Konecky et al v. Allstate Fire and Casualty Insurance Company et al
Filing
44
OPINION and ORDER denying 37 Motion to Dismiss. Signed by Judge Donald W. Molloy on 12/28/2017. (NOS)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
SETH KONECKY and JENNIFER
KONECKY, husband and wife,
FLATHEAD COUNTY DIST., INC., a
Montana Corporation, individually,
and on behalf of all others similarly
situated,
OPINION and
ORDER
Plaintiffs,
vs.
ALLSTATE FIRE & CASUALTY
INSURANCE COMPANY, et al.,
Defendants.
Defendants Allstate Fire & Casualty Insurance Company, Allstate
Indemnity Company, Allstate Property & Casualty Insurance Company, and
Allstate Insurance Company (collectively "Allstate") seek to dismiss Plaintiffs
Seth and Jennifer Konecky and Flathead Valley District, Incorporated's
(collectively "Plaintiffs") First Amended Complaint. (Doc. 3 7.) Plaintiffs request
contractual underinsured coverage (Count One) and allege statutory insurance bad
faith (Count Two), breach of the insurance policy contract and the implied
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covenant of good faith and fair dealing (Count Three), constructive fraud (Count
Four), conversion (Count Six), 1 civil conspiracy (Count Seven), and aiding and
abetting (Count Eight). (Doc. 34
at~~
33-63.) Plaintiffs also bring class-action
claims not at issue here. Allstate's motion to dismiss is denied.
Plaintiffs sufficiently allege that Allstate violated Montana's "made whole"
rule by subrogating for property damages when Plaintiffs had unrecovered losses,
costs, and attorney fees within that category of coverage. Next, Plaintiffs' claim
that Allstate violated the implied covenant of good faith and fair dealing is a
contract claim, and thus not barred by Montana's Unfair Trade Practices Act.
Plaintiffs' constructive fraud claim is pled with sufficient particularity because it
lays out the who, what, when, where, and how of the alleged constructive fraud,
and, because Plaintiffs' tort claims survive, so do Plaintiffs' civil conspiracy and
aiding and abetting claims. Finally, Plaintiffs' specific claim for contractual
underinsured coverage is sufficient to maintain their breach of contract claim.
FACTUAL BACKGROUND
The facts outlined below are taken from the First Amended Complaint,
(Doc. 34), and accepted as true, Harris v. Rand, 682 F.3d 846, 850 (9th Cir. 2012).
1
Plaintiffs appear to have inadvertently skipped from Count Four to Count
Six-there is no Count Five.
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Plaintiff Seth Konecky ("Seth") was involved in an auto accident caused by Hailey
and Nathan Tolson in Flathead County on December 25, 2014. (Id.
at~~
2, 24.)
Plaintiffs were insured by Allstate and the Tolsons were insured through AAA.
(Id.
at~~
1, 4.) Plaintiffs' automobile insurance policy included liability, medical,
uninsured motorist, underinsured motorist, comprehensive, and collision
coverages. (Doc. 39-2 at 19-20.)
As a result of the Tolson's conduct, Seth suffered bodily injury and
Plaintiffs suffered loss of income and loss of earning capacity, and incurred
medical expenses and property damage losses including repair costs, diminution,
replacement vehicle and rental charges, and loss of use. (Doc. 34 at~ 24.)
Plaintiffs subsequently claimed and received a payout from their collision
coverage with Allstate in the amount of $6,426.77, the cost of repair minus the
$500.00 deductible. (Id.
at~
25.) Plaintiffs began pursuing further property
damages from the Tolsons and their insurer, AAA, incurring $2,717.86 of attorney
fees in the process. (Id.
at~~
24-25.) Allstate never investigated whether
Plaintiffs had been made whole. (Id.
at~
30.) Then, before Plaintiffs were made
whole for their bodily injury damages or their property damages, Allstate
subrogated with AAA for the property damages which Allstate paid Plaintiffs. (Id.
at~
29.)
