Cincinnati Insurance Company v. Atlas Healthcare LLC

Filing 70

MEMORANDUM OPINION and ORDER DENYING MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS- For the reasons set forth herein, the deft's motion for judgment on the pleadings (Doc 26 ) is DENIED; As mentioned in footnote 1, the motion for summary judgment (Doc 29 ) also is DENIED without prejudice to refiling (or replacing with a different motion for summary judgment) before March 1, 2019. Signed by Magistrate Judge T Michael Putnam on 2/5/19. (MRR, )

FILED
2019 Feb-05 AM 11:38
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

CINCINNATI INSURANCE
COMPANY,

)
)
)
Plaintiff/Counterclaim Defendant, )
)
vs.
)
)
ATLAS HEALTHCARE, LLC;
)
)
Defendant/Counterclaimant.
)

Case No. 2:17-cv-1310-TMP

MEMORANDUM OPINION and ORDER DENYING MOTION
FOR PARTIAL JUDGMENT ON THE PLEADINGS
Pending before the court is defendant Atlas Healthcare, LLC=s (“Atlas”)
motion for partial judgment on the pleadings, filed pursuant to Federal Rule of Civil
Procedure 12(c).1 (Doc. 26). The motion has been fully briefed, and, pursuant to
defendant=s request for oral argument, the motion was heard on December 7, 2018.

1

The court is aware that Atlas also has filed a motion for partial summary judgment.
(Doc. 29). However, because the parties were allowed to engage in discovery since the filing of
the motion and there is a new dispositive motions deadline of March 1, 2019, the court believes the
parties should be allowed to refile the motion and opposition to take into account any evidence
unearthed discovery. Accordingly, the motion for partial summary judgment is DENIED without
prejudice to refiling it on or before March 1, 2019. In event a renewed motion is filed, an
opposition to it can be filed no later than twenty-one (21) days after the date of service of the
motion. A reply to the opposition can be filed no later than seven (7) days after the date of service
of the opposition.

The parties have consented to the jurisdiction of the undersigned Magistrate Judge
pursuant to 28 U.S.C. ' 636(c).
The defendant seeks judgment on the pleadings based on the following: (1)
that the plaintiff has not sufficiently pleaded a claim of fraud in Count One of the
Complaint; (2) that the plaintiff cannot show the requisite intent to deceive to
support the fraud claim; and (3) that the plaintiff has not alleged material
misrepresentations of fact.

The plaintiff, Cincinnati Insurance Company

(“Cincinnati”), counters that the claim relating to the alleged fraud is pleaded with
particularity as required by Federal Rule of Civil Procedure 9(b) and is not subject to
dismissal under Rule 12.
Rule 12(c) provides that a party may move for a judgment on the pleadings
“[a]fter the pleadings are closed—but early enough not to delay trial.” Entry of a
“[j]udgment on the pleadings is appropriate when there are no material facts in
dispute, and judgment may be rendered by considering the substance of the
pleadings and any judicially noticed facts.” Hawthorne v. Mac Adjustment, Inc.,
140 F.3d 1367, 1370 (11th Cir. 1998). Similar to a Rule 12(b)(6) motion to
dismiss, the court must “accept all facts in the complaint as true and view them in the
light most favorable to the nonmoving party.” Cannon v. City of West Palm Beach,
250 F.3d 1299, 1301 (11th Cir. 2001).

2

This action arises from a business insurance policy issued by Cincinnati to
Atlas. Atlas is a company that procures contracts with healthcare professionals
who can then be deployed to medical facilities that require additional staff. The
policy included coverage for ABusiness Income (and Extra Expense).@ On July 18,
2016, the building where Atlas was a tenant was damaged by water, and Atlas filed a
claim that included a claim for lost business income of more than a million dollars,
asserting that the damage to their office caused Atlas to lose opportunities to recruit,
hire, and deploy medical professionals to medical facilities. 2 As authorized by the
policy, Cincinnati took sworn examinations under oath from two principals of Atlas
concerning the claim for loss of business income. Cincinnati refused to pay the
claim for the alleged loss of business income and commenced this action, seeking a
declaratory judgment.

Cincinnati asserts that Atlas intentionally concealed or

misrepresented material facts relating to the business income claim (Count One),
and that Cincinnati is entitled to a declaratory judgment that it is not liable for the
lost income claim of approximately $1.7 million set forth by Atlas (Count Two).
The instant motion seeks dismissal of Count One only.
Count One of the complaint asserts that Atlas, Athe insured, in violation of the
express provisions of the policy, intentionally concealed or misrepresented material
2

Atlas apparently made payment for the loss of the physical business property, and
the coverage at issue is the claim for lost business opportunity.
3

facts or circumstances to the company... during the investigation of this loss.@
(Doc. 1, &21). The complaint refers to a proof of loss document filed with
Cincinnati by Atlas on December 5, 2016, which listed the amount of lost business
income as AUnknown At This Time,@ and further asserts that the claim was
ultimately submitted for $1,780,815.00, which the plaintiff asserts was a
misrepresentation of the loss, and that the claim specifically misrepresented an
alleged lost relationship with a Nebraska facility, and misrepresented the application
status of the subjects of the claim.

(Doc. 1, && 22-23).

In addition, the

complaint=s factual allegations name nine individuals concerning whom the insured
sought lost income, and refers to eight other unnamed medical professionals about
whom the loss is disputed.

