Ward Hyundai, Inc. v. Zurich American Insurance Company
MEMORANDUM AND ORDER re: 22 MOTION to Dismiss Case filed by Defendant Zurich American Insurance Company motion is GRANTED..IT IS FURTHER ORDERED that plaintiff shall file its amended complaint, if any, within 21 days of the date of this order.( Amended/Supplemental Pleadings due by 7/15/2014.). Signed by District Judge Stephen N. Limbaugh, Jr on 6/24/14. (MRS)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
WARD HYUNDAI, INC.,
ZURICH AMERICAN INS. CO.,
Case No. 1:13-CV-161 SNLJ
MEMORANDUM AND ORDER
Plaintiff Ward Hyundai, Inc. (“Ward”) brought this action against its insurer
Zurich American Insurance Company (“Zurich”). Zurich has moved to dismiss (#22)
Ward’s First Amended Complaint, and that motion has been fully briefed. This matter is
now ripe for disposition.
According to the complaint, plaintiff worked with an insurance agent to obtain
insurance coverage for Ward’s inventory of vehicles. Plaintiff alleges that it sought
coverage that would allow it to choose between body-shop estimates or “PDR estimates”
for reimbursement of expenses.1 Plaintiff further alleges that Zurich’s agent assured
plaintiff that the policy included such a choice. But later, after plaintiff purchased the
policy, defendant Zurich informed plaintiff that the policy did not include such a choice.
Although not defined, the Court presumes that “PDR” stands for “paintless dent repair”
in this context.
On April 27, 2011, defendant’s Vice President and General Manager of its Northern
Division stated in an email to Ward that the agent had “misinformed” Ward about the
policy with respect to the choice Ward sought. Plaintiff’s amended complaint contains
Count I — Negligent Misrepresentation: Plaintiff alleges defendant failed
to use reasonable care to ensure the accuracy of the information conveyed
to plaintiff, and the information was false. Plaintiff alleges he justifiably
relied on the information and that plaintiff “was damaged by the fact that
Ward’s inventory was not covered by the Insurance Coverage in the manner
which Ward understood the coverage to apply to any loss.” (Am. Cmplt.,
#21 at ¶ 23.)
Count II — Fraudulent Misrepresentation: Plaintiff alleges that defendant’s
representation concerning the choice of estimate was false, that defendant
knew it was false (or did not know whether it was true or false), and that in
fact defendant’s policy did not include such a provision. Plaintiff again
alleges that it relied on the information and was damaged. (Id. at ¶ 29.)
Count III — Reformation: Plaintiff alleges that it and defendant entered into
an agreement in reliance on a mistake of fact. Specifically, the mistake
alleged was “that the Insurance Coverage provided by Defendant to Ward
would provide for the choice by Ward to use body-shop estimates or PDR
estimates for reimbursement of losses covered under the Insurance
Coverage.” (Id. at ¶ 34.) Plaintiff alleges that the mistake was mutual, that
the defendant represented even after the policy was issued that it contained
the desired choice of estimate, and it was after that that defendant explained
that the policy did not contain the choice provision. Finally, plaintiff
alleges it has no remedy at law.
Defendant has moved to dismiss all three Counts of the Amended Complaint.
The purpose of a Rule 12(b)(6) motion to dismiss for failure to state a claim is to
test the legal sufficiency of a complaint so as to eliminate those actions which are fatally
flawed in their legal premises and designed to fail, thereby sparing litigants the burden of
unnecessary pretrial and trial activity. Young v. City of St. Charles, 244 F.3d 623, 627
(8th Cir. 2001) (quoting Neitzke v. Williams, 490 U.S. 319, 326-27 (1989)). A complaint
must be dismissed for failure to state a claim if it does not plead enough facts to state a
claim to relief that is plausible on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
560 (2007) (abrogating the traditional “no set of facts” standard set forth in Conley v.
