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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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 James Kovacs, Plaintiff, 10 11 Sentinel Insurance Company Limited, 13 ORDER v. 12 No. CV-16-00964-PHX-DGC Defendant. 14 15 16 On May 2, 2016, Plaintiff filed his amended complaint, asserting claims for 17 (1) breach of contract, (2) bad faith, (3) breach of fiduciary duty, and (4) declaratory 18 judgment. Doc. 14. Defendant moves to dismiss the second and third claims. Doc. 24. 19 The motion has been fully briefed (Docs. 25, 29), and no party requests oral argument. 20 For the reasons that follow, the Court will grant the motion. 21 I. 22 Background. The allegations in the complaint are taken as true for purposes of this motion. 23 Plaintiff is an individual who owns residential property in Phoenix. Doc. 14, ¶ 1. 24 Defendant is an insurance company based in Connecticut. ¶ 23. Plaintiff took out an 25 insurance policy with Defendant. ¶ 2. The policy provided coverage for wind, hail, and 26 water damage to Plaintiff’s home between July 29, 2013 and July 29, 2014. ¶ 3. 27 On or about July 26, 2014, Plaintiff’s home suffered wind, hail, and water damage. 28 ¶¶ 4-5. In December 2014, Plaintiff discovered this damage and notified Defendant. ¶ 6. 1 Defendant sent its employee, Jeremy Magid, to inspect the home. ¶¶ 10-11. Magid 2 conducted an investigation and prepared an estimate. ¶¶ 12-13. According to Plaintiff, 3 Magid conducted a substandard investigation and failed to account for the cost of 4 repairing the air conditioning unit and several other external structures. ¶ 14. In addition, 5 “Mr. Magid’s substandard investigation failed to sufficiently account for a storm created 6 opening, caused by wind-lifted shingles, which allowed water to enter” the home. ¶ 15. 7 Because Magid underestimated the cost of repairing the home, Plaintiff was forced 8 to retain a third party company, Valscope, to provide an independent assessment. ¶ 16. 9 Valscope provided an estimate that was “much more” than that provided by Defendant. 10 ¶ 17. Plaintiff provided Defendant with a copy of Valscope’s estimate and demanded 11 payment, but Defendant “ignored this demand.” ¶ 18. Plaintiff paid out of pocket for the 12 repairs recommended by Valscope. ¶ 19. 13 II. Legal Standard. 14 A successful Rule 12(b)(6) motion must show either that the complaint lacks a 15 cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri 16 v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a 17 cognizable legal theory will survive a motion to dismiss as long as it contains “sufficient 18 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 19 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 20 544, 570 (2007)). A claim has facial plausibility when “the plaintiff pleads factual 21 content that allows the court to draw the reasonable inference that the defendant is liable 22 for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility 23 standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer 24 possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556). 25 III. Analysis. 26 A. 27 Plaintiff alleges that Defendant’s “obligation to pay Plaintiff’s claim was not fairly 28 debatable after an adequate investigation”; Defendant “partially denied the claim without Bad Faith. -2- 1 a reasonable basis”; and Defendant “knew or recklessly disregarded the lack of 2 reasonable basis for denying Plaintiff’s claim.” Doc. 14, ¶¶ 49-51. Plaintiff asserts that 3 Defendant acted in bad faith. ¶ 52. 4 “To show a claim for bad faith, a plaintiff must show the absence of a reasonable 5 basis for denying benefits of the policy and the defendant’s knowledge or reckless 6 disregard of the lack of a reasonable basis for denying the claim.” Noble v. Nat’l Am. 7 Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981). The first part of this test looks to whether 8 the insurer’s action was objectively reasonable. If it was objectively reasonable, the 9 insurer is not liable. Trus Joist Corp. v. Safeco. Ins. Co., 735 P.2d 125, 134 (Ariz. Ct. 10 App. 1986) (“Where an insurer acts reasonably, there can be no bad faith.”). If the action 11 was unreasonable, the question is “whether the insurer knew that its conduct was 12 unreasonable or acted with such reckless disregard that such knowledge could be imputed 13 to it.” Deese v. State Farm Mut. Auto. Ins. Co., 838 P.2d 1265, 1268 (Ariz. 1992) 14 (emphasis in original). “Mere negligence or inadvertence is not sufficient – the insurer 15 must intend the act or omission and must form that intent without reasonable or fairly 16 debatable grounds.” Rawlings v. Apodaca, 726 P.2d 565, 576 (Ariz. 1986). 