Sims v. First American Property & Casualty Insurance Company et al
MEMORANDUM OPINION AND ORDER by District Judge William P. Johnson GRANTING IN PART AND DENYING IN PART 10 Defendant Robert Dalton's 12(b)(6) Motion to Dismiss Counts I, V and IX of Plaintiff's Complaint; and GRANTING IN PART AND DENYING IN PART 11 Defendant Michael Hendrickson's 12(b)(6) Motion to Dismiss Counts I, V and IX of Plaintiff's Complaint. (mag)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
TIMOTHY J. SIMS,
FIRST AMERICAN PROPERTY
& CASUALTY INSURANCE COMPANY,
ROBERT DALTON, and MICHAEL
MEMORANDUM OPINION AND ORDER
GRANTING IN PART and DENYING IN PART
DEFENDANTS’ MOTION TO DISMISS COUNTS I, V AND IX
THIS MATTER comes before the Court upon the following motions:
Defendant Robert Dalton’s 12(b)(6) Motion to Dismiss Counts I, V and IX of Plaintiff’s
Complaint, filed November 7, 2016 (Doc. 10); and
Defendant Michael Hendrickson’s 12(b)(6) Motion to Dismiss Counts I, V and IX of
Plaintiff’s Complaint, filed November 7, 2016 (Doc. 11).
On December 12, 2014, Plaintiff’s home and other property were damaged in a fire (“the
In this case, Plaintiff sues his home insurer, First American Property & Casualty
Insurance Company (“First American”) and two employees of First American for breach of
contract and other state law claims after the fire. This Court has diversity jurisdiction over the
case. See Compl., ¶¶1-4. Having reviewed the parties’ briefs and applicable law, the Court finds
Defendants’ motions are granted in that neither Defendant Dalton nor Defendant
Hendrickson can be personally liable to Plaintiff under Counts I, V and IX, but the motions are
denied in that the facts alleged against these Defendants are pertinent to Plaintiff’s claims against
At the time of the fire, Plaintiff (or “Mr. Sims”) was insured by First American under a
policy (“Policy,” attached as Exhibit A to Complaint). The Policy was a renewal of a previous
policy, meaning that Plaintiff had paid premiums to First American for past coverage in addition
to the premiums for this Policy. Mr. Sims paid additional consideration for endorsements to the
standard form of First American’s insurance policy, one endorsement described as “Eagle
Premier Coverage” and which included $1 million of available coverage in the event of
compensable loss as well as the following pertinent provisions:
150% replacement cost coverage on your dwelling in the event of a total loss;
20% more person property coverage;
100% replacement coverage on personal property;
Additional coverage and limits are increased on nine types of valuable property [and]
10% more coverage to bring your home up to code in the event of a total loss.
According to the Complaint, Robert Dalton (“Dalton”) was the Vice President of Claims
at First American and actively participated in claims handling and claims decision-making
processes regarding Plaintiff’s fire-related claims.
As such, he had the supervisory and
managerial authority to make decisions on behalf of First American.
Hendrickson (“Hendrickson”) was the claims representative assigned to handle claims in relation
to fire, and was also authorized to act on behalf of First American. Compl., ¶¶35-39
Plaintiff alleges that Defendants have failed and refused to properly inspect or pay for
Plaintiff’s dwelling damages including specifically but not limited to, damage to his roof and
driveway. An independent inspection recommended that because the roof was so damaged by
fire, it required complete replacement which would cost almost $100,000. As a result of First
American’s denial of the roof replacement request, the roof of the home presents a danger to
Plaintiff’s family, and the residual elements left on the roof’s materials has caused the house to
smell like smoke.
Plaintiff claims that Defendants have acknowledged that the personal property damages
are covered under the Policy yet they still have refused to pay what is owed under the Policy by
applying “blatantly incorrect values” to the damaged personal property and improper limits and
allowances not found in the Policy terms and by withholding recoverable replacement costs. Mr.
Sims also asserts that Defendants continue to make ongoing demands for irrelevant or
duplicative documentation which are clearly intended to intimidate and discourage him from
pursuing his claims any further.
