United States Life Insurance Company of America in the City of New York v. Herring

Filing 52

MEMORANDUM OPINION AND ORDER that Defendant United States Life's 39 Renewed Motion to Dismiss is DENIED in part and GRANTED in part as follows: (1) The motion to dismiss is DENIED with respect to counterclaims five through seven. (2) The motio n to dismiss is GRANTED with respect to counterclaims one through three. Counterclaims one through three are DISMISSED without prejudice, and Herring is GRANTED leave to amend those counterclaims on or before 11/24/2008. (3) The motion to dismiss is GRANTED with respect to counterclaim four. Counterclaim four is DISMISSED without prejudice. Signed by Honorable William Keith Watkins on 11/14/2008. (Attachments: #(1) Civil Appeals Checklist)(dmn)

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA E A S T E R N DIVISION U N I T E D STATES LIFE INSURANCE C O M P A N Y OF AMERICA IN THE C IT Y OF NEW YORK, P la in tif f , v. R O N N IE JAMES HERRING, D e f e n d a n t. ) ) ) ) ) ) ) ) ) ) )

CASE NO. 3:07-CV-1071-WKW [WO]

M E M O R A N D U M OPINION AND ORDER B e f o re the court is Plaintiff's renewed motion to dismiss Defendant's counterclaims (D o c . # 39), which is accompanied by a memorandum of law (Doc. # 40). Defendant filed a response (Doc. # 44), to which Plaintiff replied (Doc. # 45). Upon Defendant's motion (D o c . # 46), the court granted Defendant leave to file a surreply (Doc. # 47), which D e f e n d a n t did (Doc. # 48). For the following reasons, Plaintiff's renewed motion to dismiss D e f e n d a n t's counterclaims is due to be denied in part and granted in part. I . JURISDICTION AND VENUE J u ris d ic tio n is exercised pursuant to 28 U.S.C. § 1332 (diversity jurisdiction) and 28 U .S .C . § 2201 (Declaratory Judgment Act). The parties do not contest personal jurisdiction o r venue, and the court finds allegations sufficient to support both.

I I . FACTS AND PROCEDURAL HISTORY P lain tiff United States Life Insurance Company of America in the City of New York (" U n ite d States Life") filed claims against Defendant Ronnie James Herring ("Herring") on D e c em b e r 7, 2007, for a declaratory judgment, and alleging breach of contract and rescission, a n d fraud. (Compl. (Doc. # 1).) United States Life claims that it is entitled to rescind H e rrin g 's disability insurance policy because Herring made material misrepresentations and o m is s io n s in his policy application but for which United States Life would not have issued th e policy. (Compl. ¶¶ 7-9, 13, 17, 21.) More specifically, Herring allegedly failed to d isclo se that he had suffered from and had been treated for narcolepsy since 1998. (Pl.'s M e m . in Supp. of Mot. to Dismiss ¶ 1.) On November 1, 2001, United States Life issued the p o lic y certificate, and in March of 2007, Herring filed a claim for benefits and listed n a rc o le p sy as his disability. (Pl.'s Mem. in Supp. of Mot. to Dismiss ¶¶ 2-3.) In processing th a t claim, United States Life obtained Herring's medical records, which allegedly revealed th e r e were misrepresentations and omissions on his application, including the narcolepsy o m issio n . (Pl.'s Mem. in Supp. of Mot. to Dismiss ¶ 4.) Because of those

m is re p re se n ta tio n s , United States Life denied Herring's claim and fully refunded the p re m iu m s paid under the policy. (Pl.'s Mem. in Supp. of Mot. to Dismiss ¶ 5.) The next day, U n ited States Life filed its complaint. (Pl.'s Mem. in Supp. of Mot. to Dismiss ¶ 6.)