17 Plaintiff has not alleged facts that allow the Court to draw the reasonable inference 18 that Defendant is liable for bad faith. Plaintiff has provided no details regarding the 19 nature or extent of the damages, why Magid’s valuation was substandard, what amounts 20 Defendant actually paid, or why those amounts were objectively unreasonable. Plaintiff 21 has not attached his policy or provided any information about the terms of the policy, the 22 policy limits, or the relevant exclusion. Thus, the Court cannot determine whether it was 23 objectively unreasonable, or even a violation of policy, for Defendant to deny Plaintiff’s 24 demand. This deficiency is reason enough to dismiss the claim. 25 The complaint is similarly devoid of allegations that suggest Defendant acted in 26 knowing or reckless disregard for Plaintiff’s rights under the policy. Plaintiff alleges 27 only that “Mr. Magid conducted a substandard investigation” and failed to account for 28 certain damage to the property. Doc. 14, ¶¶ 14-15. This allegation is consistent with bad -3- 1 faith, but it is also consistent with “[m]ere negligence or inadvertence.” Rawlings, 726 2 P.2d at 576. 3 [Defendant’s] liability,” his complaint is properly dismissed for failure to state a claim. 4 Iqbal, 556 U.S. at 678 (citation and quotation marks omitted). Because Plaintiff’s factual allegations are “merely consistent with 5 B. 6 Plaintiff alleges that “[a]n insurance company has a quasi-fiduciary-type 7 relationship with its insured”; such a relationship gives rise to duties of “equal 8 consideration, fairness[,] and honesty”; and Defendant breached these duties, causing 9 Plaintiff damage. Doc. 14, ¶¶ 55-58. Defendant moves to dismiss this claim, arguing 10 Fiduciary Duty. that an insurer owes no fiduciary duties to an insured under Arizona law. Doc. 24 at 4. 11 Defendant is correct. It is true that “[t]he insurer has some duties of a fiduciary 12 nature, including equal consideration, fairness[,] and honesty.” Zilisch v. State Farm 13 Mut. Auto. Ins. Co., 995 P.2d 276, 279 (Ariz. 2000) (quoting Rawlings, 726 P.2d at 570). 14 These duties give rise to the tort of insurance bad faith. Id. at 280. Insurers owe no other 15 fiduciary duties that could give rise to a claim in the absence of bad faith. See Certain 16 Underwriters at Lloyds, London v. Payson Premier, LLC, No. 2 CA-CV 2008-0169, 17 2009 WL 1156705, at *3 (Ariz. Ct. App. Apr. 29, 2009) (“there is no true fiduciary 18 relationship between insurer and insured”); Chasan v. Farmers Grp., Inc., No. 1 CA-CV 19 07-0323, 2009 WL 3335341, at *12 (Ariz. Ct. App. Sept. 24, 2009) (“Under Arizona law, 20 an insurer has a duty to treat the insured honestly and fairly, but does not owe a fiduciary 21 duty to an insured.”). Because Plaintiff can enforce his rights to equal consideration, 22 fairness, and honesty in a bad faith claim, and Defendant owed him no other duties, 23 Plaintiff’s freestanding fiduciary duty claim fails as a matter of law. 24 C. 25 “Leave to amend should be granted if it appears at all possible that the plaintiff 26 can correct the defect.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). But “[a] 27 district court may dismiss a complaint without leave to amend if amendment would be 28 futile.” Airs Aromatics, LLC v. Opinion Victoria’s Secret Stores Brand Mgmt., Inc., 744 Leave to Amend. -4- 1 F.3d 595, 600 (9th Cir. 2014) (citation and quotation marks omitted). 2 It is possible that Plaintiff can adequately plead a bad faith claim by alleging 3 additional facts. The Court will therefore grant Plaintiff leave to amend this claim. 4 Because Plaintiff’s fiduciary duty claim fails as a matter of law, however, the Court will 5 dismiss this claim with prejudice. 6 IT IS ORDERED: 7 1. Defendant’s motion to dismiss (Doc 24) is granted. 8 2. Plaintiff may file an amended complaint re-pleading his bad faith claim by 9 10 July 29, 2016. Dated this 1st day of July, 2016. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5-

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