MEMORANDUM AND ORDER

WILLIAM H. YOHN, JR., United States District Judge

Berks Mutual Leasing Corp. ("Berks") brings this action against Travelers Indemnity Company of Illinois ("Travelers"), alleging breach of the contractual duty of good faith and fair dealing (Count I) and violation of Pennsylvania's bad faith insurance statute, 42 Pa. Cons. Stat. Ann. § 8371 (Count II). Presently before the court is Travelers' motion to dismiss both counts of the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. For the reasons stated herein, defendant's motion to dismiss Count I will be denied but its motion to dismiss Count II will be granted. BACKGROUND

This action stems from defendant insurer's decision not to renew several commercial insurance policies it had issued to plaintiff. According to plaintiff's amended complaint, the facts are as follows.

Plaintiff, as the insured, entered into three commercial insurance policies with defendant insurer. Amend. Compl. ¶ 4. The policies were for a one-year period and were set to expire on May 1, 2001 unless defendant chose to renew the policies. Amend. Compl., Exh. A ("Commercial Property," "Commercial Automobile,"and "Garage Coverage" insurance policies). During the year, plaintiff alleges that defendant engaged in numerous wrongful actions.

Plaintiff's initial complaint is that defendant wrongfully disputed an automobile claim. Amend. Compl. ¶ 6-9. In April or May 2000, a motor vehicle, owned by plaintiff and insured by defendant, sustained severe damages such that it was found to be beyond repair. Id. at ¶ 6. Plaintiff promptly reported a claim under its policy. Id. at ¶ 6. An independent appraiser, hired by defendant, assessed the value of the claim to be $3,500. Id. at ¶ 7. Defendant offered to pay plaintiff $3,000. Id. at ¶ 8. Plaintiff protested the value and two months later, defendant agreed to pay the full $3,500. Id. at ¶ 9.

Plaintiff's second complaint is that defendant wrongfully issued a credit delinquency report against plaintiff. Soon after the dispute over the automobile claim, defendant informed plaintiff that it wanted to conduct a composite audit of plaintiff's business. Id. at ¶ 10. Although the audit indicated that defendant actually owed plaintiff $730, defendant reported plaintiff as a delinquent payor to the credit reporting agency of Dun Bradstreet Receivable Management Services.Id. at ¶ 11-12. This reporting resulted in an unfavorable credit score for plaintiff and the initiation of collection remedies against plaintiff. Id. at ¶ 13; Amend. Compl., Exh. B (Sept. 11, 2000 letter from Dun Bradstreet Receivable Management Services to plaintiff seeking collection). As soon as plaintiff was notified of the unfavorable credit rating, it contacted defendant in order to make defendant aware of its error. Amend. Compl. ¶ 15. Defendant eventually acknowledged the error both orally and in a letter to plaintiff dated October 13, 2000.Id. at ¶ 16; Amend. Compl., Exh. C (Oct. 13, 2000 letter from Michael Kronander of defendant corporation to plaintiff). Defendant also contacted the collection agency and told it to cease its collection efforts against plaintiff. Id. at ¶ 17; Amend. Compl., Exh. D (Sept. 27, 2000 letter from Danny Garvin of defendant corporation to plaintiff).

Plaintiff's third complaint is that defendant falsely accused it of refusing to submit to a business inspection. According to plaintiff, as a justification for its decision not to renew the insurance policies, defendant stated that plaintiff refused to submit to a business audit. Plaintiff, however, was never informed by defendant of its desire to conduct an inspection. Id. at ¶ 20. Plaintiff also asserts that defendant acknowledged it had never attempted to contact plaintiff about the inspection. Id. at ¶ 21. Furthermore, plaintiff claims that defendant did not contact the inspection service until after it issued its notice of non-renewal to plaintiff. Id. at ¶ 22.

