Allied Property and Casualty Insurance Company et al v. Bed Bath & Beyond, Inc. et al

Filing 49

ORDER denying Plaintiffs' 21 Motion to Dismiss Count III of Bed Bath & Beyond, Inc.'s Counterclaim. Signed by Judge Richard W. Story on 2/4/13. (cem)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
ALLIED PROPERTY AND
CASUALTY COMPANY and
AMCO INSURANCE
COMPANY,
Plaintiffs,
v.
BED BATH & BEYOND, INC.
and ARCH INSURANCE
COMPANY,
Defendants.

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CIVIL ACTION NO.
1:12-CV-1265-RWS

ORDER
This case comes before the Court on Plaintiffs’ Motion to Dismiss Count
III of Bed Bath & Beyond, Inc.’s (“BBB”) Counterclaims (“Plaintiffs’ Motion
to Dismiss”) [21]. After reviewing the record, the Court enters the following
Order.
Background1
This declaratory judgment action concerns an insurance coverage dispute.

1

The following facts are taken from BBB’s Counterclaims [14] and are
accepted as true for purposes of Plaintiffs’ Motion to Dismiss. Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 556 (2007).

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BBB’s Counterclaims arise out of five separate lawsuits (the “Underlying
Lawsuits”) filed against BBB “alleging bodily injury and/or property damage
allegedly resulting from the use of certain fire pots and gel fuel products (‘the
Gel Fuel Products’) distributed on a wholesale basis by Napa Home & Garden,
Inc. (‘Napa’).” (BBB’s Counterclaims, Dkt. [14] at 15 ¶ 8.) “Napa was at all
relevant times a vendor of BBB and supplied the Gel Fuel Products at issue in
the Underlying Lawsuits to BBB for resale by BBB at the retail level.” (Id. ¶
9.) “As a vendor and supplier of BBB, Napa contractually agreed to indemnify
BBB with respect to, inter alia, claims for bodily injury and property damage
resulting from the Gel Fuel Products.” (Id. ¶ 10.) “Napa also agreed to name,
and did in fact name, BBB as an additional insured under two general liability
policies issued by Allied to Napa as a named insured, as well as two umbrella
liability policies issued by AMCO to Napa as a named insured.” (Id. ¶ 11.)
“By virtue of Napa’s contractual agreement to indemnify BBB, BBB is also a
contractual indemnitee pursuant to two general liability policies issued by
AMCO to Napa as a named insured.” (Id. ¶ 12.) The six insurance policies
referenced above are referred to collectively as the “Policies.”

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“Beginning in July 2011, BBB tendered the Underlying Lawsuits to
Allied and AMCO for a defense and indemnification under the Policies.” (Id. ¶
45.) Plaintiffs denied coverage to BBB and refused to pay any of BBB’s
defense costs in the Underlying Lawsuits. (Id. ¶ 48.) On April 13, 2012,
Plaintiffs initiated this declaratory judgment action against BBB and its insurer,
Arch Insurance Company (“Arch”), seeking, among other things, a declaration
that Plaintiffs are not obligated under the Policies to provide a defense or
indemnification coverage to BBB. (Compl., Dkt. [1] ¶ 31.)
In Count III of BBB’s Counterclaims, BBB raises a claim for bad faith
under O.C.G.A. § 33-4-6, which provides for the recovery of a penalty and
attorney’s fees for an insurer’s bad faith refusal to pay a claim. (BBB’s
Counterclaims, Dkt. [14] at 30-31 ¶¶ 82-90.) In support of this counterclaim,
BBB alleges that Plaintiffs “have wrongfully and unlawfully refused to defend
and indemnify BBB in connection with the Underlying Lawsuits.” (Id. at 30 ¶
83.) BBB alleges this constitutes “a material and continuing breach of the
Policies” and an act of bad faith on the part of Plaintiffs. (Id. at 30-31 ¶¶ 84,
86.) BBB thus seeks to recover a “50 percent penalty from Allied and AMCO
on all sums owed to BBB and all sums due to be paid on behalf of BBB in
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connection with the Underlying Lawsuits, plus all reasonable attorney’s fees
incurred by BBB in pursuing its Counterclaims.” (Id. ¶ 88.) Plaintiffs now
move to dismiss BBB’s bad faith claim for failure to state a claim upon which
relief can be granted, pursuant to Federal Rule of Civil Procedure (“Rule”)
12(b)(6).
Discussion
I.

Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain a

“short and plain statement of the claim showing that the pleader is entitled to
relief.” While this pleading standard does not require “detailed factual
allegations,” “labels and conclusions” or “a formulaic recitation of the elements
of a cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In order to
withstand a motion to dismiss, “a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Id. (quoting Twombly, 550 U.S. at 570). A complaint is plausible on its face
when the plaintiff pleads factual content necessary for the court to draw the
reasonable inference that the defendant is liable for the conduct alleged. Id.
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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.” Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273
n.1 (11th Cir. 1999). However, the same does not apply to legal conclusions set
forth in the complaint. Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260
(11th Cir. 2009) (citing Iqbal, 556 U.S. at 678). “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Iqbal, 556 U.S. at 678. Furthermore, the court does not “accept as
true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at
555.
II.

Analysis
Plaintiffs advance three arguments in support of their Motion to Dismiss

Count III of BBB’s Counterclaims. First, Plaintiffs argue that BBB’s bad faith
claim fails because BBB is not the “holder” of the any of the Policies, as
required to recover under O.C.G.A. § 33-4-6 (the “statute”). (Mem. of Law in
Supp. of Mot. to Dismiss Count 3 of BBB’s Counterclaim (“Pls.’ Mem.”), Dkt.
[21-1] at 4-5 of 13.) Second, Plaintiffs argue that BBB failed to make a pre-suit
demand and therefore failed to satisfy a condition precedent to filing a claim
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under the statute. (Id. at 6-9 of 13.) Finally, Plaintiffs contend that BBB has
not alleged a “loss” recoverable under the statute. (Id. at 9-10 of 13.) The
Court considers these arguments in turn.
A.

Is BBB a “holder” of the Policies?

Plaintiffs contend that BBB, as an “additional insured” under the
Policies, is not the “holder” of the Policies and therefore may not recover under
O.C.G.A. § 33-4-6. The statute provides as follows:
In the event of a loss which is covered by a policy of insurance and
the refusal of the insurer to pay the same within 60 days after a
demand has been made by the holder of the policy and a finding
has been made that such refusal was in bad faith, the insurer shall
be liable to pay such holder, in addition to the loss, not more than
50 percent of the liability of the insurer . . . and all reasonable
attorney’s fees for the prosecution of the action against the
insurer. . . .
O.C.G.A. § 33-4-6(a) (emphasis added). BBB argues that “an additional
insured has the same benefits of coverage as a named insured” under an
insurance policy and therefore qualifies as a “holder,” entitled to bring a claim
under the statute. (BBB’s Resp. in Opp’n to Pls.’ Mot. to Dismiss (“BBB’s
Resp.”), Dkt. [22] at 5-10.)

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The Court finds that Plaintiffs have failed to show that BBB, as an
“additional insured,” is not entitled to bring a claim for bad faith under the
statute. None of the cases cited by Plaintiffs stands for this proposition. On the
contrary, the cases relied on by Plaintiffs—in particular, Southern General
Insurance Company v. Ross, 489 S.E.2d 53 (Ga. Ct. App. 1997) and Owen v.
Allstate Insurance Company, 455 S.E.2d 368 (Ga. Ct. App. 1995)—stand for
the proposition that only an “insured,” as opposed to an injured third party, may
bring a claim for bad faith under the statute. See Owen, 455 S.E.2d at 369
(“[The statute] generally allows an insured to recover bad faith damages and
attorney fees against the insurer if the insurer in bad faith refuses to provide
coverage on a covered loss. . . . [I]t does not follow that a person injured by the
insured and who is not a party to the insurance contract may complain of the
. . . bad faith of the insurer towards its policyholder in failing to adjust or
compromise a claim against such policyholder . . . .” (emphasis added)); Ross,
489 S.E.2d at 57 (affirming trial court ruling that injured third party lacked
standing to bring bad faith claim under the statute because “those statutory
claims may only be made by the insured.” (emphasis added)).

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Based on the foregoing authority, the term “holder of the policy,” as used
in O.C.G.A. § 33-4-6, refers to the insured, in contradistinction to third parties,
who are strangers to the insurance contract. Moreover, in holding that the
statutory bad faith claim is available only to the insured, the cases cited above
do not distinguish between a “named insured” and an “additional insured.”2 See
also J. Smith Lanier & Co. v. Se. Forge, Inc., 630 S.E.2d 404, 407 (Ga. 2006)
(“Bad faith claims under the Georgia insurance code . . . are available only as
between insureds and their insurers.” (internal quotations and citations
omitted)). In this case, it is undisputed that BBB is an insured (specifically, an
additional insured) under the Policies. Accordingly, the Court at this stage in
the litigation cannot find as a matter of law, based on the authority cited by
Plaintiffs, that BBB is not entitled to bring a claim under the statute.

