Martinez v. National Union Fire Insurance Company of Pittsburgh, P.A. et al

Filing 13

ORDER: The court GRANTS defendants' motion to dismiss 7 . The court DISMISSES counts one (declaratory judgment) and two (breach ofcontract) except as they relate to National. The court DISMISSES counts three, four, and five against all defendants without prejudice. AIG and Chartis are DISMISSED as defendants. Signed by Chief Judge James C. Dever III on 11/30/2012. (Sawyer, D.)

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

WESTERN DIVISION

No.5:12-CV-170-D

ANDREA SAUD MARTINEZ,
Plaintiff,

v.

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)

)
)

)

NATIONAL UNION FIRE INSURANCE
COMPANY, AMERICAN
INTERNATIONAL GROUP, INC., and
CHARTIS CLAIMS, INC.,
Defendants.

ORDER

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)
)
)
)
)
)

On March 5, 2012, Andrea Saud Martinez ("Martinez") filed an action in Wake County

Superior Court against National Union Fire Insurance Company of Pittsburgh, PA (''National''),
American International Group, Inc. ("AlG"), and Chartis Claims, Inc. ("Chartis") (collectively,
"defendants"), arising from a disputed insurance claim. On March 30,2012, defendants removed
the action to this court based on diversity jurisdiction [D.E. 1]. On May 8, 2012, defendants filed
amotion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure [D.E. 7]. On June
5, 2012, Martinez responded in opposition [D.E. 10], and defendants replied on June 13, 2012 [D.E.
11]. As explained below, the court grants the motion to dismiss and dismisses all claims and
defendants except for Martinez's declaratory judgment claim and breach of contract claim against
defendant National.
I.
In October 2000, Martinez, a citizen and resident of Sao Paulo, Brazil, incorporated a
company in Brazil that facilitated health care clinical trials. See Compl. [D.E. I-I] ~~ I, 8. In May
2007, Martinez sold her company to AAlPharma, Inc. ("AAlPharma"), a Delaware corporation

headquartered in Wilmington, North Carolina. Id. ~ 9. Martinez entered into an employment
agreement with AAIPharma, which named Martinez as sole manager of the newly-acquired
Brazilian subsidiary ("AAIPharma Brazil"). Id. ~ 10. To satisfy Brazilian law, Martinez also took
a small equity stake (0.004%) in AAIPharma. Id.

~

11.

In 2008, AAIPharma Brazil incurred "substantial amounts of debt." Id.

~

13. In 2009,

Martinez relinquished her equity stake in AAIPharma Brazil, but continued working at AAIPharma
Brazil to improve its financial situation. See id.

~

14-15. Ultimately, Martinez resigned from

AAIPharma Brazil in October 2009 based on her disagreement with AAIPharma's management
decisions.

Id.

~

16. In December 2009, AAIPharma announced the end of operations for

AAIPharma Brazil, including terminating AAIPharma Brazil's employees. Id.
Brazil ceased operations around March 2010. Id.

~

~

17. AAIPharma

23.

Former AAIPharma Brazil employees soon commenced litigation in Brazilian courts,
alleging violations of Brazilian employment laws. See id.

~

19. Based on her position as sole

manager of AAIPharma Brazil and her equity stake, Martinez was sued, along with AAIPharma
Brazil. Id. To date, the Brazilian courts have held Martinez liable to eleven of the eighteen
employees who have brought suit. See id. ~ 20-21. The judgments against Martinez total at least
$523,333.45 and her legal expenses exceed $235,000.00. Id. ~ 21.

On March 16, 2010, Martinez submitted a claim to defendants to defend her and reimburse
her for costs and expenses incurred as a result ofAAIPharma Brazil ending operations. Id. ~ 38-39.
She claimed coverage under insurance policy number 03-144-34-32 (''the policy") purchased by
AAIPharma from National. See id. ~ 24; Policy [D.E. 8-1] 2, 6. 1 The policy period ran from July

1 Defendants attached the policy to their motion to dismiss and Martinez attached a copy of
a letter from Chartis in her response. The court properly considers these documents at the Rule

2

15, 2009 to July 15, 2010, and included coverage for directors and officers, and employment
practices liability. See CompI.

mr 24-25, 34; Policy 3.

