Swan Realty Group, LLC v. State Farm Fire and Casualty Company

Filing 13

MEMORANDUM AND ORDER - State Farm's Motion to Dismiss 5 is granted as follows: SRG's claim for loss-of-use damages under the Policy is dismissed; and SRGs claim for extra-contractual, consequential damages beyond proceeds of the Poli cyincluding damages such as non-party Swans additional expenses from being "forced to cover two mortgages when he should have been able to relieve himself of the mortgage on his current home as of October 1, 2023, through a sale of the proper ty" is dismissed with prejudice. This case will proceed on SRG's remaining claim for direct damages for State Farm's alleged breach of the Policy seeking the costs of replacement of the roof and repair of the Property. Ordered by Judge Brian C. Buescher. (MKR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
SWAN REALTY GROUP, LLC,
Plaintiff,

8:24CV364

vs.
MEMORANDUM AND ORDER
REGARDING DEFENDANT’S MOTION
TO DISMISS

STATE FARM FIRE AND CASUALTY
COMPANY,
Defendant.

A limited liability company brought this breach-of-contract action against an insurer in
state court as the assignee of an insurance claim related to hail damage to property that occurred
before the company bought the property from the assignor. Filing 1-1. After removal, this case is
before the Court on the insurer’s motion to dismiss the company’s claim for loss-of-use damages
on behalf of the company’s sole individual member. Filing 5. The insurer asserts that the
company lacks standing to assert such a claim and that, in any event, the company fails to state a
claim for loss-of-use damages upon which relief can be granted. Filing 5. The company asserts
that the insurer has misunderstood its claim as one for loss-of-use damages under the insurance
policy when the claim is really for damages directly and proximately caused by the insurer’s
failure to pay for repairs to the property. Filing 11 at 1. For the reasons stated below, the
insurer’s Motion to Dismiss, Filing 5, is granted. The company’s breach-of-contract claim will
proceed further on the company’s remaining damages claim for replacement and repair costs but
not on its claim for loss-of-use or other consequential damages.

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I. INTRODUCTION
A. Factual Background
Defendant’s Motion to Dismiss is premised on both lack of subject-matter jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(1) and failure to state a claim pursuant to
Federal Rule of Civil Procedure 12(b)(6). The Court considers the following nonconclusory
allegations as true for the purposes of ruling on this Motion. See Bauer v. AGA Serv. Co., 25
F.4th 587, 589 (8th Cir. 2022) (quoting Pietoso, Inc. v. Republic Servs., Inc., 4 F.4th 620, 622
(8th Cir. 2021)). Following Eighth Circuit precedent, the Court also considers “materials
‘necessarily embraced by the pleadings.’” LeMay v. Mays, 18 F.4th 283, 289 (8th Cir. 2021)
(quoting Buckley v. Hennepin Cnty., 9 F.4th 757, 760 (8th Cir. 2021), in turn quoting Greenman
v. Jessen, 787 F.3d 882, 887 (8th Cir. 2015)). This approach is appropriate for the Court’s
consideration of both a Rule 12(b)(6) challenge and a “facial” Rule 12(b)(1) challenge.
Plaintiff Swan Realty Group, LLC, is a limited liability company, wholly owned by
Bentley Swan, with its principal place of business in Omaha, Nebraska. Filing 1-1 at 1 (¶ 1). The
Court will refer to Swan Realty Group, LLC, as SRG and to SRG’s sole member as Swan to
avoid any confusion between the two, where SRG is a party to this lawsuit, but Swan is not.
Defendant State Farm Fire and Casualty Company (State Farm) is engaged in the business of
selling insurance policies including homeowner insurance policies in Nebraska. Filing 1-1 at 1
(¶ 2). At all relevant times, State Farm provided insurance coverage for various perils including
hail damage for real property located in Omaha (the Property) under Policy No. 27-BVH-3514
(the Policy). Filing 1-1 at 2 (¶ 5). The named Insured for the Policy was initially Theodore J.
Matsukis. Filing 1-1 at 2 (¶ 6). On or about June 7, 2022, the Property sustained severe damage
as a result of a hailstorm, including damages to the roof and interior of the dwelling on the
Property, as well as damage to outbuildings on the Property. Filing 1-1 at 2 (¶ 8). The Amended
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Complaint does not state whether Mr. Matsukis made a claim against State Farm under the
Policy for the damage from the hailstorm on June 7, 2022.
On March 17, 2023, Mr. Matsukis died, and the Estate of Theodore J. Matsukis (the
Estate) became the Insured for the policy. Filing 1-1 at 2 (¶ 9). The Amended Complaint alleges,
“On July 6, 2023, the Estate of Theodore J. Matsukis assigned the claim related to the damages
sustained on the Property due to the hailstorm (the ‘Claim’) to [SRG].” Filing 1-1 at 2 (¶ 10).
The assignment is nowhere to be found in the record at this point in the litigation, so that its
precise terms, scope, and intent cannot be determined. On July 13, 2023, SRG purchased the
Property from the Estate. Filing 1-1 at 2 (¶ 11). The Amended Complaint alleges that SRG
“made a timely demand upon State Farm to pay the fair and reasonable costs of repairing the
damages sustained on the Property, whereupon State Farm has admitted coverage but [has]
drastically understated the scope of said damage that needs to be remediated and the cost of said
remediation.” Filing 1-1 at 2 (¶ 12). However, the Amended Complaint does not allege when that
demand was made.
The next allegations pertinent to the Motion presently before the Court are the following:
23.
Mr. Swan purchased the Property with the intention to sell his
current home and move his family into the dwelling once repairs were finished.
24.
Due to State Farm’s failure to pay the fair and reasonable cost of
replacing the roof and repairing the Property, Mr. Swan has not been able to move
into the dwelling and sell his current home.
25.
Due to State Farm’s delay, Mr. Swan has been forced to cover two
mortgages when he should have been able to relieve himself of the mortgage on
his current home as of October 1, 2023, through a sale of the property.
Filing 1-1 at 3 (¶¶ 23–25). The allegation in ¶ 23 that Swan purchased the Property is contrary to
the allegation in ¶ 11 that SRG purchased the Property from the Estate. See Filing 1-1 at 2 (¶ 11).

