The Pennsylvania Supreme Court recently examined the “gist of the action” doctrine in the case captioned Bruno v. Erie Ins. Co. The “gist of the action” doctrine is used by Pennsylvania courts to differentiate between contract and tort actions, which essentially prohibits a party from bringing a tort action that is actually a breach of contract claim. In this case, the Supreme Court had to consider the issue of whether a negligence claim brought against an insurer by its insureds was barred by the “gist of the action” doctrine.
In 2007, the Brunos purchased a homeowner’s insurance policy from Erie Insurance Company. The policy required Erie to pay the Brunos up to $5,000 for property damage caused by mold. Shortly after purchasing the policy, the Brunos began renovating their basement. During the renovations, they discovered black mold behind the walls. The Brunos contacted Erie, and Erie sent an adjustor and an engineer to investigate the mold. Upon investigation, the adjustor and engineer told the Brunos that the black mold was “harmless” and to continue with the renovation.
By January 2008, the entire Bruno family began experiencing respiratory ailments. Subsequently, the Brunos decided to have the black mold tested on their own. The testing revealed that the mold was “toxic in nature and hazardous to human health.” After learning of the results, the Brunos demanded that Erie pay the $5,000 under the policy, and payment was made in April 2008. However, when Angela Bruno was diagnosed with throat and esophageal cancers attributed to exposure to black mold, the Brunos filed a complaint against Erie in August 2010 alleging negligence.
Erie filed preliminary objections on the basis of a demurrer, arguing that the Brunos’ negligence claims against Erie were barred by the “gist of the action” doctrine. The crux of Erie’s argument was that an insurer does not owe a duty of care to its insureds in investigating and handling insurance claims; therefore, there can be no breach of a duty in tort. Moreover, Erie asserted that the duties it owed to the Brunos arose out of the contract itself, thus, the proper cause of action is one for breach of contract. The Brunos contended that their cause of action was not based on Erie’s breach of its contractual duties since the policy did not require Erie to determine the mold’s toxicity or to give advice regarding the continuation of renovations. However, once Erie undertook to do so, the Brunos contend it did so negligently. Thus, the action was predicated on the statements made by Erie’s adjustor and engineer about the harmlessness of the mold. The trial court sustained Erie’s preliminary objections, and Superior Court affirmed, dismissing the Brunos’ negligence claims.
The Supreme Court, however, reversed and remanded the case. To begin, the Supreme Court noted that “merely because a cause of action between two parties to a contract is based on the action of the defendant undertaken while performing his contractual duties, this fact, alone, does not automatically characterize the action as one for breach of contract.” Rather, the proper inquiry is the nature of the duty. Accordingly, actions that arise directly from contractual duty are contract causes of action and a breach of a “contracting party’s separate collateral duty to perform a contractual obligation with skill and diligence” are tort causes of action.
Upon application of the “gist of the action” doctrine to the facts of the present case, the Pennsylvania Supreme Court found that while Erie had contractual obligations to investigate for mold and to pay for property damage caused by the mold, the complaint does not allege that Erie failed to meet these obligations. Conversely, the Brunos allege that while Erie was in the process of fulfilling these contractual obligations, Erie acted in a negligent manner. Accordingly, the Supreme Court found that the complaint alleges Erie breached a social duty, not a contractual duty, and, thus, the “gist of the action” doctrine did not bar the Brunos’ claims for negligence.
Thanks to Erin Connolly for her contribution.
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