 1964-65).
In considering a motion to dismiss, the court generally relies on the
complaint, attached exhibits, and matters of public record. Sands v.
McCormick, 502 F.3d 263 (3d Cir. 2007). The court may also consider
“undisputedly authentic document[s] that a defendant attaches as an exhibit
to a motion to dismiss if the plaintiff’s claims are based on the [attached]
documents.” Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d
1192, 1196 (3d Cir. 1993). Moreover, “documents whose contents are alleged
in the complaint and whose authenticity no party questions, but which are not
physically attached to the pleading, may be considered.” Pryor v. Nat’l
Collegiate Athletic Ass’n, 288 F.3d 548, 560 (3d Cir. 2002). However, the
court may not rely on other parts of the record in determining a motion to
dismiss. See Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250,
1261 (3d Cir. 1994).

III.

DISCUSSION
The AIG’s motion argues that the plaintiffs have failed to properly plead

both claims raised against it, bad faith under 42 Pa.C.S. §8371 and breach
of contract. The court finds that the plaintiffs have sufficiently asserted their
claims and that the current record does not support the factual findings
required to relieve AIG of liability under either claim.
With respect the plaintiffs’ bad faith claim, AIG claims that it is not an

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‘insurer’ as defined by the statute. The Pennsylvania bad faith statute allows
for damage against an “insurer [who] has acted in bad faith toward the
insured.” 42 Pa.C.S. §8371. In determining whether a party is an insurer
under the bad faith statute federal courts applying Pennsylvania law have
examined: “(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.” Brand v. AXA Equitable Life Ins. Co., 2008 WL 4279863 (E.D.
Pa. Sept. 16, 2008)(citing Brown v. Progressive Ins. Co., 860 A.2d 493, 498
(Pa.Super.Ct.2004)). In addition, “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.’” Id. (quoting T & N PLC v. Pa. Ins. Guar. Ass'n, 800 F.Supp.
1259, 1261 (E.D.Pa.1992).
AIG asserts that it is entity independent of the Illinois National Insurance
Company and that it is a holding company, not an insurer. Moreover, it
asserts that it is not licensed to perform insurance services in Pennsylvania
nor does it act as insurer by issuing policies, collecting premiums or by any
other acts. The plaintiffs have asserted that Ms. Smith had a “contract of
insurance” with AIG (Doc. No. 1 Att 2 at ¶ 83), as well as with Illinois National
Insurance Company, (Doc. No. 1 Att. 2 at ¶ 73). The plaintiffs assert that the
defendants assigned a Claim Manager with whom their attorney dealt during
their attempts to recover amounts due under the insurance policy. (Doc. No.

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1 Att. 2 at ¶ 14).
The case law offered in support of Defendant AIG’s motion
demonstrates that dismissal is appropriate when the court is able to
determine that a corporate entity was not acting as an insurer under the
Pennsylvania statute. However, in the cases offered, the courts enjoyed the
benefit of records with more definitive indications of the role of the defendant
entities. In Brand v. AXA Equitable Life Ins. Co., 2008 WL 4279863 (E.D. Pa.
Sept. 16, 2008), the court was able to ascertain from the record that a
reinsurance contract existed between the two defendants. This clearly defined
which of the defendants was to be considered the insurer as well as outlining
the nature of the non-insurer’s duties and relationship to the insurance
policies at issue. Similarly, in McLaren v. AIG Domestic Claims, Inc., 853 F.
Supp. 2d 499, 511-12 (E.D. Pa. 2012), the record included an admission by
the plaintiff that no insurance contract existed between the putative noninsurer and the insured.
Questions remain as to AIG’s role in the service of the insurance claims
underlying this matter; however, the current record cannot support a
determinative finding that AIG is, as a matter of law, not an insurer under 42
Pa.C.S. §8371.
With respect to the breach of contract claim, the court similarly finds that
the plaintiffs assertion that a “contract of insurance” existed between Ms.
Smith and AIG and that claims were managed by an agent of the joint

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defendants is sufficient at the pleading stage. Under Pennsylvania law,
“[t]hree elements are necessary to plead properly a cause of action for breach
of contract: ‘(1) the existence of a contract, including its essential terms, (2)
a breach of duty imposed by the contract and (3) resultant damages.’”L.R.
Costanzo Co., Inc. v. Ohio Cas. Ins. Co., 2010 WL 2408640, *3 (M.D. Pa.
June 11, 2010) (quoting Williams v. Nationwide Mut. Ins. Co., 750 A.2d 881,
884 (Pa.Super.Ct.2000)). The minimal record in this matter contains express
assertions and corroborative factual support for the existence of a contract,
AIG’s alleged mismanagement though its claim manager and the resulting
damage judgment. Therefore the plaintiffs have sufficiently pled their breach
of contract claim.

IV.

CONCLUSION
In light of the current record, the court finds the plaintiffs’ pleadings to

be sufficient and the motion to dismiss will therefore be denied. In addition,
by separate order, the court will schedule an appropriate case management
conference in order to allow this matter to proceed.

s/Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
DATED: February 11, 2013
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