UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

NATIONAL RECOVERY AGENCY, INC. : CIVIL NO. 4:05-CV-0033

and DIVERSIFIED BILLING :

SERVICES, INC., :

:

Plaintiffs : (Magistrate Judge Smyser)

:

v. :

:

AIG TECHNICAL SERVICES, INC., :

AMERICAN INTERNATIONAL GROUP, :

INC. and ILLINOIS NATIONAL :

INSURANCE COMPANY, :

:

Defendants :

MEMORANDUM AND ORDER

I. Background and Procedural History. 

The plaintiffs, National Recovery Agency, Inc. (NRA)

and Diversified Billing Services, Inc. (DBS), commenced this

action by filing a complaint on January 6, 2005. The

defendants are AIG Technical Services, Inc. (AIGTS), American

International Group, Inc. (AIG), and Illinois National

Insurance Company (Illinois National).

The complaint contains four counts. In Count I, the

plaintiffs are seeking a declaratory judgment that, pursuant to

an insurance policy issued by defendant Illinois National,

Illinois National must provide the plaintiffs, Dale Brumbach

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Dale Brumbach is or was the President of DBS and

Steven Kusic is or was an officer and owner of NRA. 

2

and Steven Kusic1, a defense in a case filed against them by

Forward Thinking, Inc. (Forward Thinking) in New Jersey

Superior Court as well as a declaratory judgment that defendant

Illinois National must indemnify them for the claims of Forward

Thinking. In Count II, the plaintiffs are seeking damages on

a claim that the defendants breached the insurance contract by

failing to provide them a defense or indemnification in the

case filed by Forward Thinking. In Count III, the plaintiffs

are seeking damages on a claim that the defendants acted in bad

faith in violation of 42 Pa.C.S.A. § 8371 and Pennsylvania

common law by failing to provide them a defense or

indemnification in the case filed by Forward Thinking. In

Count IV, the plaintiffs are seeking damages on a claim that

the defendants committed fraud in the sale of the insurance

policy to the plaintiffs and in their performance under the

policy. 

On March 1, 2005, the defendants filed an answer to the

complaint. The parties subsequently consented to proceed

before a magistrate judge pursuant to 28 U.S.C. § 636(c). 

On May 2, 2005, the defendants filed motions for

judgment on the pleadings. By a Memorandum and Order dated

June 27, 2005, the court denied those motions.

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II. Defendants’ Motion for Reconsideration.

On July 7, 2005, the defendants filed a motion for

reconsideration of the Order of June 27, 2005 and a brief in

support of that motion. On July 25, 2005, the plaintiffs filed

a brief in opposition to the motion for reconsideration, and on

July 28, 2005, the defendants filed a reply brief in support of

their motion for reconsideration.

"The purpose of a motion for reconsideration is to

correct manifest errors of law or fact or to present newly

discovered evidence." Harsco Corp. v. Zlotnicki, 779 F.2d 906,

909 (3d Cir. 1985). A district court may grant a party's

motion for reconsideration when there exists: "(1) the

development of an intervening change in the law, (2) the

emergence of new evidence not previously available, or (3) the

need to correct a clear error of law or prevent a manifest

injustice." Cohen v. Austin, 869 F. Supp. 320, 321 (E.D.Pa.

1994). If there is no new evidence or no clear error of law,

the motion must be denied. Clifford v. Jacobs, 739 F. Supp.

957, 958-59 (M.D.Pa. 1990). Mere disagreement with the court

does not translate into a clear error of law. Petruzzi’s, Inc.

v. Darling-Delaware Co., Inc., 983 F.Supp. 595, 611 (M.D. Pa.

1996). “A motion for reconsideration is not a tool to

relitigate and reargue issues which have already been

considered and disposed of by the court.” Id. “Nor is it to be

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used to put forth additional arguments which could have been

made but which the party neglected to make before judgment.”

Waye v. First Citizen’s Nat’l Bank, 846 F.Supp. 310, 314 (M.D.

Pa. 1994), aff’d, 31 F.3d 1175 (3d Cir. 1994). In the interest

of finality, courts should grant motions for reconsideration

sparingly. Rottmund v. Continental Assurance Co., 813 F. Supp.

1104, 1107 (E.D.Pa. 1992). 

In the Order of June 27, 2005, the court denied the

defendants’ motions for judgment on the pleadings on the basis

that the language of the insurance policy and the complaint and

amended complaint in the underlying Forward Thinking case were

in dispute. The court made that determination on the basis

that the defendants in their answer to the complaint denied

many of the paragraphs of the complaint which quoted language

from the policy and which paraphrased the Forward Thinking

Complaint and the Forward Thinking Amended Complaint. The

defendants denied the paragraphs of the complaint quoting

language from the policy on the basis that “[t]he Policy speaks

for itself and contains numerous provisions, conditions, and

exclusions.” Doc. 12 at ¶¶16-17 & 19-25. The defendants denied

the paragraphs of the complaint paraphrasing the Forward

Thinking Complaint and the Forward Thinking Amended Complaint

on the basis that those paragraphs purport to characterize the

allegations of the Forward Thinking Complaint or Forward

Thinking Amended Complaint which are writings which speak for

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themselves. Doc. 12 at ¶¶28-39 & 45-95. In determining that

the language of the insurance policy and the complaint and

amended complaint in the underlying Forward Thinking case were

in dispute, the court erred by overlooking and by failing to

give controlling effect to paragraphs 14, 27 and 40 of the

defendants’ answer in which the defendants admit that a true

and correct copy of the policy and a copy of the Forward

Thinking Complaint and the Forward Thinking Amended Complaint

are attached to the plaintiffs’ complaint. Given the

defendants’ admissions in paragraphs 14, 27, and 40 of their

answer, the language of the insurance policy and the complaint

and amended complaint in the underlying Forward Thinking case

are not in dispute. Since we erred in concluding otherwise in

the Order of June 27, 2005 we will grant the defendants’ motion

for reconsideration and we will reconsider the defendants’

motions for judgment on the pleadings. 

