PENNSYLVANIA SUPREME COURT ISSUES OPINION ON GIST OF THE ACTION DOCTRINE

In Bruno v. Erie Insurance Company, the Supreme Court affirmed the existence of the “gist of the action” doctrine. Rather than viewing this as a recent theory, initiated with the Superior Court’s 1992 Bash v. Bell Telephone Company of PA decision, the Supreme Court concluded that the gist of the action doctrine had been part of its jurisprudence since 1830.

The basic formulation is that the nature of the duty alleged to have been breached is the critical factor in determining if the case is deemed a breach of contract action or a tort action.  The courts should look at the substance of a party’s allegations, and not labels affixed to pleadings, in making that determination.  To the extent that the Superior Court added an intertwining rule, i.e., if the two claims are intertwined the doctrine applies, there is no separate intertwining rule, but only the basic rule, which is:

In Bruno, an insurance contract created an obligation to make certain payments and carry out certain investigations if mold were present. The insurer sent out an adjuster and engineer to investigate the mold at the Brunos’ home. They are alleged to have gratuitously, and negligently, informed the homeowners that the mold was not a danger, that the homeowners could continue living in the home, and could continue carrying out their home renovations.  The homeowners alleged that through their subsequent efforts, they learned the mold was dangerous, the home had to be destroyed because they had not ceased renovations, and the mother of the family developed cancer from the exposure to the mold; the family also having to evacuate the home.  The Superior Court applied the gist of the action doctrine to bar the claim in negligence.

The Supreme Court reversed the Superior Court, and found that simply because the adjuster and engineer were present because of a contractual obligation, this did not mean that every action taken thereafter was based on a contractual relationship. Rather, in this instance, the duty breached by choosing to give this gratuitous advice, which was not required by the contract, was the breach of a social duty and a claim in negligence could be pleaded.  (Compare a recent federal district court case where the court upheld a bad faith claim by an insured where the adjuster asked the insured to climb up on a roof as part of her investigation, rather than adhering to the insurer’s contractual obligation to hire a contractor for that work, and the insured fell through the roof).

The majority’s language, however, is not always so narrow.  Justice Eakins’ concurrence pointed out a concern that the Majority’s opinion was so broadly written that litigants may attempt to argue that the Court will now allow negligence claims based upon the manner of contract’s performance, in addition to claims for extra-contractual misconduct. He agreed that the Brunos’ allegations were for tortious conduct outside the contract; but that courts should be looking to the unique circumstances of each case.

Without explicitly saying so, it appears Justice Eakins was concerned that the lower courts and federal courts would slip into the idea that poor performance of a contract would be negligent misfeasance, as opposed to an utter failure to perform, nonfeasance, which would be a breach of contract.  This was a test put forward by the Commonwealth Court, and it is not the test that was adopted by the Supreme Court; but through the idea of negligent performance of a contract, it could become the working test as a practical matter.

The Superior Court’s recent decision in Indalex v. National Union Fire Insurance Company is another recent  gist of the action case that will likely be tied to Bruno, in making arguments concerning tort vs. contract conceptual distinctions. The Superior court addressed whether the gist of the action doctrine could be used in insurance coverage litigation; finding it could not in that case, which involved an underlying products liability claim against the manufacturer of an off-the-shelf product used by contractors in their construction work. The Supreme Court denied the petition for allowance of appeal.

Subsequent cases following Indalex agree that the gist of the action doctrine, as such, should not be used in an insurance coverage case; however, the coverage dispute court is still bound by the principles “that courts must focus on the substance of the [underlying] Complaint rather than any particular language,” look to the specific facts alleged, and that “Pennsylvania courts have … specifically counseled that faulty workmanship does not constitute an occurrence even if … it is cast as a negligence claim.” State Farm Fire & Cas. Co. v. McDermott, CIVIL ACTION NO. 11-5508, 2014 U.S. Dist. LEXIS 147702 (E.D. Pa. Oct. 15, 2014) (Tucker, C.J.).  Thus, while the gist of the action doctrine may not be available to a coverage court to dismiss an underlying plaintiff’s tort claim, the basic principle about discerning the nature of a claim remains available to a coverage court, so that it may prevent the use of artful pleading to invoke a duty to defend or indemnify where not warranted.

Date of Decision:  December 15, 2014

Bruno v. Erie Insurance Company, No. 25 WAP 2013, 2014 Pa. LEXIS 3319 (Pa. Dec.15, 2014)