SHERMAN v. JOHN BROWN INSURANCE AGENCY, INC. et al
Filing
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MEMORANDUM OPINION re 4 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by JOHN M. BROWN, JOHN BROWN INSURANCE AGENCY, INC., ARTURO CORONEL, JR., JOHN M. BROWN INSURANCE AGENCY, INC. Signed by Judge Maurice B. Cohill on 8/5/2014. (cag)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
MICHAEL SHERMAN
Plaintiff,
v.
JOHN BROWN INSURANCE
INSURANCE AGENCY INC., et at.
Defendants.
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Civ. No. 2:14" 572
Judge Maurice B. Cohill
OPINION
In his Complaint [ECF No. I-D], PlaintitI Michael Sherman ("Sherman") seeks recovery
from Arturo Coronel ("Coronel"), John M. Brown ("Brown"), and John Brown Insurance
Agency, Inc. and John M. Brown Insurance Agency, Inc. 1 (collectively "Agency") for damages
sustained because of Defendants' negligence and breach of contract in procuring liability
insurance to cover Sherman's building contracting operations. Plaintiff alleges negligence
against Coronel (Count I), negligence against Brown (Count II), negligence against the Agency
(Count III), vicarious liability against the Agency (Count IV), and breach of contract against
Brown and the Agency (Count V).
In Response, Defendants filed a Motion to Dismiss [ECF No.4] Counts I though IV of
Plaintiffs Complaint pursuant to Fed. R. Civ. Pro. I2(b)(6) for failure to state a claim upon
Plaintiff states in the Complaint that Defendants, John Brown Insurance Agency, Inc. and John M. Brown Agency,
Inc., are registered under the laws of lllinois, and maintain their primary business at 800 N. Clark Street, Suite 2 J 5,
Chicago, IL 60610.
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which relief can be granted. For the reasons set out below, we deny Defendants' Motion to
Dismiss with respect to all claims.
I. Relevant Facts Alleged in Plaintiffs Complaint
In May 2011, in need of liability insurance to cover his building contractor operations,
Plaintiff searched the internet, where he reviewed an advertisement published by or on behalf of
the Agency, which "promoted the agency's expertise in placing coverage for building
contractors." [ECF No. 1-4 at 5]. Plaintiff then teleconferenced with Coronel in May 2011.
During this conference, Coronel represented himself to be an employee of the Agency, although
he was not a licensed insurance producer under Pennsylvania law [ECF No. 1-4 at 5]. Plaintiff
advised Coronel of the nature of his work and his interest in obtaining liability coverage to cover
his contracting operations [ECF No. 1-4 at 5]. Coronel advised Plaintiff that the Agency could
accommodate his request for liability coverage [ECF No. 1-4 at 5].
Around May 20, 2011 Coronel prepared an application allowing Plaintiff to obtain
membership in the Preferred Contractors Association ("PCA") [ECF No. I-D at 6]. Membership
in PCA "presumably" would allow Plaintiff to acquire liability insurance coverage through
Preferred Contractors Insurance Company, RRG,2 LLC ("PCIC") [ECF No. I-D at 6]. PCIC
offered different policies to contractors, some of which included coverage for roofing operations;
however, Plaintiff was never offered a policy that included roofing coverage [ECF No. I-D at 6].
The PCA application was submitted to PCA andlor PCIC by Coronel and Brown
containing a description of Plaintiff's contracting operations which allegedly was "incomplete
and contrary to the representations that Sherman had made to Coronel regarding the nature of his
A Risk Retention Group is an alternative risk transfer entity created by the federal Liability Risk Retention Act.
RRGs must form as liability insurance companies under the laws of at least one state its charter state or domicile.
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operations." [ECF No. I-D at 6]. It is alleged that information available to the Defendants
indicated that contractors such as Plaintiff, should be quoted in the "PCIC group program,"
which included coverage for roofing, instead of the lower coverage "PCA group program,"
which did not include rooting coverage [ECF No. 1-4 at 6]. Each of these programs would have
provided insurance through PCIe, a distinct entity from the "PCIC group program." [ECF No.
1-4 at 6]. Plaintiff, despite needing roofing coverage, was quoted in the "PCA group program,"
not the "PCIC group program."
The application submitted to PCA contained a signature and initials purported to be
Plaintiffs, but the Plaintiff alleges he never signed the application [ECF No. 1-4 at 7].
