MORROW et al v. ALLSTATE INDEMNITY COMPANY et al

Filing 20

ORDER granting in part and denying in part 13 Motion to Dismiss Complaint. The Court dismisses Count 3 of the Complaint. To the extent Plaintiffs wish to pursue relief under Counts 1 and 2 of the Complaint for foundational and/or structural support damage incurred in 2010, the Court will permit Plaintiffs to file an amended complaint. Any amendment must be filed on or before April 19, 2017. Ordered by US DISTRICT JUDGE HUGH LAWSON on 3/29/2017. (aks)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
MACON DIVISION
BARBARA MORROW and BENNY
MORROW, individually and on
behalf of those similar situated,

Civil Action No. 5:16-CV-137 (HL)

Plaintiffs,
v.
ALLSTATE INDEMNITY COMPANY,
ALLSTATE INSURANCE
COMPANY, ALLSTATE FIRE &
CASUALTY INSURANCE
COMPANY, and ALLSTATE
PROPERTY & CASUALTY
INSURANCE COMPANY,
Defendants.

ORDER
The Defendants have moved to dismiss the claims of Plaintiffs Barbara
Morrow and Benny Morrow pursuant to Fed. R. Civ. P. 12(b)(6). (Doc. 13). The
motion is GRANTED in part and DENIED in part.
I.

FACTUAL BACKGROUND1
Plaintiffs Barbara Morrow and Benny Morrow seek relief on behalf of

themselves and others similarly situated for Defendants’ alleged refusal to
assess and pay damages for diminished value for claims made under their
homeowners’ insurance policies. As recognized by both parties, this case is part
1

The facts are taken from the allegations in the Complaint (Doc. 1) and are
accepted as true for purposes of this motion.

of a series of cases seeking to certify in this district a class-action for diminished
value in the real-property-insurance context. (See, e.g., Doc. 18, p. 15; Doc. 19,
p. 8).
Plaintiffs’ Complaint contains four counts: Count 1 (Doc. 1, ¶¶ 85–96),
breach of contract for failure to assess diminished value; Count 2 (Doc. 1, ¶¶ 97–
106), breach of contract for failure to pay diminished value; Count 3 (Doc. 1, ¶¶
107–116), declaratory judgment that the Defendants have an obligation to their
insureds to assess and pay for diminished value “when policyholders present
first-party physical damage claims arising from direct physical losses to their
insured properties” (Doc. 1, p. 36); and Count 4 (Doc. 1, ¶¶ 117–119), attorneys’
fees and costs.
Plaintiffs allege that they “timely reported two claims for direct physical loss
to their home—one involving water damage and the other involving foundational
and/or structural support damage.”

(Doc. 1, ¶ 2).

Plaintiffs argue that

“Defendants breached their insurance contract with Plaintiffs by (1) failing to
assess [their] property for diminution in value resulting [from] the damage giving
rise to the covered claims and (2) failing to pay Plaintiffs for such diminution in
value.”

(Doc. 1, ¶ 2).

The foundational and/or structural support damage

occurred on April 15, 2010, and the water damage occurred on July 14, 2015.
(Doc. 1 ¶¶ 39, 44).

Following the incidents of damage, Allstate Indemnity

Company (“Allstate Indemnity”) “adjusted Plaintiffs’ claim arising out of the . . .
loss[es], authorized repairs to [their] home, and subsequently paid certain repair

2

costs,” but “took no action to assess any diminution in the fair market value of
[their] property.” (Doc. 1, ¶¶ 40–41, 45–46).
Although Plaintiffs identify Allstate Indemnity as the issuer of the policy,
(Doc. 1, ¶ 4), Plaintiffs seek to hold additional defendants liable by invoking
theories of agency, apparent agency, alter ego, joint venture, and the juridical link
doctrine. (Doc. 1, ¶¶ 23–26).
Allstate Indemnity’s policy covers “sudden and accidental direct physical
loss to [the insured’s dwelling] . . . except as limited or excluded in this policy.”
(Doc. 13-1, p. 23).2 Defendants argue that Plaintiffs’ diminished value claim fails
because of the limiting language of Section (5)(c) of the Section I Conditions
included in the policy, the “Building Structure Reimbursement” provision. This
provision appears immediately after and is related to Sections (4) and (5)(b).
These provisions state, in relevant part, the following:
4. Our Settlement Options
In the event of a covered loss, we have the option to:
a) repair, rebuild or replace all or any part of the damaged, destroyed
or stolen property with property of like kind and quality within a
reasonable time; or
b) pay for all or any part of the damaged, destroyed or stolen property
as described in Condition 5 "How We Pay For a Loss." . . . .

2

The parties agree that the policies in effect in 2010 and 2015 should be treated
as identical for the purposes of this action. (Doc. 13, p. 3; Doc. 18, p. 3 n.1).
Therefore, the Court will cite to the 2010 policy with the understanding that the
language is identical to the 2015 policy.
3

5. How We Pay For A Loss
. . . [P]ayment for covered loss will be by one or more of the
following methods: . . . .
b) Actual Cash Value. If you do not repair or replace the damaged,
destroyed or stolen property, payment will be on an actual cash
value basis. This means there may be a deduction for depreciation .
...
You may make claim for additional payment as described in
paragraph "c" and paragraph "d", if you repair or replace the
damaged, destroyed or stolen covered property within 180 days of
the actual cash value payment.
c) Building Structure Reimbursement . . . [W]e will make additional
payment to reimburse you for cost in excess of actual cash value if
you repair, rebuild or replace damaged, destroyed or stolen covered
property within 180 days of the actual cash value payment . . . .
Building Structure Reimbursement will not exceed the smallest of the
following amounts:
1) the replacement cost of the part(s) of the building
structure(s) for equivalent construction for similar use on the
same residence premises;
2) the amount actually and necessarily spent to repair or
replace the damaged building structure(s) with equivalent
construction for similar use on the same residence premises;
or
3) the limit of liability applicable to the building structure(s)
as shown on the Policy Declarations for Coverage A –
Dwelling Protection or Coverage B – Other Structures
Protection, regardless of the number of building structures
and structures other than building structures involved in the
loss.