The policy applied to claims made against

insureds "anywhere in the world." Policy 16; see CompI. ~ 33. Martinez claimed that, "as a
manager and officer of AAIPharma Brazil," the policy covered her. CompI. ~ 31.
On June 14,2010, Chartis, as National's "authorized representative," replied to Martinez's
coverage request. Chartis June 14 Letter [D.E. 10-1] 1; see CompI. ~ 40. Chartis denied coverage
based on its interpretation of Brazilian law. See Chartis June 14 Letter; CompI. ~ 40. On July 8,
2010, Martinez replied with a different interpretation ofBrazilian law. See CompI. ~~ 42-43. None
ofthe defendants directly responded to the arguments raised in Martinez's July 8,2010 letter. See
id. ~ 44.
OnNovember 29, 2010, and February 16, 2011, Martinez filed further information in support
ofher claim. Seeid. ~~ 45-46. On May 13,2011,Martinezreceivedaresponsefrom "[d]efendants"
that further explained the reasons for the denial of her claim. See id. ~ 47. In July 2011, Martinez
and "[d]efendants" exchanged letters about the potential applicability ofa different insurance policy,
with "[d]efendants" denying that the other policy provided coverage for Martinez's claim. See id.

mr 48-52. illtimately, the parties reached an impasse about the validity ofMartinez' s claim, waived
the policy's mediation clause, and Martinez filed this action on March 5, 2012. See id. ~~ 53-57.

In her complaint, Martinez asserts five claims against all three defendants. First, Martinez
seeks a declaratory judgment about whether defendants must pay Martinez's claim.

mr 58--61.
See id.

See id.

Second, she alleges that defendants' denial ofher claim constitutes a breach of contract.

mr 62-70. Third, she asserts that defendants' denial ofher claim constitutes tortious bad faith

12(b)(6) stage because both documents are explicitly referenced in the complaint and their
authenticity is unchallenged. See Am. Chiropractic Ass'n v. Trigon Healthcare. Inc., 367 F.3d 212,
234 (4th Cir. 2004).
3

refusal to pay the claim under North Carolina law. See id. ~~ 71-79. Fourth, she asserts that
defendants' denial of her claim constitutes an unfair and deceptive trade practice under North
Carolina General Statute § 75-1.1 ("UDTPA claim"). See Compl.
award of punitive damages. See id.

mr 80-86.

Finally, she seeks an

mr 87-89.
II.

Defendants seek to dismiss several of Martinez's claims based on Rule 12(b)(6) of the
Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. See
Defs.' Mot. Dismiss 2. The Federal Rules of Civil Procedure govern procedural issues in cases
removed to federal court on the basis ofdiversity jurisdiction. See Fed. R. Civ. P. 81 (c)(1); Hanna
v. Plumer, 380 U.S. 460, 473 (1965); Travelers Ins. Co. v. Riggs, 671 F.2d 810, 813 (4th Cir. 1982).
But the court "appl[ies] the substantive law of the forum state including its choice of law rules."
Colgan Air. Inc. v. Raytheon Aircraft Co., 507 F.3d 270,275 (4th Cir. 2007) (per curiam). Thus,
the court applies North Carolina substantive law, including North Carolina's choice of law rules.
In analyzing a motion to dismiss under Rule 12(b)(6), a court must determine whether the
complaint is legally and factually sufficient to state a plausible claim for relief. See Ashcroft v.
Iqbal, 556 U.S. 662, 678-79 (2009); Bell At!. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007);
Coleman v. Md. Court ofAWeals, 626 F.3d 187, 190 (4th Cir. 2010), aff'd, 132 S. Ct. 1327 (2012);
Giarratano v. Johnson, 521 F.3d 298,302 (4th Cir. 2008). A court need not accept a complaint's
"legal conclusions, elements of a cause of action, and bare assertions devoid of further factual
enhancement." Nemet Chevrolet. Ltd. v. Consumeraffairs.com. Inc., 591 F.3d 250, 255 (4th Cir.
2009); see Iqbal, 556 U.S. at 678-79. Similarly, a court "need not accept as true unwarranted
inferences, unreasonable conclusions, or arguments." Giarratano, 521 F.3d at 302 (quotation
omitted); see Iqbal, 556 U.S. at 678-79.

