Nelson et al v. Mayfield et al

Filing 28

MEMORANDUM OPINION. Signed by Judge L Scott Coogler on 12/20/12. (KGE, )

FILED
2012 Dec-20 AM 09:53
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
WESTERN DIVISION
MARY NELSON and OTIS
NELSON,
Plaintiffs,
vs.
NATIONWIDE PROPERTY &
CASUALTY INSURANCE
COMPANY, et al.,
Defendants.

]
]
]
]
]
] 7:12-cv-01965-LSC
]
]
]
]
]
]

MEMORANDUM OF OPINION
I.

Introduction
The Court has for consideration a motion to dismiss, which was filed by

Defendant Nationwide Property & Casualty Insurance Company, (“Nationwide”), on
June 7, 2012. (Doc. 7.) Plaintiffs Otis and Mary Nelson (the “Nelsons”) state four
claims against Nationwide: breach of contract of insurance; negligent & wanton
performance of insurance contract; negligent and wanton performance of contract of
repair; and fraud. (Doc. 1.) Nationwide contends that Plaintiffs’ claims are due to be
dismissed because they fail to state a claim and fail to meet the heightened pleading
standard of Federal Rule of Civil Procedure 9. (Doc. 7.) The Nelsons filed a response
Page 1 of 14

to Nationwide’s motion to dismiss. (Doc. 15.) Nationwide, in turn, filed a reply to the
Nelsons’ response. (Doc. 17.) Having been fully briefed, the motion to dismiss is now
ripe for consideration.
II.

Facts
Nationwide is a corporation formed in Ohio with its principal place of business

in Ohio. Nationwide is licensed and registered to do business in Alabama and, through
its agents, does business in the state. Nationwide insured the Nelsons’ home at the
time of the events at issue in this lawsuit. The Nelsons’ home was located 3406 Green
Grove Drive, Tuscaloosa, Alabama 35404-2124.
On April 27, 2011, a tornado severely damaged the Nelsons’ home in
Tuscaloosa. Because of the extensive damage, the Nelsons were forced to vacate their
home. The Nelsons promptly notified Nationwide of the damage to their home.
On May 6, 2011, Nationwide sent an agent, J. Drew Mayfield (“Mayfield”), to
assess the damage and adjust the loss. Mayfield and an accompanying structural
engineer determined that although the home was indeed uninhabitable, it was not a
total loss. Thus, Nationwide decided to repair the home.
On May 8, 2011, Mayfield returned to the Nelsons’ home, bringing with him
two representatives of GBS Roofing and Restoration, LLC (“GBS”) including George

Page 2 of 14

Smith (“Smith”), the owner of GBS. Mayfield told the Nelsons that GBS had worked
with him on several losses before, that GBS was a good company which would do the
work for the Nelsons at the adjusted value, and that they would do a good job. The
GBS representatives assured the Nelsons that they would take care of everything and
that they should not worry.
The Nelsons signed a contract with GBS, in which GBS agreed to perform the
repair work. Mayfield completed his estimate on May 18, 2011, and two days later he
forwarded a check to the Nelsons in the amount of $79,426.60. The insurance policy
stated that payments would only be made to the Nelsons as the insured party and their
mortgagee, but Mayfield also included GBS as a payee on the draft. Mayfield and
Smith encouraged the Nelsons to endorse the check and give it to Smith, who would
then obtain the endorsement of the mortgagee.
GBS performed sporadic work on the Nelsons’ home over the next several
months. In early fall of 2011, the Nelsons were notified that a subcontractor of GBS
was filing a lien upon their home for non-payment. When the Nelsons confronted
GBS, an employee stated that Smith had taken the Nationwide check, but assured
them that GBS would pay the subcontractor when money became available. Although
GBS did pay the money to have the lien removed, GBS failed to complete the home.

Page 3 of 14

At the time of filing the complaint, the Nelsons’ home was uninhabitable and
Nationwide had notified them that their additional living expense coverage was due
to expire on April 27, 2012, leaving the Nelsons without a home and lacking a way to
pay for a place to live. The Nelsons claim that they have been denied indemnification
for the loss of their home as a result of Nationwide’s actions and are seeking
compensatory and punitive damages in excess of $75,000, exclusive of interest and
costs.
III.