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W ith his Answer, Herring asserts seven counterclaims. (Answer (Doc. # 7).) The c o u n te rc la im s allege: (1) fraudulent misrepresentation, (2) fraudulent suppression, (3) re c k le ss /m is ta k e n misrepresentation and suppression of material information, (4) n e g lig e n c e/w a n to n n e ss in failing to procure insurance coverage, (5) breach of contract, (6) b a d -f a ith refusal to pay benefits under a theory of creating a debatable reason not to pay, and (7) bad-faith refusal to pay benefits under a theory of failing to fully investigate Herring's c laim . (Answer ¶¶ 4-8.) United States Life moved to dismiss the counterclaims under Rule 1 2 (b )(6 ) of the Federal Rules of Civil Procedure. (Pl.'s Mot. to Dismiss, 1.) United States L if e argues that the counterclaims are "entirely irrelevant to the matter at hand," and sep ara tely offers reasons and arguments for dismissing each individual counterclaim. (Pl.'s M em . in Supp. of Mot. to Dismiss, 5.) III. STANDARD OF REVIEW A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure ra is e s the defense of failure to state a claim upon which relief can be granted.1 Fed. R. Civ. P . 12(b)(6). A Rule 12(b)(6) motion tests the sufficiency of the complaint against the p lea d in g standards set forth in Rule 8, and if applicable, Rule 9 of the Federal Rules of Civil P r o c e d u r e . To state a sufficient claim for relief under Rule 8(a)(2), the complaint must in c lu d e only a "short and plain statement . . . showing that the pleader is entitled to relief."

The requirements for complaints set out in this standard apply to counterclaims as well. The federal rules for pleading by their own terms apply to claims and allegations, not just complaints. See Fed. R. Civ. P. 8 & 9.

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F e d . R. Civ. P. 8. Nevertheless, Rule 8 "requires more than labels and conclusions, and a f o rm u la ic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. T w o m b ly , 127 S. Ct. 1955, 1965 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the c o m p la in t are true (even if doubtful in fact)." Id. at 1965 (citations and footnote omitted). R u le 9(b) sets forth heightened pleading requirements for allegations of fraud or m ista k e . Fed. R. Civ. P. 9(b). A complaint alleging those causes of action "must state with p a rticu lar ity the circumstances constituting fraud or mistake[,] [though] [m]alice, intent, k n o w le d g e , and other conditions of a person's mind may be alleged generally." Id. Rule 9 (b ) must be read, however, "in conjunction with Rule 8(a)." Brooks v. Blue Cross & Blue S h i e ld of Fla., Inc., 116 F.3d 1364, 1371 (11th Cir. 1997); see also U.S. ex rel. Clausen v. L a b . Corp. of Am., Inc., 290 F.3d 1301, 1310 (11th Cir. 2002). With that in mind, a c o m p la in t satisfies Rule 9 if it sets forth: (1 ) precisely what statements were made in what documents or oral re p re se n ta tio n s or what omissions were made, and (2) the time and place of e a ch such statement and the person responsible for making (or, in the case of o m is s io n s , not making) same, and (3) the content of such statements and the m a n n e r in which they misled the plaintiff, and (4) what the defendants o b ta in e d as a consequence of the fraud. U.S. ex rel. Clausen, 290 F.3d at 1310 (quoting Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1 2 0 2 (11th Cir. 2001)). If the complaint fails to meet the requirements of Rule 8, or, in the case of fraud, Rule 9 , a court is not required to sua sponte grant leave to amend a complaint to a party 4

