PAVLICK et al v. ENCOMPASS INDEMNITY COMPANY et al

Filing 26

MEMORANDUM OPINION re 6 Encompass' Motion to Dismiss Plaintiff's Complaint, 15 Encompass' Motion to Dismiss Plaintiff's Amended Complaint and 18 State Auto's Partial Motion to Dismiss Plaintiff's Amended Complaint. Signed by Judge Arthur J. Schwab on 7/14/2011. (lmt)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
TRACY R. PAVLICK, as Executrix of the
Estate of John J. Pavlick, and TRACY R.
PAVLICK, Individually,

11cv705
ELECTRONICALLY FILED

Plaintiff,
v.
ENCOMPASS INDEMNITY INSURANCE
COMPANY and STATE AUTO PROPERTY
AND CASUALTY INSURANCE
COMPANIES,
Defendants.

MEMORANDUM OPINION
This is an underinsured motorist insurance coverage case.1 Presently before this Court
are Defendants‟, Encompass Indemnity Insurance Company (“Defendant Encompass”) and State
Auto Property and Casualty Insurance Company (“Defendant State Auto”), Motions to Dismiss
Plaintiff‟s Amended Complaint. Defendant Encompass filed a Motion to Dismiss (doc. no. 15),
and Defendant State Auto filed a Partial Motion to Dismiss (doc. no. 18) Plaintiff‟s Amended
Complaint. See doc. no. 14. Defendant Encompass incorporated by reference its prior Motion to
Dismiss Plaintiff‟s Complaint (doc. no. 6) and its Brief in Support (doc. no. 7) claiming the filing
of the Amended Complaint did not cure the deficiencies previously noted. Defendant State Auto
filed a new Brief in Support of its renewed Partial Motion to Dismiss. Doc. no. 19. Plaintiff
filed a Brief in Opposition to Defendant Encompass‟ Motion to Dismiss the Amended Complaint

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This matter was removed to federal court and this Court has jurisdiction over this matter pursuant to 28 U.S.C.
§1332. Venue is proper in this District pursuant to 28 U.S.C. §1391.

(doc. no. 21) as well as a Brief in Opposition to Defendant State Auto‟s Partial Motion to
Dismiss the Amended Complaint. Doc. no. 24.
The Court has reviewed: Plaintiff‟s Amended Complaint (doc. no. 14), Defendant
Encompass‟ Motion to Dismiss the Amended Complaint (doc. no. 15), Encompass‟ Motion to
Dismiss the [Original] Complaint and Brief in Support (doc. nos. 6, 7), Defendant State Auto‟s
Partial Motion to Dismiss the Amended Complaint (doc. no. 18) and Brief in Support (doc. no.
19). For the reasons that follow, Defendant Encompass‟ Motion to Dismiss and Defendant State
Auto‟s Partial Motion to Dismiss shall be denied.
I.

Legal Standard

In considering a Rule 12(b)(6) motion, federal courts require notice pleading, as opposed
to the heightened standard of fact pleading. Federal Rule of Civil Procedure 8(a)(2) requires
only “„a short and plain statement of the claim showing that the pleader is entitled to relief,‟ in
order to „give the defendant fair notice of what the . . . claim is and the grounds on which it
rests.‟” Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555 (2007) (quoting Conley v. Gibson,
355 U.S. 41, 47 (1957)).
Building upon the landmark United States Supreme Court decisions in Twombly, and
Aschroft v. Iqbal, 129 S.Ct. 1937, 1947 (2009), the United States Court of Appeals for the Third
Circuit recently explained that a District Court must take three steps to determine the sufficiency
of a complaint:
First, the court must “tak[e] note of the elements a plaintiff must plead to state a
claim.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1947 (2009). Second, the court should
identify allegations that, “because they are no more than conclusions, are not
entitled to the assumption of truth.‟ Id. at 1950. Third, “whe[n] there are wellpleaded factual allegations, a court should assume their veracity and then
determine whether they plausibly give rise to an entitlement for relief.” Id. This
means that our inquiry is normally broken into three parts: (1) identifying the
elements of the claim, (2) reviewing the complaint to strike conclusory
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allegations, and then (3) looking at the well-pleaded components of the complaint
and evaluating whether all of the elements identified in part one of the inquiry are
sufficiently alleged.
Malleus v. George, No. 10-3539, 2011 F.3d WL 2044166, at *2 (3d Cir. May 26, 2011).
The third step of the sequential evaluation requires this Court to consider the specific
nature of the claim(s) presented and to determine whether the facts pled to substantiate the
claim(s) are sufficient to show a “plausible claim for relief.” “While legal conclusions can
provide the framework of a Complaint, they must be supported by factual allegations.” Id.; See
also Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009).
The Court may not dismiss a Complaint (or Counterclaim) merely because it appears
unlikely or improbable that plaintiff can prove the facts alleged or will ultimately prevail on the
merits. Twombly, 550 U.S. at 556, 563 n.8. Instead, the Court must ask whether the facts
alleged raise a reasonable expectation that discovery will reveal evidence of the necessary
elements. Id. at 556. Generally speaking, a Complaint (or Counterclaim) that provides adequate
facts to establish “how, when, and where” will survive a Motion to Dismiss. Fowler, 578 F.3d at
212; See also Guirguis v. Movers Specialty Services, Inc., 346 Fed.Appx. 774, 776 (3d Cir.
2009).
In short, the Motion to Dismiss should not be granted if a party alleges facts which could,
if established at trial, entitle him to relief. Fowler, 578 F.3d at 563 n.8.
Based upon this standard, this Court has reviewed Defendant Encompass‟s Motion to
Dismiss and Defendant State Auto‟s Partial Motion to Dismiss Plaintiff‟s Amended Complaint.
Doc. Nos. 15, 18.

