Fitzpatrick v State Farm Ins. Companie

Tort Law for Paralegals Chapter 13

Fitzpatrick v State Farm Ins. Companie

Civil Action No. 09-1498 United States District Court, W.D. Pennsylvania Fitzpatrick v. State Farm Insurance Companies Decided May 24, 2010 Civil Action No. 09-1498. Background May 24, 2010 The Fitzpatricks maintained a motor vehicle insurance policy ("the Policy") with State Farm MEMORANDUM OPINION that provided for medical benefits as well as underinsured motorist ("UIM") benefits of AMY HAY, Magistrate Judge $1,000,000 per person, stacked, covering two vehicles. Compl. 19 13-14, 16. In March of 1997 Gregory L. Fitzpatrick ("Fitzpatrick" or and again in March of 1998, while the Policy was "plaintiff") and Nancy L. Fitzpatrick, his wife, in effect, Fitzpatrick was involved in two separate (collectively, "the Fitzpatricks" or "plaintiffs") automobile accidents in which he was seriously bring this action against State Farm Insurance injured. Id. 19 6, 10, 15. Sometime thereafter State Companies and State Farm Mutual Automobile Farm was notified of Fitzpatrick’s underlying Insurance Company (collectively, "State Farm" or liability claims and underinsurance claims on the "defendants") seeking damages revolving around Policy.’ Id. 1 17. Fitzpatrick settled all of the State Farm’s conduct in settling the Fitzpatricks’ underlying liability claims between September of claims for underinsured motorist benefits. In their 2000 and February of 2001.Id. 27. Complaint, filed on October 19, 2009, in the Court of Common Pleas of Allegheny County, 1 Although plaintiffs have alleged in the Pennsylvania, the Fitzpatricks assert four causes Complaint that they notified States Farm of of action: bad faith in violation of 42 Pa. C.S.A. $ their claims on the Policy on January 27, 8371 (Count I); breach of contract (Count II); 1998, that date precedes the date of the breach of fiduciary duty (Count III); and a claim second accident. Compl. 19 10, 18. for violating the Unfair Trade Practice and On October, 26, 2004, counsel for the Fitzpatricks Consumer Protection Law, 73 P.S. $ 201, et seq. notified State Farm’s respective Claims Specialists ("UTPCPL") (Count IV). State Farm timely of the Arbitrator he was naming in the removed the case to this Court based on diversity underinsured motorist claims. Id. 1 31, 32. Over and, on November 13, 2009, promptly filed a the course of the next two years State Farm Motion to Dismiss [Dkt. 3] asking that Counts II, sought, and received, certain documentation and III and IV be dismissed pursuant to Fed.R.Civ.P. information on the claims including Fitzpatrick’s 12(b)(6). Because the Fitzpatricks have failed to medical records; discovery from the underlying state claim with respect to Counts III and IV, the liability cases; Fitzpatrick’s school transcripts; motion will be granted in part. Although their plaintiffs’ expert reports; Fitzpatrick’s tax returns breach of contract *2 claim brought at Count II from 1993 through 1999 and from 2002 through survives, State Farm’s motion is also granted to the 2004; and documentation of the salaries and extent that the Fitzpatricks seek attorney’s fees in bonuses of similarly situated attorney’s at the law relation to the alleged breach. firm where Fitzpatrick had been employed. As casetext Fitzpatrick v. State Farm Insurance Companies Civil Action No. 09-1498 (W.D. Pa. May. 24, 2010) well, State Farm took Fitzpatrick’s Statement conclusions, and a formulaic recitation of the Under Oath, had him undergo a psychiatric elements of a cause of action" do not suffice; evaluation and deposed a managing partner at noting that the complaint "must allege facts Fitzpatrick’s law *3 firm. Id. 11 35-48. suggestive of [the proscribed] conduct;" and On November 14, 2006, the Fitzpatricks made a requiring plaintiff to allege "enough facts to raise a demand of $1,750,000.00 to settle the claims. Id. reasonable expectation that discovery will reveal 49. After several months of negotiations and evidence of the necessary element[s] of his claim") counter-offers, the Fitzparticks agreed to settle their claims for $915,000.00, which was paid by Discussion State Farm on May 25, 2007. Id. 50-57. The A. Breach of Contract Fitzpatricks allege, however, that State Farm failed to fairly, objectively or diligently evaluate State Farm first argues that the Fitzpatricks are and settle their claims and by failing to act in good unable to succeed on a claim for breach of faith by, amongst other things, prolonging the contract because it has already tendered the process and making offers substantially less than proceeds of the Policy to them. the full value of their claims. A plaintiff asserting a breach of contract claim Standard of Review under Pennsylvania law must establish three elements: (1) the existence of a contract; (2) a In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 breach of a duty imposed by the contract; and (3) (2007), the United States Supreme Court held that resultant damages. Pennsy Supply, Inc. v. a complaint is properly dismissed under American Ash Recycling Corp., 895 A.2d 595, Fed.R.Civ.P. 12(b)(6) where it does not allege 600 (Pa. Super. 2006). Generally, a breach of "enough facts to state a claim to relief that is contract claim cannot be sustained where the plausible on its face." Id. at 570. In assessing the proceeds of the policy have been paid since, if the sufficiency of the complaint, the Court must plaintiff has received everything due under the accept as true all allegations in the complaint and policy, there are no damages. Amitia all reasonable factual inferences must be viewed Nationwide Mut. Ins. Co., 2009 WL 111578 at *3 in the light most favorable to the plaintiff. Odd v. (M.D. Pa. Jan. 15, 2009). Malone, 538 F.3d 202, 205 (3d Cir. 2008). The Court, however, need not accept inferences drawn The Restatement (Second) of Contracts $ 205, by the plaintiff if they are unsupported by the facts however, provides that "[every contract imposes as set forth in the complaint. See California Public on each party a duty of good faith and fair dealing Employees’ Retirement System v. The Chubb in its performance and its enforcement." Although Corp., 394 F.3d 126, 143 (3d Cir. 2004), citing the Pennsylvania Supreme Court has not formally

