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

Mr. 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.

Mr. 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 Mr. 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 Mr. 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 Co., 286 F.3d 661 (3d Cir. 2002), 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, 81 A.3d 940 (Pa. Super. Ct. 2013), 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 “[t]he 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, 146 A.3d 780, 790 (Pa. Super. Ct. 2016) (“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 Mr. Lovelace's claim and Mr. Lovelace “should not be legally disadvantaged” because he was in federal court.

The case is Lovelace v. Nationwide Mutual Ins. Co., No. 18-2701 (E.D. Pa. Aug. 10, 2018). Attorneys involved include: For JOHN D. LOVELACE, Plaintiff: VAUGHN A. BOOKER, LEAD ATTORNEY, PHILADELPHIA, PA. For NATIONWIDE MUTUAL INSURANCE COMPANY, also known as NATIONWIDE, doing business as NATIONWIDE, Defendants: PAMELA A. CARLOS, LEAD ATTORNEY, BENNETT BRICKLIN & SALTZBURG LLP, PHILADELPHIA, PA.

FC&S Legal Comment

Numerous courts in the Eastern District of Pennsylvania have wrestled with this question. In McGuckin v. Allstate Fire & Casualty Insurance Company, 118 F. Supp.3d 716 (E.D. Pa. 2015), 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 Univ., No. 17-4438 (E.D. Pa. Feb. 20, 2018) (“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, No. 16-6164 (E.D. Pa. July 14, 2017); Whitaker v. Herr Foods, Inc. 198 F. Supp.3d 476, 490 (E.D. Pa. 2016); Vaughan v. State Farm Fire and Cas. Co., No. 14-1684 (E.D. Pa. July 31, 2015).

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, No. 17-2012 (E.D. Pa. Dec. 21, 2017) (“[W]hen 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 Co., 4 F.3d 237, 239-40 (3d Cir. 1993)).

The court in Kantor v. Hiko Energy, LLC, 100 F. Supp. 3d 421, 427 (E.D. Pa. 2015), 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.”