Cumberland Mutual Fire Insurance Company et al v. Michael Gratz Insurers et al

Filing 14

MEMORANDUM (order to follow as separate document).Signed by Honorable Malachy E Mannion on 7/22/13. (bs)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
CUMBERLAND MUTUAL FIRE
INSURANCE COMPANY and
CUMBERLAND INSURANCE
COMPANY, INC.,

:
:

CIVIL ACTION NO. 3:12-2404

:

(JUDGE MANNION1)

Plaintiffs
:
v.
:
MICHAEL GRATZ INSURERS and
MICHAEL GRATZ,
:
Defendants

:
MEMORANDUM

Pending before the court is the defendants’ motion to dismiss the
plaintiffs’ amended complaint for failure to state a claim upon which relief can
be granted. (Doc. No. 10). Based upon the court’s review of the motion and
related materials, the defendant’s motion to dismiss will be granted and the
plaintiffs’ complaint will be dismissed.

I.

PROCEDURAL HISTORY
By way of relevant background, on November 30, 2012, the plaintiffs

filed the instant action. (Doc. No. 1). By memorandum and order dated
December 7, 2012, the court directed the plaintiffs to file an amended

1

The instant action was originally assigned to the Honorable A. Richard

Caputo. By verbal order, on January 4, 2013, the matter was reassigned.

complaint properly alleging diversity jurisdiction. (Doc. No. 6, Doc. No. 7). The
plaintiffs filed their amended complaint on December 12, 2012. (Doc. No. 8).
On December 17, 2012, the defendants filed the instant motion to
dismiss the amended complaint for failure to state a claim upon which relief
can be granted, (Doc. No. 10), along with a brief in support thereof, (Doc. No.
11). On December 31, 2012, the plaintiffs filed a brief in opposition to the
defendants’ motion. (Doc. No. 12). The defendants filed a reply brief on
January 4, 2013. (Doc. No. 13).

II. LEGAL STANDARD
In deciding the defendants’ motion to dismiss, the court must read the
complaint in the light most favorable to the plaintiffs and all well-pleaded,
material allegations in the complaint must be taken as true. Estelle v. Gamble,
429 U.S. 97 (1976). However, the court need not accept inferences drawn by
the plaintiffs if they are unsupported by the facts as set forth in the complaint.
See California Pub. Employee Ret. Sys. v. The Chubb Corp., 394 F.3d 126,
143 (3d Cir. 2004) (citing Morse v. Lower Merion School Dist., 132 F.3d 902,
906 (3d Cir. 1997)). The court also need not accept legal conclusions set forth
as factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555
(2007) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).
A viable complaint must include “enough facts to state a claim to relief
that is plausible on its face.” Twombly, 550 U.S. at 554 (rejecting the
2

traditional 12(b)(6) standard set forth in Conley v. Gibson, 355 U.S. 41, 45-46
(1957)). “Factual allegations must be enough to raise a right to relief above
the speculative level.” Id. at 555. See also Ashcroft v. Iqbal, 556 U.S. 662
(2009) (holding that, while the complaint need not contain detailed factual
allegations, it must contain more than a “formulaic recitation of the elements”
of a claim and must state a claim that is plausible on its face) (quoting Bell
Atlantic Corp. v. Twombly, supra, and providing further guidance on the
standard set forth therein).
In deciding the defendants’ motion, the court should generally consider
only the allegations contained in the complaint, the exhibits attached to the
complaint, matters of public record, and “undisputably authentic” documents
which plaintiffs have identified as the basis of their claim. See Pension Benefit
Guarantee Corp. v. White Consolidated Industries, Inc., 998 F.2d 1192, 1196
(3d Cir. 1993).

III.

DISCUSSION
The following allegations are taken directly from the plaintiffs’ amended

complaint and are accepted as true for purposes of considering the instant
motion to dismiss. At all relevant times, defendant Michael Gratz Insurers was
designated as authorized agent for the purposes of selling various lines of
insurance underwritten by the plaintiffs, Cumberland Mutual Fire Insurance
Company and

