GOLON, INC. v. SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST et al

Filing 27

MEMORANDUM ORDER GRANTING IN PART AND DENYING IN PART 9 Defendants' Partial Motion to Dismiss. Plaintiff's Breach of Fiduciary Duty claim (Count II) is DISMISSED WITH PREJUDICE. Plaintiff's Breach of Contract claim (Count I) against Defendant Selective Insurance of America is DISMISSED WITH PREJUDICE. Defendant Selective Insurance of America's Motion to Dismiss Plaintiff's Bad Faith claim (Count III) is DENIED. Signed by Judge Arthur J. Schwab on 7/20/2017. (eet)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
GOLON, INC. FORMERLY KNOWN AS,
GOLON MASONRY RESTORATION, INC.,
Plaintiff,

17cv0819
ELECTRONICALLY FILED

v.
SELECTIVE INSURANCE COMPANY OF
THE SOUTHEAST and SELECTIVE
INSURANCE COMPANY OF AMERICA,
Defendants.
MEMORANDUM ORDER RE: DEFENDANTS’ RULE 12(b)(6)
PARTIAL MOTION TO DISMISS PLAINTIFF’S COMPLAINT (DOC. NO. 9)

On May 1, 2012, an employee of Plaintiff Golon, Inc., f/k/a Golon Masonry Restoration,
Inc. (“Golon” or “Plaintiff”), was involved in a motor vehicle accident while driving a vehicle
owned by Golon that resulted in injuries to Thomas Straw, his wife, Jennifer, and their son,
Rowan, and in the death of the Straw’s six-year-old son, Elijah. Doc. No. 1-1. Thereafter, the
Straw family filed suit seeking compensation for personal injuries against Golon and its
employee in the Court of Common Pleas of Allegheny County, Docket No. GD-3-3294 (the
“Underlying Action”). Id.
Golon gave notice of the Underlying Action to its insurer, Defendant Selective Insurance
Company of the Southeast (“Selective Southeast”). Doc. No. 1-1. Selective Southeast then
assumed the defense of the Underlying Action on behalf of Golon. Id. Selective Southeast
informed Plaintiff that the potential award in the Underlying Action could exceed the $11
Million policy limits of coverage. Id.

The Underlying Action resulted in a $32 Million verdict in favor of the Straw family
against Golon. Id. Prior to trial, Golon alleges that Selective Southeast and Defendant Selective
Insurance Company of America (“Selective America”) employed a “bad-faith, high-risk,
brinksmanship negotiation strategy,” over the objections of Golon, that resulted in a failure to
settle the Underlying Action, within the policy limits during a mediation, or for $8.5 Million on
the eve of trial, despite the recommendation of the trial judge.
Golon alleges three claims against Defendants Selective Southeast and Selective
America: first, that the Defendants breached the terms of the policy and the “duty to act
reasonably and in good faith when considering whether to pay a third party in settlement of the
third party’s claim[,]” (“Count I”); second, that Defendants breached their duty as fiduciaries of
“undivided loyalty and fidelity, not to engage in self-dealing, not to prefer [their] interest[s] over
Golan’s, and to act reasonably, in good faith, and with due care when making settlement
decisions[,] (“Count II”); and third, that Defendants acted in bad faith by failing to settle the
Underlying Action within the policy limits, rejecting the Straw family’s final settlement demand
(which was within the policy limits), and otherwise lacking a reasonable basis for refusing to
settle the Underlying Action within the policy limits, (“Count III”). Doc. No. 1-1.
Defendants have moved to partially dismiss Golan’s Complaint. Doc. No. 9. Defendants
moved to dismiss Count II, the breach of fiduciary duty claim, as barred by the “gist of the
action” doctrine. Id. Additionally, Selective America moved to dismiss all claims against it
because it is not the entity that issued the insurance policy to Golan and is therefore not a party to
the contract. Id.

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I.