On February 19 and 20, 2001, defendant notified plaintiff, in writing, of its decision not to renew the insurance policies. Id. at ¶ 18; Amend. Comp., Exh. E (Notices of Non-Renewal). The reason given in the notice for the decision not to renew was "material failure to comply with policy terms, provisions or contractual duties." Id. Plaintiff, however, indicates that the unspoken reason underlying defendant's decision not to renew was the unfavorable credit rating and the refusal to submit to a business inspection.

Based on the aforementioned events, plaintiff filed the instant complaint against defendant in the Court of Common Pleas in Berks County, which defendant properly removed to federal court. In this action, plaintiff alleges that defendant breached its contractual duty of good faith and fair dealing and acted in bad faith in violation of 42 Pa. Cons. Stat. § 8371 (West 1998). Presently before the court is defendant's motion to dismiss both of plaintiff's claims pursuant to Rule 12(b)(6).

STANDARD OF REVIEW

In ruling on a motion to dismiss for failure to state a claim upon which relief may be granted, the court must accept as true all well-pleaded allegations of fact in the plaintiff's complaint, and any reasonable inferences that may be drawn therefrom, and must determine whether "under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996) (citations omitted). Claims should be dismissed under Rule 12(b)(6) only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). But a court need not credit a complaint's "bald assertions" or "legal conclusions" when deciding a motion to dismiss. In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1429-30 (3d Cir. 1997) (citations omitted).

DISCUSSION

Defendant argues that the allegations set forth in plaintiff's complaint — i.e., for breach of the contractual duty of good faith and fair dealing and for statutory bad faith — should be dismissed pursuant to Rule 12(b)(6). The court will review each claim separately.

I. Breach of the Implied Covenant of Good Faith and Fair Dealing

In Count I of its amended complaint, plaintiff asserts a claim for breach of the implied covenant of good faith and fair dealing, also known as the contractual duty of good faith. Pennsylvania courts have long recognized that an insurer owes a contractual duty of good faith and fair dealing to its insured. Fedas v. Insurance Co. of State of Pennsylvania, 151 A. 285, 286 (Pa. 1930); see also Dercoli v. Pennsylvania National Mutual Ins. Co., 554 A.2d 906, 909 (Pa. 1989); Gray v. Nationwide Mutual Ins. Co., 223 A.2d 8, 11 (Pa. 1966); Restatement (Second) of Contracts § 205 (1981). An insurance company breaches the covenant of good faith if it fails to investigate claims in a fair and objective manner such that it may deny an insured's claim only if good cause exists.Parasco v. Pacific Indemnity Co., 920 F. Supp. 647, 656 n. 6 (E.D. Pa. 1996) (citing Diamon v. Penn Mutual Fire Ins. Co., 372 A.2d 1218, 1226 (Pa.Super.Ct. 1977)); Romano v. Nationwide Mutual Fire Ins. Co, 646 A.2d 1228, 1231 (Pa.Super.Ct. 1994). It also breaches the covenant if it fails to inform the insured, in certain circumstances, of all benefits and coverage that may be available and of any potential adverse interest pertaining to the insurer's liability under the applicable policy. Miller v. Keystone Ins. Co., 636 A.2d 1109, 1112-1113 (Pa. 1994). In addition, any party to a contract, whether an insurance company or not, breaches the covenant of good faith if it evades the spirit of the bargain, acts with a lack of diligence, willfully renders imperfect performance, abuses the power to specify terms, interferes with or fails to cooperate in the other party's performance, or exercises contractually authorized discretion in an unreasonable manner. Somers v. Somers, 613 A.2d 1211, 1213 (Pa.Super. 1992) (citing Restatement (Second) of Contracts § 205 cmt. d (1981)); Burke v. Daughters of the Most Holy Redeemer, Inc., 26 A.2d 460, 461 (Pa. 1942).