Defendants’ alleged breach of the policy has prevented Plaintiff from fully replacing the
damaged and/or destroyed property. Plaintiff has repeatedly requested replacement cost for the
roof, and costs for additional living expenses and costs of moving (“pack out” and “pack in”)
during the reconstruction process. Defendant denied the roof replacement requests, and failed to
respond to Mr. Sims’ requests for the pack out, storage, pack in and additional living expenses,
causing damages of more than $100,000 in relation to the roof claim alone.
Plaintiff alleges that the fire has caused such extensive damage to the Home that it should
have been entirely demolished and rebuilt, and the entire demolition and rebuild processes
should have been paid under the First American Policy. Instead, First American underestimated
Plaintiff’s damages in order to withhold contractually owed policy proceeds and underpaid
Plaintiff’s claims in order to increase Defendants’ own corporate and personal profits. In failing
to pay to demolish and rebuild the home, Plaintiff asserts that First American has put its own
interests ahead of the insured and has breached the terms of the Policy.
Plaintiff also alleges that Defendants First American, Dalton, and Hendrickson have
made material misrepresentations to him regarding the Policy benefits, claims activity, and other
material aspects of the claims process, and have repeatedly and intentionally failed to provide
Plaintiff with reasonable explanations of the basis relied on in the Policy for the denial of his
claims. The Complaint includes the following claims:
Breach of Contract;
Violations of the Unfair Insurance Practices Act;
Violations of the Unfair Practices Act;
Intentional Infliction of Emotional Distress; and
Defendants Dalton and Hendrickson seek dismissal of Counts I (Breach of Contract),
Count V (Bad Faith) and Count IX (Declaratory Judgment).
To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Although a court must accept all the complaint’s factual allegations as true, the same is not true
of legal conclusions. Id. Mere “labels and conclusions” or “formulaic recitation[s] of the
elements of a cause of action” will not suffice. Twombly, 550 U.S. at 555. “Thus, in ruling on a
“Twisting” is the practice of issuing, or causing to be made or issued, any written or oral statement
misrepresenting or making misleading comparison as to the terms, conditions, benefits, or advantages of any policy
for the purpose of inducing or attempting or tending to induce any other person to retain or otherwise deal with any
policy. See NMSA 1978, §59A-16-6.
motion to dismiss, a court should disregard all conclusory statements of law and consider
whether the remaining specific factual allegations, if assumed to be true, plausibly suggest the
defendant is liable.” Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).
Because the arguments contained in both motions are nearly identical, the Court
addresses them together.
Count I – Breach of Contract
Both parties agree that New Mexico law applies here, since the Policy was issued to
Plaintiff in New Mexico. See Butt v. Bank of Am., N.A., 477 F.3d 1171, 1179 (10th Cir. 2007)
(state law applied in diversity cases “with the objective of obtaining the result that would be
reached in state court”).
Defendants seek the dismissal of Defendants Dalton and Hendrickson (“Dalton” and
“Hendrickson”) from Counts I, V and IX because neither was a party to the insurance contract.
Plaintiff concedes that neither of these Defendants were parties to the contract between First
American and Mr. Sims and that neither can be held personally liable under those counts.
However, Plaintiff maintains that their actions can still provide a basis for his claims for breach
of contract, common law bad faith and declaratory judgment against First American because
both were acting at all relevant times as agents and on behalf of the principal, First American,
and that Defendants have admitted this in their Answers.2 See First American Ans., Doc. 6 at 6,
¶¶34, 37; Dalton Ans., Doc. 9 at 6, ¶34; Hendrickson Ans., Doc. 8 at 6, ¶34.
There is a consensus that Dalton and Hendrickson cannot be held personally liable under
Counts I, V and IX, but Defendants avoid the issue of whether their conduct can nevertheless
form the basis for these claims against First American. In an apparent attempt to resolve the
The complaint alleged that Defendants Dalton and Hendrickson “may or may not have been acting within the
scope of his employment.” Compl., ¶¶34, 37. However, the Answers clarified Defendants’ position on that issue.
issue without having to turn to judicial intervention, Plaintiff presented a four-page proposed
stipulated order for Defendant’s review. See Ex. C (Docs. 23 & 24). Defendants reviewed the
form order and submitted their revisions to Plaintiff, making minor changes to the language
stating that Dalton and Hendrickson would not be held personally liable for Counts I, V and IX. 3
They also sought to completely delete language stating that the actions and omissions of Dalton
and Hendrickson occurring in the course and scope of their employment “may also be the basis”
for pursing the breach of contract claim in Count I or as a basis for damages in the bad faith
claim and the declaratory judgment claim in Counts V and IX.