Standard
A defendant may move to dismiss a complaint pursuant to Federal Rule of Civil

Procedure 12(b)(6) if the plaintiff has failed to state a claim upon which relief may be
granted. “When considering a motion to dismiss, all facts set forth in the plaintiff’s
complaint ‘are to be accepted as true and the court limits its consideration to the
pleadings and exhibits attached thereto.’” Grossman v. Nationsbank, N.A., 225 F.3d
1228, 1231 (11th Cir. 2000) (quoting GSW, Inc. v. Long County, 999 F.2d 1508, 1510
(11th Cir. 1993)). In addition, all “reasonable inferences” are drawn in favor of the
plaintiff. St. George v. Pinellas County, 285 F.3d 1334, 1337 (11th Cir. 2002).
To survive a 12(b)(6) motion to dismiss for failure to state a claim, the
complaint “does not need detailed factual allegations;” however, the “plaintiff’s

Page 4 of 14

obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than
labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do. Factual allegations must be enough to raise a right to relief above the
speculative level, on the assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(internal citations omitted).1 The plaintiff must plead “enough facts to state a claim
that is plausible on its face.” Id. at 570. Unless a plaintiff has “nudged [his] claims
across the line from conceivable to plausible,” the complaint “must be dismissed.”
Id.
“[U]nsupported conclusions of law or of mixed fact and law have long been
recognized not to prevent a Rule 12(b)(6) dismissal.” Dalrymple v. Reno, 334 F.3d 991,
996 (11th Cir. 2003) (quoting Marsh v. Butler County, 268 F.3d 1014, 1036 n.16 (11th
Cir. 2001)). And “where the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has alleged—but it has not

1

In Bell Atlantic Corp. v. Twombly, the U.S. Supreme Court abrogated the oft-cited standard
that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt
that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief”
set forth in Conley v. Gibson, 355 U.S. 41 (1957). Bell Atl. Corp., 550 U.S. at 560-63. The Supreme
Court stated that the “no set of facts” standard “is best forgotten as an incomplete, negative gloss
on an accepted pleading standard: once a claim has been stated adequately, it may be supported by
showing any set of facts consistent with the allegations in the complaint.” Id. at 563.
Page 5 of 14

‘show[n]’—‘that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 129
S. Ct. 1937, 1950 (2009) (quoting Fed. R. Civ. P. 8(a)(2)).
Therefore, the U.S. Supreme Court suggested that courts adopt a
“two-pronged approach” when considering motions to dismiss: “1) eliminate any
allegations in the complaint that are merely legal conclusions; and 2) where there are
well-pleaded factual allegations, ‘assume their veracity and then determine whether
they plausibly give rise to an entitlement to relief.’” American Dental Ass’n v. Cigna
Corp., 605 F.3d 1283, 1290 (11th Cir. 2010) (quoting Iqbal, 129 S. Ct. at 1950).
Importantly, “courts may infer from the factual allegations in the complaint ‘obvious
alternative explanation[s],’ which suggest lawful conduct rather than the unlawful
conduct the plaintiff would ask the court to infer.” Id. (quoting Iqbal, 129 S. Ct. at
1951-52).
IV.

Analysis
Nationwide argues that all four of the Nelsons’ claims are due to be dismissed

for various reasons. First, Nationwide contends that the complaint does not state a
breach of contract of insurance claim because the Nelsons do not allege that
Nationwide failed to pay for the covered damages under the contract. Second,
Nationwide contends that Alabama courts have expressly rejected any first party cause

Page 6 of 14

of action based on negligent or wanton performance of an insurance contract or repair
contract; thus, the complaint does not state claim for negligent or wanton performance
of the insurance contract. Third, Nationwide argues that the Nelsons do not state a
negligent and wanton performance of a contract for repair because the Nelsons’ policy
does not contain a provision suggesting that Nationwide would be responsible for
supervising the contractor during repairs. Finally, Nationwide argues that the facts
alleged in the complaint fail to meet the heightened pleading standard of Federal Rule
of Civil Procedure 9(b); thus, the Nelsons fail to state a fraud claim.
A.

Breach of a Contract of Insurance

Count IV of the Nelsons’ complaint asserts a breach of a contract of insurance
claim against Nationwide. (Doc. 1 at 33.) “The elements of a breach-of-contract claim
under Alabama law are (1) a valid contract binding the parties; (2) the plaintiffs’
performance under the contract; (3) the defendant’s nonperformance; and (4)
resulting damages.” Shaffer v. Regions Fin. Corp., 29 So. 3d 872, 880 (Ala. 2009)
(quoting Reynolds Metals Co. V. Hill, 825 So. 2d 100, 105 (Ala. 2002)).
Nationwide argues that the Nelsons’ complaint does not state a breach of
contract cause of action against it because the “insurance policy only requires

