ONEBEACON AMERICA INSURANCE COMPANY v. UBICS, INC., No. 2:2010cv00737 - Document 21 (W.D. Pa. 2010)

Court Description: MEMORANDUM OPINION re: 17 MOTION to Dismiss Count III and Dismiss in Part Count IV of UBICS' Counterclaim Pursuant to Rule 12(b)(6) filed by ONEBEACON AMERICA INSURANCE COMPANY. Signed by Judge William L. Standish on 12/28/2010. (md)

Download PDF
ONEBEACON AMERICA INSURANCE COMPANY v. UBICS, INC. Doc. 21 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA ONEBEACON AMERICA INSURANCE COMPANY, Plaintiff, vs. Civil Action No. 10 737 UBICS, INC., Defendant. MEMORANDUM OPINION Pending be in part the Court is Plaintiff's motion to dismiss counterclaims raised by Defendant UBICS, Inc. ("UBICS.") For the reasons discussed below, Plaintiff's motion is denied without prejudice. I. BACKGROUND A. Factual Background 1 Plaintiff OneBeacon America Insurance Company ("OneBeacon") issued an insurance policy to UBICS on September 1, 2009, under which OneBeacon agreed to provide mUltiple forms of business insurance ("the Policy.") The Policy was effective from September 1, 2009, through September 1, 2010, and was a The facts in this section are taken from the Complaint and from Defendant's Answer, Affirmative Defenses and Counterclaims thereto (Doc. No.9.) Dockets.Justia.com continuation of prior policies which had provided essentially the same types of coverage. From 2005 through approximately February 16, Tain was employed by UBICS as its Controller. 2010, John On February 25, 2010, UBICS informed OneBeacon that Mr. Tain had admitted to having embezzled more than $913,000 from the company over a period of some five years. A subsequent forensic accounting investigation confirmed this course of embezzlement beginning in early 2005. UBICS sought coverage for the loss under the Policy, which included a provision for employee theft crime coverage of up to $1 million with a $5,000 deductible. OneBeacon refused to pay, based in part on an exclusion pertaining to losses caused by "anyone authorized to sign checks for UBICS." 23. ) (Complaint, <J1 Al though the parties disagree on why this endorsement had been added to the Policy, they do agree that it had been added with the version of the policy beginning in 2008 after OneBeacon had covered previous losses due to theft. clearly worded and was attached to the Policy. explicitly authorized The endorsement was conspicuously placed in a schedule Because Mr. Tain, as Controller, was to sign checks for UBICS, Plaintiff contended it was not obligated to cover the losses he admitted to causing. position as Moreover, an according to OneBeacon, Mr. officer of the corporation meant 2 Tain's that his knowledge of the embezzlement at the time he represented UBICS in procuring the employee loss coverage was imputed to the company and the Policy was void due to fraud, misrepresentation or concealment. B. Procedural History OneBeacon filed suit in this Court on May 27, 2010, seeking, inter U. S. C. 2201 that it was not obligated to cover the losses § caused by Mr. alia, Tain. a declaratory judgment pursuant to 28 UBICS filed its Answer, Defenses and Counterclaim on August 12, 2010, Affirmative in which it alleged that OneBeacon had breached its contractual duties under the Policy and had engaged in a pattern and practice of bad faith by refusing to honor its obligations. "Counterclaim.") (Doc. No.9, In particular, UBICS contended that because Mr. Tain's defalcations had begun prior to the date on which the endorsement excluding coverage for certain employees became effective, OneBeacon was obligated to cover the losses. Count I of the UBICS Counterclaim seeks a declaratory judgment that OneBeacon has a duty to provide coverage for the employee theft under the Policy which became effective in September 2009; Count II alleges breach of the insurance contract; Count III contends that OneBeacon breached the covenant of good faith and ir dealing implied in all contracts formed under Pennsylvania law; and Count IV alleges breach of the Pennsylvania Bad Faith 3 Statute, 42 Pa.C.S.A. § 8371. Pursuant to Federal of Civil Procedure 12(b) (6), on September 29, 2010, OneBeacon moved to dismiss Count III the Counterclaim in its entirety and parts of the prayer for relief associated with Count IV. No. 17, "Mot. Di s . ") (Plaintiff's Motion to Dismiss, Doc. The parties having briefed the issues raised by OneBeacon, the matter is now ripe for de II. sion. JURISDICTION AND VENUE The parties agree that this Court has jurisdiction pursuant to 28 U. S. C. § subject matter 1332, based on complete diversity of the parties 2 and an amount in controversy exceeding the statutory minimum. Venue is properly laid in the Western District of Pennsylvania inasmuch as a substantial portion of the events giving rise to the parties' claims occurred within this district. 