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B. Procedural Background
SRG filed its original Complaint and Jury Demand as the sole plaintiff in the District
Court of Douglas County, Nebraska, on August 14, 2024, naming State Farm Mutual
Automobile Insurance Company as the defendant. Filing 1-2 at 1. On August 23, 2024, SRG
filed an Amended Complaint and Jury Demand in state court correctly identifying State Farm
Fire and Casualty Company as the defendant. Filing 1-1 at 1. In its Amended Complaint, SRG
alleges a single cause of action for breach of contract by State Farm “by refusing to pay for the
necessary replacement of Plaintiff’s roof and necessary repairs to Plaintiff’s Property.” Filing 1-1
at 4 (¶ 32). As to damages, SRG’s Amended Complaint alleges the following:
33.
As a direct and proximate result of State Farm’s breach, Plaintiff
will incur at least $670,813.47 in damages to replace the roof and repair the
Property as set forth in Exhibit A, plus additional damages in an amount to be
proven at trial.
34.
As a direct and proximate result of State Farm’s breach, Plaintiff is
entitled to damages for loss of use in an amount to be proven at trial.
Filing 1-1 at 4 (¶¶ 33–34). Thus, SRG appears to seek two categories of damages for State
Farm’s alleged breach of the Policy: (1) damages for repair and replacement costs, and (2)
damages for loss of use. Id. SRG did not attach the Policy to either of its pleadings. However, as
mentioned below, State Farm submitted a copy of the Policy with its Motion to Dismiss. Filing
6-1.
In its Amended Complaint, SRG prays for the following relief:
WHEREFORE, Plaintiff prays that this Court enter a judgment in its favor
on the above cause of action and award Plaintiff damages in an amount to be
proven at trial, but not less than $670,813.47, plus prejudgment and postjudgment
interest, and its reasonable attorney fees, costs, and expenses pursuant to Neb.
Rev. Stat. § 44-359, and for such further relief that the Court deems just and
proper.

