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In Smith v. State Farm Mutual Automobile Insurance Company, an insured driver sued her carrier for not adequately paying under her policy’s underinsured motorist provision (“UIM”). The suit alleged bad faith, violations of Pennsylvania’s consumer protection law and breach of contract. The carrier moved to dismiss all claims, except for the contract claim relating to amounts unpaid up to the policy’s coverage limit.

The action arose from a car accident that occurred in 2010, where an underinsured driver struck the insured while she was stopped at a red light. The driver was insured up to $15,000, but the insured’s losses exceeded that amount. The driver’s carrier tendered $15,000 to the insured, who subsequently requested UIM benefits, under her own insurance policy, in the amount of $26,474 to satisfy her policy’s $45,000 UIM limits.

The carrier’s agent requested a series of records from the insured, who complied. The agent then offered $21,000 to settle the UIM claim, which the insured rejected because of $28,000 in outstanding medical bills. The agent claimed he was willing to negotiate, but that his authority to settle was capped at $21,000. After a series of additional medical exams and continued denials from her carrier to tender the limits of her policy, she sued in the Philadelphia County Court of Common Pleas. The carrier removed to federal court and moved to dismiss the complaint.

First, the court addressed the insured’s bad faith claim, dismissing the allegation as unsupported by factual averments. The record clearly showed that the carrier actively solicited negotiations, sought the insured’s medical records, and offered a settlement of nearly three quarters of the policy limit. The court reasoned that the insured’s claim that the carrier engaged in an “intentional strategy of making low-ball offers” was conclusory and unsupported.

Second, the court dismissed the insured’s consumer protection claim, reasoning that the insured had failed to show that she justifiably relied upon wrongful conduct by the carrier. The insured was unable to even identify any misrepresentations upon which she could have relied, warranting dismissal of the claim.

The insured also alleged that the carrier engaged in fraudulent and deceptive conduct, refusing to pay the full amount of her UIM claim. However, the court reasoned that this was a mere conclusory allegation, unsupported by facts in the insured’s complaint. Relying on Third Circuit precedent, the court noted that there is a difference between “nonfeasance” and “malfeasance,” which is the improper performance of a contract and not actionable. As such, the court dismissed the insured’s claim of fraudulent conduct.

Third, the insured argued that the carrier was unjustly enriched at her expense. However, the court reasoned, unjust enrichment is not actionable where a contract exists between the parties. The court dismissed this portion of the insured’s complaint as well.

Lastly, the court addressed the insured’s claim for compensatory, incidental, consequential, and punitive damages for breach of contract. The court reasoned that the only available remedy is expectation damages in the amount of $24,000, which is insufficient to confer jurisdiction. As such, the court withheld judgment and remanded the case back to state court.

Date of Decision: February 16, 2012

Smith v. State Farm. Mutual Automobile Insurance Company, NO. 11-7589, 2012 U.S. Dist. LEXIS 19373 (E.D. Pa. Feb 16, 2012) (McLaughlin, J.)