2

Plaintiffs cite Chicago Insurance Company v. American Southern Insurance
Company, 156 S.E.2d 143 (Ga. Ct. App. 1967) for the proposition that Georgia courts
“distinguish[] between liability policies that cover one ‘as an additional insured’ and
policies that ‘cover liability incurred by the policyholder.’” (Pls.’ Mem., Dkt. [21-1] at
5 of 13.) That case did not involve a bad faith claim under O.C.G.A. § 33-4-6 and is
not on point. The issue in Chicago Insurance Company was whether a named insured
could recover under his own insurance policy (the “policy”) for injuries he sustained
as a result of the conduct of a third person, to whom liability insurance was extended
under the policy as an “additional insured.” 156 S.E.2d at 145-46. The case has no
bearing on the issue presented here.
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The Court further notes that permitting an additional insured to raise a
bad faith claim under the statute is consistent with case law recognizing that an
additional insured has the same coverage benefits under an insurance policy as
the named insured. See Sumitomo Marine & Fire Ins. Co. of Am. v. South.
Guar. Ins. Co. of Ga., 337 F. Supp. 2d 1339, 1356 (N.D. Ga. 2004) (noting that
“an additional insured under defendants’ policies . . . enjoys the same rights
under defendants’ policies as [the named insured]” and is “entitled to the same
benefits of coverage that were granted to [the named insured]”). This
conclusion also comports with the purpose behind O.C.G.A. § 33-4-6, which, as
Plaintiffs and BBB agree, “is to penalize insurers that delay payments without
good cause.” Howell v. South. Heritage Ins. Co., 448 S.E.2d 275, 276 (Ga. Ct.
App. 1994) (citation omitted). This policy would not be furthered by
precluding additional insureds from bringing a bad faith claim under the statute.
In sum, Plaintiffs have failed to point to any authority for the proposition
that an additional insured does not qualify as a “holder of the policy” with
standing to bring a claim for bad faith under O.C.G.A. § 33-4-6. Absent such
authority, the Court will not dismiss Count III of BBB’s Counterclaims on this
basis.
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B.

Did BBB satisfy the condition precedent to bringing its bad faith
claim?

Plaintiffs next argue that BBB failed to make a pre-suit demand for
payment under the Policies and therefore failed to satisfy a condition precedent
to filing its bad faith claim under the statute. (Pls.’ Mem., Dkt. [21-1] at 6-9 of
13.) As set out above, “O.C.G.A. § 33-4-6(a) provides that an insurer owes a
bad faith penalty and reasonable attorney fees ‘in the event of a loss which is
covered by a policy of insurance and the refusal of the insurer to pay the same
within 60 days after a demand has been made by the holder of the policy and a
finding has been made that such refusal was in bad faith. . . .’” Stedman v.
Cotton States Ins. Co., 562 S.E.2d 256, 258 (Ga. Ct. App. 2002). “As this
section imposes a penalty, it is strictly construed; consequently, a proper
demand for payment is essential for recovery.” Id. (internal quotes and citations
omitted). BBB does not dispute the foregoing. BBB argues, however, that (1)
BBB sent a pre-suit demand to Plaintiffs, thus satisfying the statute’s demand
requirement, and (2) Plaintiffs waived the demand requirement, in any event, by
filing the instant declaratory judgment action. (BBB’s Resp., Dkt. [22] at 1117.)

