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An Insurance Company’s Actions Within an Insurance Contract Not Sufficient to Bring Negligence Action for Denial of Benefits

In Moravia Motorcycle, Inc. v. Allstate Ins. Co., 2022 U.S. Dist. LEXIS 83043 (W.D. Pa. May 9, 2022), the United States District Court of the Western District of Pennsylvania dismissed an insured’s negligence claim against its insurer carrier but upheld a bad faith claim for the insurer’s sudden and unexplained denial of benefits for property damage to a motor home after previously accepting the claim causing the insurer further damage.

In April 2020, plaintiffs’ motor home was damaged after a storm caused a tree branch to fall on the motor home’s roof. The damaged roof allowed water to seep into the home. Plaintiffs notified their insurer, who sent an adjuster to evaluate the damage. The adjuster concluded that the damage was covered under plaintiffs’ policy. Allstate, the insurer, then sent a second adjuster without explanation to again inspect the damage. The second adjuster denied the claim. The motor home was not repaired resulting in additional damage including electrical issues, decay of the interior walls and mold growth. As a result of this denial, plaintiffs filed negligence and bad faith claims against Allstate.

Allstate moved pursuant to Rule 12(b)(6) to dismiss plaintiff’s negligence and bad faith claims for failing to state a claim for which relief can be granted. Plaintiffs’ negligence count argued that Allstate misrepresented the status of the policy, failed to fully advise them of the actual terms of coverage, failed to train its agents about the coverage, failed to inform its agents as to the proper manner by which policyholders should be advised about the scope and extent of insurance coverage and failed to inspect the motor home in a workmanlike manner.

Plaintiffs’ bad faith count was based upon Allstate’s alleged conduct in violation of 42 Pa. C.S. § 8371, which is Pennsylvania’s bad faith statute. To prevail on a bad faith claim under 42 Pa. C.S. § 8371, a plaintiff must demonstrate (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim. Nealy v. State Farm Mut. Auto. Ins. Co., 695 A.2d 790, 792 (Pa. Super. 1997).

The District Court granted Allstate’s motion as to the negligence claim but denied the motion as the bad faith claim. Allstate argued that the only relationship between the parties was the insurance contract and, therefore, the parties can only be held to their contractual obligations and not a broader tort standard. Plaintiffs relied on Bruno v. Erie Ins. Co., 106 A.3d 48 (Pa. 2014) in which the Pennsylvania Supreme Court allowed a negligence claim to proceed against an insurance company when its adjuster and engineer found mold in the plaintiff’s basement but advised it was harmless. The plaintiff’s house ultimately became uninhabitable and the court allowed a negligence claim to proceed based on the assurances made by the insurer’s representative that were outside the scope of the contract.

The District Court distinguished Bruno from the present case as Allstate’s adjuster in the present matter did not make any representations regarding the damage. The adjuster merely denied the claim based on the terms of the policy. Plaintiffs did not allege that Allstate took any actions or made any representations outside of the contract to warrant a negligence claim.

The District Court denied Allstate’s bad faith claim despite Allstate’s arguments that plaintiffs failed to plead with specificity, name any of the adjusters personally or plead how the coverage decision was conveyed. The District Court held that plaintiffs sufficiently pled a legally cognizable claim for bad faith under 42 Pa. C.S. § 8371 since plaintiffs alleged that the first adjuster approved the claim but a second adjuster inexplicably denied the claim without explanation causing plaintiffs further damage.

While plaintiffs were ultimately not successful in pursuing a negligence action against Allstate, the District Court did state under which circumstances a negligence claim between parties of contract can proceed. Actions and words by an insurance company’s representatives can open up the insurance company to a negligence claim thereby exposing the company to different and greater damages than those contemplated by the insurance contract.

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