Rottmund v. Continental Assur. Co., Civ. A. No. 89-5970.

Citation813 F. Supp. 1104
Decision Date14 December 1992
Docket NumberCiv. A. No. 89-5970.
PartiesPatti M. ROTTMUND, Executrix of the Estate of David R. Artz, Deceased, Plaintiff, v. CONTINENTAL ASSURANCE COMPANY, Defendant.
CourtUnited States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

James F. Mundy and Kevin P. McCarty, Raynes, McCarty, Binder, Ross & Mundy, Philadelphia, PA, for plaintiff.

Timothy R. Coyne, Stephen C. Baker; and Michael Saltzburg, Philadelphia, PA, for defendant.

MEMORANDUM AND ORDER

HUYETT, District Judge.

In its third motion in limine, defendant Continental Assurance Company moves the Court to bar Plaintiff from pursuing any claim for special damages under 42 Pa.C.S.A. § 8371. Defendant argues that Plaintiff is barred from seeking damages under Section 8371 because Defendant's denial of Plaintiff's claim occurred on March 30, 1989, well before the statute's enabling date of July 1, 1990.1 Plaintiff opposes Defendant's motion arguing that Defendant engaged in at least two additional acts of bad faith after July 1, 1990.

When it decided D'Ambrosio v. Pennsylvania National Mutual Casualty Insurance Co., 494 Pa. 501, 431 A.2d 966 (1981), the Pennsylvania Supreme Court declined to create a new cause of action in Pennsylvania insurance law for "bad faith." D'Ambrosio, 431 A.2d at 970. Instead, the court left the creation of a new cause of action to the legislature. Id. The legislature responded to the court's suggestion by enacting 42 Pa.C.S.A. § 8371 which creates a new cause of action for bad faith conduct. Liberty Mutual Insurance Co. v. Paper Manufacturing Co., 753 F.Supp. 156, 158 (E.D.Pa.1990). The legislature designated Section 8371 to go into effect on July 1, 1990. Id. Section 8371 cannot be applied retroactively. Id. Therefore, Defendant cannot be held liable unless its allegedly bad faith acts occurred on or after July 1, 1990.

The issue of retroactivity leads to the question of what constitutes "bad faith." This question has been considered by a number of district courts in the Eastern District of Pennsylvania and two related points of view have developed. One court has held that liability is determined from the date that the defendant insurer initially denied the plaintiff insured's claim. Wazlawick v. Allstate Insurance Co., 1990 WL 294273 (E.D.Pa.1990). If that denial occurred prior to July 1, 1990, then the insured has no cause of action. Id. Another court has held that an insurer can be held liable for continuing bad faith acts that occur after July 1, 1990, even if the initial denial of the claim occurs before the enabling date. Liberty Mutual Insurance Co. v. Paper Mfg. Co., 753 F.Supp. 156 (E.D.Pa.1990); see also Shamusdeen v. The Hartford Insurance Co., 1991 WL 108675 (E.D.Pa.1991). It has been held, however, that initially denying the claim and subsequently reasserting that denial after July 1, 1990 does not constitute continuing acts of bad faith giving rise to liability. American Int'l Ins. Underwriters Corp. v. Zurn Indus., Inc., 771 F.Supp. 690, 703 (W.D.Pa.1991); see also Wazlawick v. Allstate Insurance Co., 1990 WL 294273 (E.D.Pa.1990). The post-enabling date activity must be separate acts of bad faith, not a continuation of a previous denial. Id.

The issue of what constitutes postenabling date activity giving rise to liability under Section 8371 has not been addressed by either the Third Circuit or Pennsylvania appellate courts. As I stated in Lombardo v. State Farm Mut. Auto. Ins. Co., 800 F.Supp. 208 (E.D.Pa.1992), I find the approach developed by my colleagues persuasive and will adopt it as my own. For purposes of applying Section 8371, one must look to the date on which the defendant insurance company first denied the insured's claim in bad faith. If that date is prior to July 1, 1990, the insured's claim under Section 8371 is barred. If the insurer denies the claim prior to July 1, 1990 and then reaffirms that denial after July 1, 1990, the insured's claim is also barred. If the insurer denies the claim before July 1, 1990 and then undertakes additional acts of bad faith, the insurer can be held liable for those additional acts under Section 8371 if the acts occur after the July 1, 1990 enabling date.

Applying the foregoing principles to this case, the Court will allow Plaintiff to pursue her claims under Section 8371. Plaintiff argues that in addition to denying her claim, Defendant engaged in two additional acts of bad faith which occurred after July 1, 1990. Plaintiff has presented a claim which, if proved, could possibly lead to liability for Defendant under Section 8371. Therefore, the Court will deny Defendant's third motion in limine.

