American Family Mutual Insurance Company v. Miller et al

Filing 47

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that the motion of plaintiff to strike (Doc. 30 ) is denied. IT IS FURTHER ORDERED that the motion of plaintiff to dismiss defendants counterclaim Count 3 for fraud (Doc. 32) is sustained. Count 3 is dism issed with prejudice. As to Count 4 for the public disclosure of private facts, the motion to dismiss is denied. IT IS FURTHER ORDERED that the claims of plaintiff that remain for litigation are: (1) Count 1 -- for declaratory judgment against defe ndants Dina and Marshall Miller that the homeowners insurance policy, No. 24-D42758-01, does not cover the damage incurred by defendants on February 12, 2015; and, (2) Count 2 -- for declaratory judgment against defendant Sign It Up, LLC that the business owners insurance policy, No. 24XL-796104, does not cover the same damage. IT IS FURTHER ORDERED that the counterclaim counts of defendants that remain for litigation are: (1) Count 1 -- against plaintiff for breach of the homeowners policy; (2) Count 2 -- against plaintiff for vexatious refusal to pay the claim on the homeowners policy; and, (3) Count 4 -- against plaintiff for public disclosure of private facts. Signed by Magistrate Judge David D. Noce on 3/11/16. (JAB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,

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Plaintiff,
v.
MARSHALL MILLER,
DINA MILLER, and
SIGN IT UP, LLC,
Defendants.

No. 4:15 CV 1127 DDN

MEMORANDUM AND ORDER
This action is before the court upon the motions of plaintiff (a) to strike from
defendants’ counterclaim references to the Missouri Code of State Insurance Regulations
(Doc. 30), and (b) to dismiss Counts 3 and 4 of defendants’ counterclaim (Doc. 32). The
court heard oral argument on the motions on February 12, 2016.

I.

BACKGROUND

Plaintiff American Family Mutual Insurance Company commenced this action
against defendants Marshall Miller, Dina Miller, and Sign It Up, LLC. Plaintiff invokes
the court’s diversity of citizenship subject matter jurisdiction, which is granted by 28
U.S.C. § 1332. Upon motion of the defendants, the court ordered plaintiff to file a more
definite statement regarding the alleged fraud committed by the defendants. Plaintiff
filed a second amended complaint on November 28, 2015.
Plaintiff alleges the following.

Plaintiff issued two policies (a homeowner’s

policy and a business owner’s policy) on defendants’ premises at 152 Southmore St., in

Hillsboro, Mo. While the policies were in effect, on February 12, 2015, the insured
premises were damaged by fire. The Missouri State Fire Marshall issued a report stating
the fire was “incendiary in nature with an unknown cause of origin.” Defendants made
claims under both policies for the damage to the property, its contents, and loss of
business income. Plaintiff alleges that, because the fire was not accidental in nature,
defendants’ claims are not covered by the homeowner’s policy (Count 1), and plaintiff
invokes the business owners policy exclusion of coverage for losses arising out of any act
of an insured (Count 2). Plaintiff seeks a declaratory judgment that it is not liable to
defendants under either policy.
Defendants Marshall and Dina Miller have counterclaimed for breach of contract
for plaintiff’s failure to pay the claims on the homeowners policy (Count 1), vexatious
refusal to pay on the homeowners policy (Count 2), common law fraud and statutory
fraud (Count 3), and for publicly disclosing defendants’ private financial history (Count
4).
II. MOTION TO STRIKE
Plaintiff moves to strike from defendants’ counterclaims all references to the
Missouri State Code of Insurance Regulations.

Plaintiff focuses specifically on

paragraphs 11(g)(1) and 11(g)(2) of the defendants’ counterclaim.

In those two

subparagraphs, defendants allege:
(1)
American Family failed to advise of the acceptance or denial of the
claims within fifteen (15) working days after the submission of all forms
necessary to establish the nature and extent of any claim as required by 20
CSR 100-1.050(1)(a);
(2)
American Family failed to notify Defendants of the status of its
investigation and the reasons additional time was needed for investigation
within 45 days from the date of initial notification and every 45 days
thereafter as required by 20 CSR 100-1.050(1)(c).
(Doc. 28 at 4-5.)
Plaintiff argues that the Code of State Insurance Regulations does not provide
defendants a private cause of action, and therefore the references to state insurance
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regulations are irrelevant. Defendants argue that they are not looking to the regulations
for a cause of action, but to use them as a standard of care or conduct that plaintiff failed
to meet in its denial of their policy claims.

