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The insurer denied coverage as a result of water damage to the insured’s real estate business and personal property.  The insured was the owner of a real estate business. The insured purchased a commercial insurance policy from the insurer covering this real estate business. The insured paid all premiums and performed all requirements under the insurance policy. During the policy period, the pipes in the insured’s business building froze causing water damage to the building and to the insured’s personal property. In addition, the insured suffered a loss from the interruption of his business.

The insured notified the insurer of his claim.  The insurer initiated an investigation and inspection of the insured’s real estate and personal property.  The insurer then denied coverage for the insured’s loss.

The insured filed a two-count complaint against the insurer for breach of contract and bad faith. The insurer removed the case to the United States District Court for the Eastern District of Pennsylvania.  The insurer filed a motion to dismiss the action.  With regard to the bad faith claim, the insurer argued that the insured did not sufficiently state a claim for bad faith pursuant to the statute.

The insured argued that the complaint stated a viable bad faith claim under the federal notice pleading requirements.  The insured alleged that he did not need to support the claim with extensive facts because the complaint sufficiently placed the insurer on notice of their bad faith claim.

In federal court, state pleading requirements do not apply. In federal court, a plaintiff states a sufficient claim if the complaint avers basic facts regarding the insurance policy, loss, denial of claim as well as allegations that the insurer acted unreasonably. Unlike the Pennsylvania fact pleading standard, plaintiffs are not required to state facts in sufficient detail to prove the claim in their complaint under the Federal Rules of Civil Procedure.  However, the court found that even under the federal rules less stringent notice pleading requirement, the insured had not sufficiently alleged facts to establish a claim of bad faith.

The Court applied the newer standard enunciated by the Supreme Court in Bell Atlantic Corp. v. Twombly. Thus, a Complaint will be reviewed for whether it “contain[s] either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory.”

The insured had not made any allegations that the insurer’s investigation was unreasonable, that the denial of the claim was unreasonable, or that the insurer lacked a sufficient basis for denying the claim.  Therefore the court dismissed the insured’s bad faith claim without prejudice in order to allow the insured to file an amended complaint more specifically pleading the bad faith claim.

The Court agreed that an alleged violation of the Unfair Insurance Practices Act (UIPA), by itself, does not create a private right of action or set out a statutory bad faith claim.

Date of Decision: September 30, 2008

Atiyeh v. Nat’l Fire Ins. Co., Civil Action No. 07-cv-04798, 2008 U.S. Dist. LEXIS 76770 (E.D. Pa. Sept. 30, 2008) ( Gardner, J.)