Gibson, 355 U.S. 41, 45-46 (1957)). A petitioner need not provide specific facts to
support his allegations, Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam), but
“must include sufficient factual information to provide the grounds on which the claim
rests, and to raise a right to relief above a speculative level.” Schaaf v. Residential
Funding Corp., 517 F.3d 544, 549 (8th Cir. 2008), cert. denied, 129 S.Ct. 222 (2008)
(quoting Twombly, 550 U.S. at 555-56 & n.3).
In ruling on a motion to dismiss, a court must view the allegations of the complaint
in the light most favorable to the petitioner. Scheuer v. Rhodes, 416 U.S. 232 (1974);
Kottschade v. City of Rochester, 319 F.3d 1038, 1040 (8th Cir. 2003). Although a
complaint challenged by a Rule 12(b)(6) motion does not need detailed factual
allegations, a petitioner must still provide the grounds for relief, and neither “labels and
conclusions” nor “a formulaic recitation of the elements of a cause of action” will suffice.
Twombly, 550 U.S. at 555 (internal citations omitted). “To survive a motion to dismiss, a
claim must be facially plausible, meaning that the factual content . . . allows the court to
draw the reasonable inference that the respondent is liable for the misconduct alleged.”
Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010) (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). When determining the facial plausibility of a claim, the
Court must “accept the allegations contained in the complaint as true and draw all
reasonable inferences in favor of the nonmoving party.” Id. (quoting Coons v. Mineta,
410 F.3d 1036, 1039 (8th Cir. 2005)).
Defendant contends that plaintiff is playing a “pleading game” in order to avoid
application of the rule that the insured has a duty to examine the insurance policy to
ensure it conforms with the desired or agreed upon coverage. See Safeco Ins. Co. of Am.
v. Hamm, 718 F. Supp. 744, 746 (E.D. Mo. 1989) (citing Hartford Acc. & Indem. Co. v.
Farmington Auction, Inc., 356 S.W.2d 512, 519 (Mo. App. 1962)). Indeed, plaintiff takes
great pains not to claim wrongful denial of payment. Rather, its complaint is focused on
the negligent or fraudulent misrepresentation (or mistake) that resulted in the policy that
plaintiff says entitles it to damages or reformation of the contract.
Counts I and II — Negligent and Fraudulent Misrepresentation
Defendant is correct that whatever verbally transpired between the contracting
parties is superseded and merged in a subsequent written policy issued by the insurer and
accepted by the insured. Safeco Ins. Co. of Am. v. Hamm, 718 F. Supp. 744, 746 (E.D.
Mo. 1989); Young v. Ray America, Inc., 673 S.W.2d 74, 79 (Mo. App. W.D. 1984);
Hartford, 356 S.W.2d 512, 519. An insured has a reasonable time to accept or reject the
policy after it is delivered. Hartford, 356 S.W.2d at 519. If the insured keeps the policy
for a reasonable length of time, he is deemed to have accepted it. Id. Indeed, where the
insured keeps the contract, thereby accepting its terms, the insured is bound in law to have
known the contents of the instrument whether he read it or not. United States v. Home
Life Ins. Co., 508 F. Supp. 559, 564 (E.D.Mo. 1980); Hartford, 356 S.W.2d at 519.
The law is clear that the “parol evidence rule bars evidence of prior or
contemporaneous oral agreements that vary or contradict the terms of an unambiguous,
final, and complete writing, absent fraud, mistake, accident or duress.” Brown v.
Mickelson, 220 S.W.3d 442, 447 (Mo. App. W.D. 2007) (emphasis added) (quoting
Sherman v. Deihl, 193 S.W.3d 863, 866 (Mo. App. S.D. 2006)); see also Building
Erection Servs. Co. v. Plastic Sales Mfg. Co., 163 S.W.3d 472, 479 (Mo. App. W.D.