III. The Defendants’ Motions for Judgment on the Pleadings. 

A. Overview.

As stated before, the plaintiffs are seeking a

declaratory judgment that defendant Illinois National is

required to provide a defense and indemnification under the

policy and the plaintiffs are seeking damages from the

defendants for breach of contract, bad faith and fraud. In its

motion for judgment on the pleadings, defendant Illinois

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National characterizes the claims of Forward Thinking as

contractual billing disputes. Defendant Illinois National

contends that billing practices do not constitute “professional

services” under the policy and that they therefore are not

within the policy’s coverage for “Wrongful Acts” of the insured

“committed solely in the conduct of the ‘Insured’s’

‘Professional Services’.” Defendant Illinois National also

contends that Forward Thinking’s claims arise out of a

contract, that the policy covers only negligent acts, errors

and omissions, and that contract claims do not sound in

negligence. Defendant Illinois National also contends that

Forward Thinking is seeking the return of fees charged by the

insured and that therefore Exclusion M, which provides that the

policy does not apply to claims seeking the return of fees or

charges for services performed by any insured, applies to

preclude coverage. Defendant Illinois National also contends

that the plaintiffs’ bad faith claim must be dismissed because

it properly denied coverage under the policy and because it had

a reasonable basis for denying coverage. Defendant Illinois

National contends that the plaintiffs’ fraud claims should be

dismissed because the plaintiffs have failed to allege an

actionable misrepresentation, because the “gist of the action”

doctrine bars their fraud claims, and because they have not

pleaded fraud with particularity. In their motion for judgment

on the pleadings, defendants AIG and AIGTS adopt the position

and reasoning of defendant Illinois National in its motion for

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judgment on the pleadings. In addition, defendants AIG and

AIGTS contend that they are not parties to the policy and that

therefore the plaintiffs’ declaratory judgment claim and breach

of contract claim should be dismissed against them. Defendants

AIG and AIGTS further contend that they are not insurers for

purposes of Pennsylvania’s Bad Faith Statute and that therefore

the plaintiffs’ bad faith claim against them should be

dismissed.

B. Judgment on the Pleadings Standards.

Federal Rule of Civil Procedure 12(c) allows a party to

move for judgment on the pleadings “[a]fter the pleadings are

closed but within such time as not to delay the trial.” In

deciding a motion for judgment on the pleadings the court must

“view the facts presented in the pleadings and the inferences

to be drawn therefrom in the light most favorable to the . . .

nonmoving party.” Green v. Fund Asset Management, 245 F.3d 214,

220 (3d Cir. 2001)(quoting Institute for Scientific Info., Inc.

v. Gordon & Breach, Science Publishers, Inc., 931 F.2d 1002,

1004 (3d cir. 1991)). Judgment on the pleadings is appropriate

only if the plaintiffs would not be entitled to relief under

any set of facts that could be proved. Id. 

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C. Allegations in the Complaint and Policy Provisions.

The plaintiffs allege the following facts in their

complaint. Plaintiff NRA is a Pennsylvania corporation

operating as a collection agency. Complaint at ¶1. Plaintiff

DBS is a Pennsylvania corporation which engages in the

performance of precollect work. Id. at ¶2. Defendant AIG is a

Delaware corporation and an international insurance and

financial services organization. Id. at ¶4. Defendant Illinois

National is an Illinois corporation engaged in the business of

providing property and casualty insurance. Id. at ¶5. Illinois

National is a member company or division of AIG. Id. Defendant

AIGTS is a Delaware corporation engaged in the business of

claims and litigation management services in various insurance

lines, including professional liability. Id. at ¶3. Defendant

AIGTS is a member company of defendant AIG. Id.

The plaintiffs purchased an Errors and Omissions

Liability insurance policy from defendant Illinois National.

Id. at ¶14. Both plaintiffs are named insureds on the policy.

Id.

Under a section titled Coverage Agreements, the Policy

provides:

A. The Company will pay on behalf of the

“Insured” “Damages” which the

“Insured” shall become legally

obligated to pay for any “Claim”

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first made against the “Insured” and

reported to the Company during the

“Policy Period” for “Wrongful Acts”

of the “Insured” or another for whom

the “Insured” is legally responsible

committed solely in the conduct of

the “Insured’s” “Professional

Services”.

B. The Company shall have the right and

duty to defend the “Insured” against

“Claims” for Damages for a covered

“Wrongful Act”, even if the “Claim”

is groundless, false or fraudulent

and pay “Claims Expense”, as defined

herein subject to the policy terms,

conditions and exclusions. The

Company shall have the exclusive

right to designate legal counsel to

represent the “Insured” against such

“Claims”. 

The Company’s duty to defend any “Claim” ends

after the applicable Limit of Liability has

been exhausted by “Claims Expenses”, payment of

judgments, awards, or interest accruing thereon

prior to entry of judgment or issuance of an

award and settlements.

Complaint, Exhibit A.

The Policy defines “Claim” as follows:

1. Any judicial, administrative or

arbitration proceeding initiated

against one or more “Insured”(s) in

which such “Insured”(s) may be

subjected to a binding adjudication

of liability for “Damages”; or

2. Any written demand from a “Client or

Customer” or “Consumer” for money.

Id.

The Policy defines “Wrongful Act” as follows:

1. Means a negligent act, error or

omission; or

2. Libel, slander, malicious

prosecution, wrongful attachment,

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wrongful eviction, wrongful entry,

false arrest, detention and

imprisonment, harassment,

interference with business, invasion,

infringement or interference with the

right of privacy; or

3. A violation of the Federal Fair Debt

Collection Practices Act (FDCPA) or

the Fair Credit Reporting Act (FRCA)

and as further amended, or other

similar state statutes.

Id.

The Policy defines “Professional Services as follows:

1. Performance as a “Debt Collector”;

2. Dissemination of “Consumer Reports” or

“Credit Information” as a “Credit Bureau”;

or 

3. Performance of “Check

Verification/Recovery Services” as a

“Check Verification/Recovery Office”. 

Id.

The Policy contains an exclusion which provides that

the policy does not apply to claims “[s]eeking the return of

fees or charges for services performed by any “Insured.” Id.

On or about October 11, 2000 Forward Thinking filed a

complaint against plaintiff NRA in the Superior Court of New

Jersey. Complaint at ¶27 and Exhibit B. Plaintiff NRA reported

the complaint to defendant Illinois National and sought a

defense and indemnification for the claims brought by Forward

Thinking. Id. at ¶¶96 & 97. By a letter dated November 9,

2000, defendant Illinois National, through AIGTS, informed

plaintiff NRA that it would neither defend nor indemnify

plaintiff NRA in the matter. Id. at ¶98 and Exhibit D. The

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basis for that decision was stated to be that the claim does

not fall within the scope of the definition of “Wrongful Act”

and because Exclusion M, which provides that the policy does

not apply to claims seeking the return of fees or charges for

services performed by any insured, precludes coverage. Id. On

or about April 22, 2002, Forward Thinking filed an amended

complaint against plaintiff NRA, plaintiff DBS, Steven Kusic

and Dale Brumbach. Id. at ¶¶40-41 and Exhibit C. After receipt

of Forward Thinking’s amended complaint, plaintiff NRA again

notified AIGTS and demanded that defendant Illinois National

provide a defense and coverage under the policy. Id. at ¶114

and Exhibit E. By a letter dated October 1, 2004, defendant

Illinois National, through AIGTS, informed plaintiff NRA that

it would not provide indemnification in the event of an adverse

judgment or award. Id. at ¶115 and Exhibit F. The basis for

the decision was again stated to be that the claim does not

fall within the scope of the definition of “Wrongful Act” and

because Exclusion M, which provides that the policy does not

apply to claims seeking the return of fees or charges for

services performed by any insured, precludes coverage. Id. at

Exhibit F. 

