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The insured initiated suit against the insurer stemming from alleged accidental damages to the insured’s building including damages arising from vandalism.  The insured was a corporation whose business operations were covered under a commercial insurance policy issued by the insurer. The policy coverage included various accidental damages, including damages arising from vandalism. The insured filed a claim for water damage to its building.

The insurer investigated and based on the report of an expert, denied the claim.  In response the insured provided additional information to suggest that causes other than normal wear and tear, specifically vandalism, contributed to the water damage.  The insurer did not attempt to investigate these allegations of vandalism.

The insured again approached the insurer and asked what evidence the insurer was relying on to dispute the claim.  According to the insured, the insurer admitted that if the damages in question, were caused by and/or contributed to by vandalism, they would be covered under the policy.  However the insurer still refused to cover the damages.

The insured commenced a multiple count suit in the Court of Common Pleas, Alleghany County. The insurer filed notice for removal to the United States District Court for the Western District of Pennsylvania, which was granted. The insured asserted a bad faith claim in Count II  alleging that the insurer breached its duty to exercise good faith and fair dealing by minimally investigating its claim even after supplemental information was provided about the possibility of vandalism and untimely refused to pay for the loss.

The insurer then filed a motion to dismiss this claim. Count V of the insured’s claim pertains to the Pennsylvania Unfair Insurance Practices Act (UIPA) and Unfair Claims Settlement Practices Regulations.   The insurer argued that the claims should be dismissed because Pennsylvania law does not recognize a separate cause of action for common law bad faith based on a breach of the duty of good faith and fair dealing.

The court agreed with the insurer that should the insured eventually establish that it failed to act in good faith, the bad faith statute provides a basis for the insured to recover and therefore the bad faith claims in Count II are duplicative of those stated in Count V.

The court found that the insured  successfully stated a breach of contract claim alleging that the insurer failed to comply with the terms of the policy first by initially denying the claim, then by refusing to reconsider its decision.

The court also found that the insured successfully stated a statutorily based claim, alleging that the insurer’s actions have resulted in its liability under the bad faith statute. The insured’s claims go beyond simple refusal of coverage but also allege poor investigation and hiding of information by refusing to explain why it did not accept its evidence of vandalism.

These two claims are independent of each other and the insured could possibly succeed on both.  Therefore the court held that since the insured can achieve its goals without separately alleging a tort claim for breach of an implied covenant of good faith and fair dealing, this claim should be dismissed in its entirety with prejudice.  The court therefore granted the insurer’s motion to dismiss with regard to Count II and IV and denied such in all other respects.

Date of Decision: April 2, 2008

Moss Signs Inc. v. State Auto Mutual Insurance Co., 2008 U.S. Dist. LEXIS 26770 (W.D. Pa. April 2, 2008) ( Standish, J.)