Legal Standards

Federal Rule of Civil Procedure 12(b)(6), provides for dismissal for “failure to state a
claim upon which relief can be granted.” Detailed factual pleading is not required – Rule 8(a)(2)
calls for a “short and plain statement of the claim showing that the pleader is entitled to relief” –
but a Complaint must set forth sufficient factual allegations that, taken as true, set forth a
plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The plausibility standard does not require a showing of probability that a claim has merit,
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007), but it does require that a pleading
show “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at
678. Determining the plausibility of an alleged claim is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id. at 679. The Court
must consider the specific nature of the claims presented and determine whether the facts pled to
substantiate the claims are sufficient to show a “plausible claim for relief.” Covington v. Int’l
Ass’n of Approved Basketball Officials, 710 F.3d 114, 118 (3d Cir. 2013); see also Santiago v.
Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010).
In addition to the averments in a complaint, the Court may consider “an undisputedly
authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff’s
claims are based on the document.” Pension Benefit Guar. Corp. v. White Consolidated Indus.,
998 F.2d 1192, 1196 (3d Cir. 1993). Further, the Court may also consider a document “integral
to or explicitly relied upon in the complaint” without converting the motion to dismiss into one
for summary judgment. U.S. Express Lines v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002).
Accordingly, the Court has considered the insurance policy between Golon and Selective
Southeast appended to Defendants’ brief.

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A federal court exercising diversity jurisdiction is bound by the Erie doctrine to follow
state law as announced by the highest state court. Wayne Moving & Storage of New Jersey, Inc.
v. School Dist. of Philadelphia, 625 F.3d 148, 154 (3d Cir. 2010). If the state’s highest court has
not addressed the precise question presented, the federal court must predict how the state’s
highest court would resolve the issue. Id.
II.

Discussion

Golon urges this Court to find that, “under Pennsylvania law, a policyholder may sue an
insurance company for breach of its fiduciary duty to settle within policy limits, and at the same
time sue for breach of contract, without violating the gist of the action doctrine.” Doc. No. 20, p.
4. Golon follows this argument further in a footnote, stating “[i]t is questionable whether the gist
of the action doctrine can ever bar tort claims against insurance companies if the words “mutual
consensus” in Bohler-Uddeholm were read according to their ordinary meaning, because the
terms of insurance policies are rarely the result of bargaining. Doc. No. 20, FN 1 (emphasis in
original).
In Bohler-Uddeholm, the United States Court of Appeals for the Third Circuit considered
whether it was proper for a district court to allow the plaintiff to proceed to trial on breach of
contract and breach of fiduciary duty claims in a “complicated commercial case” that “emerge[d]
from the disintegration of a joint venture” and also included misappropriation of trade secrets
and civil conspiracy claims. Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., 247 F.3d
79 (3d Cir. 2001).
The Court of Appeals applied Pennsylvania’s “gist of the action” test and found that the
plaintiff’s breach of fiduciary duty claim was related to separate conduct beyond the breach of
contract claim in the action, and was based upon the fiduciary duty imposed on joint venturers

