My Left Foot Children's Therapy, LLC et al v. Certain Underwriter's at Lloyd's London Subscribing to Policy No. HAH15-0632

Filing 120

ORDER granting in part and denying in part Defendant's ECF No. 105 Motion to Dismiss; denying as moot Plaintiff's ECF No. 118 Motion for Leave to File Supplemental Authority. Signed by Judge Miranda M. Du on 4/23/2019. (Copies have been distributed pursuant to the NEF - KR)

Download PDF
1 2 3 4 5 UNITED STATES DISTRICT COURT 6 DISTRICT OF NEVADA 7 *** 8 9 MY LEFT FOOT CHILDREN’S THERAPY, LLC; JOHN GOTTLIEB AND ANN MARIE GOTTLIEB, Case No. 2:15-cv-01746-MMD-VCF ORDER Plaintiffs, 10 v. 11 12 CERTAIN UNDERWRITER’S AT LLOYD’S LONDON SUBSCRIBING TO POLICY NO. HAH15-0632, 13 Defendant. 14 15 I. SUMMARY 16 This is an insurance dispute related to coverage for Plaintiffs’ defense in a qui tam 17 action. Before the Court is Defendant Certain Underwriters at Lloyd’s London Subscribing 18 to Policy No. HAH15-0632’s (“Underwriters” or “Defendant”) motion to dismiss (“Motion”) 19 (ECF No. 105). The Court has reviewed Plaintiffs My Left Foot Children’s Therapy, LLC 20 (“MLF”); Jon Gottlieb; and Ann Marie Gottlieb’s (collectively, “Plaintiffs”) response (ECF 21 No. 106) as well as Defendant’s reply (ECF No. 107).1 22 For the following reasons, the Court denies Defendant’s Motion except as to the 23 portion of Plaintiffs’ bad faith claim based on Defendant’s conduct prior to June 1, 2018, 24 which is dismissed.2 25 26 27 28 1The Court also has reviewed Plaintiffs’ motion for leave to file newly issued authority (ECF No. 118) and Defendant’s response (ECF No. 119). The Court denies Plaintiffs’ motion as moot because the Court is aware of this authority. Ninth Circuit Court of Appeals reversed this Court’s earlier judgment as explained infra and issued its mandate on June 1, 2018. (ECF No. 76.) 2The 1 2 3 II. BACKGROUND The following facts are taken from the First Amended Complaint (“FAC”) (ECF No. 100) unless otherwise indicated. 4 Plaintiffs Jon Gottlieb and Ann Marie Gottlieb own MLF, a business that provides 5 speech, physical, and occupational therapy services to children in the Las Vegas Valley. 6 (Id. at 2.) Plaintiffs purchased an insurance policy (“Policy”) from Defendant for the period 7 April 15, 2015, through April 15, 2016. (Id.) The Policy limits Defendant’s liability to $2 8 million per claim and $4 million in the aggregate and carries a $2,500 deductible. (Id.) An 9 endorsement (“Billing Errors Endorsement”) to the Policy indemnifies Plaintiffs up to 10 $25,000 for losses related to qui tam suits alleging that Plaintiffs submitted false claims to 11 government health benefit payers. (Id.) The Policy requires Defendant to defend Plaintiffs 12 in connection with any qui tam suit, with defense limits of up to $2 million per claim and $4 13 million in the aggregate. (Id.) 14 During the Policy period, Plaintiffs were named as defendants in a qui tam suit, 15 Welch v. My Left Foot Children’s Therapy, LLC, No. 2:14-cv-01786-MMD-GWF (“Qui Tam 16 Action”). (Id.) Plaintiffs timely notified Defendant about the Qui Tam Action, but Defendant 17 extended only $25,000 of coverage. (Id.) Plaintiffs filed this action (ECF No. 1), and this 18 Court eventually granted summary judgment in favor of Defendant, finding that the Billing 19 Errors Endorsement limited Defendant’s liability to $25,000 in connection with its duty to 20 defend Plaintiffs in the Qui Tam Action. (ECF No. 52 at 8.) Plaintiffs appealed, and the 21 Ninth Circuit reversed, finding that the Policy provided up to $2 million per claim to defend 22 the Qui Tam Action. (ECF No. 71 at 3-4.) 23 Plaintiffs then filed the FAC asserting the following claims: (1) breach of contract; 24 (2) violation of Unfair Claims Settlement Practices Act, NRS Ch. 686A; and (3) breach of 25 the implied covenant of good faith and fair dealing. (ECF No. 100 at 6-10.) Plaintiffs seek 26 to recover attorney’s fees related to the Qui Tam Action; attorney’s fees related to this 27 action; lost profits; damages related to mental suffering and emotional distress; and 28 punitive damages. (Id. at 10-11.) 