re p re s e n te d by counsel who never moved to amend or requested leave to amend. Wagner v. D a e w o o Heavy Indus. Am. Corp., 314 F.3d 541, 542 (11th Cir. 2002) (en banc). A court m a y decline to sua sponte grant leave to amend a complaint if amendment would be "futile." H a ll v. United Ins. Co. of Am., 367 F.3d 1255, 1263 (11th Cir. 2004); see Spear v. Nix, 215 F . App'x 896, 901 (11th Cir. 2007) (applying Hall's point on futility to review of a court's d e c lin in g to sua sponte grant leave to amend, post Wagner). IV. DISCUSSION U n ited States Life accuses Herring of asserting counterclaims that "make no sense in lig h t of the current and only stated basis on which [United States Life] rescinded [Herring's] p o lic y." (Pl.'s Mem. in Supp. of Mot. to Dismiss, 3.) Yet United States Life provides no a u t h o r ity for reaching that conclusion, let alone for dismissing the counterclaims on those g ro u n d s . It has not argued why Rule 13 of the Federal Rules of Civil Procedure should bar H e rrin g 's counterclaims. Rule 13 sets out the requirements for compulsory and permissive c o u n te rc la im s . A party must raise counterclaims that at the time of service are against the o p p o s in g party and "arise[] out of the same transaction or occurrence that is the subject m a tte r of the opposing party's claim," Fed. R. Civ. P. 13(a)(1)(A); "any claim that is not co m p u lsory" but is against an opposing party also may be raised, Fed. R. Civ. P. 13(b). If H e rrin g 's counterclaims fall outside those provisions, United States Life has failed to explain w h y; nor has United States Life alluded to another sufficient legal reason why the court s h o u ld dismiss the counterclaims as "entirely irrelevant to the matter at hand." (Pl.'s Mem.

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in Supp. of Mot. to Dismiss, 5.) United States Life argues that because its challenge is not to whether Herring would be entitled to his proceeds absent grounds for rescission, Herring's c o u n te rc la im s for enforcing the policy have "absolutely nothing to do with the rescission iss u e s." (Pl.'s Mem. in Supp. of Mot. to Dismiss, 4.) But Herring is not bound on his c o u n te r c la im s to address only the legal issues United States Life's claims circumscribe. W ith o u t authoritative substantiation, United States Life's general arguments for dismissal a re weightless. United States Life's motion must hinge, therefore, on the individual claims f o r dismissal of each count. Each count is addressed in turn. C o u n te rc la im One: False Misrepresentation T h e first counterclaim alleges that Herring entered into "an `own occupation' d is a b ility insurance policy" with United States Life based on its representation that the policy w o u ld provide proceeds in the event that Herring ever became disabled and unable to p e rf o rm the duties "of his `own occupation.'" (Answer, 4 ¶ 1.) Herring alleges that he " re a so n a b ly relied" on those representations and purchased the policy, and that when he later f ile d a claim for disability, United States Life "manufactured a reason" to deny him benefits, ca u sing him several specific injuries. (Answer, 4-5 ¶¶ 2-6.) United States Life faults this counterclaim for insufficient pleading under Rule 9 and a rg u e s that Herring "cannot prove the elements necessary to raise a proper fraud claim." (P l.'s Mem. in Supp. of Mot. to Dismiss, 5.) The court finds Herring sufficiently has pled th e elements of fraud under Alabama law, but has failed to meet the Rule 9 pleading

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re q u ire m e n ts under federal law.2

Herring's first counterclaim is for fraudulent

m is re p re se n ta tio n , the elements of which are "(1) a false representation (2) concerning a m a te ria l existing fact (3) relied upon by the [counter-]plaintiff (4) who must be damaged as a proximate result." 3 Earnest v. Pritchett-Moore, Inc., 401 So. 2d 752, 754 (Ala. 1981); Ala. C o d e § 6-5-101 ("Misrepresentations of material fact made willfully to deceive, or recklessly w ith o u t knowledge, and acted on by the opposite party . . . constitute legal fraud."). H e rrin g 's counterclaim alleges all of the elements for fraudulent misrepresentation under A la b a m a law: (1) United States Life made a false representation that it would provide insu ran ce proceeds under the policy if Herring ever became disabled and unable to perform th e duties of his job; (2) the representation concerned United States Life's paying the p ro c e ed s under the policy, which is clearly a material fact; (3) Herring "reasonably relied" u p o n the representations; and (4) he was injured because he paid premiums on a policy the v a lu e of which he lost, he lost interest, he now has no insurance policy, he would have had