4

(Doc. 13-1, pp. 33–34) (emphasis in original).
II.

DISCUSSION
A.

Motion to Dismiss Standard

The Federal Rules of Civil Procedure require that a pleading contain a
“short and plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2). To avoid dismissal pursuant to Fed. R. Civ. P.
12(b)(6), a complaint must allege sufficient factual matter to “‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “At the motion to
dismiss stage, all well-pleaded facts are accepted as true, and the reasonable
inferences therefrom are construed in the light most favorable to the plaintiff.”
Garfield v. NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir. 2006) (internal
quotation marks and citation omitted). However, “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 ‘show[n]’—‘that the pleader is entitled to
relief.’” Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). “[C]onclusory
allegations, unwarranted deductions of facts or legal conclusions masquerading
as facts will not prevent dismissal.” Oxford Asset Mgmt., Ltd. v. Jaharis, 297
F.3d 1182, 1188 (11th Cir. 2002). The complaint must “give the defendant fair
notice of what the . . . claim is and the grounds upon which it rests.” Twombly,
550 U.S. at 555 (internal quotation marks and citation omitted). Where there are
dispositive issues of law, a court may dismiss a claim regardless of the alleged

5

facts. Marshall Cty. Bd. of Educ. v. Marshall Cty. Gas Dist., 992 F.2d 1171, 1174
(11th Cir. 1993).
B.

Counts 1 and 2: Breach of Contract for Failure to Assess and
Pay Diminished Value

Defendants contend that Plaintiffs’ breach of contract claims should be
dismissed because (1) Plaintiffs have not “allege[d] sufficient facts to show that
Defendants had a contractual obligation to assess and pay for diminution in
value;” (2) Plaintiffs “attempt to overcome the contractual deficiencies by
misstating mere legal conclusions;” (3) Plaintiffs “fail to allege sufficient facts to
show that they suffered any damages entitling them to recovery”; and (4)
Plaintiffs’ “claim based on the 2010 loss is time barred.” (Doc. 13, pp. 3–9).
Defendants further argue that Plaintiffs’ alternative request for relief in the form of
specific performance and/or an injunction should be dismissed. (Doc. 13, pp. 8–
9).
1.

Whether the policy covers diminished value

Defendants contend that the policy between Plaintiffs and Allstate
Indemnity does not cover diminished value, and thus Allstate Indemnity did not
breach the contract when it failed to assess or pay for diminished value to
Plaintiffs’ home.

(Doc. 13, p. 3).

Plaintiffs argue that based on the policy’s

coverage of “sudden and accidental direct physical loss,” Allstate Indemnity is
required under Georgia law to pay diminished value. (Doc. 18, p. 10). Plaintiffs
primarily rely on two cases: State Farm Mutual Automobile Insurance Company

6

v. Mabry, 556 S.E.2d 114 (Ga. 2001) and Royal Capital Development, LLC v.
Maryland Casualty Company, 728 S.E.2d 234 (Ga. 2012).
In Mabry, the Georgia Supreme Court addressed “whether Georgia law, as
applied to the contract at issue, requires insurers to assess vehicles presented
with first-party physical damages claims for diminution in value and, if found, pay
it; and, if so, whether State Farm has sought to avoid that obligation.”

556

S.E.2d at 117. The physical damage coverage in State Farm’s policies provided
that it would “pay for loss to your car” with a limitation of liability provision
providing the insurer will pay the “lower of the actual cash value of the vehicle or
the cost of repair or replacement.” Id. at 118. Reviewing 75 years of Georgia
case law, the Georgia Supreme Court concluded that “Georgia . . . has been
consistent in interpreting the physical damage coverage of automobile insurance
policies to require that the insured be made whole, basing the measure of
damages on the value of the vehicle.” Id. at 122. Thus, the Georgia Supreme
Court held that “State Farm is obligated to pay for diminution in value when it
occurs,” noting that “what is lost when physical damage occurs is both utility and
value,” and that “[r]ecognition of diminution in value as an element of loss to be
recovered on the same basis as other elements of loss merely reflects economic
reality.” Id. Further, the Georgia Supreme Court held that the trial court correctly
determined that State Farm was obligated to assess diminution in value “along
with the elements of physical damage when a policyholder makes a general
claim of loss.” Id. at 122–23.

7

In Royal Capital, the Georgia Supreme Court held that Mabry is not limited
to automobile insurance policies.

Specifically, the Georgia Supreme Court

answered this certified question from the Eleventh Circuit: Does “an insurance
contract providing coverage for ‘direct physical loss of or damage to’ a building”
require compensation “for the diminution in value of the property resulting from
stigma due to its having been physically damaged?” Royal Capital, 728 S.E.2d
at 235. The Georgia Supreme Court answered the question in the affirmative,
holding that Mabry “is not limited by the type of property insured, but rather
speaks generally to the measure of damages an insurer is obligated to pay.” Id.
at 235.

