Warren v. State Farm Fire & Casualty Company et al
OPINION AND ORDER granting 5 Motion to Dismiss and Lee-Ellen Kees (as Agent for State Farm Fire & Casualty Company) terminated; granting 7 Motion to Dismiss and Plaintiff's claims for violations of the Arkansas Insurance Code, bad faith, and declaratory judgment are all dismissed without prejudice. The breach of contract claim remains for trial ; denying 10 Motion to Remand. Signed by Honorable Timothy L. Brooks on August 19, 2014. (jn)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
E. LEE WARREN, TRUSTEE OF THE
E. LEE WARREN REVOCABLE TRUST
Case No. S:14-CV-OS112
STATE FARM FIRE & CASUALTV COMPANY,
and LEE-ELLEN KEES, AS AGENT FOR STATE
FARM FIRE & CASUALTV COMPANY
OPINION AND ORDER
This matter is now before the Court pursuant to Defendant Lee-Ellen Kees' ("Kees")
Motion to Dismiss (Doc. 5) and Brief in Support (Doc. 6), Plaintiff E. Lee Warren, Trustee
of the E. Lee Warren Revocable Trust's Response in Opposition (Doc. 12) and Brief in
Support (Doc. 13), and Kees' Reply (Doc. 18); as well as Defendant State Farm Fire &
Casualty Company's ("State Farm") Motion to Dismiss (Doc. 7) and Brief in Support (Doc.
8), Plaintiffs Response (Doc. 15) and Brief in Support (Doc. 16), and State Farm's Reply
(Doc. 17). Also before the Court are Plaintiff's Motion to Remand (Doc. 10) and Brief in
Support (Doc. 11), and Defendants' Response in Opposition (Doc. 19) and Brief in Support
(Doc. 20). The Court also considered the parties' oral arguments on the Motions at the
Case Management Hearing conducted on August 15, 2014. For the reasons set forth
herein, Defendant Kees' Motion to Dismiss (Doc. 5) is GRANTED; Defendant State Farm's
Motion to Dismiss certain causes of action (Doc. 7) is GRANTED; and Plaintiff's Motion to
Remand (Doc. 10) is DENIED.
This lawsuit arises from a claim Plaintiff filed with State Farm after Plaintiffs house
was struck by lightning, causing a fire that allegedly destroyed the house and most of its
contents in Springdale, Arkansas, on July 26, 2012. The insurance policy limits for the
structure are capped at $277,405, while the policy limits for personal property are capped
at $208,054. The policy also covers additional living expenses. To date, State Farm has
offered Plaintiff $9,753.04 for damage to real property, $26,546.64 for damage to personal
property, and $5,550 for additional living expenses.
Plaintiff alleges that Defendants failed to reimburse him for actual loss as required
by the policy. He filed suit in the Circuit Court of Washington County, Arkansas, on
February 19, 2014, asserting four causes of action against State Farm: (1) a declaratory
judgment, in which Plaintiff requests that this Court find that his policy is an actual cash
value policy with a replacement-cost endorsement; (2) a breach of contract claim; (3) a
private cause of action for violations of the Arkansas Insurance Code; and (4) the tort of
bad faith. Plaintiff's only cause of action against Kees, the insurance adjuster, involves
violations of the Arkansas Insurance Code, which Plaintiff uses to argue that Kees was
negligent in adjusting his claim.
On April 3, 2014, Defendants removed the action to this Court, asserting
diversity-of-citizenship jurisdiction . Defendants contend that diversity exists between the
parties because: (1) Kees was fraudulently joined, and thus her citizenship should be
ignored; and (2) the remaining parties are completely diverse. In turn , Plaintiff essentially
argues that he has stated a colorable claim against Kees, and therefore, complete diversity
is lacking and the case should be remanded to state court.