In a diversity action, the claimant must plead the state law elements for his claims, but with sufficient particularity under federal law. See Barrett v. Scutieri, 281 F. App'x 952, 953 (11th Cir. 2008) (requiring claimant to set forth elements of fraud under state law but to plead with particularity under federal law); Lundgren v. McDaniel, 814 F.2d 600, 605 (11th Cir. 1987) ("In general, only substantive state law must be applied; federal law governs matters of procedure."); McAllister Towing & Transp. Co., v. Thorn's Diesel Serv., Inc., 131 F. Supp. 2d 1296, 1302 (M.D. Ala. 2001) (Albritton, J.) ("[T]he procedure for pleading fraud in federal courts is governed by federal law and not state law . . . in diversity suits." (emphasis added)); Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985) ("[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule."). Herring does not define his first counterclaim as a claim of fraudulent misrepresentation but the basis for his claim can be gleaned from the elements he pled, and his responsive brief labels it as such (Def.'s Resp., 3). Herring does not identify or label any of his claims with specificity in the counterclaims, instead referring to each as a consecutively-numbered counterclaim.
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p r o c e e d s under another policy, and he has suffered mental anguish and emotional distress. (A n s w e r, 4-5 ¶¶ 1-6.) Herring's counterclaim fails, however, because it does not meet the p lead ing requirements of Rule 9(b).4 (Answer, 4-5 ¶¶ 1-6.) The pleading deficiencies are e x p la in e d below in the consolidated discussion of the promissory fraud challenge to the first f o u r counterclaims, see infra pp. 11-14. C o u n te rc la im Two: Fraudulent Suppression H e rrin g 's second counterclaim alleges fraudulent suppression, which requires under A la b a m a law a showing "(1) that the defendant had a duty to disclose material facts; (2) that the defendant concealed or failed to disclose those facts; (3) that the concealment or failure to disclose induced the plaintiff to act; and (4) that the defendant's action resulted in harm t o the plaintiff." Booker v. United Am. Ins. Co., 700 So. 2d 1333, 1339 n.10 (Ala. 1997); A la . Code § 6-5-102 ("Suppression of a material fact which the party is under an obligation to communicate constitutes fraud."). A duty to disclose arises "where one party has superior k n o w le d g e of a fact and the other party's having the same knowledge would cause the other p a rty to take a different course of action." Indep. Life & Accident Ins. Co. v. Harrington, 658 S o . 2d 892, 896 (Ala. 1994); see § 6-5-102 ("The obligation to communicate may arise . . . f ro m the particular circumstances of the case."). Herring accuses United States Life of

United States Life's other argument for dismissing the first counterclaim ­ that Herring cannot prove the elements for fraudulent misrepresentation ­ is inconsequential on a motion to dismiss. That argument goes to the merits of Herring's counterclaim and misapplies the standard of review. (See Pl.'s Mem. in Supp. of Mot. to Dismiss, 7-8 (arguing that its representation was true, and that Herring was not damaged).)

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f a ilin g to disclose that Herring "would have to meet conditions other than the conditions set f o rth in the insurance policy before he would be entitled to insurance benefits" (Answer, 5 ¶ 8),5 and United States Life could have superior knowledge of the conditions, if any, an in s u r e d must meet outside of those in the insurance policy. Herring also alleges that because o f United States Life's failure to disclose conditions outside of those in the insurance policy, h e "changed his position and purchased [the] policy of insurance, began paying the necessary p re m iu m s to keep [the] policy in force and refrained from seeking other disability insurance c o v e ra g e ." (Answer 6, ¶ 9.) As explained below in the court's consolidated discussion of th e promissory fraud challenge, however, those allegations are not detailed enough to pass m u s te r under Rule 9. See infra pp. 11-14. U n ite d States Life argues that the second counterclaim fails in addition because the s ta tu te of limitations for fraud bars it. (Pl.'s Mem. in Supp. of Mot. to Dismiss, 10 (" D e f en d a n t's policy became effective in November 2001. Thus, the two-year statute of lim ita tio n s ran out in 2003.").) United States Life notes that under Alabama law, any fraud c la im must be brought within two years of the accrual of the claim. (Pl.'s Mem. in Supp. of M o t. to Dismiss, 10.); see Ala. Code § 6-2-38(l) ("All actions for any injury to the person or rig h ts of another not arising from contract and not specifically enumerated in this section m u s t be brought within two years."). What United States Life neglects to point out is that

The court reads Herring's use of "Plaintiff" when describing which party had to meet additional conditions (Answer, 5 ¶ 8) as a scrivener's error; the party should have been "Defendant" or some other indication that he was referring to himself.

