District Court Holds Bad Faith Actions Must Include Factual Allegations
In a recent ruling on a motion to dismiss, the United States District Court for the Western District of Pennsylvania held an insureds bad faith claim against its insurer was legally insufficient where the complaint merely stated a list of accusations without factual support. Palmisano v. State Farm Fire and Casualty Co., No. 12-886 (W.D.Pa. Aug. 20, 2012).
The dispute arose after State Farm Fire and Casualty Company (“State Farm”), relying on a report prepared by a structural engineer, denied coverage under the plaintiffs’ homeowner insurance policy. The report concluded the damage to the plaintiffs’ home resulted from long-term earth movement and the plaintiffs’ policy excluded coverage for losses resulting from earth movement and water damage.
Upon denial of the claim, the plaintiffs filed suit alleging breach of contract and bad faith. On motion to dismiss, the district court decided both claims in favor of State Farm. Under the breach of contract claim, the court held the one-year contractual limitations period in the policy was reasonable and thus, barred the breach of contract claim.
In considering the bad faith allegation, the court assessed the claims based on the pleading standards set forth by the United States Supreme Court in Twombly and Iqbal. See Bell Atlantic Corp v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009). The court noted under these two cases, to sustain a claim for bad faith, the plaintiff must support his allegations with facts which “describe who, what, where, when, and how the alleged bad faith occurred.” The court dismissed all of the plaintiffs’ claims and noted that even if the plaintiffs’ claims were legally sufficient, State Farm could defeat the claim because the insurer had a reasonable basis for its actions in that they relied on a report drafted by an expert to deny the plaintiffs’ claim.
This decision is instructive in that it applies the pleading standard set forth by the United States Supreme Court, which requires that a complaint alleging bad faith must be more than a list of conclusory statements.