A.

Legal Standard

A motion to strike allows the court to “strike from a pleading an insufficient
defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P.
12(f). Motions to strike are disfavored and frequently denied. Stanbury Law Firm v.
I.R.S., 221 F.3d 1059, 1063 (8th Cir. 2000). Although the court enjoys broad discretion
in determining whether to strike a party's allegations, doing so is considered extreme.
Airstructures Worldwide, LTD v. Air Structures Am. Tech., Inc., No. 4:09 CV 10 CDP,
2009 WL 792542, at *1 (E.D. Mo. Mar. 23, 2009.) In this case, the court must consider
the allegations at issue in the light most favorable to the defendants. Speraneo v. Zeus
Technology, Inc., No. 4:12 CV 578 JAR, 2012 WL 2117872 at *1 (E. D. Mo. June 11,
2012). Also, the court should not decide new or close questions of law on a motion to
strike, to avoid giving an advisory opinion. Airstructures Worldwide, Ltd., 2009 WL
792542, at *1; see Lunsford v. United States, 570 F.2d 221, 229–30 (8th Cir. 1977).

B.

Discussion

Plaintiff argues that defendants’ counterclaim improperly relies on Missouri state
insurance regulations for a private cause of action. Defendants argue they allege the
regulations only as a standard of care in the insurance industry with which plaintiff failed
to comply. The court agrees with plaintiff that the Missouri state insurance regulations
do not provide a private right of action. Mo. Rev. Stat. § 375.1000.2. However, they can
be used to show conformance or nonconformance with the standards of the insurance
industry. Cf. Stark Liquidation Co. v. Florists’ Mut. Ins. Co., 243 S.W.3d 385, 401 (Mo.
Ct. App. 2007).

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Defendants have argued sufficient relevance of the state insurance regulations to
overcome plaintiff’s entitlement to relief on its Rule 12(f) motion to strike. The motion is
denied.
III. MOTION TO DISMISS
Plaintiff moves to dismiss defendants’ counterclaim Counts 3 (statutory and
common law fraud) and 4 (publication of private information) for failure to state a claim.
See Fed. R. Civ. P. 12(b)(6). Plaintiff argues that defendants’ counterclaim asserts a
statutory basis for fraud that does not allow for a private cause of action; that defendants’
claim for common law fraud cannot be proven and is preempted by statute; and that the
claim for public disclosure of private facts is preempted by statute. Defendants argue they
have asserted facts sufficient to plead these claims and these claims have not been
superseded by statute.

A.

Legal Standard

A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of the
complaint. See Carton v. Gen. Motor Acceptance Corp., 611 F.3d 451, 454 (8th Cir.
2010). To survive a Rule 12(b)(6) motion to dismiss, the complaint must include “enough
facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007). To meet the plausibility standard, the complaint
must contain “more than labels and conclusions.” Id. at 555. The pleading must contain
“factual content that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“When ruling on a motion to dismiss, the court must accept the allegations contained in
the complaint as true and draw all reasonable inferences in favor of the nonmoving
party.” Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005).

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B.

Discussion
1.

Count 3 – Statutory Fraud

Plaintiff argues that defendants’ invocation of Missouri Revised Statute § 375.144
fails to state a claim, because that statute does not provide a private right of action.
Defendants counter that these references merely provide a standard by which a jury could
evaluate plaintiff’s conduct.
Section § 375.144 lists prohibited conduct for an insurance company or any person
when offering, selling, soliciting, or negotiating insurance. However, it must be read in
conjunction with its enforcement sections, §§ 375.145 and 375.146. Section 375.145.1
provides that “if the director determines” that “a violation of sections 375.012 to 375.144
or a rule adopted or issued pursuant thereto” has been committed then “the director may
issue” administrative orders. Section 375.145.2 states that “the director may maintain a
civil action for relief . . . .”