1. Heightened Pleading Standard of Rule 9(b)
Under Federal Rule of Civil Procedure 9(b), a claim of fraud must Astate with
particularity the circumstances constituting fraud.@ Fed. R. Civ. P. 9(b). Under
Eleventh Circuit law, the particularity required generally must include the time,
place, and person responsible for the misrepresentations, and must refer to any
documents or statements that are alleged to be fraudulent. AIn other words, the
plaintiff must allege the who, what, where, when, and how of each element, except

4

scienter, which can be pleaded generally.@ U. S. v. Pub. Warehousing Co. K.S.C.,
No. 1:05-CV-2968-TWT, 2017 WL 1021745, at *3 (N.D. Ga. Mar. 16, 2017) (citing
Corsello v. Lincare, Inc., 428 F.3d 1008, 1014 (11th Cir. 2005)).
In this case, the complaint contains sufficient factual allegations to effectively
plead fraud under Alabama law and under Federal Rule of Civil Procedure 9(b).
The complaint specifies when Atlas made the representations about the loss of
business, and it names the particular healthcare providers from whom Atlas
represented it lost business opportunities.

The complaint alleges that Atlas

represented to Cincinnati that certain specifically-identified contracts with
healthcare providers were lost due to Atlas’s inability to communicate with the
providers due to the water damage it suffered. 3 The allegations of the complaint are
sufficient to apprise Atlas what representations Cincinnati contends were fraudulent,
and to provide details of the Awho, what, when and where@ of the misrepresentations.
The complaint also alleges that the alleged misrepresentations were made
intentionally, and, under Rule 9, it is not necessary to allege circumstantial facts of

3

For example, paragraph 15 of the complaint names nine specific contracts with
medical professionals that, according to Atlas, were lost due to Atlas’s inability to communicate
with them. Cincinnati then alleges later in Count I that Atlas’s representations about losing these
contracts due to the covered water loss were false. At paragraph 23, Cincinnati alleged that Atlas
“falsely claim[ed] certain contracts were lost due to communication issues caused by the water
damage….” This sufficiently alleges the who, what, when, and where of the alleged fraud.
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that state of mind. Accordingly, the motion to dismiss on the basis that the claim is
insufficiently pleaded is due to be denied.4

2. Intent to Deceive
Under Alabama law, a claim of fraudulent misrepresentation sufficient to void
an insurance policy must be premised upon an Aactual intent to deceive.@ Ala. Code
' 27-14-28. See, e.g., Bankers Life & Cas. Co. v. Long, 266 So. 2d 780 (Ala. Civ.
App. 1972).5 An insurance policy may be declared void, however, if an insured
intentionally makes misrepresentations during the post-loss investigation of a claim.
See, e.g., Baker v. Travelers Ins. Co., 207 F. Supp. 3d 1246, 1254 (N.D. Ala. 2016).
As set forth above, the scienter may be pleaded generally—that is, it is not necessary
to allege objective circumstantial facts from which an inference of deceit can be
drawn.
Cincinatti=s complaint alleges that the insured, Ain violation of the express
provisions of the policy, intentionally concealed or misrepresented material facts@
4

To the extent that the defendant asserts that the claim also is insufficient under
Rule 12(b) and the Supreme Court standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the fact that the allegations suffice to
meet the heightened pleading standard of Rule 9(b) compel the conclusion that the standards of
Rule 12(b) also are met.
5

The parties do not dispute that the fraud and insurance coverage issues raised in the
complaint are governed by Alabama state law.
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relating to the amount of the loss. While the insurer may find the burden of proving
such intent to deceive to be a high hurdle at trial or even at summary judgment, the
burden at the pleading stage is merely to allege that the insured had the requisite
intent.6 The complaint sufficiently alleges the intent to deceive; accordingly, the
motion to dismiss on that ground is due to be denied.

3. Materiality of Alleged Misrepresentations
Atlas further asserts that the alleged misrepresentations upon which
Cincinnati bases its claim are not misrepresentations of material fact, but are simply
a differing opinion as to the value of the loss. Under Alabama law, in a case cited
by the defendant, another court in this district has noted that an insurance policy
cannot be voided where the insured simply provides a Abona fide opinion about the
value of the claim.@

Cole v. Owners Ins. Co., 326 F. Supp. 3d 1307, 1322 (N.D.

Ala. 2018). However, Cole stands for the proposition that an Aopinion@ about the
dollar

amount

of

a

loss—Awithout

6

more”—does

not

equal

fraud

or

The defendant points to the complaint=s allegation that the insured Afelt@ that the
medical recruits who were named would eventually have contracted with Atlas and have produced
income for Atlas as evidence that Atlas had a good faith belief in the accuracy of its estimate of the
loss. This argument is without any basis. The allegation in the complaint, while inartful, is
merely a description of what the insured had claimed when it reported the loss; it is not a
concession of Atlas=s lack of intent for pleading purposes. On summary judgment or at trial,
Cincinnati still will be required to prove the absence of good faith by Atlas.
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misrepresentation. 326 F. Supp. 3d at 1327. In this case, the allegations are that
Atlas did not simply have a different opinion as to the value of the loss, but that Atlas
intentionally stated relationships, contracts, and income that it did not have or did
not lose as a result of the covered water loss. Whether Cincinnati can prove that
Atlas=s valuation was fraudulent is a matter not ripe for consideration here. The
allegations demonstrate that the representations were “more” than a disagreement
regarding the value of a loss. Accordingly, the final argument of the defendant=s
motion to dismiss is due to be denied.

CONCLUSION
For the reasons set forth herein, the defendant=s motion for judgment on the
pleadings (doc. 26) is due to be and hereby is DENIED. As mentioned in footnote 1
above, the motion for partial summary judgment (doc. 29) also is denied without
prejudice to refiling (or replacing with a different motion for summary judgment)
before March 1, 2019.
DATED this 5th day of February, 2019.

T. MICHAEL PUTNAM
U.S. MAGISTRATE JUDGE
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