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H e rrin g 's claim for fraud did not accrue until he discovered the fraud, and United States Life c a n rely on no alleged facts to pinpoint accrual at the time the fraud occurred, see supra p. 2 . Ala. Code. § 6-2-3 ("In actions seeking relief on the ground of fraud where the statute has c re a te d a bar, the claim must not be considered as having accrued until the discovery by the a g g rie v e d party of the fact constituting the fraud, after which he must have two years within w h ic h to prosecute his action."). Because United States Life has not met its burden of sh o w ing , based on Herring's allegations, that the statute of limitations has run, the court c a n n o t find at this stage that the statute of limitations bars this counterclaim. Counterclaim Three: Reckless/Mistaken Misrepresentation/Suppression H e rrin g 's third counterclaim is apparently for reckless and mistaken

m is re p re s e n ta tio n . (See Answer, 6 ¶¶ 11-13.) The only difference between willful and re c k le ss misrepresentation is the state of mind ("willfully to deceive"or "recklessly without k n o w le d g e ," § 6-5-101), and Herring has alleged recklessness (Answer, 6 ¶ 12). "Conditions o f a person's mind may be alleged generally," Fed. R. Civ. P. 9(b), and Herring incorporated th e facts sufficient for fraudulent misrepresentation and suppression in prior counterclaims,6

In this regard, however, Herring's counterclaims are inartfully pled. He indiscriminately incorporates the prior paragraphs of his counterclaims into subsequent ones without distinguishing which prior paragraphs are directly relevant. The Eleventh Circuit more than once has reprimanded parties for filing such "shotgun" claims which "typically . . . contain[] several counts, each one incorporating by reference the allegations of its predecessors, leading to a situation where most of the counts (i.e., all but the first) contain irrelevant factual allegations and legal conclusions." Strategic Income Fund, L.L.C. v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1296 (11th Cir. 2002) (highlighting the Eleventh Circuit law addressing "on numerous occasions, in the past, often at great length and always with great dismay" the problems with these shotgun complaints, id at 1296 n.9; accord id. at 1296 & n.10).

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s e e supra pp. 6-9. Yet Herring's third counterclaim cannot stand for the reasons laid out in th e consolidated discussion of the promissory fraud challenge. See infra pp. 11-14. C o u n te rc la im Four: Negligent/Wanton Failure to Procure Insurance Coverage H e rrin g 's fourth counterclaim is due to be dismissed for failure to state a claim. He a lle g e s negligent or wanton failure to procure insurance coverage (Answer, 6 ¶ 15), but as U n ite d States Life explains (Pl.'s Mem. in Supp. of Mot. to Dismiss, 11-12), this cause of a c tio n "is not an action based on contract between the insured and the insurance company, b u t an action based on an agency relationship between the insured and the agent who re p re se n ts the insurance company," Armstrong v. Life Ins. Co. of Va., 454 So. 2d 1377, 1379 (A la . 1984), overruled on other grounds, Hickox v. Stover, 551 So. 2d 259, 264 (Ala. 1989). H e rrin g 's fourth counterclaim fails because he cannot allege this cause of action against the in s u ra n c e company alone; no agent is a co-defendant in the case. C o u n te rc la im s One through Four: Promissory Fraud Challenge U n ite d States Life argues in its reply that Herring's fraud-based counterclaims ­ one th ro u g h four ­ in the best case scenario, are claims for promissory fraud.7 (Pl.'s Reply, 2 & n .1 .) Under this theory, Herring must allege, which he has not, that at the time of the s ta te m e n ts , United States Life "had the intention not to perform the act promised and p o ss e ss e d an[] intent to deceive." (Pl.'s Reply, 2-3.) Herring argues, however, that in A lls ta te Insurance Co. v. Hilley, 595 So. 2d 873 (Ala. 1992), the Supreme Court of Alabama

Because the court has already dismissed counterclaim four, the court's promissory fraud analysis is relevant only to counterclaims one through three.

