Nationwide Mutual Fire Insurance Company v. Castle et al

Filing 35

MEMORANDUM OPINION & ORDER: Nationwide's motions to dismiss the Castles' counterclaim and amended counterclaim, R. 10 ; R. 20 , are GRANTED. Signed by Judge Amul R. Thapar on 10/2/2013. (TDA) cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
NATIONWIDE MUTUAL FIRE
INSURANCE COMPANY,

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Plaintiff,
v.
MATTHEW CASTLE, et al.,
Defendants.

Civil No. 13-25-ART

MEMORANDUM OPINION
AND ORDER

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Facts drive pleadings. A court can no more adjudicate a factually barren lawsuit than
a physician can diagnose a symptomless patient.

The defendants’ four-paragraph

counterclaim in this case recites the law and alleges no facts. Their amended counterclaim
more than doubles the length of its predecessor without further illuminating the facts
underlying the claim. For this reason, the Court must grant the plaintiff’s motions to dismiss
the counterclaim and amended counterclaim.
BACKGROUND
A fire destroyed Anthony and Maria Castle’s home at 181 Beaver Valley Road in
Martin, Kentucky (the “Beaver Valley Road property”). R. 15 at 1, 3. At the time of the
blaze, they were in the midst of selling that home, via a land sale contract, to their son,
Matthew Castle. Id. at 2. The land sale contract called for Matthew to name Anthony and
Maria as additional insureds on any homeowners insurance he purchased for the property.

Id. at 3.
Within a month of the fire at the Beaver Valley Road property, a second fire
destroyed another home owned by Matthew Castle, located at 10956 Main Street in Martin,
Kentucky (the “Main Street property”). Id. at 2–4. The parties allude to evidence that arson
caused both fires. Id. at 4 (“the homes may have been destroyed by arson”); R. 5 at 6–7.
Whatever the fires’ cause, the Castles disavow any foul play. R. 15 at 4.
Before the fires, Matthew Castle obtained homeowners insurance policies from
Nationwide Mutual Fire Insurance Company to cover both properties. Id. at 3–4. Neither
policy, however, listed his parents as additional insureds. Id. at 2–3. Nationwide sued all
three Castles, seeking a declaratory judgment that those policies were null and void from
their inception. R. 5 at 10. The Castles filed a counterclaim, R. 4, which they later amended,
R. 17, alleging that Nationwide had breached the insurance policies and violated Kentucky’s
Unfair Claims Settlement Practices Act (“UCSPA”). Id. at 3–5. Pursuant to Federal Rule of
Civil Procedure 12(b)(6), Nationwide moved to dismiss the defendants’ counterclaim and
amended counterclaim for failure to state a claim. R. 10; R. 20. Nationwide argues that the
counterclaim “does not set forth any facts to allow the Court to make any inferences
concerning liability” and that “[t]he Castles have not pleaded sufficient facts.” R. 10 at 1.
DISCUSSION
A counterclaim, like a complaint, must contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In order to
survive a motion to dismiss under Rule 12(b)(6), a counterclaimant must “plead enough
factual matter to raise a plausible inference of wrongdoing.” 16630 Southfield Ltd. P’ship v.
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Flagstar Bank, F.S.B., No.12-2620, 2013 WL 4081909, at *2 (6th Cir. Aug. 14, 2013)
(internal quotation marks omitted). If the well-pled facts do not allow the court to infer
“more than the mere possibility of misconduct,” then dismissal is appropriate. Ashcroft v.
Iqbal, 556 U.S. 662, 679 (2009).
The Castles’ counterclaim is devoid of facts plausibly supporting their allegations.
Specifically, the Castles did not plead facts establishing: (1) that Anthony and Maria Castle
have standing to enforce the Main Street property’s insurance policy, (2) that Nationwide
actually breached either insurance policy, and (3) that Nationwide acted in bad faith. So, the
Court must grant Nationwide’s motions to dismiss the Castles’ counterclaim.
I.

The Castles Plead Insufficient Facts To Make Their Breach of Contract Claims
Plausible, So Those Claims Must Be Dismissed.
The Castles assert that Nationwide breached two contracts:

Matthew Castle’s

insurance policies for the Beaver Valley Road and Main Street properties. In order to
establish a breach of contract under Kentucky law, the Castles must prove: (1) the existence
of a contract, (2) breach of that contract, and (3) damages stemming from the breach. Metro
Louisville/Jefferson Cnty. Gov’t v. Abma, 326 S.W.3d 1, 8 (Ky. 2009).

