LIBERTY INSURANCE CORPORATION v. PGT TRUCKING, INC. et al

Filing 55

MEMORANDUM OPINION AND ORDER denying as moot 21 Motion to Dismiss; granting 22 Motion to Dismiss; denying as moot 29 Motion to Dismiss; denying as moot 29 Motion for Summary Judgment. Signed by Judge Terrence F. McVerry on 6/27/11. (mh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA

LIBERTY INSURANCE CORPORATION,
Plaintiff,
LIBERTY MUTUAL GROUP and LIBERTY
MUTUAL GROUP, INC.,
Consolidated Plaintiffs,
v
PGT TRUCKING, INC., SUDBURY EXPRESS,
INC. and INNERLINK STRATEGIC
SOLUTIONS, INC.,
Defendants.

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MEMORANDUM OPINION AND ORDER OF COURT
Pending before the Court is the MOTION SEEKING DISMISSAL OF THE SECOND
AND THIRD COUNTS OF DEFENDANTS' COUNTERCLAIM PURSUANT TO FEDERAL
RULE OF CIVIL PROCEDURE 12(b)(6) ON BEHALF OF LIBERTY INSURANCE
CORPORATION (Document No. 22).1 Plaintiff Liberty Insurance Corporation (“Liberty”) has
filed a brief in support of the motion, Defendants-Counterclaimants PGT Trucking, Inc., Sudbury
Express, Inc. and Innerlink Strategic Solutions, Inc. (collectively “PGT”) have filed a response
and brief in opposition to the motion, Liberty has filed a reply brief, and the motion is ripe for
disposition.

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The parties have notified the Court that the motions at Document Nos. 21 and 29 have been resolved by a
Stipulation of the parties, and accordingly, they will be DENIED AS MOOT.

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Factual and Procedural Background
This case involves a retrospective insurance premium arrangement by which Liberty
administered PGT’s workers compensation program from December 2005 through December
2009. In such an arrangement, the insurance premium is adjusted after-the-fact based on the cost
of claims actually paid by the insurer under the policy during the relevant time period. In the
underlying four-count Complaint, Liberty seeks a declaration of its rights under the insurance
policies it provided to PGT, and recovery of unpaid premiums of $183,495.00, as calculated
pursuant to the Large Risk Alternative Rating Option Endorsement/Retrospective Rating Plan
(“LRARO”) set forth in the parties’ contract.
PGT filed an Answer, Affirmative Defenses and a three-count Counterclaim against
Liberty. The Counterclaim contains 61 paragraphs, many of which contain sub-parts. The
Counterclaim is substantially identical to the Amended Complaint filed by PGT at Civil Action
No. 11-274.2 Count I of the Counterclaim, which Liberty does not seek to dismiss, asserts a
claim for breach of contract. Count II asserts a statutory claim for insurer Bad Faith pursuant to
42 Pa.C.S.A. § 8371. Count III alleges that due to the unique relationship created by a
retrospectively-rated policy, Liberty owed a fiduciary duty to PGT. Liberty seeks dismissal of
Counts II and III of PGT’s counterclaim. Contemporaneously with filing its motion for partial
dismissal, Liberty filed an Answer to the Counterclaim (Document No. 20, re-docketed after
errata at Document No. 23).

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By Order of Judge Nora Barry Fischer dated March 28, 2011, Civil Action No. 11-274 was consolidated with this
case and all pending motions were denied as moot. The case was reassigned to this member of the Court on May
27, 2011.

