Ash v. Continental Ins. Co.

Decision Date11 October 2007
Docket NumberNo. 35 WAP 2005.,35 WAP 2005.
PartiesBrent D. ASH and Kathy Ash, his Wife, Appellants, v. CONTINENTAL INSURANCE COMPANY, Appellee.
CourtPennsylvania Supreme Court

William Glenn Cohen, Esq., New Castle, for Kathy Ash.

Mary Kathryn Salynski, Esq., Pittsburgh, for Continental Insurance Company.

Christopher T. Lee, Esq., Christopher Todd Hildebrandt, Esq., Shannon Elizabeth Smith, Esq., Pittsburgh, for amicus curiae Pennsylvania Defense Institute.

BEFORE: CAPPY, C.J., and CASTILLE, NEWMAN, SAYLOR, EAKIN, BAER and BALDWIN, JJ.

OPINION

Justice EAKIN.

Appellants purchased an insurance policy from appellee on a parcel of real property in Lawrence County, Pennsylvania. The property was damaged by fire in July, 2000, and appellants filed a notice of loss. Appellee denied appellants' claim November 21, 2000, on the basis of concealment or fraud. On May 3, 2002, appellants filed a complaint against appellee alleging breach of contract. Appellee responded by filing a motion for summary judgment, asserting appellants' breach of contract claim was barred by the one-year statute of limitations period set forth in the policy.

On June 23, 2003, appellants filed a motion for leave to amend their complaint to include a claim against appellee under Pennsylvania's bad faith insurance statute, 42 Pa.C.S. § 8371. Appellee opposed that motion, arguing the bad faith claim was untimely since it was subject to the two-year statute of limitations applicable to tort actions. See 42 Pa.C.S. § 5524(7). Appellants contended this was a contract action with a six-year statute of limitations. On September 15, 2003, the trial court granted appellee's motion for summary judgment with regard to the breach of contract claim, and denied appellants' request to amend the complaint, having determined a § 8371 bad faith claim is a "statutorily created tort action and is therefore subject to the two-year statute of limitations of [§ 5524(7)]." Trial Court Opinion, 9/15/03, at 7. It thus held appellants' bad faith claim was time-barred. On appeal, the Superior Court agreed with the trial court's analysis, stating, "[w]e find the reasoning supporting those decisions to be persuasive and thus hold that a bad faith action under [§ 8371] is subject to a two-year statute of limitations." See Ash v. Continental Ins. Co., 861 A.2d 979, 984 (Pa.Super.2004). This Court granted allowance of appeal to determine the appropriate statute of limitations period for a cause of action under Pennsylvania's bad faith insurance statute, and whether the trial court erred in denying appellants' request to amend.

It is well-settled that while the right to amend pleadings is within the sound discretion of the trial court and should be liberally granted, an amendment introducing a new cause of action will not be permitted after the statute of limitations has expired. See, e.g., Kuisis v. Baldwin-Lima-Hamilton Corp., 457 Pa. 321, 319 A.2d 914, 918 (1974). The trial court's determination will not be disturbed absent an abuse of that discretion. Blaine v. York Fin. Corp., 847 A.2d 727, 728-29 (Pa.Super.2004) (citing Ferraro v. McCarthy-Pascuzzo, 777 A.2d 1128, 1132 (Pa.Super.2001)). The issue before us is purely a question of law; accordingly, our standard of review is de novo, and our scope of review is plenary. Swords v. Harleysville Ins. Cos., 584 Pa. 382, 883 A.2d 562, 567 (2005).

Subchapter B of Chapter 55 of the Judicial Code establishes the limitations periods for civil actions. See 42 Pa.C.S. § 5501 et seq. It states the following actions are subject to a two-year limitations period:

(1) An action for assault, battery, false imprisonment, false arrest, malicious prosecution or malicious abuse of process.

(2) An action to recover damages for injuries to the person or for the death of an individual caused by the wrongful act or neglect or unlawful violence or negligence of another.

(3) An action for taking, detaining or injuring personal property, including actions for specific recovery thereof.

(4) An action for waste or trespass of real property.

(5) An action upon a statute for a civil penalty or forfeiture.

(6) An action against any officer of any government unit for the nonpayment of money or the nondelivery of property collected upon on execution or otherwise in his possession.

(7) Any other action or proceeding to recover damages for injury to person or property which is founded on negligent, intentional, or otherwise tortious conduct or any other action or proceeding sounding in trespass, including deceit or fraud, except an action or proceeding subject to another limitation specified in this subchapter.