Furthermore, Plaintiff states he never authorized any of the Defendants to initial or sign the
application on his behalf [ECF No. 1-4 at 7]. The application included warranties, which
Coronel had not reviewed with Plaintiff [ECF No 1-4 at 7]. These warranties were to be initialed
by Sherman, however the initials contained in the application were not those of the applicant,
Plaintiff, and as a result were "potentially incompatible" with Plaintiffs operations
No. 1-4
at 7].
On May 20, 2011 or shortly thereafter, Defendants confirmed with Plaintiff that liability
coverage had been obtained for his operations, and they requested a premium for the insurance.
Plaintiff submitted full payment of $1 064.00 to the Agency for the premium but did not receive a
copy of the insurance policy until sometime after August 4,2011 [ECF No. 1-4 at 7]. The policy
which was ultimately delivered to Plaintiff contained exclusions that were not referenced in the
application for membership with PCA nor discussed between the parties [ECF No. 1-4 at 7].
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On May 20, 2011 Plaintiff entered into a contract with JnJ Holdings, LLC to perform
renovations at the property located at 94 Estella A venue, Pittsburgh, Pennsylvania 15211 [ECF
No. 1-4 at 7]. On August 4,2011, Brett Frischolz, an independent contractor, died after falling
from scaffolding erected by Plaintiff [ECF No. 1-4 at 8]. Thereafter, the estate of Brett Frischolz
commenced an action against Plaintiff, JnJ Holdings, LLC, and the principal of JnJ Holdings,
Kirk Williams [ECF No. 1-4 at 8]. PCIC offered a defense to the action on behalf of Plaintiff but
commenced a declaratory judgment action on October 22,2012 alleging Plaintiffs operations
were roofing operations and therefore excluded under the PCA Group policy [ECF No. 1-4 at 8].
Plaintiff has retained counsel to defend against the declaratory judgment [ECF No. 1-4 at
8]. Plaintiff alleges that whether or not coverage is found to exist for the August 4, 2011
accident, he has been damaged because of Defendants' conduct and omissions [ECF No. 1-4 at
10]. Because of the PCI C declaratory judgment action, there is the potential that Plaintiff will
not have the appropriate liability coverage to cover the August 4, 2011 accident, and at the very
least, Plaintiff has incurred expenses and harm due to Defendants' actions. The harms Plaintiff
has sustained include anxiety relating the declaratory judgment, a possible judgment against
Plaintiff in the underlying case, time away from his self-employment, and involvement with the
PCIC filed cases [ECF No. 1-4 at 10-11].
Additionally, Plaintiff did not have the opportunity to secure appropriate insurance
coverage or elect not to participate in certain operations at the 94 Estella A venue project because
of the untimely delivery of the policy to Plaintiff [ECF No. I -4 at 11]. Plaintiff alleges that his
opportunity to resolve the wrongful death suit against him has been lost because PCIC rejected
the policy limits demand made by the Frischolz Estate while pursuing the declaratory judgment
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action [ECF No. 1-4 at 11]. Finally, as a result of Defendants' actions, Plaintiffs personal assets
are exposed [ECF No. 1-4 at 11].
II. Standard of Review.
In Thompson v. Real Estate Mortgage Network, No. 12-3828,2014 WL 1317137 (3d
Cir. Apr. 3, 2014), the Third Circuit Court of Appeals recently stated that in ruling on a Rule
12(b)(6) Motion to Dismiss for failure to state a claim upon which relief can be granted:
Under the "notice pleading" standard embodied in Rule 8 of the Federal Rules of
Civil Procedure, a plaintiff must come forward with "a short and plain statement
of the claim showing that the pleader is entitled to relief." As explicated in
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), a claimant must state a "plausible"
elaim for relief, and "[a] claim has facial plausibility when the pleaded factual
content allows the court to draw the reasonable inference that the defendant is
liable for the miseonduct alleged." Although "[tlaetual allegations must be
enough to raise a right to relief above the speculative level," Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007), a plaintiff "need only put forth allegations
that raise a reasonable expectation that discovery will reveal evidence of the
necessary element."
578 F.3d at 213 (quotation marks and citations
omitted); see also Covington v. Int'l Ass'n of Approved Basketball Officials, 710
F.3d 114, 117-18 (3d Cir. 2013).