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h e ld that representations about an insurance policy were not promises to act in the future but "p ertaine d to [the insurer's] obligations under the insurance policy" (Def.'s Surreply, 2). In H ille y , the court held that Allstate's agent's statement that Allstate would rebuild the house, rep lace the house, or pay a certain amount if a fire destroyed the insureds' house "[was] a re p re se n ta tio n of the insurance coverage that the [insureds] were purchasing. The statement w a s not a promise to act in the future. It was, rather, represented to the [insureds] as a p re se n t fact of Allstate's obligations under the insurance policy." Hilley, 595 So. 2d at 876. T h e court agrees that Hilley supports Herring's argument; counterclaims regarding m is re p r e s e n t a t i o n s and omissions about the insurance policy's coverage do not fall under p ro m is s o ry fraud, id. United States Life is correct that "a party experiencing a failure to perform a contract in the typical situation cannot characterize the other party's promise to perform as a m isrep rese n tatio n and thereby convert the action to one based upon a tort of fraud." (Pl.'s R e p ly, 2.) But representations outside of the contract terms can be a basis for tort claims. E x x o n Mobil Corp. v. Alabama Department of Corrections and Natural Resources discusses th is distinction: W e analyze the circumstances governing the availability of a remedy in tort between parties to a contract by first noting the long-standing rule a p p lic a b le to fraudulent conduct during negotiations, an interval that c o n c l u d e s when the parties strike their bargain and enter into a contract. A p a rty who has been the victim of a misrepresentation of a material fact or the su p p re ss io n of a material fact when there is a duty to speak upon which it re a so n a b ly relied during negotiations can claim fraud in the inducement. See, e .g ., Lacey v. Edmunds Motor Co., 269 Ala. 398, 402, 113 So.2d 507, 510 12

(1 9 5 9 ) ("It is a well-established principle in Alabama that a buyer alleging that h e was induced by fraud to enter into a contract may rescind by restoring b e n e fits and recover payments, or affirm, retain benefits, and sue in deceit for d a m a g e s . . . ."). In such cases, the aggrieved party, in effect, says, "I would n e v e r have entered into the contract if you had not induced me to do so by in correc t statements or omissions of material facts." Regardless of whether the re m e d y is rescission or deceit, a plaintiff can recover punitive damages when th e conduct was reckless or intentional. See Old Southern Life Ins. Co. v. W o o d a ll, 295 Ala. 235, 326 So. 2d 726 (1976) (action in deceit for damages); a n d Mid-State Homes, Inc. v. Johnson, 294 Ala. 59, 311 So. 2d 312 (1975) (a c tio n for rescission). . . . After becoming bound to the terms of a contract, subsequent events can, b u t as a general rule do not, give rise to a remedy in tort. Failed expectations a s to performance of a contract usually result only in a remedy for breach of c o n tra c t. See C & C Prods., Inc. v. Premier Indus. Corp., 290 Ala. 179, 186, 2 7 5 So. 2d 124, 130 (1974) ("A mere failure to perform a contract obligation is not a tort, and it furnishes no foundation for an action on the case."). Thus, a party experiencing a failure to perform a contract in the typical situation c a n n o t characterize the other party's promise to perform as a misrepresentation an d thereby convert the action to one based upon the tort of fraud. However, if a promise to perform in the future is made with no intention to perform at th e time the promise was made, it is promissory fraud and will give rise to an a c tio n in tort for which compensatory and punitive damages may be recovered. K e n n e d y Elec. Co. v. Moore-Handley, Inc., 437 So. 2d 76 (Ala. 1983). Such a claim is difficult to prove, because mere failure to perform is not evidence o f a lack of intent to perform at the time the contract was formed. Campbell v . Naman's Catering, Inc., 842 So. 2d 654 (Ala. 2002) (summary judgment in f a v o r of employer). Exxon Mobil Corp. v. Ala. Dep't of Corr. & Natural Res., 986 So. 2d 1093, 1129-30 (Ala. 2 0 0 7 ) (Lyons, J., concurring). Because Herring claims that he entered into the contract based u p o n United States Life's representations or omissions, his counterclaims allege m isre p re se n tatio n , not veiled contract claims (Answer, 4 ¶ 1; see also Answer, 5-6 ¶ 9; Def.'s R e sp ., 2 ("Based upon these representations, [Herring] purchased and maintained the

