Kauffman v. Aetna Cas. and Sur. Co.

• Decision Date: 17 June 1992
• Docket Number: Civ. No. 91-4450.
• Citation: 794 F. Supp. 137
• Parties: Sidney KAUFFMAN and Sheila Kauffman v. AETNA CASUALTY AND SURETY CO.
• Court: U.S. District Court — Eastern District of Pennsylvania

794 F. Supp. 137

Sidney KAUFFMAN and Sheila Kauffman v. AETNA CASUALTY AND SURETY CO.

Civ. No. 91-4450.

United States District Court, E.D. Pennsylvania.

June 17, 1992.

COPYRIGHT MATERIAL OMITTED

Edward F. Chacker, Sayde J. Ladov, Philadelphia, Pa., for plaintiffs.

John Mirabella, Beverly Knightly, White & Williams, Philadelphia, Pa., for defendant.

MEMORANDUM

LOUIS H. POLLAK, Senior District Judge.

In this action, plaintiffs Sidney and Sheila Kauffman seek to recover, pursuant to 42 Pa.C.S.A. § 8371 (Purdon's Supp.1991), for the alleged bad faith conduct of defendant Aetna Casualty and Surety Company (Aetna) during the course of previous litigation between the same parties in this court. Jurisdiction is based on diversity of citizenship. Aetna has moved for summary judgment. For the reasons discussed below, this motion will be granted.

I. Facts

To succeed on a motion for summary judgment, a moving party must establish that there are no genuine issues of material fact and that the party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Where, as here, the controversy over the motion focuses on the existence of a genuine issue of material fact, the moving party is initially responsible for identifying those portions of the factual record which it believes establish that there are no issues of material fact. Once the moving party has done so, the opposing party must demonstrate, by reference to affidavits, depositions, answers to interrogatories, or admissions, that a triable issue of fact exists. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). In deciding a motion for summary judgment, the court is required to view the facts and draw inferences in a light most favorable to the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). The court need not accept the non-moving party's legal conclusions, however. In accordance with this standard, the following are the relevant facts on this motion for summary judgment.

The previous litigation between these parties arose out of plaintiffs' claim for underinsured motorist benefits under a policy with Aetna. The policy provided for a limit of $500,000 for underinsured motorist benefits; plaintiffs contended that they should be permitted to stack their limits and recover a total of $1,000,000. Aetna brought a declaratory judgment action in this court, seeking a declaration that stacking of underinsured motorist benefits was not permitted under Pennsylvania law. On January 4, 1991, I granted summary judgment in favor of the Kauffmans, concluding that Pennsylvania law required stacking, and ordering the parties to proceed to arbitration under the terms of the insurance policy. Aetna filed a motion with the Third Circuit to stay the arbitration pending its appeal. At the same time, Aetna offered the Kauffmans $500,000 without prejudice to their right to the remaining amount of their claim; the Kauffmans accepted. Upon denial of the motion for a stay, the parties proceeded to arbitration. The arbitration panel awarded the Kauffmans $950,000. Aetna then moved to vacate the arbitration award, arguing that the arbitrators had decided a legal issue, the propriety of stacking, that was before the Third Circuit. I denied the motion without prejudice to Aetna's right to refile after the resolution of its appeal. Meanwhile, in state court, the Kauffmans filed a petition to confirm the arbitration award. Aetna responded that the petition was premature, as it was filed less than thirty days after the arbitrators announced their award. The state court agreed, denying the petition to confirm with leave to refile when the thirty days had passed.

On May 31, 1991, the Third Circuit affirmed this court's ruling on the stacking issue. See Aetna Casualty & Sur. Co. v. Kauffman, 935 F.2d 1280 (3d Cir.1991). On June 17, the first business day after the expiration of the time in which Aetna could petition for rehearing en banc, Aetna paid the remaining $450,000 it owed to the Kauffmans under the arbitration award.

II. Legal analysis

There is no common law remedy in Pennsylvania for bad faith on the part of insurers. See D'Ambrosio v. Pennsylvania Nat'l Mut. Casualty Ins. Co., 494 Pa. 501, 431 A.2d 966 (1981). In 1990, however, the Pennsylvania legislature created a statutory remedy, which became effective on July 1, 1990. That statute, codified at 42 Pa.C.S.A. § 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 three percent.

(2) award punitive damages against the insurer.

(3) assess court costs and attorneys' fees against the insurer.

Aetna raises four grounds for its motion for summary judgment; these will be discussed in turn.

First, Aetna claims that section 8371 does not create an independent cause of action, but merely allows a court to provide an additional remedy if it determines that an insurance company has acted in bad faith during the course of litigation before it. While this argument is a plausible one, it appears contrary to the emerging jurisprudence under section 8371, which treats section 8371 as creating a cause of action rather than simply an additional remedy. See, e.g., Lombardo v. State Farm Mut. Auto. Ins. Co., Civ. No. 91-0793, 1992 WL 41643, at *5, 1992 U.S.Dist. LEXIS 3364, at *14 (E.D.Pa. March 2, 1992). Moreover, this case presents an unusual situation in that plaintiffs allege bad faith, not in the pre-litigation handling of their claim, but in conduct that occurred during the pendency of litigation, at a stage when Aetna's declaratory judgment action was before the Third Circuit. It is not clear whether the Kauffmans could have sought a remedy for bad faith in that litigation. I therefore reject Aetna's argument.

Second, Aetna argues that plaintiffs' claim for underinsured motorist benefits was not an "action arising under an insurance policy," and that plaintiffs have therefore failed to allege bad faith in an action arising under an insurance policy. Again, I reject Aetna's argument. Section 8371 provides for an award of punitive damages for bad faith on the part of an insurer in an action arising under an insurance policy; this does not mean, however, that the bad faith itself must have occurred during the pendency of an action. In any event, the argument is unavailing because Aetna's bad faith conduct is clearly alleged to have occurred during the pendency of Aetna's declaratory judgment action, which qualifies as an "action arising under an insurance policy."

Third, Aetna argues that even though plaintiffs allege conduct occurring after July 1, 1990, which was the effective date of section 8371, application of section 8371 to the present case would be retrospective and therefore improper because the insurance policy was in existence before July 1, 1990. I have previously rejected this argument, see American Franklin Life Ins. Co. v. Galati, 776 F.Supp. 1054, 1063-64 (E.D.Pa.1991), and Aetna has failed to persuade me that departure from the reasoning set forth in American Franklin is warranted in the present case.

Finally, Aetna argues that the undisputed facts in this case do not establish a claim for bad faith. Plain...