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Filing 1-1 at 5. Thus, SRG’s prayer does not expressly seek or distinguish between the two
categories of damages that appear to be claimed in ¶ 33 and ¶ 34, respectively, of the Amended
Complaint.
State Farm filed a Notice of Removal to this federal Court on September 17, 2024. Filing
1. State Farm asserts that removal is proper because there is diversity of citizenship pursuant to
28 U.S.C. §§ 1332, 1441, and 1446—where State Farm is incorporated and has its principal
place of business in Illinois, and SRG is a Nebraska limited liability company with its principal
place of business in Nebraska—and that the amount in controversy exceeds $75,000 exclusive of
interest and costs. Filing 1 at 1–2 (¶ 3, ¶ 7). Also on September 17, 2024, State Farm filed the
Motion to Dismiss now before the Court. Filing 5. State Farm filed an Index of Evidence in
Support of Motion to Dismiss, Filing 6, consisting of a certified copy of Policy No. 27-BVH351-4, Filing 6-1. In its supporting Brief, State Farm asserts inter alia that the Policy may be
considered on its Motion to Dismiss without converting the Motion into one for summary
judgment “because the Policy is embraced by the pleadings.” Filing 7 at 3 (citing Stahl v. U.S.
Dept. of Agric., 327 F.3d 697, 700 (8th Cir. 2003)). The Court agrees, and SRG does not argue
otherwise. See generally Filing 11.
II. LEGAL ANALYSIS
Before the Court embarks on an analysis of State Farm’s Motion to Dismiss, the Court
must resolve a preliminary matter raised by the parties concerning the nature of the damages
claim that State Farm is challenging. Determination of this preliminary issue dictates the
standards applicable to the Motion and obviates the need to consider many of the parties’
arguments in their briefs.

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A. The Nature of the Challenged Claim
In its Motion to Dismiss and Brief in Support of Motion to Dismiss, State Farm does not
seek dismissal of SRG’s substantive claim for breach of the Policy or dismissal of SRG’s
damages claim for repair and replacement costs. See generally Filing 5; Filing 7. Instead, State
Farm seeks dismissal of SRG’s claim “to recover damages under the loss of use coverage of the
insurance policy that were allegedly sustained by its sole member, Bentley Swan (‘Bentley’).”
Filing 7 at 1. State Farm then asserts various arguments for dismissal of that damages claim.
Filing 7 at 5–14. More specifically, State Farm asserts that SRG lacks standing to assert a claim
for damages for Swan’s loss of use of the Property, so that this Court lacks subject-matter
jurisdiction over that damages claim. Filing 7 at 5–8. State Farm also asserts that SRG fails to
state a claim for damages for loss of use of the Property under the Policy. Filing 7 at 8–14.
However, SRG takes issue with State Farm’s characterization of the damages claim that State
Farm challenges. In its Brief in Opposition, SRG argues,
State Farm’s motion to dismiss is premised upon a misunderstanding of
[SRG’s] claim. [SRG] does not seek to recover loss of use damages payable under
the policy. [SRG] only seeks to recover damages proximately caused by State
Farm’s breach of contract.
Filing 11 at 1; see also Filing 11 at 11. Thus, the Court must resolve the dispute or confusion
about the nature of the challenged damages claim.
SRG makes clear that its substantive claim is “that State Farm breached the terms of its
contract with Matsukis ‘by refusing to pay for the necessary replacement of Plaintiff’s roof and
necessary repairs to Plaintiff’s property.’” Filing 11 at 11 (quoting Filing 1-1 at 4 (¶ 32)). As to
its damages claims, SRG argues, “Vitally, State Farm’s failure to pay those damages”—meaning
the damages for failure to pay for repair and replacement costs—“causes damages that are
greater than the value of the [Policy] proceeds themselves.” Filing 11 at 12. Specifically, SRG
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argues that State Farm’s failure to pay for repairs and replacements prevented SRG “from
completing the necessary remedial work,” and that failure “forced [SRG’s] member to carry two