Id. at *2. Further, in ruling on a Rule 12(b)(6) Motion to Dismiss for failure to state a
claim upon which relief can be granted, a court must "'accept all factual allegations as
true, construe the complaint in the light most favorable to the plaintiff, and determine
whether, under any reasonable reading of the complaint, the plaintiff may be entitled to
relief." Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (quoting Pinker
v. Roche Holdings Ltd., 292 F.3d 361, 374 n. 7 (3d Cir. 2002»;
Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 563, n.8 (2007). Additionally, where, as here, exhibits
are attached to the Complaint by the plaintiff, when deciding a motion to dismiss, courts
can consider these exhibits in additional to the allegations contained in the complaint.
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Pension Ben. Guar. Corp. v. White Consol. Indus.. Inc., 998 F.2d 1192, 1196 (3d
Cir.1993).
Furthennore, if the court decides to grant a rnotion to dismiss for failure to state a clairn
upon which relief can be granted pursuant to Fcd.R.Civ.P. 12(b)(6), the court must next decide
whether leave to arnend the cornplaint rnust be granted. As explained in Phillips, "[ w Je have
instructed that if a cornplaint is vulnerable to 12(b)(6) dismissal, a district court rnust perrnit a
curative arnendment, unless an amendrnent would be inequitable or futile." Phillips, 515 F.3d at
236 (citing Gravson v. Mavview State Hosp., 293 F.3d 103, 108 (3d Cir.2002)).
III. Discussion
A. Economic Loss Doctrine
Defendants argue that the negligence claims set out in Counts I, II, and III of Plaintiffs
Corn plaint should be disrnissed for failure to state a clairn upon which rclief can be granted
because they are barred by the Econornic Loss Doctrine. The Econornic Loss Doctrine in
Pennsylvania "'provides that no cause of action exists for negligence that results solely in
econornic darnages unaccompanied by physical or property darnage'." Azur v. Chase Bank,
USA Nat. Ass'n, 601 F.3d 212,222 (3d Cir. 2010) (quoting Sovereign Bank v. Bl's Wholesale
Club, Inc., 533 F.3d 162, 175 (3d Cir. 2008). "The doctrine 'is concerned with two rnain factors:
foreseeability and lirnitation of liability'." Id. (quoting Adarns v. Copper Beach Townhome
Crntys., L.P., 816 A.2d 301, 305 (Pa. Super. 2003). In discussing the doctrine, the Pennsylvania
appellate court explained, "To allow a cause of action for negligent cause of purely econornic
loss would be to open the door to every person in the econornic chain of the negligent person or
business to bring a cause of action. Such an outstanding burden is clearly inappropriate and a
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danger to our economic system." Id. (quoting Aikens v. Baltimore & Ohio R. Co., 501 A.2d
277,279 (Pa. Super. 1985). Thus, Defendants argue that Plaintiffs negligence claims are barred.
There is an exception to the Economic Loss Doctrine for professional negligence claims.
In some cases professionals may be sued in tort where a contract is at issue. However,
Defendants assert that the Professional Negligence Claims exception cannot apply here due to
the fact that pursuant to Pa. R. Civ. P. 1042.1 ("Professional Liability Actions. Scope.
Definition"), insurance brokers and agents are not among the list of enumerated professionals
against whom a professional liability action may be initiated. In other words, insurance agents
and brokers are not considered "professionals" under the law and, therefore, the Defendants in
this case are shielded from the negligence claims by way of the Economic Loss Doctrine because
the exception does not apply. Defendants assert Counts I, II, and III should be dismissed with
prejudice under the Economic Loss Doctrine.
In response, Plaintiff notes that Pennsylvania courts have recognized this exception to the
Economic Loss Doctrine for claims of professional negligence in many cases. Plaintiff asserts
that several Pennsylvania courts have characterized claims against insurance brokers for failing
to procure proper coverage as professional negligence claims. In Ridgewav Court, Inc. v. James
1. Canavan
ITl~.
Associates, Inc., 501 A.2d 684, 685-87 (Pa. Super. 1985) the court described the
claim brought against the defendant for failing to "provide [plaintiff] with full and adequate
liability insurance coverage" as "an action for professional negligence." Plaintiff explains that
although the claim was dismissed for insufficient evidence, the court recognized the professional
negligence claim as viable against an insurance broker.