On April 3, 2014, both Defendants filed separate Motions to Dismiss. Kees alleges
that she was fraudulently joined because Plaintiff does not have a viable cause of action
against her. She contends that as an agent for a disclosed principal, she is not subject to
suit in her personal capacity. She further asserts that the Complaint fails to state a claim
for relief against her regarding violations of the Arkansas Insurance Code. In response,
Plaintiff argues that although he titled his claim against Kees in terms of violations of the
Arkansas Insurance Code, the Court should construe his allegations against her as a
common law claim for negligence. At the hearing, Plaintiff conceded that there was no
private right of action for a violation of the Arkansas Insurance Code under the
State Farm argues that: (1) the request for declaratory judgment should be
dismissed because any declaratory judgment would not terminate the controversy or any
uncertainty between the parties; (2) Plaintiff fails to state a claim for bad faith ; and (3)
Plaintiff fails to state a claim for violations of the Arkansas Insurance Code . State Farm
does not seek a dismissal of the breach of contract claim . Plaintiff responds that it is
proper for the Court to make a declaratory judgment that the insurance policy is an actual
cash value policy with a replacement-cost endorsement. Further, Plaintiff believes he has
pleaded sufficient facts to support a bad faith claim, and his allegations regarding the
violations of the Arkansas Insurance Code should be construed by the Court as supporting
his claim for negligence.
II. Legal Standard
In ruling on a motion to dismiss, the Court must "accept as true all facts pleaded by
the non-moving party and grant all reasonable inferences from the pleadings in favor of the
nonmoving party." Gallagher v. City of Clayton, 699 F.3d 1013, 1016 (8th Cir. 2012)
(quotation omitted). "[A] complaint must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face ." Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quotation omitted). This includes pleading sufficient factual matter to show that
prerequisite conditions of suit have been satisfied. Id. at 686-87. The alleged facts must
be specific enough "to raise a right to relief above the speculative leveL" Bell At!. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). Pleadings that contain mere "labels and conclusions"
or "a formulaic recitation of the elements of the cause of action will not do." Id. A court is
not required to "blindly accept the legal conclusions drawn by the pleader from the facts ."
Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990).
An action filed in state court may be removed to federal court only if it originally
could have been brought in federal court. Under the diversity-of-citizenship jurisdiction
granted to federal courts, a civil action between citizens of different states with over
$75,000 in dispute may be brought in federal district court. For a state-court action to be
removable based on diversity-of-citizenship jurisdiction : (1) defendants must file a notice
of removal with the district court within 30 days of receipt of the state-court summons and
complaint; (2) the parties' citizenship must be completely diverse; and (3) there must be
$75,000 in controversy. 28 U.S.C. §§ 1341 and 1346. One exception to the diversity
requirement is the rule regarding fraudulent-joinder. The purpose of this exception is to
prevent a plaintiff from thwarting a defendant's ability to remove an action by fraudulently
joining a non-diverse defendant "who has 'no real connection with the controversy.'"
Knudson v. Sys. Painters, Inc., 634 F.3d 968, 976 (8th Cir. 2011)(citing Chesapeake &
Ohio Ry. Co. v. Cockrell, 232 U.S. 146, 152 (1914)).
In moving to dismiss the Complaint, Defendants argue that there is no basis in law
or fact for Plaintiff's claim against Kees, and all claims against State Farm for declaratory
judgment, bad faith, and violations of the Arkansas Insurance Code fail to satisfy Rule
12(b)(6). Plaintiff responds that he has offered sufficient facts to support his allegations,
including that Defendants' offer to settle Plaintiff's claim following a house fire was grossly
inadequate and even unconscionable. He further contends that Kees "failed to inspect the
entire property and all of the damages .. .. and failed to address and pay for all of the
covered losses." (Doc. 3, p. 9) .
A. Plaintiff's Motion to Remand and Kees' Motion to Dismiss
Because there are no federal question claims, jurisdiction only exists if there is
complete diversity among the parties. 28 U.S.C. §§1331-32. Plaintiff's Motion to Remand
is contingent upon the Court's decision on Defendant Kees' Motion to Dismiss as Kees'
presence in the suit defeats diversity jurisdiction.