The Georgia Supreme Court reiterated the “long-standing contract

interpretation rule in Georgia” that it followed in Mabry: “[W]here ‘[an] insurance
policy, drafted by the insurer, promises to pay for the insured’s loss; what is lost
when physical damage occurs is both utility and value; therefore, the insurer’s
obligation to pay for the loss includes paying for any lost value.’” Id. at 238
(second alteration in original) (quoting Mabry, 556 S.E.2d at 122).
Defendants attempt to distinguish the policy language at issue in this case
from the language at issue in Mabry and Royal Capital in two ways: the coverage
language itself, and the presence of the “Building Structure Reimbursement”
provision. (Doc. 3, p. 2–3).
The general loss provision in the Royal Capital policy covers “direct
physical loss,” whereas the general loss provision in Plaintiffs’ contract with
Allstate Indemnity covers “sudden and accidental direct physical loss to

8

property.” The two are functionally equivalent. Defendants seek to distinguish
the two by arguing that, unlike the policy at issue in Royal Capital, the policy here
covers only “sudden and accidental direct physical loss to property.” (Doc. 19, p.
3). Defendants argue that “[d]iminished value is not a ‘sudden’ or ‘accidental’
loss, nor is it a ‘physical’ loss.” (Doc. 19, p. 3). This exact argument was raised
and rejected by a recent decision out of the Middle District of Georgia, Anderson
v. American Family Insurance Company, No. 5:15-CV-475 (MTT), 2016 WL
3633349 (M.D. Ga. June 29, 2016). The Court rejects the argument here for the
reasons given therein.
Second, Defendants argue that the Building Structure Reimbursement
provision precludes diminished value liability. They contend that liability is strictly
tied to repair and replacement cost and point out that the policy never mentions
diminished value. (Doc. 13, p. 4). Because Allstate Indemnity authorized and
paid for repairs to Plaintiffs’ home, Defendants contend Allstate Indemnity has
satisfied its obligations under the policy. (Doc. 13, p. 4).
As a starting point, the fact that the loss settlement provision in the
Morrows’ policy provides that Allstate Indemnity will pay for the actual repair
costs does not abrogate Allstate Indemnity’s obligation to compensate for any
diminished value resulting from stigma. Royal Capital, 728 S.E.2d at 236 (“[A]
limitation of liability provision affording the insurer an option to repair serves only
to abate, not eliminate, the insurer’s liability for the difference between pre-loss
value and post-loss value.” (quoting Mabry, 556 S.E.2d at 121)). Indeed, the

9

Georgia Supreme Court in Mabry reiterated that repair means “restoration of the
[property] to substantially the same condition and value as existed before the
damage occurred.”

556 S.E.2d at 121 (emphasis added) (internal quotation

marks and citation omitted).
As a separate matter, Defendants’ reliance on the specific limitations on
the amount of Building Structure Reimbursement—the market cost of replacing
damaged structure or the amount actually and necessarily spent to repair or
replace damaged structure—is flawed because it ignores the context of this
provision.

The Building Structure Reimbursement is designed to work in

conjunction with the “actual cash value payment,” which Section 5(b) of the
Section I Conditions in the policy requires Allstate Indemnity to pay to the insured
if the insured did not choose to repair or replace the property prior to settlement.
“Actual cash value” implies the obligation to compensate for any diminishedvalue losses sustained by the insured. Mabry, 556 S.E.2d at 118. As correctly
noted by Plaintiffs, because the Building Reimbursement Payment is a payment
in addition to the actual cash value payment, any limitations in the Building
Structure Reimbursement provision are irrelevant. (Doc. 18, p. 4).
Defendants argue that Plaintiffs have not sufficiently alleged the specific
provision of the contract that Allstate Indemnity breached and cannot rely solely
on the covenant of good faith and fair dealing.

(Doc. 13, pp. 4–5).

This

argument is nothing more than new clothes for their previous argument that the
policy does not cover diminished value. As noted by Plaintiffs, they have alleged

10

that their policies covered “direct physical loss” and that Allstate Indemnity “failed
to assess for and pay [their] diminution in value loss” in making the Plaintiffs
whole. (Doc. 1, ¶ 58; Doc. 18, p. 12). Plaintiffs are not solely relying on the
covenant of good faith and fair dealing, but rely on these doctrines in conjunction
with their claim for diminished value as an element of “direct physical loss” under
Mabry and Royal Capital.
Accordingly, Allstate Indemnity’s motion to dismiss on this ground is
denied.
2.

Whether Plaintiffs have sufficiently alleged diminished
value

Defendants argue that, even assuming the policy covers diminished value,
Plaintiffs have failed to state a claim for breach of contract because their
allegations of diminished value are conclusory. (Doc. 13, pp. 5–6). Further,
Defendants contend that Plaintiffs have failed to adequately allege any damages
from the alleged breach of contract because they have claimed injury and harm
without any factual support. (Doc. 13, pp. 6–7). Defendants aver that Plaintiffs’
“naked assertions” that “the fair market value of [their] property was diminished”
are insufficient to plead the third element of a breach of contract action. (Doc.
13, pp. 7–8 (quoting Doc. 1, ¶¶ 40, 45)). Defendants argue that these assertions
require supporting facts about the “respective value of the property before the
loss and after repair, or which would establish that any diminution in value was

11

the result of the loss as opposed to extraneous factors or market conditions.”
(Doc. 13, p. 7).
Plaintiffs argue they plausibly alleged that Allstate Indemnity’s failure to
assess and to pay for diminished value caused them to suffer monetary damage.
(Doc. 18, p. 5). They point out that the Georgia Supreme Court in Royal Capital
recognized that real property can suffer diminished value as a result of repairs.
(Doc. 18 at 6). They also argue that because the “standard seller’s property
disclosure statement” requires a seller to disclose insurance claims and water
damage, these claims clearly impact home values. (Doc. 18, p. 6). Defendants
respond that, while Plaintiffs have alleged that real property can conceivably
suffer diminished value as a result of the damage alleged, the allegations in the
complaint do not allege that the property in fact suffered diminished value. (Doc.
19, p. 4). Defendants contend that Plaintiffs are arguing that a claim for damage
supports a diminished value claim per se. (Doc. 19, p. 4).
The Court disagrees. Plaintiffs allege that their home suffered foundational
and/or structural support damage, water damage, and mold damage. (Doc. 1, ¶¶
39, 44).

They further allege that Allstate Indemnity authorized repairs and,

despite these repairs, the fair market value of their home diminished because of
the damage.

(Doc. 1, ¶¶ 40, 45).