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Plaintiff notes that "Pennsylvania jurisprudence has similarly characterized as
'professional negligence' those claims which have been filed against insurance brokers or agents
for procuring inadequate coverage." AJT Props., LLC v. Pa. Lumbermens Mut. Ins. Co., No. 04
CV 5103, 2009 WL 1904103, at *8 CPa. Com. PI. 2009). Furthermore, Plaintiff states courts
have recognized that insurance brokers must conform to the "standard of care required of those
rendering professional services" and that "[i]t is obvious from the statutes that the
commonwealth deems an insurance agent to be a professional skilled in the business of insurance
matters." Swantek v. Prudential Prop. & Cas. Ins. Co., 48 Pa. D. & C.3d 42,45,47 CPa. Com.
PI. 1988).
Plaintiff relies on more recent cases to support the existence of a professional standard of
care for insurance brokers and agents. In a 2003 case, the Pennsylvania Appellate court held an
insurance agent "is required to exercise the skill and knowledge normally possessed by members
of that profession to make sure that the coverage sought by the insured is the coverage received."
Pressley v. Travelers Prop. Cas. Corp., 817 A2d 1131, 1134-35 CPa. Super. 2003). The Pressley
Court found that the broker was negligent and therefore "liable for any loss of coverage" under
Restatement (Second) of Torts § 299A, (,'Undertaking in Profession or Trade"). Furthermore,
both the Western District and Eastern District of Pennsylvania have recognized this standard of
care for insurance brokers.
Stern Family Real Estate P'ship v. Pharms. Mut. Ins. Co., No.
06-130,2007 WL 951603, at *4 n.11 (W.O. Pa. Mar. 27,2007); Chettv Holdings, Inc. v.
NorthMarq Capital, LLC, No. 11-4640,2013 WI, 1721733, at *7 (E.D. Pa. Apr. 22, 2013)
(insurance agents are among a group of professionals "subject to a duty as licenses professionals
pursuant to Section 299A.")
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With respect to Pa. R. Civ. P. 1042, Plaintiff asserts that Rule 1042 does not speak to
Plaintiff's ability to bring a professional negligence claim in accordance with Restatement of
Torts § 299A, but rather that it only imposes the requirement of obtaining a certificate of merit
when bringing a professional liability claim against one of the professionals listed under the rule.
Thus, insurance brokers or agents not being listed under Rule 1042 is not dispositive of
Plaintiff's ability to bring a professional negligence claim against Defendants.
We agree with Plaintiff's argument that Pa. R. Civ. P. 1042 does not preclude the
assertion of a professional negligence claim against insurance brokers. In addition, we find it
significant that under Pennsylvania law insurance brokers are held to a standard of care which
requires them to "exercise the skill and knowledge normally possessed by members of that
profession" and failure to do so renders them "liable for any loss of coverage." Pressley, 817
A.2d at 1138.
In particular, we find persuasive the Court of Common Pleas of Pennsylvania discussion
in Rapidigm. Inc. v. ATM Mgmt. Servs., LLC, 63 Pa. D. & C.4th 234 (Pa. Com. PI. 2003)
regarding the application of the Economic Loss and Gist of the Action Doctrine to a professional
negligence claim against a computer consultant. The Rapidigm Court explained, "The
application of the gist of the action or the economic loss doctrines to professional negligence
causes of action would be inconsistent with recent case law (See ~ Gorski v. Smith, [citation
omitted]) which gives a broad reading to prior case law allowing a client to bring both breach of
contract and professional negligence actions based on the professional's failure to exercise
proper skill and care." Rapidigm, 63 Pa. D & C.4th at 240-241. The court then noted that
professional negligence actions are recognized under the Restatement (Second) of Torts § 299A
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which states, "Unless he represents that he has greater or less skill or knowledge, one who
undertakes to render services in the practice of a profession or trade is required to exercise the
skill and knowledge normally possessed by members ofthat profession or trade in good standing
in similar communities." Id. at 241.
The Rapidigm Court then explained that although, thus far, the Pennsylvania courts have
only allowed professional negligence claims to be maintained against professionals enumerated
under Pa. R. Civ. P. 1042, they could not locate any state appellate case law addressing whether
professional negligence claims should be restricted to this enumerated list.
Id. at 241.
According to the Rapidigm Court, whether or not to restrict professional negligence claims in
this way "depends on whether parties contracting with service providers should receive the
protections of tort law or whether their rights should be governed solely by the terms of their
agreement with the service provider." Id. at 242. Further, the apparent purpose of professional
negligence actions, according to the Rapidigm Court, is the inability of certain service providers
to guarantee the outcome of their service. See rd. at 243. Instead of guaranteeing an outcome,
certain service providers agree "to exercise skill and knowledge normally possessed by members
of the profession." Id.