Cumberland

Insurance
3

Company,

Inc.,

(hereinafter

“Cumberland”), pursuant to a written agency agreement, (hereinafter the
“Agency Agreement”)(Doc. No. 8, Exh. A).
Pursuant to 75 Pa.C.S.A. §1738, for a policy to be issued with nonstacking limits, an insurance carrier must receive from the first named insured
a signed and dated waiver of the stacking of limits on a form proscribed by the
statute.
Pursuant to the Agency Agreement, defendant Michael Gratz Insurers
caused to be issued a Cumberland commercial automobile policy of
insurance, policy number CA 7500178, to Ronald Oleski t/a Oleski Electric,
with effective dates of coverage from April 20, 2010, through April 20, 2011.
Defendant Michael Gratz Insurers submitted to Cumberland a §1738
waiver of stacked limits for uninsured and underinsured motorist coverage
that was purportedly signed by the first named insured, Ronald Oleski, and
dated April 7, 2006.
Cumberland issued a policy to Oleski as a non-stacking policy and
charged a reduced premium to reflect that it was a non-stacking policy.
On or about November 22, 2010, Ronald Oleski was involved in an
accident wherein he sustained significant injuries. As a result, by
correspondence dated December 2, 2010, Mr. Oleski, through counsel,
submitted a claim for uninsured and underinsured motorist coverage. Mr.
Oleski filed an application for benefits against the policy which sought the
policy limits of the underinsured motorist benefits on or about December 13,
4

2010.
Initially, Cumberland took the position that the full amount of
underinsured coverage available for the loss was $100,000 on a non-stacking
basis. Thereafter, Mr. Oleski’s counsel contested the validity of the §1738
waiver, contending that it was not signed by Mr. Oleski. An investigation was
undertaken by Cumberland, wherein Michael Gratz admitted to Cumberland
that the signatures on the §1738 waivers Cumberland had in its underwriting
file were not that of Mr. Oleski, but had been signed by himself or someone
else in order to obtain a quote. Defendant Michael Gratz indicated to
Cumberland that Mr. Oleski had executed a second set of §1738 waivers, and
provided a copy of a different set of §1738 waivers from his file to
Cumberland.
Counsel for Mr. Oleski submitted the §1738 waivers along with
exemplars of Mr. Oleski’s signature to a forensic document examiner, John
S. Gencavage, who opined that Mr. Oleski did not write the questioned
signatures contained on the §1738 waivers. Upon receipt of Mr. Gencavage’s
report, Cumberland retained the services of handwriting experts, Khody
Detwiler and Gus Lesnevich, who examined the same documents Mr.
Gencavage reviewed, along with additional exemplars provided by defendant
Michael Gratz of the signatures of Mr. Oleski, Mr. Gratz, and Mrs. Oleski. Mr.
Detwiler and Mr. Lesnevich both opined that the signatures contained on the
§1738 waivers from defendant Michael Gratz Insurer’s file were definitely not
5

that of Mr. Oleski.
In the absence of a signed waiver pursuant to §1738, Cumberland could
no longer maintain that Mr. Oleski’s policy was non-stacking. As such,
Cumberland tendered the stacked policy limits of $300,000, instead of the
non-stacked limits of $100,000, in full satisfaction of Mr. Oleski’s underinsured
motorist benefits claim.
Based upon the above, the plaintiffs have filed the instant action which
sets forth five claims against the defendants: Count I - Negligence (against
Michael Gratz Insurers and Michael Gratz); Count II - Gross Negligence
(against Michael Gratz Insurers and Michael Gratz); Count III - Negligent
Misrepresentation (against Michael Gratz Insurers and Michael Gratz); Count
IV - Intentional Misrepresentation (against Michael Gratz Insurers and Michael
Gratz); and Count V - Violation of the Pennsylvania Insurance Fraud
Prevention Act, 18 Pa.C.S.A. §4117 (against Michael Gratz only).
In their motion to dismiss, the defendants argue that all counts of the
amended complaint should be dismissed because defendant Gratz Insurers
is an agent of the plaintiffs and their relationship is defined by the terms of a
contract, i.e. the Agency Agreement. The defendants argue that the “gist of
the action” doctrine bars tort claims where liability arises solely from the
contractual relationship between the parties. (Doc. No. 11, pp. 6-9).
The gist of the action doctrine seeks to maintain a distinction between
the boundaries of tort and contract law by requiring courts to look beyond the
6

face of the pleadings and determine whether an alleged tort claim actually
sounds in contract. Sarsfield v. Citimortgage, 707 F.Supp.2d 546, 553
(M.D.Pa. 2010) (quoting eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d
10, 14 (Pa .Super.Ct. 2002)); Pennsylvania Mfrs. Ass’n Ins. Co. v. L.B. Smith,
Inc., 831 A.2d 1178, 1182 (Pa.Super.Ct. 2003) (explaining that courts must
examine the claim to determine its true gist). Tort claims “lie for breaches of
duties imposed by law as a matter of public policy, whereas contract actions
lie only for breaches of duties imposed by consensual agreements between
particular individuals.” Id. To determine when a contract claim is really
masquerading as a tort, the court must determine whether the “parties’
obligations are defined by the terms of the contract [or] by the larger social
policies embodied by the law of torts.” Id. (quoting Hart v. Arnold, 844 A.2d
316, 339–40 (Pa.Super.Ct. 2005)). If the contract is merely “collateral” to a
claim, the gist of the action doctrine does not bar the tort claim. Hart v. Arnold,
884 A.2d at 339 (“a breach of contract may give rise to an actionable tort
where the wrong ascribed to the defendant is the gist of the action, the
contract being collateral.”). Pennsylvania courts have enumerated four
scenarios where the gist of the action doctrine precludes recover in tort:
(1) where liability arises solely from the contractual relationship
between the parties; (2) when the alleged duties breached were
grounded in the contract itself; (3) where any liability stems from
the contract; and (4) when the tort claim essentially duplicates the
breach of contract claim or where the success of the tort claim is
dependent on the success of the breach of contract claim.
7