These allegations, taken as true with all

reasonable inferences drawn in Plaintiffs’ favor, are sufficient to show that their
claim for diminished value is more than conceivable, but plausible. Accordingly,
Defendants’ motion to dismiss on this basis fails.

12

3.

Whether Plaintiffs’ claim based on the 2010 loss is timebarred

Defendants argue that the 2010 loss is time-barred because the policy
requires that “any suit against [the insurer] [ ] be brought within one year after the
inception of loss or damage. (Doc. 13, p. 8; Doc. 13-1, p. 36). Plaintiffs counter
that Allstate Indemnity has waived this contractual limitation, making Georgia’s
six-year statute of limitations for breach of contract the only applicable limitations
period.

(Doc. 18, p. 14).

Plaintiffs contend that, because Allstate Indemnity

accepted the 2010 claim as a covered event and never specifically denied
liability, including liability for diminished value, it waived this contractual limitation.
(Doc. 18, p. 15).
The contract limitation of time to bring an action against the insurer in an
insurance policy is valid and binding. Georgia Farm Bureau Mut. Ins. Co. v.
Pawlowski, 643 S.E.2d 239, 241 (Ga. Ct. App. 2007). However, a waiver of the
contractual limitations period may result when the insurance company’s
“‘investigations, negotiations, or assurances . . . up to and past the period of
limitation . . . led the insured to believe the limitation would not apply.’” Suntrust
Mortg., Inc. v. Georgia Farm Bureau Mut. Ins. Co., 416 S.E.2d 322, 324 (Ga. Ct.
App. 1992) (quoting Modern Carpet Indus. v. Factor Ins. Assn., 186 S.E.2d 586,
587 (Ga. Ct. App. 1971)). “The basis for finding a waiver of the contractual
limitations period is the insurance company’s implied or express promise to pay
the claim, thus leading the insured to believe that there is not controversy

13

concerning whether the claim is covered.” Glass Elec. Co., Inc. v. Commercial
Union Ins. Co., 711 F.Supp. 615, 617 (N.D. Ga. 1988). Waiver occurs only when
“the insurer’s conduct reasonably leads the insured to believe that a strict
compliance with the limitation provision would not be insisted upon. Where there
is evidence of such conduct, the issue of waiver is a question of fact for the jury
to decide.” Stapleton v. General Acc. Ins. Co., 512 S.E.2d 645, 646 (Ga. Ct.
App. 1999) (citing Appleby v. Merastar Ins. Co., 477 S.E.2d 887, 888 (Ga. Ct.
App. 1996).
Plaintiffs have failed to allege facts sufficient to convince the Court that
Allstate Indemnity waived the contractual limitations period. In the Complaint,
Plaintiffs make the following allegations concerning the 2010 loss:
38.

On April 15, 2010, Plaintiffs’ home and property was insured
under the Policy.

39.

On April 15, 2010, Plaintiffs’ home suffered foundational
and/or structural support damage that was covered by the
Policy. Plaintiffs timely reported the direct physical loss to
Allstate and otherwise complied with the terms and conditions
of the Policy.

40.

Allstate adjusted Plaintiffs’ claim arising out of the April 15,
2010 loss, authorized repairs to Plaintiffs’ home, and
subsequently paid certain repair costs. The repair costs
associated with the claim were greater than $50,000. Despite
those repairs, as a result of the foundational and/or structural
support damage to Plaintiffs’ property, the fair market value of
Plaintiffs’ property was diminished.

41.

At the time Allstate authorized the repairs to Plaintiffs’ home
and adjusted the claim arising from the covered loss on April
15, 2010, Allstate took no action to assess any diminution in
the fair market value of Plaintiffs’ property.

14

(Doc. 1, ¶¶ 38–41). Notably lacking from these allegations is any mention of any
investigation, negotiation, or assurances to pay made by Allstate Indemnity, or
any suggestion that Plaintiffs abstained from filing a lawsuit during the one-year
limitations period based on conduct by Allstate Indemnity.

Certainly, the

allegations in the Complaint, without more, do not constitute the “‘type of conduct
designed to lull a claimant into a false sense of security so as to constitute’ a
waiver of the limitation defense.” Pawlowski, 643 S.E.2d at 241 (citing Giles v.
Nationwide Mut. Fire Ins. Co., 405 S.E.2d 112 (Ga. Ct. App. 1991)); see also
Suntrust Mtg., Inc. v. Ga. Farm Bureau Mut. Ins. Co., 416 S.E.2d 322 (Ga. Ct.
App. 1992) (enforcing contractual limitation clause where there was no evidence
of continuing negotiations or an affirmative promise, statement or other act to
lead insured into believing that insurer intended to enlarge limitation period in
contract). Without determining whether the circumstances at issue in this lawsuit
could ever give rise to a waiver of the contractual limitations period, the Court
concludes that Plaintiffs have failed to allege facts sufficient to constitute a waiver
of the limitations period with respect to the 2010 loss.
A dismissal without prejudice of the claims based on the 2010 loss would,
in effect, be a dismissal with prejudice, due to the running of Georgia’s six-year
statute of limitations for breach of contract claims. Accordingly, the Court will
allow Plaintiffs twenty-one (21) days from the date of this Order in which to file an
amended complaint containing allegations sufficient to survive Defendants’

15

Motion to Dismiss. If Plaintiffs fail to file an amended complaint within twenty-one
(21) days, Plaintiffs’ breach of contract claims for the 2010 loss will be dismissed.
4.

Request for Injunctive Relief or Specific Performance

Under both Counts 1 and 2, Plaintiffs alternatively seek “specific
performance and/or an order enjoining Defendants’ ongoing and/or future
nonperformance to prevent irreparable harm[.]”

(Doc. 1, ¶¶ 96, 106).