In this case, Plaintiff s allegations of negligence focus on whether Defendants exercised
the standard of care required for their profession by, among other things, submitting an
inaccurate application, procuring insurance without a Pennsylvania license, and executing
Plaintiffs signature without authorization. Indeed, Counts I, II and III do not focus on the issue
of whether the insurance policy procured by Defendants conformed to what was promised in the
contract between the parties. In this case, contract law does not provide sufficient protection to
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Plaintiff as a client of the insurance broker Defendants. Thus, we find that Plaintiffs alleged
negligence claims are claims for professional negligence and fall within the exception to the
Economic Loss Doctrine. Therefore, Plaintiffs negligence claims are not barred by the
Economic Loss Doctrine.
B. Gist of the action
Defendants next argue that the negligence claims set out in Count 1, II, and III of
Plaintiffs Complaint should be dismissed for failure to state a claim upon which relief can be
granted because they are barred by the Gist of the Action Doctrine. The Gist of the Action
"[D]octrine is designed to maintain the conceptual distinction between breach of contract claims
and tort claims. As a practical matter, the doctrine precludes plaintiffs from re-casting ordinary
breach of contract claims into tort claims." eTol!. Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10,
14 CPa. Super. 2002). In some circumstances, "it is possible that a breach of contract also gives
rise to an actionable tort[.] To be construed as in tort, however, the wrong ascribed to defendant
must be the gist of the action, the contract being collateral." Pediatrix, 602 F.3d at 548
(alteration in original) (quoting Id.)
"[T]he important difference between contract and tort actions is that the latter lie from the
breach of duties imposed as a matter of social policy while the former lie for the breach of duties
imposed by mutual consensus." Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79,
103 (3d Cir. 2001) (quoting Redevelopment Auth. of Cambria County v. International Ins. Co.,
685 A.2d 581, 590 (Pa. Super. 1996) (en banc). "In other words, a claim should be limited to a
contract claim when 'the parties' obligations are defined by the terms of the contracts, and not by
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the larger social policies embodied in the law of torts. '" Id. at 104 (quoting Bash v. Bell
Telephone Co., 601 A.2d 825, 830 (Pa. Super. 1992).
The Gist of the Action Doctrine bars "tort claims: (l) arising solely from a contract
between the parties; (2) where the duties allegedly breached were created and grounded in the
contract itself; (3) where the liability stems from a contract; or (4) where the tort claim
essentially duplicates a breach of contract claim or the success of which is wholly dependent on
the terms of a contract." Wilmington Trust Co. v. Cnty. of Allegheny, 640 F.Supp.2d 643, 648
(W.D. Pa. 2009) (citing
811 A.2d at 19).
"When a plaintiff alleges that the defendant committed a tort in the course of carrying out
a contractual agreement, Pennsylvania courts examine the claim and determine whether the 'gist'
or gravamen of it sounds in contract or tort." Sunquest Info. Svs., Inc. v. Dean Witter Reynolds,
40 F.Supp.2d 644, 651 (W.D. Pa. 1999). The gist of the action test, "as its name suggests,
requires the court to focus on the substance of the dispute, or, more colloquially, to ask the
question, "What's this case really about?" The doctrine deals less with specific enumerated
"duties" than with the parties' conduct as it relates to the contract and the tort alleged." Pediatrix
Screening, Inc. v. TeleChem Int'l, Inc., 602 F.3d 541, 550 (3d Cir. 2010).
Defendants assert that Plaintiffs claims arise only out of the alleged contract between
Plaintiff and the Agency, and any of Defendants' liability arises out of this contract. Defendants
explain that had there been no contract, no obligation would exist for the Agency to take action
to procure coverage for Plaintiff. Next, Defendants assert that the parties' obligations are not
defined by the larger social policies embodied in the law of torts but instead are defined by the
contract. Further, according to Defendants, the Complaint does not allege any duties which
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surpass the duties imposed by the contract. Defendants argue that PlaintifI's "tort claim
essentially duplicates his contract claim being based on the contention that defendants failed to
obtain the appropriate and requested insurancc coverage for Sherman's operations." [ECF No.5
at 8]. Thus, Defendants assert that the gist of the action is contractual, and therefore, PlaintifI's
negligence claims should be dismissed with prejudice.
