June 2010 BAD FAITH CASES NO COMPENSATORY DAMAGES ARE PERMITTED UNDER PENNSYLVANIA’S BAD FAITH STATUTE (Western District)
In Schmitt v. State Farm Insurance Company, the insureds had purchased a policy on their house. There was water damage in the family room, and they contacted the insurer. Representatives arranged for the removal and replacement of the damaged property, and the insurer reimbursed the insureds for the expenses of replacing the property. Soon after, they noticed that the property had additional damage. The insureds asserted that the insurer failed to reimburse them for the further damages, which was a material breach of the insurance policy. They also alleged in their complaint that the insurer acted in bad faith by failing to reasonably interpret the insurance contract, and they requested compensatory damages for the bad faith on the part of the insurer.
The court observed that the plaintiffs relied on 42 Pa.C.S. § 8371 in requesting compensatory damages for bad faith. However, compensatory damages are not allowed under that section, as the statute only authorizes courts to award (1) interest on the insurance claim, (2) punitive damages, (3) court costs, and (4) attorney’s fees.
Only a breach of contract claim can result in an award of compensatory damages, and there is no independent tort cause of action for bad faith. The court stated that the breach of the implied covenant of good faith and fair dealing claim merged with the breach of contract claim, and Magistrate Judge Lenihan recommended that the insurer’s Motion to Dismiss the claim for compensatory damages due to bad faith be granted. There were no subsequent objections to the Report and Recommendation and Judge Cercone of the Western District adopted it by Order dated May 6, 2010 and filed on May 7, 2010.
Date of Decision: April 16, 2010, adopted May 7, 2010.