Kees alleges that she was fraudulently joined in order to defeat diversity jurisdiction.
Fraudulent joinder occurs when a plaintiff files a frivolous or illegitimate claim against a
non-diverse defendant solely to prevent removal. In re Prempro Products Liab. Litig., 591
F.3d 613, 620 (8th Cir. 2010)(citing Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 809 (8th Cir.
2003)). To prove fraudulent joinder, a defendant must show that the plaintiff's claim
against the diversity-destroying defendant has no reasonable basis in fact and law. In re
Prempro, 591 F.3d at 620; Wiles v. Capitol Indem. Corp., 280 F.3d 868, 871 (8th Cir.
2002); Anderson v. Home Ins. Co., 724 F.2d 82, 84 (8th Cir. 1983). "[I]f it is clear under
governing state law that the complaint does not state a cause of action against the non
diverse defendant, the joinder is fraudulent and federal jurisdiction of the case should be
retained." Filla, 336 F.3d at 810.
At the hearing, upon questioning by the Court, Plaintiff conceded there was no
private right of action under the Arkansas Insurance Code. See Ark. Code Ann. § 23-66
202(b)(The Trade Practices Act does not "establish or extinguish a private right of action
for a violation of any provision of this subchapter"); Williams v. State Farm Mut. Auto. Ins.
Co., 2010 WL 2573196 (E.D . Ark. June 22, 2010)(finding that the Arkansas General
Assembly has expressly stated that the Trade Practices Act in the insurance code does not
create a private right of action); Design Professionals Ins. Co. v. Chicago Ins. Co., 454
F.3d 906, 911-12 (8th Cir. 2006)(finding that the Trade Practices Act "gives the state
authority to establish rules of conduct and to punish offenders, [but] it provides no private
right of action to insureds for violations of the Act or of regulations promulgated under the
Act's authority"); Columbia Mut. Ins. Co. v. Home Mut. Fire Ins. Co., 74 Ark. App. 166, 174
(2001)(concluding the Act does not establish or extinguish a private right of action based
on a violation of its provisions). See also Ark. Code Ann. § 23-61-103(a)(providing that
violations of the Arkansas Insurance Code are enforceable by the Insurance
Construing Plaintiff's Complaint against Kees as a claim for common law
negligence, as Plaintiff suggests, is also problematic. Under Arkansas law, an agent acting
within the scope of her authority on behalf of a disclosed principal typically cannot be held
personally liable on an insurance contract. See, e.g., First United, Inc. v. Chi. Title Ins. Co.,
366 Ark. 508 (2006). See also McCullough v. Johnson, 307 Ark. 9 (1991); Ferguson v.
Huddleston, 208 Ark. 353 (1945); Grayson & Grayson, P.A. v. Couch, 2012 Ark. App. 20
(2012). Plaintiff has not alleged that Kees acted outside of the scope of her authority, but
instead admits that she was "at all pertinent times the agent of Insurance Defendant,
through both actual and apparent authority." (Doc. 3, p. 8). Therefore, Plaintiff does not
have a cognizable claim against Kees for negligence.
Thus, Kees' Motion to Dismiss is granted, and she is dismissed without prejudice.
Without Kees' presence in the lawsuit, there is complete diversity of citizenship with
respect to the remaining parties, and therefore the Court properly retains jurisdiction.
Plaintiff's Motion to Remand is denied.
B. State Farm's Motion to Dismiss
1. Bad Faith
State Farm contends Plaintiff has failed to state a claim for bad faith. Plaintiffs
factual allegations supporting this claim are that State Farm "refused to pay, delayed in
paying or offered grossly inadequate and unconscionable sums to settle the claims." (Doc.