In Response to Defendants' assertions, Plaintiff argues that the negligence claims it
brings against Defendants are exempt from the Gist of the Action Doctrine because they are
rooted in professional negligence. Plaintiff notes that the Rapidigm Court stated, "Under settled
Pennsylvania law, a client may bring both a contract and a tort action against a professional
based on allegations that he or she failed to provide the client with professional services
consistent with those expected in the profession." [ECF No. 7 at 7] (citing Rapidigm, 63 Pa. D.
&
c. 4th at 239).
PlaintifTalso points to Dardzinski v. Foley Ins. Agency, Inc., No. 04141 (Phila.
County Com. PI. Aug. 25, 2009) where the court held that the "economic loss rule and gist of the
action doctrine do not bar tort recovery to claims involving a professional's failure to exercise
the proper standard of care, even if the claim is arising out of the contract."
Plaintiff also argues that Pennsylvania law imposes additional requirements on the
Defendants' behavior beyond those obligations imposed by the contract between Plaintiff and
Defendants. Under 40 P.S. § 991.1514, ("Duty of agent or broker to obtain license"), "No
person, firm, association or corporation shall act or aid in any manner in soliciting, negotiating or
procuring liability insurance in this Commonwealth for a risk retention group unless such, firm,
association or corporation is licensed ... " Thus, Plaintiff argues that had Coronel complied with
this provision, Plaintiff could have obtained insurance from a licensed producer who would have
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procured the coverage specifically requested. With respect to John Brown, Plaintiff argues that
had Brown complied with 40 P.S. § 991.1514( c) and informed him "about the consequences of
placing coverage through a risk retention group," he could have avoided the possibility that he
would be ineligible for the state's insurance insolvency guarantee funds. Plaintiff asserts that
this requirement to inform arises under Pennsylvania law independent of any contractual duty.
Finally, Plaintiff argues that Defendants undertook a duty to procure adequate insurance
coverage for him; therefore the law requires that Defendants "exercise the skill and knowledge
normally possessed by members of their profession" in providing adequate insurance coverage.
Plaintiff asserts that failure to conform to this standard renders Defendants liable for any loss of
coverage, separate from any contractual liability. In addition to any liability imposed by the
contract, "the law holds the Defendants responsible for their failure to render their services in
accordance with the standard imposed on them as professionals:' [ECF No.7 at 8]
As discussed above, the Rapidigm Court considered the application of the Gist of the
Action Doctrine and Economic Loss Doctrine to suits against professionals who are not
enumerated under Pa. R. Civ. P. 1042. Notably, the court observed that "[tJo date, the
Pennsylvania Courts have allowed professional negligence actions to be maintained only against
certain licensed professionals." Rapidigm, 63 Pa. D. & CAth. at 241. As noted by Defendants,
insurance brokers and agents are not among the list pursuant to Pa. R. Civ. P. 1042.
The issue then is whether the Gist of the Action Doctrine applies to negligence claims
asserted against professionals not enumerated under Pennsylvania Rules of Civil Procedure
1042.1. Having found that a professional negligence claim is a viable claim against
professionals not listed under Rule 1042, and thus, there exists an exception to the Economic
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Loss Doctrine, we also find that there is an exception to the Gist of the Action Doctrine to
negligence claims asserted against professionals not listed under Rule 1042. Thus, Plaintiff's
claims are not barred by the Gist of the Action Doctrine.
Furthennore, taking the facts alleged in PlaintifTs Complaint as true, the issue is whether
Defendants were negligent by not exercising the skill and knowledge normally possessed by
members of their profession, not whether Defendants breached a contract that existed between
the parties. In other words, the gist of Plaintiff's action is in tort, not contract. The focus of
Plaintiff's negligence claims implicates the skill, expertise, and special knowledge that the law
requires an insurance broker or agent to exercise. Significantly, Plaintiff alleges negligence
based on a failure to comply with duties imposed by Pennsylvania statute regarding licensing and
notice requirements by insurance brokers. While it is true that a contract existed between
Plaintiff and Defendants, we find that the Defendants' contractual obligations to acquire an
insurance policy that covered Plaintiff's operations are only tangential to the alleged negligent
mishandling of Plaintiff's insurance policy.
