Michael Adams, et al v. American Family Mutual Ins. Co

Filing

OPINION FILED - THE COURT: Diana E. Murphy, Lavenski R. Smith and Duane Benton AUTHORING JUDGE:Diana E. Murphy (PUBLISHED) [4370460] [15-1475]

United States Court of Appeals
For the Eighth Circuit
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No. 15-1475
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Michael Adams, on behalf of themselves and all others similarly situated; Colleen
Adams, on behalf of themselves and all others similarly situated
lllllllllllllllllllll Plaintiffs - Appellants
v.
American Family Mutual Insurance Company
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the Southern District of Iowa - Des Moines
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Submitted: January 12, 2016
Filed: February 24, 2016
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Before MURPHY, SMITH, and BENTON, Circuit Judges.
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MURPHY, Circuit Judge.
Michael and Colleen Adams owned a homeowners insurance policy issued by
American Family Mutual Insurance Company (American Family) at the time a pipe
burst in their home. The Adams couple (the Adams) believed that American Family
had not reimbursed them for all of the damage to their home, and they invoked their
right to appraisal under Iowa law. American Family did not participate in the

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appraisal process, claiming that its policy did not allow for appraisals. The Adams
initially filed a state court petition seeking damages from American Family for their
individual claims, but later amended the petition to state a class action. American
Family then removed the class action to federal district court and moved to dismiss.
After the district court1 granted American Family's motion and dismissed the case, the
Adams moved to amend their complaint to reassert their individual claims. The
district court denied the motion to amend. The Adams appeal, and we affirm.
I.
At the time a pipe burst in their home, the Adams owned an American Family
homeowners insurance policy. American Family paid them for their structural
damage pursuant to the policy. After the Adams received this payment, they
discovered additional damage to their home and American Family refused to consider
the additional losses. The Adams attempted to invoke their right to appraisal under
Iowa Code § 515.109, but were informed by American Family that their contract only
provided for arbitration, not appraisal.
The Adams then brought this claim against American Family in the Iowa
District Court for Polk County. Initially they alleged that American Family had
breached its duty of good faith, as well as their homeowners insurance contract, by
refusing to pay for the additional damage and by not participating in an appraisal
process. They sought punitive damages and a declaration that they had a right to
appraisal for their additional losses. The Adams later amended their petition to plead
a class action composed of all American Family insureds who had submitted claims
for benefits under insurance policies which had binding arbitration clauses, whether
for their homes, farms, or ranches. The class action petition sought a declaratory

1

The Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa.
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judgment that American Family had illegally deprived the class members of their
statutory rights to appraisal under Iowa Code § 515.109 and breached its duty of good
faith. They also sought an injunction requiring American Family to advise all class
members of their right to appraisal. After the state district court certified the class,
American Family removed the lawsuit to federal court under the Class Action
Fairness Act, 28 U.S.C. § 1332(d).
American Family moved to dismiss, arguing that the class claims for
declaratory and injunctive relief did not state claims because Iowa's appraisal statute
does not create a private right of action. The Adams responded that these claims were
premised on American Family's breach of the "conformity clause" in its homeowner
contracts, not on a direct violation of Iowa's appraisal statute. The policy's
conformity clause provides that if any part of a policy were found contrary to Iowa
law, American Family agrees "to alter that part of [the] policy and make it conform
with state law." The Adams argued that since the contract did not allow for
appraisals, it did not conform with state law so the right to appraisal had to be
inserted into the policy. When American Family did not honor the Adams' right to
appraisal, it thus breached the contract.
The district court rejected this argument, concluding that the plaintiffs had
simply requested the court to find that American Family had violated Iowa's appraisal
statute, a statute which does not provide for a private right of action. The court
alternatively noted that the conformity clause had not been pled in the amended class
petition and concluded that this theory did not create a "case or controversy"
appropriate for resolution under the Declaratory Judgment Act, 28 U.S.C. § 2201.
The Adams' declaratory judgment was dismissed as well as their request for an
injunction. The court also dismissed the bad faith claim because the Adams had not
alleged that American Family denied any of the class members' claims, a prerequisite
for a bad faith claim in Iowa.

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After the district court dismissed all of the Adams' class action claims, the
court permitted them to file a Rule 15(a)(2) motion for leave to file an amended
petition. Their proposed second amended petition alleged a breach of contract claim
based upon American Family's failure to pay for the additional damage done to the
their home and a bad faith claim seeking damages for American Family's failure to
investigate, adjust, and pay for the additional losses. The district court denied the
motion, concluding that the new petition merely attempted to resurrect the individual
claims the Adams had initially asserted in state court and that such an amendment
would substantially prejudice American Family. The Adams appeal the dismissal of
their action and the denial of their motion to amend.
II.
We review de novo a district court's grant of a motion to dismiss. Cormack v.
Settle-Beshears, 474 F.3d 528, 531 (8th Cir. 2007). On appeal the Adams' sole theory
of class liability is that American Family breached the "conformity clause" in the
insurance policies held by the class members. American Family argues that this
theory of liability was not pled in the amended class action petition and therefore was
properly dismissed. A theory of liability that is not alleged or even suggested in the
complaint would not put a defendant on fair notice and should be dismissed. See
Gomez v. Wells Fargo Bank, N.A., 676 F.3d 655, 665 (8th Cir. 2012). In order to
state a claim, a pleading must contain "a short and plain statement of the claim
showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The pleading
"must provide the defendant with fair notice of what the plaintiff's claim is and the
grounds upon which it rests." Gomez, 676 F.3d at 665 (internal quotations omitted).
The conformity clause was never mentioned in the Adams' class action
petition. Instead, their petition alleged that American Family had illegally deprived
the class members of their statutory right to appraisal and sought a declaration from
the district court that the company had violated Iowa Code § 515.109. As the district
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court correctly noted, the first time the Adams brought up a breach of contract theory
of liability based on the conformity clause was in their brief in resistance to American
Family's motion to dismiss. Since the Adams had failed to plead sufficient facts to
provide American Family with fair notice of this theory, the district court did not err
in dismissing that claim. See Gomez, 676 F.3d at 665.
III.
We review the district court's denial of the Adams' motion to amend their
petition for abuse of discretion. See Briehl v. Gen. Motors Corp., 172 F.3d 623, 629
(8th Cir. 1999). A district court does not abuse its discretion when it denies plaintiffs
"leave to amend the pleadings to change the theory of their case after the complaint
has been dismissed under Rule 12(b)(6)." Id. at 629. The Adams argue that their
motion to amend did not change their theory of the case because "throughout the
course of this litigation . . . the Adamses' claim is, and always has been, a claim for
monetary damages." This argument is without merit.
The Adams' motion to amend sought to change their theory of the case because
the class action petition had challenged the contents of all American Family insurance
policies in a declaratory judgment pleading while the proposed second amended petition
claimed that American Family breached the contents of the insurance contract.
Additionally, the class action petition sought a class wide injunction, not individual
damages, while the proposed second amended petition sought individual damages
instead of a class wide injunction. The district court therefore did not abuse its discretion
because the Adams sought to change their theory of liability after their class action
petition had been dismissed.

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IV.
For these reasons we affirm the orders of the district court.
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