Articles & Updates

No Special Relationship Where Insured Did Not Cede Decision-Making or Surrender Substantial Control at Time of Purchase

Dec 19, 2023 | Articles & Updates

Article by Daniel Twilla, Esq. and Adam Murdock, Esq.

A United States District Court for the  Eastern District of Pennsylvania recently granted an insurer’s motion to dismiss an insured’s claims for violation of Pennsylvania’s Unfair Trade Practice and Consumer Protection Law (“UTPCPL”), negligence, and bad faith.  Notably, the district court found that references to an alleged “special relationship” between the insured and insured were unsupported by Pennsylvania law.  Mohanan v. Liberty Mutual Ins. Co., 2023 WL 8026106 (E.D. Pa. Nov. 20, 2023).

In Mohanan, the insured submitted a claim for smoke damage as a result of a fire that occurred two properties away from the insured property.  The insurer completed a walkthrough of the insured property and found no apparent damage.  The insurer denied coverage under the policy on the basis that its inspection revealed no smoke damage and that the damage claimed was caused by wear and tear, marring and/or deterioration.  The insured filed a lawsuit and the insurer filed a motion to dismiss. 

As to the  UTPCPL claim, the district court noted that the UTPCPL does not apply to the handling of insurance claims, only to the sale of an insurance policy.

As to the negligence claim, the district court held that the claim was barred by the gist of the action doctrine because the entire dispute arose out of an insurance contract.  The district court found it well settled that, under the gist of the action doctrine, an insured cannot recast ordinary breach of contract claims into tort claims. 

The district court further granted the insurer’s motion to dismiss the bad faith claim because the insured failed to allege factual support and only recited bare-bones conclusory allegations in support of its bad faith claim.  As such, the insured was unable to meet the pleading requirements for bad faith.

Of note, the district court thoroughly discussed the allegations set forth in the complaint which alleged a heightened duty of care. The district court agreed with the insurer’s argument that no fiduciary relationship exists between an insured and insurer in the first-party context and ordered that all references to a “special relationship” be stricken from the complaint.  The district court held that “the purchase of insurance is typically considered an arm’s length transaction in which the insurer incurs no fiduciary duty apart from those specified in the insurance contract.”  The district court found that in order to meet the burden of proving a fiduciary relationship, the insured would needed to plead “facts to suggest that they ceded decision-making control or surrendered substantial control” to the insurer, which the insured failed to do.