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A federal district court in the Eastern District of Pennsylvania, recognizing an intra-district split that has been going on for a few years, has ruled that an insured's claim against his insurer under Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL) was not barred by the economic loss doctrine.

The Case

John Lovelace alleged that he was injured when his Nissan Armada was struck by a Toyota Camry driven by Chase Carmichael.

Lovelace was insured by Nationwide Mutual Insurance Co. The Camry was covered by a policy issued by Erie Insurance Co. to Robert Graham, who owned the vehicle. Carmichael maintained a policy with Nationwide.

According to Lovelace, his claims exceeded the policy limits of both Graham's and Carmichael's insurance policies. The parties mediated and agreed to settle for an amount just below Erie's liability policy limit of $250,000. Lovelace contended that Nationwide refused to contribute to the settlement because it was aware that Lovelace was insured by Nationwide and it sought to “thwart the third party settlement and minimize, not pay and limit and/or reduce [Lovelace's] underinsured motorist claims.”

Lovelace asserted that Nationwide was aware that he had three cars with stacked underinsured motorist coverage limits applicable to his loss, in the amount of $100,000/$300,000, for a total of $300,000 in available underinsured motorist benefits. He said that he made a demand on Nationwide for underinsured motorist benefits pursuant to his policy, but that Nationwide refused to pay.

Lovelace sued Nationwide, asserting claims for breach of contract and statutory bad faith, as well as a claim under Pennsylvania's UTPCPL.

Nationwide moved to dismiss Lovelace's UTPCPL claim, arguing that the economic loss doctrine precluded a UTPCPL claim in this case.

The District Court's Decision

The district court denied Nationwide's motion.

In its decision, the district court explained that, in arguing that the economic loss doctrine applied and barred Lovelace's UTPCPL claim, Nationwide relied on the decision by the U.S. Court of Appeals for the Third Circuit in Werwinski v. Ford Motor, in which the circuit court predicted that Pennsylvania law would bar a UTPCPL claim based on the economic loss doctrine.

The district court pointed out, however, that since Werwinski had been decided, the Pennsylvania Superior Court had disagreed with the Third Circuit's holding in Werwinski.

The district court observed that, in Knight v. Springfield Hyundai, the appellees asserted that the economic loss doctrine barred the appellant's UTPCPL claim because only economic damages had been alleged. The Superior Court disagreed, concluding that “the claims at issue in this case are statutory claims brought pursuant to the UTPCPL, and do not sound in negligence. Therefore, the economic loss doctrine is inapplicable and does not operate as a bar to Knight's UTPCPL claims.”

The district court in Lovelace pointed out that Knight recently was followed in another case before the Pennsylvania Superior Court, Dixon v. Northwestern Mutual (“Dixon's UTPCPL claim is not barred by the economic loss doctrine.”).

The district court in Lovelace then stated that the pronouncements in Knight and Dixon could “not be squared with the prediction in Werwinski.”

The district court explained that, at the time Werwinski was decided, the Third Circuit was predicting without guidance from Pennsylvania courts. Now, the district court continued, the Pennsylvania Superior Court had “spoken clearly on the issue.” The district court added that although it would be “ideal” for the Third Circuit or Pennsylvania Supreme Court to weigh in on the current state of the law, waiting for that day was “not the better course of action.” It pointed out:

“Currently, a litigant in state court in Pennsylvania can bring a UTPCPL claim while a litigant in federal court with an identical claim may—or may not—be barred from bringing that claim, even though the federal court must apply current Pennsylvania law to this question of state law. Such inconsistent outcomes encourage forum shopping, an unwelcome result.”

The district court then concluded that the “clear pronouncement” by the Pennsylvania Superior Court in Knight, subsequently followed in Dixon, constituted a “clear change in law” that proved incorrect the Third Circuit's prediction in Werwinski. According to the district court, the “current state of the law” did not bar Lovelace's claim and Lovelace “should not be legally disadvantaged” because he was in federal court.

The case is Lovelace v. Nationwide Mutual Insurance. Attorneys involved include: for Lovelace, Vaughn A. Booker in Philadelphia; for Nationwide, Pamela A. Carlos of Bennett Bricklin & Saltzburg in Philadelphia.

FC&S Legal Comment

Numerous courts in the Eastern District of Pennsylvania have wrestled with this question. In McGuckin v. Allstate Fire and Casualty Insurance, the court recognized that a number of courts in the Eastern District “have held that Werwinski no longer is controlling authority and have followed Knight,” while other courts have concluded that “Werwinski's prediction of the Pennsylvania Supreme Court ruling on the economic loss doctrine remains binding on the district courts in this circuit until either the Pennsylvania Supreme Court or the Third Circuit rules otherwise.” The McGuckin court concluded that it was bound by the Third Circuit's decision in Werwinski.

Other courts also have applied Werwinski. (See, e.g., Powell v. St. Joseph's University (“The question before this court is not whether the rule in Werwinski or Knight is correct, but whether Knight provides persuasive evidence of a change in Pennsylvania law. This court concludes that it does not.”); Yamarick v. Unum Group; Whitaker v. Herr Foods; and Vaughan v. State Farm Fire and Casualty.)

Cases that have not followed Werwinski have noted an important exception to the general rule that district courts are bound to apply the predictions of the Third Circuit on the outcome of state law: an intervening change in the law. (See Busch v. Domb (“When we are applying state law and there is persuasive evidence that it has undergone a change, we are not bound by our previous panel decision if it reflected our reliance on state law proper to its modification,” quoting Robinson v. Jiffy Exec. Limousine).)

The court in Kantor v. Hiko Energy LLC declared that, “Werwinski no longer has any vitality.” The court added that, since Werwinski issued, “the Pennsylvania courts have spoken. They have held that the economic loss doctrine does not apply to UTPCPL claims.”

Steven A. Meyerowitz is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. As FC&S legal director, Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.