The Castles’

counterclaim, however, suffers from a dearth of evidence in support of the first two elements.
A.

Matthew Castle Properly Pleads the Existence of Both Contracts, but
Anthony and Maria Castle Plead Sufficient Facts To Establish Standing
To Enforce Only One Contract.

To meet the first element of their breach of contract claims, the Castles must plead
facts that, when taken as true, establish the existence of a contract for insurance coverage for
both properties. As the party named on both insurance policies, Matthew Castle successfully
accomplishes this. In contrast, Anthony and Maria Castle offer no facts supporting their
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interest in Matthew’s insurance policy for the Main Street property. They do, however,
plead facts sufficient to state a claim that they have rights under the policy for the Beaver
Valley Road property.
The Main Street Property:

The defendants provide adequate factual support for

Matthew Castle’s contention that he possesses a Nationwide insurance policy for the Main
Street property. R. 17 at 2 (alleging that Matthew purchased policy number 63 16 HO
504915). Anthony and Maria Castle, on the other hand, have no known relationship with
that property or with Matthew’s policy. To establish breach of contract as a stranger to the
contract, a party must show that he was an intended third-party beneficiary of that contract.
See Laurel Constr. Co. v. Paintsville Util. Comm’n, 336 S.W.3d 903, 907 (Ky. Ct. App.
2010). Anthony and Maria Castle make no factual showing that they are parties to or thirdparty beneficiaries of the Main Street property’s insurance policy. Therefore, their breach of
contract claim fails on its first element.
The Beaver Valley Road Property: Once again, the defendants provide ample factual
support for Matthew Castle’s claim that he holds a Nationwide insurance policy for the
Beaver Valley Road property. R. 17 at 1 (alleging that Matthew purchased policy number 63
16 HO 503396). This time, however, Anthony and Maria Castle also allege facts sufficient
to demonstrate that they are third-party beneficiaries of Matthew’s policy.
Anthony and Maria Castle’s land sale contract with their son gives them an insurable
interest in the property and the right to enforce the accompanying insurance policy. In
Kentucky, “it is not necessary that one be named as an insured in an insurance policy in order
to be entitled to policy proceeds.” Estes v. Thurman, 192 S.W.3d 429, 432 (Ky. Ct. App.
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2005). Where a land sale contract requires the buyer to list the seller as an additional
insured, the seller may sue to enforce the buyer’s insurance policy, even if the buyer
neglected to list the seller as an additional insured. See Castle Ins. Co. v. Vanover, 993
S.W.2d 509, 510 (Ky. Ct. App. 1999). In Castle Insurance, the claimants’ land sale contract
obligated the buyer to add them to his insurance policy as security for an unpaid balance on
the property. Id. The buyer never listed them on his policy. Still, when the property burned
down, the claimants were allowed to sue the insurance company to recover on the buyers’
policy. Id.
Assuming the Castles’ factual allegations are true, this case mirrors Castle Insurance
perfectly. At the time of the fire, Anthony and Maria Castle had partially completed the sale
of the Beaver Valley Road property to their son, and their land sale contract required
Matthew to name his parents as additional insureds on his Nationwide policy. R. 17 at 3.
The Castles therefore successfully plead the first element of their breach of contract claim
concerning the Beaver Valley Road property.
B.

The Castles Do Not Plead Sufficient Facts To Make a Plausible Claim
That Nationwide Breached the Terms of the Insurance Policies.

