Palek v. State Farm Fire & Cas. Co.
| Decision Date | 21 April 2021 |
| Docket Number | 2:20-CV-00170-CCW |
| Citation | 535 F.Supp.3d 382 |
| Parties | Janet PALEK, Richard Palek, Plaintiffs, v. STATE FARM FIRE & CASUALTY COMPANY, Defendant. |
| Court | U.S. District Court — Western District of Pennsylvania |
David M. Kobylinski, Peter T. Kobylinski, Praetorian Law Group, LLC, Pittsburgh, PA, for Plaintiffs.
Kevin D. Huber, Mark A. Martini, Robb Leonard Mulvihill LLP, Pittsburgh, PA, for Defendant.
Before the Court is Defendant State Farm Fire and Casualty Company's Motion to Dismiss for Failure to State a Claim. ECF No. 22. On September 15, 2020, Janet and Richard Palek ("Plaintiffs") filed their Second Amended Complaint, ECF No. 21, asserting three state law claims: (1) equitable reformation of contract; (2) bad faith insurance practices under 42 P.S. § 8371; and (3) unfair trade practices under 73 P.S. § 201 et seq. The Court's jurisdiction in this case is based on diversity of citizenship. 28 U.S.C. § 1332(a) ; ECF No. 21 at ¶¶ 3–6. For the reasons that follow, Defendant's Motion will be GRANTED.
Plaintiffs allege that Defendant misled them about the kinds of damage to their in-ground swimming pool that a homeowner's insurance policy (the "Policy"), which Plaintiffs purchased in 1999 when they bought their home and pool, would cover. See ECF No. 21. at ¶¶ 8–9, 28–29. Specifically, Plaintiffs allege that Defendant's agent informed them at the time Plaintiffs first purchased the Policy that the Policy would "cover their in ground [sic] pool in the event the [pool] was damaged from foreseeable types of harm." Id. at ¶ 13. However, Plaintiffs aver that they were unaware—and Defendant's agent did not disclose—that the Policy would not cover damage to the pool caused by subsurface water movement. See id. at ¶¶ 14, 18–19, 27. Plaintiffs claim that they relied on Defendant's general assurance that foreseeable harm to their pool would be covered, when they decided to purchase the Policy and in renewing it annually, believing that the Policy "covered their swimming pool." Id. at ¶ 14.
Plaintiffs allege that the damage to their pool was the result of hydrostatic pressure,1 which can cause an empty in-ground pool to "act[ ] as a boat which seeks to float," forcing the pool liner up and out of the ground. Id. at ¶ 18. This kind of event, called a "pool pop," results in costly damage to the pool. Id. at ¶¶ 17–18, 26. Plaintiffs allege that pool pops are common risks known in the insurance and swimming pool industries, and that Defendant knew of such risks, having denied claims for similar occurrences under policies like the one Plaintiffs purchased. Id. at ¶¶ 17–19.
Plaintiffs allege that on June 11, 2018, during routine maintenance, their pool experienced a pool pop, resulting in over $70,000 in damage. Id. at ¶ 16–17, 26. Plaintiffs contend that they reported the damage to Defendant immediately, but Defendant denied the claim on the basis that the Policy did not cover damage caused by earth movement or subsurface water. Id. at ¶ 25. Plaintiffs claim that had they known of the risk of pool pops, and that the Policy Defendant offered did not cover damage caused by such events, they would have selected another policy, an additional rider, or sought coverage through another carrier. Id. at ¶ 29. Defendant's Motion seeks to have Plaintiff's claims dismissed entirely.
In their First Amended Complaint, ECF No. 10, Plaintiffs asserted claims for breach of contract and bad faith insurance practices under 42 Pa.C.S. § 8371. See ECF No. 10. Defendants moved to dismiss, ECF No. 11, and the Honorable Joy Flowers Conti granted that motion, holding (1) that Plaintiffs’ breach of contract claim was barred by a one-year suit limitation and, furthermore, was precluded by the unambiguous text of the Policy and (2) that Plaintiffs failed to state a claim for bad faith insurance practices under 42 Pa.C.S. § 8371 because coverage was barred under the plain language of the Policy and because Plaintiffs "did not plead sufficient facts to support a cognizable claim of bad faith for failure to conduct an adequate investigation." See ECF No. 19 at 7, 12, 14–15. The Court granted Plaintiffs leave to amend to attempt to cure the deficiencies identified with respect to their bad faith insurance practices claim, only. See id. at 15.
