LAING et al v. AMERICAN STRATEGIC INSURANCE CORP.
Filing
15
MEMORANDUM OPINION. Signed by Judge Michael A. Shipp on 10/1/2014. (jjc)
Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
CLARA LAING & EDWIN LAING,
Plaintiffs,
Civil Action No. 14-1103 (MAS) (TJB)
v.
AMERICAN STRATEGIC INSURANCE
CORP.,
MEMORANDUM OPINION
Defendant.
SHIPP, District Judge
Clara and Edwin Laing ("Plaintiffs") commenced this action against Defendant American
Strategic Insurance Corp. ("ASI") claiming that ASI failed to satisfy its obligations under a
homeowner's insurance policy. Plaintiffs filed a four-count Complaint in Superior Court ofNew
Jersey, Ocean County, Law Division, Docket No. OCN-L-97-14, on January 10, 2014; ASI
removed the action to this Court on February 20, 2014. (Notice of Removal, ECF No. 1.) The
Complaint asserts claims for (1) breach of an insurance contract, (2) breach of the implied
covenant of good faith and fair dealing, (3) bad faith, and (4) violation of the New Jersey
Consumer Fraud Act ("CF A"). (Compl. ,-r,-r 32-53, ECF No. 1.) ASI has filed a motion (1)
seeking dismissal of the Complaint on grounds of insufficient service of process, (2) seeking
dismissal of certain claims for failure to state a claim, and (3) seeking to strike allegations
asserting a claim to both punitive damages and attorneys' fees. (Def.'s Mot., ECF No.6; Def.'s
Moving Br., ECF No. 8.) Plaintiffs filed opposition to the motion (ECF No. 9), and ASI filed a
reply (ECF No. 12). The Court has carefully considered the pleadings and has decided the
motion without oral argument pursuant to Local Civil Rule 78.1. After careful consideration,
and for the reasons set forth below, ASI's motion is granted in part and denied in part.
I.
BACKGROUND
Plaintiffs are the owners of a house located at 1723 Riviera Court, Point Pleasant, New
Jersey. (Compl. ,-r 3, ECF No. 1.) Plaintiffs' home was insured by ASI at all relevant times. (Id.
at ,-r 4.) On or around October 29, 2013, Hurricane Sandy struck New Jersey, and Plaintiffs'
property sustained damage as a result. (Id. at ,-r,-r 9-10.) Thereafter, Plaintiffs submitted a claim
to ASI for the damage. (Id. at ,-r 11.) Plaintiffs allege that they have complied with all policy
provisions, including the investigation of the claim. (Id. at ,-r 14.)
Based on the Plaintiffs' allegations, ASI breached its insurance policy, acted in bad faith,
and violated the CF A. For one, Plaintiffs allege that ASI failed to properly adjust the claim and
underpaid Plaintiffs under the terms of the policy. (Id. at ,-r,-r 15, 19-20.) In addition, Plaintiffs
allege that ASI both misrepresented the scope of the insurance policy and made false
representations regarding scope of the damage to Plaintiffs' home.
(Id. at ,-r,-r 15, 17-18.)
Plaintiffs assert that ASI's conduct was deceitful and fraudulent. (Id. at ,-r 50.)
II.
MOTION TO DISMISS COUNTS TWO, THREE AND FOUR
A.
Legal Standard
Rule 8(a)(2) "requires only 'a short and plain statement of the claim showing that the
pleader is entitled to relief,' in order to 'give the defendant fair notice of what the ... claim is
and the grounds upon which it rests."' Bell At!. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). On a motion to dismiss for failure to state a
claim, a "defendant bears the burden of showing that no claim has been presented." Hedges v.
United States, 404 F.3d 744, 750 (3d Cir. 2005).
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A district court conducts a three-part analysis when considering a Rule 12(b)(6) motion.
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011). "First, the court must 'tak[e] note of the
elements a plaintiff must plead to state a claim."' !d. (quoting Ashcroft v. Iqbal, 556 U.S. 662,
675 (2009)).
Second, the court must accept as true all of a plaintiff's well-pleaded factual
allegations and construe the complaint in the light most favorable to the plaintiff. Fowler v.
UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). The court, however, must disregard any
conclusory allegations proffered in the complaint. !d. For example, the court is free to ignore
legal conclusions or factually unsupported accusations that merely state "the-defendantunlawfully-harmed-me." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Finally,
once the well-pleaded facts have been identified and the conclusory allegations ignored, a court
must next "determine whether the facts alleged in the complaint are sufficient to show that the
plaintiff has a 'plausible claim for relief."' Fowler, 578 F.3d at 211 (quoting Iqbal, 556 U.S. at
679).
In addition to satisfying the pleading requirements of Rule 8, for those claims sounding in
fraud, Federal Rule of Civil Procedure 9(b) imposes a heightened pleading standard. Claims
under the CFA are subject to the requirements of Rule 9(b). FDIC v. Bathgate, 27 F.3d 850,
876 (3d Cir. 1994); DeLuca v. CitiMortgage, 543 F. App'x 194, 196 (3d Cir. 2013); Mickens v.
Ford Motor Co., 900 F. Supp. 2d 427, 435 (D.N.J. 2012). "In alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of mind of a person may be averred generally." Fed. R. Civ. P.
9(b ). The heightened standard requires specific allegations as to the circumstances surrounding
the fraud: "the plaintiff must plead or allege the date, time and place of the alleged fraud or
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otherwise inject precision or some measure of substantiation into a fraud allegation." Frederico
v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007).
B.
Counts Two and Three: Breach of the Implied Covenant of Good Faith and
Fair Dealing and Bad Faith
Counts Two and Three of the Complaint assert claims of breach of the implied duty of
good faith and fair dealing and the tort of bad faith, respectively. (Compl.
~~
36-45, ECF No. 1.)
Contrary to the arguments asserted by Plaintiff, under New Jersey law, these two claims are
tantamount to the same cause of action. Pickett v. Lloyd's, 131 N.J. 457, 469 (1993) ("Most
jurisdictions have characterized a cause of action for bad-faith failure to pay an insured's claim
as a tort that arises out of the implied duty of an insurance company to deal fairly and act in good
faith .... We need not debate which is more appropriate: to consider the bad-faith refusal as a
breach of an implied term of the contract or as an independent tort. The theoretical formulations
add not to our understanding ...."); see also Rova Farms Resort, Inc. v. Investors Ins. Co. of
Am., 65 N.J. 474, 484 (1974) ("That [a good faith] contractual obligation [between insured and
insurer] embodies an implied covenant of good faith and fair dealing is not in issue here, nor
indeed do we think it is presently open to substantial question."); Stephen S. Ashley, Bad Faith
Actions: Liability and Damages § 1:2 (2d ed. 2014) ("In the late 1950s, . . . . [t]he courts
gradually moved away from the traditional tort bases for bad faith claims against insurers and
gave the cause of action for bad faith a new theoretical basis: a covenant of good faith and fair
dealing implied in every insurance policy."). Accordingly, the two claims will be decided as
one.
Under New Jersey law, all contracts, including insurance contracts, imply a duty of good
faith and fair dealing. Clients' Sec. Fund ofthe Bar ofNJ v. Sec. Title & Guar. Co., 134 N.J.
358, 372 (1993) (insurance contracts); Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001)
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(all contracts). The New Jersey Supreme Court established the "fairly debatable" standard for
evaluating a claim of bad faith in connection with the failure to pay a first-party insurance claim
in Pickett, 131 N.J. at 473. "First, 'a plaintiff must show the absence of a reasonable basis for
denying benefits of the policy.' If a plaintiff demonstrates the absence of a reasonable basis, he
must then prove that the defendant knew or recklessly disregarded the lack of a reasonable basis
for denying the claim." Tarsio v. Provident Ins. Co., 108 F. Supp. 2d 397, 400-01 (D.N.J. 2000)
(citations omitted) (citing Pickett, 131 N.J. at 473). In other words, "an insurance company does
not act in 'bad faith' if the plaintiffs insurance claim was 'fairly debatable."' Id. at 400. A
claim is "fairly debatable" if a plaintiff cannot establish "as a matter of law a right to summary
judgment on the substantive claim," i.e., the underlying contract claim. Pickett, 131 N.J. at 473.