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II.

Factual Background

As noted above, under F.R.Civ.P. 12(b)(6), the Court accepts all of the factual allegations
set forth in the Amended Complaint as true and draws all reasonable inferences in Plaintiff‟s
favor. See Fowler, 578 F.3d at 210. Therefore, the facts of the case are as follows:
Plaintiff is the Executrix of the Estate of John J. Pavlick. Doc. No. 14, ¶ 2. Defendant
Encompass and Defendant State Auto are both corporations engaged in selling policies of
automobile insurance. Id. at ¶¶ 4, 5.
On November 1, 2009, a vehicle struck and killed John J. Pavlick in his front yard. Id. at
¶ 6. At the time of his death, the Plaintiff was insured by an automobile insurance policy issued
by Defendant Encompass, which provided a $500,000.00 policy limit for an underinsured
motorist claim. Id. at ¶ 8. The Decedent‟s business, Pavlick Contracting, Inc., was insured by an
underinsured motorist policy issued by Defendant State Auto with a policy limit of $500,000.00.
Id. at ¶ 9. The driver of the vehicle that killed the Decedent lacked sufficient assets to pay any
potential judgment in excess of the limits on his own automobile insurance policy. Id. at ¶ 12.
The amount paid by the driver‟s automobile insurance carrier was insufficient to compensate
Plaintiff for her damages and loss. Id. at ¶ 13.
On November 4, 2009, Plaintiff‟s attorneys contacted Defendant Encompass providing it
with written notice of a claim for underinsured motorist benefits and demanded the stated policy
limits. Id. at ¶ 15 and doc. no. 14-1, p. 38. Plaintiff‟s attorneys also contacted Defendant State
Auto to give notice of the claim with a formal demand letter requesting policy limits on
December 2, 2009. Id. at ¶ 16 and doc. no. 14-1, p. 39. Over the next several months, Plaintiff‟s
attorneys and Defendants attempted to settle of the underinsured motorist claim, and Defendants
agreed to share the costs of the settlement. Id. at ¶ 18. On December 18, 2009, Plaintiff‟s

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attorneys received a notice of delay for processing the claim which stated that Defendant State
Auto needed additional information to substantiate the extent of the damages. Id. at ¶ 20. These
additional materials had already been provided by Plaintiff. Id. at ¶ 20 and doc. no. 14-1, p. 40.
On January 13, 2010, Defendant State Auto notified Plaintiff that further investigation
was necessary to determine whether the relevant insurance policy covered Plaintiff‟s claim. Id.
at ¶ 21. The letter sent by Defendant State Auto quoted portions of the policy concerning
uninsured motorists in an attempt to dispute the applicability of the insurance policy to the
accident. Id. at ¶ 22. On January 20, 2010, Plaintiff‟s attorney responded to Defendant State
Auto‟s letter by objecting to the presence of inapplicable coverage provisions in the January 13,
2010 correspondence and inaccurate quotations of provisions alleged to exist in the policy, and
requested that Defendant State Auto clarify its position as to its interpretation of one of the
policy provisions. Id. at ¶ 23.
Plaintiff‟s attorney also requested that Defendants provide a timeframe, but Defendant
State Auto declined and requested a recorded statement from Plaintiff to further the
investigation. Id. at ¶¶ 26, 27. Eventually, Plaintiff‟s attorneys agreed to allow Plaintiff to
provide a recorded statement over the phone. Id. at ¶ 31. The Defendants proceeded with the
recorded statement and inquired about an alleged extramarital affair of Plaintiff and the alleged
contributory negligence of the Decedent and subsequently denied Plaintiff‟s repeated requests
for a transcript of the statement. Id. at ¶¶ 35, 36.
Defendants then insisted on mediation of Plaintiff‟s claim, but were asked to clarify their
purposes by Plaintiff‟s attorney. Id. at ¶ 37. An employee of Defendant State Auto responded
that the mediation would discuss all issues and asked Plaintiff and her counsel to “keep an open