Defendants move to dismiss Plaintiffs’ request for injunctive relief and/or specific
performance, arguing that Plaintiffs are not entitled to any remedy because they
have failed to state a claim for breach of contract. (Doc. 13, pp. 8–9). Further,
with respect to Plaintiffs’ failure to pay claim, Defendants argue that injunctive
relief is “nonsensical,” because Plaintiffs have an adequate remedy in a legal
action for damages and because diminished value must be determined on a
case-by-case basis. (Doc. 13, p. 9).
The Court has determined that Plaintiffs have stated a claim upon which
relief may be granted for breach of contract.

As a result, Defendants’ first

argument in support of their motion to dismiss Plaintiffs’ request for injunctive
relief and/or specific performance is without merit. Defendants’ next argument,
that Plaintiffs cannot seek equitable relief because they have an adequate
remedy at law, is similarly unavailing. The Court cannot say at this point that
Plaintiffs have an adequate remedy at law in the form of a damages award.
See, e.g., Mabry, 556 S.E.2d at 123 (upholding an injunction ordered by the trial
court “to require a party to perform contractual duties which the trial court has

16

declared that party is obligated to perform”). Finally, Defendants’ argument that
diminished value must be determined on a case-by-case basis is a class-based
argument and is not relevant at this stage of the litigation.
C.

Count 3: Declaratory Judgment

Defendants move to dismiss Count 3 of the Complaint, in which Plaintiffs
seek a declaratory judgment under 28 U.S.C. § 2201 based on Defendants’
“uniform and systematic policy of failing to assess for or pay diminished value.”
(Doc. 1, ¶ 12). Defendants argue that Plaintiffs’ “failure to adequately allege
breach or identify any specific provision of the contract which Defendants
violated is fatal to their declaratory judgment claims.” (Doc. 13, p. 10). Further,
Defendants contend that Plaintiffs have failed to establish an actual case or
controversy for purposes of the Declaratory Judgment Act because any actual
controversy alleged by Plaintiffs is subject to a series of contingencies. (Doc. 13,
p. 10). Finally, Defendants aver that a determination of coverage provided by the
policy is inappropriate for declaratory relief. (Doc. 13, p. 11).
Plaintiffs counter that they have sufficiently alleged a breach of contract;
that they have shown a “substantial likelihood” of future injury, which is sufficient
for purposes of establishing an actual case or controversy under the Declaratory
Judgment Act; and, finally, that claims for declaratory relief often arise in
insurance coverage disputes and are therefore appropriate for declaratory relief.
(Doc. 18, pp. 15–16).

Plaintiffs acknowledge that courts in this district have

17

considered their arguments in favor of declaratory relief in similar cases and have
rejected those arguments. (Doc. 18, p. 15).
The Declaratory Judgment Act,3 “echoing the ‘case or controversy’
requirement of Article III of the Constitution, provides that a declaratory judgment
may only be issued in the case of an ‘actual controversy.’” Emory v. Peeler, 756
F.2d 1547, 1551–52 (11th Cir. 1985); see also MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118, 126–27 (2007) (“[T]he phrase ‘case of actual controversy’ in
the Act refers to the type of ‘Cases’ and ‘Controversies’ that are justiciable under
Article III.” (citation omitted)). “Whether such a controversy exists is determined
on a case-by-case basis.” Atlanta Gas Light v. Aetna Cas. & Sur. Co., 68 F.3d
409, 414 (11th Cir. 1995) (citation omitted).
The Supreme Court has recognized that its decisions “do not draw the
brightest of lines between those declaratory-judgment actions that satisfy the
case-or-controversy requirement and those that do not.” MedImmune, Inc., 549
U.S. at 127. “Basically, the question in each case is whether the facts alleged,
under all the circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient immediacy and
reality to warrant the issuance of a declaratory judgment.” Id. (quoting Md. Cas.
Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)). The controversy “may not
be conjectural, hypothetical, or contingent; it must be real and immediate, and
create a definite, rather than speculative threat of future injury.” Emory, 756 F.2d
3

28 U.S.C. § 2201(a).
18

at 1552. “There must be a substantial likelihood that the plaintiff will suffer future
injury: a ‘perhaps’ or ‘maybe’ chance is not enough.”

Malowney v. Fed.

Collection Deposit Grp., 193 F.3d 1342, 1347 (11th Cir. 1999). “The remote
possibility that a future injury may happen is not sufficient to satisfy the ‘actual
controversy’ requirement for declaratory judgments.” Emory, 756 F.2d at 1552.
Plaintiffs bear the burden of establishing that the declaratory relief they seek
satisfies the case-or-controversy requirement. Lujan v. Defenders of Wildlife,
504 U.S. 555, 561 (1992).
Plaintiffs argue that the following facts show a “substantial likelihood of
future injury”: “(1) Plaintiffs are current insureds of Defendants, (2) Plaintiffs have
a 10% likelihood of submitting a covered claim in any given year, and (3)
Defendants will not assess for or pay diminished value if Plaintiffs submit a
covered claim because Defendants have a systematic and ongoing policy of not
assessing for or paying diminished value.” (Doc. 18, pp. 15–16). However, as
stated by the Eleventh Circuit, “[t]he remote possibility that a future injury may
happen is not sufficient to satisfy the ‘actual controversy’ requirement for
declaratory judgments.”

Malowny v. Fed. Collection Deposit Grp., 193 F.3d

1342, 1347 (11th Cir. 1999).

Plaintiffs must allege facts to establish “a

reasonable expectation that the injury they have suffered will continue or will be
repeated in the future.” Id. Because Plaintiffs’ injury is contingent upon their
home suffering damage, “the practical likelihood that the contingencies will occur
and that the controversy is a real one [is] decisive in determining whether an

19

actual controversy exists.” GTE Directories Publ’g Corp. v. Trimen Am., Inc., 67
F.3d 1563, 1569 (11th Cir. 1995) (citation and internal quotation marks omitted).
Accordingly, because Plaintiffs have failed to allege any facts from which
the Court could reasonably conclude that they will suffer future injury, the Court
lacks jurisdiction to adjudicate their declaratory judgment claim. See Malowny,
193 F.3d at 1346 (dismissing the claim for declaratory relief on the ground that
plaintiffs lacked standing to assert the claim because they failed to allege they
would suffer future injury, rather than on the ground that plaintiffs failed to state a
claim); see also FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) (“The
federal courts are under an independent obligation to examine their own
jurisdiction, and standing ‘is perhaps the most important of [the jurisdictional]
doctrines.’” (alteration in original) (citation omitted)). Because the Court lacks
subject matter jurisdiction over Plaintiffs’ claim for declaratory judgment,
Defendants’ motion to dismiss Count 3 is granted.
D.