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d i s a b i lity insurance policy.").) a n te c e d e n t to the contract.

The allegation suggests that the representations were

Herring's allegations ultimately fail, however, because they are not sufficiently d e ta ile d under Rule 9. He has provided no information about the source or details of the m is re p re se n ta tio n s beyond the fact that United States Life generally presented them, or about w h e n and how they were made. (See, e.g., Pl.'s Mem. in Supp. of Mot. to Dismiss, 6 ("In ra isin g that claim, Defendant must disclose precisely what allegedly fraudulent statements w e re made, when they were made, where they were made, and who made them.").) Nor has H e r rin g described, even minimally, what omissions he claims are required outside of those in the contract. Only if Herring pleads such allegations with more specificity will the court b e assured that these counterclaims indeed allege fraudulent misrepresentations rather than d isg u ise d breach of contract claims. For these reasons, the court will dismiss Herring's first, se c o n d and third counterclaims, with leave to replead with sufficient particularity under Rule 9 (b ). Counterclaim Five: Breach of Contract H e rrin g 's fifth counterclaim is for breach of contract. (Answer, 7 ¶ 18.) United States L if e asks the court to dismiss this counterclaim as redundant. (Pl.'s Mem. in Supp. of Mot. to Dismiss, 12 (describing the counterclaim as "unnecessarily duplicat[ing] claims already b e f o re [the] [c]ourt").) Similar cases, however, have proceeded in this circuit without d is m is s a l of such counterclaims. See, e.g., Mega Life & Health Ins. Co. v. Pieniozek, 516

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F .3 d 985, 988 (11th Cir. 2008) (insurance company brought suit for declaratory judgment on a policy because of insured's alleged misrepresentations and insured counterclaimed for b re a c h of contract and bad faith); Allstate Ins. Co. v. James, 845 F.2d 315, 316 (11th Cir. 1 9 8 8 ) (case where insurance company filed complaint for declaratory judgment that policy w a s null and void and insured counterclaimed for breach of contract and bad faith). 8 If a c o u n te rc la im "merely restates the issues as a `mirror image' to the complaint, the c o u n te rc la im serves no purpose," Fed. Deposit Ins. Corp. v. Project Dev. Corp., No. 865 4 9 0 , 1987 WL 37488, at *3 (6th Cir. May 27, 1987), but the court declines to find that the b re a c h of contract issues mirror those for declaratory relief and rescission. The court elects to retain the claim, and United States Life has provided no authority to decide otherwise. Counterclaim Six: Abnormal Bad-Faith Refusal to Pay (Created a Debatable Reason) Herring and United States Life disagree about what the sixth counterclaim alleges. Incorporating all prior paragraphs, Herring alleges that United States Life was "under a duty to use good faith in handling [his] claim," that it "intentionally and in bad faith failed and re f u se d to pay benefits due under the [] policy of insurance by manufacturing a reason not to pay [the] benefits," and that Herring was injured as a result. (Answer, 7 ¶¶ 20-23.) United S ta te s Life categorizes those allegations as a "normal" refusal to pay claim, as opposed to an " a b n o rm a l" refusal, and argues that the complaint on its face renders it impossible for

See also Quanta Specialty Lines Ins. Co. v. Investors Capital Corp., No. 06 CIV. 4624, 2008 WL 1910503, at *6 (S.D.N.Y. Apr. 30, 2008) ("In declaratory judgment actions brought by insurers, courts in [that] district routinely allow an insured to assert counterclaims for . . . breach of contract.").