mortgages when – but for State Farm’s breach – its member would have only carried one.” Filing
11 at 12. SRG asserts that “neither of these claims allege[s] that [SRG] was an insured entitled to
recovery under the ‘Loss of Use’ proceeds of the insurance policy”; rather, SRG explains that
these claims are “that State Farm’s breach proximately caused [SRG] (and its member)
compensable harm.” Filing 11 at 12.
SRG acknowledges that in ¶ 34 of its Amended Complaint, it alleged, “As a direct and
proximate result of State Farm’s breach, Plaintiff is entitled to damages for loss of use in an
amount to be proven at trial.” Filing 11 at 12 (quoting Filing 1-1 at 4 (¶ 34)). However, SRG
represents as follows:
[SRG] did not intend, in making this allegation, to assert that it is entitled to
recover its own loss of use damages as proceeds payable from the insurance
policy. Such an allegation would have required a companion allegation that [SRG]
is an insured under the policy, which [SRG] did not make. To the extent that ¶ 34
is read as [SRG] seeking loss of use proceeds under the policy, then [SRG] does
not object to the dismissal of this claim. However, [SRG] asserts that ¶ 34
conveys its member’s claim for carrying two mortgages, which was proximately
caused by State Farm’s breach of contract. ([Filing 1-1] at 3, ¶¶ 23-25).
Filing 11 at 12–13. SRG argues that even if the claim for loss-of-use damages in ¶ 34 is
dismissed, SRG has still demanded the damages proximately caused by State Farm’s breach of
the Policy under the language in ¶ 33 of the Amended Complaint, which alleges that SRG has
incurred at least damages to replace the roof and repair the property “plus additional damages in
an amount to be proven at trial.” Filing 11 at 13.
In reply, State Farm asserts that SRG “concedes that its allegation seeking loss of use
damages under the policy fails to state a claim.” Filing 12 at 2 (citing Filing 11 at 13). State Farm
also argues that it is well established that an insured cannot recover extra-contractual
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consequential damages for breach of an insurance policy absent a claim for bad faith, but SRG
has not and cannot make a bad faith claim because it is not an insured. Filing 12 at 2.
The Court agrees with State Farm that SRG has eschewed any damages claim for loss-ofuse proceeds under the Policy and has invited dismissal of that damages claim to the extent that
¶ 34 of its Amended Complaint could be read to assert such a damages claim. Filing 11 at 13.
Thus, any claim for damages for loss-of-use proceeds under the Policy is dismissed. However,
SRG has now made clear that it seeks damages beyond proceeds of the Policy consisting of
damages that were “proximately caused” to SRG (and Swan) by State Farm’s breach of the
Policy. See Filing 11 at 12. This claim for damages beyond proceeds of the Policy is apparent
from SRG’s argument “that State Farm’s breach proximately caused Swan Realty (and its
member) compensable harm” and that “[v]itally, State Farm’s failure to pay those damages
causes damages that are greater than the value of the [Policy] proceeds themselves.” Filing 11 at
12. Thus, the question is whether State Farm is entitled to dismissal of SRG’s claim for damages
beyond proceeds of the Policy that were proximately caused by State Farm’s breach of contract.
Filing 11 at 12. The only damages beyond proceeds of the Policy that SRG expressly pleads are
damages to Swan for being “forced . . . to carry two mortgages when – but for State Farm’s
breach – [Swan] would have only carried one.” Filing 11 at 12.
The Court finds that whether State Farm is entitled to dismissal of such a damages claim
is subject to Federal Rule of Civil Procedure 12(b)(6) standards concerning whether SRG has
stated a claim upon which relief can be granted rather than Federal Rule of Civil Procedure
12(b)(1) standards concerning SRG’s standing and hence the Court’s subject-matter jurisdiction.
This is so because even if SRG has standing to assert that damages claim, then that damages
claim ultimately is not legally cognizable. At the same time, if SRG lacks standing to assert that