MEMORANDUM AND ORDER DENYING RECONSIDERATION AND CERTIFICATION

Plaintiff, Patti M. Rottmund, is the widow of David R. Artz and the executrix of his estate. Defendant Continental Assurance Company (Continental) is the issuer of a life insurance policy on the life of David R. Artz. Plaintiff seeks to recover the proceeds of the policy pursuant to section 8811(a) of the Pennsylvania Slayer's Act, 20 Pa.Cons.Stat.Ann. §§ 8801-15 (1975 & Supp.1992). Defendant has opposed Plaintiff's claim on several grounds, including assignment, fraud, illegal purpose, lack of an insurable interest, equitable and promissory estoppel, and waiver. This Court has jurisdiction under 28 U.S.C. § 1332(a) because the parties are citizens of different states and the matter in controversy exceeds $50,000.

In its third motion in limine, Continental moved the Court to bar Plaintiff from pursuing any claim for the remedies listed in 42 Pa.Cons.Stat.Ann. § 8371 (Supp.1992).1 Defendant argued that Plaintiff was barred from pursuing a cause of action under section 8371 because Defendant's denial of Plaintiff's claim occurred on March 30, 1989, well before the statute's effective date of July 1, 1990. The Court, in a memorandum and order dated July 31, 1992 and entered August 4, 1992, denied Continental's motion, holding that because Plaintiff argued that in addition to denying her claim, Continental engaged in two additional acts of bad faith which occurred after July 1, 1990, "Plaintiff has presented a claim which, if proved, could possibly lead to liability for Defendant under Section 8371." Memorandum and Order of July 31, 1992, entered August 4, 1992 at 4.

Defendant has moved the Court for reconsideration of that memorandum and order, or, in the alternative, for certification of the order pursuant to 28 U.S.C. § 1292(b). Continental argues that (1) Plaintiff is barred from recovering under section 8371 because this is not an action arising under an insurance policy, and (2) even assuming that this is an action under an insurance policy, neither of the acts of bad faith alleged by Plaintiff give rise to liability under section 8371. For the reasons discussed below, the Court will deny Defendant's motion in its entirety.

I. Standards Governing Motions for Reconsideration

A federal district court has inherent power over interlocutory orders and may modify, vacate, or set aside these orders "when it is consonant with justice to do so." United States v. Jerry, 487 F.2d 600, 605 (3d Cir.1973). Because of the interest in finality, however, courts should grant motions for reconsideration sparingly. See Good Luck Nursing Home, Inc. v. Harris, 636 F.2d 572, 577 (D.C.Cir.1980) In addressing motions for reconsideration pursuant to Federal Rule of Civil Procedure 59(e), the Third Circuit has stated that the purpose of a motion for reconsideration is to "correct manifest errors of law or fact or to present newly discovered evidence." Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985). The parties are not "free to relitigate issues which the court has already resolved." Johnson v. Township of Bensalem, 609 F.Supp. 1340, 1342 (E.D.Pa. 1985). Motions for reconsideration must be served within ten days after the entry of the order. U.S.D.C.E.D.Pa.Local R.Civ.P. 20(g).2

II. "Action Arising Under An Insurance Policy"

Section 8371 provides certain remedies against an insurer "in an action arising under an insurance policy." Defendant argues that Plaintiff cannot assert a claim under section 8371 because Plaintiff's action does not arise under a contract of insurance. Defendant points to this Court's language in its memorandum and order dated August 27, 1990 in which the Court stated that "the Estate of David Artz is not bringing this action pursuant to any contract right.... Rather, the Estate of David Artz is bringing this action pursuant to a statutory right created by the Pennsylvania Slayer's Act." Rottmund v. Continental Assur. Co., 761 F.Supp. 1203, 1209 (E.D.Pa.1990) (emphasis in original). The Court reiterated this conclusion in an order dated July 31, 1992 in which it quoted the above language and held that the four year statute of limitations for contracts found in 42 Pa.Cons.Stat.Ann. § 5525 (1981 & Supp.1992) does not apply to this action. Since Plaintiff asserts a statutory cause of action, and the Pennsylvania Slayer's Act does not provide a limitation, the Court held that the six-year residual statute of limitations found at 42 Pa.Cons.Stat.Ann. § 5527 (1981 & Supp.1992) applies.

Defendant also points to decisions in other jurisdictions concerning the tort of bad faith conduct of insurers that hold that the duty of good faith and fair dealing of an insurer derives from and exists solely because of a contractual relationship between the parties. Where no such relationship exists, the insurer is not liable for bad faith. See, e.g., Austero v. National Casualty Co., 62 Cal.App.3d 511, 133 Cal.Rptr. 107 (1976). Defendant presumably argues that no contractual relationship exists between it and Plaintiff.

Both parties have changed their characterization of this action in the course of this litigation to support their arguments on various motions. Plaintiff has maintained throughout that her action is a statutory one,...

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