2 1 III. LEGAL STANDARD 2 A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which 3 relief can be granted.” Fed. R. Civ. P. 12(b)(6). A properly pled complaint must provide “a 4 short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. 5 R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does 6 not require detailed factual allegations, it demands more than “labels and conclusions” or 7 a “formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 8 662, 678 (2009) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Factual allegations 9 must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. Thus, to 10 survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a 11 claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (internal citation omitted). 12 In Iqbal, the Supreme Court clarified the two-step approach district courts are to 13 apply when considering motions to dismiss. First, a district court must accept as true all 14 well-pled factual allegations in the complaint; however, legal conclusions are not entitled 15 to the assumption of truth. Iqbal, 556 U.S. at 679. Mere recitals of the elements of a cause 16 of action, supported only by conclusory statements, do not suffice. Id. at 678. Second, a 17 district court must consider whether the factual allegations in the complaint allege a 18 plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff’s 19 complaint alleges facts that allow a court to draw a reasonable inference that the 20 defendant is liable for the alleged misconduct. Id. at 678. Where the complaint does not 21 permit the court to infer more than the mere possibility of misconduct, the complaint has 22 alleged—but not shown—that the pleader is entitled to relief. Id. at 679. When the claims 23 in a complaint have not crossed the line from conceivable to plausible, the complaint must 24 be dismissed. Twombly, 550 U.S. at 570. 25 A complaint must contain either direct or inferential allegations concerning “all the 26 material elements necessary to sustain recovery under some viable legal theory.” 27 Twombly, 550 U.S. at 562 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 28 1106 (7th Cir. 1989)). 3 1 IV. DISCUSSION 2 Defendant moves to dismiss each of Plaintiffs’ claims as well as certain of the 3 remedies Plaintiffs seek. (See generally ECF No. 105.) The Court addresses Plaintiffs’ 4 claims before turning to the remedies. 5 A. Breach of Contract Claim 6 Plaintiffs allege that Defendant breached the Policy by failing to defend Plaintiffs in 7 the Qui Tam Action and by failing to indemnify Plaintiffs for the fees and costs they incurred 8 in connection with the Qui Tam Action. (ECF No. 100 at 6.) Defendant argues that Plaintiffs 9 cannot state a claim for breach of contract when Defendant limited coverage for the Qui 10 Tam Action in good faith based on a reasonable interpretation of the Policy. (See ECF No. 11 105 at 13.) Defendant also argues that Plaintiffs have not stated a claim based on 12 Defendant’s post-mandate conduct.3 (ECF No. 107 at 10.) The Court finds that Plaintiffs 13 have adequately stated a breach of contract claim. 14 “In Nevada, insurance policies [are] treated like other contracts, and thus, legal 15 principles applicable to contracts generally are applicable to insurance policies.” Century 16 Sur. Co. v. Andrew, 432 P.3d 180, 183 (Nev. 2018). A plaintiff asserting a breach of 17 contract claim under Nevada law must allege the following elements: (1) the formation of 18 a valid contract; (2) performance or excuse of performance by the plaintiff; (3) material 19 breach by the defendant; and (4) damages. See Bernard v. Rockhill Dev. Co., 734 P.2d 20 1238, 1240 (Nev. 1987). 21 The Court finds that Plaintiffs have stated a claim for breach of contract based on 22 Defendant’s failures to defend Plaintiffs in the Qui Tam Action and to extend $2 million of 23 coverage. Plaintiffs’ allegations show that Defendant owed a duty to defend and failed to 24 /// 25 26 27 28 3Defendant notes that the Billing Errors Endorsement does not itself establish a duty to defend but does not dispute that the Policy as a whole—as opposed to the Billing Errors Endorsement specifically—imposes a duty to defend. (See ECF No. 105 at 13 n.4; ECF No. 107 at 10; see also ECF No. 1 at 19 (“The Underwriters shall have the right and duty to defend, subject to the Limit of Liability, any Claim or Suit against the Insured arising out of a Professional Liability Act or General Liability Act to which this policy applies, even if any of the allegations of the Claim are groundless, false or fraudulent.”).) 