D. Applicable Law.

Under Pennsylvania law, the interpretation of an

insurance contract is a question of law. 401 Fourth St., Inc.

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v. Investors Ins. Group, ___A.2d___, 2005 WL 1688324 at *3 (Pa.

July 20, 2005). The task of interpreting an insurance contract

is generally performed by the court rather than a jury, and

“[t]he purpose of that task is to ascertain the intent of the

parties as manifested by the terms used in the written

insurance policy.” Id. at *4. “When the language of the policy

is clear and unambiguous, a court is required to give effect to

that language.” Id. “Ambiguous terms must be strictly

construed against the insurer, but the policy language must not

be tortured to create ambiguities where none exist.” Sikirica

v. Nationwide Ins. Co., ___F.3d___, 2005 WL 1837010 at *3 (3d

Cir. Aug. 4, 2005). “After determining the scope of coverage

under a policy, the court must examine the complaint in the

underlying action to determine whether it triggers coverage.”

Id. at *9. 

“The duty to defend is a distinct obligation, different

from and broader than the duty to indemnify.” Sikirica, supra,

2005 WL at *9. The duty to defend arises whenever the

underlying complaint may potentially come within the insurance

coverage. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193

F.3d 742, 746 (3d Cir. 1999). “Furthermore, if a single claim

in a multiclaim lawsuit is potentially covered, the insurer

must defend all claims until there is no possibility that the

underlying plaintiff could recover on a covered claim.” Id. 

“It follows that there may be a duty to defend without a duty

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to indemnify.” Id. However, “[b]ecause the duty to defend is

broader than the duty to indemnify, there is no duty to

indemnify if there is no duty to defend.” Sikirica, supra.,

2005 WL at *9. The insurer’s duty to defend is determined

solely by the allegations in the underlying complaint. Visiting

Nurse Ass’n v. St. Paul Fire & Marine Ins., 65 F.3d 1097, 1100

(3d Cir. 1995). “In determining the existence of a duty to

defend, the factual allegations of the underlying complaint

against the insured are to be taken as true and liberally

construed in favor of the insured.” Frog, Switch, supra., 193

F.3d at 746. “Any doubts regarding the insurer’s duty to

defend must be resolved in favor of the insured.” Western

World Ins. Co. v. Reliance Ins. Co., 892 F.Supp. 659, 662

(M.D.Pa. 1995). “However, the particular cause of action that

a complainant pleads is not determinative of whether coverage

has been triggered.” Erie Ins. Exchange v. Muff, 851 A.2d 919,

926 (Pa.Super.Ct. 2004). “Instead it is necessary to look at

the factual allegations contained in the complaint.” Id.

“[C]overage clauses are interpreted broadly so as to afford the

greatest possible protection to the insured.” Eichelberger v.

Warner, 434 A.2d 747, 750 (Pa.Super.Ct. 1981). Whereas,

exceptions to an insurer's general liability are interpreted

narrowly against the insurer. Id.

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E. Illinois National’s Motion for Judgment on the 

Pleadings.

1. Billing Practices and Professional Services. 

Defendant Illinois National contends that the claims

asserted by Forward Thinking against the plaintiffs are billing

disputes and that the plaintiffs’ billing practices do not

constitute processional services under the policy it issued.

Defendant Illinois National cites a number of cases where

courts have held that billing practices do not constitute

professional services. 

Defendant Illinois National cites to Reliance Nat’l

Ins. Co. v. Sears, Roebuck & Co, Inc., 792 N.E.2d 145, 146

(Mass. App. Ct. 2003), in which the court concluded that the

activity involved in billing a client for legal services is not

within the compass of professional services covered by a

malpractice insurance policy. The court cited cases which

identified several markers for what are professional acts or

services including “specialized knowledge and skill that is

acquired through rigorous intellectual training.” Id. at 147. 

The court determined that billing for legal services does not

draw on special learning acquired through rigorous intellectual

training. Id. at 148. The court concluded that except in

exceptional circumstances, “billing is not a professional

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service [and] it does not come within the coverage of a

professional liability insurance policy . . . .” 

Defendant Illinois National cites to Harad v. Aetna

Caus. & Surety Co., 839 F.2d 979 (3d Cir. 1988). The issue in

that case was whether the signing of a verification to an

answer and counterclaim by an attorney was a professional

service. Id. at 980. The issue arose in the context of a

business owner’s policy which contained an exclusion for

injuries arising out of the rendering or failure to render

professional services. Id. at 983. The policy did not define

professional services. Id. at 984. The court cited cases

which recognized that the term “professional services” means: 

Something more than an act flowing from mere

employment or vocation . . . [t]he act or

service must be such as exacts the use or

application of special learning or attainments

of some kind. The term “professional” . . .

means something more than mere proficiency in

the performance of a task and implies

intellectual skill as contrasted with that used

in an occupation for production or sale of

commodities. A “professional” act or service

is one arising out of a vocation, calling,

occupation, or employment involving specialized

knowledge, labor, or skill, and the labor or

skill involved is predominantly mental or

intellectual, rather than physical or manual. 

In determining whether a particular act is of a

professional nature or a “professional service”

we must look not to the title or character of

the party performing the act, but to the act

itself.

Id. at 984. The court concluded that an attorney’s acts of

drafting, signing and filing an answer and counterclaim go to

the heart of the type of services an attorney provides to his

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 15 of 43
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clients and are professional in nature. Id. at 984-85. The

court stated:

[T]he practice of law, as other similarly

regulated professional activity in today's

world, has two very different and often

overlooked components - the professional and

the commercial. The professional aspect of a

law practice obviously involves the rendering

of legal advice to and advocacy on behalf of

clients for which the attorney is held to a

certain minimum professional and ethical

standards. The commercial aspect involves the

setting up and running of a business, i.e.,

securing office space, hiring staff, paying

bills and collecting on accounts receivable,

etc., in which capacity the attorney acting as

businessperson is held to the same reasonable

person standard as any other.

 

Id. at 985. The court held that because the attorney’s act of

signing the answer and counterclaim were professional in nature

the claims based on those acts were excluded under the business

policy at issue in that case. Id.

Defendant Illinois National also cites Visiting Nurse

Assoc. v. St. Paul Fire & Marine Ins., 65 F.3d 1097 (3d Cir.

1995). In that case, the insured - VNA - was in the business

of providing home health care and related services. Id. at

1099. AHS, a competitor of VNA, filed a complaint against VNA

claiming that VNA violated the antitrust laws, violated the

Racketeer Influenced and Corrupt Organizations Act, and

intentionally interfered with its prospective contractual

relations with home care patients. Id. at 1099. AHS alleged

that hospital discharge planners were paid by VNA, improperly

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 16 of 43
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steered patients to VNA and deprived patients of information

about access to its services. Id. at 1100. The policy at issue

in that case covered claims based on events that arise out of

the profession named in the coverage summary, which was “home

care providers.” Id. at 1100. The policy further provided that

the coverage protects against claims that result from

professional services that were or should have been provided.