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mind.” Id. at ¶¶ 40, 41. Plaintiff‟s attorney responded that Plaintiff would not compromise on
the insurance policy‟s limits. Id. at ¶ 42.
On or about March 3, 2010, Defendants offered $650,000.00 for Plaintiff‟s claim despite
her request for the full amount of $1,000,000.00. Id. at ¶ 44. At some point in time after
Plaintiff‟s attorneys asked the Defendants for the justification for this offer, their position on
liability, and their investigative files, Defendants offered (and on March 26, 2010 Plaintiff
accepted), $950,000.00. Id. at ¶¶ 44, 45. Defendants cited an alleged extramarital affair on the
part of the Plaintiff and the alleged contributory negligence of the Decedent as justification for
not paying the full $1,000,000.00. Id. at ¶¶ 51, 52.
III.

Discussion

A. Encompass’ Motion to Dismiss
In support of its Motion to Dismiss, Defendant Encompass alleges that Plaintiff‟s
Amended Complaint: 1) is not viable concerning the alleged improper delay because under
Pennsylvania case law, an adjustment period for a claim for underinsured motorist benefits of
such a limited time frame is not actionable; 2) fails to plead with requisite specificity any theory
of delay by not stating the date settlement was reached, thus making the pleading insufficient;
3) includes conclusory allegations of statutory bad faith without factual support relative to
Defendant Encompass; and 4) improperly includes claims for attorney fees and punitive damages
for breach of contract and emotional distress damages for statutory bad faith, none of which are
recoverable under the respective counts as a matter of law. Doc. Nos. 6, 7, and 15.
In support of its two “time delay” arguments (i.e., no legally cognizable time delay exists
under the facts as pled by Plaintiff and Plaintiff failed to provide specific, requisite dates),
Defendant Encompass cites one Pennsylvania Western District Court case, Pittas v. Hartford

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Life Ins. Co., 513 F.Supp.2d 493 (W.D. Pa. 2007).2 The district court in Pittas, deciding a
Motion for Summary Judgment, held, “[a] delay of seven months after receiving notice of the
claim, without more, however, is not clear and convincing evidence of bad faith. In fact, the
evidence, is to the contrary.” This statement is not a rule of law indicating that a seven-month
delay does not equate bad faith. Rather, under the evidence presented in Pittas the court found
the seven-month delay did not equate bad faith. Here, no evidence has been established as the
Motion before the Court is a Motion to Dismiss, not a Motion for Summary Judgment as was the
situation in Pittas.
In addition, Defendant Encompass‟ Motion suggests the bad faith claim amounts to the
carriers‟ four-month delay in paying out $950,000.00. However, the Amended Complaint has
adequately pled that four months may be an unreasonable amount of time to pay that amount
when that amount was purportedly available to the carrier sooner. See, doc. no. 14 at ¶ 50.
Furthermore, the Amended Complaint contends that the delay is ongoing in light of the fact that
Plaintiff sustained damages in excess of the total policy limits (which this Court accepts as true
solely for purposes of these Motions). See, doc. no. 14 at ¶¶13, 15-16, 39, 42 and doc. no. 14-1,
pp. 38-39. Thus, according to the Amended Complaint, the Defendant carriers‟ failure to remit
the remaining $50,000.00 (the difference between the $950,000.00 offered and paid, and the full
limits of their respective policies) further evidences Defendants‟ bad faith. See e.g., doc. no. 14
at ¶¶ 25-26, 50-54. Lastly, the Amended Complaint also avers that Defendants engaged in bad
faith when they, during this four-month time frame, questioned Plaintiff regarding an alleged

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The Court notes that Defendant cited additional authority from other district courts within the Third Circuit in
support of its argument that no legally cognizable time delay exists. However, this Court is not bound by any of
those decisions, and upon review, found that most of those decisions resolve Motions for Summary Judgment,
distinguishing them from the case at bar.

