SOUTHEASTERN TRANSP. AUTHORITY v. Holmes

• Decision Date: 12 November 2003
• Citation: 835 A.2d 851
• Parties: SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, Appellant, v. Trudy HOLMES and Gregory Holmes.
• Court: Pennsylvania Commonwealth Court

835 A.2d 851

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, Appellant, v. Trudy HOLMES and Gregory Holmes.

Commonwealth Court of Pennsylvania.

Argued June 5, 2003.

Decided November 12, 2003.

Michael A. Hamilton, Philadelphia, for appellant.

Frederic I. Weinberg, Philadelphia, for appellee.

BEFORE: PELLEGRINI, Judge, and LEAVITT, Judge, (P.), and KELLEY, Senior Judge.

OPINION BY Judge LEAVITT.

The Southeastern Pennsylvania Transportation Authority (SEPTA) has filed an interlocutory appeal of a decision of the Court of Common Pleas of Philadelphia County (trial court) to deny SEPTA's Motion for Judgment on the Pleadings.¹ The question is whether SEPTA can be held liable for its alleged mishandling of certain personal injury claims of SEPTA passengers under the bad faith provisions of the Judicial Code or under a theory of breach of good faith and fair dealing.

HISTORY OF THE CASE

On April 6, 1990, Trudy Holmes and Gregory Holmes, Jr. (Appellees), were injured while passengers in a motor vehicle owned and operated by SEPTA.² In 1992, Appellees filed suit against SEPTA for payment of first party benefits, i.e., medical and wage loss benefits. After litigation, including an appeal by SEPTA to this Court, SEPTA paid the disputed first party benefits, with interest, costs and attorney fees, in the amount of $46,000.

On April 3, 1992, Appellees filed a second action against SEPTA and other defendants seeking damages for bodily injury caused by the April 6, 1990 accident.³ In January of 1996, the parties agreed that Appellees would pursue an uninsured motorist benefits claim, not a liability claim, against SEPTA; in that proceeding SEPTA would raise its defense that it was not liable because the use of its vehicle for transporting Appellees had not been authorized. On August 28, 1997, arbitration resulted in an award of $15,000 in favor of each Appellee. SEPTA appealed. Thereafter, Appellees' counsel forwarded documents "routinely accepted within the Philadelphia legal community as proof of no insurance [by the tortfeasor.]" Reproduced Record 15a. (R.R. ___). SEPTA denied their authenticity. In 1998, new counsel entered an appearance on behalf of SEPTA, who questioned the amount of bodily injury owed and refused to accept an affidavit of counsel that Appellees had not received a payment from the Louisiana Insurance Guarantee Association on behalf of the driver of the other vehicle to the accident. After numerous discussions, SEPTA agreed to pay the arbitration award amount, but it demanded a broad release that would bar Appellees from pursuing a bad faith claim against SEPTA. This demand was claimed to be outside the settlement, and Appellees commenced litigation to enforce its version of the settlement. The trial court scheduled the uninsured motorist issue for trial. Finally, on September 8, 1999, SEPTA, by its counsel, agreed to pay the arbitration award without requiring a release.

On November 5, 2001, Appellees filed a complaint⁴ against SEPTA alleging that by filing meritless appeals, refusing to accept Appellees' proferred documentation and adding new terms to a settlement, SEPTA "created unnecessary delay, unnecessary litigation, and otherwise stalled attempts to obtain first party coverage and uninsured motorist coverage to which [Appellees] were both entitled." R.R. 77a-78a. The complaint set forth three counts: (1) violation of the Pennsylvania Unfair Trade Practices Act and Consumer Protection Law; (2) statutory bad faith under 42 Pa.C.S. § 8371; and (3) breach of duty of good faith and fair dealing.

On December 4, 2001, SEPTA filed preliminary objections. Appellees then withdrew its claim under the Pennsylvania Unfair Trade Practices Act and Consumer Protection Law. The trial court denied SEPTA's preliminary objections to the remaining counts.

On October 23, 2002, SEPTA filed a Motion for Judgment on the Pleadings. It asserted the following: (1) SEPTA, a self-insured government agency, cannot be held liable in tort for bad faith claims handling under 42 Pa.C.S. § 8371; (2) SEPTA is not subject to a claim for breach of the duty of good faith and fair dealing because it did not have a contract with Appellees; and (3) Appellees' claims are barred under Pa. R.C.P. No.1020⁵ since they failed to join these claims in their underlying actions for uninsured motorist and first party benefits.

On December 20, 2002, the trial court denied SEPTA's Motion for Judgment on the Pleadings, and SEPTA appealed to this Court.⁶ Before this Court SEPTA raises the same three issues it raised to the trial court and asserts that the trial court erred in its holding on each issue. We consider these issues seriatim.