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PROCEDURAL HISTORY
Plaintiffs subsequently filed suit in the Eleventh Judicial District Court of
Montana on October 21, 2016. (Doc. 6.) Allstate removed the action to this Court
on January 27, 2017, (Doc. 1), and subsequently filed a motion to dismiss. (Doc.
20.) Plaintiffs filed their First Amended Complaint on September 25, 2017,
mooting that motion. (Doc. 34.) Allstate filed a second motion to dismiss on
October 16, 2017. (Doc. 37.)
STANDARD
"A pleading that states a claim for relief 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). However, "[a] complaint must include more than just conclusory
allegations to survive a Rule 12(b)(6) motion to dismiss." Harris, 682 F.3d at 850
(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). "Trial courts must
accept a complaint's factual allegations as true, but those allegations must
plausibly suggest 'the pleader is entitled to relief."' Id. (quoting Twombly, 550
U.S. at 557).
ANALYSIS
Allstate first argues that Plaintiffs' made whole claims are, as a whole,
legally deficient. (Doc. 38 at 10.) Allstate also specifically challenges Plaintiffs'
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Plaintiffs' claims for violation of the covenant of good faith and fair dealing
(Count Three), constructive fraud (Count Four), conspiracy (Count Seven), aiding
and abetting (Count Eight) and breach of contract (Count One). These challenges
are addressed in tum.
I.
Subrogation and the "Made Whole" Rule
Allstate insists subrogation was appropriate because it was not required to
cover Plaintiffs' unrecovered damages under the policy. Plaintiffs argue Allstate
violated the "made whole" rule. Plaintiffs have the better argument.
Subrogation is "the 'substitution of one party for another whose debt the
party pays, entitling the paying party to rights, remedies, or securities that would
otherwise belong to the debtor."' Van Orden v. United Servs. Auto. Ass 'n, 318
P.3d 1042, 1045 (Mont. 2014) (quoting Black's Law Diet. 1563-64 (Bryan A.
Gamer ed., 9th ed., West 2009).) "The doctrine require[s] that an insured be
'made whole' before an insurer c[an] assert its subrogation rights, which mean[s]
that, not only must the insured recover all of her losses but also all costs of
recovery as well, such as attorney fees and costs oflitigation." Swanson v.
Hartford Ins. Co. of the Midwest, 46 P.3d 584, 586-87 (Mont. 2002). The policy
behind Montana's "made whole" rule is that "[w]hen the sum recovered by the
Insured from the Tort-feasor is less than the total loss and thus either the Insured
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or the Insurer must to some extent go unpaid, the loss should be borne by the
insurer for that is a risk the insured has paid it to assume." Id. at 588 (quoting
Skauge v. Mtn. States Tel. & Tel. Co., 565 P.2d 628, 632 (Mont. 1977)) (emphasis
in original). Where "damages are discrete, readily-ascertainable, and completely
covered under a separate policy or portion of the policy for which a separate
premium has been paid, subrogation may proceed as to that element of loss only."
Van Orden, 318 P.3d at 1048.
Allstate first argues subrogation is proper because it paid Plaintiffs the
amount owed under the policy, regardless of whether Plaintiffs have unrecovered
attorney fees or other costs. This argument does not square with Montana's "made
whole" rule: "an insured must be totally reimbursed for all losses as well as costs,
including attorney fees, involved in recovering those losses before the insurer can
exercise any right of subrogation, regardless of any contract language providing to
the contrary." Swanson, 436 P.3d at 589. Whether Allstate is contractually bound
under the policy to pay Plaintiffs' deductible, rental expenses, or attorney fees
incurred while pursuing damages is irrelevant to the question of whether the
"made whole" rule applies.