puny—,1 4,. l,4u .2″, . Morse v. Lower Merion School District 132 F.3d 902, 906 (3d Cir. 1997). Nor must the Court accept legal conclusions set forth as factual .4 ‘4″ ‘4… -uuwh u ….. 5 adopted the Restatement in this regard, it has nevertheless suggested that parties to a contract have a duty to act in good faith and that their constitutes a breach of failure to do so allegations; rather, "[f]actual allegations must be contractBirth Center v. St. Paul Companies, Inc, 567 Pa. 386. 399, 787 A.2d 376, 385 {2001), guotingfliy v. Nationwide Mut. Ins. Co., 422 Pa. 500, 508, 223 A.2d 8, l] (1966) ("Breach of [the] obligation *5 [to act in good faith] constitutes a breach of the insurance contract for which an enough to raise a right to relief above the speculative level." Bell Atlantic Twombly_, 550 US. at 555, Mgflpasan v. m, 478 11.8. 265, 286 (1986). See Phillipfl County of Alleglfly 515 F.3d 224, 231 {3d Cir. 5 4 2008) (Finding that, under *4 Twombly, “labels, Corp. v. action in assumpsit will lie"). See Ash v. Cont’l {CZ/fl casetext Fitzpatrick v. State Farm Insurance Companies Civil Action No. 09-1498 (W.D. Pa. May. 24. 2010) Ins. Co., 593 Pa. 523, 533 n. 2, 932 A.2d 877, 833 n. 2 (2007) (Recognizing that the Superior Court and some members of the Supreme Court have in some cases suggested that the Restatement has been adopted in Pennsylvania). See also Zalogfl Provident Life and Accidental Ins. Co, 671 F. Supp. 2d 623, 629-30 (MD. Pa. 2009) (Predicting that "the Supreme Court of Pennsylvania would adopt § 205 — and impart a contractual obligation of good faith and fair dealing to all contracts — if it were squarely presented with the issue"). Moreover, the Pennsylvania Supreme Court has found that even where payment has been made to an insured under an insurance policy, he or she may nevertheless have a cause of action for breach of contract against the insurer where he or she has suffered other damages because of the insurer’s bad faith conduct in handling the claim. [n m Center v. St. Paul Companfi,fl, 567 Pa. 386, 787 A.2d 376, for instance, the insurance company refused to make a good faith effort to settle a case brought against its insured despite offers by the plaintiffs to settle the case within the policy limits. The case proceeded to trial resulting in a verdict against the insured in excess of those limits. Q, 567 Pa. At 393, 787 A.2d at 381. Although the insurance company ultimately paid the excess verdict, the insured subsequently brought suit against the insurance company bringing claims for, inter alia, breaching its implied covenant of good faith as well as Pennsylvania’s bad faith statute, 42 Pa. C.S.A. § 8371. Li. The insurance company argued, much as State Farm has here, that its payment of the excess verdict precluded the plaintiff’s bad faith claims. The Court, however, re}ected that argument finding that "there is no reason to limit damages to the amount of the verdict where the insured can show that the “(w insurer’s bad faith conduct caused it additional damages." &, 567 Pa. at 400, 787 A.2d at 385. The Court went on to explain that "[w]here . . . the insured can prove that it sustained damages in excess of the verdict, the insurer’s payment of the excess has little to do with the insured’s damages. Accordingly, the insurer’s payment of the excess should not free it from other known or foreseeable damages it has caused its insured to incur."w Amitia v. Nationwide Mut. Ins. Co., 2009 WL 111578, at *3 (Declining to dismiss the plaintiffs breach of contract claim despite the fact that benefits under the insurance contract had been paid where the plaintiff sought compensation for the emotional distress that the delayed payment caused). See also Aquila v. Nationwide Mut. Ins. Q, 2008 WL 5348137, at *5 (ED. Pa. Dec. 15, 2008), ng Cowden v. Aetna Cas. Sur. Co., 339 Pa. 459, 468, 134 A.2d 223, 227 (Pa. 1959) ("This common law obligation [to act in good faith] can be traced back at least as far as 1959, when the Pennsylvania Supreme Court decided in Cowden v. Aetna Casualty Surety Co. that the ‘ greatly preponderant weight of authority in this country’ provided an insured with a cause of action if the insurer’s ‘handling of the claim . . . was done in such a manner as to evidence bad faith on the part of the insurer in the discharge of its contractual duty’"). Here, like in Birth Center, the Fitzpatricks’ breach of contract claim is not based on State Farm’s failure to pay them the proceeds of the Policy nor do they seek the insurance proceeds. Rather, the Fitzpatricks’ claim is premised on State Farm’s contractual duty to act in good faith in handling their claim. They have alleged in the Complaint that State Farm breached that duty in a myriad of ways including unfairly evaluating their claims; being dilatory and failing to effectuate a prompt and equitable settlement of their claims; offering substantially less than the full value of their claims; and delaying payment of the claims. Cornpl. 1H] 62, 72. The *r Fitzpatricks seek interest on the claim or monies they allegedly would have had available to them if State Farm had complied with its duty to act in good faith and promptly settled the claim. Because the Fitzpatricks have alleged damages stemming from State Farm’s