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H e rrin g to claim one of the elements of a normal refusal claim, "the absence of any re a so n a b ly legitimate or arguable reason for that refusal." (Pl.'s Mem. in Supp. of Mot. to D is m is s , 12-13.) Herring in his response argues that his claim was instead a claim for ab n o rm al bad-faith refusal. (Def.'s Resp., 6.) The allegations in the sixth counterclaim track an abnormal refusal claim, which re q u ire s a showing that the insurer "(1) intentionally or recklessly failed to investigate the p lain tiff 's claim; (2) intentionally or recklessly failed to properly subject the plaintiff's claim to a cognitive evaluation or review; (3) created its own debatable reason for denying the p la in tif f 's claim; or (4) relied on an ambiguous portion of the policy as a lawful basis to deny th e plaintiff's claim." State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293 (Ala. 1999). The m a n u f ac tu rin g a reason allegation tracks the third type of abnormal refusal claim ­ one for c re a tin g a debatable reason for denying the claim. Herring says nothing about the other e le m e n ts of a normal claim refusal, such as the absence of a reasonably legitimate reason for th e refusal of the claim. United States Life reads that silence as failing to state a normal re f u sa l claim, but the court reads the allegations as sufficient to state a claim under an a b n o rm a l refusal theory. (See Def.'s Resp., 5-6.) Counterclaim Seven: Abnormal Bad-Faith Refusal to Pay (Failed to Investigate) H e rrin g 's seventh and final counterclaim alleges a different type of abnormal badf a ith refusal case, a claim for failing to investigate Herring's claim (Answer, 8 ¶ 25). See s u p r a (describing bad-faith refusal claims). Bad-faith refusal claims for failure to investigate

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re q u ire proof "(1) that the insurer failed to properly investigate the claim or to subject the re su lts of the investigation to a cognitive evaluation and review and (2) that the insurer b re a ch e d the contract for insurance coverage with the insured when it refused to pay the in s u re d 's claim." Slade, 747 So. 2d at 318. United States Life claims that it has not denied H e r rin g ' s claim but has rescinded his policy. (Pl.'s Mem. in Supp. of Mot. to Dismiss, 15.) A c c o r d i n g to papers United States Life voluntarily submitted with its motion to dismiss,9 h o w e v e r, United States Life did deny Herring's claim. (See Pl.'s Mot to Dismiss Ex. D (L e tte r dated Dec. 6, 2007, informing Herring that his disability claim was denied).) United S ta te s Life also rescinded the policy. At the motion to dismiss stage, it appears the rescission o f the policy may be the justification for denying the claim, but the claim was denied n o n e t h e le s s . Sum m ary T h e renewed motion to dismiss is granted and dismissal without prejudice is w a rra n ted with respect to counterclaims one through three, with leave to replead, and with re sp e c t to counterclaim four. The parties are reminded, however, that the standard of review o n a Rule 12(b)(6) motion to dismiss does not address the merits of those or the remaining c o u n te rc la im s .

United States Life encourages the court to consider papers it attached to its motion to dismiss without converting it into a summary judgment motion. (See Pl.'s Mem. in Supp. of Mot. to Dismiss, 2 n.1.) It would be the same result with or without consideration of those papers based on the allegations.

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V . CONCLUSION For the foregoing reasons, it is ORDERED that Defendant United States Life's r e n e w e d motion to dismiss (Doc. # 39) is DENIED in part and GRANTED in part as follows: (1 ) seven. (2) T h e motion to dismiss is GRANTED with respect to counterclaims one through T h e motion to dismiss is DENIED with respect to counterclaims five through

th re e . Counterclaims one through three are DISMISSED without prejudice, and Herring is G R A N T E D leave to amend those counterclaims on or before November 24, 2008. (3) T h e motion to dismiss is GRANTED with respect to counterclaim four.

C o u n te rc la im four is DISMISSED without prejudice. D O N E this 14th day of November, 2008. /s/ W. Keith Watkins UNITED STATES DISTRICT JUDGE

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