Kovacs v. Sentinel Insurance Company Limited

Filing 33

ORDER granting 24 Motion to Dismiss for Failure to State a Claim. Plaintiff may file an amended complaint re-pleading his bad faith claim on or before 7/29/2016. Signed by Judge David G Campbell on 7/1/2016.(DGC, nvo)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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James Kovacs,
Plaintiff,

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Sentinel Insurance Company Limited,

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ORDER

v.

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No. CV-16-00964-PHX-DGC

Defendant.

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On May 2, 2016, Plaintiff filed his amended complaint, asserting claims for

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(1) breach of contract, (2) bad faith, (3) breach of fiduciary duty, and (4) declaratory

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judgment. Doc. 14. Defendant moves to dismiss the second and third claims. Doc. 24.

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The motion has been fully briefed (Docs. 25, 29), and no party requests oral argument.

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For the reasons that follow, the Court will grant the motion.

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I.

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Background.
The allegations in the complaint are taken as true for purposes of this motion.

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Plaintiff is an individual who owns residential property in Phoenix.

Doc. 14, ¶ 1.

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Defendant is an insurance company based in Connecticut. ¶ 23. Plaintiff took out an

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insurance policy with Defendant. ¶ 2. The policy provided coverage for wind, hail, and

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water damage to Plaintiff’s home between July 29, 2013 and July 29, 2014. ¶ 3.

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On or about July 26, 2014, Plaintiff’s home suffered wind, hail, and water damage.

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¶¶ 4-5. In December 2014, Plaintiff discovered this damage and notified Defendant. ¶ 6.

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Defendant sent its employee, Jeremy Magid, to inspect the home. ¶¶ 10-11. Magid

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conducted an investigation and prepared an estimate. ¶¶ 12-13. According to Plaintiff,

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Magid conducted a substandard investigation and failed to account for the cost of

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repairing the air conditioning unit and several other external structures. ¶ 14. In addition,

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“Mr. Magid’s substandard investigation failed to sufficiently account for a storm created

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opening, caused by wind-lifted shingles, which allowed water to enter” the home. ¶ 15.

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Because Magid underestimated the cost of repairing the home, Plaintiff was forced

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to retain a third party company, Valscope, to provide an independent assessment. ¶ 16.

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Valscope provided an estimate that was “much more” than that provided by Defendant.

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¶ 17. Plaintiff provided Defendant with a copy of Valscope’s estimate and demanded

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payment, but Defendant “ignored this demand.” ¶ 18. Plaintiff paid out of pocket for the

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repairs recommended by Valscope. ¶ 19.

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II.

Legal Standard.

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A successful Rule 12(b)(6) motion must show either that the complaint lacks a

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cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri

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v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a

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cognizable legal theory will survive a motion to dismiss as long as it contains “sufficient

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factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S.

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544, 570 (2007)). A claim has facial plausibility when “the plaintiff pleads factual

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content that allows the court to draw the reasonable inference that the defendant is liable

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for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility

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standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer

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possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556).

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III.

Analysis.

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A.

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Plaintiff alleges that Defendant’s “obligation to pay Plaintiff’s claim was not fairly

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debatable after an adequate investigation”; Defendant “partially denied the claim without

Bad Faith.

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a reasonable basis”; and Defendant “knew or recklessly disregarded the lack of

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reasonable basis for denying Plaintiff’s claim.” Doc. 14, ¶¶ 49-51. Plaintiff asserts that

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Defendant acted in bad faith. ¶ 52.

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“To show a claim for bad faith, a plaintiff must show the absence of a reasonable

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basis for denying benefits of the policy and the defendant’s knowledge or reckless

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disregard of the lack of a reasonable basis for denying the claim.” Noble v. Nat’l Am.

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Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981). The first part of this test looks to whether

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the insurer’s action was objectively reasonable. If it was objectively reasonable, the

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insurer is not liable. Trus Joist Corp. v. Safeco. Ins. Co., 735 P.2d 125, 134 (Ariz. Ct.

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App. 1986) (“Where an insurer acts reasonably, there can be no bad faith.”). If the action

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was unreasonable, the question is “whether the insurer knew that its conduct was

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unreasonable or acted with such reckless disregard that such knowledge could be imputed

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to it.” Deese v. State Farm Mut. Auto. Ins. Co., 838 P.2d 1265, 1268 (Ariz. 1992)

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(emphasis in original). “Mere negligence or inadvertence is not sufficient – the insurer

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must intend the act or omission and must form that intent without reasonable or fairly

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debatable grounds.” Rawlings v. Apodaca, 726 P.2d 565, 576 (Ariz. 1986).