4 1 do so. (ECF No. 100 at 6.) Plaintiffs’ allegations also show that Defendant was obligated 2 to provide up to $2 million of coverage but failed to reimburse Plaintiffs for the fees they 3 incurred. (Id.) The Court agrees with Plaintiffs that it is irrelevant whether Defendant’s 4 failures were based on a reasonable interpretation of the Policy taken in good faith. 5 Andrew v. Century Sur. Co., 134 F. Supp. 3d 1249, 1259 (D. Nev. 2015) (“Nevada law 6 allows for recovery of all reasonably foreseeable consequential damages for a breach of 7 contract, regardless of the good or bad faith of the breaching party.”); see also Century 8 Sur. Co., 432 P.3d at 183 (noting without objection that the court in Andrew, 134 F. Supp. 9 3d 1249, found both breach of contract and an absence of bad faith). Defendant’s 10 argument regarding its post-mandate conduct is irrelevant—Plaintiff’s claim is not 11 premised on that conduct. Accordingly, the Court denies Defendant’s motion to dismiss as to Plaintiff’s breach 12 13 of contract claim. 14 B. 15 Plaintiffs allege that Defendant violated at least two provisions of Nevada’s Unfair 16 Claims Settlement Practices Act—NRS § 686A.310(1)(e) (“Subsection (e)”) and NRS § 17 686A.310(1)(f) (“Subsection (f)”). (ECF No. 100 at 7-8.) Subsection (e) makes it an unfair 18 practice for insurers to drag their feet in settling claims. See NRS § 686A.310(1)(e) 19 (defining an unfair practice as “[f]ailing to effectuate prompt, fair and equitable settlements 20 of claims in which liability of the insurer has become reasonably clear”). Subsection (f) 21 makes it an unfair practice for insurers to compel insureds to litigate in order to recover 22 the same amount they would have recovered if the insurer simply settled their claims. See 23 NRS § 686A.310(1)(f) (defining unfair practice as “[c]ompelling insureds to institute 24 litigation to recover amounts due under an insurance policy by offering substantially less 25 than the amounts ultimately recovered in actions brought by such insureds, when the 26 insureds have made claims for amounts reasonably similar to the amounts ultimately 27 recovered”). 28 /// Claim for Violations of NRS § 686A.310 5 1 Defendant first argues that Plaintiffs have failed to state a claim under NRS § 2 686A.310 because Defendant’s coverage position was reasonable. (ECF No. 105 at 15.) 3 Plaintiffs respond that Subsections (e) and (f) apply regardless of whether the insurer acts 4 in good faith. (ECF No. 106 at 16.) The Court agrees with Plaintiffs. While the 5 reasonableness of Defendant’s coverage position may constitute a defense to Plaintiffs’ 6 claim, it is not a basis for dismissal. In addition, Defendant cites no authority to support its 7 contention that Plaintiffs cannot state a claim under NRS § 686A.310 simply because 8 Defendant’s coverage position was reasonable. (See ECF No. 105 at 15; ECF No. 107 at 9 10-11.) Defendant also argues that Plaintiffs’ claims under NRS § 686A.310 are premature 10 to the extent they are based on Defendant’s failure to settle in the time since the Ninth 11 Circuit issued its mandate. (See ECF No. 107 at 10-11 (arguing that Defendant should 12 have a reasonable period of time to review MLF’s defense invoices).) Again, Defendant’s 13 potential defense to Plaintiffs’ claim is not a basis for dismissal. Accordingly, the Court 14 rejects Defendant’s first argument. 