Gramberg v. Nationwide Mutual Insurance Company, 3:CV-98-0258 (M.D. Pa. 2000)

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JENNIFER D. GRAMBERG, Plaintiff v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.

3:CV-98-0258.

United States District Court, M.D. Pennsylvania.

February __, 2000.

MEMORANDUM

THOMAS I. VANASKIE, Chief District Judge.

Plaintiff Jennifer Davis Gramberg brought this action against defendant Nationwide Mutual Insurance Company under the Pennsylvania "bad faith" statute, 42 Pa. C.S. § 8371, claiming that Nationwide failed to exercise due diligence and good faith in connection with her tort claim against the driver of her vehicle. Now pending is Nationwide's motion to dismiss Gramberg's amended complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Although Gramberg was the named insured under the policy, Gramberg was a third-party tort claimant in the context of her negligence action against the person who was driving her car when she was injured. The claim she was pursuing did not arise under an insurance policy, the essential predicate for application of the Pennsylvania bad faith statute; instead it arose under Pennsylvania common law. Moreover, Nationwide did not undertake to act as Gramberg's legal advisor and did not otherwise act in a manner as to give rise to a fiduciary-like relationship with Gramberg. Under these circumstances, Gramberg cannot maintain a claim against Nationwide under 42 Pa. C.S. § 8371 for the manner in which it handled Grambeg's tort claim against the driver of her car. Accordingly, defendant's motion to dismiss (Dkt. Entry 19) will be granted.

BACKGROUND

Prior to October 9, 1995, Gramberg purchased an automobile insurance policy from Nationwide. (Amended Complaint, Dkt. Entry 18, at ¶ 6.) On October 9, 1995, Gramberg was injured as a result of an automobile accident involving her covered vehicle. (Id. at ¶ 10.) At the time of the accident, the automobile was being operated by Jonathan Salsman, Gramberg's boyfriend; Gramberg was a passenger in the vehicle. (Id. at ¶ 10-11.) By virtue of his status as a permissive user of Gramberg's vehicle, Salsman was covered by the liability coverage offered under the Nationwide policy issued to Gramberg.

Gramberg timely notified Nationwide of the accident and of her claim against Salsman for injuries she had suffered in the mishap. Gramberg claims that Nationwide misled her into believing that Nationwide was "investigating her claim so that the appropriate payment would be made to her for her injuries." (Amended Complaint at ¶ 27.) Instead of making "appropriate payment," however, Nationwide made what Gramberg characterizes as a "totally inadequate" settlement offer on the day the statute of limitations was to expire and "discouraged [her] from retaining counsel by making her the inadequate offer of compromise and telling her that going to Court could be ugly." (Id. at ¶¶ 30-31.)

Gramberg, however, was not dissuaded by Nationwide, and did timely commence an action against Salsman. In the negligence action, Gramberg was represented by private counsel. In accordance with the terms of Gramberg's insurance policy, Nationwide tendered a defense to Salsman and provided him with liability coverage. Gramberg filed this action for bad faith against Nationwide on February 17, 1998, while her third-party tort claim was still pending. (Dkt. Entry 1.) Nationwide moved to dismiss, or in the alternative, for a more specific complaint. The action before this Court was stayed pending resolution of the negligence lawsuit. In December 1998, Nationwide settled Gramberg's claim against Salsman for $40,000. (Exh. "D" to Def.'s Motion to Dismiss, Dkt. Entry 19.) Plaintiff filed an amended complaint on February 10, 1999. Nationwide's Motion to Dismiss the Amended Complaint was filed on March 24, 1999. The motion has been fully briefed and this matter is ripe for disposition.

DISCUSSION

In deciding a motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must draw all reasonable inferences from the facts pled in the complaint and construe them in the light most favorable to the claimant.¹ Unger v. National Residents Matching Program, 928 F.2d 1392, 1400 (3d Cir. 1991). The court, however, need not accept as true "conclusory allegations of law, unsupported conclusions, and unwarranted inferences." Pennsylvania House, Inc. v. Barrett, 760 F. Supp. 439, 449-50 (M.D. Pa. 1991). The Rule 12(b)(6) movant carries the burden of showing the legal insufficiency of the claims asserted. Johnsrud v. Carter, 620 F.2d 29, 33 (3d Cir. 1980). Such a motion will be granted only if "it appears beyond a doubt that the plaintiff can prove no set of facts in support of his [or her] claim which would entitle him [or her] to relief." Graves v. Lowery, 117 F.3d 723, 726 (3d Cir. 1997); Pennsylvania House, 760 F. Supp. at 449-450.