4

A.

AIG and Chartis seek to dismiss the breach ofcontract claim against them because Martinez
failed to allege any contractual relationship between AAIPhanna or AAIPhanna Brazil and either
AIG or Chartis. See Defs.' Mem. Supp. Mot. Dismiss [D.E. 8] 5--6. To interpret insurance
contracts, North Carolina applies ''the substantive law of the state where the last act to make a
binding contract occurred, usually delivery ofthe policy." Fortune Ins. Co. v. Owens, 351 N.C. 424,
428, 526 S.E.2d 463, 466 (2000). Here, the policy was delivered to AAIPhanna in North Carolina.
See Policy 2. Thus, North Carolina substantive law applies to Martinez's breach ofcontract claim.
In North Carolina, "[t]he elements of a claim for breach of contract are (1) existence of a
valid contract and (2) breach ofthe terms of that contract." Poor v. Hill, 138 N.C. App. 19,26,530
S.E.2d 838, 843 (2000). Here, Martinez's specific allegations against AIG are that National, the
insurer on the policy, is a member company of AIG, and AIG is an authorized insurer in North
Carolina. See Compl. ~~ 3-4. Martinez then concludes that she is insured under an AIG policy. See
id. ~ 63. The policy itself, however, makes clear that it was "issued only by the insurance company
indicated," which was National. Policy 6. Similarly, Martinez's relevant allegations against Chartis
are that Chartis is National's claims agent, Chartis is an authorized insurer in North Carolina, and
Chartis communicated with Martinez about her claim. See Compl. ~~ 4,40-41,48-49, 53. Indeed,
Chartis identified itself as ''the authorized representative of National" in correspondence with
Martinez about her claim. Chartis June 14 Letter 1. Acting as an insurer's claims representative is
distinct from being an independent party to a valid insurance contract. Moreover, Martinez's
generalized allegations against "defendants" throughout her complaint, which unduly combine the
actions of three distinct corporate entities, fail to rescue this claim against AIG and Chartis. Thus,
Martinez failed to plausibly allege the existence of a valid contract between AAIPhanna or
5

AAIPharma Brazil and either AlG or Chartis. See,~, Iqbal, 556 U.S. at 678-79; Giarratano, 521
F.3d at 302. Accordingly, AlG and Chartis cannot be liable for breach of contract, and the court
dismisses that claim as to AlG and Chartis.

B.
Defendants seek to dismiss the tortious bad faith refusal to pay claim against National, AlG,
and Chartis because North Carolina law does not apply to this claim and, alternatively, because
Martinez failed to plausibly allege the requisite elements of such a claim. See Defs.' Mem. Supp.
Mot. Dismiss 6-11. North Carolina recognizes bad faith refusal to settle an insurance claim as a tort.
See,~,

Cleveland Constr.. Inc. v. Firemen's Fund Ins. Co., 819 F. Supp. 2d 477, 483 (W.D.N.C.

2011); Robinson v. N.C. Farm Bureau Ins. Co., 86 N.C. App. 44, 49-50,356 S.E.2d 392,395-96
(1987); Dailey v. Integon Gen. Ins. Com., 57 N.C. App. 346, 349-50, 291 S.E.2d 331, 333 (1982).
North Carolina uses the law of the situs test to determine the choice of law for tort claims. See
Boudreau v. Baughman, 322 N.C. 331, 335, 368 S.E.2d 849,854 (1988); Harco Nat'l Ins. Co. v.
Grant Thornton LLP, 206 N.C. App. 687,692,698 S.E.2d 719, 722 (2010). "[T]he state where the
injury occurred is considered the situs ofthe claim." Boudreay, 322 N.C. at 335, 368 S.E.2d at 854;
see Hareo, 206 N.C. App. at 692,698 S.E.2d at 722. The court must scrutinize the allegations in the
complaint to determine ''where the plaintiff has actually suffered harm." Harco, 206 N.C. App. at
697, 698 S.E.2d at 726. "In eases involving financial injuries, courts have considered the injury to
be sustained where the economic loss was felt." Synovus Bank v. Coleman, Civil No.1: llcv66,
2012 WL3527966, at·7 (W.D.N.C. Aug. 15,2012) (quotation omitted); see Harco, 206 N.C. App.
at 698, 698 S.E.2d at 726 (determining that the injury occurred in the state where funds were seized
from a trustaceount); United Va. Bankv. Air-Lift Assocs.. Inc., 79 N.C. App. 315, 321, 339 S.E.2d
90, 94 (1986) (concluding that the injury occurred in the state where property was sold).
6

