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In Dameshek v. Encompass Ins. Co. of Am., the court heard a carrier’s motion for summary judgment. The case stemmed from a fire in the insureds’ home. After the incident, the insureds sought coverage under their policy with the carrier. The policy provided for Additional Living Expenses (“ALE”) to compensate the insureds for living expenses above their normal expenses to repair a covered loss or for relocating elsewhere.

The insureds selected the third party defendant in this case as their general contractor for repairing the fire damage to their home. However, there was a significant delay in obtaining an estimate because the carrier’s representative entered negotiations with the contractor to lower the price of the work. Moreover, the repairs took more than a year to complete.

From April 2009 to July 2009, the insureds lived at one location. Then, from July 2009 to June 2010, the insureds lived in Harrisburg. When their ALE benefits expired in April 2010, prior to the time that their home was complete, the carrier’s representative encouraged the contractor to provide free housing for the insureds. The contractor obliged, but there was a dispute as to how long he agreed to allow the insureds to stay. The insureds were under the impression, as told to them by the carrier’s representative, that they were permitted to live there until the completion of their home.

The insureds filed the instant action in early 2011, alleging the following seven claims against the carrier: (1) breach of contract; (2) bad faith; (3) misrepresentation; (4) negligence; (5) deceit; (6) breach of covenant of good faith and fair dealing; and (7) unfair trade practices. The carrier later impleaded the contractor into the case as a third party defendant, seeking indemnification from the lawsuit brought by the insureds.

Examining the breach of contract count, the court ruled that the carrier had fulfilled its obligation under the contract with the insureds. In fact, the insureds even admitted that the carrier fulfilled its obligations, but alleged that the carrier should have accepted the contractor’s initial estimate instead of entering negotiations. The court disagreed, entering summary judgment for the carrier because the negotiations actually benefitted the insureds, seeking a lower price.

The court also rejected the insureds’ bad faith argument. The insureds claimed that the carrier acted in bad faith by delaying the completion of the repairs and by denying the payment of ALE’s. However the court disagreed, finding that the carrier never denied benefits; rather, the carrier paid the insureds benefits under the policy until they expired in April 2010.

The court also rejected the insureds’ argument that the allegations the carrier negotiated with the contractor to benefit itself and incorrectly stated the duration of the free housing that the contractor would provide, constituted bad faith.

The court granted summary judgment to the carrier on the insureds’ remaining claims, which were largely based upon the dispute between the carrier and the contractor with respect to the length of time that the insureds were able to live for free.

Notably, however, the court held that there is no separate cause of action against an insurer for negligence in Pennsylvania. Such a claim is “rooted in contract” and does not exist in tort because such a claim would be duplicative of the insureds’ breach of contract count.

Therefore, the court granted the carrier’s entire summary judgment motion and disposed of the insureds’ lawsuit in total.

Date of Decision: June 25, 2012

Dameshek v. Encompass Ins. Co. of Am., No. 1:11-cv-18, 2012 U.S. Dist. LEXIS 87570, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. June 25, 2012)