Plaintiff`s claims for bad faith under 42 Pa. C.S. § 8371 relate to Nationwide's investigation and handling of Gramberg's negligence claim against Salsman. Gramberg contends that Nationwide failed to fully disclose policy benefits, failed to disclose its adverse interest, failed to properly investigate plaintiff's claim and failed to pay Gramberg the damages to which she was entitled.² Plaintiff contends that, as the named insured under the policy, she has a right to maintain an action against Nationwide under Pennsylvania's "bad faith" statute.

Section 8371 of title 42 Pa. C.S. provides:

Actions on insurance policies

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith towards 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 plus 3%.

(2) award punitive damages against the insurer

(3) assess court costs and attorney fees against the insurer. [emphasis added]

A claim under section 8371 is a separate and distinct cause of action. See Lombardo v. State Farm Mutual Auto. Ins. Co., 800 F. Supp. 208, 213 (E.D. Pa. 1992); Romano v. Nationwide Mutual Fire Ins. Co., 435 Pa. Super. 545, 646 A.2d 1228, 1231 (1994); March v. Paradise Mutual Ins. Co., 435 Pa. Super. 597, 646 A.2d 1254, 1256 (1994). Although "bad faith" is not defined in the statute, courts have interpreted the term "bad faith" to be:

any frivolous or unfounded refusal to pay proceeds of policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e. good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.

Klinger v. State Farm Mutual Auto. Ins. Co., 895 F. Supp. 709, 713 (M.D. Pa. 1995), aff'd, 115 F.3d 230 (3d Cir. 1997)(citing Black's Law Dictionary 139 (6^th ed. 1990)); Adamski v. Allstate Ins. Co., 738 A.2d 1033 (Pa. Super. 1999). A plaintiff must show by clear and convincing evidence (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis. New Concept Beauty Academy Inc. v. Nationwide Mutual Ins. Co., No. Civ. A. 97-5406, 1997 WL 746203, at *3 (E.D. Pa. Dec. 1, 1997) (citing Klinger v. State Farm Mutual Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997)). The courts have also extended actions for bad faith to encompass an insurer's investigative practices, see O'Donnell v. Allstate Ins. Co., 734 A.2d 901, 906 (Pa. Super. 1999), and violations of the Unfair Insurance Practices Act (UIPA), 40 P.S. § 1171.1 et seq. Id.; Romano, 646 A.2d at 1233.

However, under Pennsylvania law, an insurer's duty to negotiate a settlement in good faith does not extend to third-party claimants. See Badet v. State Farm Mutual Automobile Insurance Co., Civ. A. No. 96-3938, 1998 WL 79911, at *2 (E.D. Pa. Feb. 24, 1998); Strutz v. State Farm Mutual Ins. Co., 415 Pa. Super. 371, 609 A.2d 569, 571 (1992)("the duty to negotiate a settlement in good faith arises from the insurance policy and is owed to the insured, not to a third-party claimant"). Thus, bad faith liability under § 8371 is limited to claims for first-party benefits, i.e., benefits payable to the named insured as a consequence of his or her status as a named insured. No court has held that a third-party claimant may bring an action against an insurer under § 8371 for its handling of third-party claims.

This fact is unsurprising given that the statute is limited to "an action arising under an insurance policy." A third-party's tort claim does not arise under an insurance policy; it arises under common law. It is the tortfeasor to whom the insurer owes a contractual duty to defend and to indemnify against any judgment. The claimant generally has no right to make a claim directly against the insurer, and the insurer's liability is that of an indemnitor. By limiting the bad faith cause of action to claims "arising under an insurance policy," the General Assembly plainly restricted the class of claimants to those persons who had a contractual right to benefits from the insurer with respect to the particular claim presented. Gramberg, in her capacity as a tort claimant, does not fall within this class of persons who may maintain an action under § 8371.

Consistent with this conclusion, the Honorable Raymond J. Broderick held in Seasor v. Liberty Mutual Ins. Co., 941 F. Supp. 488 (E.D. Pa. 1996), aff'd mem., 116 F.3d 469 (3d Cir. 1997), that passengers of an automobile who were "insureds" for first-party benefits could not maintain an action under § 8371 for the insurance company's conduct in relation to their claims against the driver of the vehicle in which they were passengers. Judge Broderick explained:

Liberty Mutual was not and is not being asked to defend a liability action against any of the passengers. As passengers injured in the accident, Plaintiffs were entitled to...