Opinion
Civil Action No. 03-4563.
May 5, 2004
MEMORANDUM
I. Introduction
The Galman Group ("Galman Group") brings this action against American Safety Indemnity Company ("American Safety"), seeking damages for the state law claims: breach of the Unfair Insurance Practices Act ("UIPA") and breach of the covenant good faith and fair dealing, for injuries resulting from the defendant's representation that it was going to issue a cancellation notice regarding plaintiff's insurance coverage. American Safety raised a counterclaim against Galman Group for the state law claim breach of contract, for monies owed under the original insurance agreement between the parties. Before the court are plaintiff's and defendant's Cross Motions for Summary Judgment pursuant to Fed.R.Civ.Proc. 56(c). For the reasons that follow, the defendant's motion is granted, plaintiff's motion is denied, and judgment is entered accordingly.
II. Factual Background
The undisputed facts follow. Galman Group entered into an insurance contract with American Safety for a policy of insurance to run from June 15, 2002 through June 15, 2003. (Pl.'s Statement of Uncontested Facts at ¶ 1.) On May 21, 2003, American Safety notified Galman Group that it would not issue a renewal policy for "underwriting reasons." (Id. at ¶ 2.) American Safety indicates that its reasons included nine pending losses on plaintiff's existing policy for primarily "slip and fall" claims. (Def.'s Mem. in Supp. of Mot. for Summ. J. at 4.) Galman Group lodged a complaint with the Insurance Department of the Commonwealth of Pennsylvania alleging that the notice defendant provided of its intent not to renew was improper under Pennsylvania law because it fell short of the required sixty days notice for insurance cancellation or non-renewal. (Pl.'s Statement of Uncontested Facts at ¶ 3.) After receiving notification of its mistake, on June 13, 2003, American Safety informed Galman Group via email that it would renew the insurance policy but the renewal would be accompanied by a cancellation notice to be effective sixty-five days from the original date of expiration. (Def.'s Mem. in Supp. of Mot. for Summ. J. at 4.) Galman Group refused to accept American Safety's offer, and instead purchased a new policy from Mt. Hawley Insurance Company ("Mt. Hawley") at a premium approximately $218,000.00 greater than the premium it paid under the defendant's policy. (Pl.'s Statement of Uncontested Facts at ¶ 7.)Plaintiff now seeks to recover damages for the difference between the premium it must pay under the Mt. Hawley plan and the premium it would have paid under the original policy terms. (Id.)
Defendant filed a counterclaim against plaintiff for a total of $40,934.34 plus interest in outstanding self-insured retentions owed by plaintiff on behalf of twelve holders of plaintiff's policies. (Def.'s Answer, Affirmative Defenses and Counterclaim at ¶ 17.) Plaintiff has refused to pay such sums to defendant, but has placed the money claimed in escrow. (Id. at ¶ 18.)
III. Discussion
A. Summary Judgment Standard
Under Fed.R.Civ.P. 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a summary judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Fed.R.Civ.P. 56(c). In order to avoid summary judgment, disputes must be both 1) material, meaning concerning facts that are relevant and necessary and that might affect the outcome of the action under governing law, and 2) genuine, meaning the evidence must be such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B. Unfair Insurance Practices Act Claims
Plaintiff claims that defendant violated the UIPA. (Pl.'s Complaint at ¶ 10.) However, no private right of action exists under the Pennsylvania UIPA. 40 P.S. § 1171.1 et. seq., According to 40 P.S. § 1171.7, only "[t]he Commissioner may examine and investigate the affairs of every person engaged in the business of insurance in this state in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice prohibited by this act." Pennsylvania courts have continuously interpreted the UIPA to allow enforcement only through direct administrative channels. See Constance v. Equitable Life Assurance Soc. of the United States, No. 86-1705, 1988 WL 79820, *3 (E.D. Pa. July 29, 1988); Wright v. N. Am. Life Ins. Co., 539 A.2d 434, 438 (Pa.Super. 1988); D'Ambrosio v. Pennsylvania Nat'l Mut. Cas. Ins. Co., 431 A.2d 966, 970 ( Pa. 1981). Accordingly, plaintiff's UIPA claim cannot proceed.
C. Duty of Good Faith and Fair Dealing
It is well settled in Pennsylvania that implied into insurance contracts is the principle that an insurer owes a contractual duty of good faith and fair dealing to its insured. See Drecoli v. Pennsylvania Nat. Mut. Ins. Co., 554 A.2d 906, 909 (Pa. 1989); Fedas v. Ins. Co. of State of Pennsylvania, 151 A.2d 285, 286-87 (Pa. 1930). The covenant arises from the nature of insurance contracts and the fiduciary relationship between an insurance company and its insured. Burton v. Republic Ins. Co., 1932 WDA 2002, 2004 WL 505126, * ¶ 36 (Pa.Super.Ct. March 16, 2004). "Although the precise contours of a party's duty under the covenant vary with the context, good faith generally entails `faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.'" Curley v. Allstate Ins. Co., 289 F. Supp.2d 614, 617 (E.D. Pa. 2003) (quoting Section 205 of the (Second) Restatement of Contracts, cmt. a). A breach of the covenant of good faith has been found where an insurance company failed to investigate a claim objectively, denied an insured's claim even if good cause exists, or failed to inform an insured of all benefits and coverage that may be available. Id.; Parasco v. Pacific Indemnity Co., 920 F. Supp. 647, 656 n. 6 (E.D. Pa. 1996); Miller v. Keystone Ins. Co., 636 A.2d 1109, 1112-13 (Pa. 1994).