Fitzpatrick v. State Farm Insurance Companies Civil Action No. 09-1498 (W.D. Pa. May. 24, 2010) performance of its duty under the Policy over and and fair dealing does not arise out an insurance above payment of the proceeds, they have contract until an insurer asserts a stated right under properly stated a claim for breach of contract. the policy to handle all claims asserted against the State Farm also argues that even if the insured. "Keefe v. Prudential Prop. and Cas. Ins. Fitzpatricks’ breach of contract claim is not Co., 203 F.3d 218, 227-28 (3d Cir. 2000), citing dismissed in its entirety, they are not entitled to Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 60, 188 A.2d 320, 322 (1963), and Lee R. attorney’s fees for a breach of an insurance Russ Thomas F. Segalia, 3 Couch on Insurance $ contract and that their request for attorney fees in 40.7 (3d ed. 1995). See Ross v. Metro. Life Ins. Count II should therefore be dismissed. The Court Co. 411 F. Supp. 2d 571, 583 (W.D. Pa. 2006), agrees. quoting_Connecticut Indem. Co. v. Markman, As pointed out by State Farm, attorney’s fees are 1993 WL 304056, at $5 (E.D. Pa. Aug. 6, 1993) recoverable under Pennsylvania law only if there ("Under Pennsylvania law, ‘[the mere fact that an is statutory authority, a clear agreement between insurer and an insured enter into an insurance the parties that provides for such an award or contract does not automatically create a fiduciary some other established exception. Knecht, Inc. v. relationship.’ . . . Pennsylvania courts and federal United Pacific Ins. Co., 860 F.2d 74, 80 (3d Cir. courts interpreting Pennsylvania law have found 1988); Snyder v. Snyder, 533 Pa. 203, 212, 620 that insurers assume fiduciary relationships with A.2d 1133, 1138 (1993). Here, the Policy entered their insureds when an insurer asserts a stated right into between the parties does not provide for under a policy to handle all claims against its attorney’s fees and there does not appear to be any insured"). Thus, an insurer assumes a fiduciary statutory authority for the recovery of attorney’s duty toward an insured only when a third party has fees for breach of an insurance contract. Nor have asserted a claim against the insured. See Birth the Fitzpatricks pointed to some other established Center v. St. Paul Ins. Co., 727 A.2d 1144, 1155 exception which would entitled them to attorney’s (Pa. Super. 1999), affd, 567 Pa. 386, 787 A.2d fees. Indeed, the Fitzpatricks have not addressed 376 (2001). State Farm’s argument in this regard at all and, Because the instant case revolves around the thus, have seemingly conceded the issue. Fitzpatricks’ claims for UIM benefits under the Accordingly, they are not entitled to recover such fees at Count II and that portion of their breach of Policy and does not involve claims by a third contract claim is properly dismissed. party, State Farm did not assume a fiduciary duty toward the Fitzpatricks. Since no duty was owed, B. Breach of Fiduciary Duty it follows that State Farm could not have breached hat duty and the Fitzpatricks’ claim for breach of With respect to Count III, State Farm argues that fiduciary duty must fail as a *9 matter of law. See the Fitzpatricks cannot assert a *8 claim for breach Zappile v. Amex Assurance Co., 928 A.2d 251, of fiduciary duty under the facts alleged in the 256 (Pa. Super. 