Here, Plaintiffs' allegations, taken at face value, are sufficient to maintain a claim for bad
faith. Plaintiffs assert that ASI "has refused to pay [Plaintiffs' claim] in full, despite there being
no basis whatsoever on which a reasonable insurance company would have relied to deny the full
payment" and that ASI "knew or should have known that it was reasonably clear that the claim
was covered." (Compl. ,-r,-r 30, 38, ECF No. 1.) Plaintiffs assert that, despite "hav[ing] complied
with all policy provisions and hav[ing] cooperated fully with the investigation of this claim,"
"[ASI] and/or its agents improperly adjusted the Plaintiffs' claim." (!d. at ,-r,-r 14-15.) To that
end, Plaintiffs allege that "[ASI's] adjuster misrepresented the cause of, scope of, and cost to
repair" the property and that ASI "denied at least a portion of the claims without an honest
investigation."
(!d. at ,-r,-r 15, 17.)
Moreover, Plaintiffs' claim, at this stage, is not "fairly
debatable"; taking the allegations in the Complaint as true, Plaintiffs' underlying claim for
breach of contract would be entitled to summary judgment. NJ Title Ins. Co. v. Nat 'l Union
Fire Ins. Co. of Pitt., No. 11-cv-630, 2011 WL 6887130, at *7 (D.N.J. Dec. 27, 2011).
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Accordingly, ASI has not carried its burden under Rule 12 with respect to the Plaintiffs' bad
faith claim, and the motion to dismiss Count Two is denied. See Diebold, Inc. v. Cant 'l Cas.
Co., No. 07-1991, 2008 WL 1372948, at *5 (D.N.J. Apr. 10, 2008) ("These facts, if proven true,
would establish that [Plaintiffs'] entitlement to coverage under the policy was not 'fairly
debatable' .... ").
C.
Count Four: Violation of CFA
ASI also moves to dismiss Count Four of Plaintiffs' Complaint, which asserts a violation
of the CF A based on AS I' s failure to pay insurance benefits. "The CFA requires a plaintiff to
prove three elements: 1) unlawful conduct by defendant; 2) an ascertainable loss by plaintiff; and
3) a causal relationship between the unlawful conduct and the ascertainable loss." D 'Agostino v.
Maldonado, 216 N.J. 168, 184 (2013) (internal quotation marks omitted). There is an open
question as to whether a claim for insurance benefits constitutes a violation of the CFA. 1
In any event, Plaintiffs' CFA claim must satisfy Rule 9(b )' s pleading requirements.
Accordingly, Plaintiffs "must state the circumstances of the alleged fraud with sufficient
particularity to place the [ASI] on notice of the 'precise misconduct with which it is charged,"'
including "the date, time and place of the alleged fraud." Frederico, 507 F.3d at 200 (quoting
Lum v. Bank ofAm., 361 F.3d 217, 223-24 (3d Cir. 2004) (alterations omitted)). Plaintiffs allege
1
While the New Jersey Supreme Court has held that the CFA's language "encompass[es] the
sale of insurance policies," the state's lower courts "have held that the payment of insurance
benefits is not subject to the CFA." Lemelledo v. Beneficial Mgmt. Corp. of Am., 150 N.J. 255,
265 (1997) (emphasis added) (citing Nikiper v. Motor Club of Am., 232 N.J. Super. 393, 401
(App. Div. 1989); see also Richardson v. Standard Guar. Ins. Co., 371 N.J. Super. 449, 470
(App. Div. 2004) ("[T]he breach of an enforceable contract does not constitute a violation of the
CFA.") (citing Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 168 (3d Cir. 1998)).
However, as Plaintiffs suggest, the Third Circuit has more recently cast doubt on the proposition
that the CFA categorically does not apply to the payment of insurance benefits. See Weiss v.
First Unum Life Ins. Co., 482 F.3d 254, 266 (3d Cir. 2007) (questioning distinction between
application of CFA in context of insurance sales versus the payment of insurance benefits).
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that they were wrongfully "dece[ived]" by ASI regarding "false representations" related to the
adjustment oftheir claim and the scope of their coverage. (Compl.
1.)
~~
15, 18, 23, 50, ECF No.
However, the allegations in the Complaint fail to provide the requisite "measure of
substantiation" of Rule 9(b). See Frederico, 507 F.3d at 200. Although the Complaint alleges
general misrepresentations or deceitful acts in the adjustment of Plaintiffs' claim and in
communications concerning the scope of their policy, the allegations do not provide sufficient
detail regarding the purported fraudulent acts of ASI so as to satisfy 9(b). Accordingly, the
Court dismisses Count Four of the Complaint without prejudice.