Applying the above principles to the instant case, I find that plaintiff's allegations are sufficient to survive a motion to dismiss. Plaintiff alleges that defendant breached its covenant of good faith in several ways: by failing to negotiate in good faith with plaintiff with regard to the April/May 2000 automobile claim; by failing to cooperate with plaintiff in correcting the credit reporting error; by alleging falsely that plaintiff refused to accommodate defendant's request for a business audit; and, ultimately, by not renewing the insurance policy. Amend. Compl. ¶¶ 1-27; Memo. of Berks Mutual Leasing. Corp., Contra Def.'s Mot. to Dis. Pl's Amend. Compl. Pursuant to Rule 12(b)(6) 3-4. Such conduct, if proved, may reflect a lack of diligence, a possible willful rendering of imperfect performance, and a claim for the exercise of contractually authorized discretion in an unreasonable manner. Thus, I find defendant's alleged conduct in the instant case to be factually similar to the examples of conduct found to be a breach of the covenant of good faith. Accordingly, I conclude that defendant fails to show beyond doubt that plaintiff could prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). As such, I will deny defendant's motion to dismiss this claim. II. Bad Faith

In Count II of its amended complaint, plaintiff alleges that defendant acted in bad faith in violation of 42 Pa. Cons. Stat. Ann. § 8371. Specifically, plaintiff asserts that defendant acted in bad faith by using " its own wrongdoing as a pretext for refusing to renew Plaintiff's [insurance] policies." Memo. of Berks Mutual Leasing. Corp., Contra Def.'s Mot. to Dis. Pl.'s Amend. Compl. Pursuant to FRCP 12(b)(6) at 5. By wrongdoing, plaintiff appears to mean that defendant acted in bad faith by failing to cooperate with plaintiff in correcting the credit reporting error; by falsely accusing plaintiff of refusing to submit to a business audit; and, ultimately, by basing its decision not to renew plaintiff's insurance policy on the false credit report and refusal to submit to a business audit. See Amend. Compl. ¶¶ 1-27, 30 (describing conduct by defendant). Defendant argues that Section 8371 does not protect against such conduct because it only proscribes bad faith conduct by the insured that arises out of the denial of a claim or benefit. Defendant, thus, concludes, that because plaintiff does not allege any denial of benefits, plaintiff has no cause of action under Section 8371. In response, plaintiff urges the court to adopt a broader interpretation of the statute. Plaintiff believes that Section 8371 applies whenever an insurer acts in bad faith during any part of the insurance relationship. Thus, the issue is one of statutory interpretation. After reviewing the party's briefs, the statute's plain language, its legislative history and Pennsylvania case law interpreting the statute, I agree with defendant that Section 8371 is limited to causes of action arising out of the denial of a claim or benefit.

Section 8371 provides:

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.

42 Pa. Cons. Stat. Ann. § 8371. Read as a whole, the statute appears to focus on the handling and payment of claims. Kurtz v. American Motorists Ins. Co., 1997 WL 117008, at *3 (E.D.Pa. Mar. 12, 1997) (stating that statute's plain language "underscores the conclusion that the statute's provisions make sense only in the claim handling and payment context"). Furthermore, while the statute does not define the term "bad faith," the term has acquired a peculiar and universally-accepted meaning in the insurance context:

Insurance. "Bad Faith" on part of insurer is any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.

Polselli v. Nationwide Mutual Fire Ins. Co., 23 F.3d 747, 751 (3d Cir. 1994) (citing to Black's Law Dictionary 139 (6th ed. 1990)) (emphasis added); see also Terletsky v. Prudential Prop. Casualty Ins. Co., 649 A.2d 680, 688 (Pa.Super.Ct. 1994) (citing also to Black's Law Dictionary 139 (6th ed. 1990)). Adoption of this definition by the federal and state courts interpreting the statute indicates that Section 8371 is limited to those instances where an insurer wrongfully denies a claim or refuses to pay a benefit.