3, p. 7). He further maintains that State Farm investigated or adjusted his claim in a
"malicious, intentional, fraudulent and/or grossly negligentfashion." Id. As a result, Plaintiff
alleges that he sustained serious damage to his property due to State Farm's refusal to
honor its obligations .
In order to be successful, a claim based on the tort of bad faith must evidence
"affirmative misconduct by the insurance company, without a good faith defense, and ..
. the misconduct must be dishonest, malicious, or oppressive in an attempt to avoid its
liability under an insurance policy." Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281
Ark. 128, 133 (1984). Arkansas recognizes a claim for bad faith when "an insurance
company affirmatively engages in dishonest, malicious, or oppressive conduct in order to
avoid a just obligation to its insured." Selmon v. Metro. Life Ins. Co., 372 Ark. 420, 426
(2008) (quoting Columbia Nat'llns. Co. v. Freeman, 347 Ark. 423, 429 (2002)). Bad faith
is defined as "dishonest, malicious, or oppressive conduct carried out with a state of mind
characterized by hatred, ill will, or a spirit of revenge." Unum Life Ins. Co. of Am. v.
Edwards, 362Ark. 624, 628 (2005); see also Switzerv. ShelterMut. Ins. Co., 362 Ark. 419,
433 (2005). The standard for establishing a claim for bad faith is rigorous and difficult to
satisfy. Unum Life, 362 Ark. at 627. "Mere negligence or bad judgment is insufficient so
long as the insurer is acting in good faith .... bad faith does not arise from a mere denial
of a claim; there must be affirmative misconduct." Selmon, 372 Ark. at 426. See also Am.
Health Care Providers v. O'Brien, 318 Ark. 438 (1994)(holding that nightmarish red tape,
an insurance representative's abrupt attitude following cancellation of a group policy, and
confusion over the referral process did not amount to bad faith) .
The facts as presently alleged by Plaintiff are conclusory in nature and do not
otherwise rise to the level of what the Supreme Court of Arkansas considers "characterized
by hatred, ill will , or a spirit of revenge ." Examples of appropriately specific facts would
include instances where an insurance agent lied by stating there was no insurance
coverage; predicate facts demonstrating aggressive, abusive, and coercive conduct by a
claims representative; and where a carrier intentionally altered insurance records to avoid
a bad risk. See generally S. Farm v. Allen, 326 Ark. 1023 (1996); Viking Ins. Co. v. Jester,
310 Ark. 317 (1992); Employers Equitable Life Ins. Co. v. Williams, 282 Ark. 29 (1984).
And, as noted above, a court is not required to blindly accept the pleader's conclusions.
Rather, allegations of predicate facts are required. Wescott, 901 F.2d at 1488.
Taking Plaintiff's pleadings as true, Plaintiff asserts that State Farm "refused to pay
or delayed paying a claim after liability had become reasonably clear." (Doc. 3, p.6). This
allegation on its face, does not demonstrate "hatred, ill will, or a spirit of revenge." Plaintiff
further states that State Farm has "in a dishonest, malicious, or oppressive manner,
refused to pay, delayed in paying or offered grossly inadequate and unconscionable sums
to settle the claims." Id. at 7. This is a conclusory statement that cannot support a claim
for bad faith without factual support. Although Plaintiff maintains generally that Kees
intentionally failed to inspect the entire property before adjusting the claim, Plaintiff does
not state when Kees inspected the property, what she did inspect or failed to inspect, or
why failing to inspect the entire property was at all material to the decision to adjust the
claim, let alone an act or omission that demonstrated "hatred, ill will, or a spirit of revenge."
At the Court's hearing on the Motion to Dismiss, counsel for Plaintiff indicated that
specific facts constituting bad faith exist, but were omitted from the Complaint. The Court,
however, must find a plausible cause of action for bad faith from the face of the Complaint,
and seeing none, the Court is not required to rewrite Plaintiff's Complaint.