Allstate next relies on Van Orden to argue the "made whole" rule does not
require insurers to make an insured whole for elements not covered under collision
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protection, such as bodily injury and attorneys' fees. Van Orden sustained both
bodily injury and property loss damages in an automobile accident. Van Orden,
318 P .3d at 1044. He carried collision coverage with his insurer which covered
the entirety of his property damages, and he sustained no out-of-pocket losses
from his property damage. Id. Van Orden sued after his insurer subrogated for the
property damages with the tortfeasor's insurer before Van Orden was made whole
for his bodily injury damages. Id. In response to a certified question from the
District of Montana, the Montana Supreme Court held that when "damages are
discrete, readily-ascertainable, and completely covered under a separate policy or
portion of the policy for which a separate premium has been paid, subrogation may
proceed as to that element of loss only." Id. at 1048. Critically, under the Monana
Supreme Court's analysis, the insured was "fully compensated by payment from
his insurer for the property damage loss-including all costs associated with the
property damage loss-and made whole as to the property damage loss" he
incurred. Id. at 1043.
In contrast, Plaintiffs here allege at least $15,017.72 in property loss
damages, including costs of repair, diminution, replacement vehicle and rental
charges, loss of use, the deductible, and attorney fees incurred in securing
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recovery from the tortfeasors. (Doc. 34 at ,-r,-r 24-25.) 2 Allstate paid Plaintiffs
$6,426.77, the cost of repair minus the $500 deductible. (Id. at ,-r 25.) Thus
Plaintiffs allege at least $8,590.95 of unrecovered property damages, (see id. at ,-r,-r
24-25), and have not been fully compensated. See Van Orden, 318 P.3d at 1043.
Allstate's reliance on Van Orden is unavailing.
Nor does Allstate's reliance on Forsman v. United Financial Casualty
Company, 966 F. Supp. 2d 1091 (D. Mont. 2013) and Fisher ex rel. McCartney v.
State Farm Mutual Automobile Insurance Co., 305 P.3d 861 (Mont. 2013),
provide assistance, as both are distinguishable from the case at bar. In Forsman,
the issue was whether the first-party insurer's denial of payment to its insured
because the insured had already recovered from the tortfeasor was "de facto
subrogation" and therefore subject to the "made whole" rule. Forsman, 966 F.
Supp. 2d at 1100-01. Fisher, meanwhile, concerned limits on umbrella coverage,
not subrogation. 305 P.3d 861, 864. The difference here is that Allstate
subrogated, and in Forsman and Fisher, no subrogation occurred.
Finally, Allstate argues Plaintiffs fail to show Allstate's actions harmed
2
This figure does not include $1,250.00 for "immediate loss of income
from business" or $356.24 for "immediate loss of income from employment"
because Plaintiffs do not specify whether those damages arise from their property
damage or bodily injury. (See Doc. 34 at ,-r 24.)
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them. (Doc. 3 8 at 23.) That argument ignores Plaintiffs' allegations that, when
Allstate subrogated, it deprived Plaintiffs of funds they could have received from
the tortfeasor's insurance for unrecovered damages like the deductible, loss of use,
rental expense, and diminution. Simply put, Plaintiffs sufficiently allege they
"ha[ve] sustained a loss in excess of the reimbursement by the insurer," and are
therefore "entitled to be made whole for [their] entire loss and any costs of
recovery, including attorney's fees, before the insurer can assert its right of legal
subrogation against the insured or the tort-feasor." Van Orden, 318 P.3d at 1045
(citing Skauge, 565 P.2d at 632). Plaintiffs' allegations "plausibly suggest" they
are entitled to relief. Harris, 682 F.3d at 850.
II.
Implied Covenant of Good Faith and Fair Dealing (Count Three)
Allstate contends Montana's Unfair Trade Practices Act, specifically
Montana Code Annotated§ 33-18-242(3), precludes a tort claim for violation of
the implied covenant of good faith and fair dealing, and that, "[t]o the extent
[P]laintiffs' claim ... is still premised on tort ... it should be dismissed." (Doc.