Page 7 of 14

Nationwide to pay for covered damages” and the Nelsons do not dispute that
Nationwide did in fact pay for the covered damages. (Doc. 7 at 1.)
Under Alabama law, “misfeasance, or negligent affirmative conduct in the
performance of a promise generally subjects an actor to tort liability as well as contract
liability. . . .” Morgan v. S. Cent. Bell Tel. Co., 446 So. 2d 107, 114 (Ala. 1985) (emphasis
added). The Nelsons allege that Nationwide breached the terms of the contract
through “negligent affirmative conduct in the performance of a promise” by making
GBS a payee on the check, instead of following the policy terms which provided that
only the insured and their mortgagee be made payees. (Doc. 15 at 7.) The Nelsons
further allege that encouraging them to endorse the check and give it over to GBS was
a breach of the contract which resulted in GBS diverting the payment to its own use.
The allegations of the complaint are sufficient to state a claim for breach of contract
in that they provide facts that could satisfy each of the elements of breach of contract.
Specifically, the complaint asserts facts that demonstrate that (1) the insurance
contract is valid and binding on the Nelsons and Nationwide; (2) the Nelsons
performed their obligations under the contract; (3) Nationwide failed to perform its
obligations by making GBS a payee on the check; and (4) the Nelsons have incurred
damages by being denied indemnification for the loss of their home.

Page 8 of 14

Assuming, as the Court must at this stage in the proceedings, that the allegations
in the Complaint are true, the Nelsons have alleged facts which could “plausibly give
rise to an entitlement to relief.” American Dental Ass’n, 605 F.3d at 1290. Therefore,
Nationwide’s motion to dismiss the Nelsons’ Breach of a Contract of Insurance claim
is due to be denied.
B. Negligent and Wanton Performance of a Contract of Insurance
Count V of the Nelsons’ complaint asserts a claim of negligent and wanton
performance of the insurance contract against Nationwide. (Doc. 1 at 36.) Nationwide
argues that the Nelsons claim must fail because Alabama courts have “expressly
rejected any first party cause of action based in negligent handling of a claim.” (Doc.
7 at 2.) Nationwide lists several cases in support of its argument, but none pertains to
the facts at issue in this case. See Kerwin v. Southern Guaranty Ins. Co., 667 So. 2d 704
(Ala. 1995) (no claim for negligent and wanton performance for failure to investigate
claim when items were not within policy coverage); Pate v. Rollinson Logging
Equipment, Inc., 628 So. 2d 337, 345 (Ala. 1993) (no negligence claim for delaying
payment); Armstrong v. Life Ins. Co. Of Va., 454 So. 2d 1377, 1380 (Ala. 1984) (no
negligence cause of action for denial of claims), overruled on other grounds, Hickox v.
Stover, 551 So. 2d 259, 264 (Ala. 1989); Chavers v. Nat’l Security Fire & Casualty Co.,

Page 9 of 14

405 So. 2d 1 (Ala. 1981) (same); Calvert Fire Ins. Co. v. Green, 180 So. 2d 269 (Ala.
1965) (no negligence cause of action for not paying claim more quickly than policy
required). Nationwide relies on cases too narrow in their holdings to encompass the
facts at issue here. The Nelsons do not take issue with the timing or decision of
Nationwide’s claim handling, nor do they argue the coverage of the policy.
Instead, the Nelsons’ argue that Nationwide was negligent in its performance
of the insurance contract after the claims handling process. The Nelsons argue that
Nationwide’s actions constitute “misfeasance, or negligent affirmative conduct in the
performance of a promise” which can “subject[] an actor to tort liability as well as
contract liability.” Morgan, 446 So. 2d at 114 (emphasis added). While Morgan is not
exactly on point, it is broad enough to encompass the facts in this case, and the cases
cited by Nationwide do not specifically apply to the facts in this case. Thus, the
Nelsons allege facts which state a plausible claim for relief, and Nationwide’s motion
to dismiss the Nelsons’ Negligent and Wanton Performance of a Contract of
Insurance claim is due to be denied.
C. Negligent and Wanton Performance of a Contract of Repair
Count VI of the Nelsons’ complaint asserts a claim of negligent and wanton
performance of the repair contract against Nationwide. (Doc. 1 at 42.) Nationwide