“The creation of a private right of action by implication is

not favored, and the trend is away from judicial inferences that a statute’s violation is
personally actionable.” State Dept. of Social Servs., Div. of Med. Servs. v. Brundage, 85
S.W.3d 43, 49 (Mo. Ct. App. 2002) (quoting Shqeir v. Equifax, 636 S.W.2d 944, 947
(Mo. banc 1982))
The language used by defendants in their counterclaim clearly indicate their
intention to plead a statutorily based fraud claim, in addition to the common law claim of
fraud.

Using the caption “COUNT III – COMMON LAW and STATUTORY

FRAUD” defendants’ counterclaim alleges,
16.
Missouri Revised Statute § 375.144 makes it “unlawful for any
person, in connection with the offer, sale, solicitation or negotiation of
insurance, directly or indirectly to:
(1)

Employ any deception, device, scheme, or artifice to defraud;

(2)
As to any material fact, make or use any misrepresentation,
concealment or suppression;
(3)
Engage in any pattern or practice of making any false
statement of material fact; or

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(4)
Engage in any act, practice, or course of business which
operates as a fraud or deceit upon any person.
(Doc. 28 at 8.)
The Missouri legislature specifically provided for the enforcement of the statutory
and regulatory insurance industry standards by administrative action, see § 375.145 and
by criminal prosecution by the appropriate prosecuting agency see § 375.146. It did not
do so by private civil action. The court declines to interpret the relevant statutes to the
contrary.
Therefore, plaintiff’s motion to dismiss defendants’ counterclaim for statutory
fraud is sustained.

2.

Count 3 – Common Law Fraud

Defendants also allege plaintiff has committed common law fraud.

Plaintiff

argues that defendants cannot prove “false representation of coverage”, a required
element, and therefore defendants fail to state a claim. Plaintiff further argues that
defendants’ counterclaim for fraud has been preempted by Missouri’s statutes for breach
of insurance contract and vexatious refusal to pay. Defendants respond that they have
alleged facts sufficient to establish fraud, a claim that can be pled in addition to claims
for breach of contract and vexatious refusal to pay.
In order to prove common law fraud, defendants must establish (1) a
representation, (2) its falsity, (3) its materiality, (4) the speaker’s knowledge of its falsity
or his ignorance of the truth, (5) the speaker’s intent that the representation be acted upon
by the hearer in a manner reasonably contemplated, (6) the hearer’s ignorance of the
representation’s falsity, (7) the hearer’s reliance on the representation’s truth, (8) the
hearer’s right to rely on the representation, and (9) injury to the hearer proximately
caused by his reliance. Minor v. Terry, 475 S.W.3d 124, 136 (Mo. Ct. App. 2014).
A tort claim, however, must arise from something other than the parties’ contract.
See Wiles v. Capitol Indem. Corp., 280 F.3d 868, 870–71 (8th Cir. 2002). “[A]n
insurance company’s denial of coverage itself is actionable only as a breach of contract
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and, where appropriate, a claim for vexatious refusal to pay.” Overcast v. Billings
Mutual Ins. Co., 11 S.W.3d 62, 69 (Mo. 2000) (en banc) (holding the defamation claim
could be pursued, because it arose out of facts independent from the contract). In Ryann
Spencer Grp., Inc. v. Assurance Co. of Am., 275 S.W.3d 284, 290 (Mo. Ct. App. 2008),
plaintiff’s claims for common law fraud and negligent representation against its insurance
agency were not cognizable as claims separate from those alleging a breach of contract.
In the present case, defendants have alleged facts sufficient to plead a claim for
common law fraud against plaintiff. The fourth element of fraud is satisfied by either
knowledge of the falsity or ignorance of the truth, Ryann, 275 S.W.3d at 288; defendants
have alleged plaintiff either lied or remained willfully ignorant about the limited
definition of “accident”. In Ryann the same argument was asserted—inducement to sign
the contract through the insurance company’s fraudulent statements regarding the
contract terms. However, as in Ryann, defendants here are foreclosed from claiming
common law fraud, because a remedy is provided through breach of contract and
vexatious refusal to pay claims. Id. at 289–91.
Therefore, defendants’ counterclaim for common law fraud does not state a claim
upon which relief can be granted.

3.

