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Colantuno v. Aetna Insurance Co.

argued: October 22, 1992.



Before: Cowen, Nygaard and Seitz, Circuit Judges

Author: Nygaard



In this diversity case, we are asked to determine whether a Pennsylvania insurance statute which imposes penalties for bad faith is applicable to policies written before the statute's effective date. The district court determined that the penalties provided in the statute only apply to insurance policies entered into after the statute's effective date and dismissed under Fed. R. Civ. P. 12(b)(6). We will reverse.


We exercise plenary review over the district court's order, Ditri v. Coldwell Banker Residential Affiliates, Inc., 954 F.2d 869, 871 (3d Cir. 1992), and apply the same test applied by the district court, that is to accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn from them. We will not affirm a dismissal unless it is certain that no relief could be granted under any set of facts which could be proved. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).

When federal courts sit in a diversity case, we must apply the substantive law of the states in which we sit. Erie RR v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). Further, when federal courts are required to interpret or apply state law, we consider and accept the decisions of the state's highest court as the ultimate authority of state law. Ciccarelli v. Carey Canadian Mines, Ltd., 757 F.2d 548, 553 n.3 (3d Cir. 1985).


Aetna Insurance Company provided Colantuno with uninsured motorist insurance coverage in the amount of $70,000.00. Laura Colantuno was injured in an automobile accident on January 23, 1984 in which an uninsured motorist, Michelle Williams was at fault. Colantuno sued Williams seeking a damage award for personal injuries. Her husband also filed a claim for loss of consortium. These actions were filed with Aetna's knowledge and consent, and indeed, Aetna had even requested that Colantuno include a claim for property damage to protect the company's subrogation interest.

The Court of Common Pleas for Philadelphia County, Pennsylvania entered a default judgment in favor of Colantuno, and when their case came up on the Philadelphia court's trial docket list, Colantuno gave Aetna written notification that she intended to have damages assessed and a judgment entered against the uninsured motorist. Aetna expressly consented to this cause of action. The trial court, in a bench trial, awarded damages in the amount of $47,000.00 for personal injury and $14,000.00 for property damage. This amount was increased by adding delay damages to $94,287.70.

Colantuno sought payment of this judgment from Aetna under their insurance policy. Aetna received notice of the judgment and a demand for payment of the policy limits, but refused to pay. So Colantuno filed an action in the U.S. District Court against Aetna, asking that Aetna be bound by the Common Pleas Court's judgment entered against the uninsured motorist, and to pay the Colantunos' coverage ($70,000.00). The second count alleged bad faith. 42 Pa.C.S.A. § 8371 (Purdon, 1992 Supp.).

Aetna filed a Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6) arguing that Colantuno's complaint failed to state a cause of action upon which relief could be granted and that because Colantuno's policy predated the effective date of the Pennsylvania statute, the bad faith provision did not apply. Aetna also contended that the insurance policy's arbitration clause governed all disputes, both legal and factual, arising from Colantuno's claim for uninsured motorist benefits. Colantuno argued that arbitration was not required because the policy provided an alternative means to assess damages through a tort action, and that in any event, their bad faith claim was outside the scope of the policy and not subject to the arbitration clause.

The district court granted Aetna's Motion to Dismiss in a one page order. Colantuno filed a timely motion to alter or amend the judgment in the nature of a request for reconsideration. This motion was also denied. Colantuno ...

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