Page 10 of 14

mentioned this claim in its brief in support of the motion to dismiss, but failed to set
forth an argument against it outside of its argument that “[t]he Courts in Alabama
have expressly rejected any first party cause of action based in negligent handling of
a claim.” (Doc. 7 at 2–3.) This argument fails because an insurance contract is not the
same as a repair contract; however, in its reply brief, Nationwide argued that no
provision in the Nelsons’ policy suggested that it would be responsible for supervising
GBS during the repairs. The Nelsons, on the other hand, argue that when an insurer
elects to repair the damaged property, the contract to repair replaces the insurance
contract, imputing all duties and obligations.
Under Alabama law, when a policy affords the insurer an election to repair or
pay, “the exercise of the option to repair converts the original contract into a contract
to repair.” State Farm Mutual Automobile Ins. Co. v. Dodd, 162 So. 2d 621, 626 (Ala.
1964) (citing 7 Am. Jur. 2d, Automobile Insurance, § 192). The hiring of an
independent contractor to perform the repair work does not relieve the insurer of
liability. See id. (“[O]ne who by his contract or by law is due certain obligations to
another cannot divest himself of liability for a negligent performance by reason of
employment of [an independent] contractor.”)

Page 11 of 14

The Nelsons’ allegations state a claim which raises a plausible right to relief.
Therefore, Nationwide’s motion to dismiss the Nelsons’ Negligent and Wanton
Performance of a Contract of Repair claim is due to be denied.
D. Fraud
Count VII of the Nelsons’ complaint asserts a claim of fraud against
Nationwide. (Doc. 1 at 47.) Nationwide argues that the facts alleged in the complaint
fail to meet the heightened pleading standard of Fed. R. Civ. P. 9(b). In addition to the
standard discussed above, Rule 9(b) provides that for a claim “alleging fraud or
mistake, a party must state with particularity the circumstances constituting fraud or
mistake.” FED. R. CIV. P. 9(b). The particularity required by the rule is satisfied when
“the complaint alleges facts as to time, place, and substance of the defendant’s alleged
fraud, specifically the details of the defendants’ allegedly fraudulent acts, when they
occurred, and who engaged in them.” U.S. ex rel. Matheny v. Medco Health Solutions,
Inc., 671 F.3d 1217, 1222 (11th Cir. 2012) (internal quotation and citation omitted).
Nationwide contends that the Nelsons’ fraud claim is inadequately pleaded
because they fail to state any false representations or the dates upon which they
occurred. The Nelsons do, however, provide Nationwide with the dates and substance
of the alleged false statements. (See Doc. 1 at 15–16.) Specifically, the complaint states

Page 12 of 14

that (1) Nationwide held out and represented to the Nelsons that Mayfield was a
specialist in handling large, catastrophic losses; (2) Mayfield, by virtue of his special
or confidential relationship, was under a duty to disclose those material facts
concerning the Nelsons’ loss for which he and Nationwide had superior knowledge;
(3) Mayfield had superior knowledge of the fact that a risk of theft and appropriation
would arise if the Nelsons endorsed and delivered the check indemnifying their loss
to a third party with no property rights in the covered property and, thus, no incentive
to safeguard and protect those rights; (4) Mayfield suggested the Nelsons endorse and
deliver a check indemnifying their loss to GBS, a third party with no property rights
in the covered property; and (5) Mayfield intentionally, recklessly, and negligently
failed to disclose his superior knowledge. Alternatively, the complaint states that
Mayfield, acting as the agent or employee of Nationwide, knew his representations
were false or were made in negligent or reckless disregard of their falsity. Further, the
complaint states the exact dates that these representations took place. (See Doc. 1 at
4–6.)
The Nelsons’ allegations present “enough facts to state a claim that is plausible
on its face.” Twombly, 550 U.S. at 570. Additionally, the Eleventh Circuit has
emphasized that the application of Rule 9(b) “must not abrogate the concept of notice

Page 13 of 14

pleading.” U.S. ex rel. Clausen v. Laboratory Corp. Of Am., Inc., 290 F.3d 1301, 1310
(11th Cir. 2002) (quoting Ziemba v. Cascade Int’l Inc., 256 F.3d 1194,1202). Rule 9(b)
is satisfied where the Plaintiffs set forth “the details of the defendants’ allegedly
fraudulent acts, when they occurred, and who engaged in them.” Hopper v. Solvay
Pharmaceuticals, Inc., 588 F.3d 1318, 1324 (11th Cir. 2009) (quoting Clausen, 290 F.3d
at 1310)). The Nelsons have set forth all that is required by Rule 9(b). Therefore,
Nationwide’s motion to dismiss the Nelsons’ fraud claim is due to be denied.
V.

Conclusion.
For the foregoing reasons, Defendant’s Motion to Dismiss is due to be

DENIED. A separate order will be entered consistent with this Opinion.
Done this 20th day of December 2012.

L. SCOTT COOGLER
UNITED STATES DISTRICT JUDGE
171032

Page 14 of 14