D'Ambrosio v. Pennsylvania Nat. Mut. Cas. Ins. Co.

Decision Date08 July 1981
Citation494 Pa. 501,431 A.2d 966
CourtPennsylvania Supreme Court

Timothy B. Barnard, Media, for appellee.



ROBERTS, Justice.

This is a dispute over property insurance coverage. It is usual in that the insured seeks to recover that sum he had expected the insurer to pay for repairs to his property under the parties' contract of insurance. However, it is unusual in that the insured also seeks damages for "emotional distress" and punitive damages because of the insurer's alleged "bad faith" conduct in denying the insured's claim. At issue on this appeal is whether, in light of the Unfair Insurance Practices Act, this Court should permit an action seeking these latter, additional forms of damages.


The insured, appellant Anthony D'Ambrosio, commenced the present action on June 28, 1977, by filing a two-count complaint, one in assumpsit and the other in trespass, against his insurer, appellee Pennsylvania National Mutual Casualty Insurance Company. In his count in assumpsit, appellant alleged that on June 12, 1976, his motor boat and outboard motor were damaged as a result of a severe storm. Appellant claimed that the damage was covered by the parties' contract of insurance then in effect, but that appellee had failed to honor his claim. Thus in his count in assumpsit appellate sought a money judgment of $932.23, reflecting the cost of necessary repairs to the boat, as well as interest, attorney's fees and costs. 1

In his court in trespass, appellant alleged that his claim had been "summarily denied." Appellant averred that "(a)fter several and repeated phone calls by the plaintiff to defendant, the plaintiff was able to ascertain the reason for the denial of the claim by the defendant, said reason being that an adjuster hired by defendant had reached the conclusion that the claim submitted by the plaintiff was improper." According to appellant, he asked appellee for "the exact information which the defendant had received which led it to believe that the claim was improper...." Appellant did not specify the result of this injury. He did aver that he had submitted to appellee written statements from the mechanic who had repaired the property and a letter from the party to whom appellee's adjuster had spoken. In appellant's view, "said letter indicat(ed) that the adjuster was wrong in the conclusions he had reached, and had not based his conclusions on probative evidence." Appellant alleged that, after further demands, appellee continued to refuse the claim, "even though the defendant has not been able to produce any information whatsoever which would in any way indicate that their original investigation was valid." 2 Appellant thus sought "compensatory damages ... in an amount in excess of Ten Thousand Dollars ($10,000.00) and punitive damages ... in an amount in excess of Ten Thousand Dollars ($10,000.00), plus all costs and attorneys fees."

Appellee filed preliminary objections to the count in trespass, in the nature of a demurrer. After argument, the Count of Common Pleas of Delaware County sustained the preliminary objections and dismissed the count in trespass. Appellant did not request leave to amend.

On appeal, the Superior Court divided evenly and affirmed. This Court granted allowance of appeal.


In arguing for the reinstatement of his count in trespass, appellant would have this Court adopt the position of the Supreme Court of California which, in Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973), held that where an insurer

"fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing."

9 Cal.3d at 574, 108 Cal.Rptr. at 485, 510 P.2d at 1037 (emphasis in original). Appellant's argument is based on his belief that such an action "is the only remedy which will prevent insurance industry abuse in handing first party claims, and which will place the consumer on more equal footing with insurers." 3

Although the seriousness of "bad faith" conduct by insurance carriers cannot go unrecognized, our Legislature has already made dramatic, sweeping efforts to curb the bad faith conduct. Section 4 of the "Unfair Insurance Practices Act" provides:

"No person shall engage in this state in any trade practice which is defined or determined to be an unfair method of competition or an unfair deceptive act or practice in the business of insurance pursuant to this act."