Count 4: Attorneys’ Fees and Costs

Defendants move to dismiss Count 4 of the Complaint, in which Plaintiffs
assert that they are entitled to recover attorneys’ fees and costs pursuant to
O.C.G.A. § 13-6-11.

Defendants’ sole argument that Plaintiffs’ claim for

attorneys’ fees and costs must be dismissed is that, because “Plaintiffs have
failed to state [a] claim under either their breach of contract or declaratory
judgment counts,” and their claim for attorneys’ fees must be derivative of some
other claim, Count 4 must be dismissed.

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(Doc. 13, p. 11).

The Court has

determined that Plaintiffs have stated a claim for relief for breach of contract.
Accordingly, Defendants’ motion to dismiss Count 4 is denied.
E.

Standing to Bring Suit Against Non-Issuing Defendants

Allstate Insurance Company, Allstate Fire & Casualty Insurance Company,
and Allstate Property & Casualty Insurance Company (the “non-issuing
Defendants”) argue that they did not enter into an insurance contract with
Plaintiffs, and therefore they cannot be liable for a breach of contract. (Doc. 13,
p. 12). As a result, Defendants contend that Plaintiffs have no standing to seek
injunctive or declaratory relief against the non-issuing Defendants. (Doc. 13, p.
12). Plaintiffs argue that their allegations are sufficient to establish that the nonissuing Defendants are properly named under the juridical link doctrine and
theories of agency, apparent agency, joint venture, and/or alter ego. (Doc. 1,
¶¶ 15-26; Doc. 18, p. 24).
1.

Actual or Apparent Agency

The existence of a parent/subsidiary relationship does not in and of itself
establish an agency relationship under Georgia law. Matson v. Noble Inv. Grp.,
LLC, 655 S.E.2d 275, 282 (Ga. Ct. App. 2007). “The relation of principal and
agent arises wherever one person, expressly or by implication, authorizes
another to act for him or subsequently ratifies the acts of another in his behalf.”
O.C.G.A. § 10-6-1.
To prove actual agency, the purported principal must have assumed
the right to control the method, manner, and time of the purported
agent’s work, as distinguished from the right merely to require

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certain definite results in conformity to the contract. The right to
control the purported agent’s time means the right to control the
hours of work. The right to control the method and manner of work
means the right to tell the purported agent how to perform all details
of the job, including the tools he should use and the procedures he
should follow.
Satisfaction & Serv. Hous., Inc. v. SouthTrust Bank, Inc., 642 S.E.2d 364, 365
(Ga. Ct. App. 2007) (internal quotation marks and footnotes omitted).
Though Plaintiffs allege “Allstate Indemnity, Allstate Insurance, Allstate
Fire & Casualty, and Allstate Property & Casualty are wholly owned subsidiaries
of Allstate Insurance Holdings, LLC, . . . which in turn is a wholly owned
subsidiary of The Allstate Corporation,“ they allege no facts regarding the level of
control that any of the non-issuing Defendants exert over Allstate Indemnity.
(Doc. 1, ¶ 15).

There are also no allegations about any express agency

agreement or other facts to suggest Allstate Indemnity was the agent of any or all
non-issuing Defendants, beyond a conclusory allegation that “at all relevant times
herein, Defendants acted in all respects as agent, apparent agent, and alter ego
for each other, with respect to the acts complained of herein.” (Doc. 1, ¶ 23).
Therefore, Plaintiffs have not sufficiently alleged an actual agency relationship
between Allstate Indemnity and the non-issuing Defendants.
The Morrows also assert a theory of apparent agency in their
Complaint. (Doc. 1, ¶ 23).
In order to recover under a theory of apparent or ostensible agency,
a plaintiff must establish three elements: (1) that the alleged principal
held out another as its agent; (2) that the plaintiff justifiably relied on
the care or skill of the alleged agent based upon the alleged

22

principal’s representation; and (3) that this justifiable reliance led to
the injury.
Bright v. Sandstone Hospitality, LLC, 755 S.E.2d 899, 902 (Ga. Ct. App. 2014)
(citation omitted).
There are no allegations that any of the non-issuing Defendants
represented to the Morrows that they held Allstate Indemnity out as their agent.
See Kids R Kids Int’l, Inc., v. Cope, 769 S.E.2d 616, 619 (Ga. Ct. App. 2015) (“To
establish the required elements of apparent agency, it is not enough that the
plaintiff believe that an agency relationship exists. Neither is it sufficient that the
agent represent his status as agent. It must be established that the principal held
out the agent as its agent.” (internal quotation marks and footnote omitted)).
Plaintiffs only allege that they “operate and trade under the common name of
Allstate and use the same logo and slogan to identify and promote their
business” and “maintain a common website,” which provides a toll-free number
homeowners can use to report a claim to Allstate. (Doc. 1, ¶¶ 19–20). However,
the Georgia Court of Appeals has held that mere use of logos or trademarks is
insufficient to show apparent agency. See Kids R Kids Int’l, Inc., 769 S.E.2d at
619. Further, the fact that Allstate Indemnity and the non-issuing Defendants
share a website and toll-free telephone number does not show that any of the
non-issuing Defendants held Allstate Indemnity out as its agent. (Doc. 1, ¶¶ 19–
20).