Id. Other than the reference to “home care providers”, the

term “professional services” was not expressly defined in the

policy. Id. The court concluded that the claims by AHS against

VNA were not covered under the policy. The court reasoned:

For purposes of this opinion, we accept

VNA's contention that discharge planning may

involve professional services as that term is

understood in the policy. However, AHS has not

based its suit against VNA on any aspect of the

application of any specialized skills,

knowledge, learning, or attainments by the

discharge planners. Even if the hospitals'

discharge planners are treated as VNA's

employees, VNA's liability to AHS, if any,

derives from AHS's claims that VNA conspired

with hospitals to monopolize referrals, engaged

in a pattern of racketeering activity, and

interfered with AHS's prospective contractual

relations with patients. Similar allegations

could be made against any business competing

for referrals or customers. These allegations

stem from VNA's effort to operate its business,

not from any professional services that were or

should have been provided by the discharge

planners, and thus do not even potentially fall

within the policy's coverage. Cf. Crum &

Forster Managers Corp. v. Resolution Trust

Corp., 156 Ill.2d 384, 189 Ill.Dec. 756, 762,

620 N.E.2d 1073, 1079 (1993)(no duty to defend

where claims alleging that insureds “committed

intentional business torts and engaged in

unfair competitive practices” did not “arise or

result because of the insureds' performance of

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The defendants also cite Hampton Medical Group, P.A.

v. Princeton Ins. Co., 840 A.2d 915 (N.J. Super. Ct. 2004), and

Princeton Ins. Co. v. Kosoy, No. 98-4985, 1999 WL 79055 (E.D. Pa.

1999). In each of those cases, the court held that claims based on

fraudulent or inaccurate billing of insurance companies were not

covered under the professional liability policies in those cases. 

However, the policies in each of those cases covered injuries

caused by a medical incident arising out of the supplying or

failure to supply professional services. In contrast to the

(continued...)

18

real estate services,” the service listed in

policy's definition of “professional

services”).

Id. at 1102. The court contrasted the language of the policy

in that case with language in the policy in a case - Biborosch

v. Transamerica Ins. Co., 603 A.2d 1050 (Pa. Super. Ct. 1992) -

in which the Superior Court of Pennsylvania concluded that

terminating an employee met the definition of “professional

services” in the policy at issue in that case which was issued

by Transamerica Insurance Company. The court in Visiting Nurse

Assoc. stated: 

In contrast to the more expansive coverage

in Biborosch, St. Paul merely agreed to cover

claims “aris[ing] out of the profession named

in the Coverage Summary” (“home care

providers”) and resulting from “professional

services that were or should have been

provided.” App. at 11-12. Inasmuch as St. Paul,

unlike Transamerica, did not define

“profession” or “professional services” to

include conduct “necessary or incidental in the

conduct of [VNA's] business,” it is not

required to defend claims that result from

VNA's operation of a business. AHS's claim

arises from VNA's competition for clients, a

business activity, rather than from its

provision of professional services.

Id. at 1103.2

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 18 of 43
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(...continued)

policies in those cases, the policy in the instant case contains no

requirement that the injury underlying the claim arise out of a

medical incident.

3

 The policy also defines “Professional Services” to

mean “Dissemination of “Consumer Reports” or “Credit Information”

as a “Credit Bureau” or “Performance of “Check Verification/

Recovery Services” as a “Check Verification/Recovery Office”. 

Neither of these two prongs of the definition are implicated by

Forward Thinking’s complaint or amended complaint against the

plaintiffs. 

19

Although other cases may provide guidance, “disposition

in each case will depend upon the specific language of the

provisions defining the coverage and exclusions of a particular

policy.” Visiting Nurse Assoc, supra., 65 F.3d at 1102. 

The Policy in this case defines “Professional Services”

to mean “[p]erformance as a “Debt Collector.”3 The policy

defines “Debt Collector” to mean “any person who uses any

instrumentality of interstate commerce or the mails in the

collection or attempted collection of “Debt.” “Debt” is

defined as “any obligation or alleged obligation of a

“Consumer” to pay money.” The policy also provides that “Debt”

includes those obligations which are the subject of billing

services provided to “Clients or Customers” for a fee.” The

policy provides coverage only for claims based on wrongful acts

of the insured committed solely in the conduct of the insured’s

professional services.

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 19 of 43
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We agree with defendant Illinois National that the

claims against the plaintiffs made by Forward Thinking relating

to billing disputes do not fall with the coverage of the

policy. The plaintiffs contend that the rendering of debt

collection services is inextricably intertwined with the amount

of money that is returned to the client and the amount of money

that the debt collector retains in compensation. The

plaintiffs state that debt collectors do not have a separate

billing function for their clients; but rather they receive a

portion of what they successfully collect from the debtors. 

Even though debt collectors’ compensation may be tied to the

amount of money they collect, their billing for their services

is still a business function. “As in most other businesses,

the bill is an effect of the service provided, not part of the

service itself.” Medical Records Associates, Inc. v. American

Empire Surplus Lines Ins. Co., 142 F.3d 512, 516 (1st Cir.

1998)(relating to the business of medical records processing). 

Setting a price for services and sending bills are functions of

every business. Id. at 517. We conclude that the claims of

Forward Thinking that relate to the plaintiffs’ billing for

their services are not claims based on acts of the plaintiffs

committed solely in the conduct of the plaintiffs’ professional

services. 

Although we agree with defendant Illinois National that

the claims against the plaintiffs made by Forward Thinking

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 20 of 43
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relating to billing disputes do not fall with the coverage of

the policy, we do not agree with defendant Illinois National

that all of the claims made by Forward Thinking relate to the

plaintiffs’ billing practices. 

Forward Thinking alleges in its original complaint against

NRA that it was in the business of acting as a consulting firm

offering services in call center operations, credit and

collections, customer billing, strategic planning, and second

placement collections. Doc. 1, Exhibit B at Count I, ¶2.

Forward Thinking alleges that it had a consulting relationship

with Southern New England Telephone (SNET) whereby SNET

routinely sent it delinquent customer accounts for collections

and second placement collection services. Id. at ¶4. Forward

Thinking alleges that it entered into a contract with plaintiff

NRA whereby it was to generate collection business from the

utility industry and place that collection business with NRA

for primary handling. Id. at ¶¶ 5-6. Forward Thinking sets

forth the terms of the contract relating to how much NRA was to

be paid for its services. Id. at ¶6. The amount of

compensation NRA was to receive depended on whether the debtor

responded to the initial written payment demand and whether

Forward Thinking authorized NRA to begin an outbound telephone

collection campaign with regard to that debtor. Id. at ¶6. 