C. Violation of Pennsylvania Statutes
Defendants argue that Plaintiff's Counts I and II for negligence against Coronel and
Brown respectively should be dismissed because they are, in part, based on an alleged violation
of 40 P .S. §§ 991. I 514 ("Duty of agent or broker to obtain license") and 991.1505 ("Notice and
prohibited acts"), Section 991.1514( a) (1 ) states, in relevant part, "No person, firm, association
or corporation shall act or aid in any manner in soliciting, negotiating or procuring liability
insurance in this Commonwealth for a risk retention group unless such person, firm, association
or corporation is licensed either as an insurance agent ... or as an insurance broker." Section
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991.1505 states, in relevant part, "Every application form for insurance from a risk retention
group and every policy issued by a risk retention group shall contain, in ten-point type on the
front page and the declaration page, the following notice: NOTICE This policy is issued by your
risk retention group. Your risk retention group may not be subject to all of the insurance laws
and regulations of your state. State insuranee insolvency guaranty funds are not available for
your risk retention group."
Defendants assert that Sections 991.1514 and 991. 1505 do not provide a pri vate right of
action because under Pennsylvania Law there is no enforcement of statutes by private action
when the legislature commits its enforcement to a government body or official. Thus, because
Sections 991.1514 and 991.1505 authorize the insurance department to investigate, issue
subpoenas, conduct depositions and hearings, issue orders, impose penalties, and seek injunctive
relief for the violation of Sections 991.1514 and 991.1505, there is no private right of action.
Regardless of the existence of a private right of action, Defendants assert that Plaintiff
has not alleged facts establishing that a failure to comply with Section 991.1505 was the cause of
Plaintiffs damages. Defendants also assert that Coronel's lack ofa Pennsylvania Insurance
License in violation of Section 991.1505 was not a cause of Plaintiffs damages. Therefore,
Defendants request that paragraphs 38(h) and (i), alleging Coronel's violation of Sections
991.1514 and 991.1505, and 41 (1) and (g), alleging Brown's violation of Sections 991.1514 and
991.1505, be stricken from the Complaint.
Plaintiff responds by explaining that he is not claiming that he can maintain a private
right of action to enforce Sections 991.1514 and 991.1505, but rather that he uses Defendants'
failure to comply with the statutes as examples of Defendants' negligence, such as demonstrating
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that Defendants were negligent per se for violating the statutes. With respect to Coronel's lack
of a license, Plaintiff argues that Coronel's failures, such as procuring an insufficient policy,
signing the application for Plaintiff, and not delivering the policy in a reasonable time, all could
have been avoided had Coronel become more familiar with the Pennsylvania Insurance Laws
through the licensing procedure.
We understand Plaintiff s Complaint to allege that violation of Sections 991.1514 and
991.1505 is indication of Defendants' negligence, not that Plaintiff is bringing a claim which is
predicated on enforcement of the statutes. Therefore, Defendants' affirmative defense and
Motion to Dismiss in this regard is moot. With respect to Defendants' argument that Plaintiff
has not alleged causation between the violation of the statutes and Plaintiff s harm, we find that
Plaintiff has provided sufficient facts to draw a reasonable inference that Defendants could be
liable for the harm alleged.
D. Negligent supervision
In Count III Plaintiff alleges that the Agency was negligent in placing, Coronel, an
unqualified and unlicensed employee to solicit information from a client and procure insurance
on his behalf. Plaintiff alleges that because of the Agency's negligent conduct he has sustained
damages.
Defendants argue that Count III for negligence against the Agency is based on the
Agency's negligent supervision of Coronel. In order to recover under a claim of negligent
supervision, a plaintiff must prove that his loss resulted from (I) a failure to exercise ordinary
care to prevent an intentional harm by an employee acting outside the scope of his employment;
(2) that is committed on the employer's premise; (3) when the employer knows or has reason to
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know of the necessity and ability to control the employee. See Belmont v. MB Investment
Partners, Inc., 708 F.3d 470,487-88 (3d Cif. 2013). The Belmont Court explained, "A claim for
negligent supervision provides a remedy for injuries to third parties who would otherwise be
foreclosed from recovery under the principal-agent doctrine of respondeat superior because the
wrongful acts of employees in these cases are likely to be outside the scope of employment or
not in furtherance of the principal's business." Id. at 489.
Defendants argue that Plaintiff has not alleged facts to support a plausible finding that the
Agency did not exercise ordinary care to prevent an intentional harm by an employee acting
outside the scope of employment. Thus, Defendants argue that Plaintiff has failed to allege a
claim for negligent supervision, and therefore, Count III of the complaint should be dismissed
with prejudice.