2007) (Rejecting the notion that Complaint as a matter of law. Specifically, State there is some form of heightened duty to a "first Farm argues that, under Pennsylvania law, a life party" claimant as opposed to a third party insurance company only has a fiduciary duty to an adversarial claimant, finding that a UIM claim is insured when a third party has asserted a claim "inherently and unavoidably adversarial" and that against him or her. the duty of an insurer is one of good faith and fair Indeed, the Court of Appeals for the third Circuit dealing); Condio v. Erie Ins. Exchange, 899 A.2d has found that "[under Pennsylvania law, a 1136, 1145 (Pa. Super. 2006) (Noting the fiduciary duty higher than the duty of good faith similarities between UIM claims and third party casetext Fitzpatrick v. State Farm Insurance Companies Civil Action No. 09-1498 (W.D. Pa. May. 24, 2010) claims, the Court held that "when faced with a U- Indeed, the Pennsylvania Supreme Court has held claim, an insurance company’s duty to its insured that in order to recover under the UTPCPL, a is one of good faith and fair dealing. . . . Erie did plaintiff must establish the elements of common not have a heightened duty toward the Estate."). law fraud. See Toy v. Metro. Life Ins. Co., 593 Pa. See also Ross v. Metro. Life Ins. Co., 411 F. 20, 46, 928 A.2d 186, 202 (2007). See also Tran v. Supp.2d at 583 (Dismissing breach of fiduciary Metro. Life Ins. Co., 408 F.3d 130, 140 (3d Cir. claim as duplicative of breach of contract claim 2005) ("[Wje must conclude that every plaintiff based on good faith and fair dealing). asserting a private cause of action under the UTPCPL must demonstrate his/her justifiable C. Violation of the UTPCPL reliance on the misrepresentation or wrongful State Farm also contends that the Fitzpatricks’ conduct"). Under Pennsylvania law, fraud will be claim brought at Count IV under the UTPCPL found where the plaintiff has established: should be dismissed because the UTPCPL only (1) a representation; applies to actions taken in "trade or commerce," which is defined under the statute as "the (2) which is material to the transaction at advertising, offering for sale, sale or distribution hand of any services and any property. . . ." 73 P.S. $ (3) made falsely, with knowledge of its 201-2. Because the Fitzpatricks’ claim revolves falsity or recklessness as to whether it is around State Farm’s nonfeasance or its handling of true or false; their claim, rather than a commercial transaction, State Farm argues it is not actionable under the (4) with the intent of misleading another UTPCPL and is properly dismissed. The into relying on it; Fitzpatricks concede as much but argue that they reliance on the have also alleged in the Complaint that State Farm ) justifiable misrepresentation; and made misrepresentations in selling them the Policy and, thus, have stated a claim under the (6) the resulting injury was proximately UTPCPL. caused by the reliance. Notwithstanding the fact that the Fitzpatricks Youndt v. First Nat’l Bank of Port Allegany, 868 themselves have categorized their case as one A.2d 539, 545 (Pa. Super. 2005). Moreover, under "based on the conduct of the defendants in settling Federal Rule of Civil Procedure 9(b), which states:

10 (go plaintiffs’ claim for underinsured *IU motorist benefits," they have alleged in paragraph 81 of the State misrepresented I”the nature, extent, terms and 82 paragraph Complaint that Farm conditions of the insurance coverage for which Plaintiffs were paying premiums . . . and that it would promptly evaluate and respond to all reasonably underinsured claims made by Plaintif’fs.’l Compl. 1H] 81(a), (b). E Pl. Brief, p. 1. Although these allegations suggest that State Farm made misrepresentations in order to sell the Fitzpatricks the Policy thereby implicating a commercial transaction, they fall short of stating a claim under the UTPCPL. casetext Fitzpatrick v. State Farm Insurance Companies Supp. 1260, 12712 (WD. Pa. 1982); Youndt v. First Nat’l Bank of Port Allegzfly, 868 A.2d at 545, the Court of Appeals for the Third Circuit has interpreted the rule more liberally finding that allegations of "date, place or time’l are not required to satisfy the rule and that "the requirement is satisfied as long as the defendants have been placed on notice "of the precise misconduct with which they are charged.’l Seville Indus. Mach. Corp. v. Southmost Mach. Corp_., 242 F.2d 786, 791 (3d Cir. 1984). See In re Docteroff, 133 F.3d 210, 21? (3d Cir. 199?) ("The purpose of the rule is to allow a defendant to meaningfully respond to the complaint"). The Court of Appeals nevertheless does require that the nature and subject of the alleged misrepresentation be adequately described and that " some measure of substantiation" be included. Seville Indus. Mach. Corp. v. Southmost Mach. C_orp_., 242 F.2d at 7191. See Hartman v. Canada Life Assurance Co., 1988 WL 120743, at 3 (ED. Pa. Nov. 4, 1988) (Finding that under Seville, " [a]lthough date, time and place are not required, at least who said what to whom is"). This, of course, also comports with the United State Supreme I'[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity," claims of fraud are subject to a heightened pleading standard. McCracken v. Ford Motor Co., 588 F. Supp. *ii 2d 635, 644 (ED. Pa. 2008). Although some courts have interpreted this rule as requiring the plaintiff to "at a minimum, state the time, place and content of the false misrepresentation, the fact misrepresented and what was obtained or given up as a consequence of the fraud," Tredennick v. Bone, 647 F. Supp. 2d 495, 500-01 (W.D. Pa. 2007), fl, 323 Fed. Appx. 103 (3d Cir. 2008);DuSesoi v. United Refining Co., 540 F. CiVII Action No. 09-1498 1WD. Pa. May. 24, 2010} Court’s requirement that to survive a motion to dismiss a plaintiff must allege enough facts to raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 11.8. at 555. Here, the F itzpatricks have not alleged any facts to support their claim or provided any measure of substantiation whatsoever. Indeed, they have not i: stated what the alleged *i: misrepresentations were, when they were made or by whom. Nor have they alleged how the alleged misstatement were relied upon or how they proximately caused any harm. As such, the Fitzpatricks have failed to state a claim under the UTPCPL and Count IV of the Complaint is properly dismissed as well. Conclusion For the reasons set forth above, State Farm’s Motion to Dismiss [Dkt. 3] is GRANTED as to Counts 111 and IV, F itzpatricks seek attorney’s fees at Count 11, and DENIED in all other respects. and to the extent the

Case Question:

1. What was the nature of the claim made by Fitzpatricks against State Farm Insurance?

2. Under Pennsylvania law, can an insured have a cause of action against an insurance company when the company has tendered the full amount of the policy?

3. What were some of the actions that the court pointed to as examples of bad faith on the part of State Farm Insurance?

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