15 Defendant next argues that Plaintiffs have failed to state a claim because the FAC 16 does not allege that an officer, director, or department head of the insurer knowingly 17 permitted the unfair practice. (ECF No. 105 at 15.) Plaintiffs counter that the allegations 18 permit such an inference. (ECF No. 106 at 16.) The Court agrees with Plaintiffs—the 19 allegations that Defendant committed unfair claims practices “give[s] rise to the inference 20 that [Defendant’s] higher-ups committed these practices or directed lower-level employees 21 to commit these practices.” Sanders v. Church Mut. Ins. Co., No. 2:12-CV-01392-LRH, 22 2013 WL 663022, at *3 (D. Nev. Feb. 21, 2013). Defendant argues that the decision in 23 Sanders “contradict[s] the basic legal standard for a motion to dismiss,” (ECF No. 107 at 24 11), but the Court disagrees. Inferential allegations may support a claim. See Twombly, 25 550 U.S. at 562. Accordingly, the Court rejects Defendant’s second argument. 26 Defendant further argues that Plaintiffs have failed to state a claim for violation of 27 Subsection (e) because liability did not become reasonably clear until the Ninth Circuit 28 issued its mandate. (ECF No. 105 at 15.) Plaintiffs argue they have sufficiently alleged 6 1 that liability was clear when Defendant initially denied coverage, and that Defendant has 2 continued to violate Subsection (e) since June 2018. (ECF No. 106 at 17.) The Court 3 agrees with Plaintiffs—they have alleged that liability was reasonably clear at the time of 4 the initial denial and also when liability became clear during the appeal. (See ECF No. 100 5 at 7 (“[D]espite the fact that the liability of Defendant in this case was clear . . . it refused 6 to negotiate in good faith with Plaintiffs to resolve the claim in a way that was prompt and 7 equitable.”).) Accordingly, the Court rejects Defendant’s third argument. 8 Defendant argues that the claim under Subsection (f) is premature because 9 litigation is ongoing and MLF has not “ultimately recovered” under the Policy. (ECF No. 10 105 at 15.) Plaintiffs argue that the claim is not premature because Plaintiffs have already 11 recovered more than $600,000 and expect to additionally recover over $1.7 million soon. 12 (ECF No. 106 at 15.) Plaintiffs contend that these amounts are substantially more than the 13 amount offered by Defendant at the outset of this litigation—$25,000. (Id.) The Court 14 agrees with Plaintiffs and finds that Plaintiffs have stated a claim under Subsection (f). 15 Defendant cites two cases in support of its position, but the plaintiffs in both cases had not 16 recovered any amounts under their respective policies. See Amini v. CSAA Gen. Ins. Co., 17 No. 2:15-CV-0402-JAD-GWF, 2016 WL 6573949, at *6 (D. Nev. Nov. 4, 2016) (“But Amini 18 has not ‘ultimately recovered’ any amount due under the policy, let alone an amount 19 substantially more than the $110,000 offer he rejected . . . .”); Heinaman v. Fid. & Guar. 20 Life Ins. Co., No. 2:14-cv-01884-RFB-GWF, 2016 WL 1367743, at *7 (D. Nev. Apr. 5, 21 2016) (“Plaintiff has yet to receive payment from Defendant.”). Here, Plaintiffs have 22 already recovered significantly more than the amount offered by Defendant at the 23 beginning of the litigation. Accordingly, the Court rejects Defendant’s fourth argument. 24 Defendant also argues that Subsection (f) does not give rise to an independent 25 cause of action because it amounts to a fee-shifting provision. (ECF No. 105 at 16.) 26 Defendant relies on Schmall v. Gov’t Emps. Ins. Co., in which the court noted that “a claim 27 that a plaintiff has been made to institute litigation under subsection (1)(f) appears to be a 28 fee-shifting provision depending on the success of other underlying claims and is better 7 1 characterized as a remedy.” 240 F. Supp. 3d 1093, 1098 (D. Nev. 2016). Defendant also 2 relies on Engel v. Hartford Ins. Co. of the Midwest, in which the same judge found 3 Subsection (f) “somewhat confusing” and a claim under that provision “redundant with the 4 other claims.” No. 2:11-CV-01103-RCJ-PAL, 2011 WL 6131566, at *3 (D. Nev. Dec. 7, 5 2011). Plaintiffs note that the court in Schmall preserved the remedy contained in 6 Subsection (f) even though the claim was dismissed to the extent it was stated as an 7 independent cause of action. (ECF No. 106 at 18.) The Court finds that Plaintiffs have 8 stated a claim under Subsection (f) by alleging that Defendant lowballed their claim, forcing 9 them to institute litigation to recover their defense costs, and by alleging that they have 10 already recovered far more than Defendant initially offered. (See ECF No. 100 at 7.) The 11 Court sees no reason to dismiss this claim simply because it might amount to a fee-shifting 12 provision in practical terms. Accordingly, the Court rejects Defendant’s fifth argument. 