We do not find that Plaintiff has alleged a claim for negligent supervision but rather a
claim for professional negligence. Nowhere in Plaintiff s Complaint is it indicated that Count III
is a claim for negligent supervision. Indeed, PlaintifT indicates that in order to comply with
Pennsylvania Rules of Civil Procedure he has included in the Complaint that the Agency was an
Illinois-licensed insurance agency and that, among other things, Plaintiff is asserting a
professional liability claim against the Agency. Therefore, it is not dispositive of Plaintiffs
claim whether or not he has alleged that the Agency did not exercise ordinary care to prevent an
intentional harm by an employee acting outside the scope of employment.
Accordingly, for the reasons set forth above, we find that Plaintiff s Complaint with
respect to Counts I, II, and III for negligence contain sufficient facts to state plausible claims for
18
relief; therefore we will deny Defendants Motion to Dismiss Plaintiffs negligence claims set
forth in Count I, II, and III.
E. Vicarious Liability
Count IV
Count IV of Plaintiffs Complaint alleges that the Agency is vicariously liable for the
conduct of Coronel and Brown, and at all times Coronel and Brown were acting in the scope of
employment and/or as agents and/or representatives of the agency.
Defendants argue that Count IV of Plaintiff's Complaint fails to state a claim because
there is no separate cause of action for re5pondeal superior liability. District Courts have found
that under Pennsylvania law the "doctrine of re!l]JOndeat superior does not establish a separate
tort, but merely a principle by which employers can be held liable for the tortious acts of their
employee."
Peek v. Philadelphia Coca-Cola Bottling Co., No. 97-3372, 1997 WL 399379,
at *1 n. 1 (E.D. Pa. Jul. 16, 1997). District Courts have also explained that respondeat superior
"merely connotes a doctrine of imputation once an underlying theory ofliability has been
established. It is not a separate cause of action." Care v. Reading Hosp. & Med. Ctr., No.
04121, 2004 WL 728532 (E.D. Pa. Mar. 31,2004).
Plaintiff responds by arguing that vicarious liability exists as a separate cause of action
from personal negligence in Pennsylvania. PlaintifT explains that the cases cited by Defendants
in support of their argument that Count IV is not a viable claim in federal court either directly or
through federal question jurisdiction, are unreported, and fail to rely on Pennsylvania cases in
support of the conclusions asserted. Plaintiff notes that our case at issue was removed to Federal
Court based on diversity jurisdiction, which makes this case procedurally and conceptually
similar to Sabric v. Martin, No. 3:09-2237,2012 WL 1952197 (M.D. Pa. May 30, 2012) (rev'd
19
on other grounds 532 Fed. App'x 286 (3d Cir. 2013). Plaintiff explains that the Sabric Court
held, "Claims for vicarious liability and direct negligence are two distinct claims." 2012 WL
1952197 at *2 n.l. Plaintiff then explains that the Sabric Court is more persuasive than the cases
cited by Defendants because the Sabric Court "took seriously the state court cases holding that
vicarious liability and negligence can be brought as separate claims." [ECF No.7 at 10]
Furthermore, Plaintiff argues that Count IV of the Complaint incorporates the preceding
paragraphs of the Complaint, which consisted of claims of direct negligence against the
Agency's employees, Coronel and Brown, individually. Therefore, according to Plaintiff, he has
stated a viable claim for vicarious liability because it is based on the liability of the actions of
Coronel and Brown, thereby satisfying the requirement of an underlying claim which is imputed
to the employer.
Plaintiffs Complaint states, "The agency is vicariously liable for the conduct of
Defendants Coronel and Brown." Thus, because the preceding paragraphs of the Complaint are
incorporated in Count IV, we find that Count IV is not a separate cause of action for respondeat
superior but rather a claim against the Agency, which is vicariously liable, for the negligent
actions and omissions of Coronel and Brown as set forth in the Complaint's paragraphs 1
through 45. Therefore, we deny Defendants' Motion to Dismiss Count IV as moot, as Plaintiffs
Complaint alleges sufficient facts to state a plausible claim for relief based on the vicarious
liability of Agency for the conduct of its employees Coronel and Brown.
IV. Conclusion
For the reasons set forth above, Defendants' Motion to Dismiss is denied with
respect to negligence against Coronel (Count I), negligence against Brown (Count II), negligence
20
against the Agency (Count III), and vicarious liability against the Agency (Count IV). An
appropriate Order follows:
~; ~.fou.~
.;
August
.j
2014
Maurice B. Cohill, Jr.
Senior District Court Judge
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