28 U.S.C. § 1391. III. STANDARD OF REVIEW Federal Rule of Civil Procedure 8(a) requires that a for relief must contain. pleading which "states a c (2) a short and plain statement of the claim showing that pleader is entitled to relief." The Rule further provides that "[e]ach allegation must be simple, concise, and direct" but OneBeacon is a Massachusetts corporation with its principal place of business in Canton, Massachusetts; UBICS is a Delaware corporation with its principal place of business in Canonsburg, Pennsylvania. (Complaint, 2­3.) 4 "[n]o technical form is required," Fed. R. Civ. P. 8(d). "The touchstone of Rule 8 (a) (2) is whether a complaint's statement of facts is adequate to suggest an entitlement to relief under the legal theory invoked and thereby put the defendant on notice of the nature of the plaintiff's claim." In re Ins. Antitrust Litig., 618 F.3d 300, 320, n.18 (3d Brokerage Cir. 2010) ("Brokerage Antitrust"), ci ting Bell At!. Corp. v. Twombly, 550 U.S. 554, 565, n.10 (2007). In the aftermath of Twombly, Ashcroft v. Iqbal, U. S. 129 S.Ct. 1937, 173 L.Ed. 2d 868 (2009), and the interpretation of those two cases by the United States Court of the Appeals for the Third compl Circuit, the pleading standards which allow a nt to withstand a motion to dismiss pursuant to Rule 12 (b) (6) have taken on slightly new parameters. The standard is now whether the complaint includes "sufficient factual matter to show that the claim is facially plausible." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009); see also Twombly, 550 U. S. at 555, holding that a complaint which offers only "labels and conclusions" or "a formulaic recitation of the elements of a cause action will not do. ff The Fowler court further directed that in considering a motion to dismiss, the district court should undertake a two­part analysis: First, the factual and legal elements of a claim should be separated. The Distr Court must accept all of the complaint's well­pleaded facts as true, but 5 may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief. In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to show such an entitlement with its facts. As the Supreme Court instructed in Iqbal, "[w] here the well­pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged ­ but it has not shown ­ that the pleader is entitled to relief." Fowler, 578 F.3d at 210­211 (quotations and citations omitted.) "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that alleged." the defendant Iqbal, 129 S. ct. is liable for the misconduct at 1949; see also Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009), and Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) . "Determining whether a complaint states a plausible claim for relief will. . be a context­specific task that requires the reviewing court to draw on its judicial experience and common sense." Brokerage Antitrust, 618 F.3d at 361, quoting Iqbal, 129 S. Ct. at 1950. A complaint should not be dismissed even if it seems unlikely the plaintiff can prove the facts alleged in the complaint or will ultimately prevail on the merits. The Twombly pleading standard "does not impose a probability requirement at the pleading stage, but instead simply calls for enough facts to raise a reasonable expectation that discovery 6 will reveal evidence of the necessary element." McTernan v. City of York 564 F.3d 636, 646 (3d Cir. 2009) (internal quotations omi tted. ) IV. DISCUSSION A. Counterclaim Count III ­ Breach of the Implied Covenant of Good Faith and Fair Dealing by OneBeacon OneBeacon seeks dismissal of Count III the Counterclaim which alleges that it breached the implied covenant of good ith and ir dealing in its interactions with UBICS. Plaintiff argues that Pennsylvania law does not recognize such a cause of action for common law bad faith sounding in tort. Moreover, even if this Court were to construe Count III as sounding in contract, such a bad faith claim merges with a breach of contract claim if one case here. (Mot. s., separately pleaded, as is the 'JI'JI 3­9.) UBICS contends, however, that OneBeacon's first argument is irrelevant because it has not pled a tort claim. Motion to Dismiss, Doc. No. 20, (Response to "UBICS Resp.," at 6.) In opposing the motion to dismiss, UBICS raises three arguments: First, the cases on which OneBeacon relies for its position that the bad faith aim must necessarily merge with the breach of contract claim in Count II were decided at a different point in the litigation, that is, at summary judgment or a er trial. At this early stage, UBICS should be permitted to pursue both 7 claims in the alternative. (UBICS