Fundamentally, however, breach of the covenant of good faith and fair dealing is a breach of the contract because there had occurred a violation of implied duties arising from the contract.New Concept Beauty Academy, Inc. v. Nationwide Mutual Ins. Co., No. 97-5406, 1997 WL 746203, *2 (E.D. Pa. Dec. 1, 1997) (citingMiller v. Keystone Ins. Co., 636 A.2d 1109, 1112-13 ( Pa. 1994)). "Courts have used the good faith duty as an interpretive tool to determine the parties' justifiable expectations in the context of a breach of contract action, but the duty is not divorced from the specific clauses of the contract and cannot be used to override an express contractual term." Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91 (3d Cir. 2000).
Consideration of whether the covenant of good faith and fair dealing was breached is a case-by-case inquiry. See Curley, 289 F. Supp.2d at 617. Here, plaintiff urges the court to consider the standards set forth in the UIPA, the state's regulations concerning insurance contracts. A violation of the UIPA is not, per se, a breach of the covenant of good faith and fair dealing. Indeed, such treatment of the UIPA regulations would essentially grant a private right of action to parties, an action that the Pennsylvania state courts have explicitly declined to recognize. D'Ambrosio v. Pennsylvania Nat. Mut. Cas. Ins. Co., 431 A.2d 966, 970 (Pa. 1981). However, the UIPA standards, as well as the contract obligations, may be relevant when considering if an improper action by either party to a contract amounts to a breach of the covenant of good faith and fair dealing.
Plaintiff alleges that defendant breached the covenant of good faith and fair dealing when it stated that it would renew the insurance agreement, but would then cancel the policy after sixty-five days. Plaintiff argues that the threatened cancellation amounts to a breach in the covenant of good faith because defendant did not have a sufficient reason under the UIPA to cancel. Plaintiff avers that defendant's offer of renewal granted plaintiff the right to have the exact terms as the prior agreement, particularly that the policy would run for another year and that it would be at the same cost. Plaintiff claims this is the case despite the limited term for the renewal stated explicitly in the e-mail. Further, plaintiff argues that following a renewal of the contract defendant was unable to cancel based on plaintiff's conduct in the prior term, that is, the nine pending losses.
Defendant responds that it acted at all times in good faith. When informed that its initial non-renewal notice was not timely, defendant offered plaintiff a temporary renewal, and gave proper notice of cancellation. Further, defendant argues that it took the extra precaution of verifying its actions with Pennsylvania Insurance Department, to confirm that it had acted in compliance with the law. Defendant argues that the mere offering of a temporary renewal did not require all terms of the prior contract, mainly the term length, to apply to the renewal and that nothing in the state laws requires the renewal to be treated as such. Accordingly, the temporary renewal was an attempt to give proper notice to plaintiff of cancellation such that plaintiff could have adequate time to find another insurer. Defendant notes that plaintiff did not accept the temporary renewal, as it had already secured another insurance provider.
1. The Temporary Renewal
On June 13, 2003, defendant notified plaintiff that it would issue a renewal of the contract, but that it planned to shortly send a cancellation notice that would be effective in sixtyfive days. The effect of this action was to offer a temporary renewal of the contract, with the same terms, except that the term of the contract was limited. There is no statutory requirement that prevents a temporary renewal from being issued. Rather, Pennsylvania permits insurers to decline to renew risks for many reasons. See, e.g., Conner v. Ins. Dept., 810 A.2d 182, 184 (Pa.Commw. 2002) (insurer can use any reason for non-renewal that is not prohibited by statute). No provision of the UIPA requires a renewal to be for a full term, it only requires insurance coverage to remain in effect until proper notice is given to an insured of cancellation or nonrenewal. 40 P.S. § 3403 ("Until an insurer issues a non-renewal or cancellation notice that complies with the provisions set forth in this act, insurance coverage will remain in effect . . ."). While plaintiff argues that any renewal must include exactly the same terms as the prior contract, no statutory provision or caselaw is cited from the proposition.
Defendant offered the temporary renewal to comply with UIPA regulations governing the minimum notice requirements for termination of an insurance agreement. The conditional renewal offer was not precluded by the original insurance contract or by the UIPA. Such an offer cannot be considered a breach of the duty of good faith and fair dealing because its purpose was to insure that plaintiff had adequate time to find replacement coverage, which is the central objective of the UIPA notice provision.