Forward Thinking alleges that it referred SNET delinquent

accounts to NRA pursuant to its contract with NRA. Id. at ¶8. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 21 of 43
22

Forward Thinking alleges that in breach of its contract NRA

began to reclassify accounts and that such reclassification

represented both unauthorized and undisclosed overbilling and

unauthorized and undisclosed double billing. Id. at ¶10.

We conclude that Counts 1 through 3 of Forward Thinking’s

original complaint against NRA relate to NRA’s billing

practices and as such are not covered by the policy in this

case. However, it is not clear that Count 4 of Forward

Thinking’s original complaint is confined to billing practices. 

In addition to the allegations set forth above, in Count 4

Forward Thinking alleges that “NRA was also responsible for

other overbilling and the mishandling of accounts with regard

to the SNET accounts and also with regard to accounts from

Public Service Electric and Gas referred to NRA by Forward

Thinking.” Doc. 1, Exhibit B at Count IV, ¶2. In Count 4

Forward Thinking alleges that it “has been damaged as the

result of this overbilling and mishandling of accounts.” Id. at

¶3. 

It is clear that Count 4 relates in part to NRA’s billing

practices. However, given that Count 4 also alleges

“mishandling of accounts,” it is not clear that Count 4 is

limited to billing practices. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 22 of 43
23

“Mishandling of accounts” is rather vague language. 

However, under Pennsylvania law the duty to defend arises

whenever the underlying complaint may potentially come within

the insurance coverage, Frog, Switch, supra, 193 F.3d at 746,

any doubts regarding the insurer’s duty to defend must be

resolved in favor of the insured, Western World Ins. Co.,

supra, 892 F.Supp. at 662, and the insurer is obligated to

defend an action unless and until the insurer can confine the

claim to a recovery outside the bounds of coverage, Id. We can

not say that Forward Thinking’s claim for “mishandling of

accounts” concerns only NRA’s billing practices. Accordingly,

we cannot say that that claim does not come under the coverage

of the policy. Thus, defendant Illinois National had a duty to

defend plaintiff NRA until such time as it were to have become

clear that there was no possibility that Forward Thinking could

recover on that claim.

In its amended complaint, Forward Thinking basically

repeats and elaborates on the allegations it made in its

original complaint. In addition to NRA, in its amended

complaint Forward Thinking names as defendants DBS, Kusic and

Brumbach. Forward Thinking’s amended complaint contains

Eighteen counts. 

We conclude that all of the counts, with the exception of

counts 5, 10, 15 & 16, of Forward Thinking’s amended complaint

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 23 of 43
24

against NRA relate to the plaintiffs’ billing practices and as

such are not covered by the policy in this case. 

In Count 10 of its amended complaint, Forward Thinking

alleges that NRA wrongfully terminated its relationship with

Forward Thinking. As is billing, terminating a contractual 

relationship is a business decision and is not a rendering of

professional services. Accordingly, the claim in Count 10 of

the amended complaint is not covered by the policy in this

case. 

In Count Five of its amended complaint, Forward Thinking

alleges that NRA failed to properly credit the full amount of

the gross collections on payments which were received on $2.00

letter collection accounts which were wrongfully moved on

August 17, 1999 and that it suffered damages. In Count Fifteen

of its amended complaint, Forward Thinking alleges that NRA

failed to properly post certain payments made by debtors to

PSE&G and that this resulted in a loss of commissions to

Forward Thinking. In Count 16 of its amended complaint,

Forward Thinking alleges that PSE&G cancelled its contract with

Forward Thinking as the result of the conduct of NRA and that

as a result Forward Thinking lost significant commissions and

revenue. Counts 5, 15 and 16 of Forward Thinking’s amended

complaint do not seem to concern only billing practices. 

Rather, these counts address at least in part how the

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 24 of 43
25

plaintiffs posted debtor payments to accounts. These

allegations potentially concern more that just billing. We can

not say that the claims in Counts 5, 15 and 16 of Forward

Thinking’s amended complaint do not come under the coverage of

the policy, and, accordingly, we can not say that Illinois

National does not have a duty to defend the plaintiffs. 

2. Contract Claims and the Gist of the Action 

Doctrine.

 

Defendant Illinois National contends that the plaintiffs’

claims arise out of a contract, that the policy covers only

negligent acts, errors and omissions, and that contract claims

do not sound in negligence. To the extent that defendant

Illinois National is contending that a breach of contact caused

by a negligent act can not fall within the definition of

“negligent act, error or omission” in a professional liability

policy, the defendant is incorrect. See Cadwallader v. New

Amsterdam Casualty Co., 152 A.2d 484, 488 (Pa. 1959)(stating

that a cause of action based on an attorney’s breach of an

agreement to withhold a certain sum from a condemnation award

would be within the coverage of the attorney’s professional

liability policy - which covered claims arising out the

attorney’s performance of professional services and caused by

any “negligent act, error or omission” of the attorney - “if

the violation of this agreement was due to a negligent act,

error or omission.”).

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 25 of 43
26

Defendant Illinois National also argues that under the

gist of the action doctrine Forward Thinking’s claims sound in

contract and not tort and, therefore, are not covered under the

policy. 

“The gist of the action doctrine is designed to maintain

the conceptual distinction between breach of contract claims

and tort claims.” The Brickman Group, Ltd. v. CGU Ins. Co., 865

A.2d 918, 927 (Pa.Super.Ct. 2004). “As a practical matter, the

doctrine precludes plaintiffs from re-casting ordinary breach

of contract claims into tort claims.” Etoll, Inc. v.

Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (2002). It is

possible that a breach of contract can give rise to an

actionable tort. The Brickman Group, supra, 865 A.2d at 927. 

However, to be construed as a tort the wrong ascribed to the

defendant must be the gist of the action with the contract

being collateral. Id. “The important difference between

contract and tort actions is that the latter lie from the

breach of duties imposed as a matter of social policy while the

former lie for the breach of duties imposed by mutual

consensus.” Id. “In other words, a claim should be limited to

a contract claim when the parties' obligations are defined by

the terms of the contracts and not by the larger social

policies embodied by the law of torts.” Id. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 26 of 43
27

Defendant Illinois National cites Phico Ins. Co. v.

Presbyterian Med. Services Corp., 663 A.2d 753 (Pa.Super.Ct.

1995), in support of its argument that the court should analyze

Forward Thinking’s claims under the gist of the action

doctrine, conclude that the gist of its claims is breach of

contract and not tort, and that, therefore, the claims are not

covered under the policy. Phico is distinguishable in that the

policy in that case was a comprehensive liability policy which

contained an explicit exclusion excluding from coverage, with

certain exceptions, claims arising in connection with the

breach of oral or written agreements. Defendant Illinois

National has not pointed to a exclusion in the policy in this

case excluding contract claims from coverage. Thus, even if

under the gist of the action doctrine all of Forward Thinking

claims were construed to be contractual claims those claims

would not necessarily not be covered under the policy. As

stated above a breach of contract caused by a negligent act can 

fall within the definition of “negligent act, error or

omission” in a professional liability policy. Cadwallader,

supra, 152 A.2d at 488. 