Therefore, Plaintiff's bad-faith claim against State Farm is dismissed without
2. Arkansas Insurance Code
Plaintiff also alleges a cause of action for violations of the Arkansas Insurance Code
against State Farm. For the same reasons stated above, Plaintiff's claim against State
Farm for violations of the Arkansas Insurance Code is dismissed pursuant to Rule 12(b)(6)
because there is no such private right of action. Further, Plaintiff does not allege any facts
in support of violations but merely recites elements under Ark. Code Ann. § 23-66-206(13),
which require that Plaintiff show that State Farm committed such acts with such frequency
as to indicate a general business practice.
At the hearing, Plaintiff asserted that State Farm's violations of the Arkansas
Insurance Code were intended to evidence a cause of action for negligence, even though
no negligence claim was pleaded in the Complaint. It does not appear that Arkansas even
recognizes a cause of action for negligent performance on an insurance contract. Farm
Bureau Ins. Co. of Arkansas, Inc. v. Running M Farms, Inc., 366 Ark. 480, 490 (2006).
Further, even if the Court construes the Complaint broadly, Plaintiff has not alleged
sufficient predicate facts to support a common law claim for negligence against State
Farm. Instead, Plaintiff lists elements intended to support a private cause of action for
violations of the Arkansas Insurance Code. To the extent a separate negligence claim is
embedded within this section of the Complaint, the Court is once again not inclined to
reorganize and rewrite the Complaint to include claims that were not presented. Therefore,
despite construing as true the facts and allegations presented in the Complaint, and
granting Plaintiff all reasonable inferences that may be drawn from those facts, the Court
finds Plaintiff has not pleaded a claim for negligence.
3. Declaratory Judgment
Lastly, State Farm seeks dismissal of Plaintiff's request for a declaratory judgment
regarding whether the policy is an actual cash value policy with a replacement-cost
endorsement. State Farm contends that a declaratory judgment is improper because
Plaintiff does not allege any uncertainty or controversy that would be terminated by the
Court's rendition of a declaratory judgment.
A declaratory-judgment action seeks to avoid uncertainty and insecurity with respect
to rights, status, and other legal relations. Wi/mans v. Sears, Roebuck and Co., 355 Ark.
668, 144 S.W.3d 245 (2004).
The requisite facts that must be established before
declaratory relief can be obtained include the following: (1) there must be a justiciable
controversy; (2) the controversy must be between parties with adverse interests; (3) the
party seeking declaratory relief must have a legally protectable interest in the controversy;
and (4) the issue must be ripe for judicial determination. Hardy v. United Servs. Auto.
Ass'n, 95 Ark. App . 48, 51 (2006), reh'g denied.
At the hearing, Plaintiff admitted that a controversy regarding the type of policy held
by Plaintiff no longer exists, because State Farm "admits the policy contained replacement
cost provisions." (Doc. 4, p. 5).
It is also true that issues pertaining to contract
interpretation will be resolved through Plaintiff's remaining cause of action at law for breach
As Plaintiff's request for a declaratory judgment is moot in light of the admissions
of the parties, no controversy exists concerning what type of policy State Farm issued to
Plaintiff. State Farm's request to dismiss the declaratory judgment claim will therefore be
IT IS THEREFORE ORDERED that Defendant Lee-Ellen Kees's Motion to Dismiss
(Doc. 5) is GRANTED, and Kees is DISMISSED WITHOUT PREJUDICE.
IT IS FURTHER ORDERED that Defendant State Farm's Motion to Dismiss (Doc.
7) is GRANTED, and Plaintiff's claims for violations of the Arkansas Insurance Code, bad
faith, and declaratory judgment are all DISMISSED WITHOUT PREJUDICE. The sole
surviving claim for trial is Plaintiff's cause of action for breach of contract.
IT IS FURTHER ORDERED that Plaintiff's Motion to Remand (Doc. 10) is DENIED .
IT IS SO ORDERED this
~ay of August,
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