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under Pennsylvania law “to act toward one’s joint venturer in the utmost good faith and with
scrupulous honesty[.]” Id. at 104-05 (internal citations omitted). However, the Court of Appeals
found that the plaintiffs’ misappropriation of trade secrets claim was defined by the contract and
interwoven with the breach of contract claim and therefore barred by the gist of the action
doctrine. Id. at 106.
More than ten years after the Court of Appeals decision in Bohler-Uddeholm, the
Pennsylvania Supreme Court reviewed the precedent on the “gist of the action” doctrine and
reaffirmed the standard by which to determine whether or not a plaintiff’s claim is “truly one in
tort, or for breach of contract.” Bruno v. Erie Ins. Co., 106 A.3d 48 (Pa. 2014). The
Pennsylvania Supreme Court summarized the test as follows:
The general governing principle which can be derived from our
prior cases is that our Court has consistently regarded the nature of
the duty alleged to have been breached, as established by the
underlying averments supporting the claim in a plaintiff’s
complaint, to be the critical determinative factor in determining
whether the claim is truly one in tort, or for breach of contract. In
this regard, the substance of the allegations comprising a claim in a
plaintiff’s complaint are of paramount importance, and, thus, the
mere labeling by the plaintiff of a claim as being in tort, e.g., for
negligence, is not controlling. If the facts of a particular claim
establish that the duty breached is one created by the parties by the
terms of their contract—i.e., a specific promise to do something
that a party would not ordinarily be obligated to do but for the
existence of the contract—then the claim is to be viewed as one for
breach of contract. If, however, the facts establish that the claim
involved the defendant’s violation of a broader social duty owed to
all individuals, which is imposed by the law of torts and, hence,
exists regardless of the contract, then it must be regarded as a tort.
Bruno, 106 A.3d at 111-112 (internal citations omitted).1

Cf. Ash v. Cont’l Ins. Co., 932 A.2d 877, 885 (Pa. 2007) (holding that bad faith action against insurer pursuant to
42 Pa. C.S.A. § 8371 is for breach of a duty “imposed by law as a matter of social policy, rather than one imposed
by mutual consensus[.]”). Selective Southeast has not moved to dismiss Golon’s statutory bad faith claim (Count
III). Doc. No. 9.
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Here, the duty owed to Golon was created by the insurance contract. Golon alleged in the
Complaint that “Defendants breached their fiduciary duty to Golon by acting or failing to act as
set forth in the preceding paragraphs of the Complaint” which refer to the paragraphs set forth to
establish Golon’s breach of contract claim against Defendants. Doc. No. 1-1.
Contrary to Golon’s argument questioning “whether the gist of the action doctrine can
ever bar tort claims against insurance companies[,]” doc. no. 20, FN 1, Defendants cite numerous
cases from the District Courts of Pennsylvania, applying Pennsylvania law, that have found
fiduciary duty claims against insurance companies to be barred by the gist of the action doctrine.
See Doc. No. 26, pp. 4-5 (collecting cases). Accordingly, Golon’s breach of fiduciary duty
claim, Count II of the Complaint, will be DISMISSED as barred by the gist of the action
doctrine.
Turning to Selective America’s motion to dismiss all claims against it because it is not
the entity that issued the insurance policy to Golan, Golon does not dispute that the breach of
contract claim against Selective America cannot stand, and therefore, Count I against Selective
America is DISMISSED.
However, to determine whether an entity is an “insurer” that may be liable under the bad
faith statute, Pennsylvania courts examine both the policy documents and “the actions of the
company involved” with significant focus on the company’s actions. Brown v. Progressive Ins.
Co., 860 A.2d 493 (Pa. Super. Ct. 2004). Golon has pled adequate factual allegations to show
that Selective America may have been the entity responsible for handling its claim under the
policy and the negotiations in the Underlying Action at issue. Doc. No. 1-1, ¶¶ 27 and 31.
Accordingly, it would be premature for the Court to dismiss Selective America at this stage of
the proceedings and Selective America’s Motion to Dismiss Count III will be DENIED.

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III.

Conclusion

For the reasons set forth, Defendant’s Motion to Dismiss is GRANTED IN PART AND
DENIED IN PART. Plaintiff’s Breach of Fiduciary Duty claim (Count II) is DISMISSED
WITH PREJUDICE. Plaintiff’s Breach of Contract claim (Count I) against Defendant Selective
Insurance of America is DISMISSED WITH PREJUDICE. Defendant Selective Insurance of
America’s Motion to Dismiss Plaintiff’s Bad Faith claim (Count III) is DENIED.
SO ORDERED, this 20th day of July, 2017
/s Arthur J. Schwab______
Arthur J. Schwab
United States District Judge

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