3. Exclusion M.

Defendant Illinois National contends that Forward

Thinking’s claims against the plaintiffs are excluded from

coverage by Exclusion M of the policy. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 27 of 43
28

Exclusion M provides that the policy does not apply to

claims “[s]eeking the return of fees or charges for services

performed by any ‘Insured.’”

Since we have determined that only count 4 of Forward

Thinking’s original complaint and counts 5, 15 and 16 of

Forward Thinking’s amended complaint are possibly within the

coverage of the policy, we will consider only whether the

claims in those counts are excluded from coverage by Exclusion

M. 

In count 4 of its original complaint and in counts 5, 15

and 16 of its amended complaint, Forward Thinking demands

judgment “in an amount that will compensate it for its damages,

together with interest, reasonable attorney’s fees and costs of

suit.” It is not clear that Forward Thinking is in Counts 4,

5, 15 and 16 seeking only the return of fees or charges for

services performed by the plaintiffs.

“If some of the relief sought in the third-party complaint

falls within the terms of coverage, the insurer is obliged to

defend the entire claim even if other claims for relief are

excluded from coverage.” Covington Twp. v. Pacific Employers

Ins. Co., 639 F.Supp. 793, 798 (M.D. Pa. 1986). Since it is

not clear that Forward Thinking is seeking only the return of

fees or charges for services performed by the plaintiffs,

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 28 of 43
4

 We note that in a footnote in its opening brief

defendant Illinois National states that, to the extent that the

Forward Thinking Amended Complaint alleges that the plaintiffs

failed to remit or collect funds, claims arising out of those acts

are specifically excluded from coverage under the policy. The

defendant cites Exclusion G to the policy which provides that the

“policy does not apply to . . . The actual or alleged . . . failure

to remit or collect funds . . . .” We do not address this argument

in connection with the instant motion for judgment on the pleadings

as it was raised only in a footnote. John Wyeth & Brother Ltd. v.

Cigna International Corp., 119 F.3d 1070, 1076 n.6 (3d Cir.

1997)(arguments raised in passing such as in a footnote but not

squarely argued are considered waived).

29

defendant Illinois National is not entitled to judgment on the

pleadings on the basis of Exclusion M of the policy.4

4. Indemnification.

Defendant Illinois National contends that the plaintiffs’

claim for indemnification must be dismissed as premature

because the Forward Thinking litigation has yet to be resolved. 

The plaintiffs do not assert that their claim for

indemnification would not be premature if the Forward Thinking

litigation has not been resolved. However, the plaintiffs

state that there are no facts of record establishing that the

Forward Thinking case not been completed through trial or

settlement. 

Since it is not of record whether the Forward Thinking

litigation has been completed, we will deny defendant Illinois

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 29 of 43
30

National’s motion for judgment on the pleadings on the

indemnification claim. 

Based on the foregoing discussion, defendant Illinois

National is not entitled to judgment on the pleadings on the

plaintiffs claim for breach of contract or on the plaintiffs’

claim for a declaratory judgment. 

5. Bad Faith. 

Pennsylvania’s Bad Faith Statute, 42 Pa.C.S.A. § 8371,

provides:

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.

“Bad faith” is not defined in the statute. The

Pennsylvania Superior Court has defined “bad faith” as “‘any

frivolous or unfounded refusal to pay proceeds of a policy.’”

Terletsky v. Prudential Property and Cas. Ins. Co., 649 A.2d

680, 688 (1994)(quoting Black’s Law Dictionary 139 (6th ed.

1990)). “To make out a claim of bad faith, a plaintiff must

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 30 of 43
31

show by clear and convincing evidence that the insurer (1) did

not have a reasonable basis for denying benefits under the

policy; and (2) knew or recklessly disregarded its lack of

reasonable basis in denying the claim.” W.V. Realty, Inc. V.

Northern Ins. Co., 334 F.3d 306, 312 (3d Cir. 2003).

Defendant Illinois National contends that the plaintiffs’

bad faith claim must be dismissed because it properly denied

coverage under the policy and because it had a reasonable basis

for denying coverage. 

As discussed above, some of Forward Thinking’s claims

against the plaintiffs could possibly fall within the coverage

of the policy and, at this point, defendant Illinois National

has not shown that those claims were excluded from coverage by

an exclusion in the policy. Accordingly, at this point,

defendant Illinois National is not entitled to judgment on the

pleadings on the plaintiffs’ bad faith claim.

6. Fraud.

Count IV of the complaint is a claim for fraudulent

misrepresentation. 

Under Pennsylvania law, the elements of intentional

misrepresentation are: 1) a representation; 2) which is

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 31 of 43
32

material to the transaction at hand; 3) made falsely, with

knowledge of its falsity or recklessness as to whether it is

true or false; 4) with intent of misleading another into

relying on it; 5)justifiable reliance on the misrepresentation;

and 6) resulting injury proximately caused by the reliance.

Bortx v. Noon, 729 A.2d 555, 560 (Pa. 1999). 

Defendant Illinois National contends that the plaintiffs’

fraud claims should be dismissed because the plaintiffs have

failed to allege an actionable misrepresentation, because the

“gist of the action” doctrine bars their fraud claims, and

because they have not pleaded fraud with particularity.

The plaintiffs allege the following with respect to their

fraudulent misrepresentation claim. At the time the plaintiffs

purchased or renewed the policy, and for a considerable period

of time prior thereto, the defendants had an undeviating policy

of attempting to deny coverage and of attempting to deny a

defense for large policy claims regardless of the merits of the

particular underlying case. Complaint at ¶163. Further, it is

alleged, in promulgating and pursuing this policy the

defendants willfully and knowingly subjected many of its

insured, including the plaintiffs, to a substantial risk that

they would be forced at considerable expense to obtain and

manage the defense of their own litigation. Id. at ¶164. The

defendants fraudulently misrepresented that they would pay

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 32 of 43
33

valid claims under their policies. Id. at ¶165. The defendants

deceptively stated the treatment their insureds would receive

with respect to investigation of claims and the defense and

indemnification thereof. Id. at ¶166. The defendants

deceptively induced the plaintiffs to purchase a policy by

promises that the defendants had made regarding their insurance

practices with no intention of performing them. Id. at ¶167. 

The defendants ultimately made a false misrepresentation

regarding the application of exclusions under the policy. Id.

at ¶168. The defendants knew that these representations were

false or they were reckless as to whether the representations

were true or false. Id. at ¶169. The defendants made the

representations with the intent of misleading the plaintiffs

into relying on the misrepresentations. Id. at ¶170. The

plaintiffs justifiably relied on the defendants’

misrepresentations and were damaged by that reliance. Id. at

¶¶171-172.