D.
Punitive Damages and Attorneys' Fees
ASI also moves to dismiss or strike allegations related to Plaintiffs' claim for punitive
damages and attorneys' fees. A plaintiff may obtain punitive damages in the context of a suit
seeking payment of insurance benefits; however, "[t]he burden to sustain a claim for punitive
damages is heavy-the insured must show egregious circumstances and wantonly reckless or
malicious conduct on the part of the insurer." Daloisio v. Liberty Mut. Fire Ins. Co., 754 F.
Supp. 2d 707, 710 (D.N.J. 2010) (citing Polizzi Meats, Inc. v. Aetna Life & Cas. Co., 931 F.
Supp. 328, 335 (D.N.J. 1996)); see also Pickett, 131 N.J. at 475-76 ("[I]n order to sustain a claim
for punitive damages, a plaintiff would have to show something other than a breach of the goodfaith obligation as we have defined it."). Because the question of determining the availability of
punitive damages is a fact-specific inquiry, the Court declines to dismiss these allegations at this
time. See Daloisio, 7 54 F. Supp. 2d at 71 0 (holding that the dismissal of punitive damages "is a
judgment that is ill-suited for a motion to dismiss").
Plaintiffs, however, are not able to recover attorneys' fees from ASI if their claims are
otherwise successful. "Attorney's fees are not available when an insured brings suit against his
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insurer to enforce coverage." !d. (citing Eagle Point Prot. Corp. v. First Indem. ofAm. Ins. Co.,
145 N.J. 345, 363 (1996)). Accordingly, Plaintiffs' claim to an award of attorneys' fees is
dismissed with prejudice.
III.
INSUFFICIENT SERVICE OF PROCESS
ASI asserts that Plaintiffs have failed to comply with state court rules regarding service of
process, and therefore, the Complaint must be dismissed. In determining the validity of service
prior to removal to federal court, state court rules-here, New Jersey's-provide the relevant
guidepost.
Yoder v. Yamaha Int'l Corp., 331 F. Supp. 1084, 1086 (E.D. Pa. 1971) (citing
Lambert Run Coal Co. v. Baltimore & OR. Co., 258 U.S. 377 (1922)). Here, Plaintiffs have not
disputed their apparent failure to file the requisite affidavit of diligent service in New Jersey but
have provided proof of substituted service in Florida. As a result, Plaintiffs' efforts to serve ASI
were not complete as of the removal of the case. See City of Passaic v. Shennett, 390 N.J. Super.
475, 483-84 (App. Div. 2007). However, pursuant to federal statute, defects in service in state
court may be cured once the action has been removed to federal district court. 28 U.S.C. § 1448.
Section 1448 provides:
In all cases removed from any State court to any district court of the United States
. . . in which the service has not been perfected prior to removal, or in which
process served proves to be defective, such process or service may be completed
or new process issued in the same manner as in cases originally filed in such
district court.
!d. Accordingly, if service was defective under state rules, a plaintiff may cure that defect and
perfect service or may obtain an additional summons under the federal rules. Carden v. WalMart Stores, Inc., 574 F. Supp. 2d 582, 587 (S.D. W. Va. 2008).
Indeed, courts in this
jurisdiction have expressly excused state court service defects based on a failure to file the
requisite affidavit of diligent service while invoking Section 1448. Wright v. Xerox Corp., 882
8
F. Supp. 399, 410-11 (D.N.J. 1995) (excusing defect in service prior to removal where plaintiff
attested to an intent to perfect service).
Accordingly, the Court will permit Plaintiffs to either (1) perfect their service on ASI by
filing the requisite affidavit under New Jersey Court Rules or (2) issue new summons under this
Court's rules.
IV.
CONCLUSION
For the reasons set forth above, ASI's motion is granted in part and denied in part. Count
Four of the Complaint is dismissed without prejudice.
In addition, Plaintiffs' request for
attorneys' fees is dismissed with prejudice. The remainder of ASI's motion is denied.
MIC~
~,I.
UNITED STATES DISTRICT JUDGE
Dated: October _I, 2014
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