2. Cancellation Notice
Along with defendant's issuance of a temporary renewal, defendant informed plaintiff that it would shortly issue a notice of cancellation, and that the policy would be terminated sixtyfive days following. (Pl's Statement of Uncontested Facts, Ex. D.)
Under the insurance policy in effect at the time defendant issued the temporary renewal, defendant was able to cancel the policy for any reason. (Pl.'s Statement of Uncontested Facts, Ex. A.) The policy required only that defendant give plaintiff thirty days notice of the cancellation. (Id.) Here, defendant gave plaintiff sixty-five days notice. The contract did not require a specific reason to be given for cancellation. Thus, the defendant's actions did not breach the contract between parties.
Further, defendant satisfied all relevant UIPA requirements. Defendant demonstrated good faith first by complying with 40 P.S. § 3403(b). It gave proper notice of cancellation to plaintiff at the time it issued the renewal policy. The notice of cancellation stated that the renewed policy would terminate 65 days from the original date of termination. The statute requires no less than 60 days notice before termination.
Defendant also demonstrated good faith by taking extra steps to guarantee compliance with the law throughout the process. After defendant properly notified plaintiff that it would renew the policy but that the renewal would be accompanied by a notice of cancellation, plaintiff acquired coverage from another insurer. Upon receiving notification of plaintiff's decision, Karen Mantooth, as a representative of defendant, contacted the Pennsylvania Insurance Department, Bureau of Consumer Services to advise of all that had transpired and to make sure defendant was in compliance with the law. (Def.'s Mem. in Supp. of Mot. for Summ. J. at 5.)
Defendant did have an adequate reason to seek cancellation of its policy with plaintiff. Pennsylvania Insurance law requires defendant must have had adequate grounds for cancelling according to 40 P.S. § 3402. The statute states:
Cancelling in midterm, a policy of insurance covering commercial property and casualty risks is prohibited for any reason other than the following:
i. A condition, factor or loss experience material to insurability has changed substantially or a substantial condition, factor or loss experience material to insurability has become known during the policy term.
ii. Loss of reinsurance or a substantial decrease in reinsurance has occurred, which loss or decrease shall, at the time of cancellation, be certified to the Insurance Commissioner as directly affecting in-force policies.
iii. The insured has made a material misrepresentation which affects the insurability of the risk.
iv. The policy was obtained through fraudulent statements, omissions or concealments if fact material to the acceptance of the risk or to the hazard assumed by the company.
v. The insured has failed to pay a premium when due, whether the premium is payable directly to the company or its agents or indirectly under a premium finance plan or extension of credit.
vi. The insured has requested cancellation.
vii. Material failure to comply with policy terms, conditions or contractual duties.
viii. Other reasons that the Insurance Commissioner may approve.40 P.S. § 3402 (WEST 2004).
Under 40 P.S. § 3402, defendant's reason for cancellation would have to fall within one of the enumerated categories of acceptable grounds for cancellation.
According to 40 P.S. § 3402(a), one acceptable reason for an insurer to cancel a policy is when "[a] condition, factor or loss experience material to insurability has changed substantially or a substantial condition, factor or loss experience material to insurability has become known during the policy term." Since plaintiff did not accept defendant's offer for a temporary renewal, defendant never issued a formal notice of cancellation and the only reason stated for cancellation was "underwriting reasons." However, in defendant's original attempt not to renew plaintiff's policy, defendant based the decision on nine pending losses on plaintiff's existing policy for primarily "slip and fall." (Mem. in Supp. of Mot. for Summ. J. of D at 4.) Nine losses constitutes an experience material to insurability under these circumstances. Thus, defendant's basis for cancellation was valid under 40 P.S. § 3402(a), and cannot be considered a breach of the duty of good faith and fair dealing.
D. Defendant's Counterclaim
Plaintiff has refused to pay defendant monies for self-insured retentions, instead, placing the money in escrow pending the resolution of this action. Defendant has performed all of its contractual duties under the contract and seeks payment as required by the policy. This court finds that plaintiff is required to pay monies owed, $40,934.34, plus accrued interest and interest until paid. (See Def.'s Counterclaims, ¶¶ 10-17.)
IV. Conclusion
Summary judgment in favor of defendant is appropriate because plaintiff has produced no evidence of breach of a contractual obligation or of a duty owed to the insured and thus there is no material issue of fact that defendant did not breach the contract or the implied covenant of good faith and fair dealing.
An appropriate order follows.
JUDGMENT ORDER
AND NOW, this ____ day of May, 2004, in consideration of plaintiff's and defendant's Cross Motions for Summary Judgment and the responses thereto, it is hereby ORDERED that:1. Plaintiff's Motion for Summary Judgment is DENIED;
2. Defendants' Motion for Summary Judgment is GRANTED;
3. Judgment is entered in favor of defendant, and against plaintiff;
4. Any pending motions are DENIED AS MOOT.