2005)). As a result, the parol evidence rule does not bar claims for negligent
misrepresentation, fraudulent misrepresentation, or reformation. See Cabinet
Distributors, Inc. v. Redmond, 965 S.W.2d 309, 314 (Mo. App. E.D. 1998). In Cabinet
Distributors, the plaintiff sought damages for fraudulent and negligent misrepresentation
or rescission of a lease based on assurances the defendant landlord had made regarding
the building’s flood history. The court held that plaintiff could bring his claims despite
the existence of the lease and its integration clause because the claims were not based in
contract, but in tort. Id.
Defendant appears to assert that an insured can never bring a claim in tort against
its insurer. Defendant insists that Hartford is controlling: “It is well settled law that
insurance is a matter of contract, and is governed by the rules applicable to contracts and
that any claim or suit by either party to an insurance contract must be based on the policy
as issued.” 356 S.W.2d at 518-19. But plaintiff cites to other law, which suggests that
such is true only when the insured tries to recover the policy benefit. See Overcast v.
Billings Mut. Ins. Co., 11 S.W.3d 62, 68 (Mo. banc 2000). That is, “an insurance
company’s denial of coverage itself is actionable only as a breach of contract and, where
appropriate, a claim for vexatious refusal to pay.” Id. at 69. Here, however, plaintiff
insists that it does not seek the policy benefit, but rather — for Counts I and II — it seeks
tort damages done to it as a result of the defendant’s misrepresentation. Were the
plaintiff attempting to recover under the theory that defendant should have allowed it a
choice of estimate when it filed a claim under the contract, plaintiff would indeed be
barred from doing so by the parol evidence rule. Defendant contends that plaintiff is
barred from bringing any claim at all under these circumstances by the parol evidence
rule, but plaintiff suggests that the defendant should not be permitted to hide behind its
contract and its integration clause.
However, defendant also contends that plaintiff has not sufficiently pleaded the
element of damages for Counts I and II. A court considering a Rule 12(b)(6) motion to
dismiss must reject a complaint that offers “labels and conclusions” or a “formulaic
recitation” of a cause of action’s elements. Twombly, 550 U.S. at 555; Iqbal, 556 U.S. at
678. “Nor does a complaint suffice if it tenders naked assertions devoid of further
factual enhancement.” Iqbal, 556 U.S. at 678 (internal quotations and changes omitted)
(quoting Twombly, 550 U.S. at 557).
Here, it appears that plaintiff intentionally omitted facts about the damages it
allegedly suffered in an effort to distance itself from a claim for damages based on
contract, that is, based on defendant’s failure to pay under the policy.2 Plaintiff states
only that its “inventory was not covered by the Insurance Coverage in the manner in
Plaintiff’s original complaint alleged that 129 of its cars suffered hail damage during a
storm, and that incident precipitated this lawsuit. Tellingly, that allegation has been omitted from
the amended complaint.
which Ward understood the coverage to apply to the loss.” (#21 at ¶¶ 23, 29). Here,
plaintiff’s damages allegations are entirely bare — they are the “naked assertions devoid
of further factual enhancement — about which Twombly and Iqbal warned. Plaintiff’s
failure to allege any details or “factual enhancement” regarding the damages it allegedly
suffered is fatal to Counts I and II. See, e.g., In re Gen. Motors Corp. Anti-Lock Brake
Products Liab. Litig., 966 F. Supp. 1525, 1530 (E.D. Mo. 1997) (holding that plaintiffs’
failure to allege how their defective cars had caused damages required dismissal), aff’d
sub nom. Briehl v. Gen. Motors Corp., 172 F.3d 623 (8th Cir. 1999). The Court will,
however, permit plaintiff to file an amended complaint in order to attempt to remedy this
Count III — Reformation
Reformation of an insurance contract is available in cases of mutual mistake, but it
poses a high hurdle. See Galemore v. Haley, 471 S.W.2d 518 (Mo. App. W.D. 1971).