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The Court finds this case to be controlled by Leader National Insurance
Company v. Kemp & Son, Inc., 375 S.E.2d 231, 234 (Ga. Ct. App. 1988). In
that case, the Georgia Court of Appeals found the demand requirement waived
where an insurance company filed a declaratory judgment action to determine
its liability under an insurance policy prior to the insured’s filing of suit to
recover for bad faith under the statute. Id. The Court held as follows:
The purpose of the of the 60-day waiting period, which is to
protect the insurer by giving it a reasonable time to investigate the
claim, examine the facts, and determine its liability, is no longer
served when the insurer files suit seeking to relieve itself of
liability under the policy. . . . Consequently, since [the insurance
company] filed a declaratory judgment action to determine its duty
to defend its insured under the policy before initiation of the case
sub judice, it waived the 60-day notice requirement of O.C.G.A.
§ 33-4-6.
Id. Based on the ruling in Kemp & Son, Inc., the Court finds that Plaintiffs
waived the demand requirement of O.C.G.A. § 33-4-6.3 BBB’s bad faith
3

In their reply brief, Plaintiffs rely on Howell v. Southern Heritage Insurance
Company, 448 S.E.2d 275 (Ga. Ct. App. 1994) to argue that an insurance company’s
filing of a declaratory judgment action does not waive the statutory demand
requirement. (Pls.’ Reply Br. in Supp. of Mot. to Dismiss (“Pls.’ Reply”), Dkt. [25] at
6-7 of 10.) In Howell, an insurance company sought a declaration of non-liability
under an insurance policy, and its insured counterclaimed for bad faith under
O.C.G.A. § 33-4-6. 448 S.E.2d at 275. The court upheld summary judgment in favor
of the insurance company on the insured’s bad faith counterclaim, reasoning that the
insured failed to comply with the 60-day demand requirement of the statute. Id. The
issue of waiver, however, was not raised in Howell, and therefore the court had no
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counterclaim therefore is not due to be dismissed for failure to satisfy a
condition precedent to filing a claim under the statute.
C.

Has BBB alleged a “loss” compensable under the statute?

Finally, Plaintiffs seek dismissal of BBB’s bad faith counterclaim on
grounds that BBB has failed to allege a loss that is compensable under the
statute. (Pls.’ Mem., Dkt. [21-1] at 9-10 of 13.) Plaintiffs contend that BBB is
seeking to recover a penalty calculated on the basis of “‘all sums due to be paid
on behalf of BBB in connection with the Underlying Lawsuits’” (Pls.’ Mem.,
Dkt. [21-1] at 9 of 13 (quoting BBB’s Counterclaims, Dkt. [14] at 31 ¶ 88)),
and, therefore, is seeking to recover a penalty “based on amounts paid by Arch
[BBB’s insurer]” (id. at 10 of 13). Plaintiffs explain this final argument in their
reply brief: “Plaintiffs’ final contention is that even if BBB has standing as a
policyholder to seek a penalty and even if it made (or was excused from
making) a timely and proper demand, any penalty must be calculated on the

occasion to consider the impact of an insurance company’s filing of a declaratory
judgment action, prior to an insured’s assertion of a bad faith claim, on the insured’s
obligation to adhere to the 60-day demand requirement of the statute. Accordingly,
the holding in Howell does not control the issue in this case.
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amount BBB is owed under the policy and not any amounts paid by third
parties on BBB’s behalf.” (Pls.’ Reply, Dkt. [25] at 7 of 10.)
In response, BBB contends that it has alleged a compensable loss under
the statute. (BBB’s Resp., Dkt. 22 at 17-18.) BBB points to its allegation that
“[it] has suffered and will continue to suffer damages and harm as a result of
[Plaintiffs] . . . breach of the Policies, including but not limited to incurring
defense costs associated with the ongoing defense of the Underlying Lawsuits.”
(Id. (citing BBB’s Counterclaims, Dkt. [14] at 31 ¶ 87).)
The Court agrees with BBB and finds the foregoing a sufficient
allegation of loss compensable under the statute. As is clear from its text,
“[O.C.G.A.] § 33-4-6 broadly encompasses ‘any loss which is covered by a
policy of insurance.’” Mills v. Allstate Ins. Co., 653 S.E.2d 850, 852 (Ga. Ct.
App. 2007). BBB alleges that it has and will continue to incur defense costs in
connection with the Underlying Lawsuits, which costs should have been paid
by Plaintiffs under the Policies. Accordingly, at the motion to dismiss stage of
the litigation, the Court finds that BBB has alleged a loss that is compensable
under the statute. Count III of BBB’s counterclaim therefore is not subject to
dismissal on the third ground urged by Plaintiffs.
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Conclusion
In accordance with the foregoing, Plaintiffs’ Motion to Dismiss Count III
of Bed Bath & Beyond, Inc.’s Counterclaim [21] is DENIED.
SO ORDERED, this 4th day of February, 2012.

________________________________
RICHARD W. STORY
United States District Judge

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