Here, Martinez alleges that National, through its claims agent Chartis, wrongfully refused
to pay her claim. National's place of business is New York, see Policy 6, and Martinez received
correspondence from Chartis with a New York return address.

See Chartis June 14 Letter.

Moreover, the complaint alleges that Martinez suffered financial injury in Brazil based on the
litigation against her in the Brazilian courts and that Martinez resided in Brazil. See Compl.

mr 1,

19, 21. Thus, Martinez failed to plausibly allege that North Carolina was the jurisdiction where she
actually suffered harm.

In opposition to this conclusion, Martinez argues that her injury arose when she ''was actually
informed that Chartis was denying her claims." PI. 's Resp. Mem. Opp'n [D.E. 10] 8. Specifically,
Martinez argues that she was injured when the claim denial letter reached her attorneys in North
Carolina. See id. 9. Martinez's argument fails. To adopt Martinez's approach would permit a party
to manipulate the choice of law simply by hiring an attorney in a given state who then receives
correspondence in that state. The law of the situs test requires more. Martinez failed to plausibly
allege that her injury was suffered in North Carolina; therefore, North Carolina law does not apply
to this tort claim. Martinez has presented no argument about any otherjurisdiction's law that might
govern this tort claim, and the court declines to decide that issue. Instead, the court dismisses the
claim without prejudice.
Alternatively, even assuming that North Carolina law applies to Martinez's bad faith refusal
to pay claim, Martinez failed to state a claim against National, AIG, and Chartis. To state a claim
of an insurer's bad faith refusal to pay a claim, at a minimum, Martinez must plausibly allege an
insurer's refusal to pay a valid claim and bad faith. See Dail~. 57N.C. App. at 349-50, 291 S.E.2d
at 333; see also Topsail Reef Homeowners Ass'n v. Zurich Specialties London. Ltd., 11 F. App'x

7

225,237-38 (4th Cir. 2001) (per curiam) (unpublished).2
Martinez's bad faith refusal to pay claim is predicated upon "[a] valid contract of insurance
exist[ing] between the [d]efendants and AAIPharma under which Martinez" is covered. Compl.
'71. As for AIG and Chartis, Martinez fails to plausibly allege a valid contract of insurance to
which AIG or Chartis was a party. Accordingly, the court dismisses the claim of bad faith refusal
to pay against AIG and Chartis. As for National, bad faith is conduct "not based on honest

disagreement or innocent mistake." Dailey v. Integon Gen. Ins. Com., 75 N.C. App. 387, 396, 331
S.E.2d 148, 155 (1985). Here, Martinez has failed to plausibly allege National's bad faith
concerning her claim. After stripping away conclusory allegations, such as National had "no
reasonable or legitimate reason" to deny her claim or that National "recklessly disregarded" her
arguments, see Compl. "75-76, Martinez's complaint alleges that National sent her three letters
explaining its position, including its analysis of Brazilian law, and voluntarily waived the policy's
mandatory mediation clause. SeeCompl. W40,47,52,57; see also ChartisJune 14 Letter. Atmost,
Martinez alleges an honest dispute with National's interpretation ofBrazilian law. That allegation,
however, does not plausibly constitute bad faith. See Olive v. Great Am. Ins. Co., 76 N.C. App. 180,
189,333 S.E.2d 41, 46 (1985); Dailey, 75 N.C. App. at 396,331 S.E.2d at 155; cf. Iqbal, 556 U.S.
at 678-79; Giarratano, 521 F3d at 302. Accordingly, the bad fath claim against all defendants fails
to state a claim upon which relief can be granted under North Carolina law.