23

Even if these allegations were sufficient to show the non-issuing
Defendants held Allstate Indemnity out as their agent, they do not plausibly
suggest that Plaintiffs “justifiably relied on the care or skill of the alleged agent
based upon the alleged principal’s representation.” Bright, 755 S.E.2d at 902.
2.

Joint Venture

Plaintiffs seek to hold the non-issuing Defendants liable on the theory that
they were part of a joint venture with Allstate Indemnity. (Doc. 1, ¶ 24).
The theory of joint venturers arises where two or more parties
combine their property or labor, or both, in a joint undertaking for
profit, with rights of mutual control (provided the arrangement does
not establish a partnership), so as to render all joint venturers liable
for the negligence of the other.
Kissun, 479 S.E.2d at 752.

Plaintiffs have not alleged that each Defendant

exercises mutual control over any joint undertaking, and no other allegations in
the complaint suggest mutual control.

See Williams v. Chick-fil-A, Inc., 617

S.E.2d 153, 155 (Ga. Ct. App. 2005) (“The right to exercise mutual control is a
crucial part of a joint venture.”).
3.

Alter Ego

Plaintiffs contend the non-issuing Defendants are liable for Allstate
Indemnity’s alleged breach of contract on an alter ego theory. (Doc. 1, ¶ 23).
“Under the alter ego doctrine, equitable principles are used to disregard the
separate and distinct legal existence possessed by a corporation where it is
established that the corporation served as a mere alter ego or business conduit
of another.” Kissun v. Humana, Inc., 479 S.E.2d 751, 752 (Ga. 1997). “[G]reat

24

caution should be exercised by the court,” however. Amason v. Whitehead, 367
S.E.2d 107, 108 (Ga. Ct. App. 1988).
In order to disregard the corporate entity because a corporation is a
mere alter ego or business conduit of a person, it should have been
used as a subterfuge so that to observe it would work an injustice.
To prevail based upon this theory it is necessary to show that the
shareholders disregarded the corporate entity and made it a mere
instrumentality for the transaction of their own affairs; that there is
such unity of interest and ownership that the separate personalities
of the corporation and the owners no longer exist. The concept of
piercing the corporate veil is applied in Georgia to remedy injustices
which arise where a party has over extended his privilege in the use
of a corporate entity in order to defeat justice, perpetuate fraud or to
evade contractual or tort responsibility.
Baillie Lumber Co. v. Thompson, 612 S.E.2d 296, 299 (Ga. 2005) (citation
omitted). Accordingly, Georgia courts disregard the corporate form if: (1) the
corporation is a “mere instrumentality” of the parent company or the
shareholders, and (2) to observe the corporate form would “work an injustice.”
See Ralls Corp. v. Huerfano River Wind, LLC, 27 F. Supp. 3d 1303, 1328 (N.D.
Ga. 2014); Fla. Shade Tobacco Growers, Inc. v. Duncan, 256 S.E.2d 644, 644
(Ga. Ct. App. 1979).
However, as an equitable doctrine, piercing the corporate veil to hold a
parent company or shareholder liable “is appropriate[ ] … only in the absence of
adequate remedies at law.” Baillie Lumber Co., 612 S.E.2d at 299. Thus, the
Georgia Supreme Court has held it is required, “as a precondition to a plaintiff’s
piercing the corporate veil and holding individual shareholders liable on a
corporate claim, that there be insolvency on the part of the corporation in the

25

sense that there are insufficient corporate assets to satisfy the plaintiff’s claim.”
Johnson v. Lipton, 328 S.E.2d 533, 535 (Ga. 1985). Absent an allegation of
insolvency or insufficient assets to satisfy a claim, a plaintiff fails to state a claim
for piercing the corporate veil to hold a parent company or shareholder liable.
See B & F Sys., Inc. v. LeBlanc, No. 7:07-CV-192 (HL), 2011 WL 4103576, at
*34 (M.D. Ga. Sept. 14, 2011); Friedman’s, Inc. v. Morgan Schiff & Co. (In re
Friedman’s), 385 B.R. 381, 414–15 (S.D. Ga. 2008), vacated in part by 396 B.R.
623 (S.D. Ga. 2008); Adams v. Unum Life Ins. Co. of Am., 508 F. Supp. 2d 1302,
1315 (N.D. Ga. 2007); Perry v. Unum Life Ins. Co. of Am., 353 F. Supp. 2d 1237,
1240 (N.D. Ga. 2005).
There is no allegation that Allstate Indemnity is insolvent or that it has
insufficient assets to satisfy Plaintiffs’ claims.

It may be that as Plaintiffs

investigate their claims, they can allege facts to support their alter ego theory.
But the allegations Plaintiffs now make are insufficient.
4.

Juridical Link Doctrine

Plaintiffs argue that the non-issuing Defendants are proper Defendants
pursuant to the “juridical link” doctrine.4 (Doc. 18, p. 24). They allege that the
“Defendants’ actions and relationships are sufficient to find that there is a juridical

4

The non-issuing Defendants do not specifically address the juridical link
doctrine in their motion; in fact, their motion does not include Paragraph 26 in
their list of theories by which the non-issuing Defendants are not proper
defendants in this action. (Doc. 13, p. 14). However, they do include it in their
reply brief, so the Court will address this theory for the sake of completeness.
(Doc. 19, p. 9).
26

link among them.” (Doc. 1, ¶ 26). Plaintiffs, upon information and belief, believe
that the non-issuing Defendants issue homeowners insurance policies which may
have language similar to Allstate Indemnity’s policy, and they suggest that
Defendants may have “engaged in a common course of conduct pursuant to a
common corporate policy with respect to those policies in terms of their failure to
assess for and, where found, pay diminished value to their insureds.” (Doc. 1, ¶
21).
The juridical link doctrine derives from the Ninth Circuit’s decision in La
Mar v. H & B Novelty & Loan Co., 489 F.2d 461 (9th Cir. 1973), where the court,
in the context of a class action, explained in dicta:
[A] plaintiff who has no cause of action against the defendant cannot
fairly and adequately protect the interests of those who do have
such causes of action. This is true even though the plaintiff may
have suffered an identical injury at the hands of a party other than
the defendant and even though his attorney is excellent in every
material respect.
Obviously this position does not embrace
situations in which all injuries are the result of a conspiracy or
concerted schemes between the defendants at whose hands the
class suffered injury. Nor is it intended to apply in instances in which
all defendants are juridically related in a manner that suggests a
single resolution of the dispute would be expeditious.
Id. at 466 (emphasis added).