Id., § 5524. Under § 5525 of the subchapter, the following types of actions are subject to a four-year statute of limitations:

(1) An action upon a contract, under seal or otherwise, for the sale, construction or furnishing of tangible personal property or fixtures.

(2) Any action subject to 13 Pa.C.S. § 2725 (relating to statute of limitations in contracts for sale).

(3) An action upon an express contract not founded upon an instrument in writing.

(4) An action upon a contract implied in law, except an action subject to another limitation specified in this subchapter.

(5) An action upon a judgment or decree of any court of the United States or of any state.

(6) An action upon any official bond of a public official, officer or employee.

(7) An action upon a negotiable or nonnegotiable bond, note or other similar instrument in writing. Where such an instrument is payable upon demand, the time within which an action on it must be commenced shall be computed from the later of either demand or any payment of principal of or interest on the instrument.

(8) An action upon a contract, obligation or liability founded upon a writing not specified in paragraph (7), under seal or otherwise, except an action subject to another limitation specified in this subchapter.

Id., § 5525. The subchapter also identifies a few civil actions that are exempt from any limitations period. See id., § 5531. Any civil action that does not fall within one of the limitations periods set forth therein, and is not exempt under § 5531, is subject to a six-year "catch-all" limitations period. Id., § 5527(b).

In 1990, the legislature enacted the bad faith insurance statute, which states:

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.C.S. § 8371.

As discussed by the Superior Court in its opinion, since the enactment of § 8371, a number of conflicting decisions have been issued regarding the applicable statute of limitations for an action under § 8371. See Ash, at 981-82. Several trial courts have applied a two-year limitations period, concluding such a claim falls under either subsection (5) or subsection (7) of § 5524. See, e.g., Susich v. Prudential Prop. & Cas. Ins. Co., 35 Pa. D. & C.4th 178 (1998). In contrast, other trial courts have employed a six-year statute of limitations, concluding a § 8371 claim does not fall under either § 5524 or § 5525 since bad faith acts can sound in either tort or contract. See, e.g., Trujillo v. State Farm Mut. Auto. Ins. Co., 54 Pa. D. & C.4th 241 (2001), rev'd, 817 A.2d 1194 (Pa.Super.2002).

The federal courts faced with this issue have been required to apply Pennsylvania law to predict how this Court would rule. See McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 661 (3d Cir.1980) (where federal court is bound to apply state law to issue not yet decided by that state's highest court, federal court must predict how state court would rule if faced with that issue). The federal district courts have been divided, with some applying a two-year statute of limitations and some applying a six-year statute of limitations. See, e.g., Lochbaum v. U.S. Fid. & Guar. Co., 136 F.Supp.2d 386 (W.D.Pa. 2000) (applying two-year limitations period); Woody v. State Farm Fire and Cas. Co., 965 F.Supp. 691 (E.D.Pa.1997) (applying six-year limitations period). The Third Circuit Court of Appeals predicted this Court would apply a two-year statute of limitations in Haugh v. Allstate Ins. Co., 322 F.3d 227, 235-36 (3d Cir.2003). See also Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 224 (3d Cir.2005) (applying two-year statute of limitations based on Haugh).

The Haugh court concluded this Court would find a § 8371 claim sounds primarily in tort since: (1) courts have historically treated bad faith actions as torts; (2) a bad faith action is based on tort-like standards of care; (3) the greater number of the most recent decisions from Pennsylvania courts have treated a § 8371 claim as separate and distinct from the underlying contract action against the insurer; (4) the majority of states recognizing a bad faith cause of action characterize it as a tort; and (5) courts have a duty to construe § 8371 to prevent an absurd result, and it is unlikely the legislature intended to provide a six-year limitations period for a § 8371 claim—which sounds in tort and contract—when the limitations periods for each of those claims are generally two and four years. Haugh, at 236 (quoting Nelson v. State Farm Mutual Ins. Co., 988 F.Supp. 527, 534 n. 11 (E.D.Pa.1997)) ("[G]iven the options of two or four years, it does not strike us as a reasonable reading to add the two periods together."). In addition, the Haugh court noted under Pennsylvania law, punitive damages are typically only awarded in tort actions. Id., at 235 (citing Murray v. Commercial Union Ins. Co., 782 F.2d 432, 436 (3d Cir. 1986)) ("See Smith v. Harleysville...

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