2 Some courts applying North Carolina law have mentioned proof of "aggravating or
outrageous conduct." See,~, Topsail Reef, 11 F. App'x at 237; Cleveland Constr., 819 F. Supp.
2d at483. But those courts relied upon Lovell v. Nationwide Mut. Ins. Co., 108 N.C. App. 416, 424
S.E.2d 181 (1993), for the tort elements and Lovell set forth the elements "to recover punitive
damages for the tort of an insurance company's bad faith refusal to settle." Lovell, 108 N.C. App.
at 420, 424 S.E.2d at 184 (emphasis added). Regardless of whether a plaintiff always must prove
aggravating conduct, by definition a plaintiff first must plausibly allege a valid claim and the
insurer's bad faith.
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C.

Defendants seek dismissal of the UDTPA claim against National, AIG, and Chartis. See
Defs.' Mem. Supp. Mot. Dismiss 7-8, 11-13. The Supreme Court of North Carolina has yet to
address the proper choice oflaw test for a UDTPA claim and the North Carolina Court of Appeals
has issued conflicting decisions. See Stetser v. TAP Pharm. Prods.. Inc., 165 N.C. App. 1, 15,598

S.E.2d 570, 580 (2004). On separate occasions, the North Carolina Court ofAppeals has employed
the law ofthe situs test used in tort, see United Va. Bank, 79 N.C. App. at 320-21,339 S.E.2d at 94,
and ''the most significantrelationship" test. See Andrew Jackson Salesv. Bi-Lo Stores. Inc., 68 N.C.
App. 222, 224-25, 314 S.E.2d 797, 799 (1984). Thus, absent definitive authority from North
Carolina's highest court, this court must "attempt to divine what that court would do were it faced
with this [case]." Teague v. Bakker, 35 F.3d 978,991 (4th Cir. 1994). In doing so, the court may
consider cases from the North Carolina Court ofAppeals, treatises, and the practices ofother states.
See Ellis v. La.-Pac. Com., No. 11-2319,2012 WL 5378085, at *3 (4th Cir. Nov. 2,2012); Twin
City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005).
The court concludes that the Supreme Court ofNorth Carolina would employ the law ofthe
situs test. See United Dominion Indus.. Inc. v. Overhead Door Com., 762 F. Supp. 126, 129
(W.D.N.C. 1991); see also Stetser, 165 N.C. App. at 14-15, 598 S.E.2d at 580. The United
Dominion court reached this same conclusion based on several factors that remain true today. First,
in United Virginia Bank, the North Carolina Court of Appeals used the law of the situs test. See
United Va. Bimk, 79 N.C. App. at 320-21,339 S.E.2d at 94. Second, the United Virginia Bank
court was influenced by a Fourth Circuit case that also determined the law of the situs test applied
to a UDTPA claim. See !TCO Com. v. Michelin Tire Com., 722 F.2d 42, 49 n.11 (4th Cir. 1983).
Finally, after United Virginia Bank, the Supreme Court of North Carolina has affirmed the
9

continuing validity of the law of the situs test. See Braxton v. Anco Elec.. Inc., 330 N.C. 124,
126-27,409 S.E.2d 914,915 (1991); Boudreay, 322 N.C. at335, 368 S.E.2d at 854. Thus, the court
applies the law of the situs test to Martinez's UDTPA claim.
As stated in connection with the bad faith claim, Martinez failed to plausibly allege that she
was injured in North Carolina. Thus, North Carolina law does not govern this claim. Accordingly,
the court dismisses Martinez's UDTPA claim against all defendants without prejudice. 3
Alternatively, even assuming that North Carolina law governed Martinez's UDTPA claim,
Martinez fails to state a claim against AIG, National, and Chartis. In order to state a UDTPA claim,
a plaintiffmust plausibly allege "(1) defendants committed an unfair or deceptive act or practice; (2)
in or affecting commerce; and (3) that plaintiff was injured thereby." Griffith v. Glen Wood Co.,
184 N.C. App. 206, 217, 646 S.E.2d 550, 558 (2007) (quotation omitted). However, "[m]ere breach
of contract is not sufficient to sustain" a UDTPA action unless ''the breach is surrounded by
substantial aggravating circumstances." Id.; see Birtha v. Stonemor. N.C.. LLC, 727 S.E.2d 1, 10
(N.C. Ct. App. 2012) (noting that even an intentional breach of contract "is not sufficiently unfair
or deceptive" to sustain a UDTPA action). The North Carolina Court of Appeals has emphasized
the need to guard against permitting a litigant to transform a breach ofcontract claim into a UDTPA