8

damages claim, then the Court would still have subject-matter jurisdiction over this case, but that
damages claim still would not be legally cognizable in this or any other court.
Thus, the Court turns to a summary of pertinent Rule 12(b)(6) standards.
B. Applicable Standards
Federal Rule of Civil Procedure 12(b)(6) provides for a pre-answer motion for dismissal
for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). On a
Rule 12(b)(6) motion, a court is not strictly limited to consideration of the complaint. Instead,
“[c]ourts may [also] consider matters incorporated by reference or integral to the claim, items
subject to judicial notice, matters of public record, orders, items appearing in the record of the
case, and exhibits attached to the complaint whose authenticity is unquestioned.” Roberson v.
Dakota Boys & Girls Ranch, 42 F.4th 924, 928 (8th Cir. 2022) (internal quotation marks and
citations omitted); LeMay, 18 F.4th at 289 (explaining that the court may consider documents
necessarily embraced by the pleadings). Thus, as mentioned above, the Court can properly
consider the Policy, which State Farm attached as an Index to its Motion to Dismiss, because the
Policy is clearly incorporated by reference, integral to SRG’s claim, and embraced by the claim
in the Amended Complaint for breach of the Policy. Id.; LeMay, 18 F.4th at 289. However, the
Court cannot consider factual allegations that were not included in the Complaint or in materials
embraced by the pleadings. See Glick v. W. Power Sports, Inc., 944 F.3d 714, 717 (8th Cir. 2019)
(“While [the plaintiff] presented additional facts in his oppositions to the motion to dismiss[,] . . .
those factual allegations were not included in his amended complaint and, thus, cannot be
considered on a motion to dismiss.”).
The typical ground for a Rule 12(b)(6) motion is the insufficiency of the factual
allegations offered to state claims. “A claim survives a Rule 12(b)(6) motion to dismiss only if
the complaint’s nonconclusory allegations, accepted as true, make it not just ‘conceivable’ but
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‘plausible’ that the defendant is liable.” Mitchell v. Kirchmeier, 28 F.4th 888, 895 (8th Cir. 2022)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 680–83 (2009)). However—and more importantly
here—Rule 12(b)(6) also permits dismissal when a claim is not cognizable under applicable law.
See, e.g., Couzens v. Donohue, 854 F.3d 508, 517 (8th Cir. 2017) (concluding that dismissal was
appropriate where Missouri did not recognize a claim for false light invasion of privacy);
Thomas v. Bd. of Regents of Univ. of Nebraska, No. 4:20CV3081, 2022 WL 1491102, at *18 (D.
Neb. May 11, 2022) (agreeing with defendant that the plaintiffs had failed to state a claim,
because a disparate-impact claim is not cognizable under the Equal Protection Clause); Freeney
v. Galvin, No. 8:19CV557, 2020 WL 229996, at *2 (D. Neb. Jan. 15, 2020) (concluding that the
plaintiff failed to state a § 1983 claim against the manager of his private place of employment
because such a claim is not cognizable where a private person is not a state actor or engaged in
joint action with the state or its agents).
The Court will apply these standards to State Farm’s Motion to Dismiss SRG’s claim for
damages beyond Policy proceeds that were allegedly proximately caused by State Farm’s breach
of the Policy.
C. SRG’s Claim for Damages Beyond Policy Proceeds
Proximately Caused by State Farm’s Breach
1. State Farm’s Reply Properly Addresses Factual and Legal Issues Raised in
SRG’s Opposition Brief
The Court must next determine the propriety of considering State Farm’s arguments for
dismissal of SRG’s recharacterized claim because those arguments appear for the first time in
State Farm’s Reply. See Filing 12. As the Court observed in a prior case,
The Eighth Circuit has stated that normally, courts “refuse to entertain [ ]
new argument[s]” that are “assert[ed] for the first time in [a] reply brief.” Berg v.
Norand Corp., 169 F.3d 1140, 1146 (8th Cir. 1999). In addition, the Eighth Circuit
has stated, “The district court d[oes] not abuse its discretion or otherwise commit
error by following the court’s local rule prohibiting new arguments submitted in a
10