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Standard of Review
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is a challenge
to the legal sufficiency of the Complaint filed by Plaintiff. The United States Supreme Court has
held that “[a] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’
requires more than labels and conclusions, and a formulaic recitation of the elements of a cause
of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing
Papasan v. Allain, 478 U.S. 265, 286 (1986)) (alterations in original).
The Court must accept as true all well-pleaded facts and allegations, and must draw all
reasonable inferences therefrom in favor of the plaintiff. However, as the Supreme Court made
clear in Twombly, the “factual allegations must be enough to raise a right to relief above the
speculative level.” Id. The Supreme Court has subsequently broadened the scope of this
requirement, stating that “only a complaint that states a plausible claim for relief survives a
motion to dismiss.” Ashcroft v. Iqbal, -- U.S. --, 129 S. Ct. 1937, 1950 (2009).
However, nothing in Twombly or Iqbal has changed the other pleading standards for a
motion to dismiss pursuant to Rule 12(b)(6). That is, the Supreme Court did not impose a new,
heightened pleading requirement, but reaffirmed that Federal Rule of Civil Procedure 8 requires
only a short, plain statement of the claim showing that the pleader is entitled to relief, not
“detailed factual allegations.” See Phillips v. Co. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)
(citing Twombly, 550 U.S. at 552-53). Additionally, the Supreme Court did not abolish the Rule
12(b)(6) requirement that “the facts alleged must be taken as true and a complaint may not be
dismissed merely because it appears unlikely that the plaintiff can prove those facts or will
ultimately prevail on the merits.” Id. (citing Twombly, 550 U.S. at 553). As described in Fowler
v. UPMC Shadyside, 578 F.3d 203, 206 (3d Cir. 2009), the Court must first distinguish between

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factual allegations and legal conclusions in the complaint and then determine whether the wellpleaded factual allegations and favorable inferences drawn therefrom show an entitlement to
relief.

Legal Analysis
Liberty contends that the breach of fiduciary duty claim (Count III) is legally flawed
because Pennsylvania law does not recognize a fiduciary duty in the context of a contractual
insurer-insured relationship. As to PGT’s Pennsylvania statutory bad faith claim (Count II),
Liberty concedes that it is cognizable in theory but contends that the Counterclaim fails to allege
sufficient facts. In particular, Liberty contends that Paragraph 103 contains only a long laundry
list of bald assertions and sweeping legal conclusions, without any supporting facts to show that
Liberty acted in bad faith. PGT, in response, contends that the unique relationship created by a
retrospective insurance policy creates a fiduciary duty and that its Counterclaim is sufficiently
detailed.

A. Breach of Fiduciary Duty Claim
The Court turns first to the question of whether PGT’s breach of fiduciary duty claim is
viable. There does not appear to be a directly-applicable, binding precedent under Pennsylvania
law as to whether a retrospective premium policy creates a fiduciary duty on the insurer. The
parties have summarized two conflicting lines of cases. The Court must predict how the
Pennsylvania courts would reconcile these competing authorities.
Liberty correctly recites the general rule that insurers are not subject to tort claims. The
principle that contractual relationships do not give rise to tort claims is sometimes referred to as