Defendant suggests that plaintiff cannot rewrite the policy based on parol evidence, and it
also contends plaintiff has not met the pleading standard required of complaints alleging
First, as addressed above, the parol evidence rule does not apply in cases where
mistake is alleged. See Brown, 220 S.W.3d at 447; Hartford, 356 S.W.2d at 521. On the
other hand, notwithstanding parol evidence to the contrary, “the sending of the written
policy...constitutes a counter-offer and by receiving the policies and retaining them for the
time shown here in evidence without object, the defendant accepted them and is bound by
the policies as written.” Hartford, 356 S.W.2d at 520. In Galemore, for example, the
insured said there was a mistake as to a policy term, but the court held that the insured
received the policy and accepted it as written, so she could not later “impugn its
integrity.” 471 S.W.2d at 525. And in Ray America, the court acknowledged that
although reformation for mutual mistake was possible, the insured had read the policy,
requested a correction as to the named insured, and renewed the policy as corrected — so
a further correction as to the named insured was not permitted under the theory of
reformation by mutual mistake. 673 S.W.3d at 82. Those cases were disposed of on the
merits, however, and not on motions to dismiss. Although plaintiff is charged with
reading the policy upon receiving it, he pleads that he asked his agent about the choice of
estimate provision after receiving the policy, and that the agent assured him that the
policy included that provision. It is not clear, however, when that discovery or
subsequent conversation took place. Which brings the Court to defendant’s other
contention, which is that plaintiff has failed to adequately plead mistake.
Pursuant to Federal Rule of Civil Procedure 9(b), “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances constituting fraud or mistake.
Malice, intent, knowledge, and other conditions of a person’s mind may be alleged
generally.” 3 To meet the requirements of Rule 9(b), the complaint must include “such
matters as the time, place, and contents of false representations, as well as the identity of
the person making the misrepresentation and what was obtained or given up thereby.”
Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir. 1982), quoted in Reding v. Goldman Sachs
& Co., 382 F. Supp. 2d 1112, 1118 (E.D. Mo. 2005). Conclusory allegations that a
defendant’s conduct was fraudulent or that a mutual mistake occurred are not sufficient.
See Commercial Prop. Inv., Inc. v. Quality Inns Int’l, Inc., 61 F.3d 639, 644 (8th Cir.
1995); J.J. Pager, L.L.C. v. Nationwide Mut. Ins. Co., 07-3435-CV-W-FJG, 2008 WL
565752, *2 (W.D. Mo. Feb. 28, 2008).
As for the reformation claim based on mutual mistake, plaintiff’s claim states only
that a mistake was made. Plaintiff does not allege when or by which individuals the
mistake was made. The only date mentioned in the complaint is April 27, 2011, which is
the date defendant informed plaintiff that its agent had misinformed plaintiff about the
insurance coverage. Although plaintiff alleges that the agent “represented to Ward that
there must be some mistake about the coverage” (#21 at ¶ 13), the Court finds that
allegations set forth by the amended complaint do not satisfy the requirements of Rule
9(b). Plaintiff does not explain whether the agent or someone else made the mistake on
the defendant’s end, nor does it offer specifics in terms of timing. For example, plaintiff
It is noteworthy that defendants do not appear to contend that plaintiff’s
fraudulent misrepresentation claim suffers from any Rule 9(b) deficiencies.
does not explain when the agent represented that the choice of estimate provision would
be in the policy, when the policy was issued, when plaintiff asked defendant about
whether the choice of estimate provision was in the policy, when or how the
defendant/agent confirmed the choice of estimate provision, or when or how the
defendant informed plaintiff that the coverage did not include a choice of estimate
provision. The allegations plaintiff has included are simply too general to state a claim
for mutual mistake. See, e.g., J.J. Pager, L.L.C., 2008 WL 565752, at *2.
As with Counts I and II, the Court will permit plaintiff to replead Count III.
IT IS HEREBY ORDERED that defendant’s motion to dismiss is GRANTED.
IT IS FURTHER ORDERED that plaintiff shall file its amended complaint, if
any, within 21 days of the date of this order.
Dated this 24th day of June, 2014.
STEPHEN N. LIMBAUGH, Jr.
UNITED STATES DISTRICT JUDGE
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