Seahorn Investments, L.L.C. v. Federal Insurance Company et al
Filing
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Memorandum Opinion and Order Granting in Part and Denying in Part the 11 Motion to Dismiss filed by Defendant Steadfast Insurance Company, Granting in Part and Denying in Part the 16 Motion to Dismiss filed by Defendant Alterra Excess & Surplus Insurance Company, and Granting in Part and Denying in Part the 33 Motion to Dismiss filed by Defendants Federal Insurance Company and Maxum Indemnity Company. Signed by District Judge Halil S. Ozerden on September 23, 2014. (NM)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
SEAHORN INVESTMENTS, LLC
§
§
v.
§
§
FEDERAL INSURANCE COMPANY, §
MISSISSIPPI FARM BUREAU
§
CASUALTY INSURANCE
§
COMPANY, MAXUM INDEMNITY
§
COMPANY, STEADFAST
§
INSURANCE COMPANY, ALTERRA §
EXCESS & SURPLUS INSURANCE §
COMPANY
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PLAINTIFF
CIVIL NO. 1:13cv320-HSO-RHW
DEFENDANTS
MEMORANDUM OPINION AND ORDER GRANTING IN PART AND
DENYING IN PART THE MOTION TO DISMISS FILED BY DEFENDANT
STEADFAST INSURANCE COMPANY, GRANTING IN PART AND
DENYING IN PART THE MOTION TO DISMISS FILED BY DEFENDANT
ALTERRA EXCESS & SURPLUS INSURANCE COMPANY, AND
GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS
FILED BY DEFENDANTS FEDERAL INSURANCE COMPANY AND
MAXUM INDEMNITY COMPANY
BEFORE THE COURT are Motions to Dismiss filed by Defendant Steadfast
Insurance Company [11], Defendant Alterra Excess & Surplus Insurance Company
[16], and Defendants Federal Insurance Company and Maxum Indemnity Company
[33]. Plaintiff Seahorn Investments, LLC has filed identical Responses in
Opposition [29] [31] to the Motions filed by Defendants Steadfast Insurance
Company and Alterra Excess & Surplus Insurance Company, and those Defendants
have each filed a Rebuttal [38] [40]. Plaintiff has also filed a Response [44] to the
Motion filed by Defendants Federal Insurance Company and Maxum Indemnity
Company, and those Defendants have filed a Rebuttal [49]. Having considered the
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parties’ submissions, the record, and relevant legal authority, the Court is of the
opinion that the Motions [11] [16] [33] should be granted in part and denied in part.
I. BACKGROUND
A.
Factual Background
On August 7, 2013, Plaintiff Seahorn Investments, LLC (“Plaintiff”) filed the
Complaint [1] against Federal Insurance Company (“Federal”), Mississippi Farm
Bureau Casualty Insurance Company (“Mississippi Farm Bureau”), Maxum
Indemnity Company (“Maxum”), Steadfast Insurance Company (“Steadfast”), and
Alterra Excess & Surplus Insurance Company (“Alterra”). Plaintiff alleges that it
owns property “located at 100 Waverly Place, Bay St. Louis, Mississippi, commonly
referred to as the Waverly Apartments[,]” which consists of sixteen residential
apartment buildings containing one, two, and three bedroom apartments and one
non-residential management building. Compl. 3-4 [1].
Plaintiff alleges it secured standard flood insurance for the Waverly
Apartments from Mississippi Farm Bureau through the National Flood Insurance
Program (“NFIP”). Id. Plaintiff also secured a “Master Primary Policy” with
Federal which insured the Waverly Apartments against “all risks of physical
damage” caused by flood or wind events “including increased costs for compliance
with code and ordinance” up to $5,000,000.00 coverage under Federal’s policy. Id.
Maxum issued a second tier excess insurance policy insuring the Waverly
Apartments per the terms of the Master Primary Policy up to $5,000,000.00 in
excess of the first $5,000,000.00. Id. at 4. Steadfast and Alterra each issued third
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tier excess policies pursuant to the terms of Federal’s Master Primary Policy with
policy limits of $7,500,000.00 each. Id. Thus, the coverage afforded under the
Steadfast and Alterra policies was excess to that offered by the Federal and Maxum
policies. Id.