Resp. at 7­9.) Second, because there is a fundamental disagreement between the part s as to which portion of the Policy (or previous policies) applies because OneBeacon has sought in Count II of the Complaint to rescind certain portions of the coverage, UBICS is entitled to plead in the al ternati ve an implied bad faith claim along with the breach of contract claim until such time as a number of legal theories have been clarified. Id. at 9­10.) Third, the legations supporting the claim for breach of contract and those supporting the claim for breach of good faith arise from different acts by OneBeacon. Speci cally, the breach of contract claim is based on the fact that UBICS paid its premiums and performed all other conditions precedent to covera but OneBeacon refused to cover the losses caused by Mr. Tain, even after accepting the premiums. On the other hand, the breach of the implied covenant of good faith and r dealing is ed on OneBeacon's improper reasons (or excuses) for refusing to cover the loss, i.e., endorsements, and relying on \\ the wrong policy, lse facts." inapplicable Count III is intended to preserve an implied or quasi­contractual breach of duty claim even if OneBeacon succeeds in convincing the finder of fact that it is entitled to rescind all or of the Policy. (UBICS Resp. at 10­12.) We agree that at this early stage of the litigation where 8 there is uncertainty about even such fundamental matters as whether Mr. Tain was an icer" of the corporation whose "0 knowledge about the embezzlement can be imputed to UBICS or whether the Policy was a "claims­made" policy or an "occurrencebased" policy, UBICS should alternative theories of 1 be ility. allowed See to proceed Taylor v. Stores, Inc., 177 F.3d 180, 189 (3d Cir. 1999) under Pathmark (a party "may plead in the alternative, and our caselaw finds no dif culty with pairing the two claims in one complaint"). Under the federal rules, [a J party may set forth two or more statements of a claim or defense alternatively or hypothetically, ei ther in one count or defense or in separate counts or defenses. When two or more statements are made in the alternative and one them if made independently would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements. Fed. R. Ci v. P. 8 (d) (2) . Early in the litigation, e.g., at the point of a motion to dismiss, courts will generally allow the plaintiff to proceed under conflicting theories until such time as the details of the actions between the part s have been clarified. Berger & Montague, P.C. v. Scott & See, e.g., Scott, LLC, 153 F. Supp.2d 750, 753­754 (E. D. Pa. 2007), allowing the plaintiff to proceed on its breach of contract and conversion claims even though "gist of the action" test and "economic loss doctrine" would 9 normally bar it from proceeding simultaneously on both theories of liability; Miller v. Greenwich Capital Fin. Prods., Case No. 05­10203, 2008 Bankr. LEXIS 3068, *12­*14 (Bankr. D. Del. Mar. 20, 2008), allowing conversion and breach of contract claims to proceed because they presented two separate theo es of recovery and were not simply duplicative; Intercoastal Realty, Inc. v. 706 F. Supp.2d 1325, 1331 (S.D. Fla. 2010), holding that until the existence of a contract between the parties had been established, plaintiff could proceed with simultaneous breach of contract and unjust enrichment claims based on the same events even though Florida law would preclude recovery under the equitable remedy of unjust enrichment when an adequate legal remedy (breach of contract) was available; and Nat'l City Commer. Capital Co., LLC v. Global Golf, Inc., CA No. 09­307, 2009 U.S. st. LEXIS 42780, *1­*4 (E.D. N.Y. May 20,2009), allowing plaintiff to proceed with claims for estoppel, unjust enrichment, conversion, and breach of contract as al ternat theories of recovery arising out of the same events. OneBeacon's motion to dismiss Count III of the Counterclaims in its entirety is denied without prejudice, but the underlying argument may be raised at a appropriate. later point if See Nat'l City, id. at *5, stating that "following discovery, defendants will be given an opportunity to bring a summary judgment motion on these and any other claims, if they 10 believe the circumstances warrant such a motion." B. Counterclaim Count IV ­ Breach of the Pennsylvania Bad Faith Statute In Count IV of the Counterclaim, UBICS contends that a number of actions taken by OneBeacon in the process of refusing coverage under the Pol icy violated the Pennsylvania Bad Faith Statute, 42 Pa. C.S.A. § 8371, ("Section 8371.") In the ad damnum clause immediately following Count IV, UBICS seeks judgment in its favor and against OneBeacon. ., dismissing the Complaint with prejudice, finding