Bad Faith Claims Cannot Be Based Solely On Breach Of Contract And Must Allege More Than Conclusory Allegations
In Merrill v. State Farm Fire and Cas. Co., 2013 WL 588515 (W.D.Pa., Feb 13, 2013), the U.S. District Court for the Western District of Pennsylvania dismissed the insured’s common law bad faith claim because it was based solely on breach of the insurance policy and the insured’s statutory bad faith claim because the conclusory allegations were devoid of any facts and could not survive a motion to dismiss.
State Farm found only minor damage to a pipe in the home and estimated $319.45 for repairs, which was below the homeowners’ $500.00 deductible. The homeowners retained a public adjuster who found damages to be $22,647.00, but their proof of loss did not set forth details and merely stated the origin of the loss was “hail.”
State Farm asserted that the homeowners’ common law claim for breach of the duty of good faith and fair dealing was barred by the gist of the action doctrine. The gist of the action doctrine operates to preclude a plaintiff from re-casting ordinary breach of contract claims into tort claims under Pennsylvania law. The critical distinction between a contract and tort claim is that the contract claim arises out of breaches of duties imposed by the mutual agreement between the contracting parties, while a tort claim arises out of breaches of duties imposed by law as a matter of social policy. To assert a valid common law claim for bad faith in Pennsylvania, a plaintiff must demonstrate that the contract is collateral to the wrongful conduct.
The homeowners’ common law bad faith claim was based solely on State Farm’s refusal to pay for the repairs under the insurance policy. The insurance contract, therefore, was not collateral and the court held that the common law bad faith claim failed as a matter of law. Id. at *4.
The court also held that the homeowners’ complaint consisted entirely of “conclusory phrases and boilerplate language, which are insufficient for a showing of [statutory] bad faith.” The insured must show that the insurer “did not have a reasonable basis for denying benefits under the policy and that the defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.” Id. at *5 (citation omitted). The court also noted that “[t]he insurer’s conduct does not need to be fraudulent, but ‘mere negligence or bad judgment’ is insufficient to establish bad faith. The insured ‘must ultimately show that the insurer breached its duty of good faith through some motive of self-interest or ill will.’” Id. (citations omitted). Since the complaint only included conclusory allegations and bare bone insinuations, the court ruled that the complaint was devoid of facts sufficient to make a plausible statutory bad faith claim under the Pennsylvania law.