In their Second Amended Complaint, Plaintiffs seek to have the Court reform the Policy on equitable grounds so that the Policy would cover damage for pool pops. See ECF No. 22 at ¶ 39. Plaintiffs also claim that Defendant committed bad faith insurance practices under 42 Pa.C.S. § 8371 by failing to inform Plaintiffs about either the foreseeability of pool pops or about the Policy's lack of coverage for these events. Id. at ¶ 44. Finally, Plaintiffs allege that Defendant's failure to inform them about these same facts constitutes unfair trade practices under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.S. § 201 et seq.
Defendant moved to dismiss the Second Amended Complaint. See ECF No. 22. Subsequently, the case was transferred to the undersigned, see ECF No. 26, and Defendant's Motion is now ripe for disposition.
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a claim. In reviewing a motion to dismiss, the court accepts as true a complaint's factual allegations and views them in the light most favorable to the plaintiff. See Phillips v. Cty. of Allegheny , 515 F.3d 224, 228 (3d. Cir. 2008). Although a complaint need not contain detailed factual allegations to survive a motion to dismiss, it cannot rest on mere labels and conclusions. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). That is, "a formulaic recitation of the elements of a cause of action will not do." Id. Accordingly, "[f]actual allegations must be enough to raise a right to relief above the speculative level," id. , and be "sufficient to state a claim for relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than the sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ).
The United States Court of Appeals for the Third Circuit has established a three-step process for district courts to follow in analyzing a Rule 12(b)(6) motion:
First, the court must "tak[e] note of the elements a plaintiff must plead to state a claim." Second, the court should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Finally, "where there are well-pleaded allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."
Burtch v. Milberg Factors, Inc. , 662 F.3d 212, 221 (3d Cir. 2011) (quoting Santiago v. Warminster Twp. , 629 F.3d 121, 130 (3d Cir. 2010) ).
Federal jurisdiction in this case is based on diversity of citizenship under 28 U.S.C. § 1332(a). See ECF No. 21 at ¶¶ 3–6. Accordingly, the Court will apply the substantive law of the forum state, Pennsylvania, in resolving Defendant's Motion. See Spence v. ESAB Group , 623 F.3d 212, 216 (3d Cir. 2010) () (citing Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ).
Defendant argues that Plaintiffs’ claim in Count I, for equitable reformation of the Policy, should be dismissed for failure to plead mutual mistake or fraud in contract formation. The Court agrees.
Reformation is "an equitable remedy that is sparingly granted." Twin City Fire Ins. Co. v. Pittsburgh Corning Corp. , 813 F.Supp. 1147, 1149 (W.D. Pa. 1992). Reformation of a written instrument is available when the instrument is "at variance with the terms of the parties’ original agreement" in order to give effect to "the true agreement of the parties." 1 Corbin on Pennsylvania Contracts § 28.11 (2020). Accordingly, equitable reformation is available where there was mutual mistake by both parties or where one party wrongfully exploits the other party's unilateral mistake. Easton v. Washington Cty. Ins. Co. , 391 Pa. 28, 137 A.2d 332, 337 (1957).
Mutual mistake exists where there is "a mistake in which each party misunderstands the other's intent," or "a mistake that is shared and relied on by both parties to a contract." Regions Mortg., Inc. v. Muthler , 585 Pa. 464, 889 A.2d 39, 41 (2005) (citing Black's Law Dictionary 1023 (8th ed. 2004)). Unilateral mistake, on the other hand, requires that the non-mistaken party acted with sufficient knowledge of the other party's mistake as to permit an inference of fraud or bad faith. Regions Mortg. , 889 A.2d at 41 (citing Dudash v. Dudash , 313 Pa.Super. 547, 460 A.2d 323 (1983) ). However, "where the contested policy provisions are clear and unambiguous," Pennsylvania law does not impose a general duty on insurance agents to " ‘anticipate and then counsel their insured on the hypothetical, collateral consequences of the coverage chosen.’ " Kilmore v. Erie. Ins. Co. , 407 Pa.Super. 245, 595 A.2d 623, 626 (1991) ).
On the other hand, under certain circumstances, Pennsylvania courts will apply the so-called reasonable expectations doctrine as grounds for judicial reformation of an insurance contract. "An analysis of the reasonable expectation of the insured is rightly employed when a claimant alleges that the insurer engaged in deceptive practices...
To continue reading
Request your trial