38 at 25-26.) Plaintiffs respond Count Three is based in contract and "[t]ort relief
for breach of the implied covenants is not alleged nor intended in this case." (Doc.
39 at 21.)
Section 33-18-242(3) provides, inter alia, that "[a]n insured who has
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suffered damages as a result of the handling of an insurance claim may bring an
action against the insurer for breach of the insurance contract, for fraud, or
pursuant to this section, but not under any other theory or cause of action." In
turn, "every contract, regardless of type, contains an implied covenant of good
faith and fair dealing. A breach of the covenant is a breach of the contract." Story
v. City ofBozeman, 791 P.2d 767, 775-76 (Mont. 1990). Accordingly, Allstate's
motion to dismiss as it relates to Count Three is denied because the Plaintiffs'
claim sounds in contract, not tort.
III.
Constructive Fraud (Count Four)
Allstate asserts that Plaintiffs' fail to plead constructive fraud (Count Four)
with sufficient particularity. Plaintiffs respond that constructive fraud need not be
pled with the same particularity as actual fraud, and, the particularity requirement
notwithstanding, their "allegations tell [Allstate] the details of the claim." (Doc.
39 at 21.)
Federal Rule of Civil Procedure 9(b) requires that claims of fraud "must
state with particularity the circumstances constituting fraud." "It is established
law, in this circuit and elsewhere, that Rule 9(b )'s particularity requirement
applies to state-law causes of action." Vess v. Ciba-Geigy Corp. USA, 317 F.3d
1097, 1103 (9th Cir. 2003 ). "To meet this standard, Plaintiffs' complaint must
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'identify the who, what, when, where, and how of the misconduct charged, as well
as what is false or misleading about the purportedly fraudulent statement, and why
it is false."' Salameh v. Tarsadia Hotel, 726 F.3d 1124, 1133 (9th Cir. 2013)
(quoting Cafasso, US. ex. rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047,
1055 (9th Cir. 2011)).
Montana statute defines "constructive fraud" as "any breach of duty that,
without an actually fraudulent intent, gains an advantage to the person in fault or
anyone claiming under the person in fault by misleading another person to that
person's prejudice or to the prejudice of anyone claiming under that person."
Mont. Code Ann. § 28-2-406(1 ). "Where a party, by his words or conduct creates
a false impression concerning serious impairments or other important matters and
subsequently fails to disclose relevant factors, constructive fraud may be found."
Drilcon, Inc. v. Roil Energy Corp., Inc., 749 P.2d 1058, 1061-62 (Mont. 1988).
Plaintiffs allege three examples of constructive fraud. First, Allstate
"misrepresented facts regarding its insurance policy coverage by a deceptive
procedure of asserting under the guise of 'limitation on coverage' a right to
recover." (Doc. 34
at~
49.) Second, Allstate "concealed its subrogation recovery
from its own insured with knowledge that typically insureds would not discover
the wrong and hold the insurers to account for the improper subrogation." (Id.)
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Finally, Allstate "affirmatively asserted a false proposition oflaw that, if its
insureds' unrecovered losses fall outside of the Allstate coverage, they are not part
of the losses to be considered before subrogation may be had (a misrepresentation
of law that would render the made-whole rule utterly meaningless)." (Id.)
In other words, Plaintiffs have alleged Allstate pursued subrogation by
means of misrepresentations and non-disclsoures, giving them the false impression
that they had no further right to compensation. These allegations-which detail
the exact action and inaction Plaintiffs contend constitute constructive fraud-give
Allstate sufficient notice of the "who, what, when, where, and how of the
misconduct charged," as well as "what is false or misleading" and "why it is
false." See Salameh, 726 F.3d at 1133. Allstate's motion to dismiss Count Four is
denied.
IV.
Civil Conspiracy (Count Seven) and Aiding and Abetting (Count Eight)
Allstate argues Plaintiffs' claims of civil conspiracy (Count Seven) and
aiding and abetting (Count Eight) fail with the Plaintiffs' underlying tort claims.