reply brief.” McGhee v. Pottawattamie Cnty., Iowa, 547 F.3d 922, 929 (8th Cir.
2008). The pertinent local rule provides, “The reply brief may not merely repeat
the moving party’s initial arguments, but rather must address factual or legal
issues raised in the opposing brief. Without leave of court, a reply brief may not
raise new grounds for relief or present matters that do not relate to the opposing
party’s response.” NECivR 7.1(c)(2).
Peterson v. Learfield Commc’ns, LLC, 705 F. Supp. 3d 937, 955 (D. Neb. 2023), appeal
dismissed, No. 23-3773 (8th Cir. Mar. 28, 2024).
As in Peterson, State Farm’s argument concerning SRG’s recharacterized damages claim
is not a “new argument” raised “for the first time” in State Farm’s “reply brief.” See Peterson,
705 F. Supp. 3d at 955 (quoting Berg, 169 F.3d at 1146). Rather, State Farm’s argument
“relate[s] to the opposing party’s response” and “address[es] factual or legal issues raised in the
opposing brief.” NECivR 7.1(c)(2). Indeed, not only does State Farm’s argument address a legal
issue raised in SRG’s opposing brief concerning the nature of the damages claim at issue but
State Farm’s argument addresses an issue that the Court does not believe State Farm could
reasonably have anticipated in light of ¶ 34 of SRG’s Amended Complaint, where State Farm
reasonably read that paragraph as a claim for damages for loss-of-use proceeds under the Policy.
Furthermore, SRG has not sought leave to file a sur-reply to address State Farm’s
arguments. See NECivR 7.1(c)(3) (“No party may file further briefs or evidence without the
court’s leave.”). “[S]ur-replies are viewed with disfavor,” so the Court was not required to allow
a sur-reply sua sponte. Cornice & Rose Int’l, LLC v. Four Keys, LLC, 76 F.4th 1116, 1123 (8th
Cir. 2023). The Eighth Circuit has also stated that a district court does not have to allow a nonmovant to file a sur-reply if the movant “simply responded to issues raised by” the non-movant’s
opposition brief, which is what State Farm did here. Id. Therefore, the Court will consider State
Farm’s argument that SRG’s recharacterized damages claim fails to state a claim upon which
relief can be granted.
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2. The Parties’ Arguments
As explained above, SRG asserts that its substantive claim is “that State Farm breached
the terms of its contract with Matsukis ‘by refusing to pay for the necessary replacement of
Plaintiff’s roof and necessary repairs to Plaintiff’s property.’” Filing 11 at 11 (quoting Filing 1-1
at 4 (¶ 32)). SRG argues that consequences of the breach of the Policy include damages for
compensable harm proximately caused to SRG “and its member” beyond proceeds of the Policy.
Filing 11 at 12. Specifically, SRG alleges “that State Farm’s conduct forced its member to carry
two mortgages when – but for State Farm’s breach – its member would have only carried one.”
Filing 11 at 12 (citing Filing 1-1 at 3 (¶¶ 23–25)). SRG argues at some length that it is not
asserting rights that are greater than those that the Estate assigned, Filing 11 at 13–15, and that
the Policy’s anti-assignment clause is irrelevant and unenforceable under Nebraska law, Filing
11 at 17.
State Farm characterizes SRG’s argument as a “pivot” to an argument that it seeks
damages proximately caused by State Farm’s breach of contract, including damages to Swan for
carrying two mortgages. Filing 12 at 2. In response to SRG’s “pivot,” State Farm argues,
It is well established that absent a claim for bad faith, which [SRG] has not and
could not allege as an assignee, an insured, which [SRG] is not, cannot recover
extra-contractual consequential damages for breach of an insurance policy. Thus,
[SRG’s] claim for damages allegedly sustained by its member fails to state a
claim and should be dismissed.
Filing 12 at 2. More specifically, State Farm asserts that SRG’s claim for damages for Swan
having to pay two mortgages rather than one “is really a claim for extra-contractual, or
consequential, damages.” Filing 12 at 12. State Farm argues that such extra-contractual or
consequential damages are not available for breach of an insurance contract but only on a claim
for bad faith against an insurer. Filing 12 at 12. State Farm argues that because SRG has not
alleged that State Farm acted in bad faith, SRG’s claim for extra-contractual damages fails to
12