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the “gist of the action” doctrine. “In Pennsylvania, there is no separate tort-law cause of action
against an insurer for negligence and breach of fiduciary duty: such claims must be brought in
contract.” Ingersoll-Rand Equipment Corp. v. Transportation Ins. Co., 963 F.Supp. 452, 453-54
(M.D. Pa. 1997) (citing Greater N.Y. Mut. Ins. Co. v. North River Ins. Co., 872 F.Supp. 1403,
1406, 1409 (E.D.Pa.1995), aff'd, 85 F.3d 1088 (3d Cir.1996); D'Ambrosio v. Pennsylvania Nat'l
Mut. Cas. Ins. Co., 494 Pa. 501, 507–08, 431 A.2d 966, 969–70 (1981); Gedeon v. State Farm
Mut. Auto. Ins. Co., 410 Pa. 55, 58, 188 A.2d 320, 321 (1963); Cowden v. Aetna Cas. & Sur. Co.,
389 Pa. 459, 468, 134 A.2d 223, 227 (1957)). However, none of the cases cited by Liberty has
applied this general rule to a retrospective premium arrangement.
As PGT correctly points out, the courts have recognized the uniqueness of retrospective
premium policies. In Liberty Mut. Ins. Co. v. Marty's Express, Inc., 910 F.Supp. 221 (E.D. Pa.
1996), the Court described the potential conflict of interest created by such an arrangement:
... Liberty Mutual was confronted with potentially conflicting interests when it
handled claims against Port East that were covered by a retrospective premium
policy. There may have been, as Port East suggests, a temptation to act somewhat
more cavalierly when spending someone else's money than when spending its
own. Moreover, there may have been a temptation toward generosity when the
insurer's fee increased with each dollar paid out.
Id. at 223-24 (citing Port East Transfer, Inc. v. Liberty Mutual Insurance Co., 330 Md. 376, 624
A.2d 520 (Md. 1993)). Improper claims handling will also increase the insurer’s fee. Id. These
potential conflicts made retrospective policy arrangements “qualitatively different” from
standard insurance contracts. Id. at 224. Accordingly, the Court held that although the insured
had a duty to come forward with some evidence of bad faith, in an action to collect unpaid
retrospective premiums, the insurer bore the burden to prove that it had acted reasonably and in
good faith. Id. at 225 (emphasis in original). In Argonaut Ins. Co. v. HGO, Inc., Cohen-Seltzer,
Inc., 1996 WL 433564 (E.D. Pa. 1996), the Court explicitly held that an insured could pursue a
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bad faith claim for an insurer’s improper handling of a retrospective premium arrangement. PGT
argues that because the insurer is actually managing the funds of the insured, rather than its own
funds, a fiduciary duty is created. However, none of these cases explicitly addressed a breach of
fiduciary duty claim.
Cases from other jurisdictions are split. Several courts have recognized the existence of a
fiduciary duty. In Liberty Mut. Fire Ins. Co. v. Cagle's, Inc., 2010 WL 5288673 (N.D. Ga. 2010)
(involving a similar workers compensation retrospective premium arrangement), the Court
refused to dismiss a breach of fiduciary duty claim and rejected Liberty’s reliance on the “gist of
the action” doctrine. Accord Employers Ins. Co. of Wausau v. Crouse-Community Center, Inc.,
489 F.Supp.2d 176, 180 (N.D.N.Y. 2007) (retrospective premium arrangement is an exception to
New York’s general rule that insurer owes no fiduciary duty); Allsup's Convenience Stores, Inc.
v. North River Ins. Co., 976 P.2d 1, 15 (N.M. 1998) (retrospective premium plan created
fiduciary duty). Other courts have reached the opposite result. See Wayne Duddlesten, Inc. v.
Highland Ins. Co., 110 S.W.3d 85 (Tex. App.–Houston 2003) (dismissing fiduciary duty claim
where insured failed to allege facts to show that confidential relationship existed with insurer);
Cherne Contracting Corp. v. Wausau Ins. Companies, 572 N.W.2d 339 (Minn. App. 1997) (bad
faith standard, not tort standard, applies to insurer’s alleged breach of contractual duty of good
faith). In Garrison Contractors, Inc. v. Liberty Mut. Ins. Co., 927 S.W.2d 296, 301 (Tex. App.–
El Paso 1996) (no fiduciary duty because retrospective premium arrangement was created by
contract), the Court reasoned: “the fact that one business person trusts another and relies on a
promise to perform a contract does not rise to the level of a confidential relationship for purposes
of establishing a fiduciary duty.”

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In Corrado Bros., Inc. v. Twin City Fire Ins. Co., 562 A.2d 1188 (Del. 1989), the Court
articulated a “middle ground” position. The Supreme Court of Delaware held that a
retrospective insurance relationship did impose a heightened duty of good faith and reasonable
care on the insurer. Id. at 1191. Nevertheless, the Court reasoned that the arrangement did not
create a fiduciary duty as the essential relationship was established by an adversarial arm’slength contractual negotiation in which each party was able to protect its rights and the parties’
respective interests were not perfectly aligned. Id. at 1192.
The Court concludes that Pennsylvania would adopt the rationale set forth in Corrado
Bros., as it appears to harmonize the conflicting lines of cases cited by the parties.3 To wit,
retrospective premium arrangements are “qualitatively different” and do create a unique duty of
good faith and reasonableness for the insurer. However, this enhanced duty arises under the
insurance contract and does not support an independent cause of action for breach of a fiduciary
duty. PGT may pursue relief for an alleged breach of the duty of good faith and reasonableness
under Count I (Breach of Contract). See, e,g., Argonaut, 1996 WL at 433564 *4 (claim for
breach of duty of good faith and fair dealing in retrospective premium arrangement sounded in
contract). Accordingly, Count III of the Counterclaim will be DISMISSED.

b.

Statutory Bad Faith Claim

The Court now turns to Liberty’s contention regarding the lack of “facts” regarding
alleged bad faith pled in Count II of the Counterclaim. A cause of action for bad faith under
Pennsylvania law requires clear and convincing evidence that: (1) the insurer did not have a
reasonable basis for its action, and (2) the insurer knew or recklessly disregarded its lack of a

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The breach of fiduciary duty analysis in Corrado was followed by the Court of Common Pleas of Philadelphia
County in Pyrites Co. v. Century Indem. Co., 2007 WL 5160528 *1 (Pa.Com.Pl. Dec 12, 2007).