Plaintiff claims that on or about August 29, 2012, Hurricane Isaac made
landfall, causing the Waverly Apartments to incur “over [$5,000,000.00] in flood
damages” and “an unspecified amount of other reimbursable damages.” Id. at 5.
According to the Complaint, the damages caused by Hurricane Isaac, when taken
together with preexisting damages related to Hurricane Katrina, rendered the
Waverly Apartments in need of substantial improvements and repairs as required
by City of Bay St. Louis Ordinance 521. Id. at 5-7. Plaintiff asserts that the
necessary improvements and repair work are covered expenses under the terms of
the Master Primary Policy issued by Federal, which terms also govern Maxum,
Steadfast, and Alterra’s excess coverage. Id. at 7-8. According to Plaintiff, it
notified Mississippi Farm Bureau and Federal of its claim “shortly after” Hurricane
Isaac, but both insurers performed untimely and inadequate investigations of
Plaintiff’s claim. Id. at 8-9. Plaintiff posits that Federal has “effectively den[ied]
coverage” under the terms of the Master Primary Policy. Id. at 9. Plaintiff also
claims it forwarded a formal proof of loss to Maxum, Steadfast, and Alterra on May
22, 2013, and that it has been forced to provide access “for the numerous
representatives of Defendants to inspect and re-inspect the damages at the insured
premises.” Id. at 10.
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B.
Procedural History
Based on the foregoing allegations, Plaintiff filed the Complaint [1] in this
case on August 7, 2013, advancing a claim for breach of contract against all
Defendants. Id. at 11-12. Plaintiff seeks extra-contractual damages from all
Defendants, claiming that “Defendants caused [P]laintiff to incur . . . economic
damages because of their unreasonable refusal to pay insurance benefits . . . .” Id.
at 12. Plaintiff also demands an award of punitive damages against all Defendants
on grounds that “Defendants’ conduct constitutes malice and gross negligence
evidencing a willful, wanton, and reckless disregard for [P]laintiff’s rights . . . .” Id.
at 13.
Steadfast now moves to dismiss Plaintiff’s claims for extra-contractual and
punitive damages, arguing that Plaintiff has failed to plead sufficient facts to
support such claims.1 Steadfast’s Mem. in Supp. of Mot. to Dismiss 1-2 [13].
Steadfast also contends that Plaintiff’s factual allegations reveal that Steadfast is
currently engaged in a prompt, ongoing investigation of Plaintiff’s insurance claims
which undermines any claim for extra-contractual or punitive damages. Id. at 3.
Steadfast reasons that Plaintiff is attempting to “create a cause of action for
anticipatory bad faith.” Id. at 6-7; Steadfast’s Reply 1 [38]. Steadfast also seeks an
award of attorneys’ fees and expenses pursuant to the Mississippi Litigation
Accountability Act (“MLAA”), Miss. Code Ann. §§ 11-55-1 to -15. Steadfast’s Mem.
in Supp. of Mot. to Dismiss 7-8 [13].
Alterra also moves to dismiss [16] Plaintiff’s claims for extra-contractual and punitive damages and
has adopted Steadfast’s Memorandum of Law. Alterra’s Mem. in Supp. of Mot. to Dismiss 1 [17].
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In filing identical Responses [29] [31] to Steadfast and Alterra’s Motions [11]
[16], Plaintiff argues that its allegations regarding the numerous inspections
demanded by Steadfast and Alterra are sufficient to support awards of extracontractual and punitive damages against those Defendants because the allegations
indicate that Steadfast and Alterra have unreasonably delayed paying Plaintiff’s
insurance claim. Mem. in Opp’n to Mot. to Dismiss 7-8 [30]. Plaintiff contends that
even if Steadfast and Alterra’s Motions to Dismiss are granted, the dismissal should
be without prejudice. Id. at 9-10. Plaintiff maintains that Steadfast and Alterra’s
request for an award of fees under the MLAA should be denied because Plaintiff’s
claims for extra-contractual and punitive damages are sufficiently supported by the
facts of this case. Id. at 10-11.
Federal and Maxum also seek dismissal of Plaintiff’s claims for punitive and
extra-contractual damages. Mem. in Supp. of Mot. to Dismiss 13 [34]. Federal and
Maxum argue that Plaintiff has no claim for punitive or extra-contractual damages
under Mississippi law because both Defendants’ policies only provide coverage that
is excess to the underlying Mississippi Farm Bureau flood policy, which the
Complaint indicates has not been exhausted.2 Id. at 7-11; Reply 3 n.5 [49].