Both parties are in agreement that neither Dalton nor Hendrickson can be held personally
liable for a breach of the insurance contract between First American and Plaintiff. This is
consistent with New Mexico law, which holds that an agent is not prone to contract liability
because an “agent for a disclosed principal is not a party to any contract entered into on behalf of
the principal.” Kreischer v. Armijo, 118 N.M. 671, 675 (Ct.App. 1994).4 However, Plaintiff
insists that the conduct of Defendants Dalton and Hendrickson can still provide a basis for claims
against their employer/principal, First American. Defendant’s only response is to argue that the
issue has nothing to do with whether Dalton and Hendrickson should be dismissed from Counts
I, V and IX and that language on this issue was unnecessarily included in the proposed stipulated
New Mexico has a uniform jury instruction which states:
The version presented to Defendants stated that Defendants Dalton and Hendrickson “cannot be held personally
liable” on the counts for breach of contract and that they cannot be held “personally liable for damages” caused as a
result of any finding in Plaintiff’s favor on his claims for bad faith and declaratory judgment. . . .”. See Ex. C .
Defendants modified the form order to change “cannot be held personally liable” to “are not liable.” They also
sought to delete “personally” in the language dealing with the claims of bad faith and declaratory judgment.
In contrast, an agent may be held individually liable for his or her own tortious acts, whether or not he or she was
acting for a disclosed principal. Kaveny v. MDA Enterprises, Inc., 138 N.M. 432, 437 (N.M. App. 2005) (citing
Kreischer v. Armijo, 118 N.M. 671, 673 (Ct.App.1994)).
A corporation can act only through its officers and employees. Any act or
omission of an officer or an employee of a corporation, within the scope or course
of [his] [her] employment, is the act or omission of the corporation.
NM UJI 13-409. In light of this instruction, the Court would put this question to Defendants: If
Plaintiff cannot use the human actions or omissions of Defendants Dalton and Hendrickson as a
basis for his claims against First American’s breach of contract, on what then, could Plaintiff
rely? While Plaintiff is precluded under New Mexico law from pursuing individual claims
against Defendant Dalton and Hendrickson for breach of contract, the Court finds that Plaintiff
may rely on factual allegations concerning these two defendants, and the development of those
facts, in order to pursue the breach of contract claim against their principal.
Count V – Bad Faith
Defendant contends that Plaintiff’s bad faith claim in Count V is also based upon contract
and also fails as a matter of law against Defendants Dalton and Hendrickson. This case involves
an insurer’s alleged failure to honor the terms of an insurance contract. New Mexico recognizes
an implied duty of good faith and fair dealing between insurer and insured, and so bad faith
claims brought in that context are based on contract. See Ambassador Ins. Co. v. St. Paul Fire &
Marine Ins. Co., 102 N.M. 28, 30 (N.M.,1984) (“. . . under the contract of insurance, there is an
implied covenant of fair dealing which creates an obligation between the parties to act in good
Plaintiff recognizes that the contractual relationship at issue here is between Plaintiff and
In the absence of a contractual relationship between Plaintiff and these
individual Defendants, there can be no implied covenant of good faith and fair dealing and thus
no action for bad faith against either of them. See Paiz v. State Farm Fire and Cas. Co., 880
P.2d 300, 309 (N.M. 1994) (“Whether express or not, every contract in New Mexico imposes the
duty of good faith and fair dealing upon the parties in the performance and enforcement of the
Plaintiff concedes that he cannot maintain a bad faith claim against Dalton and
Hendrickson, citing to NM JUI 13-1702 (which sets out the basis for such a claim against an
insurer); but contends that the complaint is sufficiently pled to allow him to proceed against First
American based on allegations concerning the actions or inactions of Defendants Dalton and
Hendrickson. Defendants’ responses on this claim track their arguments for the breach of
contract claim, and the Court’s findings are the same as well: Plaintiff may rely on factual
allegations against First American’s employees/agents to assert a bad faith claim against First
Count IX – Declaratory Judgment
The Declaratory Judgment Act, NMSA 1978, §§ 44-6-1 to 44-6-15 creates no substantive
rights and is strictly a procedural statute that permits enforcement of otherwise established rights,
i.e. it does not create either jurisdiction or rights that do not exist by virtue of other law. See Am.