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Plaintiff has not alleged facts that allow the Court to draw the reasonable inference

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that Defendant is liable for bad faith. Plaintiff has provided no details regarding the

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nature or extent of the damages, why Magid’s valuation was substandard, what amounts

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Defendant actually paid, or why those amounts were objectively unreasonable. Plaintiff

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has not attached his policy or provided any information about the terms of the policy, the

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policy limits, or the relevant exclusion. Thus, the Court cannot determine whether it was

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objectively unreasonable, or even a violation of policy, for Defendant to deny Plaintiff’s

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demand. This deficiency is reason enough to dismiss the claim.

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The complaint is similarly devoid of allegations that suggest Defendant acted in

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knowing or reckless disregard for Plaintiff’s rights under the policy. Plaintiff alleges

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only that “Mr. Magid conducted a substandard investigation” and failed to account for

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certain damage to the property. Doc. 14, ¶¶ 14-15. This allegation is consistent with bad

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faith, but it is also consistent with “[m]ere negligence or inadvertence.” Rawlings, 726

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P.2d at 576.

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[Defendant’s] liability,” his complaint is properly dismissed for failure to state a claim.

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Iqbal, 556 U.S. at 678 (citation and quotation marks omitted).

Because Plaintiff’s factual allegations are “merely consistent with

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B.

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Plaintiff alleges that “[a]n insurance company has a quasi-fiduciary-type

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relationship with its insured”; such a relationship gives rise to duties of “equal

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consideration, fairness[,] and honesty”; and Defendant breached these duties, causing

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Plaintiff damage. Doc. 14, ¶¶ 55-58. Defendant moves to dismiss this claim, arguing

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Fiduciary Duty.

that an insurer owes no fiduciary duties to an insured under Arizona law. Doc. 24 at 4.

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Defendant is correct. It is true that “[t]he insurer has some duties of a fiduciary

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nature, including equal consideration, fairness[,] and honesty.” Zilisch v. State Farm

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Mut. Auto. Ins. Co., 995 P.2d 276, 279 (Ariz. 2000) (quoting Rawlings, 726 P.2d at 570).

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These duties give rise to the tort of insurance bad faith. Id. at 280. Insurers owe no other

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fiduciary duties that could give rise to a claim in the absence of bad faith. See Certain

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Underwriters at Lloyds, London v. Payson Premier, LLC, No. 2 CA-CV 2008-0169,

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2009 WL 1156705, at *3 (Ariz. Ct. App. Apr. 29, 2009) (“there is no true fiduciary

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relationship between insurer and insured”); Chasan v. Farmers Grp., Inc., No. 1 CA-CV

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07-0323, 2009 WL 3335341, at *12 (Ariz. Ct. App. Sept. 24, 2009) (“Under Arizona law,

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an insurer has a duty to treat the insured honestly and fairly, but does not owe a fiduciary

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duty to an insured.”). Because Plaintiff can enforce his rights to equal consideration,

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fairness, and honesty in a bad faith claim, and Defendant owed him no other duties,

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Plaintiff’s freestanding fiduciary duty claim fails as a matter of law.

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C.

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“Leave to amend should be granted if it appears at all possible that the plaintiff

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can correct the defect.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). But “[a]

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district court may dismiss a complaint without leave to amend if amendment would be

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futile.” Airs Aromatics, LLC v. Opinion Victoria’s Secret Stores Brand Mgmt., Inc., 744

Leave to Amend.

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F.3d 595, 600 (9th Cir. 2014) (citation and quotation marks omitted).

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It is possible that Plaintiff can adequately plead a bad faith claim by alleging

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additional facts. The Court will therefore grant Plaintiff leave to amend this claim.

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Because Plaintiff’s fiduciary duty claim fails as a matter of law, however, the Court will

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dismiss this claim with prejudice.

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IT IS ORDERED:

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Defendant’s motion to dismiss (Doc 24) is granted.

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2.

Plaintiff may file an amended complaint re-pleading his bad faith claim by

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July 29, 2016.
Dated this 1st day of July, 2016.

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