(Doc. 38 at 29-30.) While Allstate does not identify the specific torts at issue,
Count Two (Statutory Insurance Bad Faith), Count Four (Constructive Fraud), and
Count Six (Conversion) all appear to qualify.
"To sustain a civil conspiracy action, a plaintiff must allege a tort committed
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by one of the alleged conspirators." Hughes v. Pullman, 36 P.3d 339, 343--44
(Mont. 2001) (citingDu.flYv. Butte Teacher's Union, 541P.2d1199, 1202 (Mont.
1975)). When the underlying tort has been dismissed and "there is no underlying
tort action forming a basis for civil conspiracy," the civil conspiracy claim must be
dismissed. Id. at 344. Plaintiffs agree Counts Seven and Eight would fail in the
event no tort claims survive. (Doc. 39 at 24-25.) However, as discussed above,
Count Four survives Allstate's challenge because it is pled with sufficient
particularity. See Fed. R. Civ. P. 9(b). And Allstate has not specifically
challenged Counts Two or Six, which, in any event, survive Allstate's broader
attack that Plaintiffs have failed to allege a cognizable subrogation claim.
Accordingly, Allstate's motion to dismiss Counts Seven and Eight is denied.
V.
Breach of Contract (Count One)
Allstate finally argues that Plaintiffs' breach of contract claim (Count One)
should be dismissed because it "fail[ s] to identify any contractual provision
[Allstate] supposedly breached," (Doc. 38 at 30), and because Plaintiffs "never
made a demand for[] coverage," (Id. at 32). Plaintiffs insist they identified the
portion of the policy at issue, and that the suit itself is their claim for coverage.
(Doc. 39 at 25.) Plaintiffs are correct.
"A party may not recover damages for breach of contract unless the party
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proves that the breach of contract proximately caused the damages, or that the
damages likely resulted from the breach of contract." Tin Cup Cty. Water and/or
Sewer Dist. v. Garden City Plumbing & Heating, Inc., 200 P.3d 60, 68 (Mont.
2008). Count One states that "Konecky had underinsured coverage with Allstate,"
that the Tolson's "coverage limits are inadequate to cover the Konecky's bodily
injury damages and have been exhausted by AAA payment of policy limits for
Bodily Injury of $25,000," and that "Allstate has made no payment and no offer of
payment under the underinsured coverage of its policy." (Doc. 34 at i-fi-f 35-36.)
This "short and plain statement of the claim," Fed. R. Civ. P. 8(a)(2), plausibly
shows Allstate breached the insurance contract by failing to provide underinsured
coverage.
Allstate relies on Williamson v. Montana Public Service Commission for the
proposition that a breach of contract claim is deficient where a plaintiff fails to
identify the contractual provision that was breached. 272 P.3d 71, 85 (Mont.
2012). In Williamson, however, the plaintiffs were not parties to the contracts at
issue. Id. at 79. Instead, they sought standing before the Montana Public Service
Commission as third-party beneficiaries to street lighting contracts between
NorthWestern Energy and various Montana cities. Id. The Montana Supreme
Court held that the plaintiffs lacked standing because Montana statute did not
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"authoriz[e] them to bring an action for breach of contract in the [Public Service
Commission]," the plaintiffs were not intended third-party beneficiaries of the
contracts, and the plaintiffs failed to identify the specific contractual provisions
they wished to enforce. Id. at 85. Here, however, the Plaintiffs are parties to the
insurance contract, and they have identified the contractual provision they wish to
enforce. Allstate's motion to dismiss Count One is denied.
CONCLUSION
Plaintiffs' allegations meet the pleading standard required by Rule 8(a) and,
where necessary, Rule 9(b). Accordingly, IT IS ORDERED that Allstate's motion
to dismiss (Doc. 37) is DENIED.
DATED this
H +- of December, 2017.
day
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