13 14 The Court thus denies Defendant’s motion to dismiss Plaintiffs’ claims under NRS § 686A.310. 15 C. Bad Faith Claim 16 Defendant argues that Plaintiffs’ bad faith claim must be dismissed because 17 Plaintiffs have not sufficiently alleged that Defendant’s conduct was deliberate and 18 unreasonable. (ECF No. 105 at 10.) Plaintiffs point out that the following allegations show 19 Defendant acted deliberately and unreasonably: (1) Defendant construed the Policy in the 20 narrowest and most hyper-technical way possible even though liability was reasonably 21 clear; (2) Defendant deliberately disregarded well-established principles of insurance 22 policy interpretation; (3) Defendant gave no consideration to Plaintiffs’ interests; (4) 23 Defendant denied all coverage even after previously extending $25,000 of coverage; and 24 (5) Defendant failed to reconsider its coverage position in light of new evidence and made 25 no settlement offers to resolve the matter. (ECF No. 106 at 18.) 26 To show bad faith, a plaintiff must establish that the insurer “act[ed] unreasonably 27 and with knowledge that there [was] no reasonable basis for its conduct.” Sierzega v. 28 Country Preferred Ins. Co., 650 F. App’x 388, 389 (9th Cir. 2016) (alterations in original) 8 1 (quoting Guar. Nat’l Ins. v. Potter, 912 P.2d 267, 272 (Nev. 1996)). “Tactics such as an 2 unreasonable failure to investigate and unreasonable delay can give rise to an inference 3 of bad faith.” Id. (first citing Farmers Home Mut. Ins. v. Fiscus, 725 P.2d 234, 235-36 (Nev. 4 1986); then citing Potter, 912 P.2d at 272). 5 This Court already held that Defendant’s coverage position was at least reasonable 6 (see ECF No. 52 at 7-8), and the Ninth Circuit’s memorandum opinion did not reverse on 7 this point (see ECF No. 71 at 2-4). Rather, the Ninth Circuit found the Policy provisions 8 ambiguous and found that this Court erred by effectively resolving the ambiguity in favor 9 of Defendant. (Id. at 3-4.) Given that Defendant had a reasonable basis for its coverage 10 position, the Court will dismiss Plaintiffs’ claim to the extent it is based on Defendant’s 11 failure to defend or provide coverage in the time before the Ninth Circuit issued its mandate 12 in this case. 13 Plaintiffs argue that the Court should not consider its earlier erroneous opinion in 14 determining whether Defendant’s coverage position was reasonable, relying on non- 15 binding authority. (ECF No. 106 at 20 (citing Filippo Indus., Inc. v. Sun Ins. Co. of N.Y., 88 16 Cal. Rptr. 2d 881 (Cal. Ct. App. 1999), as modified (Oct. 20, 1999)). In Filippo, the court 17 found that “the reasonableness of the insurer’s decision must be evaluated as of the time 18 it was made, and that no subsequent court ruling can be the justification for the decision.” 19 Id. at 888-89. But Defendant correctly notes that the court came to a different conclusion 20 in Morris v. Paul Revere Life Ins. Co., 135 Cal. Rptr. 2d 718 (Cal. Ct. App. 2003). In Morris, 21 the court found that “the fact that a court had interpreted that law in the same manner as 22 did the insurer, whether before or after, is certainly probative of the reasonableness, if not 23 necessarily the ultimate correctness, of its position.” Id. at 726. This Court finds that its 24 prior decision as well as the Ninth Circuit’s memorandum opinion necessarily imply that 25 Defendant’s coverage position was reasonable. None of Plaintiff’s allegations would 26 permit a reasonable juror to conclude otherwise. 27 Nevertheless, Plaintiffs also argue that Defendant has acted in bad faith in the time 28 since the Ninth Circuit issued its mandate. (ECF No. 106 at 18-19.) Defendant details the 9 1 communications between the parties during the summer of 2018 in an effort to show that 2 an alternative explanation for its delay in providing payments exists. (See id.) But 3 accepting Plaintiff’s allegations as true, a reasonable juror could infer bad faith on the part 4 of Defendant from the mere delay in payment. See Sierzega, 650 F. App’x at 389. While 5 Defendant’s factual allegations give rise to an alternative explanation for its delay, this is 6 not a basis for dismissal of Plaintiffs’ claim. 