Linen Supply of N.M., Inc. v. City of Las Cruces, 73 N.M. 30 (N.M. 1963) (citing Fash v.
Clayton, 78 F. Supp. 359 (D.N.M. 1948)). In Count IX, Plaintiff seeks a declaration establishing
that the policy issued by First American “entitled [Plaintiff] to certain coverages and payments
under the Policy that are currently being denied by Defendants . . . .” See Compl., ¶ 202.
It stands to reason that there is no contract between either Dalton or Hendrickson, and
therefore Plaintiff cannot obtain declaratory relief against them on the contract-based claims in
Counts I, V and IX.
Proposed Stipulated Order
See Wolverton v. Bullock, 35 F.Supp.2d 1278, 1281 (D.Kan. 1998) (in the absence of a contract between two
individuals, there can be no implied duty of good faith that one would have owed the other, and noting other
jurisdictions holding same).
The proposed stipulated order presented by Plaintiff’s counsel to Defendants’ counsel
merits some comment. Plaintiff claims his purpose was to resolve the matter without wasting the
Court’s time. Doc. 23 at 3-4. However, the Court cannot help but observe that Plaintiff could
have included the necessary clarifications in the Complaint and obviated the need to generate
additional pleadings to accomplish the same result. For example, Plaintiff could have identified
the proper defendants for each of the nine counts, but instead asserted all claims against all
Defendants. Plaintiff even expressly included Defendants Dalton and Hendrickson in the breach
of contract claim in Count I:
Defendants First American, Dalton, and Hendrickson’s breaches of the Policy
caused Mr. Sims to suffer damages, and will continue to cause Mr. Sims to suffer
damages into the future, as further described herein.
Compl, ¶114 (emphasis added). However, even after having realized that he could not hold
Dalton or Hendrickson personally liable for that claim, or for the other claims in Counts V and
IX, Plaintiff never sought to amend the complaint to clarify that he was not asserting those
claims specifically against them, but only as a basis for claims against First American.
Plaintiff now asks that the Court enter the proposed stipulated order as set forth in
Plaintiff’s initial version (Ex. B in Docs. 23 & 24) and that Court add a slight modification to the
language pertaining to the bad faith claim. See Doc. 23 at 4 & n.1. The Court declines to do so.
The sole purpose of the proposed stipulated order was to allow the parties to resolve the disputes
discussed here on their own, but the time for that has come and gone. The Court has had to
address the issues and has made rulings which will govern in this case. A proposed stipulated
order on these issues is unnecessary and duplicative and simply moot at this point. Also, in
requesting the Court to enter his version of the proposed stipulated order, Plaintiff seeks to make
clarifications that should have been made as amendments to the Complaint.
In sum, the Court finds and concludes that Defendants Dalton and Hendrickson are not
proper Defendants in Count I (breach of contract), Count V (bad faith), and Count IX
(declaratory judgment). However, the Court also finds that the facts asserted in those claims
describing the acts or omissions of Defendants Dalton and Hendrickson are relevant to Plaintiff’s
claims asserted against First American.
IT IS ORDERED that:
(1) Defendant Robert Dalton’s 12(b)(6) Motion to Dismiss Counts I, V and IX of Plaintiff’s
Complaint (Doc. 10) is GRANTED IN PART and DENIED IN PART as described in this
Memorandum Opinion and Order; and
(2) Defendant Michael Hendrickson’s 12(b)(6) Motion to Dismiss Counts I, V and IX of
Plaintiff’s Complaint (Doc. 11) is GRANTED IN PART and DENIED IN PART as described in
this Memorandum Opinion and Order.
UNITED STATES DISTRICT JUDGE
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