According to Federal and Maxum, the fact that the primary policy issued by
Mississippi Farm Bureau has not been exhausted constitutes an arguable reason for
Federal and Maxum attempt a brief choice of law analysis because the named insured under the
Federal policy is a Michigan entity. Mem. in Supp. of Mot. to Dismiss 5-6 [34]. Federal and Maxum
conclude that Plaintiffs have failed to state a claim for punitive or extra-contractual damages under
either Michigan or Mississippi law. Id. at 5-7. Plaintiff disputes that Michigan law controls, and
Federal and Maxum appear to abandon this argument in their Reply brief and focus solely upon
Mississippi law. Resp. in Opp’n 7-8 [45]; Reply 1-4 n.3 [49]. The Court, therefore, will not pass upon
any potential choice of law issue and will evaluate Federal and Maxim’s Motion to Dismiss under
Mississippi law.
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having not paid Plaintiff’s claim. Id. at 11-13; Reply 3-4 [49]. Federal and Maxum
contend that they also cannot be liable for punitive or extra-contractual damages
because Plaintiff has not pleaded sufficient facts indicating that either insurer owes
coverage. Mem. in Supp. of Mot. to Dismiss 7-11 [34].
Plaintiff responds that the terms of the Master Primary Policy do not require
exhaustion of the flood insurance coverage afforded by the Mississippi Farm Bureau
flood policy. Resp. in Opp’n 9 [45]. Plaintiff emphasizes its allegations that Federal
has delayed taking any action “for several months[,]” has requested numerous reinspections, and has failed to provide “any report, finding, or analysis” justifying the
ongoing refusal to pay amounts due under the Master Primary Policy. Id. at 8-9.
Plaintiff argues that the delay and failure to provide information are without
legitimate basis and constitute malice, gross negligence, or reckless disregard for
Plaintiff’s rights. Id. at 9. Plaintiff further contends that Federal and Maxum have
“completely ignore[d]” the repairs necessitated by Ordinance 521, which Plaintiff
alleges are within the scope of the Master Primary Policy’s coverage. Id. at 9-11.
II. DISCUSSION
A.
Legal Standard
A motion to dismiss under Rule 12(b)(6) “is viewed with disfavor and is rarely
granted.” Kaiser Aluminum & Chem. Sales v. Avondale Shipyards, 677 F.2d 1045,
1050 (5th Cir. 1982). When considering such a motion, all well-pleaded facts must
be viewed in the light most favorable to the plaintiff. Fin. Acquisition Partners LP
v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006). On the other hand, courts “do not
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accept as true ‘[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements.’” City of Clinton, Ark. v. Pilgrim’s Pride Corp., 632
F.3d 148, 153 (5th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
A plaintiff must plead “more than labels and conclusions, and a formulaic recitation
of the elements of a cause of action will not do . . . .” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007) (citations omitted). Rather, a plaintiff must set forth specific
facts, not conclusory allegations. Blackwell, 440 F.3d at 286.
To survive 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.” A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged. The
plausibility standard is not akin to a “probability requirement,” but it
asks for more than a sheer possibility that a defendant has acted
unlawfully. Where a complaint pleads facts that are “merely consistent
with” a defendant’s liability, it “stops short of the line between
possibility and plausibility of ‘entitlement to relief.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556-57, 570).
B.
Analysis
1.
Plaintiff’s Claims Seeking Punitive and Extra-Contractual Damages
Against Maxum, Steadfast, and Alterra
“When faced with a[n insurance] claim, an insurer is required to perform a
prompt and adequate investigation of the circumstances surrounding the claim.”
Liberty Mut. Ins. Co. v. McKneely, 862 So. 2d 530, 534 (Miss. 2003) (citing Bankers
Life & Cas. Co. v. Crenshaw, 483 So. 2d 254, 276 (Miss. 1985)). Insurers must
“make a reasonable, good faith decision based on that investigation and may be
liable for punitive damages for denying a claim in bad faith.” Broussard v. State
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Farm Fire & Cas. Co., 523 F.3d 618, 627 (5th Cir. 2008) (internal marks and
citations omitted). “To recover punitive damages from an insurer for ‘bad faith,’ the
insured must prove by a preponderance of evidence that the insurer acted with (1)
malice, or (2) gross negligence or reckless disregard for the rights of others.”