7 Accordingly, the Court denies Defendant’s Motion except as to the portion of 8 Plaintiffs’ bad faith claim based on Defendant’s conduct prior to June 1, 2018. The 9 remainder of Plaintiffs’ bad faith claim—based on Defendant’s conduct after the Ninth 10 Circuit issued its mandate—will proceed. 11 D. Punitive Damages 12 Defendant argues that Plaintiffs’ request for punitive damages must be dismissed 13 because Nevada law only allows for the award of punitive damages in tort actions—not 14 actions based on breach of contract, including Plaintiffs’ claims for violation of NRS § 15 686A.310. (ECF No. 105 at 16.) Plaintiffs concede they are not entitled to punitive 16 damages based on their contract claim but argue that they are entitled to punitive damages 17 on their claims for bad faith and violations of NRS § 686A.310. (ECF No. 106 at 26.) The 18 Court agrees with Plaintiffs at least as to the availability of punitive damages on their bad 19 faith claim. See Potter, 912 P.2d at 273 (affirming award of punitive damages on bad faith 20 claim). The Court need not consider whether punitive damages are available with respect 21 to Plaintiffs’ claims under NRS § 686A.310 at this time. Accordingly, the Court rejects 22 Defendant’s argument for dismissing Plaintiffs’ request for punitive damages. 23 E. Breach of Contract Damages 24 Defendant argues that Plaintiffs’ requests for attorneys’ fees, lost profits, and 25 damages related to emotional stress and suffering must be dismissed because they are 26 not recoverable in a breach of contract action—none of these categories of damages are 27 reasonably foreseeable or reasonably contemplated by the parties. (ECF No. 105 at 17.) 28 The Court rejects this argument—at least as to Plaintiffs’ requests for attorneys’ fees and 10 1 lost profits—based on the Nevada Supreme Court’s recent decision in Century Surety 2 Company, in which the court found “that an insurer’s liability where it breaches its 3 contractual duty to defend” encompasses “any consequential damages caused by its 4 breach” and may exceed “the policy limits plus the insured’s defense costs.” 432 P.3d at 5 182. The Court also rejects Defendant’s argument for the additional reasons detailed 6 below for each category of damages. 7 1. Attorneys’ Fees 8 Under Nevada law, “[a] party can claim attorney fees as foreseeable damages 9 arising from a breach of contract and such fees are considered special damages.” Tracey 10 v. Am. Family Mut. Ins. Co., No. 2:09-cv-01257-GMN-PAL, 2010 WL 5477751, at *5 (D. 11 Nev. Dec. 30, 2010). “They must be pleaded as special damages in the complaint . . . and 12 proved by competent evidence just as any other element of damages.” Sandy Valley 13 Assocs. v. Sky Ranch Estates Owners Ass’n, 35 P.3d 964, 969 (Nev. 2001); see also Del 14 Webb Communities, Inc. v. Partington, No. 2:08-cv-00571-RCJ-GWF, 2009 WL 3053709, 15 at *20 (D. Nev. Sept. 18, 2009) (quoting Shuette v. Beazer Homes Holdings Corp., 124 16 P.3d 530, 548 (Nev. 2005)) (noting that “the damages award rule articulated 17 in Sandy Valley Associates is a ‘narrow special damages exception’ and that claimants to 18 that exception ‘generally have the arduous task of proving [attorneys’ fees] were a natural 19 and proximate consequence of the injurious conduct’”). Plaintiffs have pleaded that they 20 are entitled to attorneys’ fees as special damages in the FAC. (See ECF No. 100 at 6 21 (“Plaintiffs specially plead that they are entitled to collect attorneys’ fees as special or 22 consequential damages incurred by Plaintiffs were a natural and proximate consequence 23 of Defendant’s breach of the Policy.”).) Accordingly, the Court finds that attorneys’ fees 24 are recoverable on Plaintiffs’ breach of contract claim. 