In addition, courts have found that the statute's legislative history and its underlying objectives support the interpretation that Section 8371 is limited to causes of action arising out of the denial or improper handling of a claim. The Pennsylvania legislature enacted Section 8371 in response to the Pennsylvania Supreme Court's decision in D'Ambrosio v. Pennsylvania Nat'l Mutual Casualty Ins. Co., 431 A.2d 966 (Pa. 1981). In that case, the plaintiff filed a claim against his insurance company for bad faith conduct in failing to pay a claim for damage to his property.Id. at 968. The state high court ruled that Pennsylvania common law did not provide a tort cause of action for bad faith. Id. at 970. In response, the Pennsylvania legislature enacted Section 8371 in 1990.Polselli, 23 F.3d at 750. Given this history, courts have found that the "Pennsylvania legislature intended this section to protect an insured from bad faith denials of coverage." General Accident Ins. Co. v. Federal Kemper Ins. Co., 682 A.2d 819, 822 (Pa.Super.Ct. 1996) (emphasis added). Furthermore, courts have stated that the purpose underlying Section 8371 "was to provide a statutory remedy to an insured when the insurer denied benefits in bad faith." Id. (emphasis added); see also Kurtz, 1997 WL 117008, at *3 ("It is reasonable to infer that in enacting section 8371, the legislature intended to protect policy-holders from bad faith conduct associated with the handling and payment of claims."). The historical circumstances surrounding enactment of Section 8371 and the stated goals of the statute support the proposition that Section 8371 is limited to causes of action arising out of the denial of a claim or benefit.

In further support of this proposition is the test adopted by the Pennsylvania Superior Court to determine what constitutes bad faith under the statute. In Terletsky v. Prudential Prop. Cas. Ins. Co., a Pennsylvania appellate court set out the prima facie case for bad faith causes of action. 649 A.2d at 688. It held that to state a claim under Section 8371, a plaintiff must "show that defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim." Id. at 688 (emphasis added); see also Klinger v. State Farm Mutual Automobile Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997) (recognizing that Terletsky established the test for Section 8371 causes of action). The language chosen by the court in Terletsky "plainly focuses upon a denial of benefits under an insurance policy." Belmont Holding Corp. v. Unicare Life Health Ins. Co., 1999 WL 124389, at *2 (E.D.Pa. Feb. 5, 1999). Both elements require that a claim or benefit payment of some sort be in dispute. This focus on the denial of claims further indicates that Pennsylvania courts construe Section 8371 to be limited to bad faith conduct in the claims handling context.

Based on the above review of the parties' arguments, the statute's plain language, its legislative history and federal and state court interpretations of the statute, I am persuaded that Section 8371 is limited to causes of actions arising out of the bad faith handling or payment of claims and does not apply to conduct unrelated to the denial of a claim. Applying this interpretation to the instant case does not produce an outcome favorable to the plaintiff. In the complaint, plaintiff makes no allegation that defendant refused to pay a claim or that defendant denied payment of any claim. Nor does plaintiff point to any conduct on behalf of the defendant that is in any way related to the denial of a claim. Rather, plaintiff alleges that defendant acted in bad faith by failing to cooperate with plaintiff in correcting the credit reporting error; by falsely accusing plaintiff of refusing to submit to a business audit; and, ultimately, by basing its decision not to renew plaintiff's insurance policy on the false credit report and refusal to submit to a business audit. As plaintiff fails to assert any claims-related conduct in its Section 8371 cause of action, I, thus, conclude that "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its statutory bad faith] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Accordingly, I grant defendant's motion to dismiss plaintiff's Section 8371 claim.

CONCLUSION

For the reasons set forth above, defendant's motion to dismiss plaintiff's breach of contract claim will be denied but its motion to dismiss plaintiff's Section 8371 claim will be granted. An appropriate order follows.

ORDER

And now, this 9th day of December, 2002, upon consideration of the plaintiff's complaint (Doc. 9); the motion of defendant to dismiss pursuant to Rule 12(b)(6) for failure to state a claim on which relief can be granted (Doc. 10); the plaintiff's response (Doc. 12); and the defendant's reply (Doc. 15), it is hereby ORDERED that:

1. The motion of defendant Travelers to dismiss Count I is DENIED.

2. The motion of defendant Travelers to dismiss Count II is GRANTED and Count II is dismissed with prejudice.