Caldwell v. Alfa Ins. Co., 686 So. 2d 1092, 1095 (Miss. 1996) (citation omitted).
“Insurers who are not liable for punitive damages may nonetheless be liable for
‘consequential or extra-contractual damages . . .’ where their decision to deny the
insured’s claim is without ‘a reasonably arguable basis’ but does not otherwise rise
to the level of an independent tort.” Broussard, 523 F.3d at 628 (quoting Andrew
Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172, 1186 n.13 (Miss. 1990)).
Plaintiff has failed to plead sufficient facts to support an award of punitive or
extra-contractual damages against Maxum, Steadfast, and Alterra. Plaintiff alleges
that the Master Primary Policy affords coverage for both the repairs to the Waverly
Apartments necessitated by Hurricane Isaac and the increased costs of construction
required to bring the Waverly Apartments into compliance with Ordinance 521.
Compl. 5-7 [1]. According to Plaintiff, neither Mississippi Farm Bureau nor Federal
have timely or properly inspected and paid Plaintiff’s insurance claim related to
Hurricane Isaac and the improvements necessitated by Ordinance 521. Id. at 8-10.
Plaintiff alleges that it provided notice of its claim to Maxum, Steadfast, and
Alterra on or after May 22, 2013. Id. at 10. The Complaint indicates that since
Plaintiff provided notice to Maxum, Steadfast, and Alterra these three excess
insurers have communicated with Plaintiff and conducted an inspection of the
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Waverly Apartments. Id. Although the Complaint does not state specifically when
Maxum, Steadfast, and Alterra’s investigations began, Plaintiff’s factual allegations
reveal that these investigations began in a timely manner after Plaintiff provided
notice to Maxum, Steadfast, and Alterra on or after May 22, 2013.
Plaintiff’s allegation in the Complaint that Maxum, Steadfast, and Alterra
have exhibited an “unreasonable refusal to pay insurance benefits” thus giving rise
to a claim for extra-contractual damages amounts to a bare restatement of the
requirements for establishing an insurer’s liability for extra-contractual damages,
but there are no facts pleaded as to Maxum, Steadfast, and Alterra to support this
lone allegation. Compl. 12 [1]. Plaintiff’s factual allegations do not support a claim
for extra-contractual damages against Maxum, Steadfast, and Alterra. See
Twombly, 550 U.S. at 555 (noting “a formulaic recitation of the elements of a cause
of action” is insufficient to state a claim) (citations omitted). Equally insufficient is
Plaintiff’s conclusory claim that Maxum, Steadfast, and Alterra’s conduct
constitutes malice and gross negligence evidencing a willful, wanton[,] and reckless
disregard for [P]laintiff’s rights . . . .” Compl. 13 [1]. This lone allegation lacks any
factual support related to the conduct of Maxum, Steadfast, or Alterra and cannot
survive a Rule 12(b)(6) challenge. Pilgrim’s Pride, 632 F.3d at 153 (Courts “do not
accept as true ‘[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements.’”) (quoting Iqbal, 556 U.S. at 678). Maxum,
Steadfast, and Alterra are entitled to dismissal of Plaintiff’s claims seeking punitive
and extra-contractual damages.
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2.
Plaintiff’s Claims for Punitive and Extra-Contractual Damages
Against Federal
Federal argues that it is entitled to dismissal of Plaintiff’s punitive and extracontractual damages claims because Plaintiff has not pleaded sufficient facts to
trigger coverage under Federal’s Master Primary Policy, which Federal claims is
excess to the Mississippi Farm Bureau flood policy. Mem. in Supp. of Mot. to
Dismiss 7-13 [34], Reply 2-4 [49]. According to Federal, the fact that Plaintiff has
not triggered Federal’s excess coverage provides Federal with an “arguable reason”
to deny coverage. Id. Although it claims to have submitted third party estimates
for damages at the Waverly Apartments “totaling over $4,000,000[,]” Plaintiff also
asserts that it has “incurred over five million dollars ($5,000,000) in flood damages .