LIABILITY UNDER 42 Pa.C.S. § 8371

SEPTA asserts that there are two fundamental flaws to Appellees' bad faith claim brought under the Judicial Code, 42 Pa.C.S. § 8371.⁷ First, SEPTA enjoys sovereign immunity unless the claim falls into one of the exceptions to sovereign immunity established by the legislature, and liability for bad faith claims handling is not one of the enumerated exceptions. Second, SEPTA is a self-insured, not an insurance company. It contends that 42 Pa.C.S. § 8371 only applies to insurance companies that have assumed the liability of others by the issuance of an insurance policy, and it has no application to a self-insured. We agree.

As a "Commonwealth party," SEPTA enjoys sovereign immunity. Feingold v. Southeastern Pennsylvania Transportation Authority, 512 Pa. 567, 517 A.2d 1270 (1986).⁸ To overcome sovereign immunity, a plaintiff must show that the Commonwealth party would be held liable in tort under common law or statute but for the defense of sovereign immunity. 42 Pa.C.S. § 8522(a)⁹; Fidanza v. Department of Transportation, 655 A.2d 1076 (Pa. Cmwlth.1995). Next, the plaintiff must establish that the cause of action falls within one of the specifically enumerated exceptions to sovereign immunity set forth at 42 Pa.C.S. § 8522(b). Appellees cannot satisfy either burden.

Our Supreme Court has refused to recognize the existence of a common law tort of bad faith against an insurer that refuses, without proper cause, to compensate an insured for a loss. D'Ambrosio v. Pennsylvania National Mutual Casualty Insurance Company, 494 Pa. 501, 509, 431 A.2d 966, 970 (1981).¹⁰ Assuming, arguendo, that SEPTA is an insurer, there is no common law tort of bad faith claims handling. Accordingly, Appellees must show a statutory basis for tort liability; the statutory basis claimed by Appellees is 42 Pa.C.S. § 8371.

However, even assuming that 42 Pa.C.S. § 8371 applies to SEPTA, a point vigorously contested by SEPTA, it is not settled that this statutory provision establishes a tort. Our Supreme Court recently addressed this question in Mishoe v. Erie Ins. Co., 573 Pa. 267, 824 A.2d 1153, 1161 n. 11 (2003), and noted that "proper characterization of Section 8371 claims is a matter that is unsettled."¹¹ We decline here to decide as a matter of law that claims brought under Section 8371 sound in tort.

Even if a Section 8371 claim sounded in tort, such tortious conduct does not fall within one of the enumerated exceptions to sovereign immunity.¹² Immunity is waived for the negligent "operation of any motor vehicle in the possession or control of a Commonwealth party." 42 Pa.C.S. § 8522(b)(1). The scope of the motor vehicle liability exception has been carefully limited to operation of a vehicle by our Supreme Court. Love v. Philadelphia, 518 Pa. 370, 375, 543 A.2d 531, 533 (1988)(interpreting the statutory exception strictly to the actual operation of a vehicle and not acts ancillary to the actual operation). This Court has declined to apply the vehicle liability exception to cases that do not involve the actual movement of a vehicle. See, e.g., Bottoms v. Southeastern Pennsylvania Transportation Authority, 805 A.2d 47 (Pa.Cmwlth.2002)

. In short, SEPTA's alleged failure to promptly settle claims for first party and uninsured motorists' benefits does not fall within the motor vehicle exception to sovereign immunity.¹³

As has been noted by Justice Newman, the characterization of a Section 8371 claim as a tort or contract claim "has no bearing on the outcome." Birth Center v. St. Paul Companies, Inc., 567 Pa. 386, 407, 787 A.2d 376, 389 (2001). The real question is whether 42 Pa.C.S. § 8371 applies to SEPTA, which is in the business of public transportation not insurance. Appellees contend that because SEPTA is required to demonstrate financial responsibility for losses caused by its vehicles either by purchasing insurance or by establishing a self-insurance fund, it functions as an "insurer"¹⁴ and can, therefore, be held liable under 42 Pa.C.S. §§ 8371. As with all questions of statutory construction, we begin with the text of the provision in question. The Judicial Code states as follows:

§ 8371. Actions on insurance policies.

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 (emphasis added). The Judicial Code does not define "insurance policy," "insurer"¹⁵ or "insured." Accordingly, it is appropriate to look to the definitions provided in other sources and in related statutes for guidance on their meaning.¹⁶ We do so here.

The Insurance Department Act of 1921, Act of May 17, 1921, P.L. 789, as amended, 40 P.S. § 221.3, defines "insurer"¹⁷ as follows:

[A]ny person who is doing, has done, purports to do, or is licensed to do an insurance business, and is or has been subject to the authority of, or to liquidation, rehabilitation, reorganization or conservation by any insurance

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