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reasonable basis for its conduct. Keefe v. Prudential Prop. & Cas. Ins. Co., 203 F.3d 218, 225
(3d Cir. 2000). “[B]ad faith must be proven by clear and convincing evidence and not merely
insinuated.” Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. 1994)
(citations omitted). “Conclusory” or “bare-bones allegations” will not survive a motion to
dismiss. Fowler, 578 F.3d at 210.
Upon review of the Counterclaim, the Court concludes that it fails to allege sufficient
facts to support a bad faith claim. The Counterclaim thoroughly pleads the existence of a
retrospective premium insurance relationship, but contains only vague, bare-bones allegations as
to the actual alleged bad faith conduct of Liberty. The operative averment, Paragraph 103, states
that Liberty engaged in bad faith conduct “by doing or failing to do one or more of the
following” (emphasis added) – setting forth a laundry list of twenty-nine (29) generic,
generalized accusations. For example, PGT baldly asserts that Liberty failed to adequately
defend, failed to adequately investigate, failed to settle at appropriate values, failed to supervise
and manage claims, failed to act in the best interests of PGT and/or failed to adequately protect
PGT’s interests. Completely absent from the Counterclaim are any facts that describe who,
what, where, when, and how the alleged bad faith conduct occurred. PGT’s Counterclaim does
not even identify which of the twenty-nine (29) “laundry list” accusations may be applicable.
The averments in Paragraphs 84-90 are also mere bare-bones conclusions. In addition, the
Counterclaim entirely fails to plead facts to show how the alleged bad faith could have caused
PGT to incur damages, that Liberty lacked a reasonable basis for its actions or that Liberty
disregarded its alleged lack of reasonableness.
It is not sufficient for PGT to plead the mere existence of a retrospective premium
relationship and then to list the myriad of ways in which bad faith might, theoretically, have

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occurred. Such bare-bones insinuations do not satisfy the Twombly standard. See Eley v. State
Farm Ins. Co., 2011 WL 294031, *4 (E.D. Pa. 2011) (dismissing similar conclusory bad faith
claim); Atiyeh v. National Fire Ins. Co. of Hartford, 742 F.Supp.2d 591 (E.D. Pa. 2010) (same);
Robbins v. Metro. Life Insurance Company of Connecticut, 2008 WL 5412087, at *7–8 (E.D. Pa.
2008) (same). Rather, PGT must plead sufficient facts to make out a plausible claim that Liberty
actually acted in bad faith.4 Accordingly, Count II of the Counterclaim will be DISMISSED.
An appropriate Order follows.

McVerry, J.

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PGT similarly failed to plead any facts – as opposed to a laundry list of generic conclusions – to demonstrate how
Liberty allegedly violated a fiduciary duty, had the Court determined that such a theory was cognizable.

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
LIBERTY INSURANCE CORPORATION,
Plaintiff,
LIBERTY MUTUAL GROUP and LIBERTY
MUTUAL GROUP, INC.,
Consolidated Plaintiffs,
v
PGT TRUCKING, INC., SUDBURY EXPRESS,
INC. and INNERLINK STRATEGIC
SOLUTIONS, INC.,
Defendants.

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ORDER OF COURT
AND NOW, this 27th day of June 2011, in accordance with the foregoing Memorandum
Opinion, it is hereby ORDERED, ADJUDGED and DECREED that the MOTION SEEKING
DISMISSAL OF THE SECOND AND THIRD COUNTS OF DEFENDANTS'
COUNTERCLAIM PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6) ON
BEHALF OF LIBERTY INSURANCE CORPORATION (Document No. 22) is GRANTED
and Counts II and III of the Counterclaim are hereby DISMISSED. The motions at Document
Nos. 21 and 29 have been resolved by Stipulation of the parties and are therefore DENIED AS
MOOT.

BY THE COURT:
s/Terrence F. McVerry
United States District Judge

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cc:

Jonathan M. Kuller, Esquire
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Matthew R. Shindell, Esquire
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John T. Pion, Esquire
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Timothy R. Smith, Esquire
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