state a claim. Filing 12 at 13. State Farm argues further that SRG cannot assert a claim for bad
faith because SRG concedes that it is not an insured under the Policy and no claim for bad faith
was assigned to SRG. Filing 12 at 14. Indeed, State Farm argues that Nebraska law bars a
policyholder—here the Estate—from assigning a claim for bad faith. Filing 12 at 14. Finally,
State Farm argues that even if such extra-contractual damages were recoverable, the damages
SRG seeks were not foreseeable. Filing 12 at 15.
3. SRG’s Recharacterized Damages Claim Seeks Extra-Contractual,
Consequential Damages Not Available for Breach of the Policy
SRG repeatedly asserts that it is entitled to recover damages proximately caused by State
Farm’s breach of contract as well as the full amount of insurance proceeds due under the Policy.
See, e.g., Filing 11 at 12. SRG expressly alleges that the damages proximately caused by State
Farm’s breach consist of Swan’s additional expenses from being “forced to cover two mortgages
when he should have been able to relieve himself of the mortgage on his current home as of
October 1, 2023, through a sale of the property” he owned before SRG purchased the Property.
Filing 1-1 at 3 (¶ 25). SRG does not identify in its Amended Complaint any additional costs that
SRG itself was “forced” to bear because of State Farm’s breach. See generally Filing 1-1.
Nowhere does SRG cite any authority that the measure of damages for breach of a
contract or an insurance policy is all damages “proximately caused” by the breach. See generally
Filing 11. Nebraska law recognizes a “proximate cause” standard for damages in the insurance
context, but only for a claim of bad faith, which is grounded in tort, and permits recovery of
“traditional tort damages, including damages for mental distress and for economic loss, . . . when
they are proximately caused by the insurer’s tortious bad faith conduct.” Millard Gutter Co. v.
Shelter Mut. Ins. Co., 980 N.W.2d 420, 432 (Neb. 2022) (also explaining that “one of the
justifications for recognizing the intentional tort of bad faith was concern that recoverable
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damages for breach of the insurance contract are inadequate to compensate policyholders for
personal injuries suffered as a result of an insurer’s tortious bad faith”). In Millard Gutter, the
Nebraska Supreme Court held that “even assuming without deciding that the proceeds from firstparty bad faith actions can be validly assigned under Nebraska law, . . . a policyholder cannot
validly assign the right to prosecute or control such an action.” Id. at 434. Thus, in this case as in
Millard Gutter, regardless of the validity for other purposes, the post-loss assignment from the
Estate to SRG could not, as a matter of law, give SRG standing to prosecute the Estate’s tort
action for first-party bad faith against State Farm. Id. Thus, State Farm is correct that SRG both
has not and cannot assert a claim for bad faith in order to recover damages “proximately caused”
by State Farm’s failure to pay benefits under the Policy.
State Farm asserts that in the insurance context, under Nebraska law, absent a claim for
bad faith, extra-contractual or consequential damages such as the damages SRG seeks are not
available for breach of an insurance contract. Filing 12 at 12. The Court is not satisfied that the
case on which State Farm relies, Olson v. Union Fire Ins. Co., 118 N.W.2d 318, 323 (Neb.
1962), squarely stands for that proposition. In Olson the Nebraska Supreme Court made the
following clear:
If the insurer has exercised good faith in all of its dealings under its policy, if the
settlement which it has rejected has been fully and fairly considered and has been
based on an honest belief that the insurer could defeat the action or keep the
judgment within the limits of the policy, and if its determination is based on a fair
review of the evidence after reasonable diligence in ascertaining the facts,
accompanied by competent legal advice, a court will not subject the insurer to
liability in excess of policy limits if it ultimately turns out that its determination is
a mistaken one.
Olson, 118 N.W.2d at 323. Unlike this case, Olson involved a claim of bad faith failure to settle
with an injured third party, and more importantly, it does not mention any limitation on damages
for breach of an insurance policy. See generally id.
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Although Nebraska law is not clear on whether consequential damages are available for
breach of an insurance contract, New York has recognized that they are not. See Panasia Ests.,
Inc. v. Hudson Ins. Co., 10 N.Y.3d 200, 203, 886 N.E.2d 135, 137 (2008) (recognizing that
“consequential damages are not recoverable in a claim for breach of an insurance contract” but
they are available for breach of the covenant of good faith and fair dealing in the insurance
contract context). Similarly, in a case on facts more analogous to this case than Olson was, the
Florida Supreme Court addressed the following certified question: “In a first-party breach of
insurance contract action brought by an insured against its insurer, not involving suit under [the
bad faith] Florida statutes, does Florida law allow the insured to recover extra-contractual,
consequential damages?” Citizens Prop. Ins. Corp. v. Manor House, LLC, 313 So. 3d 579, 580
(Fla. 2021) (reduced from all capitals). In that case, the insured sought “to recover extracontractual, consequential damages for lost rental income totaling approximately $2.5 million
from the insurer” as a result of the insurer’s payment of a disputed amount to repair the
apartment complex. Id. The Florida court answered the certified question “in the negative.” Id.
Specifically, the Florida court concluded “that extra-contractual, consequential damages are not
available in a first-party breach of insurance contract action because the contractual amount due
to the insured is the amount owed pursuant to the express terms and conditions of the policy.
Extra-contractual damages are available in a separate bad faith action pursuant to [Florida
statutes] but are not recoverable in this action. . . .” Id. at 582. This conclusion is not
demonstrably contrary to Nebraska law.
Indeed, the Court concludes that the question of whether SRG can seek the damages from
State Farm for Swan having to pay two mortgages is answered by general principles concerning
contract damages under Nebraska law. The Nebraska Supreme Court has explained,