25 2. Lost Profits 26 Plaintiffs argue that they can recover lost profits on their breach of contract claim 27 based on the Nevada Supreme Court’s decision in Hornwood v. Smith’s Food King No. 1, 28 772 P.2d 1284 (Nev. 1989). (ECF No. 106 at 24.) Defendant counters that Hornwood is 11 1 distinguishable because it involved a lease contract rather than an insurance contract. 2 (ECF No. 107 at 14-15.) This difference is immaterial. See Century Sur. Co., 432 P.3d at 3 183 (“In Nevada, insurance policies [are] treated like other contracts, and thus, legal 4 principles applicable to contracts generally are applicable to insurance policies.”). 5 Defendant also argues that lost profits are not foreseeable based on a non-binding 6 decision, Cal. Shoppers, Inc. v. Royal Globe Ins. Co., 221 Cal. Rptr. 171 (Cal. Ct. App. 7 1985). (See ECF No. 107 at 15.) But the court in California Shoppers found that the plaintiff 8 “offered no probative data . . . as to how its profits would have been generated.” 221 Cal. 9 Rptr. at 205. Plaintiffs may be able to offer such data here. At the motion to dismiss stage, 10 Plaintiffs have adequately alleged that their lost profits were the natural and foreseeable 11 consequence of Defendant’s breach. (See ECF No. 100 at 10-11 (“As a result of 12 Defendant’s refusal to provide a defense of up to $2 million, Plaintiffs were required to 13 expend money on their own defense in the [Qui Tam] Action and therefore could not carry 14 out their plan to expand operations.”).) Accordingly, the Court finds that lost profits are 15 recoverable on Plaintiffs’ breach of contract claim. 3. 16 Emotional Distress Damages 17 Emotional damages are not recoverable on Plaintiffs’ breach of contract claim. See 18 Morgan v. Ocwen Loan Servicing, LLC, No. 2:16-cv-02536-APG-PAL, 2018 WL 1796292, 19 at *5 (D. Nev. Apr. 16, 2018) (“Damages for mental suffering and emotional distress are 20 ordinarily not recoverable in an action for breach of contract unless the breach also caused 21 bodily harm or where the express object of the contract is the mental and emotional well- 22 being of one of the contracting parties.”). But Plaintiffs argue that they can recover 23 emotional distress damages at least on their claims for bad faith and violations of NRS § 24 686A.310. (ECF No. 106 at 25.) Defendant does not dispute this point. (See ECF No. 107 25 at 15 (only arguing that emotional stress and suffering damages cannot be award on a 26 claim for breach of contract).) Accordingly, the Court will reject Defendant’s argument for 27 dismissing Plaintiffs’ request for emotional distress damages. 28 /// 12 1 F. 2 Defendant also argues that Plaintiffs’ request for attorneys’ fees on its claims for 3 violations of NRS § 686A.310 must be dismissed. (ECF No. 105 at 17-18.) The Court 4 disagrees. NRS § 686A.310(2) expressly provides that “an insurer is liable to its insured 5 for any damages sustained by the insured as a result of the commission of any” unfair 6 practice, and Defendant argued in its own brief that Subsection (f) should be construed as 7 a fee-shifting provision. (See ECF No. 105 at 16.) Accordingly, the Court rejects 8 Defendant’s argument for dismissing Plaintiffs’ request for attorneys’ fees in connection 9 with its claims under NRS § 686A.310. 10 V. Attorneys’ Fees Under NRS § 686A.310 CONCLUSION 11 The Court notes that the parties made several arguments and cited to several cases 12 not discussed above. The Court has reviewed these arguments and cases and determines 13 that they do not warrant discussion as they do not affect the outcome of the motions before 14 the Court. 15 It is therefore ordered that Defendant’s motion to dismiss (ECF No. 105) is granted 16 in part and denied in part. The Court denies Defendant’s Motion except as to the portion 17 of Plaintiffs’ bad faith claim based on Defendant’s conduct prior to June 1, 2018. This 18 portion of Plaintiffs’ bad faith claim is dismissed. 19 20 21 It is further ordered that Plaintiffs’ motion for leave to file supplemental authority (ECF No. 118) is denied as moot. DATED THIS 23rd day of April 2019. 22 MIRANDA M. DU UNITED STATES DISTRICT JUDGE 23 24 25 26 27 28 13

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?