3 Even ifthis court believed that the Supreme Court ofNorth Carolina would adopt ''the most
significant relationship" test for UDTPA claims, this court's ultimate conclusion would not change.
Under ''the most significant relationship" test, the court would apply ''the law ofthe state having the
most significant relationship to the occurrence giving rise to the action." Andrew Jackson Sales, 68
N.C. App. at 224-25, 314 S.E.2d at 799; see Stetser, 165 N.C. App. at 15, 598 S.E.2d at 580.
Martinez's allegations suffer from the same deficiencies highlighted in the court's law ofthe situs
analysis. Aside from North Carolina being the location where the policy was delivered (which is not
dispositive because UDTPA claims are distinct from contractual claims), Martinez alleges no other
conduct occurring in North Carolina. Rather, Martinez alleges injuries from litigation costs in Brazil
and by an insurer's decisions in New York. Thus, North Carolina does not have the most significant
relationship to the events giving rise to Martinez's UDTPA claim.

10

claim. Birtha, 727 S.E.2d at 10; see PCS Phosphate Co. v. Norfolk S. Com., 559 F.3d 212, 224 (4th
Cir. 2009); Broussard v. Meineke Discount Muffler Shops. Inc., 155 F.3d 331, 346-47 (4th Cir.
1998).
Martinez's allegations against National do not rise above a claim for breach of contract. As
discussed, Martinez's complaint establishes a fundamental disagreement between the parties about
the policy's coverage of Martinez's claim. But a fundamental disagreement about a contract is not
a "substantial aggravating circumstance[]." Griffith, 184 N.C. App. at 217, 646 S.E.2d at 558; see
PCS Phosphate Co., 559 F.3d at 224; Broussard, 155 F.3d at 346-47; Cleveland Constr., 819 F.
Supp. 2d at 484 (concluding that even though an insurer "did not undertake an investigation of the
claim," its actions do "not rise to the level of aggravated conduct"). Thus, Martinez has failed to
state a UDTPA claim against National.
As for AIG and Chartis, a UDTPA claim may arise even if the parties do not share a

contractual relationship. See Durling v. King, 146 N.C. App. 483, 488-89, 554 S.E.2d 1, 4-5
(2001). However, to be unfair or deceptive, a plaintiffmust allege practices by a defendant that were
"immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers." Griffith,
184 N.C. App. at 217,646 S.E.2d at 558 (quotation omitted). Martinez has not plausibly alleged
independent actions ofAIG and Chartis that were immoral, unethical, oppressive, unscrupulous, or
substantially injurious to Martinez. See,~,Iqbal, 556U.S. at 678-79; Giarratano, 521 F.3dat302.
Thus, Martinez has failed to state UDTPA claims against AIG and Chartis.

D.
Finally, defendants seek dismissal of Martinez's claims for punitive damages against
National, AIG, and Chartis. See Defs.' Mem. Supp. Mot. Dismiss 5-6, 9-11. The court has
dismissed Martinez's bad faith refusal to pay and UDTPA claims against defendants. Thus, the sole
11

remaining claims are for declaratory judgment and breach ofcontract against National. Martinez is
not eligible to receive punitive damages for these remaining claims. See N.C. Gen. Stat. § 1D-15(d);
Carcano v. JBSS, LLC, 200 N.C. App. 162, 179-80,684 S.E.2d 41,54 (2009). Accordingly, the
court dismisses her claim for punitive damages.
ill.

In sum, the court GRANTS defendants' motion to dismiss [D.E. 7]. The court DISMISSES
counts one (declaratory judgment) and two (breach of contract) except as they relate to National.
The court DISMISSES counts three, four, and five against all defendants without prejudice. AIG
and Chartis are DISMISSED as defendants.
SO ORDERED. This MLday ofNovember 2012.

~.~

.. vV\
J
SC.DEVERill
Chief United States District Judge

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