Count 4 – Public Disclosure of Private Facts

Defendants allege plaintiff disclosed private facts when it published defendants’
private financial transactions and credit history to their neighbors, coworkers, and
supervisors. Plaintiff argues that, like the claim for fraud, this action has been subsumed
by statute, specifically Rev. Stat. Mo. § 375.420, which allows the insurance company to
conduct an investigation into the origin of a fire before paying the claim. Defendants
argue that § 375.420 does not speak to their privacy rights and these statutes do not give
insurance companies broad immunity from suits outside the contract.
In order to prove a claim for public disclosure of private facts defendants must
establish the following essential elements:
(1)

publication by plaintiff to a large number of people;
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(2)
(3)
(4)

the absence of a grant by defendants to plaintiff of any waiver or
privilege;
the disclosure of private information in which the public has no
legitimate interest or concern; and
disclosure in such a way as to bring shame or humiliation to an
individual of ordinary sensibilities.

Maxwell v. Express Scripts, Inc., No. 4:11 CV 1315 CDP, 2012 WL 996651, *7 (E.D.
Mo. Mar. 22, 2012) (citing Y.G. v. Jewish Hosp. of St. Louis, 795 S.W.2d 488, 498–99
(Mo. Ct. App. 1990)).
The Missouri Supreme Court has stated that a common law tort may be preempted
by statute, such as those that establish the claim of vexatious refusal to pay, but that
assessment is made on a tort-by-tort basis. Overcast, 11 S.W.3d at 71. The vexatious
refusal to pay legislation provides for recovery, when it is determined that an insurance
company denied payment without a reasonable cause or excuse.
§ 375.420.

Mo. Rev. Stat.

Reasonably, an insurance company must be allowed to investigate to

determine whether or not there is reason to deny coverage. Halford v. Am. Preferred Ins.,
698 S.W.2d 40, 43 (Mo. Ct. App. 1985) (abrogated on other grounds); c.f. Doe Run Res.
Corp. v. Certain Underwriters at Lloyd’s of London, 400 S.W.3d 463, 471 (Mo. Ct. App.
2013) (“There may be no vexatious refusal where the insurer has reasonable cause to
believe and does believe there is no liability under its policy and it has meritorious
defense”).
Here defendants do not allege that plaintiff did not have an obligation to conduct a
thorough investigation.

Rather they allege plaintiff took the information it learned

(“certain information regarding private financial transactions and credit history of the
Millers” (Doc. 28 at 11)) in its investigation and published it to persons who had no need
or right to have it (“neighbors of the Millers, co-workers and supervisory personnel of
Marshall Miller at his employer, Union Pacific Railroad”). (Id. at 11-12). The privacy
claim here is not based on the elements of defendants’ claim for vexatious refusal.
Defendants have alleged enough facts to state a plausible claim for public disclosure of
private facts outside of its reasonable investigation.
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IV. CONCLUSION
For the reasons stated above,
IT IS HEREBY ORDERED that the motion of plaintiff to strike (Doc. 30) is
denied.
IT IS FURTHER ORDERED that the motion of plaintiff to dismiss defendants’
counterclaim Count 3 for fraud (Doc. 32) is sustained.

Count 3 is dismissed with

prejudice. As to Count 4 for the public disclosure of private facts, the motion to dismiss
is denied.
IT IS FURTHER ORDERED that the claims of plaintiff that remain for
litigation are:
(1)

Count 1 -- for declaratory judgment against defendants Dina and Marshall Miller

that the homeowner’s insurance policy, No. 24-D42758-01, does not cover the damage
incurred by defendants on February 12, 2015; and,
(2)

Count 2 -- for declaratory judgment against defendant Sign It Up, LLC that the

business owner’s insurance policy, No. 24XL-796104, does not cover the same damage.
IT IS FURTHER ORDERED that the counterclaim counts of defendants that
remain for litigation are:
(1)

Count 1 -- against plaintiff for breach of the homeowners policy;

(2)

Count 2 -- against plaintiff for vexatious refusal to pay the claim on the

homeowners policy; and,
(3)

Count 4 -- against plaintiff for public disclosure of private facts.

/s/ David D. Noce
UNITED STATES MAGISTRATE JUDGE
Signed on March 11, 2016.

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