Act of July 22, 1974, P.L. 589, 40 P.S. § 1171.4 (Supp. 1980). Section 5 of the Act, 40 P.S. § 1171.5, defines "unfair methods of competition" and "unfair or deceptive acts or practices" to include numerous forms of conduct. Most relevant here are the fifteen "unfair claim settlement or compromise practices" set forth in subsection (10). 4

These statutory prohibitions are enforced by the Insurance Commissioner of Pennsylvania who is empowered to "examine and investigate the affairs of every person engaged in the business of insurance in this State" to determine whether the Act has been violated. § 7, 40 P.S. § 1171.7. Where, after a hearing, the Commissioner finds a violation, he may impose sanctions, including a cease-and-desist order and suspension or revocation of license. § 9, 40 P.S. § 1171.9. The Commissioner also may seek judicial imposition of a civil penalty of up to $5,000 for each knowing violation. § 11, 40 P.S. § 1171.11.

There is no evidence to suggest, and we have no reason to believe, that the system of sanctions established under the Unfair Insurance Practices Act must be supplemented by a judicially created cause of action. As one critic of California's approach has observed,

"(t)he California courts have created this 'new tort' in an obvious attempt to afford more protection to insureds. However, it has not really been established that there is a need of this additional protection. * * * State insurance departments are intended to serve the public and handle complaints from insureds as to insurer practices on a regular basis. Likewise, state legislatures are capable of prohibiting what are considered to be unfair claims handling practices and of imposing penalties for violations."

Kircher, Insurer's Mistaken Judgment A New Tort?, 59 Marq.L.Rev. 775, 786 (1976). Surely it is for the Legislature to announce and implement the Commonwealth's public policy governing the regulation of insurance carriers. In our view, it is equally for the Legislature to determine whether sanctions beyond those created under the Act are required to deter conduct which is less than scrupulous.

Our conclusion that the Unfair Insurance Practices Act serves adequately to deter bad faith conduct applies not only to appellant's attempt to recover punitive damages but also to his attempt to recover damages for "emotional distress." An award of punitive damages unquestionably is a deterrent device, see Restatement (Second) of Torts § 908 (1965); Restatement (Second) of Contracts § 369 (Tent. Draft No. 14, March 1, 1979), one which is unnecessary in view of the present legislatively-created regulatory scheme. And in the vast majority of cases an award of emotional distress damages would accomplish no more than is already accomplished by the Unfair Insurance Practices Act. Dean Murray has observed:

"While it is often suggested that such damages, when granted, are compensatory rather than punitive, the impression is often created that they are granted more for the purpose of discouraging the contract breaker through the use of a deterrent than attempting to evaluate mental distress on a pecuniary basis. In addition, it is difficult, if not impossible, to draw an incisive line between compensatory and punitive damages."

Murray on Contracts § 232 at 472 (1974). Similarly, Professor Dobbs has stated:

"Probably there is some thought, too, that mental distress damages closely resemble punitive damages in many instances and that such damages should be denied in all those cases where punitive damages are denied."

Dobbs on Remedies § 12.4 at 819 (1973). 5 Thus we hold that the count in trespass for alleged bad faith conduct of an insurer, which seeks both punitive damages and damages for emotional distress, must be rejected.

That the creation of such a cause of action is unwarranted is further demonstrated by appellant's complaint. According to appellant, appellee violated its duty of good faith when it "breached the contract, refused to tell the insured why it did, and refused to reconsider the claim even when presented with additional evidence." 6 Appellant's current characterization of appellee's conduct varies significantly from the allegations of his complaint.

Contrary to appellant's present assertion, there is nothing in appellant's complaint to suggest that when appellee allegedly "breached" the insurance contract it "refused to tell the insured why it did ...." In fact, appellant alleged in his count that, after the claim had been denied, he made "several and repeated phone calls" to the Defendant and "was able to ascertain the reason for the denial of the claim ...."

Similarly, appellant's complaint fails to support his present claim that appellee "refused to reconsider the claim even when presented with additional evidence." The complaint establishes merely that appellant had submitted "evidence" gathered as a result of his own investigation, along with a renewed request for payment, and that the claim was denied.

Also dubious is appellant's assertion that appellee "insinuated that the insured was...

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