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extramarital affair, and then claimed that this was part of their basis for the purported delay in
paying benefits and/or for paying less than the policies‟ limits. Doc. no. 14 at ¶¶ 23, 35, 51, 54.
Next, this Court disagrees that Plaintiff has merely raised conclusory allegations of
statutory bad faith without factual support. As noted above, Plaintiff‟s Amended Complaint
clearly indicates that Defendants based the decision to “delay” their collective payment of
$950,000.00 and not pay the full collective policy limits ($1,000,000.00) upon matters which
purportedly had nothing to do with the events surrounding the accident which caused the
Decedent‟s death. See doc. no. 14 at ¶¶ 35, 51-52. The Court finds these and other allegations
provide the necessary factual details necessary to properly assert the claims for breach of
contract and bad faith as well as withstand Defendant Encompass‟ Motion to Dismiss.
Finally, Encompass contends that the Amended Complaint improperly includes claims
for attorneys‟ fees and punitive damages for breach of contract, while demanding damages for
emotional distress for statutory bad faith in violation of Pennsylvania statutory and case law.
This Court disagrees that Plaintiff‟s Amended Complaint seeks attorneys‟ fees and punitive
damages for breach of contract while requesting damages for emotional distress on her bad faith
claim. See doc. no. 14, generally. Accordingly, this Court will deny Encompass‟ Motion to
Dismiss the Amended Complaint on this basis as well.
B. Partial Motion to Dismiss by Defendant State Auto
Defendant State Auto solely argues that a portion of Plaintiff‟s ad damnum clause in
Count II must be stricken. Specifically, State Auto claims that Plaintiff is not entitled to obtain
compensatory damages for his bad faith claim as he requests in paragraph 79 of his Amended
Complaint.

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It is true that Pennsylvania has codified a cause of action for bad faith and in the text did
not provide for compensatory damages. See 42 PA. C.S.A. § 8371. Section 8371 specifically
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.
42 Pa.C.S.A. § 8371.
However, as recently noted by one of this Court‟s learned colleagues, Judge Terrence
McVerry, in Simmons v. Nationwide Mut. Fire Ins. Co., __F.Supp. 2d ___ (W.D. Pa. April 20,
2011) no. 2:11-cv-328, 2011 WL 1527800, “. . . § 8371 does not prohibit an award of
compensatory damages . . . a point noted by Plaintiff in opposition to Defendant‟s motion. . . .
Compensatory damages are available under Pennsylvania‟s common law of contracts, even
where the action is brought under a bad faith theory.” Id., at *6 (internal citations omitted).
As further noted by the district court in Simmons, the Supreme Court of Pennsylvania has
recognized a “„common law action for bad faith sounding in contract‟” and held that § 8371
authorizes additional damages when the insurer acts in bad faith; thus, § 8371 supplements the
breach of contract damages an injured insured can obtain. See Simmons, 2011 WL 1527800, at
*6, quoting Johnson v. Beane, 664 A.2d 96, 101 (Pa. 1995), and citing The Birth Center v. St.
Paul Companies, Inc. Birth Center, 787 A.2d 376, 387 (Pa. 2001). In addition, the Simmons
decision pointed out the Pennsylvania‟s Superior Court:

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. . . characterized the attorney‟s fees, costs and interest available under § 8371 as
“compensatory damages” for purposes of determining whether an award of
punitive damages was sufficiently excessive to violate the Due Process Clause of
the Fourteenth Amendment. Hollock v. Erie Insurance Exchange, 842 A.2d 409,
421–422 (Pa. Super. 2004). More particularly, the Superior Court explained that
the specific damages available under § 8371(1) and § 8371(3) are “compensatory
damages” for purposes of evaluating the constitutionality of a punitive damages
award under § 8371(2). Hollock, 842 A.2d at 421–422.
Simmons, 2011 WL 1527800, at *6.
Turning to the instant matter, Plaintiff filed a cause of action for breach of
contract in Count I of her Amended Complaint wherein she requests “. . . judgment in her
favor for all sums that may be adjudicated against Defendants . . . and all other relief that
his Honorable Court deems appropriate.” Doc. no 14, p. 14. Defendant State Auto does
not challenge Plaintiff‟s ad damnum clause in Count I, thereby indicating to this Court
that Plaintiff may seek compensatory damages with respect to Count I. Because
Pennsylvania law makes it clear that, (1) Plaintiff may obtain compensatory damages as
relief for breach of contract and (2) fees, costs and interests awarded under § 8371 can be
characterized as compensatory damages, this Court does not find any reason to strike that
portion of Count II of Plaintiff‟s Amended Complaint seeking compensatory damages.
As such, this Court will deny Defendant State Auto‟s Motion for Partial Dismissal
because the challenged language is unobjectionable in the context presented. However, this
denial is without prejudice, and Defendant State Auto will be permitted to raise this issue in the
future, if and when appropriate.
IV.

Conclusion

Based upon the foregoing law and authority, this Court will deny the Defendant
Encompass‟ Motion to Dismiss and Defendant State Auto‟s Partial Motion to Dismiss. An
appropriate Order follows.
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s/ Arthur J. Schwab
Arthur J. Schwab
United States District Judge
cc:

All Registered ECF Counsel and Parties

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