that OneBeacon acted in bad faith in denying the coverage sought for employee theft, and where reasonable and permissible, award costs of suit, including attorneys' s, consequenti and compensatory damages, net economic loss, and excess verdict, puni ti ve damages, and any other damages available for aggravation and inconvenience. (Counterclaims at 34.) OneBeacon seeks to dismiss that portion of the clause which refers to compensatory and other common law contract damages, arguing that they are not available under Section 8371. Dis., Cf[Cf[ 12­13.) challenge" to (Mot. UBICS responds that by raising this "nominal Count IV, OneBeacon is putting "form over substance" and has failed to recognize that the relief sought in this portion of the Counterclaim was carefully crafted to seek those damages that are "reasonable and permissible" under the circumstances. (UBICS Resp. at 12­14.) Section 8371 provides: 11 In an action arising under an insurance policy, if the court finds that the insurer has acted in bad ith toward the insured, the court may take all of the llowing 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. A. § 8371. Thus, the statute itself, as OneBeacon argues, does not provide for the "consequential and compensatory damages, economic loss, and excess verdict, availab net . and any other damages for aggravation and inconvenience" to which UBICS has referred. "The Pennsylvania Supreme Court has counseled that while § 8371 does not alter an insured's common law contract ghts, an insured may not recover compensatory damages based on § 1 LLC v. Nautilus Ins. Co. 8371." CA No. 0 8 ­1 95 , 2 0 0 8 U. S . Oist. LEXIS 71487, *14 (W.O. Pa. Sept. 17, 2008), citing Ash v. Continental Ins. Co., 932 A.2d 877, 884 (Pa. 2007). in Ash The Court arified that Section 8371 did not supplant the existing common law remedy of compensatory damages for breach of contract and that it "does not prohibit the award of compensatory damages where they are otherwise available; it merely provides a basis to award additional damages beyond those already available." 12 Ash, id., ci ting The Birth Center v. The St. Paul Companies, Inc., 787 A.2d 376, 390 (Pa. 2001). Here, UBICS has stated a claim for breach of contract by OneBeacon and may be awarded course all damages Pennsylvania reliance for such a damages, Susquehanna Ptnrs, and G.P., as supported by the facts, of available breach, under i.e., restitution No. the common of expectation damages, damages. 08­3100, law shkin 2009 U.S. App. v. LEXIS 16626, *11 (3d Cir. July 27, 2009), citing Ferrer v. Trustees of Un . of Pa., 825 A.2d 591, 609 (Pa. 2002). Center, Section 8371 supplements those As noted in Birth remedies where the insured can show the insurer (1) did not have a reasonable basis r denying benefits under the policy and (2) knew of or recklessly disregarded that lack of a reasonable basis. See Northwestern Mut. Life Ins. Co. v. Babayan, 430 F. 3d 121, 137 (3d Cir. 2005), citing examples of bad faith actions. UBICS has contributed to the confusion on this point by including an ad damnum sentence Counterclaims rather than a relief. However, with each Count in its single comprehensive prayer for it is clear from the pleadings that both parties understand the relevant law regarding recovery when claims for both breach of an insurance contract and violation of Section 8371 are brought a single complaint. UBICS acknowledges that has "con 13 In particular, cuously" stated that it is seeking "those only damages that are permissible' under the circumstances. u The Court interprets this statement 'reasonable and (UBICS Resp. at 13.) as a concession that compensatory and other contract damages are not available under Section 8371 itself. dismiss or, more We therefore find it unnecessary to accurately, strike, the reference to "consequential and compensatory damages, net economic loss and excess verdict,. aggravation .and any other inconvenience u and which following Count IV of the Counterclaim. Watson Pharms., Inc., CA No. 10542, *20­*21 (D. damages available appears for immediately See Mut. Pharm. Co. v. 09­5421, 2010 U.S. Dist. LEXIS N.J. Feb. 9, 2010), declining to grant a motion to strike where the plaintiffs explained in response thereto that ambiguous language in their prayer for relief seeking "damages in an amount sufficient to compensate for the damage caused u actually sought restitution, not compensatory damages which were prohibited by the statutes in question. Again, this denial is without prejudice to Plaintiff raising the issue again at an appropriate time in the future. An appropriate Order follows. December , 2010 William L. Standish United States District Judge 14

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.