The plaintiffs are alleging fraud both in connection with

statements made by the defendants before the plaintiffs

purchased the policy and with regard to statements the

defendants made regarding applications of exclusions to the

policy. 

As to the plaintiffs’ allegations regarding statements

made by the defendants before the plaintiffs purchased or

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 33 of 43
34

renewed the policy, we conclude that the plaintiffs have failed

to plead fraud with particularity as required by Fed.R.Civ.P.

9(b). 

Federal Rule of Civil Procedure 9(b) provides: “In all

averments of fraud or mistake, the circumstances constituting

fraud or mistake shall be stated with particularity. Malice,

intent, knowledge, and other conditions of mind of a person may

be averred generally.” The purpose of Rule 9(b) is to provide

notice of the “precise misconduct” with which a defendant is

charged in order to give the defendant an opportunity to

respond meaningfully and to prevent false or unsubstantiated

charges. Rolo v. City Investing Co. Liquidating Trust, 155 F.3d

644, 658 (3d Cir. 1998). To satisfy Rule 9(b), the plaintiffs

must plead with particularity the “circumstances” of the

alleged fraud. Id. “They need not, however, plead the ‘date,

place or time’ of the fraud so long as they use an ‘alternative

means of injecting precision and some measure of substantiation

into their allegations of fraud.’” Id. (quoting Seville Indus.

Machinery v. Southmost Machinery, 742 F.2d 786, 791 (3d Cir.

1984)).

As to the allegations regarding statements made by the

defendants before the plaintiffs purchased or renewed the

policy, the plaintiffs have not pled with particularity the

circumstances of those alleged statements. The plaintiffs have

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 34 of 43
35

not alleged who (either by name or by company and position)

made the statements, to whom in the plaintiffs’ companies those

statements were made, or the context in which those statements

were made. Moreover, the plaintiffs have not precisely

identified those statements. Accordingly, we conclude that the

plaintiffs have failed to plead with particularity their fraud

claim with respect to statements made before the plaintiffs

purchased or renewed the policy.

The plaintiffs have requested leave to file an amended

complaint if the court concludes that they have not properly

pleaded their fraud claims. We will grant the plaintiffs

twenty days to file an amended complaint pleading with

particularity their fraud claim based on statements made by the

defendants before the plaintiffs purchased or renewed the

policy. Any amended complaint shall be complete in all

respects. It shall be a new pleading which stands by itself as

an adequate complaint without reference to the complaint

already filed. 

As to the alleged statements made by the defendants

regarding application of exclusions to the policy, the

plaintiffs’ reference is to the statements made in the letters

of November 9, 2000 and October 1, 2004 denying coverage. 

Those letters set forth Illinois National’s reasons for denying

coverage and a defense. The plaintiffs’ fraud claim with

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 35 of 43
5

 The plaintiffs correctly state that the

Pennsylvania Supreme Court has not adopted the gist of the

action doctrine. However, we rely on Etoll, supra, as a

reliable prediction that the Pennsylvania Supreme Court, if

faced with the issue, would adopt the gist of the action

doctrine and would conclude that fraud claims made based on

the performance of a contract are barred by that doctrine. 

36

respect to those statements is a claim of fraud in the

performance of the contract. We conclude that as to those

statements the plaintiffs’ fraud claim is barred by the gist of

the action doctrine. See Etoll, Inc. v. Elias/Savion

Advertising, Inc., 811 A.2d 10, 20 (Pa.Super.Ct. 2002)(holding

that the gist of the action doctrine applies to claims for

fraud in the performance of a contract).5 We will grant

defendant Illinois National judgment on the pleadings as to the

plaintiffs’ fraud claim based on statements made by the

defendants regarding application of exclusions to the policy.

F. AIG and AIGTS’ Motion for Judgment on the Pleadings.

In their motion for judgment on the pleadings, defendants

AIG and AIGTS adopt the position and reasoning of defendant

Illinois National in its motion for judgment on the pleadings. 

For the reasons discussed above, we will grant defendants AIG

and AIGTS judgment on the pleadings on the plaintiffs’ fraud

claim based on statements regarding application of exclusions

to the policy. Further, the plaintiffs’ fraud claim against

defendants AIG and AIGTS based on statements made before the

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 36 of 43
37

plaintiffs purchased or renewed the policy will be dismissed

because the plaintiffs have failed to plead fraud with

particularity. The plaintiffs will be permitted to file a

fraud claim in an amended complaint as to defendants AIG and

AIGTS.

Defendants AIG and AIGTS contend that they are not parties

to the policy and that therefore the plaintiffs’ declaratory

judgment claim and breach of contract claim should be dismissed

against them. Defendants AIG and AIGTS further contend that

they did not issue the insurance policy that forms the basis of

the plaintiffs’ bad faith claim and that therefore they are not

insurers for purposes of Pennsylvania’s Bad Faith Statute. 

The plaintiffs allege the following in their complaint

with regard to defendants AIG and AIGTS. AIG is a Delaware

corporation authorized to do business in Pennsylvania.

Complaint at ¶4. AIG is an international insurance and

financial services organization. Id. AIGTS is a Delaware

Corporation authorized to do business in Pennsylvania with its

principal place of business in New York. Id. at ¶3. AIGTS is a

member company of AIG and is engaged in the business of claims

and litigation management services in various insurances lines,

including professional liability. Id. Illinois National is a

member company or division of AIG. Id. at ¶5. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 37 of 43
38

AIG and Illinois National are qualified/authorized to

transact business as an insurer within Pennsylvania and

regularly engage in the sale of insurance in Pennsylvania. Id.

at ¶6. AIG and Illinois National had AIGTS act as their agent

or ostensible agent in managing and handling all claims

relevant to the policy in this case. Id. at ¶7. All defendants

had an interest in or are parties to the policy in this case.

Id. at ¶8. AIG and Illinois National are vicariously liable

for the actions of AIGTS. Id. at ¶9. 

On or about November 13, 2000, plaintiff NRA received a

letter dated September 9, 2000 from John P. Favilla, a claims

analyst of AIGTS, stating that Illinois National would neither

defend nor indemnify NRA. Id. at ¶98. Illinois National and

AIG, through Favilla and AIGTS, wrongfully denied a defense and

coverage to NRA. Id. at ¶112. After receipt of Forward

Thinking’s amended complaint, NRA again notified its insurer of

the claim by writing a letter to Favilla of AIGTS requesting a

defense and coverage. Id. at ¶114. In October of 2004, NRA

received a letter dated October 1, 2204 from Lisa Porcaro, a

claims analyst of AIGTS, stating that Illinois National would

not provide coverage for the Forward Thinking claims. Id. at

¶115. The conduct of Illinois National, AIGTS and AIG, Favilla

and Porcaro constitutes bad faith insurance practices. Id. at

¶134. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 38 of 43
39

The plaintiffs contend that AIG and AIGTS should remain as

defendants on the declaratory judgment and breach of contract

and bad faith claims because they lack sufficient information

regarding the interrelationship of AIG, AIGTS and Illinois

National. The plaintiffs state that they lack the information

necessary to determine whether one of the corporations is the

parent or subsidiary of another or whether an attempt to pierce

the corporate veil is appropriate. 