. . .” Compl. 5, 8 [1]. Viewing this allegation in a light most favorable to Plaintiff,
this amount exceeds the $4,250,000 of flood coverage Federal contends that Plaintiff
must exhaust under the Mississippi Farm Bureau flood policy before turning to
Federal’s policy.3 Mem. in Supp. of Mot. to Dismiss 3, 10-11 [34], Reply 3-4 [49].
Federal maintains that its investigation of Plaintiff’s insurance claim is
ongoing and that it has not denied coverage. Id. Plaintiff, however, contends that it
provided notice of its claim to Federal “[s]hortly after” August 29, 2012, and since
that time, Federal has unreasonably delayed paying Plaintiff’s claim. Compl. 8, 911 [1]. The Complaint alleges that Federal “failed to inspect the property until
Plaintiff also alleges that it must raise each of the 16 residential apartment buildings to a height of
eight feet as required by Ordinance 521. Compl. 7 [1]. While Plaintiff only alleges that it has
suffered “an unspecified amount of other reimbursable damages[,]” it seems reasonably plausible
that raising each of the 16 apartment buildings eight feet would exhaust the $30,000 that Federal
claims is available to Plaintiff under the Mississippi Farm Bureau flood policy’s provisions related to
coverage for increased costs necessitated to comply with laws or ordinances. Reply 3 n.4 [49].
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several weeks” after the hurricane, performed a “cursory” and “inadequate”
inspection, repeatedly relied upon “inapplicable policy provisions and conditions
effectively denying coverage[,]” ignored Plaintiff’s claim related to the increased
costs necessitated by Ordinance 521, requested a third re-inspection of the
premises, and “failed to adequately respond to Plaintiff’s proofs of loss.” Id. at 8-10.
When taken as true for the limited purpose of Federal’s Motion [33], these
allegations sufficiently state a claim premised on an unreasonable delay in
payment. James v. State Farm Mut. Auto. Ins. Co., 743 F.3d 65, 69 (5th Cir. 2014)
(Mississippi courts “have permitted claimants to recover damages on bad faith
claims when resolution of an insurance claim is merely delayed rather than
ultimately denied.”) (collecting cases). Federal, therefore, has not demonstrated
that Plaintiff has failed to state a claim upon which relief can be granted, and its
Motion to Dismiss [33] should be denied.
3.
Steadfast and Alterra’s Request for an Award of Attorneys’ Fees
Pursuant to the MLAA
While perhaps premature, the Court cannot say that Plaintiff’s claims for
punitive and extra-contractual damages against Steadfast and Alterra are
“frivolous, groundless in fact or in law, or vexatious . . . .” Miss. Code Ann. § 11-553(a). Consequently, Steadfast and Alterra’s request for an award of attorneys’ fees
pursuant to the MLAA will be denied.
III. CONCLUSION
IT IS, THEREFORE, ORDERED AND ADJUDGED that Defendant
Steadfast Insurance Company’s Motion to Dismiss [11] is GRANTED IN PART
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and DENIED IN PART. Plaintiff’s claims for extra-contractual damages and
punitive damages against Steadfast Insurance Company are DISMISSED
WITHOUT PREJUDICE. The remainder of Steadfast Insurance Company’s
Motion [11] is DENIED.
IT IS, FURTHER, ORDERED AND ADJUDGED that Defendant Alterra
Excess and Surplus Insurance Company’s Motion to Dismiss [16] is GRANTED IN
PART and DENIED IN PART. Plaintiff’s claims for extra-contractual damages
and punitive damages against Alterra Excess and Surplus Insurance Company are
DISMISSED WITHOUT PREJUDICE. The remainder of Defendant Alterra
Excess and Surplus Insurance Company’s Motion [16] is DENIED.
IT IS, FURTHER, ORDERED AND ADJUDGED that Defendants Federal
Insurance Company and Maxum Indemnity Company’s Motion to Dismiss [33] is
GRANTED IN PART and DENIED IN PART. Plaintiff’s claims for extracontractual damages and punitive damages against Maxum Indemnity Company
are DISMISSED WITHOUT PREJUDICE. The remainder of Defendants’ Motion
[33] is DENIED.
SO ORDERED AND ADJUDGED, this the 23rd day of September, 2014.
s/ Halil Suleyman Ozerden
HALIL SULEYMAN OZERDEN
UNITED STATES DISTRICT JUDGE
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