Sarsfield v. Citimortgage, Inc., 707 F.Supp.2d at 553 (citing eToll, Inc. v.
Elias/Savion Advertising, Inc., 811 A.2d at 19).
Here, the plaintiffs’ allegations establish that the parties had entered into
an Agency Agreement. That Agency Agreement governs the defendants’
duties and obligations to the plaintiffs with respect to the sale of insurance
policies. It is clear from the claims made in the plaintiffs’ amended complaint
that the claims set forth by the plaintiffs are inextricably entwined with the
Agency Agreement entered into between the parties. As such, the plaintiffs
are limited to a contract claim, not the larger social policies found in tort law,
and the plaintiffs’ claims for negligence, gross negligence, negligent
misrepresentation and intentional misrepresentation are barred by the gist of
the action doctrine. Similarly, although the plaintiffs’ claim that defendant
Michael Gratz’ violation of the Pennsylvania Insurance Fraud Prevention Act
is a statutory claim, it would not exist if the parties were not bound by the
Agency Agreement at issue. Therefore, this claim is barred as well.
The plaintiffs argue that their claims are not barred by the gist of the
action doctrine because they arise from a breach of duties imposed as a
matter of social policy, i.e., fiduciary duties extending beyond the contractual
duties set forth in the Agency Agreement. The court finds this argument
unavailing. To this extent, the defendants would owe the plaintiffs no fiduciary
duty if it were not for the provisions of the Agency Agreement. There is no
indication that the fiduciary duties owed as alleged in the amended complaint
8

were not controlled by, or outside of the scope of, the Agency Agreement.
For example, the Agency Agreement provides for the authority of the
Agent to
Bind and execute insurance contracts as provided in
the manuals, rules, regulations, rulings and specific
instructions of the Company....The Agent further
agrees to abide by and be bound by the manuals,
rules, regulations and specific instructions of the
Company. The Agent shall in no way obligate the
Company except within the authority vested in the
agent by the written or printed instructions of the
Company...
(Doc. No. 8, Exh. A).
The Agency Agreement further specifies that the Agent has
responsibilities, inter alia,
That the Agent shall keep full and accurate records of
the business transacted by him under this agreement
and shall forward to the Company such reports of
said business and permit the Company to examine
said records at any time and place, and to make
copies of said records as it may deem necessary.
(Id.).
Further, the agreement speaks to the provisions that would govern a
termination or suspension of the Agent, and indemnification for misdeeds,
Termination will become immediate effective without
any notification whatsoever in the event ... That the
Agent is guilty of gross and wilful misconduct or
fraud...
The Agent shall indemnify and hold the Company
harmless against all civil liability including reasonable
attorney’s fees and costs of investigation and defense
incident thereto and reasonably incurred, arising as a
result of any and all loss, damage, liability or
9

expenses of any nature, incurred by the Company in
connection with any act of the Agent contrary to the
authority, limitations, terms or restrictions contained
herein and contained in the rules, underwriting
instructions and guidelines of the Company.
(Id.)
Finally, while it is true that a plaintiff may often claim more and varied
damages in a tort based case than a breach of contract action, this can never
be a valid reason to morph a case that is grounded under a contractual
agreement between the parties into a case that arises under the more general
and broad, societal duty. The fiduciary duties were not collateral to the
Agency Agreement here and therefore, as indicated, the plaintiffs’ claims are
barred by the gist of the action doctrine.
In light of the foregoing, the defendants’ motion to dismiss the plaintiffs’
complaint will be granted on the basis that the plaintiffs’ claims are barred by
the gist of the action doctrine2. An appropriate order shall issue.

s/Malachy E. Mannion

MALACHY E. MANNION
United States District Judge
Date: July 22, 2013
O:\Mannion\shared\MEMORANDA - DJ\2012 MEMORANDA\12-2404-01.wpd

2

In light of the court’s ruling on the defendants’ argument that the

plaintiffs’ claims are barred by the gist of the action doctrine, it is not
necessary to address the merits of the defendants’ remaining arguments.
10