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Consequential damages, as opposed to direct damages, do not arise
directly according to the usual course of things from a breach of contract itself.
Rather, they occur as a consequence of special extracontractual circumstances
known or reasonably supposed to have been contemplated by the parties when the
contract was made. Direct damages refer to those which the party lost from the
contract itself—in other words, the benefit of the bargain—while consequential
damages refer to economic harm beyond the immediate scope of the contract. One
common example of consequential damages is the lost profits or revenues from
outside parties, lost business opportunities, or other sums forgone as a result of a
breach of contract.
U.S. Pipeline, Inc. v. N. Nat. Gas Co., 930 N.W.2d 460, 476 (Neb. 2019); see also Filing 12 at 12
(citing U.S. Pipeline, 930 N.W.2d at 476). The Nebraska Supreme Court also recognized,
“Generally, a contractual waiver or exclusion of consequential damages will be upheld unless the
provision is unconscionable.” Id.
In this case, damages for the costs of covered repairs and replacements would be direct,
benefit-of-the-bargain damages for breach of the Policy because they would be what the insured
lost from the breach of the contract itself. See id. In contrast, damages for Swan’s payment of
two mortgages would be extra-contractual, consequential damages because they would be for
economic harm to a non-policy holder beyond the immediate scope of the contract. See id. SRG
expressly admits that neither SRG nor Swan is an insured under the Policy and that neither is
entitled to recover loss-of-use damages available under the Policy. See id. Furthermore, a nonpolicy holder’s damages from inability to use the property—even if that inability was the result
of the insurer’s failure to pay for repairs and replacements—is at the very least unlikely to have
been contemplated by the insurer or the policy holder. See id. (explaining that consequential
damages “occur as a consequence of special extracontractual circumstances known or reasonably
supposed to have been contemplated by the parties when the contract was made”); accord
Machan v. UNUM Life Ins. Co. of Am., 116 P.3d 342, 346 (Utah 2005) (“In the context of
breaches by an insurance company, [consequential damages are available] whether the company
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has breached the express terms of the contract or the implied covenant of good faith and fair
dealing [but] [i]n both cases, the insured is entitled to those [damages] reasonably within the
contemplation of, or reasonably foreseeable by, the parties at the time the contract was made.”
(internal quotation marks and citation omitted)). SRG has not pointed to any allegations in its
Complaint plausibly suggesting that the insurer or the policy holder reasonably contemplated
such damages from breach of the Policy. See Mitchell, 28 F.4th at 895 (“A claim survives a Rule
12(b)(6) motion to dismiss only if the complaint’s nonconclusory allegations, accepted as true,
make it not just ‘conceivable’ but ‘plausible’ that the defendant is liable.” (citation omitted)).
Thus, SRG has not identified any principle of Nebraska contract law that would authorize such
extra-contractual, consequential damages for breach of the obligation to pay for repairs and
replacements under the Policy at issue here. See generally Filing 11.
SRG also has not identified any other potential basis for such consequential damages
under the Policy, despite the clear statements in the Policy of what losses State Farm will and
will not pay. See generally Filing 6-1. On the other hand, State Farm’s limitation in the Policy on
loss-of-use damages to those for the policy holder’s loss of use—and the resulting exclusion of
damages for a non-policy holder’s loss of use—is not obviously unconscionable. See U.S.
Pipeline, 930 N.W.2d at 476 (explaining that exclusions of consequential damages will be
upheld unless unconscionable). Again, SRG has not pointed to any allegations in its Complaint
plausibly suggesting that such a limitation on loss-of-use damages is unconscionable. See
Mitchell, 28 F.4th at 895.
In short, there is simply no authorization in either the Policy or Nebraska contract law for
SRG to recover the extra-contractual, consequential damages that SRG seeks as well as the direct
benefit-of-the-bargain damages for failure to pay repair and replacement costs under the Policy.

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See U.S. Pipeline, 930 N.W.2d at 476. SRG’s claim for extra-contractual, consequential damages
is not cognizable under the Policy or applicable law, and State Farm is entitled to dismissal of
that damages claim for failure to state a claim. See, e.g., Couzens, 854 F.3d at 517 (dismissing
under Rule 12(b)(6) because the claim was not cognizable under applicable law); Thomas, 2022
WL 1491102, at *18 (same); Freeney, 2020 WL 229996, at *2 (same).
This conclusion makes it unnecessary for the Court to consider any of the parties’ other
arguments.
III. CONCLUSION
Upon the foregoing,
IT IS ORDERED that State Farm’s Motion to Dismiss, Filing 5, is granted, as follows:
1.

SRG’s claim for loss-of-use damages under the Policy is dismissed; and

2.

SRG’s claim for extra-contractual, consequential damages beyond proceeds of the

Policy—including damages such as non-party Swan’s additional expenses from being “forced to
cover two mortgages when he should have been able to relieve himself of the mortgage on his
current home as of October 1, 2023, through a sale of the property”—is dismissed with
prejudice.
This case will proceed on SRG’s remaining claim for direct damages for State Farm’s
alleged breach of the Policy seeking the costs of replacement of the roof and repair of the
Property.
Dated this 22nd day of November, 2024.
BY THE COURT:

_________________________
Brian C. Buescher
United States District Judge
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