The Castles’ counterclaim fails on another front: It alleges no facts establishing that
Nationwide actually breached either contract. A plausible counterclaim must do more than
recite the elements of a claim while couching bare legal conclusions as facts. Ctr. for BioEthical Reform, Inc. v. Napolitano, 648 F.3d 365, 369 (6th Cir. 2011). In the breach of
contract context, this means that a claimant must identify a “contractual basis” for the claim,
including the specific terms of the contract allegedly breached. Northampton Rest. Group,
Inc. v. FirstMerit Bank, N.A., 492 F. App’x 518, 522 (6th Cir. 2012); accord Shane v. Bunzl
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Distrib. USA, Inc., 200 F. App’x 397, 402 (6th Cir. 2006). The claimant must then allege
facts indicating that his adversary somehow breached the relevant contractual terms.
The Castles’ pleadings do not satisfy this standard, because the Castles never even
identify the contractual provision that Nationwide allegedly breached. Nor do they explain
how the alleged breach occurred. All they say is that Nationwide somehow breached the
policies on the Main Street and Beaver Valley Road properties: “Plaintiffs have wrongfully
denied coverage, wrongfully refused to may (sic) payment under the insurance policy, and
have otherwise breached their insurance contract agreement with these answering
defendants.” R. 17 at 4. Even their response to Nationwide’s motion to dismiss reveals
precious few factual allegations. R. 16 at 2 (“Matthew Castle has claimed breach of contract
because Nationwide has asserted meritless accusations as a means to delay and/or deny
payment.”). But these conclusory statements cannot satisfy Rule 8’s pleading requirements.
See Iqbal, 556 U.S. at 678 (Rule 8 “demands more than an unadorned, the-defendantunlawfully-harmed-me accusation”).
Because the Castles do not adequately plead that Nationwide breached its contractual
obligations, the Court need not address damages, the last element of a breach of contract
claim.
II.

The Court Must Also Dismiss the Castles’ Bad Faith Claim Under Kentucky’s
UCSPA.
The Castles’ bad faith claim under the UCSPA also fails, because the Castles do not

allege facts establishing that Nationwide conducted itself unreasonably or coupled its
payment delay with harassment or deception. In order to state a bad faith claim under
Kentucky’s UCSPA, a claimant must allege that: (1) the insurer was obligated to pay the
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claim under the terms of the policy; (2) the insurer lacked a reasonable basis in law or fact
for denying the claim; and (3) the insurer either knew there was no reasonable basis for
denying the claim or acted with reckless disregard for whether any basis existed. Wittmer v.
Jones, 864 S.W.2d 885, 890 (Ky. 1993). An insurer may “challenge a claim and litigate it if
the claim is debatable on the law or the facts” without running afoul of the UCSPA. Id.
(internal quotation marks omitted). A mere delay in payment does not violate the UCSPA
“absent some affirmative act of harassment or deception.” Motorists Mut. Ins. Co. v. Glass,
996 S.W.2d 437, 452 (Ky. 1997).
To buttress their argument, the Castles offer only legal conclusions and recite the
elements of their claim. They allege “that the failure of [Nationwide] to compensate them
violates the Unfair Claims Settlement Practices Act.” R. 17 at 4. They also state that
Nationwide “has a clear obligation to pay,” “has had adequate time to investigate the claim,”
“lacks any reasonable basis for denying payment based upon its investigation,” “knows that
there is no reasonable basis to deny payment,” and “has acted with reckless disregard.” Id.
They argue that the validity of their claim is so obvious that Nationwide cannot reasonably
challenge it as debatable on the facts. Id. (stating that there is “no reasonable basis to assert
that the homes were destroyed by any intentional act of [the Castles]” and “that Nationwide
has no reasonable basis to assert that the homes were not the primary residences of Matthew
Castle”).
These statements are merely legal conclusions posing as facts. The Castles tell the
Court which inference to draw, but they do not provide the facts necessary for the Court to
reach their favored conclusion.

Accordingly, the Castles’ statements cannot forestall
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dismissal of their counterclaim. See Iqbal, 556 U.S. at 678–79; see also Mezibov v. Allen,
411 F.3d 711, 716 (6th Cir. 2005) (“[C]onclusory allegations or legal conclusions
masquerading as factual conclusions will not suffice to prevent a motion to dismiss.”).
Furthermore, the balance of the Castles’ counterclaim undercuts the plausibility of their
arguments. For example, in the same breath that they assert that the validity of their claim is
not debatable on the facts, they acknowledge evidence that arsonists destroyed their homes—
which suggests that Nationwide undertook its investigation of the Castles’ insurance claims
in good faith. R. 17 at 4.
In short, the Castles have raised nothing more than a mere possibility of misconduct.
They have not pushed their counterclaim “across the line from conceivable to plausible.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Their theory that Nationwide acted in
bad faith under the UCSPA is wholly unsupported by well-pled factual allegations.
Accordingly, Nationwide’s motion to dismiss the UCSPA bad faith count of the Castles’
counterclaim must be granted.
CONCLUSION
For the foregoing reasons, Nationwide’s motions to dismiss the Castles’ counterclaim
and amended counterclaim, R. 10; R. 20, are GRANTED.
This the 2nd day of October, 2013.

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