In Vaughan v. State Farm Fire and Cas. Co., the homeowner insurer denied coverage for water damage, determining that the damage occurred due to a frozen pipe caused by the failure to maintain heat in the home.  He homeowner sued alleging breach of contract, bad faith and a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.  The court dismissed the Unfair Trade claim based on the Economic Loss Doctrine.  Under this doctrine, a plaintiff is prohibited from recovering purely economic losses in tort, if the plaintiff would only be entitled to those losses based on a breach of a contract.

In dismissing the claim, the court reasoned that the plaintiff’s allegations in connection to her Unfair Trade claim were based on breach of the insurance policy.  As such, since the Unfair Trade claim was interwoven with her breach of contract claim, and the economic loss doctrine barred the Unfair Trade claim.

As such, if an insured’s claim based on Unfair Trade is so interwoven in a breach of contract claim, there may be a basis to dismiss based on the economic loss doctrine.

Thanks to Colleen Hayes for her contribution to this post.