Plaintiffs appear to rely on the language

emphasized.5 Specifically, the non-issuing Defendants, they think, have a similar

5

It seems obvious that in a properly alleged “conspiracy or concerted schemes
between the defendants at whose hands the class suffered injury,” there is no
need to resort to some exotic doctrine to sue those defendants. Clearly, if they
acted together to cause the class an injury, they can be sued together.

27

policy which they interpret in the same way Allstate Indemnity interprets its
policy, and thus it would be expeditious to join them in one action.
The Eleventh Circuit has not adopted the juridical link doctrine, but it has
noted that cases applying the doctrine involved situations “in which there was
either a contractual obligation among all defendants or a state or local statute
requiring common action by the defendants.” Moore v. Comfed Savs. Bank, 908
F.2d 834, 838 (11th Cir. 1990).

Citing Moore and other cases, the Seventh

Circuit has noted that “[p]ost-La Mar cases from other courts have suggested that
if all the defendants took part in a similar scheme that was sustained either by a
contract or conspiracy, or was mandated by a uniform state rule, it is appropriate
to join as defendants even parties with whom the named class representative did
not have direct contact.” Payton v. Cty. of Kane, 308 F.3d 673, 679 (7th Cir.
2002) (citations omitted). Plaintiffs do not allege any contract, rule, or statute
requiring common action among insurers issuing homeowners policies.
Moreover, as expeditious as it may be to join in one action the non-issuing
Defendants and all other insurance companies6 who take the position that their
policy does not provide coverage for diminished value, expediency does not
trump Article III’s standing requirement. See Raines v. Byrd, 521 U.S. 811, 820
(1997) (“[W]e must put aside the natural urge to proceed directly to the merits of

6

If the non-issuing Defendants can be joined simply because they interpret their
policies to not provide coverage for diminished value, it would seem all insurers
who deny claims for diminished value could be joined. Again, that would be
expeditious, but it hardly comports with well-settled jurisdictional principles.
28

this important dispute and to ‘settle’ it for the sake of convenience and efficiency
[when considering standing].”); Lewis v. Casey, 518 U.S. 343, 357 (1996) (“That
a suit may be a class action ... adds nothing to the question of standing, for even
named plaintiffs who represent a class ‘must allege and show that they
personally have been injured, not that injury has been suffered by other,
unidentified members of the class to which they belong and which they purport to
represent.’” (alteration in original) (citations omitted)).

Whatever utility the

juridical link doctrine may have in the context of Rule 23 class action analysis,
this Court is not prepared to say that it relieves the Morrows from pleading that
they suffered injury at the hands of the non-issuing Defendants. See Mahon v.
Ticor Title Ins. Co., 683 F.3d 59, 62–63 (2d Cir. 2012) (rejecting the plaintiff’s
juridical link doctrine arguments and affirming the district court’s conclusion that
the plaintiff “lack[ed] Article III standing to sue the [other wholly-owned
subsidiaries of the same parent company as the codefendant] whether or not
they are juridically linked to [the codefendant] because she suffered no injury as
a result of their conduct”); Cassese v. Wash. Mut., Inc., 262 F.R.D. 179, 184
(E.D.N.Y. 2009) (refusing to apply the juridical link doctrine and stating “even
despite closely interconnected business entities, a class action plaintiff does not
have standing to sue defendants for a breach of contract to which the plaintiff
was not a party”); Newport v. Dell, Inc., No. CV-08-00096, 2008 WL 4347017, at
*3 (D. Ariz. Aug. 21, 2008) (noting the standing problem with the plaintiff’s
attempt to invoke the juridical link doctrine and concluding that the case, which

29

involved a breach-of-contract claim against a party with whom the plaintiff had no
contract, was not similar to “the limited types of cases in which courts have
actually applied the juridical link doctrine”); Popoola v. Md-Individual Practice
Ass’n, Inc., 230 F.R.D. 424, 431–32 (D. Md. 2005) (rejecting the juridical link
doctrine where the plaintiff asserted the defendants had a juridical link because
they were “common subsidiaries of the same corporation and because they
share common practices and policies” and concluding the plaintiff lacked
standing to sue the defendant that was purportedly linked through the doctrine).
Therefore, the non-issuing Defendants are not proper defendants pursuant to this
doctrine.
Accordingly, Defendants’ motion to dismiss the non-issuing Defendants is
granted.
III.

CONCLUSION
For the reasons discussed herein, Defendants’ motion to dismiss is

GRANTED in part and DENIED in part. Count 3 of the Complaint, in which
Plaintiffs seek a declaratory judgment, is dismissed. The non-issuing Defendants
are dismissed from this lawsuit. To the extent Plaintiffs seek relief under Count 1
and Count 2 for the foundational and/or structural support damage they
experienced in 2010, the Court will allow Plaintiffs twenty-one (21) days from the
date of this Order to file an amended complaint containing allegations sufficient
to survive Defendants’ Motion to Dismiss. If an amended complaint is not filed,
Plaintiffs’ breach of contract claims based on the 2010 loss will be dismissed. All

30

other claims against Allstate Indemnity may proceed for further factual
development.

SO ORDERED, this the 29th day of March, 2017.
/s/ Hugh Lawson_________________
HUGH LAWSON, SENIOR JUDGE
les

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