Defendants AIG and AIGTS respond that the plaintiffs have

failed to allege any factual basis in support of their

declaratory judgment, breach of contract or bad faith claims

against them. Defendants AIG and AIGTS contend that “discovery

is not intended as a fishing expedition permitting the

speculative pleading of a case first and then pursuing

discovery to support it; the plaintiff must have some basis in

fact for the action.” Zuk v. Eastern PA Psychiatric Institute, 

103 F.3d 294, 299 (3d Cir. 1996)(citing Advisory Committee

Notes to the 1993 amendments to Fed.R.Civ.P. 11). See also DM

Research v. College of American Pathologists, 170 F.3d 53, 55

(1st Cir. 1999)(stating that a complaint need not contain

evidentiary detail but that “the price of entry, even to

discovery, is for the plaintiff to allege a factual predicate

concrete enough to warrant further proceedings, which may be

costly and burdensome.”). 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 39 of 43
40

Federal Rule of Civil Procedure 8(a)(2) requires that a

complaint include “a short and plain statement of the claim

showing that the pleader is entitled to relief.” “Complaints

‘need not plead law or match facts to every element of a legal

theory.’” Weston v. Pennsylvania, 251 F.3d 420, 429 (3d Cir.

2001)(quoting Krieger v. Fadely, 211 F.3d 134, 136 (D.C.Cir.

2000)). “[A] plaintiff generally need not explicitly allege

the existence of every element in a cause of action if fair

notice of the transaction is given and the complaint sets forth

the material points necessary to sustain recovery.” Menkowitz

v. Pottstown Memorial Medical Center, 154 F.3d 113, 124 (3d

Cir. 1998). The statement required by Rule 8(a)(2) “must

simply ‘give the defendant fair notice of what the plaintiff’s

claim is and the grounds upon which it rests.’” Swierkiewicz v.

Sorema, 534 U.S. 506, 512 (2002)(quoting Conley v. Gibson, 355

U.S. 41, 47 (1957)). “This simplified notice pleading standard

relies on liberal discovery rules and summary judgment motions

to define disputed facts and issues and to dispose of

unmeritorious claims.” Id. 

Considering the plaintiffs’ complaint under the simplified

notice pleading standard, we nevertheless conclude that the

complaint fails to state a claim for a declaratory judgment, a

claim for a breach of contract or a claim of bad faith against

defendants AIG and AIGTS upon which relief may be granted. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 40 of 43
41

The policy that forms that basis of the plaintiffs’

declaratory judgment claim and breach of contract and bad faith

claims was issued by Illinois National. Neither AIG nor AIGTS

are signatories on that policy. 

The fact that AIGTS was the agent of Illinois National

does not provide a basis for holding AIGTS liable for breach of

the policy issued by Illinois National. See Hudock v. Donegal

Mutual Ins. Co., 264 A.2d 668, 672 (Pa. 1970). The plaintiffs 

do not allege that AIGTS was an insurer within the meaning of

Pennsylvania’s bad faith statute. See Margaret Auto Body, Inc.

v. Universal Underwriters Group, 2003 WL 1848560 at *1

(Phila.C.C.P. Jan. 10, 2003)(noting that the bad faith statute

does not contain a definition of insurer but that it is

generally recognized that an insurer issues policies, collects

premiums and in exchange assumes certain risks and contractual

obligations). Also, the “mere ownership of a subsidiary does

not justify the imposition of liability on the parent." Pearson

v. Component Technology Corp., 247 F.3d 471, 484 (3d Cir.

2001). Thus, the plaintiffs’ allegations that AIGTS and

Illinois National are member companies of AIG does not provide

a basis for holding AIG liable on the policy issued by Illinois

National. The plaintiffs have not alleged that Illinois

National was an agent of either AIG or AIGTS. Nor have the

plaintiffs alleged that AIG and AIGTS are alter egos of

Illinois National or any other basis for disregarding the

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 41 of 43
42

separate corporate identities of the defendants. Accordingly,

we conclude that the complaint does not provide fair notice of

the grounds upon which the plaintiffs’ declaratory judgment,

breach of contract and bad faith claims against AIG and AIGTS

rest. Accordingly, we will dismiss those claims against AIG

and AIGTS. However, the plaintiff will be permitted to file an

amended complaint to plead, if appropriate, claims against AIG

and AIGTS and the grounds upon which the plaintiffs are seeking

to hold AIG and AIGTS liable. 

IV. Order. 

IT IS ORDERED that the defendants’ motion (doc. 36) for

reconsideration is GRANTED and, as set forth in this Memorandum

and Order, the court has reconsidered the defendants’ motions

for judgment on the pleadings. IT IS ORDERED that defendant

Illinois National’s motion (doc. 23) for judgment on the

pleadings is GRANTED IN PART AND DENIED IN PART. Defendant

Illinois National is GRANTED judgment on the pleadings on the

plaintiffs’ fraud claim based on statements regarding

application of exclusions to the policy. The plaintiffs’

fraud claim against defendant Illinois National based on

statements made before the plaintiffs purchased or renewed the

policy is dismissed because the plaintiffs failed to plead

fraud with particularity. Defendant Illinois National’s motion

for judgment on the pleadings is otherwise DENIED. IT IS

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 42 of 43
43

ORDERED that defendants AIG and AIGTS’ motion (doc. 21) for

judgment on the pleadings is GRANTED. The plaintiffs’

declaratory judgment, breach of contract and bad faith claims

against defendants AIG and AIGTS are dismissed. Defendants AIG

and AIGTS are GRANTED judgment on the pleadings on the

plaintiffs’ fraud claim based on statements regarding

application of exclusions to the policy. The plaintiffs’ fraud

claim against defendants AIG and AIGTS based on statements made

before the plaintiffs purchased or renewed the policy is

dismissed because the plaintiffs failed to plead fraud with

particularity. IT IS FURTHER ORDERED that the plaintiffs are

granted leave to amend their complaint and that any amended

complaint shall be filed with twenty days of the date of this

Order. The Clerk of Court shall delay entering judgment until

the conclusion of the entire case. 

/s/ J. Andrew Smyser 

J. Andrew Smyser

Magistrate Judge

Dated: August 26, 2005. 

Case 4:05-cv-00033-JAS Document 44 Filed 08/26/05 Page 43 of 43